Insurance Definition || Elements of a Contract || FIRE INSURANCE « Clarificatory examples: »
Last Updated: Oct. 14, 2013 `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Insurance Definition -
A contract, whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils A contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event.
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Obligation and Contract 1. 2. 3. 4.
An active subject, who has the power to demand the prestation A passive subject, who is bound to perform the prestation An object or the prestation The efficient cause or the juridical tie between the two subjects by reason of which the debtor is bound in favor of the creditor to perform the prestation.
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Article 1179 (CC) Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Article 1181 (CC) In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.
GUARANTY SURETY Accessory It is dependent for its existence upon the principal obligation guaranteed by it Insurer of the insolvency of the Insurer of the debt of the debtor debtor Subsidiary Solidary It takes effect only when the Creditor can go after the surety principal debtor fails in his upon failure to pay of original obligation subject to limitation debtor, regardless of insolvency of the latter
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It became standard by act of Parliament [1975], and by the Marine Insurance Act of 1906, it became, with few changes, the legal standard marine policy. Criticized but introduced insurance business uniformity so it was retained with few changes
Great London Fire [1966] - fire insurance gained significant importance as a business Concept not accepted in England because it was thought to increase cases of arson and ultimately anathema to public interest o Belief was not entirely unfounded due to the marked increase of fires of suspicious origin coinciding with the flourishing fire insurance businesses at the time Disfavoured so it was subjected to burdensome taxation 1869 - began to be recognized that it was not only proper but also highly beneficial to property interests. o With the burden of taxation removed and its image gaining a positive light, the fire insurance business rapidly increased in England
Initially condemned as being immoral (wagering on human life) and thus should be prohibited by law (in the case of France), England did not prohibit but it was disfavoured Amicable Society for Perpetual Assurance Office – members to pay fixed annual contribution regardless of age/condition to get a proportionate part of sum upon death; failed Equitable Assurance Society of London (1762) - The first society of life insurance embodying modern life insurance; they recognized the necessity of varying premium amounts in accordance with the insured’s age/condition.
A derivative of life insurance; principles applicable to life insurance also apply to these types of insurance Railway Passengers’ Assurance Company - first one established in London in 1849 to indemnify against accidental injury. It was initially confined to railway accidents but in 1856, it expanded to all kinds of accidents.
History of Insurance
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Probably began among English merchants as early as the 13th century But the more definite story is that merchants engaged in seafaring and foreign trade frequented Lloyd’s Coffee House in Tower street, London as early as 1688, and here, they had a custom of arranging mutual contracts of insurance against the sea perils that threatened their ventures Method: person desiring to be insured to 1) pass around a slip [description of his vessel and its cargo, name of the master and the character of his crew, and the voyage planned] 2) those who want to be insurers would write on this slip their names/initials + amount willing to shoulder 3) once the total amount of insurance desired by the owner vessel is met, the contract is complete. From this practice was derived the term “underwriters” This informal custom of creating insurance contracts continued on and increased in volume for many years. In 1871, Lloyd’s was incorporated with the declared purpose of carrying on marine insurance by its members, protecting members’ interests, and collecting and diffusing intelligence in the trade. Lloyd’s Policy – standard form of marine
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Concepts defined Section 2 Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires: (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.
Clarificatory examples:3 Contracts of law firm with clients whereby in consideration of periodical payments, the law firm promises to represent such clients in all suits for or against them are NOT insurance contracts. A contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. It does not necessarily follow however, that a contract containing all the elements would be an insurance contract. The primary purpose of the parties in making the contract may negate the existence of an insurance contract.
Elements of an Insurance Contract SUBJECT MATTER CONSIDERATION OBJECT AND PURPOSE
Section 2 A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, ONLY IF made by a surety who or which, as such, is doing an insurance business as hereinafter provided.
CAUSE
Pre-need plans are contracts for the benefit of the planholders which provide for the performance of future service/s, payment of monetary considerations or delivery of other benefits at the time of actual need or agreed maturity date in exchange for cash or installment amounts, with or without, interest or insurance coverage.1 1. It includes life, pension, education, interment and other plans, instruments, contracts or deeds as may in the future be determined by the Commission 2. Pre-need plans are not considered as insurance contracts because even pre-need plans can be insured, thereby implying that the two are not the same. 3. Pre-need plans are considered as securities and used to be governed by the SRC. They are not considered as insurance contracts because it not an insurance for an unknown or contingent event but for an event certain happening at a certain time. 4. Not governed by the Insurance Code (IC) 5. It is now governed by the Pre-Need Code of the Philippines. 6. Nevertheless, the Insurance Commissioner has primary and exclusive jurisdiction over claims for benefits involving pre-need plans where the amount of benefits does not exceed P100,000.002
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Section 2 (2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:
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SPECIFIC FOR INSURANCE CONTRACTS Insurable Interest, the thing insured Premium payments, the risk of loss / extent of liability Transfer and distribution of the risk of loss, damage, or liability The assumption of risk Designated peril
The Insurable interest in a thing or a life Such interest is capable of pecuniary estimation (Life Insurance is an exception) Fire and marine insurance: The property; Life, health, or accident insurance: The life or health of a person Casualty insurance: The insured's risk of loss or liability
The premium paid by the insured It is based on the probability of loss and extent of liability for which the insurer may become liable It forms part of the general insurance fund of the insurer
The transfer and distribution of risk of loss, damage or liability The device of insurance serves to distribute the risk of economic loss among as many as possible of those who are subject to the same kind of risk The assumption of risk on part of the insurer is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing similar risk.
The cause in a contract of insurance is the designated peril.
(a) making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;
Nature of Insurance Contracts 1. 2. 3. 4. 5. 6. 7. 8.
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.
Aleatory Consensual and Voluntary Unilateral Conditional Contract of Adhesion Contract of Indemnity Personal Property
In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
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Sec. 4b, Pre-Need Code Sec. 55, Pre-need Code
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Philippine Health Care Providers, Inc. v. CIR (2009), as cited in Sundiang and Aquino 3
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Article 2010 (CC) By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.
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The contract of insurance is aleatory in that it depends upon some contingent event, but it is not a contract of chance. Each party must take a risk; the insurer may be compelled to pay the entire sum agreed upon happening of the covered peril, and the insured parts with the premium without receiving anything in case the contingency does not happen. The "protection" is already valuable consideration. INSURANCE CONTRACT
Parties seek to distribute loss by reason of mischance Insured avoids misfortune. Tends to equalize fortune. What one insured gains is not at the expense of another insured. The entire group of insured persons provides through the premiums paid, the funds which make possible the payment of all claims; Purchase of insurance does not create a new and non-existing risk of loss to the purchaser. In purchasing insurance, the insurer faces an already existing risk of economic loss.
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GAMBLING CONTRACT
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Parties contemplate gain through mere chance or the occurrence of a contingent event. Gambler courts fortune Tends to increase the inequality of fortune. Essence is whatever one person wins from a wager is lost by the other wagering party.
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As soon as a party makes a wager, he creates a risk of loss to himself where no such risk existed previously.
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Article 1305 (CC) By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.
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Article 1306 A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.
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Article 1308 The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Article 1319 Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
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It is consensual because the contract of insurance is perfected by the meeting of the minds of the parties4 It is voluntary in a sense that it is not compulsory and the parties may incorporate such terms and conditions that will bind them, provided, that they are not contrary to law or public policy5 Some contracts of insurance are not voluntary but mandatory. Examples are Compulsory Motor Vehicle Liability Insurance6, and Employee's insurance7 Insurance may also arise by operation of law such as Social Insurance thru the GSIS for government employees and Social Security thru SSS for private employees.
Art. 1319, NCC Arts. 1306, 1308, NCC 6 CMVLI, Sec. 373-389 7 Arts. 172- 188 Labor Code
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`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
The insurance contract is subject to conditions, the principal one being the happening of the event insured against. The contract also includes other conditions such as the payment of premium or the performance of some other act which must be complied with as precedent to claim benefit.
The contract of insurance is usually a contrat d'adhésion This is because it is the insurance company that usually prepares the contract of insurance and the insured merely adheres if he chooses but cannot change it. As a general rule, contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer resolving all ambiguities against the latter.
The promise of the insurer is to make good the loss of the insured Insurance is not for gain, any contract that contemplates a possible gain upon happening of the event is not in the proper nature of an insurance contract. General Rule: Applies only to Property Insurance Exceptions: Life and Accident insurance where the result is death, since life is unquantifiable
Each party has in view the character, credit and conduct of another. With regard to property insurance, no person may enter into an insurance contract over property in which he has no insurable interest. If the insured has no insurable interest, the contract is void. In life, health, accident, and disability insurance, the insurance applies to only a particular individual. However, life insurance policies are transferrable since they are in the nature of property and do not represent a personal agreement between the insured and insurer.
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Insurance is a contract, as such, it is property in legal contemplation
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Each party is required to disclose conditions affecting the risk, of which he is aware, or any material fact which the applicant knows and those which he ought to know. Violation of this duty gives the aggrieved party the right to rescind the contract. Where the aggrieved party is the insured, the bad faith of the insurer will preclude it from denying liability on the policy based on breach of warranty.9
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The contract of insurance imposes a duty on the insurer to indemnify upon the happening of the event It is, however, synallagmatic: a highly reciprocal contract where the rights and obligations of the parties correlate and mutually correspond.8 The payment of premium is essential as a condition precedent to create the vinculum juris between the insurer and the insured, which is the fact that makes it a synallagmatic contract.
Dissent of J. Vitug in UCPB General v. Masagana Telemart Campos
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Classes of Insurance 1. 2. 3.
Individual Life Group Life Industrial Life
PINEDA v. CA and INSULAR LIFE IN GROUP INSURANCE P OLICIES, THE POLICYH OLDER ACTS AS THE INSURER’ S AGENT IN DEALINGS WITH THE BENEFICIARIES FACTS:
Section 179 Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.
Concept: Life insurance is defined as insurance payable on the death of a person, or on his surviving a specified period, or otherwise contingently on the cessation of his life. “Endowment contract” - one under terms of which the insurer binds himself to pay a fixed sum to the cestui que vie if he survives for a specified period (maturity date) or to some other person indicated if he dies within the period. Nature of Life Insurance Life insurance is not a contract of indemnity, but a contract of investment. This is because it is difficult to determine the precise value of a person's life. Life insurance is a valued policy. Liability in life insurance is certain, premium is computed based on the life expectancy of the cestui que vie. Notes: -
Pecuniary loss need not be proven as a condition precedent for recovery. Insurable interest need not exist after the insurance takes effect or when loss occurs
Note: The policy-owner and the cestui que vie may be the same person; the policy owner may be the beneficiary himself with another person as the cestui que vie; or they can all be the same person - the proceeds paid out to his estate.
Section 228 No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policy-holders:
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Section 229 The term "industrial life insurance" as used in this Code shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words "industrial policy" are printed upon the policy as part of the descriptive matter.
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Annuities are considered life insurance contracts o The purchaser of annuity expects the insurer to pay the beneficiary a sum of money until his death.
Parties involved in a life policy: “Insured/Policy Holder” o The person who took out the policy “Cestui que vie” o The person whose life is the subject of the policy “Beneficiary” o The person to whom the proceeds are paid
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Group insurance is insurance taken upon the life of a group of persons who experience the same risk The cestuis que vie are not parties to the insurance contract, the contract is between the insurer and the group policy-owner who is usually the employer. Group life insurance policies are part of the employee benefit plan, and are of a continuing nature.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Group life insurance was purchased for six seamen who died at sea. Beneficiaries executed a special power of attorney to the Company President for collection of the proceeds. President pocketed the proceeds. Is Insurer still liable to pay? In group life, the insurer has no contract with the beneficiaries but with the policy-owner who is the employer. It is normally taken as an employee-benefit program. The insurance company directs the performance of the employer's acts and the latter is acting as the agent in dealing with the beneficiary. Thus, the insurer is bound by the employer's misconduct.
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Industrial life policies are tailored for the needs of the urban industrial class Unlike group life, which considers the similarity of risk, industrial life takes into account the socio-economic class of the insured. In contrast to ordinary life insurance, industrial life policies are written in small amounts Industrial life policies are sold through individual solicitation without need of medical exams, relying on the statements in the application.
Marine Fire Casualty / Liability
Section 99 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. "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. 5
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Ocean marine insurance - an insurance against risk connected with sea perils. Inland marine insurance - covers primarily the land or over land transportation perils of property shipped by railroads, trucks, airplanes, and other means of transport. It also covers risks of inland waterway transport and other waterborne perils outside the ocean marine category. Provides protection for: ships, goods, earnings such as freight, liability incurred by the owner or any party interested in the insured property.
Section 167 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.
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A fire insurance is a contract of indemnity by which the insurer, for a stipulated premium, agrees to indemnify the insured against loss or damage to property by reason of hostile fire. It is a contract of indemnity, and any contract that contemplates a possible gain to the insured is contrary to its nature. A policy of insurance on a vessel is an ocean marine insurance although it insures against fire only. Fire-and-extended coverage refers to insurance not only against loss by fire but also allied risks such as lightning, earthquake, etc., but only if they are covered by extensions to fire policies or under separate ones.
Section 174 Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are cconseonsidered 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.
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A contract of reinsurance is a contract whereby one party, the reinsurer, agrees to indemnify the reinsured (original insurer), against loss or liability which the latter may sustain under a separate or original contract of insurance with a third party, the original insured. A contract of suretyship is an agreement whereby one undertakes to answer for the debt, default or miscarriage of another under specified terms and conditions. LIFE
NON-LIFE
PROOF OF PECUNIARY LOSS EXISTENCE OF INSURABLE INTEREST
Need not be proven
Must be proven
Need not exist after the insurance takes effect or when loss occurs
Must exist at the time of taking out the policy and at loss
TYPE OF POLICY
Valued policy
Valued or Open policy
BASIS PURPOSE
First party v. Third party LOSS SUFFERED BY INSURED TO WHOM PAID EXAMPLES
COVERAGE Casualty insurance includes all forms of insurance against loss or liability arising from accident or mishap excluding loss or liability which are not within the scope of other types of insurance. Divisions of casualty insurance: Insurance against specified perils which may affect the person and/or property of the insured and; Insurance against specified perils which may give rise to liability on the part of the insured. Liability insurance is a contract of indemnity for the benefit of the insured and those in privity with him. Indemnity is provided to the insured in respect of his legal liability to pay damages arising out of negligence, nuisance or breach of contract.
Section 175 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. Section 95 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.
BURDEN OF PROOF
SOCIAL Compulsion To provide a minimum of economic security
PRIVATE Voluntariness To meet a recognized need for protection
FIRST PARTY Direct
THIRD PARTY Indirect
Insured
Third person who directly suffers Liability
Fire
ALL RISK All risks except those specifically excepted by the policy Insurer
SPECIFIED RISK Covered risks are mentioned in the policy to the exclusion of others Insured
Construction / Interpretation Article 1370 (CC) If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. Article 1371 In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. Article 1372 However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. Article 1373 If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. Article 1374 The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Article 1375 Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract.
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Article 1376 The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. Article 1377 The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Article 1378 When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. Article 1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts.
CEBU SHIPYARD v. WILLIAM LINES THE COURT MAY HOLD A STIPULATION IN AN INSURANCE CONTRACT UNCONSCIONA BLE EVEN IF THERE IS NO AMBIGUITY IN IT.
FACTS:
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William Lines was the owner of the vessel M/V Manila City which, in turn, was insured by Prudential for Php 45M (hull and machinery). The insurance policy covered the possibility that the ship may be damaged or destroyed through the negligence of third persons such as charterers and/or repairers as long as the latter were not an assured under the same policy. While being repaired, the ship caught fire and sunk. Cebu shipyard argues that its liability should be limited to 1M Is Cebu Shipyard's liability limited by the insurance contract? NO. While the stipulations and clauses of insurance contracts are usually binding where no ambiguity exists, the Court struck down this limitation of liability for being unconscionable. The Court said that the disparity between the values of the vessel that CSEW undertook to repair and the amount it limited its liability were too great to be validly enforced.
TY v. FIRST NATIONAL SURETY THE CONTRACT IS THE LAW BETWEEN THE PARTIES AND ITS STIPULATIONS MUST PREVAIL. FACTS: ISSUE: RATIO:
MISAMIS LUMBER vs. CAPITAL INC. THE TERMS OF THE CON TRACT ARE CLEAR AND BINDING EVEN IF IT MAY SEEM ONE-SIDED. FACTS: ISSUE: RATIO:
FACTS: ISSUE: RATIO:
Three insurance companies denied petitioner his fire insurance claims due to an alleged breach of his insurance policies, which stated that, the petitioner needed to endorse existing insurance to the insurer. Did the insured breach the insurance policy? YES, there was a breach. The insured cannot deny his knowledge of the terms of the contract. Such stipulation is needed to prevent the insured from defrauding the insurer.
RATIO:
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FIRST QUEZON CITY INSURANCE v. CA THE INSURER AND THE INSURED MAY AGREE UP ON THE MAXIMUM LIABILITY COVERED IN THE INSURANCE CONTRACT. FACTS: ISSUE: RATIO:
Jose V. Del Rosario accidentally fell off a bus as he was attempting to board it in front of the Manila International Airport. Court ordered insurer to pay 12,000. Bus company assailed, stating that the whole amount of 50,000 be awarded. Is insurer liable for the whole amount? No. The maximum liability per passenger is pegged at 12,000 pesos. The maximum amount of 50,000 pesos is the maximum payout regardless of the number of passengers. Thus, the bus company cannot recover more than 12,000 for each passenger.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Producers bank was insured against casualty but excluded loss brought about by criminal acts by its authorized reps. Soon after it was robbed with the assistance of its security guard. Is the loss not covered? Since the guard was not entrusted with the money in the first place, he was not an authorized representative, and therefore the loss was still covered by the terms of the contract.
PERLA v. CA THE TERMS OF THE INSURANCE CONTRACT DETE RMINE THE EXTENT OF LIABIL ITY. FACTS:
ISSUE:
Motor car was insured by MLC. Said car was sent for repairs. The policy stated that if repairs by 3rd. parties are authorized at the instance of the insured, the insurer is liable only for P150. Is the insurer only liable for 150 pesos instead of the whole cost of repair? The policy drew out not only the limits of the insurer's liability but also the mechanics that the insured had to follow to be entitled to full indemnity of repairs. The literal meaning of the stipulation must control.
FORTUNE INSURANCE v. CA IF THE TERMS OF THE CONTRACT ARE CLEAR AND UNAMBIGUOUS, THERE I S NO ROOM FOR CONSTRUCTION AND SUCH TERMS CANNO T BE ENLARGED OR DIMINISHED BY JUDICIAL CONSTRUCTION.
NEW LIFE ENTERPRISES V. CA CONTRACTS OF INSURANCE ARE TO BE CONSTRUED ACCORDING TO THE SEN SE AND MEANING OF TH E TERMS WHICH THE PARTIES THEMSELVES HAVE USED. FACTS:
Ty was insured for disability which covers loss of hand. He fractured his fingers, and the insurer denied his claim. Is insurer correct in interpreting the contract? Yes, since the contract is clear in stating that only a total loss of the hand is covered, he cannot recover for fractured fingers.
ISSUE:
An insured bus figured in a road accident, injuring several passengers. Insurer argued that is liability is limited to 50k as stipulated. Is the liability of the insurer limited? Yes, the terms of the contract determine the insurer's liability and compliance is a condition precedent to the insured's right of recovery.
ORIENTAL ASSURANCE v. CA A CONTRACT, WHETHER SEVERABLE OR NOT, IS DETERMINED BY THE LA NGUAGE USED BY THE PARTIES. FACTS: ISSUE: RATIO:
Marine insurance for total loss on logs shipped by two barges. One barge lost 3/4 of the cargo. Insurer declined to pay because it argued that there was no constructive total loss. Was there constructive total loss? NO. There was no constructive total loss because the two barges were covered by a single insurance policy. Even if 3/4 of the cargo was lost, it did not amount to a constructive total loss as contemplated by the policy because the logs on the other barge have to be taken into account.
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MALAYAN INSURANCE v. CA AN INSURANCE CONTRAC T IS A CONTRACT OF ADHESION AND MUST BE CONSTRUE D LIBERALLY IN FAVOR OF THE INSURED. FACTS: ISSUE: RATIO:
A shipment of soybean meal bound for Manila was held up in Africa. Insurer refused to pay on the ground of arrest by civil authority was not a covered peril. Is the insurer liable? YES. Arrest by ordinary judicial procedure is among the covered risks. A construction of marine insurance policies rendering it void must be avoided in order to prevent forfeiture.
WESTERN GUARANTY v. CA THE INSURANCE CONTRACT, BEING A CONTRACT OF ADHESION, MUST BE CONSTRUED AGAINST THE ONE WHO CREATED THE CONTRACT.
FACTS:
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Priscilla got hit by a bus which disfigured her face. Insurer's position is that it cannot be held liable for loss of earnings, moral damages and attorney's fees because these items are not among those included in the Schedule of Indemnities set forth in the insurance policy with the owner of the bus. Insurance contracts are interpreted in favor of the insured, and the schedule of liabilities are not limited to those enumerated.
QUA v. LAW UNION ESTOPPEL LIES AGAINST THE INSURER, AND ANY AMBIGUITIES ARE RESOLVED IN FAVOR OF THE ASSURED. FACTS: RATIO:
Fire insurance of a warehouse of copra and hemp. Insurer issued a rider that effectively invalidated the insurance but continued to collect premium despite violation of warranty. The insurer is still liable, because they are estopped from claiming otherwise. Estoppel lies because they continued to collect premiums despite the violation of the rider.
GEAGONIA v. CA IN INTERPRETING A FORFEITURE AGAINST DOU BLE INSURANCE, THE SAME CANNOT ARISE IF THERE ARE DIFFERENT INTERESTS. FACTS:
RATIO:
Applicability Section 5 All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.
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The provisions of Chapter 1 of the insurance code (Secs. 1-98) apply to all contracts of insurance. Matters not covered are governed by the Civil Code. Hierarchy of laws: 1. The special law shall primarily govern 2. Subsidiarily by Chapter 1 of the Insurance Code 3. In the absence of applicable provisions, the Civil Code shall be applied.
Health Care Agreements
PHILAMCARE V. CA A HEALTHCARE AGREEME NT IS AN INSURANCE P OLICY AND THEREFORE THE PR OVIDER MUST COMPLY W ITH THE STANDARDS SET FORTH FOR NON-LIFE INSURANCE. FACTS:
RATIO:
Philamcare denied the claim of the wife of the insured who died of heart attack because he did not answer one of the questions of the application form truthfully. A healthcare agreement is an insurance contract – one of indemnity. The insured has insurable interest in his own life, and in the absence of his fraudulent intent, there can be no rescission.
BLUE CROSS v. OLIVARES HEALTH CARE INSURERS HAVE THE BURDEN IN PROVING THAT A PARTICULAR INCIDENT FALLS WITHIN ITS EXCEPTIONS FACTS:
RATIO:
Healthcare provider failed to pay the proceeds of the plan because of pre-existing conditions based on the refusal of the insured's doctor to release medical info. Limitations of liability must be construed against the insurer to prevent it from evading its obligations. They should not have idly waited for the doctor's report but should have made their own assessment since the burden of proof is on them.
THE insurer refuses to pay the insured because of a violation of the cause against double insurance by failing to disclose another policy on the goods which was taken by the mortgagee of the same. No double insurance existed because of separate insurable interests over the property. The ambiguities over the double insurance clause must be interpreted in favor of the insured.
GAISANO CAGAYAN v. INSURANCE CO. OF NORTH AMERICA WHEN THE TERMS OF THE AGREEMENT ARE CLEAR AND EXPLICIT THAT THEY D O NOT JUSTIFY AN ATT EMPT TO READ INTO IT ANY ALL EGED INTENTION OF THE PARTIES, THE TERMS ARE TO BE UNDERSTOOD LITERALLY JUST AS THEY APPEAR ON THE FACE OF THE CONTRACT. FACTS: RATIO:
Insured goods were consumed by fire. Insurer went after petitioner for the reimbursement of what it paid. Petitioner contended that the insurance policy did not cover book debts. Petitioner is liable because when the contract is clear on its face, then its literal interpretation must govern.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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LALICAN v. INSULAR LIFE THE EXISTENCE OF AN INSURABLE INTEREST GIVES A PERSON THE LEGAL RIGHT TO INSURE THE SUBJECT MATTER OF THE POLICY OF INSURA NCE.
Insurable Interest Section 3 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. The consent of the husband is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children. 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. 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. All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy. Section 4 The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize. Section 18 No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. Section 25 Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is VOID.
“Insurable interest” That interest which the law requires the owner of an insurance policy to have in the person or thing insured. It is necessary for the validity of the contract It is pecuniary in nature – the insured must have a relation with the thing covered that he will derive benefit from its preservation and suffer pecuniary loss from its destruction. It gives a person the legal right to insure the subject of the policy of insurance. It is necessary to the validity of the insurance contract, whether upon property or life. It serves as a measure of limit of recovery. The insurance should not provide the insured with the means of making a profit. Notes: -
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In the absence of an insurable interest, the person insuring a property/life is entering into a wager, which is prohibited by law and public policy Without insurable interest, the contract of insurance is void. While insurance and lotteries have similarities, both being based on contingencies, an insurance contract is not one of chance. The very purpose of insurance is to reimbursement of actual loss and is not used for profit or gain. Insurable interest does not apply in industrial life insurance.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
FACTS:
ISSUE: RATIO AND DOCTRINE:
Lalican entered into a life insurance policy with Insular over his own life. The policy lapsed but he applied for reinstatement. After submitting the application for reinstatement and payment of premiums he dies of cardiac arrest. Insular refused to pay the proceeds to his wife reasoning that he failed to reinstate, and that he has no insurable interest. WoN Lalican has insurable interest on his own life YES, EACH PERSON HAS AN INSURABLE INTEREST ON HIS OWN LIFE. The insurable interest must exist at the perfection but need not exist after or at the time of loss. Nevertheless, the proceeds cannot be paid to the beneficiary because of failure to reinstate the lapsed policy.
Event or peril insured against Concept: The peril insured against must be such that it will either: o Damnify or cause loss to a person having insurable interest o Create a liability against him The insurer becomes liable for a fortuitous event if it is the event or peril insured against and is the proximate cause of the loss.
Insurable interest in life and health Section 10 Every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends.
Upon one's own life There is unlimited insurable interest on one's own life, whether or not the insurance is for the benefit of him or another. There is a presumption of good faith as to the presence of insurable interest if the insurance is taken out on his own life for the benefit of another. The mere fact that a man on his own motion secures an insurance on his life for the benefit of himself or another is evidence of good faith. The premiums paid are considered as a donation to the beneficiary, not the proceeds. The beneficiary need not have an insurable interest over the life of the insured. Upon the life of another The interest must be pecuniary in nature – actual monetary loss from death. It may be for the benefit of the insured or for a separate beneficiary. In this case, both the policy owner and the beneficiary must have insurable interest on the life of the cestui que vie. Insurable interest may be a reasonable expectation of benefit, a blood relationship or a legal obligation such as that between debtor-creditor, employer-employee. Insurable interest MUST be based on moral and legal grounds In Sec. 10 par. (a) (Spouse and children), mere relationship is sufficient. Sec. 10(a) does not qualify so children may be legitimate or illegitimate, minors or of legal age, married or not, dependent or not
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Insurable interest in property Section 13 Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.
Notes: -
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Anyone has an insurable interest in property who derives benefit from its existence or would suffer loss from its destruction Title or right to possession is not essential, as long as he will suffer loss as the proximate result of the damage he has insurable interest over the property. Insurable interest in property is not necessarily an interest in the sense of a title, but a concern in the preservation of the property and such a relation or connection with is as will necessarily entail a pecuniary loss in case of its injury or destruction. Mere factual expectation of loss is not sufficient to create an insurable interest in property insurance, but it does in life policies.
Section 14 An insurable interest in property may consist in: (a) (b) (c)
FILIPINO MERCHANTS V. CA Choa insured 600 metric tons of fishmeal, of which he was a consignee, through a marine insurance policy with FMIC. Some of the fishmeal delivered was in bad FACTS: condition but FMIC refused to pay because they assert that he had no insurable interest as the ownership and possession of the thing was not yet delivered to him. ISSUE: Does he have insurable interest over the goods? YES. As the vendee and the consignee of the damaged RATIO AND goods, he has interest based on the perfected contract of DOCTRINE: sale. This perfected contract operates as an equitable title, which is a source of insurable interest.
Section 17 The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. Section 15 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.
Notes: -
An existing interest; An inchoate interest founded on an existing interest; or An expectancy, coupled with an existing interest in that out of which the expectancy arises.
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Section 16 A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.
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The existing interest in a property may be a legal title or an equitable title. Examples of persons who have insurable interest by virtue of legal title are: trustees, mortgagor of the property mortgaged, lessor of the property including sub lessees, etc. From equitable title: Purchasers of property before delivery, mortgagee of the property mortgaged, mortgagor after foreclosure, beneficiary of a deed of trust, etc. More than one insurable interest may exist over the property. Inchoate interest must be founded on an existing interest It is an existing interest which has not yet ripened or is still incomplete Examples: o A stockholder has an inchoate interest on the property of the corporation founded on his existing interest arising from ownership of shares o A partner has an insurable interest in the firm property by virtue of the partnership. Expectancy must be coupled with an existing interest out of which the expectancy arises such as in the following examples: Examples: o A farmer insures future crops o A business owner may insure against loss of profits A mere hope or expectation of benefit, which may be frustrated by the happening of an event uncoupled with an existing legal right, cannot support a contract of insurance like in the following: A son cannot insure a property he expects to inherit from his father A spouse has no insurable interest in the separate property of the other An unsecured creditor cannot insure the property of his debtor, except when there is a judgment or after the debtor dies; but he has an insurable interest on his debtor's life A beneficiary in a will has no insurable interest in the property designated to him because the will has no effect until the death of the testator.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
A contract of insurance is one of indemnity. Any contract of insurance that gives more indemnity than his actual loss is in the nature of a wager and is therefore void. A bailee or carrier has insurable interest because he may incur liability for the loss of the goods. However the extent of the interest may be on the benefits that he is entitled or the liability for the loss. The policy effected by him inures equally and proportionately to the benefit of all owners of the property insured.
Enforceability Section 18 No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.
Notes: -
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A contract of insurance taken out by a person having no insurable interest is unenforceable because it is void. o This also applies even if the person acquires insurable interest thereafter. The enforceability of indemnity is different for each kind of insurance. o For marine or fire, the purpose of enforcement is to return the insured to the same situation he was in before the loss. o For liability, it is to pay on behalf of the insured to a third person that was injured. o In life and personal accident, the amount payable is governed by the amount of premium.
Existence Section 19 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. Section 25 Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is VOID.
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Notes: -
Insurable interest in property must exist at two distinct times: on the date of the insurance and at the occurrence of the risk insured against. Otherwise, the policy is void. In life insurance, it must only exist at the time the policy is procured, even if it has ceased to exist at the time of the insured's death. In liability insurance, the interest exists when the liability of the insured to the third party attaches. The purpose of these provisions is to prevent wagering policies. Insurable interest need not exist during the intervening period.
INSURABLE INTEREST LIFE / HEALTH PROPERTY
INSURANCE TAKES EFFECT √ √
INTERVENING PERIOD
LOSS OCCURS
√
Change of interest Section 20 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. Section 21 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. Section 22 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. Section 23 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. Section 24 A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured. Section 53 The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy. Section 57 A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Article 1306 (CC) 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.
G.R: A change of interest in the thing insured does not transfer the policy, but suspends the insurance to an equivalent extent until the interest in the thing and the interest in the insurance policy are vested in the same person. (The contract is not rendered void but is merely suspended) Exceptions: 1. In life, health, and accident insurance. 2. A change of interest in the thing insured after the occurrence of an injury which results in a loss does not affect the policy 3. A change in the interest in one or more of several things, separately insured by one policy. A conveyance of one or more things does not affect the policy with respect to the others not so conveyed. 4. A change of interest by will or succession on the death of the insured a. The death of the insured does not avoid insurance policy. b. It does not affect the policy except his interest passes to his heir or legal representative who may continue the insurance policy on the property by continuing paying premiums. 5. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others. `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
a. b.
6.
7. Notes: -
It does not avoid the insurance. It will avoid the policy only as to the selling partners or coowners but not as to others. c. The rule applies even though it has been agreed that the insurance cease upon alienation of the thing. Automatic transfers of interest in cases in which the policy is so framed that it will inure to the benefit of whomsoever, during the circumstance of the risk, may become the owner of the interest insured. a. An exception to the general rule that upon maturity, the proceeds of a policy shall be given exclusively to the proper interest if the person in whose name or for whose benefit it is made. An express prohibition against alienation in the policy. Alienation will not merely suspends the contract but avoid it entirely. After the loss happens, the insurer's liability is fixed. The insured has a right to assign his claim as freely as any other money claim. Transfer of interest in the insured property by a partner, co-owner or joint owner will not avoid insurance because each owner is interested in the whole property and the hazard is not increased because the purchasing partner has acquired a bigger share. It is the alienation to strangers that will avoid the policy.
Double Insurance / Co-Insurance / Over Insurance Section 93 A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. Section 94 Where the insured is overinsured 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.
1. 2. 3. 4. 5.
Same person as the insured Two or more insurers insuring separately Same subject matter of the insurance Same interest insured Same perils or risks
Binding Effect of Stipulation against Double Insurance If there is no stipulation against additional insurance, the policy is not invalidated In fire policies, there is a stipulation where the policy is void when the insured procured an additional insurance without the insurer's consent. o This clause, called the "other insurance" clause, is intended to prevent an increase in the moral hazard. In the absence of consent, waiver, or estoppel on the part of the insurer, a breach will prevent recovery.
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PIONEER INSURANCE v. YAP THE PROHIBITION AGAI NST DOUBLE INSURANCE IS TO PREVENT FRAUD AND OVER-INSURANCE.
FACTS:
ISSUE:
RATIO:
Storeowner Oliva Yap took out four fire insurance policies on her premises, one of which was from Pioneer. Pioneer required that co-insurance policies be annotated and endorsed on the policy it granted. The last policy Yap took out was not annotated on Pioneer’s policy, so when her store burned down, her claim was denied. Did Yap violate the terms of the policy, thus absolving Pioneer of any liability? YES. By the plain terms of the policy, taking out insurance without Pioneer's consent renders the policy void. No affirmative act of Pioneer is needed to void the policy. The purpose of the requirements of annotation and endorsement is to prevent over-insurance and thus avert the perpetration of fraud. Both the insurer and the public are interested in preventing a situation where loss would be profitable to the insured.
DOUBLE INSURANCE V OVER-INSURANCE VALUE PARTIES VALIDITY
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DOUBLE INSURANCE
OVER-INSURANCE
May or may not exceed the insurable interest Two or more insurers Valid as long as there is no prohibition in the policy.
Exceeds the insurable interest May be only one insurer No recovery as to the excess, but the policy is valid.
The law prohibits over-insurance because the insured must not profit from his loss since insurance is a contract of indemnity.
Rules for payment of claims where there is Over-insurance by Double Insurance There is over-insurance by double insurance when the total amount of multiple policies taken out by the insured over the same property exceeds his insurable interest. Each insurer is bound to contribute ratably to the loss in proportion to the amount for which he is liable under the contract. If the total amount of the policies is less than the insurable interest, then each insurer is liable to pay the whole amount. Several or Solidary liability of insurers The insured may claim payment in such order as he may elect, up to the amount for which the insurers are severally liable under their respective contracts. Examples: Property value Insurer A Insurer B Insurer C
300,000 120,000 150, 000 90,000
If the insured claims payment from A, B, and C in that order, the liability is as follows: Insurer A 120,000 Insurer B 150,000 Insurer C 30,000 Total 300,000
The insured claims under 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 Example: If insured recovers 120,000 from insurer B, he must give credit as against the valuation of 300,000 without regard to actual loss. Insured may only recover the difference of 180,000 from either A or C. Insured claims under an open policy He must give credit as against the full insurable value. Example: Property value: 300,000 Actual loss: 150,000 Insured may for instance collect 40k from C, 80k from A and 30k from B, or any other order as he may select provided that he does not exceed the value of the actual loss. Liability of each insurer to contribute ratably Each insurer is bound to contribute ratably in proportion to the amount for which he is liable Formula: (Amount of policy/Total insurance taken) x Loss = liability of the insurer Example: Insurer A - (120,000/360,000) or 4/12 x 300,000 = 100,000 Insurer B - (150,000/360,000) or 5/12 x 300,000 = 125,000 Insurer C - (90,000/360,000) or 3/12 x 300,000 = 75,000 Where the sum received exceeds total insurance taken He must hold such excess in trust for the insurers in accordance with their right of contribution among themselves. Example: Insured recovers 120,000 from A, 120,000 from B and 72,000 from C. There is an excess of 12,000 because the amount recoverable is 300,000. Thus the amount returned by the insured is also prorated among them as such (refer to previous item) Returned to A - 12,000 x 4/12 = 4,000 Returned to B - 12,000 x 5/12 = 5,000 Returned to C - 12,000 x 3/12 = 3,000 However, the amount of liability paid out does not correspond to the proportion in which they should bear the loss. Therefore there must be prorating of their right of contribution Insurer A 120,000 - 4,000 (returned by insured) - 6,000 (paid by C) - 10,000 (paid by B) = 100,000 (rightful prorated liability) Insurer B 120,000 (paid to insured) - 5,000 (returned from insured) + 10,000 (payable to A) = 125,000 (rightful prorated liability) Insurer C 72,000 - 3,000 (returned from insured) + 6,000 (payable to A) = 75,000 (rightful prorated liability) Since A paid out an excess of 16,000 even after the insured returned his proportion of the excess, he may ask for proportional reimbursement from B and C. The amount A can collect from B and C is the amount
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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lacking from what they should have paid the insured that Insurer A bore - 10,000 and 6,000, respectively. Co-insurance When the property is under-insured, the party insured is the coinsurer of the property and is responsible for the value of the loss not covered by the policy. INSURABLE INTEREST
LIFE
PROPERTY
EXTENT
Unlimited (Except in cases where the debtor’s life is insured – Only up to the amount of the debt) Must exist at the time the insurance takes effect, BUT need not exist thereafter
Limited to actual value of the interest thereon
EXISTENCE
EXPECTATION OF BENEFIT TO BE DERIVED INTEREST OF BENEFICIARY
Need NOT have legal basis
Need not have insurable interest over the life of the insured if the insured himself secured the policy. But if the insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
Must exist when the insurance takes effect and when the loss occurs, BUT need not exist in the meantime Must have legal basis
Multiple interests on Property Section 8 Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in 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. Section 9 If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.
Notes: -
Must have insurable interest over the thing insured
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The mortgagor and the mortgage have each an insurable interest in property that is distinct from each other. In case both of them take out separate policies on the same property, the same is not open to the objection of double insurance. o The mortgagor (debtor) has an insurable interest on the value of the property, this is because the loss or destruction of the property does not extinguish the debt. o The mortgagee (creditor) has insurable interest to the extent of the debt secured, since he is not insuring the property itself but his lien thereon. Such insurable interest lasts until the debt is extinguished. The mortgagor cannot recover beyond the full amount of his loss while the mortgagee cannot recover more than the full amount of credit. The mortgagee is entitled, upon loss, to the proceeds of the policy before payment of the debt. The insurer is now subrogated unto his rights and he can no longer retain his claim on the mortgagor. The mortgagor may take his insurance in favor of the mortgagee, making the loss payable to the mortgagee. o In this case, the insurer may not exercise his right to subrogation. The mortgagor may also assign his insurance to the mortgagee. The effect of this assignment imposes no further obligation and the mortgagee acquires no greater right than the mortgagor unless he makes a new contract with the insurer. In most kinds of insurance except life policies, assignment may only be made with the consent of the insurer.
TAI CHONG CHUACHE v. INSURANCE COMMISSION THE MORTGAGEE HAS A SEPARATE INSURABLE INTEREST AS LONG AS THE DEBT IS NOT PAID.
FACTS:
ISSUE: RATIO:
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
The owners of a building, who was already insured with insurer SAG, obtained a loan from Chuache with said building as security. Chuache likewise insured the building with TMIC. The owners further insured the building with ZIC and PBAC. When fire consumed the building ZIC, PBAC and SAG paid the owners. A claim was also filed against TMIC, but it refused because of lack of insurable interest. Is TMIC liable because Chuache has insurable interest? YES. Taichong Chuache had in his possession the document of credit evidencing the mortgage. Because such document is in the creditor's possession, it is presumed that the debt is not paid. Therefore, Chuache continued to have insurable interest in the building and TMIC is liable.
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Form and Function Execution -
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1319 CC Consent is manifested by the meeting of the offer and acceptance upon the thing or cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
Perfection -
Standard form, as approved by the Insurance Commissioner
Section 226 No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.
assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefore is made; (h) A table showing in figures cash surrender values and paid-up options available under the policy each year upon default in premium payments, during at least twenty years of the policy beginning with the year in which the values and options first become available, together with a provision that in the event of the failure of the policyholder to elect one of the said options within the time specified in the policy, one of said options shall automatically take effect and no policyholder shall ever forfeit his right to same by reason of his failure to so elect; (i) In case the proceeds of a policy are payable in installments or as an annuity, a table showing the minimum amounts of the installments or annuity payments; (j) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement. Any of the foregoing provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein; and any such policy may be issued and delivered in the Philippines which in the o-pinion of the Commissioner contains provisions on any one or more of the foregoing requirements more favorable to the policyholder than hereinbefore required. This section SHALL NOT APPLY to policies of group life or industrial life insurance.
Section 227 In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (a) A provision that the policyholder is entitled to a grace period either of thirty days or of one month within which the payment of any premium after the first may be made, subject at the option of the insurer to an interest charge not in excess of six per centum per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in full force, but in case the policy becomes a claim during the said period of grace before the overdue premium is paid, the amount of such premium with interest may be deducted from the amount payable under the policy in settlement; (b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war; (c) A provision that the policy shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so provided a copy of such application shall be indorsed upon or attached to the policy when issued, and in such case the policy shall contain a provision that the policy and the application therefore shall constitute the entire contract between the parties; (d) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age; (e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein; (f) A provision specifying the options to which the policyholder is entitled to in the event of default in a premium payment after three full annual premiums shall have been paid. Such option shall consist of: (1) A cash surrender value payable upon surrender of the policy which shall not be less than the reserve on the policy, the basis of which shall be indicated, for the then current policy year and any dividend additions thereto, reduced by a surrender charge which shall not be more than one-fifth of the entire reserve or two and one-half per centum of the amount insured and any dividend additions thereto; (2) One or more paid-up benefits on a plan or plans specified in the policy of such value as may be purchased by the cash surrender value; (g) A provision that at anytime after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Only available upon payment of 3 full annual premiums
Manufacturer’s Life Insurance v Meer CASH SURRENDER VALUE "AS APPLIED TO LIFE INSURANCE POLICY, IS THE AMOUNT OF MONEY THE COMPANY AGREES TO PA Y TO THE HOLDER OF T HE POLICY IF HE SURREND ERS IT AND RELEASES HIS CLAIMS UPON IT. THE MORE PR EMIUMS THE INSURED HAS PAID THE GREATER WILL BE THE SURRENDER VALUE; BUT THE SURRENDER VALUE IS A LWAYS A LESSER SUM T HAN THE TOTAL AMOUNT OF PREM IUMS PAID."
FACTS:
RATIO:
Manulife issued policies with non-forfeiture clauses which stipulates that policy will not lapse for nonpayment after the insured had paid a considerable amount. It will treat the premium as paid which shall be a lien on the policy in Manulife’s favor. CIR wants to tax such unpaid premiums. Premiums not yet collected amounts to credit and are taxable and which would necessarily be paid.
G.R.: Policy holder has the option of reinstating the lapsed policy, 3 years from the date of default of payment E: If the cash surrender value has already been paid; Extension period has expired Provided: Policyholder does the following: 1. Produce evidence of insurability satisfactory to the company; and 2. Upon payment of all overdue premiums and indebtedness to the company upon said policy
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Andres v Crown Life Insurance THE STIPULATION IN A LIFE INSURANCE POLICY GIVING THE INSURED THE PRIV ILEGE TO REINSTATE I T UPON WRITTEN APPLICATION DOES NOT GIVE THE IN SURED ABSOLUTE RIGHT TO SU CH REINSTATEMENT BY THE MERE FILING OF AN AP PLICATION. THE COMP ANY HAS THE RIGHT TO DENY THE REINSTATEMENT IF IT IS NOT SATISFIED AS TO THE INSURABILITY OF THE INSURED AND IF THE LATTER DOES NO PAY ALL OVERDU E PREMIUM AND ALL OTHE R INDEBTEDNESS TO THE COMPANY. FACTS: RATIO:
Enriquez v Sun Life Sun Life sent its notice of acceptance to Herrer but was FACTS: never received by the latter because it was never actually mailed. RATIO AND Absent notice of acceptance, there is no contract of DOCTRINE: insurance. Notes: -
Spouses Andres failed to pay the third premium so the life insurance lapsed. Filed for application for reinstatement. Husband paid balance fully 2 days after wife’s death Life insurance was in state of lapse at death of wife. No reinstatement unless overdue payments are fully paid.
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Concept: An insurance contract is consensual. It is therefore perfected by mere consent. A contract of insurance must be assented to by both parties, either in person or through their agents and so long as an application for insurance has not been either accepted or rejected, it is merely a proposal or an offer to make a contract.10 1. Submission of application, even with premium payment is a mere offer on the part of the applicant, and does not bind the insurer. 2. An insurance contract is also not perfected where the applicant dies before the approval of his application or it does not appear that the acceptance of the application ever came to the knowledge of the applicant. 3. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge.11 The parties may impose additional conditions precedent to the validity of the policy as a contract as they see fit. Usually, it is stipulated in the application that contract shall not become binding until the policy is delivered and the first premium is paid.12
Section 77 An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. Section 78 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. Section 64 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; Section 66 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.
Perez v CA DELAY IN ACTING ON THE APPLICATI ON DOES NOT CONSTITUTE ACCEPTANCE EVEN THOUGH THE INSURED HAS FORWARDED HIS FI RST PREMIUM WITH HIS APPLICATION. FACTS: RATIO:
Cestui que vie died in an accident before insurer accepted the application for additional insurance because the papers were received by the main office late. No communication of acceptance or corresponding policy issued before death.
Section 306 The premium, or any portion thereof, which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company because of the assumption of liability through the issuance of policies or contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker.
Vda de Sindayen v Insular DELIVERY BY AGENT AN D ACCEPTANCE BY THE IN SURED OR HIS AGENT OF THE POLICY CONSUMMATES THE CONTRACT IF NOT ATTE NDED BY MISCONDUCT O R FRAUD. MISTAKE OF JU DGMENT BY INSURANCE AGENT BINDS THE COMPANY.
FACTS:
RATIO:
10 11
Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.
Sindayen took out a life insurance and was found to be in good health. The policy was issued and sent to the agent. A week later, Sindayen died. Insurer contends that there was no delivery to the policy holder in person while he was in good health. Delivery to the insured himself is not necessary, delivery by mail to agent is sufficient.
Perez vs. CA (2000) Enriquez vs. Sun Life Assurance Co., (1920)
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Offer – when the insured submits an application to the insurer Acceptance – when the insurer approves the application Effectivity – upon payment of first premium, provided there has been an approval of the application. Delivery is the act of putting the insurance policy (the physical document) into the possession of the insured. o The delivery can be a proof of the acceptance of the insurer of the offer of the insured. It is not, however, a pre-requisite of a valid contract of insurance. o Actual manual delivery is not necessary for the validity of the contract. Constructive delivery may be sufficient. o The contract may be completed without delivery depending on the intention of the parties.
12
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It is the agreed price for assuming and carrying the risk It is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril.
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As soon as the thing insured is exposed to the peril insured against.
De Leon
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“Cash and carry” concept – no payment, no contract Policy shall only be valid and binding upon payment of premium
Exceptions: 1. Life and Industrial Life policies (grace period of 60 days) 2. Written acknowledgement of the receipt of premium by insurer 3. Payment in installments a. First premium shall be important 4. Credit extension for the payment of premium 5. Estoppel Makati Tuscany Condo Corp v CA Insurance on building for 1 year payable in 4 installments, renewed twice but on the third year Makati Tuscany refused to pay the two other instalments. Insurer wanted FACTS: to sued for performance. Tuscany wants to invalidate the insurance and refund ALL PREMIUMS PAID because it was void because the premiums were not paid in full. R A T I O A N D Payment by instalment is valid if stipulated in the D O C T R I N E : insurance contract. Tuscany cannot claim premiums paid.
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Of First Premium – contract is not binding notwithstanding the acceptance of the application nor issuance of the policy Of Subsequent Premiums – does not affect validity of the contract unless provided in the policy that it will be suspended or it will lapse o Individual Life – 1 month grace period o Industrial Life – 4 weeks grace period or 1 month
UCPB v Masagana Telemart NON-LIFE INSURANCE IS NOT VALID UNTIL ACTUAL PAYMENT OF THE PREMIUM IS MADE. PARTIES MAY NOT AGREE TO EXTEND CREDIT AND TIME TO PAY AND CONSIDER THE POLICY BINDING BEFORE ACTUA L PAYMENT.
FACTS:
RATIO:
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FACTS:
Tibay, et al. v CA (1996) For a fire insurance over a building, Tibay only paid P600 F A C T S : out of the P6000 premium. She only paid the balance after the building was completely destroyed by fire. Insurance is invalid and unenforceable upon mere partial R A T I O A N D payment. PH Phoenix v Woodworks cannot be applied D O C T R I N E : because there was waiver of pre-payment in full by the insurer in that case.
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G.R.: No contract is perfected E: If stipulated or if common practice
RATIO:
Plastic Era failed to pay the premium upon the delivery of the policy but instead executed an acknowledgement receipt promising to pay the premium 30 days from delivery. There was a perfected insurance contract. Capital accepted the promise to pay and thus implicitly agreed to modify the tenor of the insurance policy.
Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized said agent to receive the premium in its behalf.
Malayan Insurance v Arnaldo, et al. Fire insurance. Payment of premium was received by agent. Malayan denied claim because the policy had FACTS: already been cancelled although insured refused to accept. Payment was made to an agent who had authority to receive it; such payment is deemed to have been made RATIO AND directly to the principal. There was insufficient proof to DOCTRINE: show that the cancellation was communicated to the insured. South Sea Surety v CA ANY PERSON WHO RECEIVES COMPENSATION, COMMISSION, SALARY E TC. PAID FOR BY THE INSURANCE COMPANY TO FACILITATE THE MAKING OF AN INSURANCE POLICY IS DEEMED TO BE ITS AGENT AND PAYMENT TO SUCH PERSON IS A VALID PAYMENT OF THE PREMIUM. FACTS:
RATIO:
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The payment of premium by a post-dated check at a stated maturity subsequent to the loss is insufficient to put the insurance into effect. But payment by a check bearing a date prior to the loss, assuming availability of funds, would be sufficient even if it remains uncashed at the time of the loss. The subsequent effects of cashment would retroact to the date of the instrument and its acceptance by the creditor13
Capital Insurance & Surety Co v Plastic Era Co Inc. PROMISSORY NOTES CAN BE USED TO WAIVE REQUIREMENT FOR PAYM ENT OF 1ST PREMIUM IF ACCEPTED BY INSURER.
Phil Phoenix Surety v Woodworks Inc (1967) Insured partially paid premium for fire insurance policy F A C T S : so insurer demanded the rest. Refused to pay because insurance was void because of non-payment of balance. R A T I O A N D Partial payment made the policy effective and nonD O C T R I N E : payment of balance did not cancel the contract.
Excuses for Non-Payment Condition, conduct or default of insurer: o Insurer has become insolvent o Wrongful conduct of insurer (induced insured to cancel/surrender) o Insurer waived right to demand payment Fortuitous events does NOT prevent forfeiture
Masagana took out 5 fire insurance policies from UCPB but after the 1 year period, UCPB evaluated the policies and did not renew them. UCPB gave notice of non-renewal. Fire. Masagana filed for renewal and issued checks, and the next day filed for claim. UCPB rejected. Policies had expired and were not renewed at the time of the loss, hence there was no insurance policy in force during the loss.
Hardwood took out a marine cargo insurance over logs and gave a check in payment of the premium to Chua. Ship sank, South Sea denied claim. Chua acted as an agent by receiving the check prior to the occurrence of the risk insured against. The policy was delivered to his office to be delivered to Hardwood, thus he was authorized by South Sea to act on its behalf.
Vitug
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Section 79 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. Section 80 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. Section 81 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.
When right to return exists 1. Risk never attached 2. Policy surrendered before termination 3. Contract is voidable – Fraud, mistake, misrepresentation 4. Contract is voidable due to facts unknown to insurer 5. Insurer never incurred liability due to the default of the insured 6. Over-insurance 7. Rescission due to breach in contract Risk never attached Coverage never started: a. Approval of application/acceptance of policy is absent b. Loss occurs before date of effectivity c. Insured and insurer became public enemies Return of all paid premiums allowed Great Pacific Life v CA and Cortez Cortez applied for a 20-year endowment policy which was released for delivery on Jan. 24, 1973 and was actually delivered the day after. He was told by the agent that he had 30 days to pay the first premium and he paid FACTS: it in 3 installments. GrePa informed him that the policy was not in force and was asked to remit the balance. Cortez cancelled the policy and claimed for return of premiums. Entitled to return because policy was ineffectual from RATIO AND the beginning, therefore the company was never at risk DOCTRINE: and it was not entitled to keep the premium.
Lumibao v IAC A STIPULATION ALLOWING A 50% REBATE OF LIFE INSURANCE PREMIUMS IS VOID AS IT VIOLATES PD 612 FACTS: RATIO:
Agent induced Lumibao to get a life insurance after promising a 50% rebate of the first premium paid. Void for violating Sec. 361 of PD 612 (No insurer shall offer any rebate from the premium specified in the policy…)
Insurer never incurred liability due to insured default Return of all paid premiums allowed American Home Insurance v Chua THERE IS A VALID INSURANCE POLICY EVEN IS CHECK FOR PAYMENT OF PREMIUM WAS CASHED AFTER THE LOSS IF THERE WAS AC KNOWLEDGMENT THAT PR EMIUM HAD BEEN PAID. FACTS: RATIO:
Fire insurance policy over business paid by check. Loss occurred before the check was cashed and the official receipt issued. There was a valid payment of premium because the renewal certificate issued contained the acknowledgment that premium had been paid.
Over-insurance The total amount of insurance exceeds the value of the thing insured. Return of premiums proportional to the aggregate sum insured in all policies exceeding the insurable value of the thing at risk. Rescission due to breach Areola v CA Prudential cancelled Areola’s personal accident insurance policy because of an erroneous finding of nonpayment of premium. Areola filed a complaint for breach of contract with damages against Prudential who FACTS: belatedly sent a letter confirming that the premiums were indeed paid and reinstatement of policy. Apparently, the manager failed to turn over such payments and misappropriated the same. RATIO AND Areola entitled to rescind and Prudential liable for DOCTRINE: damages. The reinstatement did not cure the breach.
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If peril insured against has existed, however short a time (the risk has attached)
Policy surrendered before termination Positive act of the insured Pro-rata return of premium unless scale is provided Only for those with period stipulated Contract is voidable – Fraud, mistake, misrepresentation Return of all paid premiums allowed
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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The Policy: Parties and Rights Parties
White Gold v. Pioneer insurance PROTECTION AND INDEM NITY CLUBS, LIKE STE AMSHIP, WHICH INSURES THEIR MEMBERS FOR LIABILIT Y TO THIRD PARTIES ARE ENGAGED IN THE INSURANCE BUSINESS.
Section 6 Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, may be an insurer.
FACTS:
Section 184 For purposes of this Code, the term "insurer" or "insurance company" shall include all individuals, partnerships, associations, or corporations, including governmentowned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty.
RATIO:
Section 185 Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations". Section 299 No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines, or any agent thereof, without first procuring a license to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such license shall be issued by the Commissioner only upon the written application of the person desiring it, such application if for a license to act as insurance agent, being approved and countersigned by the company such person desires to represent, and shall be upon a form prescribed by the Commissioner giving such information as he may require, and upon payment of the corresponding fee hereinafter prescribed. The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. No such license shall be valid after the thirtieth day of June of the year following its issuance unless it is renewed. Section 300 Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject. Section 301 Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject. Section 306 The premium, or any portion thereof, which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company because of the assumption of liability through the issuance of policies or contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker. Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
White Gold bought indemnity coverage from Steamship Mutual through its agent/broker Pioneer Insurance. SM has no license; PI on the other hand has license but no separate license as agent of SM. SM is engaged in insurance business. SM is ordered to obtain license while PI is ordered to obtain a license as agent of SM, separate from its license as an insurer.
Pandiman v Marine Widow is claiming for her deceased husband’s death FACTS: benefits. Pandiman is not liable because it is not an agent of the insurer Ocean Marine; they are only a local RATIO AND correspondent. Even if Pandiman is an agent of OM, DOCTRINE: claims arising due to the occurrence of a peril insured against are not the liability of an agent. INSURANCE AGENT May be independent of an insurer/insured Less requirements than a broker Administrative duty most of the time
INSURANCE BROKER Always independent of an insurer/insured Usually more educated and experienced Provides better services and analysis
*Based on a US article
Section 7 Anyone except a public enemy may be insured. Section 54 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. Section 55 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. Section 56 When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy. Section 57 A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.
Capacity Take note of Art. 1327 and 1328 (CC) on people who cannot readily give consent Juridical Persons The citizenship is determined by the control test - citizenship of the controlling officers of the corporation Public Enemy Nation with whom the Philippines is at war and includes its every citizen/subject Private corporation registered in the PH but controlled by enemy during war No-fault rescission – with right to return pro rata
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FILIPINAS CIA DE SEGUROS v. CHRISTERN HUENEFELD A PUBLIC ENEMY CANNOT BE INSURED
FACTS:
RATIO:
Corporation where the majority stockholders are German is insured by an American company. Germany became the public enemy of US because of WW2. Corporation is claiming payment because their building and the goods inside were burned during the war. Insurance policy was no longer valid and enforceable during the war. Loss occurred during the time when Germany was at war with the US therefore it is not covered.
Forfeiture Section 12 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.
Limitations Article 739 (CC) The following donations shall be void: (1)
Constantino v Asia Life Ins Co. CONNECTICUT RULE – NON-PAYMENT OF PREMIUMS CONDITION PRECEDENT, NO RIGHT TO RENEW NY RULE – SUSPENDED DURING WAR. RECEIVED AFTER WAR AFTER PAYING ALL DUE US RULE – ABROGATED BY NON-PAYMENT (WE FOLLOW THIS RULE)
FACTS: RATIO:
Payment of premiums were interrupted because of the war. Insured died during the war. Adopts US rule, because they were unable to pay premiums the beneficiaries are not entitled to proceeds.
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. Article 2011 The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. Article 2012 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.
Insular v Ebrado Section 53 The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.
Concept: The one allowed to get the proceeds of the insurance policy Benefits become exclusive property, vested right: o Upon happening of the condition on the policy o If the policy states that it is irrevocable May continue paying premiums in case insured defaults If he dies before insured, the benefits will go to beneficiary’s representatives Who may be beneficiaries? 1. Insured himself 2. Third person who paid consideration for the benefit of creditor 3. Third person through mere bounty of insured Designation of Beneficiary: Children – descendant of 1st degree Wife – legal. But if by name, common law is allowed. Husband/Wife and Children – all children of insured even from other husband/wife Family – court will decide whether person was so regarded Heirs – class of persons who would take property of insured in case he dies intestate Estate/Legal representative – construed in the strict legal sense: executors, administrators Notes: -
IF there is no designated beneficiary, the ESTATE will benefit. Laws of succession only applies when there is no designation. The listing of beneficiaries takes precedence.
Right to Change Section 11 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.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
FACTS: RATIO AND DOCTRINE:
Beneficiary is common law wife. Marriage with legal wife was not terminated. Insured died. Common law wife cannot claim, Art. 739 NCC prohibits donations between people guilty of adultery or concubinage at the time of donation. Art 2012 NCC extends the prohibition to life insurance policies.
Vda. De Consuegra v. GSIS Husband was married twice. He died, now the two FACTS: families are at odds over the retirement benefits. Although the 2nd marriage is void ab initio it still needs a RATIO AND judicial declaration of nullity. Equity dictates that the DOCTRINE: two wives each get half of the benefits of the deceased. SSS v. DAVAC FACTS: RATIO AND DOCTRINE:
2 wives at odds over the SSS death benefits of husband. The SSS law provides that the beneficiaries will be the ones recorded by the employer, in this case the 2nd wife. 2nd wife was not guilty of concubinage as it was not shown that she was aware of the previous marriage of her husband.
DEL VAL v. DEL VAL Father made his son the sole beneficiary of his life FACTS: insurance policy. Other heirs are claiming for a share in the insurance proceeds. The proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose RATIO AND life was insured. Such proceeds are the separate and DOCTRINE: individual property of the beneficiary, and not of the heirs of the person whose life was insured. PHILAM LIFE v. PINEDA Insured wanted to change the designation of his wife and children from irrevocable beneficiaries to revocable. FACTS: Philam contested the decision of the court granting such petition. The beneficiary designated in a life insurance contract cannot be changed without the consent of such RATIO AND beneficiary, because he has a vested interest in the DOCTRINE: policy. The policy also provides that the consent of the beneficiary is needed for such change.
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HEIRS OF LORETO MARAMAG v. DE GUZMAN Heirs are contesting the payment of the proceeds of a life insurance policy to the illegitimate wife and FACTS: illegitimate children who were designated as beneficiaries. The correctly divided the benefits among the children. It RATIO AND was only void as regards the mother; her share will go to DOCTRINE: the other beneficiaries, the children in this case.
Section 8 Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in 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. Section 9 If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.
Note: -
Mortgagee’s insurable interest on the property is only to the extent of the value of the mortgage
The Policy Section 49 The written instrument in which a contract of insurance is set forth, is called a policy of insurance.
Notes: -
A written instrument embodying terms and stipulations of the contract of insurance between the insured and the insurer. o It is to be differentiated from the insurance contract, which is perfected upon the meeting of the minds, while the insurance policy is effective after the first premium had been paid.
Section 50 (1 and 4) 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. Group insurance and group annuity policies, however, may be typewritten and need not be in printed form. Section 226 No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.
G.R.: The policy must be in printed form, which may contain blank spaces. The necessary words/marks shall be written on the blank spaces E: Group insurance and group annuity policies
Section 50 (2 and 3) 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.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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.
Concept: A Rider is a small printed/typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. o In case of conflict with the policy, the rider shall prevail because it is a more deliberate expression of the agreement A Clause is an agreement between the insurer and the insured on certain matters relating to the liability of the insurer in case of loss. An Endorsement is any provision added which alters the scope and application of contract. When are riders effective? 1. The title/description of the riders must be indicated in the blank spaces provided in the policy 2. It must also be countersigned, unless applied for by the insured
Section 51 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.
Note: -
Non-compliance of this rule shall render the policy unenforceable and subject to penalty, but still binding upon them
Section 25 Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is VOID. Section 63 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.
Void stipulations 1. Payment of loss regardless of insurable interest on the property 2. Payment of loss is to be made to the bearer of the policy (as proof of insurable interest) 3. Policy is done for gaming or wagering 4. Limitation on the commencement of an action to a period less than 1 year from cause of action
Section 52 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 therefore. 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.
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Concept: A Cover Note is a preliminary contract of insurance. It serves as a temporary protection pending investigation of the risks, perils and hazards insured against In a conflict between the cover note and the policy, the cover note takes precedence because it reflects the meeting of the minds of the parties. A cover note may be cancelled by either party upon at least 7 days notice to the other party 2 Kinds of Cover Notes: 1. Preliminary Contract of Present Insurance o It serves as a temporary policy until the formal policy is issued or the risk is rejected o It serves as a written memo of most important terms 2.
Preliminary Contract of Executory Insurance o The cover note does not give protection yet but only the right of the insured to demand the delivery of the formal policy at the time indicated.
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Effective contract until policy is issued or rejected In life insurance, the binding receipt shall not insure by itself until the risk is accepted.
Great Pacific v CA WHERE AN AGREEMENT IS MADE BETWEEN THE APPLICANT AND THE AG ENT, NO LIABILITY SH ALL ATTACH UNTIL THE PRINC IPAL APPROVES THE RISK AND A RECEIPT IS GIVEN BY THE AGENT. THE ACCEPTANCE IS MERELY CONDITIONAL AND IS SUBORDINATED T O THE ACT OF THE COMPANY I N APPROVING OR REJEC TING THE APPLICATION. THUS, I N LIFE INSURANCE, A "BINDING SLIP" OR "BINDING RECEIPT" DOES NO T INSURE BY ITSELF FACTS:
RATIO:
Insurer was refusing a claim based on a binding receipt issued by its agent because the application was disapproved for the reason that the insured cannot be covered under the terms of the policy. Binding/initial deposits made issued by an agent when the insurance policy sought to be acquired has not yet been approved do not create an insurance policy between the insurance company and applicant.
Pacific Timber Export Corp. v. CA A "COVER NOTE" ISSUED IN ADVANCE OF A MARINE POLICY IS BINDING AS AN INSURANCE CONTRAC T, ALTHOUGH NO SEPARATE PREMIUM HAS BEEN PAI D THEREFOR
FACTS:
RATIO:
Pacific Timber procured a marine insurance over the logs they were transporting. A cover note was issued. Before the policies were delivered some of the logs were lost during the loading. Insurer is disclaiming liability because the policies only logs that were loaded. However the logs lost were covered by the cover note. Insurer is liable under the cover note.
Section 59 A policy is either open, valued or running.
Section 60 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.
Concept: Value of the thing insured shall be assessed at the time of the loss `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Development Insurance Corporation v. IAC IN AN OPEN VALUE POLICY , THE INSURER IS LIABLE FOR THE ACTUAL LOSSES NOT EXCEEDING THE FACE VALUE FACTS: RATIO:
Building was lost due to fire. It was covered by an insurance policy with a face value of P2.5M. DIC claims the building’s value is P5.8M Insurer is not even liable for P2.5M as the actual losses only amounted to P508k
Section 61 A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.
Concept: The value of the loss is computed from the time the insurance contract was entered into. There is no profit because the amount of the premium is higher than in Open insurance because the risk is already known by the insurer (value of policy) Life policy is a valued policy by its nature. It cannot be open/successive. Harding v Commercial Union A car was insured for P3000 after being inspected by the insurance company. After the car was destroyed by fire FACTS: the insurance company disclaimed liability because P3000 is not the true value of the car therefore risk did not attach. The agent of the insurance company inspected the car RATIO AND and declared P3000 as its value; the insured merely DOCTRINE: signed it and did not warrant it. Insurer is liable for P3000
Section 62 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.
Concept: Policy intended to provide indemnity for property which cannot well be covered by a valued policy because of frequent change of location and quantity, or for property of such a nature as not to admit of a gross valuation. It denotes insurance which contemplates that the risk is shifting, fluctuating or varying, and which covers a class of property rather than any particular thing. E.g. goods in trade, stocks in a warehouse.
Section 64 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) (b) (c) (d)
non-payment of premium; conviction of a crime arising out of acts increasing the hazard insured against; discovery of fraud or material misrepresentation; 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. Section 65 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.
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Notes: -
This is an exclusive list. No other reason for unilateral cancellation can be used other than those provided in Sec 64. Notice of cancellation is important to give the insured another insurance. Takes effect upon receipt of notice by the insured.
Section 79 A person insured is entitled to a return of premium, as follows: (c) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; (d) 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. (a)
Note: -
Takes effect upon sending of notice/letter of cancellation by insured.
Paulino v Capital Insurance LETTER OF CANCELLATION IS VALID BECAUSE UNILATERAL CANCELLATION WAS STIPULATED.
FACTS:
RATIO:
Paulino sent a letter to cancel her fire policy, she did not return the policy nor demanded the return of premiums paid. Property insured was burned. Insurer disclaims liability because the policy was cancelled the moment they received the letter. The contention of the insurer is correct because of the presence of a stipulation stating that the policy may be terminated unilaterally at the instance of either party. Such option does not require the approval of the other party.
Section 66 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.
Ensured entitled to automatic renewal unless insurer follows these requirements: Notice of intention not to renew/conditional renewal/limitation of coverage Must be sent at least 45 days before the end of the policy Mailed/delivered to the insured
Rights of the Insured Section 11 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.
Sun Life Assurance of Canada v Ingersoll THE BENEFICIARY WOUL D BE THE ASSIGNEE IF THERE’S NO CASH SURRENDER VALUE. FACTS:
RATIO:
Insured died, he did not pay premiums on the third year and, therefore, is not entitled to cash surrender value. His estate, represented by and administratrix, and his assignee in insolvency are at odds over the death benefits. Generally, all life insurance policies are declared by law to be assignable, regardless of whether the assignee has an insurable interest in the life of the insured or not. However, a policy devoid of cash surrender value cannot be either “leviable assets” or “assets in insolvency”. At the time of filing of petition of insolvency, the policy has no realizable value yet, unless it has cash surrender value. Proceeds go to the estate.
“Cash surrender value” Excess in fixed annual premiums paid over the annual cost of insurance, with accumulations of interest
Section 227 (g) In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (g) A provision that at any time after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefore is made;
Concept: Insurance company will advance on the security of the contract an amount that, with interest as specified in the contract, and must not exceed the guaranteed cash value. This protects against unintentional lapse of contract The policy loan advance unpaid amount of premium that is due.
Section 227 (e) In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein;
In Life insurance: Life insurance contracts may be participating or nonparticipating. Participatory – Higher premiums based on relatively conservative mortality, investment earnings and expense assumptions If actual results are better than assumed, the difference is reflected in surplus o This surplus is available for return to policy owner o Policy dividend is available annually and is called “policy dividend”
Section 181 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. Section 182 Notice to an insurer of a transfer or bequest thereo unless thereby expressly required.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Devices that Delimit Subject Matter of Insurance CONCEALMENT
REPRESENTATION
WARRANTIES
EXCEPTION
CONDITION
Neglect to communicate a material fact which a party knows and ought to communicate. An active form of concealment is a misrepresentation Concealment of a material fact entitles the injured party to rescind
Oral or written statement of fact or condition affecting the risk, made at the time or before the issuance of policy, tending to induce insurer to assume the risk False representation on a material point entitles the injured party to rescind
Statement or promise by the insured set forth in the policy itself, the untruth or nonfulfillment of which avoids the policy, WON the insurer was in fact prejudiced Breach of a warranty with fraud avoids the policy ab initio, and the insured is not entitled to return of premiums paid
Make more definite the coverage indicated by the general description of risk by excluding certain specified risks that otherwise would be included
Protection against fraudulent claims of loss which take the form of conditions precedent which the insured must follow in order to recover
Concealment Section 26 A neglect to communicate that which a party knows and ought to communicate, is called a concealment. Section 28 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.
Concept: “Concealment” o A neglect to communicate that which a party knows and ought to communicate Note: -
The insurer has no obligation to verify. The effect of material concealment cannot be avoided by the allegation that the insurer could have discovered the concealed fact. This may be committed by either the insurer or the insured
There can be no concealment unless: 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 of the fact concealed. 4. The other party has no means of ascertaining the fact concealed.
Argente v West Coast Life Joint insurance of spouses. Wife died of cerebral FACTS: apoplexy. Concealed that she was diagnosed with “alcoholism” and RATIO AND with “psycho-neurosis” when asked in the application DOCTRINE: form if she had consulted a doctor for any illness within the last five years. Avoided. Ng v Asian Crusader Kwong took out an endowment insurance with wife as beneficiary. Asian denied claim because Kwong was guilty of misrepresentation when he answered “No” when asked if any life insurance company refused an FACTS: application or reinstatement of a lapsed policy because he had been refused by Life Insurance Co but was later reinstated, and that Kwong actually underwent surgery to remove a tumor but only reported that he had peptic ulcer. There was no concealment, misrepresentation or fraud. The burden of proof is on the insurer, but Asian failed to RATIO AND present evidence that Kwong possessed sufficient DOCTRINE: medical knowledge to know the difference between peptic ulcer and a tumor. Canilang v CA FACTS:
*If under warranty, non-disclosure is violation of warranty and not concealment.
RATIO AND DOCTRINE: Section 27 A concealment whether intentional or unintentional entitles the injured party to RESCIND a contract of insurance. Section 29 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.
Sunlife v CA GOOD FAITH IS NOT A DEFENSE BECAUSE IT I S IRRELEVANT TO CONCEALMENT. FACTS:
RATIO:
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Canilang applied for a non-medical insurance with GrePa and was issued an ordinary life insurance. He died of congestive heart failure, anemia and chronic anemia. Denied claim of beneficiary wife because of concealment of diagnosis of “sinus tachycardia” and “acute bronchitis. There was concealment because the diagnosis was a material fact that would affect the action of the insurer on the application for insurance.
Bacani took out a life insurance. He died of a plane crash. Denied claim of beneficiary mother because of concealment that he was confined at the Lung Center and was diagnosed of renal failure. There was concealment. The information was material and relevant to the approval and issuance of the policy. The defense that it was cone in good faith because the insurance was non-medical is untenable. 23
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Yu Pang Cheng v CA In Jan. 1950, YPC was diagnosed with peptic ulcer. In Sept. 1950 he took out a life insurance, stated that he did not F A C T S : have any disease in the stomach and that he is free from cancer, etc. He was confined in Dec. and died 3 months after. There was concealment of a material fact. Claim denied RATIO AND and policy void because it was procured by fraudulent DOCTRINE: representations.
Section 30 Neither party to a contract of 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 Section 32 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. Section 33 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. Section 34 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 fiftyone. Section 35 Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.
Section 31 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.
Concept: The test is the effect which the knowledge of the fact in question would have on the making of the contract. The fact need not increase risk or contribute to any loss of damage suffered. It is sufficient if the knowledge of it would influence the party in making the contract There is no duty to disclose opinion. Information is Material if: A party knows a material fact which he neglects to communicate or disclose to the other; Such party concealing is duty bound to disclose such fact to the other o Matters that need to be disclosed even in the absence of inquiry: They are material to the contract; The other has no means of ascertaining the said facts The party with the duty to communicate makes no warranty.
Section 27 A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.
General Rule: Regardless of intent, concealment vitiates the consent and entitles the injured party to rescind, even if the loss is due to a cause not related to the concealed matter.
Section 48 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. Section 227 (b) In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war;
Exceptions: 1. Incontestability clause 2. Concealment after the contract has become effective 3. Waiver or estoppel Note: -
If the representation becomes material AFTER execution of the contract there is no rescission because it did not affect the consent.
Misrepresentations -
The active form of concealment
Representations Statements made by the insured as to an existing or past fact or future happening prior to or at the time of the issuance of the policy. Insurer has no obligation to verify such representations. The representations are not required to be literally true; they only need to be substantially true. o “Substantially true” = When the representation is true in every particular material to the risk OR is so far true that the conduct of the insurer would not have been different if the exact truth had been alleged Kinds or Representations: 1. Affirmative – Representation on an existing or past fact. a. Can be true now and false later, or false now and true later, as long as later is before contract takes effect. 2. Promissory – Representation upon the happening of a future event a. There must be a “day certain”.
Section 36 A representation may be oral or written. Section 37 A representation may be made at the time of, or before, issuance of the policy. Section 41 A representation may be altered or withdrawn before the insurance is effected, but not afterwards. Section 42 A representation must be presumed to refer to the date on which the contract goes into effect.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Section 39 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.
Section 43 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.
G.R.: Not responsible for the truth or falsity of an information that comes from a third person (i.e. where he has no personal knowledge), provided he gives explanation that he does so on the information of others
Section 44 A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations. Section 45 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.
G.R.: In order for the injured party to rescind the contract, a representation relied upon must be false in a substantial and material respect Fraud or intent is not essential to entitle the insurer to rescind the contract on the ground of misrepresentation
Section 227 (d) In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (d) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age;
Section 46 The materiality of a representation is determined by the same rules as the materiality of a concealment.
Pacific Banking v CA Paramount took out a fire policy from Oriental which was duly endorsed to Pacific as mortgagee. Fire broke out. Pacific sent a demand letter to Oriental to recover the loss, however, the latter failed to pay due to the lack of proof of loss, which was required of the insured in order FACTS: to determine the liability of the company. Petitioner filed an action for a sum of money in the CFI, wherein petitioner presented evidence which revealed that the insured had undeclared co-insurances with other insurance companies. Policy required the insured to reveal other insurances R A T I O A N D taken. Failed to do so, hence policy was void due to D O C T R I N E : misrepresentation. Material fact because insurer asked about other insurer.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
CONCEALMENT May be committed by either the insurer or the insured Insured withholds information on material facts Passive form Good faith is not a defense
MISREPRESENTATION Only committed by the insured Insured makes erroneous statements with intent to induce Active form Good faith is a defense
Determined by the same rules on materiality Same effect of ability to rescind
Elements of Incontestability 1. The policy is a life insurance policy, payable on the death of the insured 2. It has been in force for at least 2 years from date of issuance or from its date of reinstatement Effect of Incontestability Insurer may not refuse payment by claiming that: o The policy is void ab initio; o It is rescissible by reason of fraudulent concealment o It is rescissible by reason of fraudulent misrepresentation. Defenses not barred by the incontestability clause: That the person taking the insurance lacked insurable interest; That the cause of the death of the insured is an excepted risk; That the premiums have not been paid; That the conditions of the policy relating to military or naval service have been violated; That the fraud is vicious; That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; That the action was not brought within the time specified within the policy of insurance; Eguaras v Great Eastern Insured connived with agent and presented a different FACTS: person in the medical examination. Died 1 month after 1st premium was paid. RATIO AND Fraud as there were different signatures. Not barred by DOCTRINE: incontestability clause. Avoided.
Warranties -
-
-
A statement or promise set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable. These are answers to direct positive questions
To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change of the condition of the property.
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Section 67 A warranty is either expressed or implied. Section 68 A warranty may relate to the past, the present, the future, or to any or all of these. Section 71 A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. Section 72 A statement in a policy which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place.
Kinds of Warranties: 1. Express – agreement contained in policy or clearly incorporated whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts have been or shall be made. 2. Implied – necessarily embodied and binds as though expressed. Usually found in marine insurance. 3. Affirmative – asserts the existence of a fact at the time it is made. Continuing if it must be satisfied during entire coverage of insurance. Warranties are presumed Continuing Affirmative 4. Promissory/Executory – insured stipulates that certain facts or conditions pertaining to the risk shall exist or shall be done or omitted. *Breach does not avoid insurance if not material to risk, but parties may stipulate to make it material. Young v Midland Textile Insurance Fire insurance over building of residence and candy store of insured. There is a warranty that the insured will not “store hazardous goods.” The insured stored firecrackers. FACTS: Fire destroyed part of the building, but the firecrackers weren’t the cause and were in fact stored in another part of the building. R A T I O A N D Still violated the warranty not to store. Avoided. DOCTRINE:
Section 69 No particular form of words is necessary to create a warranty.
Section 73 When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.
1. 2.
Loss occurs before time of performance Performance becomes unlawful or impossible
Section 74 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. Section 75 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. Section 76 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.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Breach of material warranty 1. Generally, the breach by either party entitles the other party to rescind the contract a. If the insured rescinds, he is entitled to the return of premiums 2. If breach is without Fraud a. If done before the inception of the contract, this will prevent the contract from taking effect b. If done after the inception of the contract, Insurer will be exonerated from the time it occurs 3. If breach is done with Fraud a. The policy will be void ab initio b. No right to return of premiums Breach of immaterial warranty G.R.: Breach does not avoid the policy E: If parties stipulate that the breach of such avoids the policy New Life Enterprises v CA Sy insured the stocks of his construction materials business against fire with Western Guaranty, Reliance FACTS: Surety and Equitable Insurance. Loss occurred, but claim was denied for violation of requirement to endorse existing insurance. There was breach because failure to disclose amounts to RATIO AND misrepresentation. The purpose of disclosing existing DOCTRINE: insurance is to prevent the insured from defrauding the insurer by profiting in the contingency.
Event signifying either occurrence or non-occurrence that alters previously existing legal relations of the parties a. Precedent – happening or performance before policy can take effect b. Subsequent – pertains to contract of insurance after risk attached, requires notice and proof of loss
Section 168 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. Section 169 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. Section 170 A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.
WARRANTY
MISREPRESENTATION
Part of the contract
Collateral inducement
Written on the policy or in a valid rider Generally conclusively presumed to be material Fact warranted must be strictly complied with (literal truth) Incontestability clause does not apply
Need not be written Should be established to be material Requires only to be substantially true Incontestability clause applies
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Risks Requirements for risk to be insurable (not absolute) 1. Importance 2. Calculability 3. Definiteness of loss 4. No catastrophic loss 5. Accidental nature
Terms Defined “Risk” “Peril” -
Chance of loss, possibility of the occurrence of loss, based on known and unknown factors Contingent or unknown event, creates risk, occurrence results in loss.
“Hazard” Condition or factor which may create or increase the chance of loss from a given peril
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Injury, damage, liability sustained by the insured in consequence of the happening of one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured.
Bonifacio Bros. v Mora Insured property was destroyed by accident. Payment of the repair came from insurance proceeds. Repair FACTS: company claims that insurance proceeds should be paid directly to them. R A T I O A N D Loss covers injury and damage in insurance law. DOCTRINE:
Vda. De Bataclan v Medina PROXIMATE CAUSE – THAT CAUSE, WHICH, IN A NATURAL AND CONTINUOUS SEQUENCE, UNBROKEN BY ANY EFFICIENT INTERVENING CAUSE, PRODUCES THE INJURY, AND WITHOUT WHICH THE RESULT WOULD NOT HAVE OCCURRED. Tire blowout at 2am – bus turned turtle and gas leak – rescuers responded with torches – fire – trapped passengers died Tire blowout was the proximate cause and fire was the immediate cause of the death.
FACTS: RATIO:
DEFINITION REMOTE CAUSE PROXIMATE CAUSE IMMEDIATE CAUSE
An event preceding another in a causal chain, but separated from it by other events That cause, which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. The cause, NOT the proximate cause, immediately preceding the loss
Loss for which insurer is liable 1. 2. 3.
Proximate cause of the loss was a covered peril Loss through the ordinary negligence of the insured Loss caused by efforts to rescue the thing from the peril insured against
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Section 84 Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause.
Allied Banking Corp. v Lim Sio Wan LSW deposited with Allied a money market placement. An imposter pre-terminated it and the bank was asked to issue a check to one Santos who picked up the check. LSW was surprised to learn about the pre-termination FACTS: and thus filed a complaint against the bank. The check was deposited to an account in Metrobank. Allied now claims that Metrobank was the proximate cause of the loss. Allied was not authorized to release the proceeds. The RATIO AND bank was negligent and therefore liable for damages. DOCTRINE: Metrobank was also liable as last indorser. 60:40 liability.
Section 86 Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.
Note: -
Insurer is liable even if the immediate cause is an excepted peril. o Insurer is exonerated from liability if the proximate cause was an excepted peril o E.g. Explosion then fire when explosion was an excepted peril in fire insurance.
Section 87 An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.
Note: -
Ordinary negligence by the insured is covered. Gross negligence is not.
FGU v CA
FACTS:
RATIO AND DOCTRINE:
ANCO shipped SMC cases of beer from Mandaue to Antique via barge and tugboat. Upon arriving at Antique, the tugboat immediately left. A typhoon occurred and since the barge did not have an engine, it cannot be transferred to a safer place. A large number of the cases were lost. ANCO was grossly negligent, therefore FGU insurance is not liable
Section 85 An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; OR where a loss is caused by efforts to rescue the thing insured from a peril insured against.
Concept: Insurer is liable in the following instances, when the loss occurred: After the thing was rescued from a peril insured against, regardless if it was exposed to a peril it was insured or uninsured against When the loss occurred during the efforts to rescue the thing insured from a peril insured against 27
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Loss for which insurer is not liable
GREAT SOUTHERN MARITIME V SURIGAO (2009) G.R.: ER IS LIABLE TO PAY THE HEIRS OF THE DECEASED SEAFARER ONCE IT IS ESTABLISHED THAT HE DIED DURING THE EFFECTIVITY OF HIS EMPLOYMENT CONTRACT.
1. 2. 3.
Loss by the insured’s wilful act/gross negligence Loss due to connivance of the insured Loss where the excepted peril is the proximate cause
-
This kind of loss is not within the contemplation of the insurance contract. The risk should NOT be subject to the control of the parties.
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E: UNLESS ER PROVES THAT THE SEAFARER’S DEATH WAS CAUSED BY AN INJ URY DIRECTLY ATTRIBUTABLE TO HIS DELIBERATE OR WILFUL ACT.
FACTS: Paris-Manila Perfumery v Phoenix Assurance Co. Perfumery took out a fire insurance over factory from Phoenix. The insurance does not cover loss from F A C T S : explosion. Property was completely destroyed by fire. Phoenix denied claim because the loss was caused by the wilful act of Johnson. BOP on the insurer to prove that the cause of the loss was an excepted risk. The real cause of the fire is a RATIO AND matter of conjecture. It may be true that the explosion DOCTRINE: was the primary cause, but since it wasn’t proved, Phoenix is liable.
PERIL
REMOTE
PROXIMATE
IMMEDIATE
INSURER LIABLE?
COVERED
/ / X X / / / X X /
/ X X / X / X X / X
/ / / X X / / / X X
/ / / / X X / / X /
EXCEPTED
Notes: -
In an all risk policy, all kinds of perils will be covered, and any listed risk will be excepted perils In a specified risk policy, covered and excepted perils are listed and the rest are perils not covered
ISSUE: RATIO:
Surigao was hired as a fitter by GSM for IMC Shipping. While on board the ship, he experienced severe pain in his body and was confined in a hospital. The next day, he was found dead and the post-mortem examination revealed that the cause of death was asphyxia due to hanging. WoN his family is entitled to death benefits under the employment contract. NO. Since Surigao committed suicide, his heirs are not entitled to death benefits.
NAESS SHIPPING v NLRC (1987) While on board M/V Dyvi Pacific, Dublin (vessel’s chief steward) quarrelled with the ship’s second cook. Dublin stabbed the cook, ran to the deck, then jumped/fell F A C T S : overboard. His body was never found. His widow filed a complaint for death benefits. His employment contract has a stipulation providing for the payment of cash benefits for the loss of life. WoN death caused by suicide is compensable under the ISSUE: employment contract. YES. NAESS bound itself to a contract, which makes it liable to pay compensation for Dublin’s death while he was in their service, regardless of how he died. The entitlement to death RATIO: benefits resulted simply from the fact the he was serving out an employment contract, which contained a stipulation for such benefits.
Section 181 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. Section 182 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.
Coverage Life Insurance Section 179 Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. Section 180 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.
Section 183 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.
Suicide Section 180-A 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.
Death at the hands of the law If the person was able to get an insurance before he is killed, such policy shall be valid upon his death
Concept: Life insurance is an insurance payable on the death of a person or on his surviving a specified period
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Killing of insured by beneficiary Section 12 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.
Accidental death; cf. death by accidental means ACCIDENTAL DEATH DEATH BY ACCIDENTAL MEANS Death was accidental The cause of death was accidental Intentional act Unintentional act Unintentional death Unintentional death
ISSUE:
RATIO:
FINMAN v CA (1992) G.R.: WHERE THE DEATH IS NOT THE NATURAL RESUL T OF THE INSURED’S VOLUNTARY ACT, THE RESU LTING DEATH OR INJURY IS W ITHIN THE PROTECTION OF THE POLICIES INSURING AGAINST DEATH OR INJ URY FROM THE ACCIDENT. E: DEATH OR INJURY CANN OT BE COVERED WHEN T HERE IS NO ACCIDENT IN CA SES WHERE A DELIBERA TE ACT IS PERFORMED BY THE INSURED.
FACTS:
ISSUE:
RATIO:
The cestui que vie (Surposa) died from stab wounds inflicted by 3 unidentified men without provocation. His beneficiaries filed a claim with Finman, but the latter refused, arguing that murder and assault are not within the scope of the policy, since the cause of death was not accidental but rather an intentional act of the assailants as evidenced by the location of the stab wound. WoN the death of Surposa can be considered an accident YES. The term ‘accident ’ has not acquired any technical meaning and is construed in their ordinary and common definition—an event that takes place without one’s foresight or expectation. The happening was a pure accident on the part of the victim. He died from an event that took place without his foresight or expectation. The failure of Finman to include death as a result of murder or assault as a prohibited risk means that it did not intend to limit or exempt liability for such death.
CALANOC v CA (1955) A security guard of an Auto Supply insured his life, w/ a supplementary contract stating that the policy covers death by accident. He died through a bullet wound when he was F A C T S : shot by a burglar when he came to see if the house was being robbed. PhilAm refused to indemnify his heirs for the supplementary contract, since death was not caused by accident. ISSUE: WoN his death was not caused by accident NO. The act of going to the house wasn’t capricious desire to expose his life to danger. He might have thought that to know the truth was in the pursuance of the interest of his R A T I O : employer, it being a matter that affects the security of the whole neighbourhood. The fact remains that there was no proof that he died as a result of murder or assault, and that in his part, his death was a pure accident. BIAGTAN v INSULAR (1972) “INTENTIONAL” AS USE D IN AN ACCIDENT POL ICY IMPLIES THE EXERCISE OF REASON, CONSCIOUSNESS, AND VOLITION. IF THE INJURIES SUFFERED BY THE INSURED CLEARLY RESU LTED FROM THE INTENT IONAL ACT OF A 3RD PERSON, THE INSURER IS RELIEVED FROM LIABILITY. Biagtan was covered by a life insurance policy for P5k. The beneficiaries would be entitled to an additional F A C T S : P5k through the Accidental Death Benefit Clause: “if the death of the Insured resulted directly from bodily injury effected solely through external & violent 14
TEEHANKEE’S DISSENT
means sustained in an accident… and independently of all other causes”. The clause also provided that it would not apply where the death resulted from an injury “intentionally inflicted by another party.” His house was robbed and he was stabbed by the culprits. WoN the heirs are entitled to the additional P5k NO. What mattered was WoN the 3rd party’s acts that caused the injury were intentional, not the intention in causing the injury. Injuries inflicted by robbers throughout the course of robbing a victim’s property are intentionally inflicted, regardless of whether they intended to kill him or not & regardless if the stabbing was premeditated or took place through an unexpected confrontation. 1. The case of Calanoc should be controlling because the Court therein held that where the killing does not amount to murder, it must be held as a pure accident. 2. Insular failed to prove that fatal injuries were inflicted upon the deceased deliberately. The stabs were a reflex action and could not be considered as intentional. 3. The clause of the insurance contract that excludes the availing of the accidental death benefit clause which excepts injuries “inflicted intentionally by a third party, either with or without provocation on the part of the insured, and WoN the attack or defense by the third party was caused by a violation of the law by insured” is tantamount to excepting all other injuries inflicted by a third person regardless of any violation of law or provocation by the insured. The double-indemnity policy ought to cover the insured against accidental death, whether caused by fault, negligence, or intent of a third party which is unforeseen and unexpected by the insured.
SUN INSURANCE v CA (1992) F A C T S : Guy shot himself believing there were no bullets. The death was an accident and not a suicide. Given that he removed the magazine and subsequently assured his secretary that the gun was not loaded, he did not put himself R A T I O : in needless peril. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident.
Section 50 (last paragraph) Group insurance and group annuity policies, however, may be typewritten and need not be in printed form. Section 228 The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor to insure his debtors. If a group life policy is on a plan of insurance other than term, it shall contain a non-forfeiture provision or provisions which in the opinion of the Commissioner is or are equitable to the insured or the policyholder: Provided, That nothing herein contained shall be so construed as to require group life policies to contain the same non-forfeiture provisions as are required of individual life policies.
Concept14: This was defined as a contract providing coverage to a group of individuals under one master contract, which is between the policyholder and the insurance company. The insurance company has no contractual obligations with the individual employees of the policyholder company. It is normally taken as an employee-benefit program: the employer receives the benefits from the insurance company, and awards it to make it appear that the benefit comes directly from the employer. However, though the employer may be the titular party insured, the insurance actually pertains to the life and health of the employee it covers.
Pineda v CA
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Section 229 The term "industrial life insurance" as used in this Code shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words "industrial policy" are printed upon the policy as part of the descriptive matter. An industrial life policy shall not lapse for non-payment of premium if such nonpayment was due to the failure of the company to send its representative or agent to the insured at the residence of the insured or at some other place indicated by him for the purpose of collecting such premium: Provided, That the provisions of this paragraph shall not apply when the premium on the policy remains unpaid for a period of three months or twelve weeks after the grace period has expired.
Article 2026 (CC) He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for the execution or attachment of the property.
Fire Insurance Section 167 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.
[ FLWTE A] Section 262 Any domestic stock life insurance company doing business in the Philippines may convert itself into an incorporated mutual life insurer. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.
REPUBLIC v SUNLIFE (2005) A MUTUAL INSURANCE C OMPANY IS CONDUCTED FOR THE BENEFIT OF THE MEMBER-POLICYHOLDERS WHO PAY PREMIUMS THAT SE RVE AS CAPITAL. IT DOES NOT OPERATE FOR PROFIT, BUT FOR THE MUTUAL BENEFIT OF ITS MEMBER-POLICYHOLDERS. Sunlife is asking for a tax credit for erroneously paid premium tax & DST to the BIR (prior ruling of the SC that mutual life insurance companies are cooperatives and are F A C T S : thus exempt from payment of premium tax & DST). BIR refused to act upon it, alleging that the company needs to be registered with the Cooperative Development Authority (CDA) to avail of the exemption. WoN Sunlife is exempted from paying tax even if it was not ISSUE: registered in the CDA. YES. They receive their insurance at cost, while reasonably and properly guarding and maintaining the stability and R A T I O : solvency of the company. Earning profits is merely a secondary purpose. The company need not be registered with the CDA to avail of the exemptions.
Article 2021 (CC) The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. Article 2022 (CC) The annuity may be constituted upon the life of the person who gives the capital, upon that of a third person, or upon the lives of various persons, all of whom must be living at the time the annuity is established. It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons. Article 2023 (CC) Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at that time suffering from an illness which caused his death within twenty days following said date. Article 2024 (CC) The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary. Article 2025 (CC) The income corresponding to the year in which the person enjoying it dies shall be paid in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
HOSTILE FIRE Occurs outside the usual confines May begin as a friendly fire and becomes hostile by escaping from the confines
FRIENDLY FIRE Burns in a place where it was intended to burn and ought to be
PHIL. HOME ASSURANCE V CA (1996) FIRE IS NOT CONSIDERED A NATURAL DISASTER/CALAMITY SINCE IT ALMOST ALWAYS ARISES FROM SOME ACT OF MAN. ESLI shipped goods from Japan to Manila and Cebu. While the vessel was on its way, a small flame in the acetylene cylinder caught flame, which later exploded, causing injury to the FACTS: other passenger and cargo. ESLI demanded additional charges for the salvage operations from the consignees. Insurance paid for them under protest. WoN the insurer us liable for the additional ISSUE: charges/expenses for the salvage ops and the transhipment of goods? NO. THE CARRIER (ESLI) IS LIABLE. The storing of the tank in the accommodation area near the engine room shows that R A T I O : the fire was due to the fault and negligence of ESLI, since the heat generated by the engine room would cause the tank to explode by reason of spontaneous combustion.
Section 168 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.
Requisites in order to validate rescission: 1. Alteration in the use or condition is made without the consent of the insurer 2. The said changes were within the control of the insured 3. The alteration increased the risks DEVELOPMENT INSURANCE v IAC (1986) A fire broke out in Phil. Union’s building while it was being constructed. The elevator was damaged. Phil. Union filed a suit for damages against DI. Di refused because the value of F A C T S : the building was increased to P5.8M, when initially it was just P2.5M, hence Condition 17 applies, stating that if the building be of greater value than the sum insured thereon, then the insured shall be its own insurer for the difference. ISSUE: WoN Phil. Union should be indemnified YES. There was no evidence that the building was worth P5.8M at the time of fire. Also, it was an open policy. Thus, R A T I O : the actual loss will represent the total indemnity due to the insured except only that the total indemnity shall not exceed the face value of the policy, P2.5M.
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Section 169 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.
Section 170 A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.
Section 171 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.
Section 172 Whenever the insured desires to have a valuation named in his policy, insuring any building or structure against fire, he may require such building or structure to be examined by an independent appraiser and the value of the insured's interest therein may then be fixed as between the insurer and the insured. The cost of such examination shall be paid for by the insured. A clause shall be inserted in such policy stating substantially that the value of the insured's interest in such building or structure has been thus fixed. In the absence of any change increasing the risk without the consent of the insurer or of fraud on the part of the insured, then in case of a total loss under such policy, the whole amount so insured upon the insured's interest in such building or structure, as stated in the policy upon which the insurers have received a premium, shall be paid, and in case of a partial loss the full amount of the partial loss shall be so paid, and in case there are two or more policies covering the insured's interest therein, each policy shall contribute pro rata to the payment of such whole or partial loss. But in no case shall the insurer be required to pay more than the amount thus stated in such policy. This section shall not prevent the parties from stipulating in such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed.
Section 173 No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be VOID and of no effect insofar as it may affect other creditors of the insured.
Section 88 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.
Section 89 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.
Section 90 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.
Section 91 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.
Section 92 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.
RULES ON ABANDONMENT RULES ON CONSTRUCTIVE LOSS PARTIAL LOSS + UNDERINSURED
FIRE INSURANCE Does not apply
MARINE INSURANCE Applies
Does not apply
Applies
Insured is only a coinsurer if expressly agreed by the parties
The insured is a coinsurer
Casualty & Liability Insurance NEW LIFE ENTERPRISES v CA (1992) Sy insured the stocks of his store. The stocks were consumed by fire of electrical nature. The insurance companies allege F A C T S : that Sy committed a breach of policy conditions when he failed to inform the insurers of other insurances covering the stocks of trade; pursuant to the Condition in the policies. ISSUE: WoN Sy can recover NO. The purpose of requiring the insured to disclose other existing insurance is to prevent him from defrauding the RATIO: insurer by profiting from the contingency. Failure to disclose is tantamount to misrepresentation. GEAGONIA v CA There was no violation of the ‘other insurance’ clause here because the 2 policies were for the interest of the mortgagee. RATIO: The two policies do not cover the same interest as that covered by the policy of the insurer.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Section 174 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.
2 General divisions of casualty insurance 1. Perils affecting the person and/or property of the insured 2. Perils that give rise to liability on the part of the insured to another party Liability Insurable Liability for Quasi-Delict or Non-fulfillment of contract Liability for criminal negligence Insurable Interest for Liability Insurance Interest of the insured has in the safety of persons who may maintain or who may become the basis of suits against him in case of their injury/destruction 31
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INSURANCE AGAINST LIABILITY INSURANCE AGAINST ACTUAL LOSS Liability attaches when the liability Liability attaches only when actual of the insured to the injured third loss is sustained by the insured party attaches, regardless of actual loss Insurer assumes the obligation of Insurer only pays liability upon paying the injured third party claim by the insured Injured third party can sue the Injured third party cannot sue the insurer directly, as to protect the insurer directly. Prior payment is former from the insured’s necessary in order that the insolvency obligation of the insurer may arise FORTUNE INSURANCE v CA (2005) Insurance: Casualty Insurance (Money, Security, and Payroll Robbery policy) The Bank’s armoured car was robbed by the driver and the guard. Fortune Insurance refused to pay as the loss is F A C T S : excluded from the coverage of the insurance policy (exception in contract: ‘any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee…’) since the perpetrators are considered as an employee or an authorized representative of the bank. ISSUE: WoN Fortune Insurance is liable. NO. In burglary, robbery, and theft insurance, the opportunity to defraud the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce R A T I O : this hazard. Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property.
Section 374 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.
What is a motor vehicle?15 Any vehicle propelled by any power other than muscular power using public highways, but excepting road rollers, trolley cars, street sweepers, sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and cranes if not used in public highways, vehicles which run only on rails or tracks, and tractors, trailers and traction engines of all kinds used exclusively for agricultural purposes Trailers having any number of wheels, when propelled or intended to be propelled by attachment to a motor vehicle shall be classified as separate motor vehicle with no power rating. Purpose of the CMVLI To assure victims of MV accidents and/or their dependents, immediate financial assistance/indemnity regardless of the financial capability of the MV owner or operator. Injured third parties may sue directly the insurer of the vehicle Substitutes to the CMVLI Surety Bond with the Insurance Commissioner Cash Deposit with the Insurance Commission Scope of Coverage Required TPL for bodily injuries or death If the vehicle is used to transport people, an additional passenger liability is required
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) (ii)
(iii)
The total indemnity in respect of any person shall not exceed five thousand pesos; 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; Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.
Rules on claiming indemnity 1. Maximum of P5,000 per person indemnity 2. Only the following proofs are allowed for claiming: a. Police Report b. Death Certificate + evidence of claims c. Medical Report + evidence of claims 3. Claims must be made against 1 MV only a. Occupant of Vehicle: Insurer of vehicle where he is riding, mounting or dismounting from b. All else: Insurer of the offending vehicle 4. Insurer has a right to recover against the owner of the MV responsible for the accident PERLA v ANCHETA (1988) THE CLAIMANT CANNOT CHOOSE FROM WHICH IN SURER HE WILL CLAIM THE “N O FAULT INDEMNITY”, AS THE LAW, BY USING THE WO RD “SHALL”, MAKES IT MANDATORY THAT THE CLAIM BE AGAINST THE INSURER OF THE VEHICLE IN WHICH THE OCCUPANT IS RIDING, MOUNTING, OR DISMOUNTING FROM. FACTS: ISSUE: RATIO:
Insurance: Compulsory Motor Vehicle Insurance Collision between IH Scout and Superlines bus. The victims (passengers of IH Scout) filed a case against Superlines, the bus driver, and Perla, the insurer of the bus. WoN Perla is liable. NO. THE INSURER OF IH SCOUT IS LIABLE UNDER THE “NO FAULT INDEMNITY” PROVISION. Irrespective of WoN the fault/negligence lies with the driver of the Superlines bus, as the victims weren’t passengers of the bus, they cannot claim the “no fault indemnity” provided in Sec. 378 from Perla.
Section 384 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.
General Rules on Period for filing Claim for Damages: o 6 months from the date of the accident Action/Suit for recovery of damage: o 1 year from the denial of claim
Section 378
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Section 385 The insurance company concerned shall forthwith ascertain the truth and extent of the claim and make payment within five working days after reaching an agreement. If no agreement is reached, the insurance company shall pay only the "no-fault" indemnity provided in section three hundred seventy-eight without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit claim or document releasing it from liability under the policy of insurance or surety bond issued. In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter, the adjudication of such dispute shall be within the original and exclusive jurisdiction of the Commissioner, subject to the limitations provided in section four hundred sixteen. Section 386 It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums.
PERLA v CA & LIM (1992) Insurance: CMVI The Lims’ car was carnapped. Lim tried to claim indemnity F A C T S : from Perla, but it refused because Lim had an expired driver’s license at the time of loss, which is in violation of the authorized driver clause. ISSUE: WoN the Lims can recover from Perla YES. The comprehensive motor car insurance policy covers: (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external R A T I O : explosion, self- ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. The authorized driver clause applies in contemplation of accident in the legal sense in w/c it should be understood, and not in contemplation or anticipation of an event such as theft. SHAFER v JUDGE (1988) Insurance: Private Car Policy for Third Party Liability Shafer bumped a car. He was charged with reckless F A C T S : imprudence resulting in damage to property and serious physical injuries. Shafer then filed a third party complaint against Makati Insurance. ISSUE: WoN Shafer had a cause of action against Makati Insurance YES. No need to wait for decision finding him guilty of the R A T I O : crime. Occurrence of the injury to third party immediately gave rise to the liability of the insurer under its policy. VDA. DE MAGLANA v CONSOLACION (1992) THE LIABILITY OF THE INSURER IS BASED ON CONTRACT; THAT OF THE INSURED IS BASED ON TORT.
FACTS: ISSUE: RATIO:
Insurance: CMVI Petitioner’s husband got hit by a jeep while riding his motorcycle. She filed an action for damages against the driver and Afisco Insurance. Lower court ruled that Afisco is primarily and solidarily liable with the driver. WoN Afisco is solidarily liable with the driver. NO. The direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault.
FAR EASTERN SURETY v MISA (1968) Insurance: Common Carrier’s Accident Insurance Two passengers of a taxi got injured because of a collision F A C T S : with a gravel and sand truck. They filed a suit for damages against the taxi company, who filed a third party complaint against FES. ISSUE: WoN FES is liable. NO. ONLY THE TAXI COMPANY IS LIABLE. The taxi company was in estoppel (sticker “insured” affixed to the cab). Had it not been for its representation that its passengers were RATIO: insured, the taxi company would not have been liable at all since the truck was found to be the cause of the accident. FES never authorized, consented, or even knew of the `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
representation made by the company to its passengers—it is outside the contemplation of the parties to the contract of Accident Insurance. PEZA v ALIKPALA (1988) Insurance: Comprehensive Coverage Policy, Loss by Theft 2 children were run over by a car. Upon claiming by the insured, Empire Insurance raised the defense that the driver F A C T S : only had a temporary operator’s permit that was already expired, since his driver’s license was confiscated by the LTO for an alleged violation of traffic rules, which is against the authorized driver clause. ISSUE: WoN Empire is liable. NO. The driver’s license had indeed been confiscated and the temporary permit issued to him has already expired at the RATIO: time the accident happened. The fact that the license has been renewed is immaterial.
FIRST INTEGRATED BONDING v HERNANDO (1991) A jeep ran over a 5 year old kid. The parents filed a FACTS: complaint for damages against the driver and FIB, as the latter’s insurer. ISSUE: WoN the parents can sue FIB directly. YES. Where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer. This is to protect the injured party against the insolvency of the insured who RATIO AND caused the injury, and to give such person a certain DOCTRINE: beneficial interest in the proceeds of the policy. Such provision creates a contractual relation which inures to the benefit of any person who may be negligently injured by the insured.
Suretyship Section 2 (2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include: (b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; Section 175 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.
Section 176 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.
NATIONAL POWER CORP v CA (1986) NPC entered into a contract w/ FFEI for the erection of transmission lines for the Angat Hydroelectric Project. FFEI agreed to complete the work w/in 120 days, otherwise it would pay NPC P200 per calendar day as liquidated damages. F A C T S : Philamgen issued a surety bond for the faithful performance of the undertaking by FFEI. FFEI failed to complete the project and withdrew from it. Upon demand of NPC, Philamgen’s defense: liability under the bond expired upon the lapsing of the 120 day requirement. ISSUE: WoN Philamgen is liable under the bond. YES. Philamgen has been duly notified of the breach of FFEI R A T I O : way before the date of expiration of the bond. The breach of FFEI was within the effective date of the contract and surety 33
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bond. Such breach gave rise to the continuing liability of the bond as provided for in the contract w/c is deemed incorporated in the surety bond executed for its completion.
Section 177 The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.
PHIL. PRYCE ASSURANCE v CA (1994) G.R.: PAYMENT OF PREMIUMS IS NECESSARY FOR A CONTRACT OF SURETYSHIP TO BE VALID AND B INDING. E: IF THE OBLIGEE ACCEPTS THE BOND NOTWITHSTANDING NON-PAYMENT OF PREMIUMS.
FACTS: ISSUE: RATIO:
PPA issued 2 surety bonds in behalf of Sagum Gen. Merch. to Gegroco Inc. When Gegroco filed for collection of the sum, PPA’s defense: the checks w/c were supposed to be payments for the premiums of Sagum bounced—no payment of premium, no contract bet. Sagum & PPA. WoN there was a perfected contract bet. Sagum & PPA. YES. The bonds were already accepted by Gegroco, thus the contract of suretyship had been perfected.
Section 178 Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.
EASTERN ASSURANCE v IAC (1989) PROPOSAL BOND – POSTED TO ASSURE THA T THE BIDDER IS IN GOOD FAITH, AND THAT THE BIDDER WILL ENTER INTO A CONTRACT W/ T HE PROJECT OWNER SHOULD HIS PROPOSAL BE ACCEPTED . PERFORMANCE BOND – DESIGNED TO AFFORD T HE PROJECT OWNER SECURI TY THAT THE BIDDER, NOW THE CONTRACTOR, WILL FAITHFULLY COMPLY W/ THE REQUIREMENTS OF THE CONTRACT & MAKE GOOD THE DAMAGES SUSTAINED BY THE PROJECT OWNER IN CASE OF THE CONTRACTOR’S FAILURE TO PERFORM.
STRONGHOLD INSURANCE v CA (1992) CONDITIONS FOR PROCEEDING AGAINST THE BOND: (1) THE PLAINTIFF A QUO, IN BAD FAITH, FAILED TO PROSECUTE THE ACTION, AND AFTER RELIEVIN G THE PROPERTY, IT PROMPTL Y DISAPPEARED; (2) THE SUBJECT PROPERTY DISAPPEARED W/ THE PLAINTIFF, DESPITE A COURT ORDER FOR THEIR RETURN; AND (3) A REASONABLE SUM WAS ADJUDGED TO BE DUE T O RESPONDENT, BY WAY OF ACTUAL & EXEMPLARY DAMAGES, ATTY’S FEES AND COSTS OF SUIT.
FACTS:
ISSUE: RATIO:
Leisure Club filed an action for replevin against Northern Motors to recover office furniture & equipment. The lower court ordered delivery of such subject to the posting of a bond. Stronghold issued the bond for LC. NM filed a counterbond for the release of the properties, but LC was never heard from again. NM won the case and filed a motion for the issuance of a writ of execution against bond by plaintiff’s surety. WoN Stronghold is liable for the damages awarded to NM. YES. All the necessary conditions for proceeding against the bond are present.
PRUDENTIAL v EQUINOX (2007) Prudential issued 2 bonds for the construction company. The Construction Company did not adhere to the terms of the FACTS: contract. Upon judgment, lower court found the company and prudential solidarily liable. WoN Prudential as surety can be held solidarily liable with ISSUE: the construction company. YES. While a contract of surety is secondary only to a valid principal obligation, the surety’s liability to the creditor is RATIO: said to be direct, primary, and absolute. The surety is directly & equally bound w/ the principal. INTRA-STRATA v REPUBLIC (2008) Phil. Home Assurance issued general warehousing bonds in favour of the Bureau of Customs in behalf of Grand Textile. F A C T S : GT withdrew goods from the warehouse w/o fully paying for the charges and taxes due on it. BOC filed a suit against GT and PHA. ISSUE: WoN PHA is liable. YES. It is completely erroneous for the surety to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. Under the terms of R A T I O : the contract, the fact that the withdrawal was made and the principal was in default made the surety’s solidary obligation to pay, due and demandable. This solidary obligation subsists for as long as the amounts due on the importations have not been paid.
EA issued a Proposal Bond on behalf of Motor City, for the repair of the 7 jeeps of DAR which Motor City won in a public bidding. Only 6 jeeps were promptly repaired and delivered. Upon suit of DAR, EA’s defense: the bond posted was a mere proposal and not an actual undertaking. WoN EA may be held libel by DAR for breach by Motor City YES. Even if the bond was titled as a Proposal Bond, the stipulations indicate that is a Performance Bond, since it covers not merely the acceptance of the award and the conclusion of the contract, but also the performance of its provisions.
REPARATIONS COMMISSION v UNIVERSAL DEEP SEA FISHING CORP (1957) Universal was awarded 6 trawl boats by petitioner. Each boat was to be paid by paying an initial 10% of the purchase price & 10 successive instalments. To guarantee such compliance, a FACTS: perf bond was issued by Manila Surety. The RC instituted an action against Universal & MS for the recovery of various amounts of money under the contracts. ISSUE: WoN MS should be awarded the premium in the perf bond. YES. The payment of premiums on the bonds to the surety company had been expressly undertaken by Universal in the indemnity agreements executed by it in favor of judgment, surety company. The premium is judgment, consideration for RATIO: furnishing judgment, bonds and judgment, obligation to pay judgment, same subsists for as long as judgment, liability of judgment, surety shall exist. Hence, Universal should pay judgment, to judgment, surety company.
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Double Insurance and Reinsurance
Section 93 A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.
Requisites of Double Insurance 1. Person insured is the same 2. 2 or more insurers insuring separately 3. Same subject matter 4. Same insurable interest 5. Same risk or peril insured against
VALUE PARTIES VALIDITY
DOUBLE INSURANCE
OVER-INSURANCE
May or may not exceed the insurable interest Two or more insurers Valid as long as there is no prohibition in the policy.
Exceeds the insurable interest May be only one insurer No recovery as to the excess, but the policy is valid.
General rules on double insurance Absent any stipulation, any additional insurance is not invalidated by the procuring of such insurance
Section 94 Where the insured is overinsured 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.
Some important terms to remember “Contribution Clause / Pro Rata Clause” -
An Insurer is not liable to pay/contribute more than its ratable proportion of the loss/damage
“Ratable Proportion” 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑃𝑜𝑙𝑖𝑐𝑦 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑡𝑎𝑘𝑒𝑛
𝑥 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐿𝑜𝑠𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑟
Specific Rules For Valued Policies
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If the insured claims more than the pro rata liability of the insurer, the latter may claim from the others insurer the difference, until all insurers have paid all their pro-rated liability. Where sum received is greater than the total insurance taken -
Insured is to hold the amount in excess of the insurance taken in trust for the insurers
DOUBLE INSURANCE Insurer remains as the insurer of the reinsured Subject: Property Insurance of the same interest Insured is the party in interest in all the contracts Insured has to give consent
REINSURANCE Insurer becomes the insured as regards the reinsurance Subject: Original Insurer’s risk Insurance of a different interest Original insured has no interest in the reinsurance contract (it is independent of the original contract of insurance) Consent of the original insured is not necessary
Section 95 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.
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Commonly referred to as the “insurance of an insurance”
Some important terms to remember “Retention Limit” -
Every insurance company establishes a limit on the maximum claim it wishes to pay out of its own resources on a particular time frame. “Primary/Direct/Ceding Insurer” Insurer originally writing the insurance “Net Retention / Net Line” Portion of the risk retained by the Primary Insurer “Cession” Portion of the risk transferred to the Reinsurer “Retrocession” -
The passing of a reinsurer of a portion of the risk reinsured to another reinsurer. It is the “reinsurance of a reinsurance” “Retrocedent” The ceding reinsurer “Retrocessionaire” -
The second assuming reinsurer
Value of the Reinsurance Business To the Insurer 2. An Insurer is able to issue policies for amounts in excess of its retention limit, or beyond its financial resources in case of loss 3. Spreading of risks 4. The knowledge of the industry regarding classification of impaired risks is increased a. This is because the underwriting research is now focused on the extensive array of risk information a reinsurance company has on its account. 5. Long-run profitable business for the reinsurer
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Value of the loss is going to be based on the value of the property during valuation Insured can only claim indemnity up to the value indicated on the valued policy For Open Policies -
First, the value of the loss must first be identified. Same rule on the maximum indemnity the insured may claim from each insurer Liability of each insurer to contribute ratably to the loss -
First, compute for the pro rata liability of each insurer
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To the Insured 1. Greater financial stability to insurance companies, thus making the insured’s policy more reliable 2. If a large amount of insurance is needed, the insured may obtain it without negotiating with numerous companies 3. It enables the insured to obtain protection promptly 4. All the insurance can be written under identical contract provisions 5. Small companies are encouraged to divide large exposures for safety and enabled to accept a wide variety of applicants
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ARTEX DEV’T CO v WELLINGTON INSURANCE (1973) Insurance: Fire Iinsurance WI insured the buildings, stocks, & machinery of Artex against loss or damage by fire or lightning. They were burned. FACTS: WI paid the indemnity, but there was still a remaining balance. Artex claims that the reinsurer can pay for the remaining balance. ISSUE: WoN Artex can solely look to the reinsurers for indemnity. NO. Artex not being a party or privy to WI’s reinsurance R A T I O : contracts, it could not directly demand enforcement of such insurance contracts.
Section 96 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.
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Similar to the disclosure responsibility of the insured Misrepresentation or Concealment may also avoid the reinsurance.
Automatic method of ceding reinsurance The liability of the reinsurer happens simultaneously with the approval of the policy by the ceding insurer The rule in Sec. 96 does not apply in automatic reinsurance treaties The main advantage to the insurer is the avoidance of any delay in issuing its policy. The reinsurer relies on the underwriting judgement of the insurer and is bound to accept a case even though it may not agree with the underwriting decision Facultative method of ceding reinsurance There is no obligation to cede or to accept participation in the risk insured The liability ensues upon acceptance of the risk REINSURANCE TREATY Agreement between 2 insurance companies where one agrees to cede and the other to accept Contracts for insurance
REINSURANCE POLICY Contract of indemnity one insurer makes with another
REINSURANCE The insurer and the reinsurer share the risk Happens when the original insurer wants to cede some or all of the risks on a policy to another Allowed
CO-INSURANCE The insurer and the insured share the risk Happens when the insured fails to insure the complete value of the property Prohibited
PHILAM v AUDITOR (1968) TO BE EXEMPT FROM THE MARGIN LAW, THERE MUST BE A REINSURANCE POLICY OR A REINSURANCE CESSION.
FACTS:
ISSUE:
RATIO:
Philam Life and American International Reinsurance Co. entered into a reinsurance treaty. Subsequently, the Margin Law was passed, w/c provided that all sales of foreign exchange shall be subject to a 25% margin. The law specifically states that it shall not apply to issued, approved and outstanding obligations as of its effectivity. Philam Life is now claiming a refund from the Central Bank’s collected remittance alleging that they were exempted from the Margin Law, since such remittances were only made in the implementation of a mother contract (agreed upon before effectivity of Margin Law), w/c is the reinsurance treaty. WoN Philam Life is exempted from paying the foreign exchange margin NO. Philam entered into a reinsurance treaty. A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. In contradistinction a reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. They are not synonymous.
FIELDMEN’S v ASIAN SURETY (1970) Asian Surety ceded a specified portion of its insurance contracts to Fieldmen’s. After a few months, Fieldmen’s gave a written notice to AS of the cancellation of its reinsurance FACTS: contract. AS did not reply. One of the risks reinsured w/ Fieldmen’s happened. Fieldmen’s denied liability, citing its previous cancellation of the contract. WoN Fieldmen’s may be held liable despite previous ISSUE: cancellation of the reinsurance agreement. YES. The stipulation of their contract states: that in the event of termination of this Agreement, the liability of the Fieldmen's under current cessions shall continue in full force RATIO: and effect until their natural expiry. Hence, such cessions continued to be in force until their respective dates of expiration.
Contracts of Insurance
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Marine Insurance
PERILS OF THE SEA Covered by marine insurance Losses which result from extraordinary causes
Section 99 Marine Insurance includes: (1) Insurance against loss of or damage to: (e) 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; (f) 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); (g) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; (h) 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.
1. 2.
1. 2. 3. 4.
Ocean Marine Insurance a. Insurance of marine perils Inland Marine Insurance a. Covers the land or over the land transportation perils of property b. Also covers inland waterway transportation and other perils outside the coverage of an Ocean Marine Insurance
Ships/Hulls Goods/Cargoes Earnings such as freight, passage, money, commissions or profits Liability incurred by the owner/any party interested in or responsible for the insured property
CATHAY INSURANCE v CA (1987) Remington insured seamless steel pipes with Cathay. Upon F A C T S : arrival in Manila, there was heavy rusting of some of the pipes. ISSUE: WoN rusting is considered a peril of the sea. YES. The rusting of steel pipes in the course of a voyage is a R A T I O : peril of the sea in view of the toll on the cargo of wind, water, & salt conditions. ROQUE v IAC (1985) G.R.: EVERYTHING W/C HAPPENS THROUGH THE INHERENT VICE OF THE THING, OR BY THE ACT OF OWNERS, MASTER OR SHIPPER, SHALL NOT BE REPUTED A PERIL, IF NOT OTHERWISE BORNE IN THE POLICY. FACTS: ISSUE:
RATIO:
Not Covered Losses resulting from ordinary wear and tear Other damages usually incidental to the voyage
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Logs carried by a barge sank because of a leak, and the logs were not secured w/ the necessary cover/tarpaulin, such that the ordinary splash of waves had brought more water than usual into the barge. WoN the loss was due to a peril of the sea. NO. In every marine policy, there is an implied warranty that the ship is seaworthy. “Perils of the sea” means losses caused by sea damage, or by violence of the elements, or from extraordinary occurrences—stress of weather, winds, and waves; lightning, tempests, rocks, etc. These arise from some overwhelming power that cannot be avoided through the ordinary exertion of human skill and prudence. In contrast, “perils of the ship” are those resulting from ordinary wear and tear of the voyage, or injuries suffered by the vessel as a result of not being seaworthy at the outset of the voyage, as in this case. The logs were improperly loaded, and the barge was no longer seaworthy.
LA RAZON v UNION INSURANCE (1919) THE WORDS "ALL OTHER PERILS, LOSSES, AND MISFORTUNES" ARE TO BE INTERPRETED AS COVERING RISKS WHICH ARE OF LIKE KIND (EJUSDEM GENERIS) WITH THE PARTICULAR RISKS WHI CH ARE ENUMERATED IN THE PRECEDING PART OF THE SAME CLAUSE OF THE CONTRACT. FACTS: ISSUE: RATIO:
Coverage Includes those casualties due to the unusual violence or extraordinary action of wind and wave Also includes extraordinary causes connected with navigation E.g. Shipwreck, foundering, stranding, collision and other damage done to the ship/goods while at sea
PERILS OF THE SHIP Not covered by marine insurance Losses which result from either the: 1. Natural and inevitable action of the sea 2. Ordinary wear and tear 3. Negligent failure of the ship’s owner to provide the ship with proper equipment
Sacks of rice were damaged by sea water that entered the ship due to a defect in one of the drain pipes of the ship. WoN such loss was due to a peril of the sea. NO. The entrance of the sea water was not due to any accident w/c happened during the voyage, but to the failure of the ship’s owner to properly repair the defect.
MALAYAN INSURANCE v CA (1997) Soya bean meal that stopped over in South Africa was seized by the local authorities because of a lawsuit on a question of FACTS: ownership. It was subsequently sold because of its perishable nature. WON the arrest of the vessel by civil authority is a peril ISSUE: covered. YES. Arrest caused by civil authorities by ordinary judicial R A T I O : process is deemed included among the covered risks, since it’s an extraordinary occurrence.
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G.R.: Insures against all causes of conceivable loss or damage E: Excluded in the policy OR due to fraud/intentional misconduct on the part of the insured CHOA v CA (1990) AN ALL RISK PROVISIO N OF A MARINE POLICY CREATES A SPECIAL TYPE OF IN SURANCE W/C EXTENDS COVERAGE TO RISKS NOT USUALLY CONTEMPLATED & AVOIDS PUTTING UPON THE INSURED THE BURD EN OF ESTABLISHING THAT THE LOSS WAS DUE TO PE RIL FALLING W/IN THE POL ICY’S COVERAGE.
FACTS: ISSUE:
RATIO:
All Risk Marine Insurance Cargo of lactose crystal arrived in Manila with majority of the bags damaged. Filipino Merchant’s Insurance rejected the claim, alleging that the cargo was already in bad order before it was loaded in the ship. WoN FMI is liable. YES. An all risk insurance policy insures against all causes of conceivable loss or damage, except as otherwise included in the policy or due to fraud or intentional misconduct on the part of the insured. It covers all losses during the voyage whether arising from a marine peril or not. FMI was not able to prove that the said loss falls within the exceptions.
MAYER STEEL v CA & SOUTHSEA SURETY (1997) Significant portion of pipes & fittings were discovered to be damaged upon arrival in Hong Kong. The insurers alleged that the damage incurred by the pipes were caused by factory defects w/c were not included in the policy. CA ruled F A C T S : that the insurance was all-risk, but dismissed the complaint on the ground of prescription, since suit for indemnity should have been brought w/in a year from the delivery of the defective goods or the date when the goods should have been delivered under the Carriage of Good by Sea Act. ISSUE: WoN the cause of action had prescribed. NO. CGSA not applicable. The provision cited governed the relationship between the carrier and the shipper/consignee/insurer, not the relationship between the RATIO: shipper and the insurer. The insurance contract is what governs, therefore the cause of action prescribed only after 10 years of inaction, under the Civil Code.
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Extension of cover to include damage/loss due to latent causes such as breakage of the ship’s drive shafts, bursting of its boilers, unseen defects in its hull, machinery, and auxiliary equipment; as well as due to errors in navigation, or negligence of its captain, officers, engineers, crew, pilots, etc. It is named after the ship Inchmaree involved in a landmark 1887 case where a UK court declared that the above causes do not fit the definition of “all other perils… losses or misfortunes”
Burden on insured to prove that the cargo was in good condition when the policy attached, and that the cargo was damaged when unloaded from the vessel
Section 100 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. Section 101 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. `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Section 102 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. Section 103 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. Section 104 The interest mentioned in the last section exists, in case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage.
Summary of insurable interests of the shipowner Shipowner always has an insurable interest over the ship, even if it is mortgaged or chartered to another In excess of value of the loan on bottomry In expected or anticipated freightage In passage money payable upon completion of voyage Other persons with insurable interests Charterer of ship o To the extent of which he is liable to be damnified for the loss Mortgagee of the ship o On the amount of the mortgage One who leases the ship o On the value of the ship Cargo Owner o Up to the value of the cargo Buyer/Consignee of goods o FOB Factory – Responsibility starts upon goods leaving the factory o FOB Point of Destination – Upon arrival of goods at a particular destination o CIF – Seller covers insurance on freight o C & F – Buyer procures the insurance Lender o Up to the amount of the loan given Passenger o To the paid passage money Loan on Bottomry Shipowner takes out a loan, which is only payable if the ship safely completes the contemplated voyage High interest loan, as the lender carries the risk of not getting paid Insurable Interest in ships hypothecated by Bottomry Only the amount above the loan on bottomry e.g. Ship = 1M; Loan = 800k; ∴ Insurable Interest = 200k Freightage The benefit which is to accrue to the owner of the vessel from its use or employment Sources of freightage: o Chartering of the ship o Use of the ship for transportation of goods (either of shipowner or of another) Shipowner has an insurable interest in expected freightage which he may not earn in case of the intervention of a peril insured against No insurable interest if the freightage contract stipulates payment in any event (either loss or success of journey) Passage money, on the other hand, is customarily recoverable upon completion of the voyage. o Therefore, passengers have an insurable interest on such amount o Shipowner may only have an insurable interest on such amount if it is payable upon the completion of the voyage 38
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Freightage in case of charter party Only exists: o As soon as there is an inception of performance by the ship under the carter party o As soon as the goods are actually put on board o Part of the goods has been loaded and the balance is ready o Shipowner has made a binding contract for freight and the ship is in readiness to receive the goods None exists: o There is no contract and no part of the goods are on board o Vessel is a mere “Seeking Ship” or a vessel looking for cargo to be transported FILIPINO MERCHANTS INSURANCE v CA (1989) Choa, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on R A T I O : the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale.
Section 105 One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits.
Insurable interest on expected profits This must be based on some legal right, although the profit may be contingent There also exists an insurable interest if it is based on a valuable consideration paid
Section 106 The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss.
Insurable interests of Charter Parties To the amount he will be liable to be damnified for the loss o e.g. Value of ship: 1M; Charter Payment: 200k; ∴ Insurable amount is 2.2M Also to the profits he expects to earn by carrying the goods in excess of the amount he agreed to pay for the charter of the vessel o e.g. Value of ship: 1M; Charter Payment: 200k upon arrival; Profits from shipping: 300k ∴ Insurable amount is 2.1M Types of Charter Parties 1. Bareboat or Demise Charter o The charterer only gets the bare boat, and it is responsible to provide for the crew, fuel, victuals, or other supplies it needs. o Responsibility for any liability on the ship is shouldered by the charterer 2. Contract of affreightment o This is done through a voyage charter or a time charter, where the charterer only acquires a right to use the space in the vessel for cargo o Responsibility for any liability on the ship is shouldered by the shipowner
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
COASTWISE v CA (1995) 2 KINDS OF CHARTER PARTIES: BAREBOAT & CONTRACT OF AFFREIGHTMENT. BA REBOAT – CHARTERER IS REGARDED AS THE OWNER FOR THE VOYAGE STIPULATED. THE CHAR TERER MANS THE VESSE L W/ HIS OWN PEOPLE AND BECOM ES THE OWNER PRO HAC VICE. CONTRACT OF AFFREIGHTMENT – THE OWNER MERELY LEASES PART OR THE ENTIRE V ESSEL TO HAUL GOODS FOR OTHERS. THE GENERAL OWNER RETAINS POSSESSION, CONTROL & NAVIGATION OF THE SHIP, THE CHARTERER MERELY HAV ING USE OF THE SPACE .
FACTS:
ISSUE: RATIO:
Pag-asa Sales entered into a contract to transport molasses from Negros to Manila w/ Coastwise, using the company’s dumb barges. One of the barges struck an unknown object. The buoyancy compartment was damaged causing water to come in and contaminate the molasses. Pihl. General Insurance flied an action against Coastwise after indemnifying Pag-asa. Coastwise’s defense: it is a private carrier, and therefore not liable. (Presumption of negligence of common carrier) What was the nature of the agreement bet. Pag-asa & Coastwise? AFFREIGHTMENT. Possession, command & navigation remained w/ Coastwise. Thus, Coastwise was not converted into a private carrier.
LEA MER INDUSTRIES v MALAYAN INSURANCE (2005) TO EXCUSE A CARRIER FROM LIABILITY, THE FORTUITOUS EVENT MUST HAVE BEEN THE PROXIMATE & ONLY CAUSE OF THE LOSS.
FACTS:
ISSUE:
RATIO:
Ilian Silica Mining entered into a contract of carriage w/ Lea Mer for the shipment of silica sand from Palawan to Manila. The barge were the sand was loaded sank. Malayan Insurance instituted the case against Lea Mer after indemnifying the consignee. Lea Mer’s defense: loss was due to Typhoon Trining (fortuitous event). WoN Lea Mer is liable for the loss of cargo YES. The contract was one of affreightment, since it was Lea Mer’s crew that manned the tugboat and controlled the barge. Necessarily, Lea Mer was a common carrier. Lea Mer presented no evidence that it had attempted to minimize or prevent the loss before, during, or after the alleged fortuitous event. There was also evidence that the hull of the barge had holes in it—might have aggravated the sinking.
LOADSTAR SHIPPING v PIONEER (2006) THE CHARTER IS LIMITED TO THE SHIP ONLY AND DOES NOT INVOLVE THE VESSEL OR THE CREW.
FACTS:
ISSUE: RATIO:
Loadstar entered into a voyage-charter agreement with Northern Mindanao. A shipment of cement on board Loadstar’s ship was lost because it was exposed to rain. Consignee was paid by insurer Pioneer, who was then subrogated in the former’s rights. Loadstar claims that voyage-charter agreement transformed it from a common carrier to a private carrier. WON Loadstar’s voyage-charter with Northern Mindanao converted the former into a private carrier NO. Thus, burden of proof was on Loadstar to prove that it exercised extraordinary diligence in preventing the loss from happening, which it failed to do.
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CEBU SALVAGE v PHIL. HOME ASSURANCE (2007) TO PERMIT A COMMON CARRIER TO ESCAPE RESPONSIBILITY FOR THE GOODS IT AGREED TO TRANSPORT WOULD RADICALLY DEROGATE F ROM THE CARRIER’S DUTY OF EX TRAORDINARY DILIGENC E. FACTS: ISSUE:
RATIO:
CSC and MCCII entered into a voyage charter. Goods were not delivered because the ship sank. CSC claims it could not be held liable as it was not the owner of the ship (owned by ALS) and was merely a carrier. WoN a carrier may be liable for the loss of cargo resulting from the sinking of a ship it does not own. YES. The contract of carriage was bet. CSC and MCCII and not bet. MCCII & ALS. To permit a common carrier would also open the door to collusion between the carrier and the supposed owner and to the possible shifting of liability from the carrier to one without any financial capability to answer for the resulting damages.
When concealment does not vitiate the entire contract Section 110 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) (b) (c) (d) (e)
G.R.:
The national character of the insured; The liability of the thing insured to capture and detention; The liability to seizure from breach of foreign laws of trade; The want of necessary documents; The use of false and simulated papers.
Concealment of a material fact entitles the injured party to rescind the contract of insurance If the fact concealed is any of the above, insurer is only exonerated from liability if the loss was due to any of the causes above
E:
Effect of false representation
Stricter duty to communicate Section 107 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.
Definition of ‘Concealment’ in marine insurance -
Notes: -
Failure to disclose any material fact/circumstance which in fact/law is within, or which ought to be, the knowledge of one party and of which the other has no actual or presumptive knowledge Rules in misrepresentations and concealments are stricter in Marine Insurance than in cases of fire insurance.
Opinions or expectations of third persons is material Section 108 In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.
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Stricter rule in Marine Insurance, where it is required that the following be conveyed to the insurer: o Material facts o Beliefs/Opinions of third persons in reference to a material fact o Expectations of third persons in reference to a material fact
Presumptive knowledge of loss Section 109 A person insured by a contract of marine insurance is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication.
Section 111 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.
-
Generally, the rules on representations and warranties and to the construction of representations for insurance contracts apply also to marine insurance
Effects of False Representation by the insured Intentional Avoids the policy Not Intentional -
Entitles the insurer to rescind the contract from the time the representation becomes false
Effect of eventual falsity as to expectation Section 112 The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance.
REPRESENTATIONS OF EXPECTATION / INTENTION Failure of fulfillment generally not a ground for rescission Need for FRAUD in order to be actionable Statements of future facts/events that are in their nature contingent and that which the insurer is bound to know that the insured could not have intended to state as known facts, but as intentions/expectations
PROMISSORY REPRESENTATIONS Failure of fulfillment a ground for rescission An expected representation to be done by the insured, which is material to the risk insured by the insurer
Reason for the Presumption -
Quickness in the transmission of news by means of modern communications
When is rule applicable -
If the information might possible have reached him in the usual mode of transmission and at the usual rate of communication
When is rule not applicable -
The insured is not obliged to use all accessible means of information at the very last instant of time to ascertain the condition of the property insured
Section 113 In every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Section 114 A ship is seaworthy when it is reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. Section 115 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) (b)
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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; 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 40
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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. Section 116 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. Section 117 Where different portions of the voyage contemplated by a policy differ in respect to the things 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. Section 118 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. Section 119 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.
Warranty in Marine Insurance A stipulation, either expressed or implied, forming part of the policy, as to some fact, condition, or circumstance relating to the risk Implied warranties 1. Ship is seaworthy 2. It will not deviate from the agreed voyage 3. It will not engage in an illegal venture 4. The ship will carry the requisite documents of nationality/neutrality of the ship/cargo, where such nationality/neutrality is expressly warranted Definition of Seaworthiness A relative term, depending upon the nature of the ship, the voyage and the service in which she is at the time engaged The ship must be adequately equipped for the voyage, and manned with sufficient number of competent officers and crew When is seaworthiness complied with Commencement of Risk -
If the ship be seaworthy at the time of the commencement of the risk Prior/Subsequent unseaworthiness is not a breach of the warranty o UNLESS the insured incurs unreasonable delay in repairing the defect, and this defect caused the loss Exceptions to the General Rule above: -
Time Policy: The ship must be seaworthy at the commencement of every voyage Cargo Policy: Each vessel the cargo is shipped or transhipped must be seaworthy at the commencement of every voyage Voyage Policy: Ship must be seaworthy at the commencement of each portion of the voyage
Presumptions of unseaworthiness Unexplained sinking of ship Carrying of cargo on deck
PHIL. AMERICAN GENERAL INSURANCE v CA & FELDMAN SHIPPING LINES (1997) CARRYING A DECK CARG O RAISED THE PRESUMP TION OF UNSEAWORTHINESS. FACTS: ISSUE: RATIO:
7.5k cases of Coke were loaded to MV Asilda in Cebu to be shipped to Zambo. The vessel sank w/ all its cargo. Philamgen instituted this suit against Feldman after it indemnified Coca-Cola Bottlers. WoN Feldman can be held liable. YES. The vessel was unseaworthy when it left the port, since it was top-heavy because of the 2.5k cases of bottles w/c were stowed on deck—it became unstable. The vessel was a fishing vessel—cannot carry a substantial amount or quantity of cargo on deck.
Section 121 When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the voyage insured in one which conforms to the course of sailing fixed by mercantile usage between those places. Section 122 If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine insurance policy is that way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural, direct and advantageous. Section 123 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. Section 124 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; (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. Section 125 Every deviation not specified in the last section is improper. Section 126 An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.
Meaning of Deviation Any unexcused departure from the regular course or route of the insured voyage Any act which substantially alters the risk Cases of deviation in marine insurance 1. Departure from the course of sailing, fixed by mercantile usage between the places of beginning and ending specified in the policy 2. Departure from the most natural, direct, and advantageous route between the places specified if the course of sailing is not fixed by mercantile usage 3. Unreasonable delay in pursuing the voyage 4. The commencement of an entirely different voyage Effect of improper deviation Insurer is exonerated from liability for losses occurring subsequent to the deviation
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Section 120 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.
ABOITIZ SHIPPING v CA (2008) G.R.: LIMITED LIABILITY OF THE SHIPOWNER OR AGENT TO THE VALUE OF THE VESSEL, ITS APPURTENANCES & FREIGHTAGE EARNED IN THE VOYAGE, PROVIDED THAT THE OWNER OR AGENT A BANDONS THE VESSEL. E: SHIPOWNER STILL LIABLE IF FAULT CAN BE ATTRIBUTED TO THE SHIPOWNER.
1.
1.
Warranty of nationality – that the vessel be conducted and documented as of such nation Warranty of neutrality – that the insured property shall be accompanied by documentary evidence of its neutral character, and not by any other papers which compromise such character
2.
Section 127 (now 129) A loss may be either total or partial.
FACTS:
ISSUE:
RATIO:
Aboitiz’ s hip sank. 3 Insurance Cos. filed separate actions for damages against Abotiz to recover by way of subrogation the value of the cargoes. Abotiz’ defense: hypothecary doctrine (limited liability of shipowner when he abandons all interest in the ship) WoN Aboitiz can still be held liable despite the abandonment of the vessel ,as per the hypothecary doctrine. YES. Limited liability doctrine is embodied in Arts. 587, 590 & 837 under Book III of the Code of Commerce. There was negligence on the part of Aboitiz, shown by the failure of the captain to take a course of action that would prevent the vessel from sailing into a typhoon. Thus, the sinking of the ship was attributable to the negligence/fault of Aboitiz.
Total Section 129 (now 131) A total loss may be either actual or constructive.
Actual Section 130 (now 132) An actual total loss is caused by: (a) (b) (c) (d)
A total destruction of the thing insured; The irretrievable loss of the thing by sinking, or by being broken up; Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.
Section 132 (now 134) 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. Section 137 (now 139) 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.
Notes: Actual total loss exists when the subject matter of the insurance is wholly destroyed or lost or when it is so damaged as no longer to exist in its original character. o Complete physical destruction of the subject matter is not essential. o Such a loss may exist where the form and specie of the thing is destroyed although the materials of which it consisted still exist. Presumption of Loss: Time needed depends on the circumstances Limited Liability Rule G.R.: The liability of the shipowner or agent is limited to the value of the vessel E: When the loss of the vessel is attributable to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the vessel.
Constructive Section 131 (now 133) A constructive total loss is one which gives to a person insured a right to abandon, under Section one hundred thirty-nine.
Notes: Loss, although not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as total by abandonment. Loss or damage is more than ¾ of its value. ACTUAL LOSS No abandonment necessary
Abandonment Defined Section 138 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.
Concept: Abandonment is the act of the insured in declaring to the insurer the relinquishment of his interest in the thing insured. Right of abandonment does not apply to cases where the injury or average was occasioned by the shipowner’s fault. Instances justifying abandonment: o Capture, seizure or detention of the ship or cargo o Restraint by blockade or embargo, etc. Requirements of valid abandonment Section 139 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) (b) (c)
(d)
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
CONSTRUCTIVE LOSS Abandonment is necessary to recover as for a total loss
If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; If it is injured to such an extent as to reduce its value more than threefourths; If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or 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 sub-paragraph. But freightage cannot in any case be abandoned unless the ship is also abandoned.
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and he is responsible for the reasonable expenses incurred by the master after that date in an attempt to save the vessel.
Section 140 An abandonment must be neither partial nor conditional. Section 141 An abandonment must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make inquiry. Section 142 Where the information upon which an abandonment has been made proves incorrect, or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual. Section 143 Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally, a written notice of such abandonment shall be submitted within seven days from such oral notice. Section 144 A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof of interest or of loss.
Requisites of a Valid Abandonment:: 1. Actual relinquishment by the person insured of his interest in the thing insured 2. Constructive total loss 3. Abandonment be neither partial nor conditional 4. Abandonment must be made within a reasonable time after receipt of reliable information of the loss 5. Abandonment must be factual - Must be based on the state of facts at the time of the offer to abandon, and not upon the state disclosed by the information received, or upon the state of loss at a prior or subsequent time. 6. Abandonment must be made by giving notice thereof to the insurer which may be done orally or in writing - This is in order that the insurer may not be prejudiced by the delay, and may take immediate steps for the preservation of such of the property insured as may remain in existence. 7. Notice of abandonment must be explicit and must specify the particular cause of the abandonment. ORIENTAL ASSURANCE v CA (1991) 1208 Logs insured for P1M when it should have been for P3M. Logs were separated into 2 barges. One barge lost 497 out of FACTS: 598 of the logs. OA refused to indemnify, stating that it was not a total loss. WoN OA can be held liable based on the theory of a divisible ISSUE: contract of insurance & constructive total loss. NO. As per the stipulation of the parties, the liability of OA is for total loss. Constructive total loss cannot apply, because RATIO: the logs, though on separate barges, were insured by only one premium. Effects of valid abandonment Section 145 An abandonment can be sustained only upon the cause specified in the notice thereof. Section 146 An abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity.
Effects of a Valid Abandonment Transfers to the insurer the interest in the subject matter Insurer acquires the entire interest insured including rights of action which the insured has against third persons for the injury. In effect, insurer becomes entitled to all the rights which the insured possessed in the thing insured. The insured’s right to abandon is absolute when justified by the circumstances and no acceptance is necessary to validate the abandonment. Abandonment, when made, relates back to the time of the loss and if effectual, the title of the insurer becomes vested as of that date `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Rights of a marine insurer who pays for a loss as if it were an actual total loss Section 147 If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal abandonment.
Insurer liable for acts of insured’s agents Section 148 Upon an abandonment, acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit.
Refusal of insurer to accept abandonment Section 149 Where notice of abandonment is properly given, the rights of the insured are not prejudiced by the fact that the insurer refuses to accept the abandonment.
Form and effect of acceptance of abandonment Section 150 The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance. Section 151 The acceptance of an abandonment, whether express or implied, is conclusive upon the parties, and admits the loss and the sufficiency of the abandonment. Section 152 An abandonment once made and accepted is irrevocable, unless the ground upon which it was made proves to be unfounded. Section 153 On an accepted abandonment of a ship, freightage earned previous to the loss belongs to the insurer of said freightage; but freightage subsequently earned belongs to the insurer of the ship.
Effect of refusal to accept valid abandonment Section 154 If an insurer refuses to accept a valid abandonment, he is liable as upon actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured.
Recovery of actual loss upon omission to abandon Section 155 If a person insured omits to abandon, he may nevertheless recover his actual loss.
Partial Section 128 Every loss which is not total is partial.
Extended liability of insurer in case of reshipment Section 128 When a ship is prevented, at an intermediate port, from completing the voyage, by the perils insured against, the liability of a marine insurer on the cargo continues after they are thus reshipped. Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability.
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Section 156 A valuation in a policy of marine insurance in conclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud on his part; except that when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
Section 157 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.
Section 158 Where profits are separately insured in a contract of marine insurance, the insured is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole.
Section 159 In case of a valued policy of marine insurance on freightage or cargo, if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part.
Section 160 When profits are valued and insured by a contract of marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they are expected to arise, and the valuation fixes their amount.
Section 161 In estimating a loss under an open policy of marine insurance the following rules are to be observed: (a) (b)
(c) (d)
The value of a ship is its value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured; The value of the cargo is its actual cost to the insured, when laden on board, or where the cost cannot be ascertained, its market value at the time and place of lading, adding the charges incurred in purchasing and placing it on board, but without reference to any loss incurred in raising money for its purchase, or to any drawback on its exportation, or to the fluctuation of the market at the port of destination, or to expenses incurred on the way or on arrival; The value of freightage is the gross freightage, exclusive of primage, without reference to the cost of earning it; and The cost of insurance is in each case to be added to the value thus estimated.
Section 163 A marine insurer is liable for all the expenses attendant upon a loss which forces the ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor for the recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either case, being in addition to a total loss, if that afterwards occurs.
Liability of insured as to averages Section 136 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.
Section 164 A marine insurer is liable for a loss falling upon the insured, through a contribution in respect to the thing insured, required to be made by him towards a general average loss called for by a peril insured against; provided, that the liability of the insurer shall be limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured.
Section 165 When a person insured by a contract of marine insurance has a demand against others for contribution, he may claim the whole loss from the insurer, subrogating him to his own right to contribution. But no such claim can be made upon the insurer after the separation of the interests liable to the contribution, nor when the insured, having the right and opportunity to enforce the contribution from others, has neglected or waived the exercise of that right.
Section 166 In the case of a partial loss of ship or its equipment, the old materials are to be applied towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for only two-thirds of the remaining cost of repairs after such deduction, except that anchors must be paid in full.
Section 162 If cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port, of the thing so damaged, bears to the market price it would have brought if sound.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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Notice and Proof of Loss Section 88 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. Section 89 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. Section 90 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. Section 91 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. Section 92 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.
Before the loss There must be compliance with the terms of the insurance contract as a condition precedent to the right of recovery. The terms of the insurance contract acts as a measure of the insurer’s liability. If the insured has violated the terms of the contract, then he cannot recover. In Section 88, in an insurance against fire, there must be notice of other insurance upon the same property. In the absence of such notice, the insurance is null and void. Conditions after loss In order for the right to recover to arise, suspensive condition of loss must first be established by the insured. 1. Notice o Under Section 88, the notice of loss must be given to the insurer and if required, a preliminary proof of loss shall likewise be given under Section 89. o In some life and accident policies, a provision is included requiring a certificate of the attending physician (as allowed by Section 92). 2.
Nature o
o 3.
While in the form of conditions precedent, they are in nature conditions subsequent to the breach which affects a right already accrued. Until a loss occurs the insurer's liability is contingent.
The Notice of Loss Notice of loss is the formal notice given by the insurer to the insured under a policy, of the occurrence of the loss. The purpose of notice of loss is to apprise the insurance company with the occurrence of the loss so that it may gather information and make proper investigation while the evidence is still fresh and take such action to protect its interest from fraud or imposition, or to prevent further loss to a property. The insurer cannot be held liable to pay the claim unless he receives notice. The law requires that such notice must be given without unnecessary delay, or in a timely manner, otherwise there will be no liability even if the peril is covered. Formal notice of loss is unnecessary if the insurer has actual knowledge of the loss. What constitutes a reasonable time of giving notice depends on the circumstances of each particular case although the requirement of immediate notice is construed liberally in favor of the insured. The insurance contract may provide a period for the submission of notice of loss, such provision is valid if it is not unreasonably short. Proof of loss Unlike the notice of loss, proof of loss is a much more formal requirement, as it is intended not only to give the insurer information by which he may determine the extent of his liability but also to afford him means to detect any fraud and to operate as a check against extravagant claims. The insurer or the insured my avail the services of adjusters in effecting the settlement. In a court action, the insured has the burden of proving that he has sustained a loss In life insurance the death of the insured must be proven. In fire insurance, the plaintiff must prove the amount of loss by preponderance of evidence. Mere inventory will not prove loss, but merely signifies notice or claim. Waiver of Defects of Notice or Proof The insurer must be satisfied with the information provided for by the insured. If there are defects, he must inform the insured so that the deficiencies may be supplied. There is waiver in the following circumstances: 1. The insurer considers the policy null and void 2. It recognizes its liability to the claim. 3. It denies all liability to the policy 4. It joins the proceedings for determining the amount of loss by arbitration, making no objection on account of notice and preliminary proof 5. Makes objection on any ground other than a formal defect Waiver of Delay in Presentation of Notice and Proof of loss 1. An act of the insurer (Estoppel) 2. Failure of the insurer to object on that ground. Failure to secure certificate from 3rd person If the contract of insurance provides requires certificate or testimony of a third person, the insured must comply but he is only required to exercise due diligence to procure it. In the event of refusal of such third person to give testimony, the insured is required to prove that such refusal was not induced by any just grounds of disbelief on the facts necessary to be certified.
Construction o All conditions in the policy-making requirements after the loss are intended to be evidentiary and do not properly for any part of the contract. o The general rules of construction require that they shall be construed with less strictness than other conditions that operate prior to the loss. o Substantial, not strict, compliance is sufficient. o Failure of the insured to strictly comply will be excused if the circumstances make strict compliance impossible.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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PHILAM v. CA PUBLIC RECORDS MADE IN THE R EGULAR PERFORMANCE OF DUTIES ARE PRIMA FACIE EVIDENCES OF L OSS.
FACTS: ISSUE: RATIO:
PHILAM refuses to pay the proceeds for the insurance policy taken out on the life of Florence Pulido, claiming that she already died when the policy was perfected. The company rejected the certificate of death presented and instead relied on their own investigation. Is the contract void for fraud? NO, because it must be presumed that the certificate of death prepared by the municipal health officer in the regular performance of his duties is prima facie evidence of death of the cestui que vie.
ABOITIZ v. INSURANCE CO. OF NORTH AMERICA AS A GENERAL RULE THE MANNER OF NOTICE MAY BE AGREED UPON IN THE C ONTRACT BUT THERE AR E SOME PECULIAR CASES WHEN SUCH AGREEMENT MAY N OT BE FOLLOWED.
FACTS:
RATIO:
Transhipment of workbenches and tools but upon arrival the same were damaged. Insurer refused to pay the proceeds of the marine insurance because it claimed that there was no proper presentation of notice and proof of loss in the manner provided for by the contract of insurance. Despite the terms of the contract, the bill of lading may modify the periods and manner of giving notice.
Guidelines on Claims Settlement Section 241 (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 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 non-compliance 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. Section 242 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. Section 243 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 damage is made either by `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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. Section 244 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.
Claims Settlement It is the indemnification of the loss suffered by the insured. Section 241 outlines the forms of unfair claims settlement, which may be cause for suspension or revocation of an insurance company's certificate of authority. The following are unfair claims settlement practices: o Knowingly misrepresenting to claimants, pertinent facts or policy provisions relating to coverages and issue o Failing to acknowledge with reasonable promptness, pertinent communications with respect to claims arising from their policies o Failing to adopt and implement reasonable standards for prompt investigations of claims arising under its policies. o Not attending in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear o 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. Settlement of Life insurance losses The settlement of life claims is usually undertaken by the insurance agent. The life insurance policy does not provide for payment upon death but for payment upon submission of proof of death. Money claims are death claims because a lump sum is paid out. In life policies the proceeds are payable upon maturity or the expiration of the period set forth. In policies maturing upon the death of the insured, the proceeds are payable to the beneficiaries within 60 days after presentation of the claim and proof of death. The sixty days is procedural in nature and it is to determine the exact amount to be paid and the interest of the beneficiaries. LONDRES v. NATIONAL LIFE IN CLAIMS SETTLEMENT, THE OBLIGATION IS TO BE PAID OUT IN PRESENT LEGAL TENDER
FACTS:
ISSUE:
RATIO:
Londres took a life insurance policy from National Life during the Japanese Occupation. Before liberation he was killed and so the beneficiaries submitted a claim for the proceeds. Insurer contended that they are not liable for the face value in the policy but its equivalent in present legal tender under the Ballantyne Scale. Is the beneficiary entitled to the full amount? NO. Even if the cestui que vie died during the Japanese Occupation, the insurer was only able to reopen after liberation and therefore it only became payable after that time. Because of such, the proceeds to be paid is not the face value equivalent but the converted equivalent in present legal tender.
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FERNANDEZ v. NATIONAL LIFE LIFE POLICIES MATURE UPON DEATH, AND THE INSURER IS LIABLE TO PAY WITHIN 60 DAYS.
FACTS: ISSUE:
RATIO:
The insured took out a life policy during the Japanese Occupation and died while the policy was in force. The insurer refused to pay the full amount of the face value because it contended that the policy matured not on the date of death but on the approval of the proof of death and the claim. When did the insurer become liable? The policy had already matured at the date of the cestui que vie's death. From that date the insured was liable to pay within 60 days, such period only being procedural in nature. Londres is not applicable in the present case because the insurer was open for business when the policy matured on the death of the insured.
Claims settlement for policies other than life -
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In fire, the insured has the obligation of presenting notice and proof of loss and prevent any further damage to the property insured. The option of the insurer for settlement is either to pay for the loss or restore the property to its former condition. Substantial compliance with the requirements will always be deemed sufficient. In liability insurance, the extent is usually determined by the adjuster. In liability for personal injuries, the extent is usually based on the loss of time, suffering and inconvenience, and actual expenses. In liability for property damage, the extent of a claim is measured by the amount of loss which is the difference between the property undamaged and the damaged part. The time for payment in non-life policies shall be within 30 days from the receipt of proof of loss and ascertainment of the loss by agreement; or by arbitration but not later than 90 days from the receipt of proof of loss whether or not ascertainment had been made. The insured is not liable for incorrect statements innocently made despite a clause in the policy providing for forfeiture in the event of false swearing.
NODA v. CRUZ ARNALDO IN DETERMINING COMPL IANCE WITH THE PROOF OF LOSS REQUIREMENT, SUBSTANTIAL AND NOT ST RICT COMPLIANCE IS ALWAYS DEEMED SUFFICIENT.
FACTS:
ISSUE:
RATIO:
The insured took out two fire insurance policies for his business establishment: one for 30k covering goods and another one covering to separate items worth 60k and 40k. Fire consumed his insured properties, but the insurer refused to indemnify the total of 130k. He filed a complaint before the Insurance commissioner for non-payment of claim. While the case was pending the insurer settled the first insurance policy for more or less 15k. The Insurance Commissioner rendered a decision absolving the insurer form further liability because of the settlement notwithstanding the fact that there are two separate items insured in the same policy because of insufficient proof. WoN the Commissioner committed a grave abuse of discretion. YES. The Insurance Commissioner committed grave abuse of discretion when she denied the petitioner's claim for insufficient proof. The evidence presented by the petitioner proved by preponderance of evidence the loss of some 590k worth of goods at the time of the fire. While the insurer may reject the claim if they find the proofs unsatisfactory, they may not set up arbitrary standards. Sufficient proof is enough.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
FINMAN v CA SUBSTANTIAL COMPLIANCE IS REQUIRED IN NOTICE AND PROOF OF LOSS REQUIR EMENTS AND THE INSUR ER IS NOT JUSTIFIED IN REJECTING THE CLAIM WHEN IT DID NOT QUESTION THE PRESENTATION OF SUCH DOCUMENTS.
FACTS:
ISSUE:
RATIO:
Usiphil took a fire insurance policy with Finman. When fire destroyed the insured property, Usiphil presented formal claim and proof of loss. Finman agreed to pay but afterwards refused to pay claiming that Usipil didn’t comply with Policy Condition 13 regarding submission of certain docs to prove loss. Is Finman's refusal justified? There was substantial compliance with the terms of the contract despite the fact that Usiphil did not submit the particular documents required by the insurer. This is because immediately after the fire Usiphil immediately executed a sworn statement of loss and formal claim and proof of loss. Besides, Finman already acknowledged its liability when it did not question the presentation of such documents during its meeting with the insured.
Prescription of Action Section 63 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. Section 231 (a) No policy of industrial life insurance shall be issued or delivered in the Philippines if it contains any of the following provisions: (a) A provision that gives the insurer the right to declare the policy void because the insured has had any disease or ailment, whether specified or not, or because the insured has received institutional, hospital, medical or surgical treatment or attention, except a provision which gives the insurer the right to declare the policy void if the insured has, within two years prior to the issuance of the policy, received institutional hospital, medical or surgical treatment or attention and if the insured or the claimant under the policy fails to show that the condition occasioning such treatment or attention was not of a serious nature or was not material to the risk; Section 384 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 amount of his loss, and/or 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 the 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 date of accident, otherwise, the claimant's right of action shall prescribe. Section 416 Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by filing with the Commissioner within thirty days from receipt of copy of such order, ruling or decision a notice of appeal and with the Supreme Court twelve printed or mimeographed copies of a petition for certiorari or review of such order, ruling or decision, as the case may be. A copy of the petition shall be served upon the Commissioner and upon the adverse party, and proof of service thereof attached to the original of the petition. As soon as a decision, order or ruling has become final and executory, the Commissioner shall motu propio or on motion of the interested party, issue a writ of execution required the sheriff or the proper officer to whom it is directed to execute said decision, order or award, pursuant to Rule thirty-nine of the Rules of Court. Article 1144 (CC) The following actions must be brought within ten years from the time the right of action accrues: (1) (2) (3)
Upon a written contract; Upon an obligation created by law; Upon a judgment
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Notes: -
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As a general rule, a clause in the insurance policy by the insured must be brought within the a certain period is valid and will prevail over the general law of limitations in the Civil Code if not contrary to Section 63. If the period fixed is less than one year from the time the cause of action accrues, the stipulation is void. o Ex. A stipulation providing that the action must be brought within 12 months is void. If the stipulation is void, the applicable period for filing an action will be 10 years as the contract of insurance is a written contract, pursuant to Article 1144 of the Civil Code. In a policy of industrial life insurance, the period cannot be less than 6 years after the cause of action accrues.
ANG v. FULTON THE FILING OF CLAIM AGAINST THE WRONG PA RTY PRODUCES NO LEGAL EFFECT, AND THEREFORE DOES NOT TOLL PRESCRIPTION.
FACTS:
ISSUE:
RATIO:
Ang insured his department store with Fulton insurance, but the insurer denied their claim because it alleged that the property was set on fire purposely. The insured initially filed a case against Pioneer surety in 1956 against Fulton's agent Pioneer but it was dismissed for being filed against the wrong party. The suspects for arson were acquitted and so Ang instituted an action in 1958 against Fulton but the insurer argued that the prescriptive period for filing action had already prescribed. Ang countered that the previous action against the agent of Fulton tolled the prescriptive period. Did Ang's action prescribe? The filing of an action against Pioneer was erroneous and did not produce any legal effect, and therefore it did not effectively toll the prescription of Ang's action. The provision on prescription of actions is an important condition, essential to a prompt settlement of claims against insurance companies, as it demands that insurance suits be brought while the evidence as to the origin and cause of destruction have not yet disappeared.
TRAVELLER'S INSURANCE v. CA IN THIRD PARTY LIABILITY INSURANCE, THE INSURANCE CODE GIVES THE VICTIMS 6 MONTHS TO FILE THEIR CLAIM, FAILURE TO DO SO IS A WAIVER
FACTS:
ISSUE:
RATIO:
An old lady was killed after a taxi ran over her. The victim's heirs filed a complaint for damages against the driver, the owner of the taxi and later included the taxi's insurer. The lower court rendered the parties liable for the death of the victim and ordered them to pay damages. Traveller's appealed the decision, arguing that they are not liable since the victims did not file their claim for 3rd party liability. Is Travellers liable? Assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private respondent’s cause of action against petitioner did not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date of the accident as required by Section 384 of the Insurance Code. Since the victims failed to comply with the requirements of the law, the claim is deemed waived.
LOPEZ v. FILIPINAS THE FILING OF AN ACTION, NOT A CLAIM, TOLLS THE PERIOD OF PRESCRIPTION.
FACTS:
In a claim for accident insurance, the insured filed a complaint with the Office of the Insurance Commissioner and agreed to submit the case to the Insurance Commissioner for arbitration, but was rejected because arbitration only fixed the amount of liability and does not deal with cases where the insurer does not admit liability. The insured then filed a case before the CFI, but the insurer asked that the case be dismissed for the action had prescribed.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
ISSUE: RATIO:
NOTE:
Did Lopez's action prescribe? YES THE ACTION HAS PRESCRIBED. The filing of the claim before the insurance Commission did not toll the prescriptive period because what converts a claim to an action or suit is the filing of the same before a court of justice. UNDER THE PRESENT RULES, THE INSURANCE COMMISSION IS A QUASI-JUDICIAL BODY THAT RESOLVES ACTIONS INVOLVING INSURANCE CLAIMS. ITS JURISDICTION IS CONCURRENT WITH THE REGIONAL TRIAL COURTS.
EAGLE STAR v. CHIA YU ANY STIPULATION THAT PROVIDES A PERIOD OF LESS THAN A YEAR FOR FILING AN ACTION ON A CLAIM IS VOID
FACTS:
RATIO:
Shipment of underwear arrived in bad condition. Chia Yu, the consignee filed its claim with both the carrier and the insurer who both denied. More than two years after the delivery he filed an action before the CFI. The defendants invoked prescription as a defense The action against the carrier prescribed because of the terms of the bill of lading that provided for only one year to file the claim. As to the insurer, the claim did not prescribe because the terms of the policy that only allowed the filing of claim within 12 months after the happening of the loss is void.
MAYER STEEL, supra THE ACTION HAD NOT PRESCRIBED BECAUSE IT IS A CLAIM BY THE SHIPPER AGAINST THE INSURER. WHAT GOVERNS IS THE WRITTEN CONTRACT AND NOT THE CARRIAGE OF GOODS BY SEA ACT. HENCE, THE PRESCRIPTIVE PERIOD FOR FILING AN ACTION .IS 10 YEARS. VDA DE GABRIEL V. CA Fortune Insurance refused to furnish the proceeds of an accident policy because the action had prescribed and that FACTS: the report failed to disclose the cause of the cestui que vie's death. The action had prescribed because the prescription period contemplated by the insurer is not the 1 year period for filing RATIO: an action on the claim but the 6 month period for filing of the claim provided by the code from the time of the accident.
Subrogation Article 1236 (CC) The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Article 2207 (CC) If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Concept: Subrogation is the right of the insurer in certain cases, to take over the rights of the insured against the party responsible for the injury, loss or damage. When the insurance company pays for the loss, the payment operates as an equitable assignment to the insurer of the property and all the remedies which the insured may have.
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The principle of subrogation does not apple to life and accident policies as they are not contracts of indemnity. The rights to which the insurer as subrogee are the same and not greater than that of the subrogor. The insurer can only recover the amount the tis recoverable by the insured and can recover only if the insured likewise could have recovered.
MANILA MAHOGANY v. CA SINCE THE INSURER CAN BE SUBROGATED TO ONLY SUCH RIGHTS AS THE I NSURED MAY HAVE, SHO ULD THE INSURED, AFTER RECEIVING PAYMENT FROM TH E INSURER, RELEASE THE WRONGDOER WHO CAUSED THE LOSS, THE INSURER LO SES HIS RIGHTS AGAIN ST THE LATTER. BUT IN SUCH A CASE, THE INSURER WILL BE ENTITLED TO RECOVER FROM THE INSURED WHA TEVER IT HAS PAID TO THE LATTER, UNLESS THE RELEASE WAS MADE WITH THE CONSEN T OF THE INSUR ER.
FACTS:
ISSUE: RATIO:
Manila Mahogany's car was insured with Zenith Corporation. When the car figured in a collision with a truck owned by San Miguel, Zenith paid the proceeds. When Zenith tried to collect what it paid to San Miguel, it found out that the company paid Manila Mahogany already. Zenith demanded reimbursement from Manila Mahogany. Is Zenith entitled to reimbursement? Manila Mahogany is not obliged to pay Zenith for what San Miguel paid to it but for what Zenith paid to it. Since Manila Mahogany by its own acts released San Miguel thereby defeating SMC, then the right of action against Zenith was nullified.
PHILAMGEN v. CA THE DOCTRINE OF SUBR OGATION HAS ITS ROOTS IN EQUITY. IT IS THE MO DE THAT EQUITY ADOPT S TO ENSURE PAYMENT OF A DEBT OF A PARTY WHO, BECAUSE OF JUSTICE, EQUITY, AND GOOD CON SCIENCE, IS BOUND TO PAY.
FACTS:
ISSUE:
RATIO:
Felman’s vessel sank while transporting Coke bottles insured with Philamgen. Philamgen paid Coke the value of its claim, then proceeded against Felman to recover the same. TC and CA held that Philamgen had paid Coke in spite of the latter breaching the warranty of seaworthiness; thus no subrogation had occurred. WoN Philamgen was properly subrogated in Coke's rights Philamgen’s action against Felman finds support in Art. 2207 of the Civil Code, where it is provided that payment by the assurer to the assured operates as an equitable assignment of all the remedies that the assured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation accrues simply upon payment by the insurance company.
DANZAS v. ABROGAR SETTLEMENT BY THE TORTFEASOR WITHOUT CON SENT OF THE INSURER, WHILE IT KNOWS THE RIGHT OF THE INSURER, DOES NOT DE FEAT THE INSURER'S R IGHT OF SUBROGATION. FACTS:
ISSUE:
RATIO:
pendency of the case, the insured received payment from the airline (KAL) that shipped the goods. KAL claims that the right of subrogation of Seaboard has been extinguished by virtue of such payment. WoN the right of subrogation has been extinguished by payment of KAL to IFTI The doctrine of Manila Mahogany does not apply because the tortfeasor knew of the payment by the insurance company of the indemnity. Whenever the wrongdoer settles with the insured without the consent of the insurer and with knowledge of the insurer’s payment and right of subrogation, such right is not defeated by the settlement.
PAN MALAYAN v. CA THERE ARE CERTAIN EXCEPTIONS TO THE INSU RER'S RIGHT OF SUBROGATION: 1) IF THE ASSURED BY HIS OWN RECKLESS ACT RELEASES THE WRONGDOER OR THIRD PARTY LIABLE; 2) THE INSURER PAYS THE VALUE OF THE LOST GOODS WITHOUT NOTIFYING THE CARRIER WHO HAS IN GOOD FAITH SETTLED THE ASSURED'S CLAIM FOR LOSS, THE SETTLEMENT IS BINDIN G ON BOTH THE ASSURED AND THE INSURED.
FACTS: ISSUE:
RATIO:
Pan Malayan sought claims from Erlinda Fabie as the owner of a truck that collided with a car insured by the plaintiff. Defense of Fabie was that the "own damage" clause precluded subrogation because it was made under the assumption that there was no wrongdoer. Is Pan Malayan entitled to subrogation? YES, while there are valid exceptions to the right of subrogation (see doctrine), none of them are availing in the present case since the payment of the indemnity under the "own damage" coverage came from the incorrect presumption that the damage was caused by the insured. Even if the insurer may not be deemed subrogated due to voluntary payment, the Court has ruled that the insurer may nonetheless recover from the third party responsible under Article 1236 of the Civil Code.
DELSAN TRANSPORT v. CA SUBROGATION ENABLES THE INSURER TO EXERC ISE LEGAL REMEDIES AVAILABLE TO THE INSURED. RIGHT OF SUBROGATION SIMPL Y ACCRUES UPON PAYMENT BY THE INSURER OF THE INSURANCE CLAIM.
FACTS:
ISSUE:
RATIO:
Caltex has a contract with Delsan for the latter to ship Caltex’s fuel. Fuel insured by AHAC. Shipment from Batangas to Zamboanga sank. AHAC paid Caltex as insurer. Invoking their right of subrogation, AHAC filed a complaint for sum of money against Delsan. TC dismissed, because the sinking was due to force majeure; but CA reversed, reasoning that the ship was unseaworthy. Was the payment of indemnity to Caltex an admission that the ship was seaworthy, thus precluding subrogation? NO. While the payment to Caltex was a waiver of their right to enforce the implied warranty, AHAC can still, by right of subrogation, go after Delsan for its liability as the common carrier. Subrogation enables AHAC to exercise legal remedies that Caltex has against Delsan
Insurer (Seaboard) paid the damages incurred by the insured (IFTI) due to the bad shipment of goods (watches). During the
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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CLAIMS MATURITY
DELIVERY OF PROCEEDS
EFFECT OF REFUSAL OR FAILURE TO PAY CLAIM WITHIN TIME PRESCRIBED: (1) In case of litigation, it is the duty of the Commissioner or the Court to determine whether the claim has been unreasonably denied or withheld. (2) Failure to pay any such claim within the time prescribed shall be considered prima facie evidence of unreasonable delay in payment.
LIFE INSURANCE Either (Sec. 180): (1) Upon death of the person insured; (2) Upon his surviving a specific period; (3) Otherwise contingently on the continuance or cessation of life General Rule: Immediately upon maturity of policy. Exception: If payable in INSTALLMENTS or as an ANNUITY, when such installments or annuities become due
NON-LIFE INSURANCE (1) Upon happening of event insured against (2) Event must occur within the period specified in policy, otherwise insurer has no liability
(1) Within 30 days after: (a) Proof of loss is received by insurer; and (b) Ascertainment of loss or damage is made either by agreement between the insured and insurer or by arbitration IF MATURITY IS UPON DEATH: (2) If ascertainment is not made within 60 days Within 60 days after presentation of claim and after such receipt by insurer of proof of loss, filing of proof of death of insured. then loss or damage shall be paid within 90 days after such receipt. (1) Entitles beneficiary to COLLECT INTEREST on the proceeds of policy for the duration of the delay at rate of TWICE ceiling prescribed by the monetary board (unless refusal to pay is based on ground that claim is fraudulent) (2) In case damages are awarded, this includes attorney’s fees and other expenses incurred
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Commissioner, increase such minimum paid-up capital stock requirement, under such terms and conditions as he may impose, to an amount which, in his opinion, would reasonably assure the safety of the interests of the policyholders and the public.
The Business of Insurance Section 185 Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations". The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.
Section 187 No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed. The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interest of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section one hundred eighty-eight, reasonably assure the safety of the interests of the policyholders and the public. In order to maintain the quality of the management of the insurance companies and afford better protection to policyholders and the public in general, any person of good moral character, unquestioned integrity and recognized competence may be elected or appointed director or officer of insurance companies. The Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance companies for purposes of this section. No person shall concurrently be a director and/or officer of an insurance company and an adjustment company. Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of this decree, whichever is shorter. Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public. Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificates of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner. No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently unless specifically authorized to do so; Provided, That the terms "life" and "non-life" insurance shall be deemed to include health, accident and disability insurance. No insurance company shall have equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company. Insurance companies and adjustment companies presently affected by the above provision shall have two years from the effectivity of this Decree within which to divest of their stockholdings. Section 188 Except as provided in section two hundred eighty-one, no domestic insurance company shall, in a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital stock equal to at least five million pesos; Provided, That a domestic insurance company already doing business in the Philippines with a paidup capital stock which is less than five million pesos shall have a paid-up capital stock of at least three million pesos by December thirty-one, nineteen hundred seventyeight, four million pesos by December thirty-one, nineteen hundred seventy-nine and five million pesos by December thirty-one, nineteen hundred eighty; Provided, further, that the Secretary of Finance may, upon recommendation of the Insurance `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
The Commissioner may, as a pre-licensing requirement of a new insurance company, in addition to the paid-up capital stock, require the stockholders to pay in cash to the company in proportion to their subscription interests a contributed surplus fund of not less than one million pesos, in the case of a life insurance company, or not less than five hundred thousand pesos, in the case of an insurance company other than life. He may also require such company to submit to him a business plan showing the company's estimated receipts and disbursements, as well as the basis therefor, for the next succeeding three years. If organized as a mutual company, in lieu of such capital stock, it must have available cash assets of at least five million pesos above all liabilities for losses reported, expenses, taxes, legal reserve, and reinsurance of all outstanding risks, and the contributed surplus fund equal to the amounts required of stock corporations. A stock insurance company doing business in the Philippines may, subject to the pertinent law and regulations which now are of hereafter may be in force, alter its organization and transform itself into a mutual insurance company. Section 194 An insurance company doing business in the Philippines shall at all times maintain a margin of solvency which shall be an excess of the value of its admitted assets exclusive of its paid-up capital, in the case of a domestic company, or an excess of the value of its admitted assets in the Philippines, exclusive of its security deposits, in the case of a foreign company, over the amount of its liabilities, unearned premium and reinsurance reserves in the Philippines of at least two per mille of the total amount of its insurance in force as of the preceding calendar year on all policies, except term insurance, in the case of a life insurance company, or of at least ten per centum of the total amount of its net premium written during the preceding calendar year, in the case of a company other than a life insurance company; Provided, That in either case, such margin shall in no event be less than five hundred thousand pesos; and Provided, further, That the term "paid-up capital" shall not include contributed surplus and capital paid in excess of par value. Such assets, liabilities and reserves shall exclude assets, liabilities and reserves included in separate accounts established in accordance with section two hundred thirty-seven. Whenever the aforementioned margin be found to be less than that herein required to be maintained, the Commissioner shall forthwith direct the company to make good any such deficiency by cash, to be contributed by all stockholders of record in proportion to their respective interest, and paid to the treasurer of the company, within fifteen days from receipt of the order; Provided, That the company in the interim shall not be permitted to take any new risk of any kind or character unless and until it make good any such deficiency; Provided, further, that a stockholder who aside from paying the contribution due from him, pays the contribution due from the another stockholder by reason of the failure or refusal of the latter to do so, shall have a lien on the certificates of stock of the insurance company concerned appearing in its books in the name of the defaulting stockholder on the date of default, as well as on any interests or dividends that have accrued or will accrue to the said certificates of stock, until the corresponding payment or reimbursement is made by the defaulting stockholder. Section 198 No insurance company shall loan any of its money or deposits to any person, corporation or association, except upon first mortgage or deeds of trust of unencumbered, improved or unimproved real estate, including condominiums, in cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of seventy per centum of the market value of such real estate; or upon the security of first mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines when the amount of such loan is not in excess of forty per centum of the market value of such land; or upon the purchase money mortgages or like securities received by it upon the sale or exchange of real property acquired pursuant to sections two hundred and two hundred two; or upon bonds or other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other evidences of debt of government-owned or controlled corporations and instrumentalities including the Central Bank or upon obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other evidences of debt as are specified in section two hundred. A life insurance company, however, may lend to any of its policyholders upon the security of the value of its policy such sum as may be determined pursuant to the provisions of the policy. Loans granted upon the security of real estate for a period longer than five years shall be amortized in monthly, quarterly, semi-annual or annual installments; Provided, That no such loans shall have a maturity in excess of twenty years. The phrase "improved real estate" used above is hereby defined to mean land with permanent building or buildings erected or being erected thereon. Except as otherwise approved by the Commissioner, in case the building or buildings on land do not belong to the owner of the latter, no loan shall be granted on the security of the real estate in question unless both the owner of the building or buildings and the owner of the land sign the deed of mortgage, and unless the owner of the land is the Government of the Philippines or one of its political subdivisions, in which event the owner is not required to sign the deed of mortgage. Section 210
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Every life insurance company, doing business in the Philippines, shall annually make a valuation of all policies, additions thereto, unpaid dividends, and all other obligations outstanding on the thirty-first day of December of the preceding year. All such valuations shall be made upon the net premiums basis, according to the standard adopted by the company, which standard shall be stated in its annual report. Such standard of valuation whether of the net level premium, full preliminary term, any modified preliminary term, or select and ultimate reserve basis, shall be according to a standard table of mortality with interest at not more than six per centum compound interest. When the preliminary term basis is used, the term insurance shall be limited to the first policy year. The results of such valuations shall be reported to the Commissioner on or before the thirtieth day of April of each year accompanied by a sworn statement of the company's actuary certifying to the figures and stating upon what mortality table it is based, upon what rate of interest the valuation is made, and the methods used in arriving at the result obtained. Section 215 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. Section 216 An insurance company doing business in the Philippines may accept reinsurances only of such risks, and retain risk thereon within such limits, as it is otherwise authorized to insure. Section 223 Every insurance company doing business in the Philippines shall terminate its fiscal period on the thirty-first day of December every year, and shall annually on or before the thirtieth day of April of each year render to the Commissioner a statement signed and sworn to by the chief officer of such company showing, in such form and details as may be prescribed by the Commissioner, the exact condition of its affairs on the preceding thirty-first day of December. Any entry in the statement which is found to be false shall constitute a misdemeanor and the officer signing such statement shall be subject to the penalty provided for under section four hundred nineteen. Section 226 No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.
Section 227 In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: (k) A provision that the policyholder is entitled to a grace period either of thirty days or of one month within which the payment of any premium after the first may be made, subject at the option of the insurer to an interest charge not in excess of six per centum per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in full force, but in case the policy becomes a claim during the said period of grace before the overdue premium is paid, the amount of such premium with interest may de deducted from the amount payable under the policy in settlement; (l) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for nonpayment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war; (m) A provision that the policy shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so provided a copy of such application shall be indorsed upon or attached to the policy when issued, and in such case the policy shall contain a provision that the policy and the application therefore shall constitute the entire contract between the parties; (n) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age; (o) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein; (p) A provision specifying the options to which the policyholder is entitled to in the event of default in a premium payment after three full annual premiums shall have been paid. Such option shall consist of: (3) A cash surrender value payable upon surrender of the policy which shall not be less than the reserve on the policy, the basis of which shall be indicated, for the then current policy year and any dividend additions thereto, reduced by a surrender charge which shall not be more than one-fifth of the entire reserve or two and one-half per centum of the amount insured and any dividend additions thereto; (4) One or more paid-up benefits on a plan or plans specified in the policy of such value as may be purchased by the cash surrender value; (q) A provision that at anytime after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefore is made; (r) A table showing in figures cash surrender values and paid-up options available under the policy each year upon default in premium payments, during at least twenty years of the policy beginning with the year in which the values and options first become available, together with a provision that in the event of the failure of the policyholder to elect one of the said options within the time specified in the policy, one of said options shall automatically take effect and no policyholder shall ever forfeit his right to same by reason of his failure to so elect; (s) In case the proceeds of a policy are payable in installments or as an annuity, a table showing the minimum amounts of the installments or annuity payments; (t) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement. Any of the foregoing provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein; and any such policy may be issued and delivered in the Philippines which in the opinion of the Commissioner contains provisions on any one or more of the foregoing requirements more favorable to the policyholder than hereinbefore required. This section shall not apply to policies of group life or industrial life insurance.
Section 232 (2) The term "variable contract" shall mean any policy or contract on either a group or on an individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not be deemed to be a "security" or "securities" as defined in The Securities Act, as amended, or in the The Investment Company Act, as amended, nor subject to regulation under said Acts.
Section 242 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.
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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.
Section 243 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 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.
Section 262 Any domestic stock life insurance company doing business in the Philippines may convert itself into an incorporated mutual life insurer. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.
behalf of an insurer in the adjusting of claims arising under insurance contracts or policies issued by such insurer. The term "public adjuster" means any person, partnership, association or corporation which, for money, commission or any other thing of value, acts on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims of the said insured arising under insurance contracts or policies, or which advertises for or solicits employment as an adjuster of such claims.
Section 335 No life insurance company shall be licensed to do business in the Philippines nor shall any life insurance company doing business in the Philippines be allowed to continue doing such business unless they shall engage the services of an actuary duly accredited with the Commissioner who shall, during his tenure of office, be directly responsible for the direction and supervision of all actuarial work connected with or that may be involved in the business of the insurance company.
Section 339 Every organization which now exists or which may hereafter be formed for the purpose of making rates to be used by more than one insurance company authorized to do business in the Philippines shall be known as a "rating organization." The term "rate" as used in this title shall generally mean the ratio of the premium to the amount insured and shall include, as the context may require, either the consideration to be paid or charged for insurance contracts, including surety bonds, or the elements and factors forming the basis for the determination or application of the same, or both.
Agents and Other service providers Section 300 Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject. Section 301 Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject.
Section 314 The term "resident agent", as used in this title, is one duly appointed by a foreign insurer or broker not authorized to do business in the Philippines to receive in its behalf notices, summons and legal processes in connection with actions or other legal proceedings against such foreign insurer or broker.
Section 310 Except as provided in the next succeeding title, no person shall act as reinsurance broker in the Philippines unless he is authorized as such by the Commissioner. A reinsurance broker is one who, for compensation, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, act or aids in any manner in negotiating contracts of reinsurance, or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines.
Section 324 An adjuster may be an independent adjuster or a public adjuster. The term "independent adjuster" means any person, partnership, association or corporation which, for money, commission or any other thing of value, acts for or on `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
Section 365 There is hereby created a fund to be known as the "Security Fund" which shall be used in the payment of allowed claims against an insurance company authorized to transact business in the Philippines remaining unpaid by reason of the solvency of such company. The said Fund may also be used to reinsure the policy of the insolvent insurer in any solvent insurer authorized to do business in the Philippines as provided in section two hundred forty-nine. In the event of national emergency or calamity, the Fund may likewise be used to pay insured claims which otherwise would not be compensable under the provisions of the policy. No payment from the Security Fund shall, however, be made to any person who owns or controls ten per centum or more of the voting shares of stock of the insolvent insurer and no payment on any one claim shall exceed twenty thousand pesos.
Mutual Benefit Association Section 390 Any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and or no fixed amount from whomsoever may contribute, shall be known as a mutual benefit association within the intent of this Code. Any society, association, or corporation principally organized as labor union shall be governed by the Labor Code notwithstanding any mutual benefit feature provisions in its charter as incident to its organization. In no case shall a mutual benefit association be organized and authorized to transact business as a charitable or benevolent organization, and whenever it has this feature as incident to its existence, the corresponding charter provision shall be revised to conform with the provision of this section. Mutual benefit association, already licensed to transact business as such on the date this Code becomes effective, having charitable or benevolent feature shall abandon such incidental purpose upon effectivity of this Code if they desire to continue operating as such mutual benefit associations. Section 392 No mutual benefit association shall be issued a license to operate as such unless it has constituted and established a Guaranty Fund by depositing with the Commissioner an initial minimum amount of ten thousand pesos in cash, or in government securities with a total value equal to such amount, to answer for any valid benefit claim of any of its members. 53
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All moneys received by the Commissioner for this purpose must be deposited by him in interest-bearing deposits with any bank or banks authorized to transact business in the Philippines for the account of the particular association constituting the Guaranty Fund.
laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same.
Any accrual to such fund, be it interest earned or dividend additions on moneys or securities so deposited, may, with the prior approval of the Commissioner, be withdrawn by the association if there is no pending benefit claim against it, including interest thereon or dividend additions thereto.
The Commissioner may issue such ruling, instructions, circulars, orders and decision as he may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance.
The Commissioner, prior to or after licensing a mutual benefit association, may require such association to increase its Guaranty Fund from the initial minimum amount required to an amount equal to at least ten per centum of its assets, if such assets exceed one hundred thousand pesos, but in no case shall such increase exceed the maximum amount of capital investment required of a domestic insurance company under section two hundred and three of this Code.
Section 415 In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose upon the insurance companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, instruction, regulation, or ruling of the Insurance Commissioner, or any commission or irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Insurance Commissioner, the following:
Section 393 Every mutual benefit association licensed to do business as such shall issue membership certificates to its members specifying the benefits to which such members are entitled. Such certificates, together with the articles of incorporation of the association or its constitution and by-laws, and all existing laws as may be pertinent shall constitute the agreement, as of the date of its issuance, between the association and the member. The membership certificate shall be in a form previously approved by the Commissioner.
The insurance Commissioner Section 187 No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed. The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interest of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section one hundred eighty-eight, reasonably assure the safety of the interests of the policyholders and the public. In order to maintain the quality of the management of the insurance companies and afford better protection to policyholders and the public in general, any person of good moral character, unquestioned integrity and recognized competence may be elected or appointed director or officer of insurance companies. The Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance companies for purposes of this section. No person shall concurrently be a director and/or officer of an insurance company and an adjustment company. Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of this decree, whichever is shorter. Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public. Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificates of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner. No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently unless specifically authorized to do so; Provided, That the terms "life" and "non-life" insurance shall be deemed to include health, accident and disability insurance. No insurance company shall have equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company. Insurance companies and adjustment companies presently affected by the above provision shall have two years from the effectivity of this Decree within which to divest of their stockholdings. Section 414 The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing `_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
(a) fines not in excess of five hundred pesos a day; and (b) suspension, or after due hearing, removal of directors and/or officers and/or agents.
Section 416 The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or liability for which in insurer may be answerable under any kind of policy or contract of insurance, or for which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be sued under any contract of reinsurance it may have entered into; or for which a mutual benefit association may be held liable under the membership certificates it has issued to its members, where the amount of any such loss, damage or liability, excluding interest, cost and attorney's fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim one hundred thousand pesos. The insurer or surety may, in the same action file a counterclaim against the insured or the obligee. The insurer or surety may also file a cross-claim against a party for any claim arising out of the transaction or occurrence that is the subject matter of the original action or of a counterclaim therein. With leave of the Commissioner, an insurer or surety may file a third-party complaint against its reinsurers for indemnification, contribution, subrogation or any other relief, in respect of the transaction that is the subject matter of the original action filed with the Commissioner. The party filing an action pursuant to the provisions of this section thereby submits his person to the jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the person of the impleaded party or parties in accordance with and pursuant to the provisions of the Rules of Court. The authority to adjudicate granted to the Commissioner under this section shall be concurrent with that of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts from taking cognizance of a suit involving the same subject matter. Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by filing with the Commissioner within thirty days from receipt of copy of such order, ruling or decision a notice of appeal and with the Supreme Court twelve printed or mimeographed copies of a petition for certiorari or review of such order, ruling or decision, as the case may be. A copy of the petition shall be served upon the Commissioner and upon the adverse party, and proof of service thereof attached to the original of the petition. As soon as a decision, order or ruling has become final and executory, the Commissioner shall motu propio or on motion of the interested party, issue a writ of execution required the sheriff or the proper officer to whom it is directed to execute said decision, order or award, pursuant to Rule thirty-nine of the Rules of Court. For the purpose of any proceeding under this section, the Commissioner, or any officer thereof designated by him, empowered to administer oaths and affirmation, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, documents, or contracts or other records which are relevant or material to the inquiry. In case of contumacy by, or refusal to obey a subpoena issued to any person, the Commissioner may invoke the aid of any court of first instance within the jurisdiction of which such proceeding is carried on, where such person resides or carries on his own business, in requiring the attendance and testimony of witnesses and the production of books, papers, documents, contracts or other records. And such court may issue an order requiring such person to appear before the Commissioner, or officer designated by the Commissioner, there to produce records, if so ordered or to give testimony touching the matter in question. Any failure to obey such order of the court may be published by such court as a contempt thereof. A full and complete record shall be kept of all proceedings had before the commissioner, or the officers thereof designated by him, and all testimony shall be taken down and transcribed by a stenographer appointed by the Commissioner. A transcribed copy of the evidence and proceeding, or any specific part thereof, of any hearing taken by a stenographer appointed by the Commissioner, being certified by 54
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such stenographer to be a true and correct transcript of the testimony on this hearing of a particular witness, or of a specific proof thereof, carefully compared by him from his original notes, and to be a correct statement of evidence and proceeding had in such hearing so purporting to be taken and subscribed, may be received as evidence by the Commissioner and by any court with the same effect as if such stenographer were present and testified to the facts so certified.
Section 416 The party filing an action pursuant to the provisions of this section thereby submits his person to the jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the person of the impleaded party or parties in accordance with and pursuant to the provisions of the Rules of Court.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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http://www.batasnatin.com/law-library/mercantilelaw/insurance/1591-distinctions-and-similarities-between-aninsurance-contract-and-a-wagering-contract.html Sandra Magalang’s Insurance Reviewer UP Law Bar Operations Mercantile Reviewer 2013 Insurance Code of the Philippines Insurance Code Commentaries, Hector De Leon A2016 Digests and Notes
Entries made in this reviewer were made by analysing the commentaries + some of the authors’ understanding of the topics. If you have better notes, please do send them in. If you have examples, send them in as well. If you spot any errors on this reviewer, then good for you! It means you really know your Insurance Concepts! But please help us improve this reviewer by emailing your suggestions/comments at
[email protected] The creation of this reviewer never intended to defraud, injure, or plagiarize anyone.
`_______________________________________________________________ INSURANCE Reviewer || Prof. C. Dela Cerna
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