Insurance Reviewer

Jackrammer

INSURANCE

2nd Sem.; 2005

GENERAL PROVISIONS Sec. 1. Name of Decree: The Insurance Code of 1978 Jack: The question of whether a contract of insurance is perfected is NOT governed by the Insurance Code but by the New Civil Code (re: perfection of contracts). Sec. 2. Definition of Terms:

1.)

Contract of insurance: An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

Jack: Suretyship is different from an insurance contract because there are three parties in suretyship and when the surety pays, he is entitled to reimbursement. In insurance, when the insurer pays, he is not entitled to reimbursement. Underlying concept in insurance: It deals with a scheme of distribution of risk/loss. Elements of insurance contract: 1.) Consent of parties a.) Insurer b.) Insured 2.) Object: Transfer or distribute risk of loss, damage, liability or disability from insured to insurer 3.) Cause/consideration: Premiums 4.) INSURABLE INTEREST: Insured possesses an interest of some kind susceptible of pecuniary estimation. Elements of insurance contract: (according to Jack) [IRASP] 1.) Insurable interest; 2.) Risk of loss; 3.) Assumption of risk; 4.) Scheme to distribute losses; 5.) Payment of premiums. Characteristics of an insurance contract: 1.) Consensual; (not included in Jack transcript) 2.) Voluntary; (ditto) 3.) Aleatory; 4.) Executory; (ditto) 5.) Conditional; 6.) Personal. 7.) Jack: Indemnity is the basis.

2.)

Doing/transacting an insurance business: Includes: 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; 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 any business in substance equivalent to the foregoing in a manner designed to evade the provisions of this Code.

3.)

Commissioner: The Insurance Commissioner.

Helen C. Arevalo

CHAPTER 1. THE CONTRACT OF INSURANCE Title 1. What May Be Insured (Against) Sec. 3. What may be insured (against): 1.) Any contingent or unknown event, whether past or future, which may cause damage to a person having an insurable interest; or 2.) Any contingent or unknown event, whether past or future, which may create a liability against the person insured. Validity of insurance policy taken out by married women and minors: 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. Rights of insured married women and minors: The married woman or the minor herein allowed to take out an insurance policy may exercise all 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. Sec. 4. Section 3 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. Jack: What is prohibited is not only a chance in lottery but all forms of gambling and wagering. Sec. 25: A policy contract executed by way of gambling or wagering is void. Sec. 5. Applicability of Chapter 1 provisions to all kinds of insurance: All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

Title 2. Parties to the Contract: 1.) Insurer; 2.) Insured. Sec. 6. Who may be an insurer: Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code. Sec. 187: Certificate of authority from the Insurance Commissioner is required to transact insurance business. Sec. 7. Who may be insured: Anyone except a public enemy may be insured. Requisites for one to be an insured: 1.) He must be competent to enter into a contract; 2.) He must possess an insurable interest in the subject of insurance; 3.) He must not be a public enemy. Public enemy: Nation w/ whom the Phils is at war, and it includes every citizen or subject of such nation. Jack: It does not include robbers, thieves, private depredators, or riotous mobs. A local criminal can be insured if the insurer is willing to take him as a good 1

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Jackrammer risk. The citizen of a country with which we do not have diplomatic relations is not a public enemy and can be insured. Sec. 8. Insurance taken by mortgagor in his own name but loss payable to mortgagee (or assigns policy to mortgagee) deemed to be upon his (mortgagor’s) interest, but mortgagee may perform any act under contract of insurance w/c is to be performed by mortgagor. Effects when mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee: 1.) K deemed to be upon the interest of the m’or, hence he does not cease to be a party to the K; 2.) Ant act of m’or prior to the loss, w/c would otherwise avoid the insurance affects the m’ee even if the property is in the hands of the m’ee; 3.) Any act w/c under the K of insurance is to be performed by the m’or nay be performed by the m’ee; 4.) In case of loss, the m’ee is entitled to the proceeds to the extent of his credit; 5.) Upon recovery by the m’ee to the extent of his credit, the debt is extinguished. Jack: Section 8 speaks of a mortgage clause in an insurance contract. This is common in car insurance. It may be provided therein that in case of loss, the proceeds will be paid to the mortgagee. But it is still the mortgagorwho is the insured so he is the only one who can sue thereon. Under the Civil Code, when the insurer pays, he is subrogated to the rights of the insured against the wrongdoer. Sec. 9. When transfer of insurance is made from mortgagor to mortgagee w/ assent of insurer w/ imposition of additional obligations on assignee, the mortgagor’s acts do not affect assignee’s rights. This is an exception to the rule that all acts of the m’or affects the m’ee: when further obligations imposed on the m’ee.

Title 3. Insurable Interest Sec. 10. Insurable interest in life and health: Every person has an insurable interest in the life and health of: 1.) Himself, of his spouse and of his children; 2.) Any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; 3.) Any person under a legal obligation to him for the payment of money, or respecting property or services, of w/c death or illness might delay or prevent the performance; and 4.) Any person upon whose life any estate or interest vested in him depends. Insurable interest: Person deemed to have insurable interest in subject matter where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Helen C. Arevalo

INSURANCE

2nd Sem.; 2005

Jack: Section 10 speaks of insurable interest in life and health. The general rule is that a person may designate anyone to be his beneficiary. The exception is Art. 739 of the Civil Code in relation to Art. 2012 (prohibited donations). See Insular Life v. Ebrado. Insular Life v. Ebrado: Person forbidden from receiving donation cannot be named beneficiary. Donations between persons guilty of adultery/concubinage void. Common-law spouse barred from receiving proceeds. Jack: The reason for the exception is that a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned because both are founded upon the same consideration liberality. Art. 739, CC: Void donations: 1.) Those made between persons who were guilty of adultery or concubinage at the time of the donation; 2.) Those made between persons found guilty of the same criminal offense, in consideration thereof; 3.) Those made to a public officer or his wife, descendants and ascendants by reason of his office. Jack: When you insure the life of another, the consent of that person must be obtained and there must also be insurable interest over the life of that person. Sec. 11. Insured has right to change beneficiary unless waived Jack: Remember that if the designation of the beneficiary is irrevocable, change of beneficiary can only be made with the consent of the said beneficiary. Sec. 12. Interest of beneficiary in a life insurance policy forfeited if beneficiary a principal, accomplice or accessory in death of insured; nearest relative of insured to receive proceeds if not disqualified. Sec. 13. Insurable interest in property is that w/c is of such nature that a contemplated peril will damnify an insured Jack: Interest in property has the classic example, that is the ownership or any relation there to the trustee or liability, like the third party’s liability insurance for motor vehicle, so there’s an insurable interest. An insurable interest in property may consist of an existing interest. Again the classic example is ownership with interest found in an existing interest, like stockholders can insure the properties of the corporation because they have an existing interest as stockholders, and in quo with interest because in case of dissolution of the corporation the assets will be distributed among the stockholders by way of liquidating dividends. This is common. A foreign corporation sets up a domestic subsidiary and usually there is one insurance company abroad with which they insure the assets of their subsidiary here. They can do that, an expectancy coupled with an existing interest in that out of which expectancy arise; in the same way as farmers can insure their future crops.

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Jackrammer Harvardian College v. Country Bankers: Even if not owners of the building and so w/o title to the property insured, building used and in their possession for several years w/ the knowledge and consent of the owner as the site of their educational institution. They, therefore, had an insurable interest in the building since they would have directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. Test in determining insurable interest in property: Whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Sec. 14. What an insurable interest in property consists of: 1.) An existing interest; 2.) An inchoate interest founded on an existing interest; or 3.) An expectancy, coupled w/ an existing interest in that out of w/c the expectancy arises. Existing interest: Legal or equitable title. Inchoate interest: Interest w/c has not yet ripened. Expectancy: Must be coupled w/ an existing interest in that out of w/c such expectancy arises. Traders Insurance v. Golangco: Even if not owner, can claim insurance proceeds since he still had insurable interest therein. He was in legal possession and collecting rentals from its occupant, and so he was directly damnified by such loss. Jack: A lessor, a lessee can insure the premises he is leasing. There’s an interest in its preservation. Or even mere possessory rights is sufficient- like the case of a Jewish garment factory. They send textiles to garment factories to be converted into finished dresses. These factories also have insurable interest over the garment packed. The court also ruled that if textiles are delivered to be dyed, that fellow who was hired to dye the textile should have insurable interest on that. Filipino Merchants v. CA: Tiekeng, consignee of fishmeal and vessel, had insurable interest due to perfected sale. Such sale was the basis of insurable interest. Jack: Like the court said, the buyer of undelivered property in that Filipino Merchants case, that the consignee of the goods that were stolen in the pier can be claimed and the defense of the insurance company is the insurable terms of the buyer. He has equitable interest. The seller also has an insurable interest because he still retains the legal title and unpaid salary with a lien on the property. The Court of Appeals has ruled that where you have a simulated deed of sale, the buyer has no insurable interest because he is not actually the owner. A mortgage insurable interest on the property mortgaged, for example: a contractor who has not been paid under the Civil Code has a lien on the building he constructed so he can insure that building. In fact the Civil Code also says, until the construction is finished it is the contractor who bears Helen C. Arevalo

INSURANCE

2nd Sem.; 2005

the risk of loss, so he can insure the building that he is constructing. Sec. 15. Insurable interest of a carrier or depositary is extent of its liability Sec. 16. Contingent or expectant interest not founded on actual right or valid contract not insurable Jack: Like the prospective heirs of somebody. Children cannot insure the properties of their parents, for there is a mere expectancy. Sec. 17. Measure of insurable interest in property – extent to w/c insured might be damnified by loss (Property insurance is strictly a contract of indemnity) Cha v. CA: Cha: lessees; CKS: lessors. Stipulation for consent contrary to public policy. CKS has no insurable interest. Jack: Here’s the case of Chuck. There was this landlord who required his tenant to insure his stocks in trade. It is still ok to require it to insure. Usually it is the commercial centers part, in addition to the basic rent. They charge 5% of your gross sales, so they want to make sure you always have the stocks in trade so that if they get burned, you can replace them. But then the contract provided that in case of losses, the proceeds should be payable to the lessor. The court says that is void because there’s no insurable interest in the stocks in trade. So, a review on the loan agreement was required in a case where a bank was found to require the borrower to insure the building, but the building was not mortgaged. Moreover, a provision was placed that in case of loss, the proceeds should be payable to the bank. That is void. You have no insurable interest because you have no lien on the building. The building is insured, but it’s not mortgaged to you. Sec. 18. Unenforceability of property insurance contract by one not having insurable interest Sec. 19. Time when insurable interest must exist: 1.) Property insurance: at time insurance takes effect & at time of loss; 2.) Life insurance: only at time insurance takes effect. Jack: In property insurance, the insurable interest must exist when the policy takes effect and when the loss occurs, but it need not exist in the meanwhile. This (inaudible) case was asked in the bar exam. The owner of the building insured the building. Now, the building was mortgaged and the mortgage was foreclosed, but he failed to redeem that. After the expiration of the period of redemption, the building was burned. The court said he cannot collect. He had no more insurable interest. But if he still has the right of redemption, he will also have insurable interest. Sec. 20. Effect of change of interest in thing insured on contract of insurance: General rule: insurance suspended until same person becomes owner of both policy and the thing insured. Exceptions: 1.) Life, health and accident insurance; 3

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Jackrammer 2.) The change of interest in the thing insured occurs after the injury w/c results in a loss; 3.) A change of interest in one or more of several things separately insured by one policy; 4.) A change of interest by will or succession on the death of the insured; 5.) A transfer of interest by will or succession on the death of the insured; 6.) A transfer of joint interest by one of several partners, joint owners or owners in common, who are jointly insured, to the other. Sec. 58 (supra): Effect of transfer of thing insured – does not automatically transfer policy – coverage merely suspended. Jack: Insurance is a personal contract because it is not attached to the thing. That is why the law says change of interest on the thing insured will suspend the insurance until interest in the insurance is based on same person. As a general rule, when a car is insured and it is sold, the insurance policy does not automatically attach to the buyer unless you get the consent of the insurance company and it issues an endorsement saying the policy is being assigned to the buyer. There are however exceptions to that - in case of insurance upon life, accident or health, then a change of interest inaudible the thing insured after the loss has occurred. Again, somebody insured the building. The building was burned. He then assigned the proceeds of the policy because at that point in time, the right to collect the proceeds has already accrued. There is now a chose in action which can be assigned or a change of interest in one or some of several things separately insured by one policy.

INSURANCE

Sec. 25. Stipulation in policy for payment of loss whether insurable interest exists or not, or that policy is proof of such interest, or policy on wagering is void (This provision is the authority for voiding a contract for lack of insurable interest) Jack: Wagering, well, I mentioned to you the case of this fellow who got an ordinary manual laborer earning minimum wage to insure his life with 6 insurance companies for fantastic amounts and he named this person beneficiary and it was the person paying for the premiums. The Court of Appeals disallowed the collection of the proceeds when that person died. This is a poor manual laborer earning minimum wage. He was asked to insure his life with this well to do person as beneficiary and this was this fellow paying for the premiums. The court said that this person is actually wagering on the life of that manual laborer. He chose his life but the beneficiary is not his relative. This total stranger who asked him to insure his life and was actually paying for the premiums, he was actually wagering on his life.

Title 4. Concealment Sec. 26. What is concealment: A neglect to communicate that w/c a party knows and ought to communicate. Requisites of concealment: 1.) A party knows a fact w/c 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 facts concealed; and 4.) The other party has no means of ascertaining the fact concealed.

Here’s a taxi company with a fleet of taxis, 20 units. The taxicabs were insured. The owner sold 3 of them. The policy will remain subsisting. It would remain with respect to the remaining 17 units of taxicabs.

Four primary concerns of parties to an insurance contract: 1.) The correct estimation of the risk w/c enables the insurer to decide whether he is willing to assume it, and if so, at what rate of premium; 2.) The precise delimitation of the risk w/c determines the extent of the contingent duty to pay undertaken by the insurer; 3.) Such control of the risk after it is assumed as will enable the insurer to guard against the increase of the risk because of change in conditions; and 4.) Determining whether a loss occurred, and if so, the amount of such loss.

Sec. 21. Change in the thing insured after occurrence of injury resulting in loss does not affect right to indemnity Sec. 22. Change of interest in one or more distinct things separately insured does not affect insurance of others Sec. 23. Change of interest by will or succession of insured does not avoid the insurance Sec. 181: Allows life insurance policy to pass by transfer, will or succession to anyone w/ or w/o insurable interest. Jack: A change of interest by succession because of death – like, here’s a father who insured his house. When he died, his children inherited the house. The policy will remain in force. Sec. 24. Transfer of interest by one of partners, joint owners or common owners who are jointly insured, to the others, does not avoid the insurance Jack: like here are brothers who inherited a building. They insured it. Then one of them bought out the other three, so he became the exclusive owner. The policy remains in force so that if it is burned he can collect.

Helen C. Arevalo

2nd Sem.; 2005

Jack: Time and again, the courts have said that the failure to disclose serious ailments in life insurance would constitute concealment. This would usually involve cancer, tuberculosis, asthma, diabetes, high blood pressure, kidney ailments, liver disorders. Sec. 27. Intentional or unintentional concealment entitles injured party to rescind contract Law makes no distinction between intentional and unintentional concealment. There is no need to prove fraud to be able to rescind. Criterion in applying Sec. 27: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding

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Jackrammer of material information or facts w/in the insured’s knowledge or presumed knowledge? Sec. 28. Duty of each party in an insurance contract to communicate to the other, in good faith all facts material to the contract and as to w/c he makes no warranty, and w/c the other has no means of ascertaining (Insurance contract is a contract “uberrima fides” – meaning “of utmost good faith”) hot tip: remember meaning of this crazy latin word! Exception to duty to communicate: Those falling under Sec. 30 Test to determine whether one must communicate: If the applicant is aware of the existence of some circumstance w/c he knows would influence the insurer in acting upon his application, good faith requires him to disclose that circumstance, though unasked. Sec. 31: What is material (infra) Jack: Does the other party have the means of ascertaining it? In the typical application, there’s a question there: Have you been hospitalized? And the applicant mention there, yes, I was hospitalized, say at the Makati Medical Center, and he gave the date, but then he did not disclose for what ailment. In this case, there’s no concealment because the insurer was already informed that he was hospitalized in a particular hospital, and even the date was mentioned. The application will usually require the waiver of the confidentiality of his hospital records. So with that lead, the insurance company could have inquired. If they did not do so, they could not complain that there was concealment because they could have made inquiries based on that lead. Sec. 29. Failure to communicate information proving or intending to prove the falsity of a warranty entitles insurer to rescind – Here the concealment must be intentional or fraudulent to warrant rescission. Sec. 30. Matters w/c each party to insurance contract is not bound to communicate: 1.) Those w/c the other knows; 2.) Those w/c, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; 3.) Those of w/c the other waives communication; 5.) Those which prove or tend to prove the existence of a risk excluded by the warranty, and w/c are not otherwise material; and 6.) Those w/c relate to a risk excepted from the policy and w/c are not otherwise material. Exception: when the other inquires Insular Life v. Feliciano: Falsified answers due to collusion between the insured and the insurance agent and medical examiner. Insurance company absolved from liability. Jack: If the insurance agent fills up the application for the insured and then the applicant signs it, he will bound if there’s any concealment because by allowing the agent to fill up for him, he makes the agent of the insurance company his own agent for purposes of filling out the insurance application.

Helen C. Arevalo

INSURANCE

2nd Sem.; 2005

Now there’s somebody applying for a fire insurance policy. So the insurance company sent its inspectors to the place. They saw that it is located in the slum area while the neighbors’ houses are made up of flimsy materials. They cannot claim that you did not disclose to us that your neighbors are squatters that their houses are not made up of hollow blocks or concrete but are made up of plywood and cardboards which when your inspectors went there, you know. Like during the gulf war, an insurance company insured an oil tanker there, which turned into a loss. You cannot say why did you not tell us that the gulf war was going on, you should know. And those in which the other waives communication or those which prove or tend to prove the existence of a risk excluded or a risk excepted. For instance, your fire insurance policy usually provides that it will not answer to loss due to rebellion, sedition, coup de etat, riot. If the insured did not disclose that there are members of the NPA roaming in the place, exacting revolutionary taxes from the establishments there, and burning the properties of those who refuse to comply. The insurance cannot claim you did not disclose that to us, because loss was due to insurgency, rebellion would be excluded anyway in the policy. Sec. 31. Materiality to be determined by influence of facts on party in forming estimate of the risk, not by the event. Test of materiality: If the knowledge of fact would cause the insurer to reject the risk, or to accept it only at a higher premium rate, that fact is material, though it may not even remotely contribute to the contingency upon w/c the insurer would become liable, or in any wise affect the risk. Principal question to ask: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts w/in the insured’s knowledge or presumed knowledge? If so, then the contract is avoided, even if the cause of the loss w/c subsequently occurred be unconnected w/ the fact concealed. Jack: The failure to disclose an ailment which is merely temporary and light is not material. That will not be concealment - like the failure to disclose that the applicant for a life insurance has cough or sore throat, or say when he was in high school he was playing basketball he broke his leg, or the failure to disclose that when he gets drunk he has stomach discomforts. That’s minor and need not be disclosed. Then the party may conceal and makes no warranty. Why? If he makes a warranty, the defense of the insurance company will be breach of warranty not concealment. The insurance company will still escape liability but on the ground of breach of warranty. Sun Life v. CA: Even if the loss was not due to a fact concealed, the insurance company is not liable like somebody who applied for a life insurance policy. He did not disclose he had kidney ailment and he died in a plane crash. The insurance company is not liable although the death was not due to kidney ailment. The fact remains that the insurance company was misled into issuing a policy it would not otherwise have issued because that risk was not acceptable. Sec. 32. Each party bound to know: 1.) General causes w/c… 5

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Jackrammer a.) are open to his inquiry, equally w/ that of the other, b.) may affect either the political or material perils contemplated. 2.) General usages of trade. Sec. 33. Right to information of material facts may be waived by: 1.) Terms of insurance (expressly); or 2.) Neglect to make inquiries where they are directly implied in other facts already communicated (impliedly). Ng Gan Zee v. Asian Crusader Life: Insured stated in his application that he had a tumor removed from his stomach. Yun pala, it was actually a portion of his stomach w/c was removed. Ins. co. now refuses to pay on ground on false information. Pay up, damnum you! Can’t rescind the contract. Insured did not have sufficient knowledge to distinguish between a tumor and an ulcer. His statement was made in good faith. Ins. co. could have made an inquiry as to the illness and operation. Its failure to do so constituted a waiver of the imperfection of the answer. Sec. 34. Nature or amount of interest need not be communicated. Exceptions: 1.) In answer to an inquiry; or 2.) When he is not the absolute owner (Sec. 51: items that must be included in an insurance policy: (e) Interest of insured in property insured, if he is not the absolute owner thereof.)

INSURANCE

2nd Sem.; 2005

Sec. 41: representation may be withdrawn or altered before effectivity date. Sec. 38. Language of communication the same as contracts in general Representations are construed liberally in favor of the insured. Sec. 39. Representation as to the future deemed a promise unless merely a statement of belief or expectation Different kinds of representation: 1.) Oral or written; 2.) Made at time of issuance of the policy or before; and 3.) Affirmative or promissory. Affirmative representation: Any allegation as to the existence or non-existence of a fact when the contract begins. Promissory representation: Any promise to e fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. Sec. 40. Representation cannot qualify express provision of contract, but may qualify an implied warranty Sec. 41. Representation may be altered or withdrawn before insurance is effected, but not afterwards Sec. 42. Representation refers to date of effectivity of contract

Sec. 108 (marine insurance): Info of the belief or expectation of a 3rd person w/ respect to material facts is material.

There is no false representation if the representation was true at the time the contract takes effect altho’ it was false at the time it was made. But there is false representation is although/ true at the time it was made, it subsequently becomes false at the time the contract took effect.

Title 5. Representation (Importance of representation: False representation entitles insurer to rescind – Sec. 45)

Sec. 43. Effect of representation when person has no personal knowledge of facts: 1.) He may repeat info w/c… a.) He believes to be true,

Sec. 35. Opinion or judgment of a party to a contract not required to be communicated

b.)

With the explanation that he does so on the info of others; or 2.) He may submit the info, in its whole extent to the insurer. 3.) In either case he is not responsible for its truth. Exception: it proceeds from an agent of insured whose duty is to give information.

Sec. 36. Representation may be oral or written Representation: A factual statement made by the insured at the time of or prior to, the issuance of the policy to give information to the insurer and otherwise induce him to enter into the insurance contract. Misrepresentation: A statement… 1.) as a fact of something w/c is untrue; 2.) w/c the insured stated w/ knowledge that it is untrue and w/ an intent to deceive, or w/c he states as true w/o knowing it to be true and w/c has a tendency to mislead; and 3.) where such fact in either case is material to the risk. Effect of misrepresentation: Renders insurance contract voidable at the option of the insurer, although the policy is not thereby rendered void ab initio. Sec. 37. Representation to be made at time of, or before issuance of a policy

Helen C. Arevalo

Harding v. Commercial Union: Proposal form made out by person authorized to solicit insurance is an act of the insurer. Facts, even if false, not warranted by insured in the absence of willful misstatement. Sec. 44. Misrepresentation: When facts fail to correspond to assertions or stipulations, representation is deemed false Representations need not be literally true. It is sufficient if they are substantially true. Insular Life Co. v. Pineda: It is not misrepresentation for the insured to state that he did not drink beer or other intoxicants if he drank very seldom. 6

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Jackrammer

INSURANCE

2nd Sem.; 2005 years from date of issue or last reinstatement.

Sec. 45. False representation in a material point entitles insurer to rescind from time it becomes false. Right to rescind waived by acceptance of premium despite knowledge

Sections 227(b), 228(b) and 230(b) make the incontestable clause compulsory in all life insurance contracts.

Note that fraudulent intent here is immaterial. Esgueras c. Grepalife: A sickly person files an application for life insurance. During the medical examination conducted by the insurer to determine the fitness of the applicant, a robust and healthy person appeared pretending to be the applicant. Held: The contract is avoided on the ground of fraudulent misrepresentation. Musngi v. West Coast Life: Concealed that he saw several physicians for a number of ailments. He knew that he was suffering from all these ailments yet he concealed this. This concealment constituted fraud because the insurance company by reason of such statement accepted the risk w/c it would otherwise have rejected. Edillon v. Manila Bankers Life: There is was a provision in the certificate of insurance excluding ins. co. of liability to persons under 16 or over 60 years of age. However, insured stated correctly her date of birth showing that she was already 64 years old. She did not conceal her age, yet co. accepted her premium and issued the policy. Co. is estopped from disclaiming liability. Gonzales La O v. Yek Tong Lin Fire Insurance: Gonzales issued two fire insurance policies with provisions prohibiting Gonzales from entering into other insurance contracts. Fire broke out. Yek refused to pay because Gonzales violated the prohibition. Gonzales, however, was able to prove that Yek knew of the violation long before the fire but did not make any effort to rescind the policies and even collected premiums on the policies. Held: The action of the insurer constituted waiver of the right to annul the insurance policies. Tan Chay Cheng v. West Coast Life: Misrepresent-ations made. Tan Chay claims that co. cannot rescind because an axn for performance had already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy unless it brings axn. to rescind before it is sued thereon. Trial court wrong. Through fraud in its execution, the policy is void ab initio and therefore no valid contract was ever made. Not an axn for rescission coz that would presuppose the existence of a contract. Therefore, not barred by Sec. 48. Sec. 46. Materiality of a representation is governed by same rules as materiality of concealment Sec. 31: How materiality determined: not by event but y the influence of facts on other party in forming an estimate of the risk. Sec. 47. Provisions of Chapter 1 applicable to amendment as well as to original contract Sec. 48. Incontestable clause; Insurer’s right to rescind; When must it be commenced: 1.) Non-life policy: before commencement of an action; 2.) Life insurance policy: incontestable if in force 2 Helen C. Arevalo

Soliman v. U.S. Life: Insurer is once again given 2 years from date of reinstatement to investigate the veracity of the facts represented in the application for reinstatement. Tan v. CA: Key phrase: “2 years”. Does not need to be during lifetime of the insured. The phrase “during the lifetime” simply means that the policy is no longer in force after the death. Paulino v. Capital Insurance Co.: There is a difference between termination by the insured and by the insurer. Termination by the insured requires only a request of such termination. Termination by the insurer requires the refund of the portion of the premium proportional to the unexpired term of the policy.

Title 6. The Policy Sec. 49. Policy: The written contract of insurance Jack: The policy is the measure of insurer’s liability. Ty v. Filipinas Cia de Seguros: Where the insurance policy defines “partial disability” as loss of either hand by amputation, insured cannot recover for temporary disability caused by fracturing the hand. No ambiguity, literal meaning must apply. Del Rosario v. Equitable Insurance: Equitable issued an accident policy on th elife of the insured, binding itself to pay P1000 to P3000. The insured died. Held: Liable for P3000. Art 1377, CC: The interpretation of the obscure provisions of a contract should not favor the party that caused the obscurity. Jarque v. Union Fire Insurance: Typed rider prevails over printed clause in case of inconsistency. Sec. 50. Formal requirements of a policy: 1.) In printed form w/c may contain blank spaces; and 2.) Any word, phrase, clause, mark, sign, symbol, signature, number or word necessary to complete the contract of insurance shall be written in the blank spaces provided therein. Formal requirements of a rider, clause, warranty, endorsement as part of the contract: 1.) The descriptive title or name of the rider w/c is pasted or attached to the policy must be mentioned and written on the blank spaces provided in the policy; and 2.) Unless applied for by the insured or owner, said insured or owner must countersign the rider. Requirements of group insurance and group annuity policies: May be typewritten and need not be in printed form. Rider: A printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. Riders are usually attached to the policy because they constitute additional stipulations between the parties.

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If there is an inconsistency between the policy and the rider, the rider prevails, it being a more deliberate expression of the agreement of the parties.

may issue cover notes to bind insurance temporarily pending the issuance of the policy. 2.) A cover note shall be deemed to be a contract of insurance w/in the meaning of Sec. 1(1) of this Code. 3.) No cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission. 4.) A cover note shall be valid and binding for a period not exceeding 60 days from the date of its issuance, whether or not the premium therefore has been paid, but such cover note may be canceled by either party upon at least 7 days notice to the other party. 5.) If a cover note is not so canceled, a policy of insurance shall w/in 60 days after issuance of the cover note be issued in lieu thereof. Such policy shall include w/in its terms the identical insurance bound under the cover note and premium therefor. 6.) A cover note may be extended or renewed beyond the aforementioned period of 60 days w/ the written approval of the Insurance Commission, provided that such written approval may be dispensed w/ upon the certification of the president, VP, or gen mgr of the insurance co. concerned, that the risks involved, the values of such risks, and the premiums therefore have not been determined or established and that such extension or renewal is not contrary to and is not for the purpose of violation of any provision of the Insurance Code. 7.) Insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.

Warranties: Inserted or attached to a policy to eliminate specific potential increases of hazard during the policy term owing to axns of the insured, or conditions of property. Clauses: Agreements between the insurer and the insured on certain matters relating to the liability of the insurer in case of loss. Jack: Examples of Clauses: 1.) Three-fourths clause – where the insurer is liable for only ¾ of the loss or damage; 7.) Loss payable clause – where the loss, if any, is payable to the named party or parties, as their interest may appear; 8.) Change of ownership clause – where insurance will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Endorsement: An endorsement is any provision added to an insurance contract altering its scope or application. Enriquez v. Sunlife: The contract of insurance was not perfected. It had not been proved that the acceptance of application ever came to the knowledge of the applicant. An acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract of insurance, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party. Tang v. CA: Insured is a Chinese illiterate. Beneficiary claims that since the insured was illiterate and the policy was in English, the insurer must show that it had fully explained the terms of the policy to the insured, otherwise, the insurer will not be guilty of misrepresentation. Held: Insurer not liable. It was under no obligation to prove that the terms of the insurance contract was fully explained to the other party. Sec. 51. Substantive requirements in a contract of insurance: Policy must specify: 1.) The parties between whom the contract is made; 2.) The amount to be insured except in the case of open or running policies; 3.) 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 w/c the final premium is to be determined; 4.) The property/life insured; 5.) The interest of the insured in property insured if he is not the absolute owner thereof; 6.) The risks insured against; and 7.) The period during w/c the insurance is to continue.

2nd Sem.; 2005

Cover note: Written memorandum of the most important terms of the preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issue of a formal policy, provided it is later determined that the applicant was insurable at the time it was given. 2 types of preliminary contracts of insurance: 1.) Preliminary contract of present insurance; and 2.) Preliminary executory contract. Preliminary contract of present insurance: Insurer insures the subject matter usually by what is known as a “binding slip” or “binder” or “cover note” w/c is the contract to be effective until the formal policy is issued or the risk rejected. Preliminary executory contract of insurance: Insurer makes a contract to insure the subject matter at some subsequent time w/c may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely a right to demand the delivery of a policy in accordance w/ the terms agreed upon and the obligation assumed by the insurer is to deliver such policy.

Sec. 52. Rules on cover notes (binding receipts or slips, interim, temporary or provisional policies): 1.) Insurance companies doing business in the Phils

Helen C. Arevalo

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Jackrammer Grepalife v. CA: Binding deposit receipt is merely an acknowledgment of receipt of premium. It is merely conditional as the insurance co. may still approve or reject the application. It is not a temporary contract of life insurance. Grepalife had disapproved of the application and so the binding deposit receipt never came into force. Pacific Timber v. CA: Ins. co. refuses to pay since it claims that the cover note was null and void due to the issuance of the policy. Cover note is not a separate policy. It is integrated into the regular policies subsequently issued. If it were a separate policy, its purpose would be rendered meaningless. Cover note was w/ consideration. No separate premiums required.

INSURANCE

2nd Sem.; 2005

Sec. 59. A policy is either open, valued or running Sec. 60. What an open policy is: One in w/c the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. It is one in w/c a certain agreed sum is written on the face of the policy not as the value of the property insured, but as the maximum limit of the insurer’s liability. In an open policy, in event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company shall limited to the actual loss and in no case shall exceed the amount of the policy.

Sec. 53. Insurance proceeds; to whom payable: The person in whose name or for whose benefit the policy was made.

Sec. 61. What a valued policy is: One w/c expresses on its face an agreement that the thing insured shall be valued at a specified sum.

Exceptions: 1.) Sec. 12: Forfeiture of proceeds by life insurance beneficiary when he is principal, accomplice, or accessory in willfully bringing about the death of the insured, in w/c case, proceeds will go to nearest relative of insured. 2.) Art. 739, Civil Code (prohibited donations)

It is one in w/c the parties expressly agree on the value of the subject matter of the insurance.

Bonifacio Bros. V. Mora: Insurance proceeds go directly to person in whose name policy made. the proceeds cannot go directly to the dudes who repaired the car in the absence of stipulation pour autrui in contract. Since the repairmen and autoparts shop have no privity of contract w/ the ins. co., they have no cause of axn. Coquia v. Fieldman’s Insurance: Where there is an express stipulation pour autrui (in event of driver, ins. co. will indemnify his personal representatives), enforcement of contract may be demanded by a 3rd party as they have a direct cause of action. Lampano v. Jose: A is a building contractor of the house of B. A insured his interest in the house for P7,800. His interest is actually only P7,000. The house is burned. Held: B is not entitled to the P800 in excess of the interest of A. Sec. 54. Insurance contract w/ agent or trustee as insured: Fact that principal or beneficiary is the real party in interest may be indicated in policy. Sec. 55. Policy terms should be made applicable to joint interest to render insurance effected by one partner or part owner applicable to co-partners or part owners Sec. 56. Who can claim policy benefits in case of a general description of insured: he who can show that it was intended to include him (that he is the person described; or that he belongs to the class of persons comprehended in the policy). Sec. 57. A policy can be framed to inure to the benefit of whomsoever becomes the owner of the interest insured Sec. 58. Transfer of thing insured does not automatically transfer policy; coverage suspended until owner of policy and owner of interest are one and the same

Helen C. Arevalo

See Sec. 156: Valued policy rules in marine insurance; and Sec. 157: Valued policy rules in fire insurance. Sec. 62. Meaning of a running policy (sometimes called floating, adjustable, blanket or declaration policy): One w/c contemplates successive insurances, and w/c 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. This kind of policy is intended to provide indemnity for property w/c cannot well be covered by a valued policy because of its frequent change of location and quantity, or for property of such nature as not to admit of a gross valuation. It also denotes insurance w/c contemplates that the risk is shifting, fluctuating or varying, and w/c covers a class of property rather than any particular thing. Sec. 63. Stipulations limiting commencement of an action to less than 1 year from the time cause of action accrues are void Sec. 231(d): Industrial life policy; Void if less than 6 years. Art. 1144 & 1445, CC: If no period agreed upon, the action must be brought w/in 10 years (written contract) or 6 years (oral contract). You can stipulate a period when an action based on the insurance contract can be brought. In the absence of stipulation, the period is 10 years. However, if you do stipulate and you limit the period to less than one year, the stipulation is void. Sec. 64. Cancellation of a policy (other than life) by the insurer to be effective requires prior notice and occurrence of enumerated conditions: 1.) Non-payment of premium; 2.) Conviction of a crime arising out of acts increasing the hazard insured against; 3.) Discovery of fraud or material misrepresentation; 4.) Discovery of willful/reckless acts/omissions increasing the hazard insured against;

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Jackrammer 5.) Physical changes in the property insured w/c result in the property becoming uninsurable; or 6.) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. Cancellation: The right to rescind, abandon or cancel a contract of insurance. Non-payment of premium: refers to premiums subsequent to the first premium because the law speaks of non-payment after the effective date of the policy. Remember, if you do not pay the 1st policy, no policy is valid and binding. Therefore, the 1st premium is the condition precedent to the effectivity of the insurance. So any premium after the effective date of the policy must refer to the premiums after the 1st one has been paid. Sec. 65. Conditions for cancellation (by insurer) of policy (other than life): 1.) There must be prior notice of cancellation to the insured; 2.) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned in Sec. 64; 3.) The notice must be in writing, mailed or delivered to the insured at the address shown in the policy; 4.) It must state which of the grounds set forth in Sec. 64 is relied upon; and 5.) If so requested by the insured, it is the duty of the insurer to furnish the facts on which the cancellation is based. Saura v. Phil International Co.: Notice of cancellation by insurer to m’ee alone is not effective as to m’or/ owner. There must be actual and personal notice. Malayan Insurance v. Arnaldo: Notice was not effectively made. No proof was presented that the notice was actually mailed to and received. A valid cancellation requires: 1.) Prior notice to insured; 2.) Notice must be based on grounds mentioned; 3.) Must be in writing, mailed or delivered to the insured; 4.) Must state ground for cancellation. Sec. 66. In non-life insurance, insured is entitled to renew contract by payment of premium unless notified by insurer 45 days prior to expiry date

Title 7. Warranties Sec. 67. A warranty is express or implied Warranty: A statement or promise set forth in the policy itself or incorporated in it by proper reference, the untruth or non-fulfillment of w/c in any respect and w/o reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. Different kinds of warranty: 1.) Affirmative (Sec. 68); 2.) Promissory (Sec. 72); Helen C. Arevalo

INSURANCE

2nd Sem.; 2005 3.) Express (Sec. 67); or 4.) Implied (Sec. 67).

Express warranty: An agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured stipulates that certain facts relating to the risk are or shall be true or certain acts relating to the same subjects have been or shall be done. Implied warranty: Warranty w/c from the very nature of the contract or from the general tenor of the words, altho’ no express warranty is mentioned, is necessarily embodied in the policy as part thereof and w/c binds the insured as tho’ expressed in the contract. Affirmative warranty: One w/c asserts the existence of a fact or condition at the time it is made. Promissory warranty: One where the insured stipulates that certain facts or conditions pertaining to the risk shall exist or that certain things w/ reference thereto shall be done or omitted. It is the nature of a condition subsequent. Sec. 68. A warranty may relate to the past, present or to the future, or any or all of them Sec. 69. No particular form of words necessary to create a warranty When insured stipulates something in the policy or even in the application form, it is not always a warranty. It depends on his intention. Sometimes a statement made by the insured is not meant to be a warranty but a representation. In case of doubt, such statement is only considered a representation. Difference between a warranty and a representation: Warranties Representations Considered parts of the Collateral inducements to contract. the contract. Always written on the May be written in a face of the policy, totally disconnected actually or by reference. paper, or may even be oral. Must be strictly Substantial truth only complied w/. required. Falsity/non-fulfillment Falsity renders policy operates as a breach of void on the ground of contract. fraud. Presumed material. Insurer must show the materiality in order to defeat axn on policy. Sec. 70. An express warranty must be in the policy itself or in another document signed by the insured and made part of the policy Ang Giok Chip v. Springfield Fire & Marine Ins.: It is well settled that a rider attached to a policy is a part of the contract, to the same extent and with like effect as if actually embodied therein. In the second place, an express warranty must appear upon the face of the policy, or be clearly incorporated therein and made a part thereof by explicit reference, or by words clearly evidencing such intention. Sec. 71. Express warranty: A statement in the policy relating to the person or thing insured, or to the risk as a fact Sec. 72. Promissory warranty: to do or not to do a thing that materially affects the risk

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2nd Sem.; 2005

An act or omission is material to the risk if it increases the risk. Under the law, only substantial increase of risk forfeits the policy.

Assessment: A sum specifically levied by mutual insurance companies or associations, upon a fixed and definite plan, to pay losses and expenses.

Sec. 73. Breach of warranty; effect: Avoids contract of insurance. Exceptions: 1.) When loss occurs before time for performance; 2.) When performance becomes unlawful; 3.) When performance becomes impossible.

Difference between a premium and an assessment: Premium Assessment Levied and paid to meet Collected to meet actual anticipated losses. losses. Payment of premium, Legally enforceable once after the 1st, is not levied. enforceable against the insured. Not a debt. Is a debt (if properly levied).

Sec. 74. Violation of a material warranty or other material provision by either parties entitles other party to rescind Young v. Midland Textile Ins.: Even if (storage of firecrackers) not cause of the event insured against (fire), violation of warranty terminates the contract. Compliance with terms of contract is condition precedent to right of recovery. Exception: Merely incidental to the business. Jack: there may also be waiver. If the insurance co. was aware that there was a breach of warranty but despite that it continued the policy, it accepted the renewal premium, then it waives the violation. Sec. 75. If specifically stipulated, a violation of a specified provision shall avoid a policy, otherwise a breach of immaterial provision does not avoid the policy Gen Insurance v. Ng Hua: Stipulation that failure to give notice that any other insurance was obtained would result in forfeiture of the benefits. The rebel didn’t give notice that he had insurance on the same goods w/ another co. Breach of warranty. Insurer entitled to rescind. Materiality of nondisclosure of other insurance policies is undoubted. Sec. 76. Breach of warranty, w/o fraud, exonerates insurer or prevents policy from attaching to risk depending on when breach occurred Breach of warranty… 1.) Without fraud: policy avoided only from time of the breach and hence, the insured is entitled to: a.) a return of premiums paid at the pro rata rate from the time of the breach if it occurs after the inception of the contract; or b.) to all the premiums if it is broken during the inception of the contract. 2.) With fraud: policy avoided ab initio and the insurer is not entitled to the return of the premium paid.

Title 8. Premium Sec. 77. Insurer entitled to premium from moment risk attached; policy binding only when premium paid; Exceptions (a life insurance policy where the grace period applies) Premium: The agreed price for assuming and carrying the risk. It is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.

Helen C. Arevalo

Effect of non-payment of premiums: 1.) Non-payment of the 1st premium unless waived prevents the contract from becoming binding notwithstanding the acceptance of the application nor the issuance of the policy. But non-payment of the balance of the premium due does not produce the cancellation of the contract. 2.) Non-payment of subsequent premiums does not affect the validity of the contracts unless by express stipulation, it is provided that the policy in that event be suspended or shall lapse. Secs. 227(a), 228(a), 230(a): In the case of life or endowment insurance, group life insurance and industrial life insurance, the policy holder is entitled to a grace period of 30 days. Sec. 78 (infra): acknowledgement of receipt of premium in policy is binding. Sec. 306(2): delivery of policy to agent presumes authority to collect premium. UCPB v. Masagana Telamart: UCPB is in estoppel for having received 60-90 day credit term. Jack: General rule: non-payment of premiums = policy not valid and binding. Exceptions: 1.) Acknowledgement in policy that premium has been paid; 2.) Installment payments – some made then stopped (can demand for payment of the rest); 3.) 30 day grace period in life and industrial life policies; 4.) Ins. co. agreed to grant credit; 5.) Estoppel. Sec. 78. Legal fiction of payment of premium for purposes of making policy binding: Acknowledgment in policy of receipt of premium is conclusive evidence of payment for purpose of making policy binding. Sec. 79. When insured entitled to return of premiums: 1.) When no part of thing insured has been exposed to any of the perils insured against (whole premium returned); 2.) When the insurance is for a definite period and the insured surrenders his policy before termination thereof (such portion as corresponds w/ unexpired time, at a pro rata rate, returned). Exceptions: a.) Short period rate agreed upon and appears on face of policy (exception to pro rata rate). 11

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b.) Life insurance (exception to applicability of this section). 3.) When the contract is voidable because of fraud or misrepresentations of the insurer or his agent (Sec. 81 infra); 4.) When the contract is voidable because of the existence of facts of w/c the insurer was ignorant w/o his fault (Sec. 81 infra); 5.) When the insurer never incurred any liability under the policy because of default of the insured other than actual fraud (Sec. 81 infra); 6.) When there is overinsurance (Sec. 82 infra); 7.) When rescission is granted due to the insurer’s breach of contract. There is no right to recovery of premiums in life insurance because it is not a divisible contract. It is not an insurance for any single year, w/ a privilege of renewal from year to year by paying the annual premium. It is an entire contract of insurance for life subject to discontinuance and forfeiture for nonpayment of any of the stipulated premiums.

assigned but a money claim OR a right of action under the policy. There is no moral hazard because the insurer’s risk cannot be increased anymore since the loss has already occurred. Sec. 84. Insurer liable if peril insured against is proximate cause. Insurer liable only for a loss PROXIMATELY caused by the perils insured against although a peril not insured against may have been the remote cause of the loss. Proximate cause: That which, in natural & continuous sequence, unbroken by any new independent cause, produces an event and without which the event would not have occurred. It is the efficient cause – one that sets others in motion – to which the loss is attributed, although other & incidental causes may be nearer in time to the result & operate more immediately in producing the loss. Proximate cause is NOT synonymous to immediate cause. Need not be the immediate cause. Sec. 85. Insurer’s liability for loss: Loss from peril not insured against to which thing was exposed in rescuing it from peril insured against; and 2.) Loss caused by efforts to rescue thing insured from a peril insured against.

1.)

Sec. 80. Insured not entitled to return of premiums when risk already attached and insurer liable for any period Makati Tuscany v. CA: Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid where the insurer was exposed to the risk for any period, however brief or momentary. Sec. 81. Insured entitled to return of premium when: 1.) Contract voidable due to insurer’s fault; or 2.) Insurer never incurred liability due to: a.) Insured’s ignorance of facts or b.) Default other than fraud Grepalife v. CA: Never at risk; not entitled to keep premiums. Sec. 82. Insured entitled to ratable return of premium in case of over-insurance. Jack: For example. Here is a building wqorth P10M. He insured with MGU insurance for 10M, Malayan for 5M and Pioneer for 5M, it is over insured by 10M. Let’s say that he paid 10T premium to MGU, 5T to Malayan and 5T to Pioneer. So he is entitled to a refund of P5000 from MGU, 2500 from Malayan and 2500 from Pioneer.

Insurer is liable when: 1.) Loss took place while being rescued from the peril insured against; 2.) Loss took place when, while in the course of rescue, thing is exposed to a peril not insured against, which permanently deprived the insured of possession of the thing; 3.) Loss is caused by efforts to rescue the thing insured from a peril insured against. Sec. 86. Insurer liable for loss, the immediate cause of which was the peril insured against unless the proximate cause was excepted in contract Even if the proximate cause is not the peril insured against, the insurer may still be held liable if the immediate cause is the peril insured against. 3 kinds of causes: 1.) Remote; 2.) Proximate; and 3.) Immediate Sec. 87. Insurer not liable for loss caused by willful act or with connivance of insured; Insurer liable for negligence of insured

Title 9. Loss

Insurer is not liable for loss when: 1.) Loss was caused by willful act of insured; or 2.) Through the connivance of the insured. 3.) Gross negligence amounting to bad faith.

Sec. 83. Agreement not to transfer claim after loss happened is void. Exception: Life insurance

Exception to the Rule: Sec 180-A (Suicide Clause): Insurer liable if: 1.) Suicide committed AFTER 2 yrs from date of issue; or 2.) Committed anytime in state of insanity

Limitation on the Transfer: Sec 173: Transfer of FIRE policy to agents of insurer is void if in fraud of creditors Rationale: Against public policy for it hinders the free transmission of property from one person to another. Why should the agreement be void when it is a personal contract? After loss has been suffered, it is no longer a personal contract which is being Helen C. Arevalo

2nd Sem.; 2005

Insurer is liable for negligence of insured. Contributory negligence on part of insured does NOT mitigate insurer’s liability. It has no application to insurance contracts.

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Jackrammer Fortune Insurance: Producers Bank of the Phils. filed a complaint for recovery of the sum of P725,000 which was lost during a robbery of Producer’s armored vehicle while it was in transit to transfer the money from one of its branches to its head office. Among the accused were the driver of the armored truck and one of the guards. The policy contained among its general exceptions any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner…or authorized representative of the insured. The driver and the guard were, in respect to the transfer of money from the branch to the principal office, authorized representatives as they were entrusted with the specific duty to safely transfer that money. Ins. co. exempt from liability.

Form of notice and proof of loss: WALA! It may be given orally or in writing. However, its advisable to give it in writing for the protection of the insured or beneficiaries. Para its not your word against theirs. Sec. 90. Defects in notice or preliminary proof of loss waived if insurer omits to specify them as grounds of objections Sec 90 presupposes that notice of loss & proof of loss have already been given. It is the DUTY of the insurer to specify to the insured all defects in the notice of loss or in the preliminary proof as grounds for its objection without necessary delay. Otherwise, same shall be deemed WAIVED. There is waiver when the insurer: 1.) Writes to the insured that he considers the policy null & void so that furnishing of notice or proof of loss would be useless 2.) Recognizes his liability to pay claim 3.) Denies liability under the policy 4.) Joins in the proceedings for determining amt of loss by arbitration without making objections to the notice & preliminary proof 5.) Makes no objections on any ground other than a formal defect in the preliminary proof

Title 10. Notice of Loss Sec. 88. In fire insurance, failure of insured/ assured to give notice of loss without unnecessary delay exonerates insurer Sec. 89. Preliminary proof of loss if required by policy need not be that required by a court of law; best evidence enough Condition that MUST be Complied with BEFORE loss occurs: Compliance with terms of the policy. The terms of the contract constitute the measure of the insurer’s liability & non-compliance therewith by the insured bars his right of recovery. Condition that MUST be Complied with AFTER loss occurs: 1.) Notice of loss must be given to insurer without delay (immediately given) 2.) When required by the policy, preliminary proof of loss (may be given later) These requirements are NOT exclusive. Certificate of attending physician as part of proof of death is required in some life & accident policies. Notice of loss: More or less formal notice given by the insured or claimant under a policy of the occurrence of the loss insured against. Purpose: To apprise the insurance company with the occurrence of the loss, so that it may gather info & make proper investigation while evidence is still fresh & take such action as may be necessary to protect its interest. In property insurance, it prevents further loss to the property. Effect if notice of loss not given: Insurer is exonerated. When notice of loss must be given: Without unnecessary delay; within reasonable time. Proof of loss: More or less formal evidence of the occurrence of loss given the company by the insured or claimant under a policy of the occurrence of the loss, the particulars thereof and the data necessary to enable the company to determine its liability and the amount thereof.

General statement that proof is defective is NOT sufficient. Insurer must specify what those defects are in order that insured may remedy them. Sec. 91. Delay in notice or proof of loss waived if caused by insurer or if he fails to object promptly 2 cases of waiver by the insurer of delay in presentation of notice or proof of loss: 1.) Delay is caused by an act of the insurer 2.) Insurer omits to take objection promptly & specifically upon ground of delay Sec. 92. If required by policy as a preliminary proof of loss, the certificate or testimony of person other than insured satisfies it if insured used reasonable diligence to procure it; If person refuses to give it, then reasonable evidence to insurer enough provided refusal is not based on disbelief in facts Where the policy requires, by way of preliminary proof of loss, the certificate/testimony of a person other than the insured, the insured is merely required to exercise due diligence to procure it. If he fails to procure certificate BUT has exercised due diligence, he would be considered to have complied with the requirement. If the third person refuses: Insured must furnish reasonable evidence that the refusal was made NOT coz of disbelief on the part of the third person in the facts necessary to be certified BUT coz of other grounds.

Title 11. Double Insurance Sec. 93. When double insurance exists: 1.) Person insured is the same;

Purpose: 1.) To give insurer info by which he may determine extent of his liability; 2.) To afford him a means of detecting any fraud that may have been practiced upon him; 3.) To operate as a check upon extravagant claims Helen C. Arevalo

2nd Sem.; 2005

INSURANCE

2.)

Interest insured is the same;

3.) 4.) 13

Risk OR peril insured against is the same; Subject matter insured is the same; and

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Jackrammer 5.)

5.) 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.

Two or more insurers insure separately.

Double insurance is NOT the same as over insurance. Double insurance

Over insurance

There may be no over insurance as when the sum total of the amts of the policies issued does not exceed the insurable interest of the insured. Always Several insurers

Amount of insurance is beyond the insured’s insurable interest

May only be one insurer involved

Stipulation in policy that double insurance is prohibited & violation of stipulation will result in avoidance of the policy is VALID and reasonable. Purpose of prohibition against double insurance: To prevent over insurance & thus avert the perpetration of fraud. The public & insurer are interested in preventing the situation in which a loss would be profitable to the insured. Reason for prohibition of over insurance: An insurance contract is strictly a contract of indemnity & the insured can’t profit. The hazard in this is that the insured may be tempted to cause the peril. Geagonia v. CA: Geagonia obtained a fire insurance policy over its stock-in-trade from Country Banker’s Insurance. The policy provided that (1) insurer be notified of other policies, otherwise, benefits shall be forfeited; (2) nullity shall only be to the extent exceeding P200T of the total policies obtained. Geagonia obtained a policy from Phil First Insurance without notice. He now filed a claim for P100T. Is Country Banker’s Insurance liable? YES. #1 only refers to double insurance. There was no double insurance in this case coz the second insurance was procured by Geagonia’s creditormortgagee which has a distinct & separate insurable interest. Non-discloure of the former policies were NOT fatal to Geagonia’s right to recover on the policy. Country Banker’s Insurance is also liable coz it was willing to assume the risk provided that the TOTAL insurance does not exceed P200T. Sec. 94. Consequences of over-insurance in case of double insurance: 1.) 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; 2.) 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; 3.) 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; 4.) 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;

Helen C. Arevalo

2nd Sem.; 2005

INSURANCE

Sec 94 applies only when there is over-insurance by double insurance, that is, the insurance is contained in several policies & the total amount of which is in excess of the insurable interest of the insured.

Title 12. Reinsurance Sec. 95. Reinsurance: contract whereby one party (reinsurer) agrees to indemnify another (reinsured/original insurer), either in whole or in part, against loss or liability which the latter (reinsured) may sustain or incur under a separate & original contract of insurance with a third party (original insured). Difference between Reinsurance and Double insurance Reinsurance

Double Insurance

Original insurer becomes an insured as far as the reinsurer is concerned SUBJECT: original insurer’s risk Insurance of different interest Original insured has no interest in the K of reinsurance which is independent of the original K of insurance Consent of original insured NOT necessary

Original insurer remains an insurer SUBJECT: Property Insurance of SAME interest Insured is the party in interest in all the contract Consent of original insured necessary

Jack: There are two kinds: 1.) Treaty; and 2.) Facultative.

Reinsurance Policy

Reinsurance Treaty

Contract of indemnity one insurer makes with another to protect the 1st insurer from a risk it has already assumed.

Merely an agreement between two insurance companies whereby one agrees to cede & the other to accept reinsurance business pursuant to provisions specified in the treaty Contracts FOR insurance

Contracts OF insurance I don’t know if “facultative” is the same as the reinsurance policy described in the left column but I’m just making a logical connection. Sec. 96. Requirement when insurer obtains reinsurance: Communicate all 1.) Representations, 2.) Knowledge & 3.) Information he possesses that are material to the risk

Things that insurer-reinsured must communicate to the reinsurer: 1.) All the representations of the original insured; and 2.) All the knowledge and information he possesses, whether previously or

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Jackrammer subsequently acquired, which are material to the risk. Exception: In case of automatic reinsurance treaty. Automatic reinsurance treaty: An agreement between 2 or more insurance companies that each will reinsure a part of any line of insurance taken by the other; such contract is self-executing and the obligation attaches automatically on acceptance of a risk by the reinsured. In this case, the obligation to communicate is not necessary due to the selfexecuting and the automatic feature of such reinsurance treaty. Sec. 97. Reinsurance presumed indemnity contract against liability and not merely against damage Nature of reinsurance contract: Reinsurer agrees to indemnify insurer NOT against actual payment but against liabilities incurred. Thus, it is by no means necessary that the insurer shall first have paid a loss accruing, as a condition precedent to his demanding payment of the reinsurer. Reason: SM of contract is the INSURER’S RISK and NOT the property insured under the original policy. Jack: Fortune Clause: reinsurer agrees to rise and fall with the fortunes of the original insurer. They share in losses and profits. Sometimes they have this clause that they will abide with whatever results of the suit against the insurer to settle the claim. They will follow his fortune.

INSURANCE

Artex Dev. Corp. v. Wellington Insurance: Wellington issued an insurance policy over the buildings, stocks, & machinery of Artex. Later, Wellington reinsured the risk with Alexander & Alexander. When fire gutted the insured properties, Wellington paid Artex BUT left an unpaid balance. Artex then manifested that since Wellington was undergoing financial difficulties, it should be allowed to go after Alexander & Alexander for the balance. Can Artex recover from Alexander (reinsurer)? NO. Artex NOT being a party or privy to Wellington’s reinsurance contracts, could not directly demand enforcement of such reinsurance contracts. UNLESS there is a specific grant in or assignment of the reinsurance contract in favor of the insured or a manifest intention of the contracting parties to the reinsurance K to grant such benefit to the insured, the insured NOT being privy to the reinsurance K, has NO CAUSE OF ACTION against the reinsurer. The stipulation pour autrui MUST be clearly expressed. Artex’ right as insured to sue Wellington as insurer directly & solely should not be affected or curtailed in any way, by Wellington’s filing a thirdparty complaint or separate suit against its reinsurer. This stipulation pour autrui (literally, “autrui” means “other” in Francais; meaning: 3rd party), is called, accdg to Jack: a CUT THROUGH CLAUSE.

CHAPTER II – CLASSES OF INSURANCE Title 1. Marine Insurance

Sec. 98. Original insured (in insurance contract) has no interest in reinsurance contract

Subtitle 1-A. Definition Sec. 99. Marine insurance includes: 1.) Insurance against loss of or damage to: a.) Vessels, craft, aircraft, disbursements, profits, moneys, securities, choses in action, evidences of debt, 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, transshipment 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 or for damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of insurance; c.) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; d.) Bridges, tunnels and other instrumentalities of transportation and communication; piers, wharves, docks and slips, and other aids of navigation and transportation;

Reinsurance contract: Contract between reinsured & reinsurer by which the latter agrees to protect the former from risks already assumed. The insured, unless the contract so provides, has no concern with the contract of reinsurance & the reinsurer is NOT liable to the insured either as surety or otherwise. Liability of reinsurer to reinsured: Reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. e.g. reinsurer not liable if reinsured not liable to original insured. Reinsurer liable only to the extent that reinsured is liable. Liability of reinsurer to original insured: 1.) If the K is only between the insurer & reinsurer, contemplating only an indemnity to the insurer against losses suffered by reason of the policies carried by him the original insured has ABSOLUTELY no interest in the contract & is a total stranger to it. 2.) If the reinsurance contract contains a stipulation assigning the right of the insurer in favor of the insured, then the insured may go after the reinsurer as an assignee. But the insured-assignee will have no rights greater than that vested in the insurerassignor. 3.) If the reinsurance K contains a provision whereby the reinsurer binds himself to pay the insured for any loss which the insurer may become obliged to pay under the original policy, then reinsurer becomes liable to a suit by the insured under the K of insurance. Insured may go against BOTH the insurer & reinsurer. Helen C. Arevalo

2nd Sem.; 2005

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Jackrammer 2.) Marine protection and indemnity insurance, meaning insurance 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 in 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. 2 major divisions of transportation insurance: 1.) Ocean marine insurance; and 2.) Inland marine insurance. Scope of ocean marine insurance: Protection for: 1.) Ships or hulls; 2.) Goods or cargoes; 3.) Earning such as freight, passage money, commissions, or profits; and 4.) Liability incurred by the owner or any party interested in or responsible for the insured property by reason of maritime perils. Perils of the sea: Casualties due to unusual violence OR extraordinary action of wind & wave OR to other extraordinary causes connected with navigation. Embraces all kinds of marine casualty such as shipwreck, foundering, stranding, collision & every specie of damage done to ship or goods at sea by violent action of the wind & waves or losses occasioned by jettisoning the cargo if it is made for the purpose of saving a vessel rendered unworthy during the voyage, NOT thru the fault of the captain. Not covered: Losses resulting from ordinary wear & tear OR other damage usually incident to the voyage are not included. Mere fact that the injury is due to the violence of some marine force does NOT necessarily bring it w/in the protection of the policy of such violence NOT unusual or unexpected. Perils of the ship: Loss which in the ordinary course of events, results 1.) From natural & inevitable action of the sea 2.) From wear & tear of the ship 3.) From negligent failure of the ship owner to provide vessel with proper equipment to convey cargo under ordinary conditions (Go Tiaco v. Union Insurance Society of Canton) The insurer does NOT undertake to insure against perils of the ship BUT only perils of the sea. Insured can hold insurer liable only for perils of the sea. For perils of the ship, the injured party must look to the ship owner for redress. For the insurer to be liable, perils of the sea must be the proximate cause of the loss. Scope of Inland Marine Insurance: Risk must involve an element of transportation.

Subtitle 1-B. Insurable Interest Sec. 100. Insurable interest of shipowner when ship chartered. Insurable interest of owner of the ship: On the vessel to the extent of its value. He continues to have insurable interest even if he mortgaged or chartered the vessel to a third person who agrees to pay him its value in case of loss. However, the insurer is only liable only for the part of the loss which the insured cannot recover from the charterer.

Helen C. Arevalo

INSURANCE

2nd Sem.; 2005

insurable interest of owner of the ship IF CHARTERED: To the extent that he can’t recover from the charterer Sec. 101. Insurable interest of shipowner if hypothecated by bottomry: Excess of its value over amount of bottomry loan. Insurable interest of lender: To the extent of the loan. Loan on bottomry: Payable only if vessel is given as security for the loan completes in safety the contemplated voyage. Lender is entitled to high rate of interest to compensate him from the risk of losing his loan. Owner of the vessel receives in case of loss no indemnity BUT he does secure immunity from payment of the loan. Respondentia loan: Loan on goods Sec. 102. Meaning of freightage in marine insurance: ALL benefit which is to accrue to the owner of the vessel from its use in the voyage contemplated or the benefit derived from the employment of the ship Sources of freightage: 1.) Chartering of ship 2.) Employment of ship for carriage of owner’s goods 3.) Employment of ship for carriage of another’s goods Sec. 103. Insurable interest of shipowner in expected freightage: The shipowner 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. Sec. 104. When insurable interest in freightage of charter party exists: 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: 1.) They are actually on board; or 2.) There is some contract for putting them on board, and both the ship and goods are ready for the specified voyage. Sec. 105. Insurable interest in profits. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits. To give an insurable interest in expected freightage, the insured must have an inchoate right to freight. He must be in such position with regard to freight that nothing could prevent him from ultimately having a perfect right to it but the intervention of the perils insured against. Sec. 106. Insurable interest of charterer of ship: To the extent that he is liable to be damnified by its loss. Insurable interest of a charterer: 1.) Value of ship IF charter stipulates charterer to pay ship’s value in case of loss 2.) Profit he expects to earn by carrying goods, in excess of the charter hired 3.) Up to the extent that he is liable to be damnified by its loss.

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Jackrammer

INSURANCE

2nd Sem.; 2005

Compare with Sec. 45 where intent is not essential Subtitle 1-C. Concealment Sec. 107. What information (other than that required in section 28) each party in marine insurance is bound to communicate to the other: All the information he possesses, material to the risk, except such as is mentioned in Sec. 30, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose. Concealment: Failure to disclose any material fact or circumstance which in fact or law is within OR which ought to be within the knowledge of one party & for which the other has no actual of presumptive knowledge. Sec. 108. In marine insurance, info of belief or expectation of 3rd party with respect to a material fact is material

Sec. 112. Falsity of representation as to expectation in absence of fraud does not avoid contract Effect of False Representation of FACT in Marine Insurance: 1.) If made with FRAUDULENT intent: avoids policy 2.) NOT intentional BUT material: insurer may also rescind Effect of Falsity of Representation as to EXPECTATIONS REPRESENTATIONS OF EXPECTATION: Statements of future facts or events which are in their nature contingent & which the insurer is bound to know that the insured could not have intended to state as known facts, but as intentions or expectations merely. MUST be made with fraudulent intent to be a ground for rescission.

In marine insurance, the rule is STRICTER coz the insured is bound to communicate to the insurer not only (1) facts BUT also (2) beliefs or opinions of 3rd persons OR (3) expectations of 3rd persons. Thus, there is concealment where the insured at the time of application for insurance did not disclose the opinion of marine experts who inspected the vessel insured that it was unseaworthy.

Note: Fraudulent intent as ground for rescission is material only in marine policies. For other insurance contracts, intent is immaterial & the insurer has a right to rescind in case of misrepresentation or concealment.

Sec. 109. Presumption of knowledge of prior loss

Sec. 113. Seaworthiness of ship an implied warranty in marine insurance

Sec 109 establishes a rebuttable presumption of knowledge of a prior loss on the part of the insured “if the info might possibly have reached him in the usual mode of transmission at the usual rate of communication.

Warranty: Stipulation, either expressed or implied, forming part of the policy as to some fact, conditions, or circumstance relating to the risk.

Subtitle 1-E. Implied Warranties

Implied Warranties: 1.) Seaworthiness at inception of voyage (Sec. 113); 2.) Carry proper documents if nationality expressly warranted (Sec. 120); 3.) No improper deviation (Secs. 123-125); 4.) Not an illegal venture (Vance).

Reason: Quickness in transmission of news by means of modern communications Sec. 110. Concealment in marine insurance does not vitiate entire contract but merely exonerates insurer with respect to matters enumerated 1.) National character of the insured; 2.) Liability of the thing insured to capture and detention; 3.) Liability to seizure from breach of foreign laws of trade; 4.) Want of necessary documents; 5.) Use of false and simulated papers. General Rule: Concealment of material fact entitles the injured party to rescind the entire contract of insurance. Exception: Under this Section, concealment of any of the matters enumerated does NOT avoid the policy ab initio. If the vessel is lost by any of the causes in 110 which was concealed, insurer is NOT liable. If vessel is lost by other perils of the sea like a storm, the insurer is liable.

Roque v. IAC: Roque insured its logs with Pioneer Insurance. The logs were loaded on Mla Bay Lighterage Corporation’s barge which sank. Pioneer Insurance denied liability as the ship was not seaworthy. Was the ship seaworthy? NO. Seaworthiness as to the ship is different as to seaworthiness as to the cargo. In this case, the vessel was seaworthy as to the ship BUT NOT seaworthy as to the cargo. Cargo can be the subject of marine insurance & once it is contracted, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, w/r he be the owner or not. Cargo owner has the obligation to choose a common carrier that takes care of its ships. While the cargo owner has no control over the ship itself & its seaworthiness, he has control over the choice of shipping company to use. The cause of the loss was perils of the ship & NOT perils of the sea. An insurer is only liable for perils of the sea. Sec. 114. Meaning of seaworthiness: Reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy.

Subtitle 1-D. Representation Sec. 111. Marine insurer entitled to rescind contract if representation is intentionally false in any material aspect

Helen C. Arevalo

Sec. 115. Seaworthiness satisfied if ship seaworthy at start of voyage; Exceptions:

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Jackrammer 1.) In the case of a time policy: The ship must be seaworthy at the commencement of EVERY voyage she may undertake; 2.) In the case of cargo policy: each vessel upon which the cargo is shipped or transshipped must be seaworthy at the commencement of EAC PARTICULAR voyage; 3.) In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of EACH PORTION. Sec. 116. Seaworthiness of ship means it must be properly laden and refers not only to body of vessel but also to crew and equipment Sec. 117. Where different portions of voyage are contemplated in the policy, a ship must be seaworthy at start of every portion Sec. 118. Unseaworthiness during the voyage must be attended to by shipowner or captain without reasonable delay, otherwise insurer exonerated from loss Sec. 119. Seaworthiness of vessel for hull insurance is not necessarily seaworthiness for purposes of cargo insurance

INSURANCE

Insurance co. is exempted from liability. The vessel must also be seaworthy for the type of cargo, e.g. if it is to transport fruits and vegetable the vessel must have refrigeration. Sec. 120. Express warranty on nationality or neutrality of vessel implies requisite documents are carried on board (Implied warranty to carry required documents) If you EXPRESSLY WARRANT the nationality or neutrality of the ship or cargo, you impliedly warrant that you will carry the documents showing or proving such nationality or neutrality.

Subtitle 1-F. The Voyage & Deviation Sec. 121. Voyage contemplated by marine insurance policy with points of departure and ending refers to route fixed by mercantile usage Sec. 122. If sailing route is not fixed by mercantile usage, the voyage insured is that to which a master of ordinary skill and discretion would be most natural, direct and advantageous

Seaworthiness: Relative term depending upon the nature of the ship, the voyage, and the service in which she is at the time engaged. Compliance of Seaworthiness: General Rule: Complied with if the ship be seaworthy at time of commencement of the risk. Prior or subsequent seaworthiness is not a breach of the warranty; nor is it material that the vessel arrives in safety at the end of her voyage. There is no implied warranty that the vessel will remain in seaworthy condition throughout the life of the policy. Exceptions: 1.) TIME POLICY: seaworthy at commencement of EVERY voyage she may undertake 2.) CARGO POLICY: seaworthy at commencement of EACH PARTICULAR VOYAGE 3.) VOYAGE POLICY: contemplating a voyage in different stages, seaworthy at commencement of EACH PORTION. Jack: Now a vessel is seaworthy when it is fit to perform the services and encounter the perils of the voyage contemplated. And the implied worthiness is complied with when the vessel is seaworthy, when it commences the voyage. However, if the policy is for a specific length of time let us say a year, then the vessel must be seaworthy, every time it leaves for a voyage. If it is an insurance of the cargo with different ships, every vessel must be seaworthy. If you have equipment from Japan which will be transported by a Japanese vessel from Tokyo to Manila, and Manila to Cebu by a domestic vessel, all the vessels must be seaworthy. Now the seaworthiness not only applies to the structure of the ship but it must also be properly loaded. For example, the sides of vessels are painted in two colors red and black, the dividing line means that the water cannot go beyond that line, if it goes beyond, it means it is overloaded. It must also be provided with a competent master, one who is fully qualified and had passed all examinations. Then you must also have the requisite equipment, radar, radio etc. Now if there are different portions of the voyage, then the vessel must be seaworthy for every portion. If the vessel becomes unseaworthy and there is unreasonable delay in making repairs, then the Helen C. Arevalo

2nd Sem.; 2005

Sec. 123. Deviation is: 1.) A departure from the course of the voyage 2.) Unreasonable delay in pursuing voyage 3.) The commencement of an entirely different voyage Deviation: Unexcused departure from the regular course or route of the insured voyage OR any other act which substantially alters the risk 4 cases of deviation: 1.) Departure from course of sailing fixed by mercantile usage 2.) NOT FIXED BY MERCANTILE USAGE: departure from most natural, direct, & advantageous route 3.) Unreasonable delay in pursuing voyage 4.) Commencement of entirely different voyage In case of proper deviation, the effect is as if there was no deviation at all. Hence, it is not that the insurer is exonerated from liability, BUT that the INSURER WAS NEVER LIABLE. Sec. 124. Instances when deviation is proper: 1.) When caused by circumstances over which neither the master nor the owner of the ship has any control; 2.) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; 3.) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid peril; or 4.) When made in good faith, for the purpose of saving human life or relieving another vessel in distress. Sec. 125. Deviation not specified in Sec. 124 is improper Sec. 126. Insurer not liable if loss occurred after an improper deviation

Kinds of deviation: 18

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Jackrammer

INSURANCE 1.) Proper deviation; 2.) Improper deviation.

Effect of improper deviation: Insurer becomes immediately absolved from further liability under the policy for losses occurring SUBSEQUENT to (NOT before!) the deviation, notwithstanding the fact that the deviation did not increase the risk not in any wise contribute to the loss.

Subtitle 1-G. Loss Sec. 127. Loss is either total or partial Sec. 128. When loss not total, it is partial Sec. 129. Total loss is either actual or constructive Sec. 130. Actual loss and causes thereof Kinds of losses: 1.) Total a.) Actual b.) Constructive 2.) Partial Effect of total loss: Underwriter is liable for the WHOLE AMOUNT INSURED Actual Total Loss: SM of insurance is wholly destroyed or lost or when it is so damaged as no longer to exist in its original character. Complete physical destruction is not essential to constitute actual total loss. Causes: 1.) Total destruction of the thing insured 2.) The irretrievable loss of the thing by sinking OR by being broken up 3.) Any damage to the thing which renders it valueless to the owner for the PURPOSE for which he held it 4.) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured. Malayan v. CA: TKC Mktg insured its soya bean meal with Malayan Ins. Co. While docked in Durban, South Africa, shipment arrested and detained. Malayan liable for loss. “Arrest” caused by ordinary judicial process included among the covered risks. There was a constructive total loss over the cargo. Sec. 131. Constructive total loss or “technical total loss” is one which gives insured the right to abandon under Sec. 139 Constructive total loss: One in which the loss, although not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as a total loss by abandonment.

presumed to have been lost from a peril insured against. Sec. 133. Liability of insurer continues during reshipment if ship is prevented from completing voyage by a peril insured against Type of insurance contemplated under 133: Cargo. It is well-settled that if the original ship be disabled, and the master. Acting with wise discretion forwards the cargo in another ship, such necessary and justifiable change of ship will not discharge the underwriter on the goods from liability for any loss which may take place on goods subsequent to such reshipment. In any case however, the insurer may always require an additional premium if the hazard is increased by the extension of liability. Sec. 134. Marine insurer also liable for damages, expenses for discharging, storage, reshipment, extra freightage and other expenses in saving cargo reshipped – but only up to amount insured Expenses contemplated in 134: Those necessary to complete the transportation of cargo reshipped under Sec. 133. The insurer is liable for them in addition to paying for any loss or damage which may take lace on the goods, due to the perils insured against. The liability however of the insurer under Sec. 134 cannot exceed the amount of the insurance. Sec. 135. Insured entitled to payment in actual total loss; no need of abandonment In case of actual total loss, the right of the insured to claim the whole insurance is absolute. Hence, he need not give notice of abandonment nor formally abandon to the insurer anything that may remain of the insured property. Pan Malayan Ins. v. CA: FAO transported its rice seeds to Vietnam. Barge sank in the China Sea. Some bags of seed were recovered. Still an absolute total loss. All bags were rendered valueless for their purposes since when they got wet, they started to germinate. Since absolute total loss, no need for notice of abandonment. Sec. 136. Free from particular average (FPA) coverage does not cover particular or simple average losses unless loss is total; but insurer liable for general or gross average loss Average: Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo or both; and all damages to the vessel and cargo from the time it is loaded and the voyage commenced, until it ends and the cargo is unloaded (Art. 806, Code of Commerce) Kinds of Average: 1.) Gross or general average: Include damages and expenses which are deliberately caused by the master of the vessel or upon his authority, in order to save the vessel, her cargo, or both at the same time from a real or known risk. A general average loss must be borne equally by all of the interests concerned in the venture (Sec. 812, Code of Commerce). 2.) Simple or particular averages: Includes all damages and expenses caused to the vessel or to her cargo which have not inured to the

In cases of actual total loss, no abandonment is necessary, but if the loss is merely constructively total, an abandonment becomes necessary in order to recover as for a total loss. Sec. 132. Presumption of actual loss arises from continued absence of ship without being heard from; length of time depends on circumstances Presumption: Where a vessel is not heard of at all within a reasonable time after sailing, or for a reasonable time after she was last seen, she will be Helen C. Arevalo

2nd Sem.; 2005

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Jackrammer common benefit and profit of all the persons interested in the vessel and cargo. They refer to those losses which occur under such circumstances as do not entitle the owners to receive contribution from other owners concerned in the venture. It is suffered by and borne alone by the owner of the cargo or of the vessel, as the case may be (Sec. 808, Code of Commerce).

INSURANCE

insurance in the place of the subject thereof, the remnant of which he cedes to the insurer. Requisites for a valid abandonment: 1.) There must be an actual relinquishment by the person insured of his interest in the thing insured. 2.) There must be a constructive total loss. 3.) The abandonment is neither partial nor conditional. 4.) The abandonment must be made within a reasonable time after receipt of reliable information of the loss. 5.) It must be factual. 6.) It must be by giving notice thereof to the insurer which may be done orally or in writing. 7.) The notice of abandonment must be explicit and must specify the particular cause of the abandonment.

Principle behind general average: Principle of customary law, independent of contract, whereby when it is decided by the master of a vessel, acting for all the interests concerned, to sacrifice any part of a venture exposed to a common and imminent peril in order to save the rest, the interests so saved are compelled to contribute ratably to the owner of the interest sacrificed, so that the cost of the sacrifice shall fall equally upon all. Requisites to the right to claim general average contribution: 1.) There must be a common danger to the vessel or cargo; 2.) Part of the vessel or cargo was sacrificed deliberately; 3.) The sacrifice must be for the common safety or for the benefit of all; 4.) It must be made by the master or upon his authority; 5.) It mustn’t be caused by any fault of the party asking for contribution; 6.) It must be successful, i.e. it resulted in the saving of the vessel and/or the cargo; and 7.) It must be necessary. Example: Jettisoning of goods to lighten the vessel. Jettison: Intentional casting overboard of any part of a venture exposed to a peril in the hope of saving the rest of the venture. Liability of insurer for general average: His proportion. He is placed on same footing as other persons who have an interest in the vessel, or the cargo therein, at the time of the occurrence of the general average and who are compelled to contribute. Loss

Formula for computing liability of insurer: x Amount insured = Contribution Value

Liability of insurer for particular average: If the parties stipulate that the insurer will be liable for “general average only” he will not be liable for particular average unless such particular average loss has the effect of depriving the insured of the possession at the port of destination of the whole of the thing insured. Sec. 137. Insurance covering actual total loss does not include constructive total loss. However, it includes deprivation of possession of thing insured at port of destination

Subtitle 1-H. Abandonment Sec. 138. Abandonment is act of insured after a constructive total loss in relinquishing to insurer his interest in thing insured

Sec. 139. Abandonment may be done when more than ¾ of value will be suffered by insured to recover thing insured or its equivalent When the insured may abandon the thing insured: When the loss or damage is more than three-fourths of its value. Rule when the insurance is divisible: Any particular portion of the thing insured separately valued by the policy may be separately abandoned as it is deemed separately insured. See also Sec. 146 for consequences of abandonment Oriental Assurance Corp. v. CA: Logs insured for total loss only. They were loaded onto 2 barges. 1 of the barges was damaged due to rough seas and strong winds and so most of the logs on that barge were lost. Was there constructive total loss? NO. Contract indivisible. No Constructive loss. The logs, although placed on 2 different barges, were not separately valued by the policy, nor separately insured. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. 2/3 requirement not met. Sec. 140. Abandonment must not be partial nor conditional The abandonment must be entire and absolute and cover the whole interest insured. It must be unconditional and unfettered by contingencies and limitations. Sec. 141. Abandonment must be made within reasonable time from receipt of information of loss When abandonment must be made: When the insured has received notice of a loss, he must elect within a reasonable time whether he will abandon to the insurer, and if he so elects, he must give notice thereof within a reasonable time. This is in order that the insurer may not be prejudiced by the delay, and may take immediate steps for the preservation of such property insured as may remain in existence. Sec. 142. If basis for abandonment is incorrect then it is ineffectual

Abandonment: The act of an insured in notifying the insurer that owing to damage done to the subject of the insurance, he elects to take the amount of

Helen C. Arevalo

2nd Sem.; 2005

When the loss must exist: At the time of abandonment.

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Jackrammer When abandonment is ineffectual: 1.) When the information upon which an abandonment has been made proves incorrect; and 2.) When the thing insured was so far restored when the abandonment was made that there was in fact no total loss. Information required in order for the insured to abandon: Need not be direct or positive. A newspaper report, a letter from an agent or a notice from the master is sufficient. As long as the information is of facts and circumstances that renders it highly probable that a constructive loss has occurred, that is enough. Sec. 143. Notice of abandonment to insurer may be oral or written, if oral, written notice must be submitted within 7 days Form of notice: Written or oral. But if oral, must give written notice within 7 days. It need not be made by insured himself. Can be made by an authorized agent. Sec. 144. Notice of abandonment must be explicit, specifying particular cause; Probable cause not enough, no need of proof of interest or loss Sec. 145. Abandonment sustained only upon specified cause in notice Meaning: If the cause you specified in the notice is non-existent, you will not be allowed to adduce evidence to prove other causes for abandonment which you did not so specify. Sec. 146. Abandonment equivalent to transfer of interest from insured to insurer

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The captain or master of the ship continues to be the agent of the insured until abandonment, but from the moment of a valid abandonment, the master of the vessel and the agents of the insured become the agents of the underwriter, and the underwriter becomes responsible for all their acts in connection with the insured property and for all the expenses and liabilities in respect thereto. The abandonment when made relates back to the time of the loss and of effectual, the title of the underwriter becomes vested as of that date and he is responsible for the reasonable expenses incurred by the master after the date in an attempt to save the vessel. The insurer is likewise liable for the wages of the seamen earned subsequent to the loss. Sec. 149. When notice of abandonment is properly given, insured is not prejudiced by insurer’s refusal to accept it Effect on the insured’s rights if the insurer refuses to accept the abandonment: Acceptance is in no case necessary if the abandonment is properly made. In this case, the insured’s right cannot be prejudiced by the refusal of the insurer to accept. Sec. 150. Acceptance of abandonment is express, or implied from insurer’s conduct. Mere silence of insurer for an unreasonable length of time after notice deemed acceptance Form of abandonment: Any. It may be express or implied from the acts of the insurer. The silence must be for an unreasonable length of time. Sec. 151. Express or implied acceptance of an abandonment is conclusive between parties, admits loss and sufficiency of abandonment

Effect of valid abandonment: It transfers to the underwriter the interests in the subject matter covered by the policy subject to the rights and interests, if any, of third persons. The underwriter acquires thereby the entire interest insured, together with all its incidents, including rights of action which the insured has against third persons for injury. In other words, the insurer becomes entitled to all the rights which the insured possessed in the thing insured.

Sec. 152. Abandonment is irrevocable unless ground is unfounded

Sec. 147. If marine insurer pays for loss as if actual total loss, the he is entitled to remainder of thing insured, proceeds, or salvage as if abandoned

Therefore, the acceptance of an abandonment estops the underwriter from relying on any insufficiency in the form, time or right of abandonment. Except: when the ground upon which the abandonment is made proves to be unfounded.

When formal abandonment necessary: Only in constructive loss. Situation contemplated by this article: There is a constructive loss but without waiting for a formal abandonment, the insurer (magnanimously) pays the insured as if the loss were actual and total. The law then steps in and says that since the insurer paid and the insured accepted, we will consider that as an offer and acceptance of abandonment. Hence, from that time on, the insurer is entitled to whatever may remain of the thing insured, or its proceeds or salvage. Sec. 148. Upon abandonment, acts done in good faith by agents of insured after loss are at risk of insurer and for his benefit (agent of the insured becomes agent of the insurer.

Helen C. Arevalo

Effect of acceptance of abandonment: 1.) Insurer becomes at once liable for the whole amount of the insurance; 2.) Insurer becomes entitled to all rights which the insured possessed in the thing insured; 3.) Fixes the rights of the parties. It is conclusive upon them and is irrevocable.

Sec. 153. In an accepted abandonment of ship, freightage before loss belongs to insurer of freightage; freightage after belongs to insurer of ship Right to freightage of insurer of ship: When abandonment is validly made, the interest of the insured in the thing covered passes to the insurer. The insurer of the ship becomes the owner thereof after an abandonment, and his title becomes vested as of the time of the loss. Hence, freightage earned subsequent to the loss belongs to the insurer of the ship. Right to freightage of insurer of freightage: The insurer of the freightage is subrogated to the rights of the insured at the time of the loss hence any

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freightage earned previous to the time of loss rightfully belongs to him.

of the amount insured as it bears to the interest insured (principle of co-insurance)

Sec. 154. If insurer refuses to accept valid abandonment, he is liable for actual total loss less proceeds from thing insured in hands of insured

Meaning: In every marine insurance, the insured is expected to cover by insurance the full value of the property insured. However, there are instances when people insure for less than their interest. So if the value of the insured’s interest exceeds the amount of insurance, the insured is considered a co-insurer for an amount determined by the difference between the insurance taken out and the value of the property.

Effect on the insurer’s liability if he refuses to accept valid abandonment: He is liable as upon an actual loss less any proceeds the insured may have received on account of the damaged property as when the insured succeeds in selling the property as damaged.

Circumstances in which Section 157 will apply: 1.) Loss is partial; and 2.) Amount of insurance is less than the insured’s entire insurable interest in the property insured

Formula: Liability of insurer = Actual loss – Any Proceeds Received by the Insured. If abandonment was improper, the insured may nevertheless recover to the extent of the damage proved. Sec. 155. If insured does not abandon, he can recover actual loss

Compare with Sec. 172 (fire insurance) – no coinsurance in fire insurance unless stipulated Sec. 158. Where profits are separately insured, the insured is entitled to a proportion of profits lost, equivalent to proportion of property lost bears to value of whole

Effect of insured’s failure to abandon: The insured has an election to abandon or not, and he cannot be compelled to abandon although abandonment is proper. He may await the final event, and recover accordingly for a total or partial loss, as the case may be.

Sec. 159. In a valued marine policy of freightage or cargo, if part of subject is exposed to risk, valuation applies in proportion to such part Meaning: When cargo is insured under a valued policy but only a portion of the cargo is actually carried by the vessel at the time of loss, the valuation will be reduced proportionately. The insurer is bound to return such portion of the premium as corresponds with the portion of the cargo which had not been exposed to the risk.

Subtitle 1-I. Measure of Indemnity Sec. 156. Valuation in an marine policy (valued policy) is conclusive between parties; exception: hypothecation by bottomry or respondentia before insurance; fraudulent valuation entitles insurer to rescind Object of valuation: It may happen that when a vessel is insured for a long time or for a long voyage, her value at the end of the voyage may not be the same as at the beginning. Hence, we resort to valuation in order to fix in advance the value of the property ands thus, avoid the necessity of proving its actual value in case of loss. Insured value: That stated in the policy. It is conclusive upon the parties provided that the insured has some interest at risk, and there is no fraud on his part. In case of fraud on part of insured in stating the value: Insurer may rescind the contract. In a valued marine policy, when the thing insured is lost, neither party is permitted to give evidence of the real value of the thing. Reason: There was already a conclusive value given to it by the parties in the policy. Exception: If the thing has been hypothecated by bottomry or respondentia before it was insured, and such hypothecation is WITHOUT the knowledge of the person who procured the insurance, the real value of the thing MAY BE SHOWN by the insurer. See Sec. 161 for marine open policies Sec. 157. In a marine policy in case of partial loss the insurer is liable only for a proportion

Helen C. Arevalo

Sec. 160. When profits valued, loss is conclusively presumed from loss of property from which they arise and valuation fixes their amount Meaning: If the property is totally lost, then consequently, the total profits are also lost. Such loss of profits are conclusively presumed from the loss of the property and the valuation agreed upon in the policy fixes the amount of recovery. Sec. 161. Rules in estimating loss in a marine open policy regarding values of: 1.) Ship – Value at the beginning of the risk. 2.) Cargo – Its actual cost to the insured, when laden on board, or where that cost cannot be ascertained, its market value at the time and place of lading. 3.) Freightage – Gross freightage, exclusive of primage, without reference to the cost of earning it. 4.) Cost of insurance added to value estimated In determining the loss under an open policy of marine insurance, the real value of the thing insured must be proved by the insured in each case. Section 161 lays down the rules in ascertaining the value to be used for indemnity purposes. Sec. 162. Rule when cargo insured against partial loss arrives in damaged condition; loss is deemed in same proportion as market price of damaged goods bears to market price of goods in sound condition in port of destination Section 162 applies if: 1.) The cargo is insured against partial loss; and 22

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Jackrammer 2.) It suffers damage as a result of which its market value at the port of destination is reduced. Sec. 163. Sue and Labor Clause (if stipulated): Insurer liable for expense incurred by insured in recovering the property in addition to total loss if it occurs later As a general rule, a marine insurer is not liable for more than the amount of the policy. Under Section 163, however, expenses incurred in repairing damages suffered by a vessel because of perils insured against and expenses incurred for saving the vessel from such perils are items to be borne by the insurer in addition to a total loss if that afterwards takes place. Such expenses are known as Port of Refuge Expenses.

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Limit as to the liability of the insurer: It is limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. In other words, the liability of the insurer shall be less than the proportion of the general average loss assessed upon the thing insured where its contributing value is more than the amount of the insurance. In such case, the insured is liable to contribute ratably with the insurer to the indemnity of the general average. Sec. 166. Partial loss of ship or equipment – old materials to be applied to payment of new. Unless stipulated, marine insurer liable for only 2/3 of remaining costs of repairs but anchors to be paid in full

Sec. 164. Marine insurer liable for general average loss contribution in proportion to what insured value bears to contributing value of thing insured

Liability of the insurer in case of partial loss of the ship or its equipment: 2/3 cost of repairs. “1/3 new for old” on the theory that the new materials render the ship more valuable than it was before the loss.

See also Arts. 811-812, Code of Commerce (rules on general average loss)

Title 2. Fire Insurance

Jarque v. Smith Bell: Jarque owned the motorboat Pandan which he insured with Nat’l Union Fire Ins. Co. for absolute total loss only. Due to very heavy sea, they had to jettison cargo. Ins. co. liable to contribute? YES. Liability for contribution in general average is not based on express terms of policy, but rests upon the theory that from the relation of the parties and for their benefit, a quasi-contract is implied by law. Art. 859 of Code of Commerce is mandatory. Insurers are bound to contribute to indemnity of the general average. This simply places the insurer on the same footing as other persons who have an interest in the vessel, or the cargo therein. The jettison was as much to the benefit of the underwriter as to the owner, if jettison had not taken place and the ship foundered, insurer would have had to pay a lot more money. Sec. 165. Marine insurer is liable for general average loss and is subrogated to insured’s right to general average contribution, but shall not be liable 1.) When insurer is made liable after separation of interests liable to contribution; 2.) When insured neglected or waived the right to demand contribution from others Rights of the insured in case of general average: The insurer is liable for any general average loss where it is payable or has been paid by the insured in consequence of a peril insured against. The insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution, or demand contribution from the other interested parties as soon as the vessel arrives at her destination. In other words, the insured need not wait for an adjustment of the average. There can be no recovery for general average against the insurer: 1.) After the separation of the interests liable to contribution, or rather, after the cargo liable for contribution has been removed from the vessel; or 2.) When the insured has neglected or waived his right to contribution. Helen C. Arevalo

Sec. 167. Fire insurance includes insurance against fire, lightning, windstorm, tornado, earthquake & other allied risks if these are stipulated in fire policies or in separate policies Fire insurance: A contract of indemnity by which the insurer for a consideration, agrees to indemnify the insured against the loss of or damage to, a property by fire. As used in this Code, it includes loss also by: 1.) Lightning; 2.) Windstorm; 3.) Tornado; 4.) Earthquake; and 5.) Other allied risks. But only when such risks are covered by extension to fire insurance policies or under separate policies, subject to the payment additional premiums. Nature of fire insurance: Contract of indemnity. Indemnity is its sole purpose and any contract that contemplates a possible gain to the insured by the happening of the event upon which the liability becomes fixed is contrary to the proper nature of insurance and is not allowed. Jack: Fire insurance policy only insures against hostile fire not friendly fire (e.g. gas range fire, bonfire). Restaurant cannot collect due to soot on the wall caused by gas range. Friendly fire yun eh. Normally the policy provides that the insurer is not liable for loss caused due to war or rebellion and the like. Buildings burned down by Japanese in WWII not covered. BUT if there is one building that was independently burned (the japs didn’t do it) that one building may recover under the insurance policy. Sec. 168. Change within control of insured, in use or condition of thing insured, without consent of insurer increasing the risk entitles insurer to rescind Jack: Section 168 talks of alteration. For example is this case where the SC ruled that there was alteration, when the building is insured as a bookstore, but it was converted into a restaurant, also because there is an increase in risk. Another example is when one stores canvass in the premises (inflammable), or when the place is insured as a residence but used to store leather and other flammables. 23

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Jackrammer Sec. 169. Change which does not increase risk does not affect contract Requisites for insurer to rescind in case of alteration: 1.) The use or condition of the thing is specifically limited or stipulated in the policy; 2.) Such use or condition as limited by the policy is altered; 3.) The alteration is made without the consent of the insurer; 4.) The alteration is made by means within the control of the insured; and 5.) The alteration increases the risk. Alterations which avoid the policy: Any alteration in the use or condition of the property insured which increase the risk. Alterations which do not avoid the policy: 1.) Building insured used in a different way but which is not of a dangerous character and does not differ materially from the use specified in the policy; or 2.) Prohibited articles are necessary or ordinarily used in the business conducted in the insured premises; or 3.) The making of repairs, painting and other acts of similar character on the thing insured. Jack: For example is when a place is insured a residential condominium but is converted into an office condominium, there is no increased risk, and no alteration.

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Option to rebuild clause: Under this clause, if stipulated, the insurer is given the option to reinstate or replace the building damaged or destroyed or any part thereof, instead of paying the amount of the loss or damage. Jack: When the insurer exercises this option, the contract of insurance is novated. It turns into a contract for piece of work and insurer becomes liable for quality of the work done. Sec. 173. No policy of fire insurance shall be pledged, hypothecated, or transferred to agents or representatives of issuing company (insurer). Such contracts are void insofar as they affect creditors of insured

Title 3. Casualty Insurance [with CTPL Secs. 373-389] The Motor Vehicle liability actually should be read with this because it is a form of casualty/liability insurance. Many of the cases that jack discussed (as to joyride; foreigner driving here, etc) are digested below. BOTH casualty and liability insurance fall under here. Medyo misleading ang jack transcript dahil hiwalay sila. If you will notice though, the jack transcript does make note that the liability insurance falls under Sec. 174.

Sec. 170. Act of insured increasing risk and is cause of loss but which does not violate fire policy provisions does not affect fire policy

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accidents or mishaps outside coverage of fire or marine insurance. It includes workmen’s compensation, employer’s liability, public liability, motorcar, plate glass, burglary and theft, personal accident and health insurance as written by non-life insurance companies

Sec. 171. If no valuation in policy (open policy), measure of indemnity is replacement cost; if there is valuation (valued policy), same rule as in marine insurance (conclusive between parties)

Casualty insurance: Includes all forms of insurance against loss or liability arising from accident or mishap which are not within the scope of other types of insurance, namely marine, fire, suretyship and fire.

Sec. 172. If insured desires valuation in a fire policy – an independent appraiser may be hired by insured at his expense & value can then be fixed between him and insurer and a clause then stipulated mentioning value. Value stated is maximum of insurer’s liability. Full amount of partial loss is payable. Parties can also stipulate that repair, replacement or rebuilding of buildings be done

Liability insurance: It is a contract of indemnity for the benefit of the insured and those in privity with him, or those to whom the law upon the grounds of public policy extends the indemnity against liability. Under policies of this type, an indemnity is provided to the insured in respect of his legal liability to pay damages, usually arising out of negligence or nuisance and occasionally, under contract.

Unlike in marine insurance, in the absence of stipulation, insured is not a co-insurer under fire policies. Thus, if property valued at P10,000 is insured for P5,000 and is damaged by fire to the extent of one-half of its value, the insurer will be compelled to pay the entire P5,000 necessary to repair the loss. To avoid such a situation, fire insurers insert 2 types of clause in their policy: 1.) Co-insurance clause; and 2.) Option to rebuild clause.

Insurable liability: Liability which arises from the commission of a quasi-delict or a tort is insurable. However, if the liability arose from the commission of a crime, it depends. If the liability arose out of acts of negligence which are also criminal, they may be insurable on the ground that such acts are ACCIDENTAL. Example is motor insurance policy covering the insured’s liability for accidental injury caused by negligence, even if it so gross resulting to homicide. On the other hand, if the liability arose out of DELIBERATE criminal acts, such is not insurable.

Co-insurance clause: A clause requiring the insured to maintain insurance to an amount equal to the value or specified percentage of the value of the insured property under penalty of being a co-insurer to the extent of such deficiency. In other words, this clause is inserted to make the insured a co-insurer.

Jack: Where an insurance policy insures directly against liability, the insurer’s liability accrues immediately upon the occurrence of the injury upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. Usually, these contracts contain a provision that in case of suit against the insured, the insurance

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Jackrammer company will defend the case. Under the contract, the insurer has two obligations: 1.) Indemnity; and 2.) Defend the insured. Villacorta v. Ins. Commission: Insured got private car policy on his Colt Lancer for theft and 3rd partly liability. Vehicle was brought to Sunday Machine Works. Taken by 6 persons to Rizal where they had an accident. Claim denied. Commish dismissed complaint contending that it does not fall under Own Damage or Theft Coverage but under the Authorized Driver Clause. Mali ang commish. Insured did not know the driver, he is an unauthorized driver. When car unlawfully taken, theft clause, not authorized driver clause applies. It was without the owner’s consent – eh ‘di theft sya. Ins. Co. must pay. Association of Baptists v. Fieldmen’s Insurance: Chevrolet carry-all placed at Mobilgas station under care of Rene Te to be displayed for sale. One of the station boys took the car for a joyride without the consent of either Rene Te or the owner. Bumped an electric post. It was theft; ins. co. liable. Taking without consent = theft. No need for conviction. Preponderance of evidence only. Besides, no stipulation in policy which requires prior conviction for theft to entitle insured to recovery. Tanco v. Phil Guaranty: Owner’s auto while being driven by his brother, got in a car accident. There’s an exception clause in the policy w/c provided that the co. is not liable in case the driver is not an authorized driver. At the time of collision, brother did not have a valid driver’s license. NOT authorized driver. Authorized driver: 1.) On owner’s order/permission; 2.) Permitted by licensing laws; not disqualified. Stokes v. Malayan Insurance: Owner’s car, when in collision, driven by James Stokes, who was authorized to do so by owner. Stokes is Irish. He was here for more than 90 days. NOT authorized driver. Tourists who are licensed to drive in own country can drive in phils. However, after 90 days, they should pay fees and carry a license to still be able to drive here. Gutierrez v. Capital Insurance: Jeepney got into a collision. Passenger killed. Jeepney driver licensed for years 1962 and 1963 but at the time of the accident, did nto have license. Instead, he had a carbon copy of a traffic violation report which served as temporary operator’s permit but only for 15 days. 15-day period had already expired. NOT authorized driver. Barred from recovery under policy Palermo v. Pyramid Insurance: Claim was disallowed since insured was driving with an expired driver’s license. Tama ba ang disallowance? NO. Driver of the vehicle at the time of accident was the insured himself, hence, an authorized driver. The requirement that the driver be permitted in accordance with the licensing and other laws/regulations applies only when the driver is driving on the insured’s order/with his permission. It does not apply when the person driving is the insured himself.

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Ins. co. liable. Where a car is admittedly unlawfully taken w/o the owner’s consent/knowledge, such taking constitutes theft and therefore it is the theft clause and not the authorized driver clause that should apply. There is no causal connection between the possession of a valid driver’s license and the loss of a vehicle. Rule as to death or injury resulting from accidental means: GR: Death or injury does not result from accident or accidental means within the terms of an accident policy if it is the natural result of the insured’s voluntary act, unaccompanied by anything unforeseen except the death or injury EXCEPTION: There is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produce or brings about injury or death. In other words, the death or injury is not the natural or probable result of the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of policies insuring against death or injury from accident. Sun Insurance v. CA: Felix Lim took the magazine out of his gun then pointed it to his temple, thinking it was unloaded. He pulled the trigger and shot himself to death. Ins co. liable. This is a case of pure accident. He did not expose himself intentionally to peril. He really thought the gun was not loaded. Oo, bobo sya, he was negligent, but it was an accident. Accidents are usually caused by negligence and kabobohan. Jack: A usual accident policy says it won’t answer for death or injury caused by murder or assault. If desired for the policy to cover these instances, the insured must pay extra. Finman Gen. Ins. v. CA: Charlie was stabbed to death at a maskara festival. There was no motive for the stabbing – thrill killing. Finman says that death by assault/murder is not included in the policy. Finman liable. There was no voluntary act of Charlie that led to his death. He did not mean to get in the path of a psychotic murderer nor in the way of the latter’s knife. It was a case of pure accident. No stipulation that death by assault/murder excluded. Jack: Another case: A group of policemen and a security guard were chasing a robber. The robber fired killing the security guard. It was ruled as accidental death, because the victim was chosen at random. Hence the guard’s heirs can collect. Another case: if a robber holds up a bus he was riding and before he leaves shoots at one of the passengers. Accident. Jack handled this case where in this restaurant, a customer tried to leave without paying. He was able to momentarily leave the premises. One of the customers wanted to avoid the fracas, so he paid then left. When he stepped out the door, the estafador customer (thinking he was one of the waiters out to catch him) shot him. Error in personae. Accident.

Perla Cia de Seguros v. CA: While the car was parked it was carnapped. Ins. Co. denied claim since person who was driving the vehicle before it was carnapped was in possession of an expired driver’s license and hence, not an authorized driver.

Gabriel v. CA: Gabriel, insured, was employed at contruction project in Iraq and covered by a personal accident insurance under a group policy. The insured risk was for bodily injury caused by violent accidental external and visible means which injury would solely and independently of any other cause result in death/disability. He died. Wife claimed insurance. The only evidence given was wife’s own affidavit and a letter of a co-worker.

Helen C. Arevalo

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INSURANCE

Lack of evidence. In an accident insurance, the insured’s beneficiary has burden of proof in demonstrating that the cause of death is due to the covered peril (not like life insurance where insured’s death, regardless of cause would normally be compensable).

CHAPTER VI – COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE Sec. 373. Definition of Terms. See nalang codal if you really want to know this but I don’t think it’s important. Sec. 374. Insurance policy, cash or surety bond in favor of 3rd party or passenger in case of death or bodily injury, is required for motor vehicles. Motor vehicle liability insurance (MVLI): MVLI is a protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of a motor vehicle by its owner. Before this protection was obtained purely on a voluntary basis by a vehicle owner to meet his needs in connection with whatever liability he would have incurred in operating the vehicle. However now, with the increase in the number of stupid, idiotic and moronic drivers whose licenses should be revoked, legal luminaries have made it COMPULSORY. Persons subject to CMVLI requirement: 1.) Motor vehicle owner or one who is the actual legal owner of a motor vehicle whose name such vehicle is registered with the LTO; or 2.) Land transportation operator or one who is the owner of a motor vehicle being used for conveying passengers for compensation Jack: Every vehicle must have compulsory insurance, otherwise you can’t drive it on the road. Even if the policy provides that final judgment is needed before liability attaches, it’s a void provision. Who can file claim: Lawyer goes to a conference and his secretary is with him to take down notes. If they have an accident she can’t file a claim because her presence in the vehicle arises out of the course of employment. But if they’re out on a date she can file. If the lawyer is married I doubt if she’ll file the claim. Joyride – can claim under theft (Villacorta). Importance of a license: If the insured himself is the driver, he has the right to recover damages even if his license has expired. If the driver is merely authorized by the owner, then the authorized driver must have a valid license (hindi expired), otherwise the claim is barred. Sec. 375. Insurance Commissioner to furnish list of authorized insurance companies. Sec. 376. Evidence of 3rd party liability coverage required prior to motor vehicle registration or renewal Prerequisite before a motor vehicle is registered and operated: Sec 374 prohibits a land transportation operator or a motor vehicle owner from operating his vehicle in public highways unless there is in force in relation thereto a policy insurance or guaranty in cash or surety bond to indemnify the death or bodily injury of a third party or of a passenger, arising from

Helen C. Arevalo

2nd Sem.; 2005

the use of the vehicle. This is what the law calls THIRD PARTY LIABILITY COVERAGE Sec. 377. Compulsory liability maximum amount limits Sec. 378. No fault indemnity; amount limits a.) Death & bodily injuries only b.) Not more than P5,000 per person c.) Claim against one motor vehicle only; against motor vehicle where one is a passenger, mounting or dismounting; otherwise, against offending vehicle d.) Proofs required by law are submitted (i.e. police report, death certificate, medical report, proof of medical expenses) What is a ‘no-fault indemnity’ claim? It provides that in cases where the vehicle insured causes death or physical injuries, the person injured may claim under the following circumstances: 1.) If the person is a passenger of the vehicle meaning he is on board, or boarding or dismounting from the vehicle, the person injured or his heirs (in case of death) may claim from the insurer of the vehicle he was on board under the CMVLI 2.) If it transpires in any other case but resulting from an accident involving motor vehicles and the person is not a passenger, he may claim from the insurer of the offending vehicle. Under the ‘no-fault indemnity clause,’ the person injured or the heirs may claim up to P5,000—without need of establishing whose fault or who is liable for the accident. That the said vehicle might not be the one who caused the accident is immaterial since the law provides that the party paying the claim may later on recover against the owner of the vehicle responsible for the accident. This is precisely the essence of the ‘no-fault indemnity’ insurance, to provide victims immediate compensation although in a limited amount, pending final determination of who is responsible for the accident and liable for the victim’s injuries or death. Nevertheless, he or his heirs may only claim from one vehicle and if the person injured wishes to claim more he must establish fault or liability as to who caused the accident. Jack Requisites for insurer to be liable under “no fault indemnity” provision: 1.) The claim is for death or injury to any passenger or third party; 2.)The total indemnity in respect of any one person does not exceed P5,000; and 3.) The necessary proof of loss under path to substantiate the claim must be submitted. Jack: In case of death, you submit the death certificate. In case of injury, you submit a medical report. In ALL cases, however, you have to submit a police report.) Jack Which insurer is liable under the no-fault indemnity” provision? A claim under the “no fault indemnity” provision may be made against the insurer of one motor vehicle only. Such claim may be made directly by the injured party against the insurer as follows: 1.) In 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; 26

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Jackrammer 2.) In any other case, claim shall lie against the insurer of the directly offending vehicle. Perla Cia de Seguros v. Ancheta: Bus collision between 2 buses, IH Scout and Superlines. Passengers of IH Scout sustained injuries and went after the insurer of Superlines (Perla) under the no fault indemnity provision. It is the insurer of IH Scout (Malayan) which is liable under the no fault clause. The law is clear – they must claim against the insurer of the vehicle in which they were riding. It is immaterial who was really at fault. Jack: The no fault indemnity clause is without prejudice to the claimant’s getting more. For instance, the claim is for 15,000. Under the no fault indemnity clause, he gets 5,000. But this doesn’t mean that the 10,000 is barred. Only that the claimant has to prove that there was negligence. It’s void for the insurance company to require the claimant to waive his other claims as a condition precedent to the release of the P5,000 (which the claimant is entitled to as a matter of right anyway.

INSURANCE

Sec. 388. Sanctions and penalties for violation of these provisions: 1.) Fine of not less than P500 but not more than P1,000 and/or imprisonment for not more than 6 months. 2.) Revocation of certificate of public convenience (in the case of land transportation operator). Sec. 389. Persons liable as principals in case violator of these provisions is a corporation, association or government office: Executives or officers who knowingly permitted or failed to prevent violation.

Title 4. Suretyship Sec. 175. Surety contract is an agreement where a party (the surety) guarantees performance by another party (the principal or obligor) of an obligation or undertaking in favor of a 3rd party (obligee) Nature of the liability of the surety: 1.) Joint and Several or Solidary – This means that upon default by the obligor in complying with his obligation as secured by the bond, the surety becomes primarily liable to the obligee who has the right to demand payment under the terms and conditions of the bond. 2.) Limited to the amount of the bond 3.) Determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.

Sec. 379. Rules for insurance companies authorized to issue CTPL insurance Sec. 380. Rules on cancellation of compulsory liability coverage by insurer 1.) Notice to land operator or owner 2.) Notice to LTO 15 days prior to cancellation Sec. 381. Rules on cancellation of compulsory liability coverage by land transportation operator or owner 1.) Replace policy, bond or cash & file with LTO 2.) Notify insurer of cancellation Sec. 382. Effect of change of ownership of motor vehicle on CTPL insurance coverage: no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and provided the ins. co. shall agree to continue the policy, such change of ownership shall be indicated in an endorsement filed with the Land Transpo. Commission. Sec. 383. Indemnity not an instrument of enrichment Sec. 384. Claims procedure in case of compulsory motor vehicle liability insurance 1.) Notice of claim to insurer within 6 months – otherwise 2.) Action or suit – within 1 year from denial of claim – otherwise action prescribed Jack: Two periods: You have to file the claim with the insurance company within 6 months from the time of the accident otherwise it’s deemed waived. Then you have to go to court within one year from the denial of the claim, otherwise your claim will be barred. Sec. 385. Deadline for payment of claims: 1.) After reaching agreement – within 5 working days. 2.) No agreement – pay under no fault indemnity. Sec. 386. Unlawful to require drivers and employees to contribute premiums Sec. 387. Government offices, and their employees prohibited from acting as agents. Helen C. Arevalo

2nd Sem.; 2005

Sec. 176. Liability of surety is solidary with obligor but limited to amount of bond. It is determined strictly by surety contract and principal contract between obligor and obligee Jack: An accused applies for a bond with an insurance company. The obligee (the court) is not concerned if the premium is not paid. If the accused absconds, the court will proceed against the insurance company. Sec. 177. Surety entitled to payment of premium as soon as contract perfected & delivered to obligor. Contract not valid until premium paid except where obligee accepted bond where contract valid irrespective of whether premium paid or not; if contract not accepted by, or not filed with, obligee, surety entitled to service fee of not exceeding 50% of premium due plus documentary stamps and other taxes Jack: If the bond is not accepted, the principal is entitled to the return of the premiums paid. However, taxes cannot be refunded. In some instances, the insurance company will charge a service fee because the insurance company took time to review the application for the bond. For instance, the manager took time to go over the papers, the clerk took time to type the application, etc. But if the bond was denied because there was fault on the part of the insurance company, the applicant is entitled to the return of the premiums paid AND the taxes paid. Example: Courts require insurance companies to get a clearance. The bond which the accused applied for was not approved because the surety company failed to get a clearance (because it 27

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Jackrammer had an outstanding obligation with the court because it failed to make good on a prior bond). In this case, the applicant is entitled to the return of the premiums paid and whatever taxes he has paid as well. Continuing bonds (e.g. judicial bonds) remain in force until the case is finally terminated. The insurance company is entitled to charge premiums every year. Sec. 178. Civil Code provisions suppletory in interpreting surety contracts

INSURANCE

2.) On his surviving a specified period; or 3.) Otherwise contingently on the continuation or cessation of life. Sec. 180-A. Insurer in a life policy liable for suicide if committed after policy in force for 2 years after issue or last reinstatement unless shorter period stipulated. Suicide while insane is compensable regardless of date of commission (Sec. 3, BP 874) This is an exception to Sec. 87 where the insurer is not liable for loss caused by the willful act of the insured

Title 5. Life Insurance (See also Secs. 226-231)

In case of suicide, insurer is liable when: 1.) The suicide is committed after the policy has been in force for a period of 2 years from the date of its issue or of its last reinstatement; 2.) The suicide is committed after a shorter period provided in the policy although within the 2 years period; and 3.) The suicide is committed in the state of insanity regardless of the date of commission, unless suicide is an excepted risk.

Life insurance: An insurance payable on the death of a person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. It is a contract to make specific payments upon the death of a person whose life is insured. Sec. 179. Life insurance covers human lives and allied matters Jack: 3 principal types: 1.) Term – for a fixed period (e.g., for 5 years, for 10 years, etc), after that it expires. This is the least expensive type of insurance. It does not have cash surrender value. 2.) Whole life – the insured pays premiums up to a certain time and then he will be insured up to a certain age or until he dies, whichever comes first. For example, the policy states that the insured will pay premiums until he’s 65. After that he’ll be insured until he’s 96. 3.) Endowments – For example, the policy states that if the insured reaches 60, the insurer will pay him annuities for life. This is the most expensive type of life insurance. Sec. 180. Life insurance is that payable upon 1.) Death of insured; or 2.) His surviving a specified period. Contract for payment of endowments or annuities considered a life insurance contract under Insurance Code. In the absence of a judicial guardian, the following exercise rights of minor insureds or beneficiaries under life insurance policies (without court authority or bond): 1.) Father 2.) In latter’s absence or incapacity, the Mother Provided minor’s interest does not exceed P20,000. (Now P50,000) Nario v. Philamlife: Court authorization in a competent guardianship proceeding is needed in order to proceed w/ transaction (policy loan or surrender of policy) w/c involve a disposition or alienation of the property of the minor beneficiary. Written consent of father-guardian, if w/o court authorization, is insufficient. Jacl: Because of Section 180, the father (or in his absence, the mother) is now authorized to do acts of ownership (e.g., obtaining a policy loan, surrendering the policy) without judicial authority, so long as the interest of the minor does not exceed P50,000. The interest of the minor is based on the face value of the policy and not on its cash surrender value. Life insurance may be made payable: 1.) On the death of the person; Helen C. Arevalo

2nd Sem.; 2005

Cannot provide for longer period than 2 years. Jack: Who has the burden of proving suicide? The basic instinct of self-preservation militates against the commission of suicide. Thus, it is incumbent upon the party alleging suicide as a defense, especially in actions involving insurance policies to prove it by clear and convincing evidence. Sec. 181. A life insurance policy may pass by transfer, will or succession whether transferee has insurable interest or not Jack: The insured may assign a life insurance policy if the policy is payable to his estate or his legal representative or where the insured has reserved the right to change the beneficiary. If the policy is payable to an irrevocably appointed beneficiary, the insured cannot assign it because that will prejudice the vested interest of the irrevocable beneficiary. Sec. 182. Notice to insurer of transfer not necessary unless stipulated When effecting a transfer, the consent of the following must be obtained: 1.) Assignor; 2.) Assignee; and 3.) Beneficiary. When is the consent of the beneficiary a must? Only in policies which contain an express waiver of the right to change the beneficiary. The execution of such waiver gave the beneficiary a vested and absolute interest which he cannot be divested of without his consent. In case the policy contains no such waiver, the insured may assign the policy without the consent of the beneficiary. Sec. 183. Measure of indemnity under life insurance policy is face amount of policy unless interest of person insured is measurable (Life insurance is a valued policy)

CHAPTER III – THE BUSINESS OF INSURANCE Jack: You need a certificate of authority from the commissioner before you can engage in the

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Jackrammer

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2nd Sem.; 2005

insurance business. A certificate of authority is valid for 1 year. Agents and brokers must be licensed. Soliciting for compensation without a license criminally liable. Rebate of premiums is also prohibited. Agreements regarding kickbacks can’t be enforced because they are illegal. Margin of insolvency: Excess of the value of an insurance company’s admitted assets over the amount of its liabilities. (in non-life, dapat at least 20% ‘to)

 Good Luck! 

Helen C. Arevalo

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