2005 Centralized Bar Operations Executive Committee and Subject Chairpersons
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
7
30 2005 Centralized Bar Operations
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS
Contract of Insurance
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
"DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS" (Sec. 2, par. 4)
Making or proposing to make, as insurer, any insurance contract;
Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety;
Doing any insurance business, including a reinsurance business;
Doing or proposing to do any business in substance equivalent to any of the foregoing
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. Consensual – it is perfected by the meeting of the minds of the parties.
2. Voluntary – the parties may incorporate such terms and conditions as they may deem convenient.
3. Aleatory – it depends upon some contingent event.
4. Unilateral – imposes legal duties only on the insurer who promises to indemnify in case of loss.
Conditional – It is subject to conditions the principal one of which is the happening of the event insured against.
Contract of indemnity – Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured.
Personal – each party having in view the character, credit and conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as "premium".
5. Meeting of the minds of the parties.
5 CARDINAL PRINCIPLES IN INSURANCE
1. Insurable Interest
2. Principle of Utmost Good Faith
An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know.
Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health.
3. Contract of Indemnity
It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino)
Rules:
Applies only to property insurance except when the creditor insures the life of his debtor.
Life insurance is not a contract of indemnity.
Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may "adhere" if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latter's rights against the wrongdoer at the time of loss.
The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
To make the person who caused the loss legally responsible for it.
To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured could have recovered.
3. There can be no subrogation in cases:
Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured's claim for loss;
Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54)
In life insurance
For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fund.
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
IV. PERFECTION OF AN INSURANCE CONTRACT
An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration.
What is being followed in insurance contracts is what is known as the "cognition theory". Thus, "an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge". (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
Binding Receipt
A mere acknowledgment on behalf of the company that its branch office had received from the applicant the insurance premium and had accepted the application subject to processing by the head office.
Cover Note (Ad Interim)
A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance.
Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application.
Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52).
Riders
Printed stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines, 1968 ed.)
Clauses
An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. De Leon, p.188)
Endorsements
Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)
Policy of Insurance
The written instrument in which a contract of insurance is set forth. (Sec. 49)
Contents: (Sec. 51)
Parties
Amount of insurance, except in open or running policies;
Rate of premium;
Property or life insured;
Interest of the insured in the property if he is not the absolute owner;
Risk insured against; and
Duration of the insurance.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy.
Kinds:
1. open policy – value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60)
The actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62)
2. valued policy – definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. 61)
In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount.
3. running policy – contemplates successive insurances and which provides that the object of the policy may from time to time be defined (Sec. 62)
V. Types of Insurance Contracts
1. Life insurance
Individual life (Secs. 179–183, 227)
Group life (Secs. 50, last par., 228)
Industrial life (Secs. 229–231)
2. Non-life insurance
Marine (Secs. 99–166)
Fire (Secs. 167–173)
Casualty (Sec. 174)
3. Contracts of bonding or suretyship (Secs. 175–178)
Note:
1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance.
VI. Parties to Insurance Contract
Insurer - Person who undertakes to indemnify another.
For a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, 113 SCRA 459)
2. Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to contract, must possess an insurable interest in the subject of the insurance and must not be a public enemy.
A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject of such nation.
3. Beneficiary - A person designated to receive proceeds of policy when risk attaches.
Rules in the designation of the beneficiary:
LIFE
A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of the NCC.
Reason: in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181)
A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec. 10)
As a general rule, the designation of a beneficiary is revocable unless the insured expressly waived the right to revoke in the policy. (Sec. 11)
The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12)
PROPERTY
The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).
Effects of Irrevocable Designation Of Beneficiary
Insured cannot:
Assign the policy
Take the cash surrender value of the policy
Allow his creditors to attach or execute on the policy;
Add new beneficiary; or
Change the irrevocable designation to revocable, even though the change is just and reasonable.
The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)
VII. Insurable Interest
A. In General
A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or prejudice.
B. Life
Every person has an insurable interest in the life and health:
of himself, of his spouse and of his children;
of any person on whom he depends wholly or in part for education or support;
of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance; and
of any person upon whose life any estate or interest vested in him depends. (Sec. 10)
When it should exist: When the insurance takes effect; not thereafter or when the loss occurs.
Amount:
GENERAL RULE: There is no limit in the amount the insured can insure his life.
EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is equal to the amount of the debt.
Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies.
C. Property
Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
an existing interest;
any inchoate interest founded on an existing interest; or
an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec. 14)
When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime.
Amount: The measure of insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. (Sec. 17)
Insurable interest in Life
Insurable Interest in Property
Must exist only at the time the policy takes effect and need not exist at the time of loss
Must exist at the time the policy takes effect and when the loss occurs
Unlimited except in life insurance effected by creditor on life of debtor.
Limited to actual value of interest in property insured.
The expectation of benefit to be derived from the continued existence of life need not have any legal basis whatever. A reasonable probability is sufficient without more.
An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis.
The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
The beneficiary must have insurable interest over the thing insured.
SPECIAL CASES
In case of a carrier or depositary
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 15)
In case of a mortgaged property
The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other.
a. Mortgagor – As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not extinguish the mortgage debt.
b. Mortgagee – His interest is only up to the extent of the debt. Such interest continues until the mortgage debt is extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)
standard or union mortgage clause
open OR loss payable mortgage clause
Subsequent acts of the mortgagor cannot affect the rights of the assignee
Acts of the mortgagor affect the mortgagee. Reason: Mortgagor does not cease to be a party to the contract. (Secs. 8 and 9)
Effects of Loss Payable Clause
a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract.
b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee.
c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.
In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)
VIII. RISK
What may be insured against:
Future contingent event resulting in loss or damage – Ex. Possible future fire
Past unknown event resulting in loss or damage – Ex. Fact of past sinking of a vessel unknown to the parties
Contingent liability – Ex. Reinsurance
IX. Premium PAYMENTS
Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.
Basis of the right of the insurer to collect premiums: Assumption of risk.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec. 77)
EXCEPTIONS:
In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. 78)
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
A. Whole:
If the thing insured was never exposed to the risks insured against; (Sec. 79)
If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81)
If contract is voidable because of the existence of facts of which the insured was ignorant without his fault; (Sec. 81)
When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81)
When rescission is granted due to the insurer's breach of contract. (Sec. 74)
B. Pro rata:
When the insurance is for a definite period and the insured surrenders his policy before the termination thereof;
Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and the parties are in pari delicto.
PREMIUM
ASSESSMENT
Levied and paid to meet anticipated losses.
Collected to meet actual losses.
Payment is not enforceable against
the insured.
Payment is enforceable once
levied unless otherwise agreed upon.
Not a debt.
It becomes a debt once properly levied unless otherwise agreed.
X. TRANSFER OF POLICY
1. Life Insurance
It can be transferred even without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before transfer. (Sec. 181)
Reason: The policy does not represent a personal agreement between the insured and the insurer.
2. Property insurance
It cannot be transferred without the consent of the insurer.
Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the insured.
3. Casualty insurance
It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82)
Reason: The moral hazards are as great as those of property insurance.
CHANE OF INTEREST IN THE THING INSURED
The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. 58)
Reason: Insurance contract is personal.
GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20)
EXCEPTIONS:
In life, health and accident insurance.(Sec. 20);
Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21);
Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22);
Change of interest, by will or succession, on the death of the insured. (Sec. 23);
Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec. 24);
When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57);
When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;
2. Precise delimitation of the risk;
3. Control of the risk;
4. Determining whether a loss occurred and if so, the amount of such loss.
B. Devices used for ascertaining and controlling risk and loss:
1. Concealment – A neglect to communicate that which a party knows and ought to communicate (Sec. 26)
Requisites:
a. A party knows a fact which he neglects to communicate or disclose to the other.
b. Such party concealing is duty bound to disclose such fact to the other.
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27).
Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, "the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance."
Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries (Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268).
The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002).
2. Representations – Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. They are considered an active form of concealment.
Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead.
c. Such fact in either case is material to the risk.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not afterwards.
e. It always refers to the date the contract goes into effect.
Kinds:
a. affirmative – affirmation of a fact when the contract begins; and
b. promissory – promise to be performed after policy was issued.
Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes false.
Test of Materiality: Same as that in concealment.
Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
3. Warranties – Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.
Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property.
Kinds:
a. Express – an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done.
b. Implied - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel.
Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. 74)
EXCEPTIONS:
Loss occurs before the time of performance of the warranty.
The performances becomes unlawful at the place of the contract.
Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
WARRANTY
REPRESENTATION
Part of the contract
Mere collateral inducement
Written on the policy, actually or by reference
May be written in the policy or may be oral.
Presumed material
Must be proved to be material
Must be strictly complied with
Requires only substantial truth and compliance
4. Conditions – Events signifying in its broadest sense either an occurrence or a non-occurrence that alters the previously existing legal relations of the parties to the contract. They may be conditions precedent or conditions subsequent.
Effect of breach:
a. Condition precedent – prevents the accrual of cause of action
b. Condition subsequent – avoids the policy or entitles the insurer to rescind
The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.
5. Exceptions – Provisions that may specify excepted perils. It makes more definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed.
Effect: Limit the coverage of the contract.
RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. 45)
Limitations on the right of the insurer to rescind:
1. Non-life – such right must be exercised prior to the commencement of an action on the contract;
2. Life – such right must be availed of during the first two years from the date of issue of policy or its last reinstatement; prior to "incontestability." (Sec. 48)
Cancellation of NON-LIFE INSURANCE Policy
Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a non-life policy.
Grounds:
Non-payment of premium;
Conviction of a crime out of acts increasing the hazard insured against;
Discovery of fraud or material misrepresentation;
Discovery of willful or reckless acts of omissions increasing the hazard insured against;
Physical changes in property making the property uninsurable; and
Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. 64)
Requirements:
Prior notice of cancellation to the insured;
Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy;
Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the insurer must furnish facts on which the cancellation is based;
Grounds should have existed after the effectivity date of the policy.
XII. INCONTESTABILITY CLAUSE
Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period.
Requisites:
Life insurance policy
Payable on the death of the insured
It has been in force during the lifetime of the insured for a period of at least two years from the date of its issue or of its last reinstatement
Note: The period of 2 years may be shortened but it cannot be extended by stipulation.
Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)
BARRED DEFENSES
OF THE INSURER
DEFENSES NOT BARRED
Policy is void ab initio
Policy is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent
That the person taking the insurance lacked insurable interest as required by law;
That the cause of the death of the insured is an excepted risk;
That the premiums have not been paid (Secs. 77, 227[b], 228[b], 230[b]);
That the conditions of the policy relating to military or naval service have been violated (Secs. 227[b], 228[b]);
That the fraud is of a particularly vicious type;
That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; or
That the action was not brought within the time specified.
XIII.
A. OVER-INSURANCE – results when the insured insures the same property for an amount greater than the value of the property with the same insurance company.
Effect in case of loss:
The insurer is bound only to pay to the extent of the real value of the property lost;
The insured is entitled to recover the amount of premium corresponding to the excess in value of the property;
B. Double Insurance – exists where same person is insured by several insurers separately in respect to same subject and interest. (Sec. 93)
Requisites:
Person insured is the same;
Two or more insurers insuring separately;
Subject matter is the same;
Interest insured is also the same;
Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
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;
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;
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;
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;
Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.
Additional or "Other Insurance" Clause
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property insured. It is lawful and specifically allowed under Sec. 75 which provides that "(a) policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it."
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been double insurance.
C. Reinsurance – a contract by which the insurer procures a third person to insure him against loss or liability by reason of an original insurance (also known as "Reinsurance Cession"). (Sec. 95)
In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies.
Double insurance
Reinsurance
Involves the same interest
Involves different interest
Insurer remains in such capacity
Insurer becomes the insured in relation to reinsurer
Insured is the party in interest in the 2 contracts
Original insured has no interest in the reinsurance contract.
Subject of insurance is property
Subject of insurance is the original insurer's risk
Insured has to give his consent
Insured's consent not necessary
TERMS:
1. Reinsurance treaty – Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306)
2. Automatic reinsurance – The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
3. Facultative reinsurance – There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
4. Retrocession – A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)
XIV.
A. Loss, in insurance
Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable
Loss for which insurer is not liable
Loss the proximate cause of which is the peril insured against (Sec. 84);
Loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril;
Loss through negligence of insured except where there was gross negligence amounting to willful acts; and
Loss caused by efforts to rescue the thing from peril insured against;
If during the course of rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. 85).
Loss by insured's willful act;
Loss due to connivance of the insured (Sec. 87); and
Loss where the excepted peril is the proximate cause.
Proximate Cause – An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred.
REQUISITES FOR RECOVERY UPON INSURANCE
1. The insured must have insurable interest in the subject matter;
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused by the peril insured against.
NOTICE OF LOSS
In fire insurance
In other types of insurance
Required
Not required
Failure to give notice will defeat the right of the insured to recover.
Failure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so.
B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
LIFE POLICIES
NON-LIFE POLICIES
a. Maturing upon the expiration of the term – The proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due.
b. Maturing at the death of the insured, occurring prior to the expiration of the term stipulated – The proceeds are payable to the beneficiaries within 60 days after presentation and filing of proof of death.
The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss whether or not ascertainment is had or made.
In case of an unreasonable delay in the payment of the insured's claim by the insurer, the insured can recover: 1) attorney's fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398)
XV. PRESCRIPTIVE Period (Secs. 63 & 384)
Rules:
1. In the absence of an express stipulation in the policy, it being based on a written contract, the action prescribes in 10 years.
2. However the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues.
3. The cause of action accrues from the rejection of the claim of the insured and not from the time of loss.
It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident otherwise the claim is deemed waived. The suit for damages either with the proper court or with the Insurance Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise claimant's right of action shall prescribe. (Sec. 384)
PARTICULAR KINDS OF INSURANCE CONTRACTS
XVI. Marine Insurance
Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec. 99)
Coverage:
A.
Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation;
Persons or property in connection with marine insurance;
Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise; and
Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA 596)
B. Marine Protection and Indemnity Insurance
Classes of inland marine insurance: (Prof. De Leon, p. 325)
Property in transit – provides protection to property frequently exposed to loss while it is transportation form one location to another.
Bailee liability - insurance for those who have temporary custody of the goods.
Fixed transportation property – they are so insured because they are held to be an essential part of the transportation system such as bridges, tunnels, etc.
Floater – provides insurance to follow the insured property wherever it may be located, subject always to the territorial limits of the contract.
Insurable interest:
A.
Shipowner
Over the vessel to the extent of its value, except that if chartered, the insurance is only up to the amount not recoverable from the charterer. (Sec. 100).
He also has an insurable interest on expected freightage. (Sec. 103).
No insurable interest if he will be compensated by charterer for the value of the vessel, in case of loss.
Cargo owner
Over the cargo and expected profits (Sec. 105).
Charterer
Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. 106).
B.
In loans on bottomry and respondentia
Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a security, shall arrive safely at the port of destination.
1. Owner/Debtor
Difference between the value of vessel or goods and the amount of loan. (Sec. 101)
Creditor/lender
Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would apply to the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)
Perils of the Sea
perils of the ship
Includes only those casualties due to the:
unusual violence; or
extraordinary action of wind and wave; or
Other extraordinary causes connected with navigation.
A loss which in the ordinary course of events, results from the:
natural and inevitable action of the sea
ordinary wear and tear of the ship or
3. Negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk policy.
SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
A. All Risks Policy – insurance against all causes of conceivable loss or damage, except: 1) as otherwise excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured.
The insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638)
B. Barratry Clause
A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the prejudice of the owner's interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:
Negligence of the captain, engineers, etc.
Explosions, breakage of shafts; and
Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
D. Sue and Labor Clause
A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. 163)
Matters Although Concealed, Will Not Vitiate the Contract Except When They Caused the Loss (Sec. 110)
National character of the insured;
Liability of the thing insured to capture or detention;
Liability to seizure from breach of foreign laws;
Want of necessary documents; and
Use of false or simulated papers.
Note: This should be related to the general rule regarding material concealment.
DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)
MARINE INSURANCE
OTHER PROPERTY INSURANCE
The information of the belief or expectation of 3rd persons is material and must be communicated
The information or belief of a 3rd party is not material and need not be communicated unless it proceeds form an agent of the insured whose duty it is to give information
The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed
Concealment of any material fact will vitiate the entire contract, whether or not the loss results for the risk concealed.
Implied warranties
Seaworthiness of the ship at the inception of the insurance (Sec. 113);
Against improper deviation (Sec. 123, 124, 125);
Against illegal venture;
Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted; (Sec. 120)
Presence of insurable interest.
While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer's right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessel's seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship's fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. 114).
GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage.
EXCEPTIONS:
In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake
In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be seaworthy at the commencement of each particular voyage
In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion
Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (Roque v. IAC, 139 SCRA 596).
Deviation
A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.123)
Instances:
1. Departure of vessel from the course of the sailing fixed by mercantile usage
2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile usage
Unreasonable delay in pursuing voyage
Commencement of an entirely different voyage (Secs. 121-123)
Kinds:
Proper -
When caused by circumstances outside the control of the ship captain or ship owner;
When necessary to comply with a warranty or to avoid a peril;
When made in good faith to avoid a peril;
When made in good faith to save human life or to relieve another vessel in distress (Sec. 124)
Effect: In case of loss, the insurer is still liable.
Improper - Every deviation not specified in Sec. 124 (Sec. 125).
Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
Loss
1. Total:
Actual -
Total destruction;
Irretrievable loss by sinking;
Damage rendering the thing valueless; or
Total deprivation of owner of possession of thing insured. (Sec. 130)
Constructive -
Actual loss of more than ¾ of the value of the object;
Damage reducing value by more than ¾ of the value of the vessel and of cargo; and
Expense of transshipment exceed ¾ of value of cargo. (Sec. 131, in relation to Sec. 139)
In case of constructive total loss, insured may:
1. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. 139), or
2. Without abandoning vessel, claim for partial actual loss. (Sec. 155)
2. Partial: That which is not total (Sec. 128).
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 unloaded.
General
PARTICULAR
Has inured to the common benefit and profit of all persons interested in the vessel and cargo
Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo.
To be borne equally by all of the interests concerned in the venture.
To be borne alone by the owner of the cargo or the vessel, as the case may be.
Requisites for the right to claim contribution:
Common danger to the vessel or cargo;
Part of the vessel or cargo was sacrificed deliberately;
Sacrifice must be for the common safety or for the benefit of all;
Sacrifice must be made by the master or upon his authority;
It must be not be caused by any fault of the party asking the contribution;
It must be successful, i.e. resulted in the saving of the vessel or cargo; and
Necessary.
RIGHT OF INSURED IN CASE OF GENERAL AVERAGE
GENERAL RULE: 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
EXCEPTIONS:
After the separation of interests liable to contribution
When the insured has neglected or waived his right to contribution
FPA Clause (Free From Particular Average)
A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. 136)
Abandonment
The act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured. (Sec. 138)
Requisites for validity:
There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138);
There must be a constructive total loss (Sec. 139);
The abandonment be neither partial nor conditional (Sec. 140);
It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141);
It must be factual (Sec. 142);
It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and
The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).
Effects:
It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (Transfer of Interest)(Sec.146)
Acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit. (Transfer Of Agency)(Sec.148)
If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.154)
CO-INSURANCE
A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. (Sec. 157)
When the property is insured for less than its value, the insured is considered a co-insurer of the difference between the amount of insurance and the value of the property.
Requisites:
1. The loss is partial;
2. The amount of insurance is less than the value of the property insured.
Rules:
1. Co-insurance applies only to marine insurance
2. Logically, there cannot be co-insurance in life insurance.
3. Co-insurance applies in fire insurance when expressly provided for by the parties.
CO-INSURANCE
REINSURANCE
A percentage in the value of the insured property which the insured himself assumes to act as insurer to the extent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount of the insurance bears to the designated percentage of the full value of the property insured. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
Situation where the insurer procures a 3rd party called the reinsurer to insure him against liability by reason of an original insurance. Basically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured.
XVII. Fire Insurance
A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire, including loss by lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. (Sec. 167)
Prerequisites to recovery:
1. Notice of loss – must be immediately given, unless delay is waived expressly or impliedly by the insurer
2. Proof of loss – according to best evidence obtainable. Delay may also be waived expressly or impliedly by the insurer
HOSTILE FIRE
FRIENDLY FIRE
One that escapes from the place where it was intended to burn and ought to be.
One that burns in a place where it was intended to burn and ought to be
Insurer is liable
Insurer is not liable
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury
2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake
Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. The determination is important for 2 reasons:
Rules on constructive total loss and abandonment – applies only to marine insurance;
Rule on co-insurance – applies primarily to marine insurance;
Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial Law Reviewer, Aguedo Agbayani, 1988 ed.)
ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER
Requisites:
The use or condition of the thing is specifically limited or stipulated in the policy;
Such use or condition as limited by the policy is altered;
The alteration is made without the consent of the insurer;
The alteration is made by means within the control of the insured;
The alteration increases the risk; (Sec. 168) and
There must be a violation of a policy provision. (Sec. 170)
Fall-of-building clause
A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease.
Option to rebuild clause
A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any part thereof, instead of paying the amount of the loss or the damage.
The insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specific performance because this is an obligation to do, not to give. Remedy: Art. 1167, NCC.
XVIII. Casualty OR ACCIDENT Insurance
Insurance covering loss or liability arising from accident or mishap, excluding those falling under other types of insurance such as fire or marine. (Sec. 174)
Classifications:
1. Insurance against specified perils which may affect the person and/or property of the insured. (accident or health insurance)
Examples: personal accident, robbery/theft insurance
2. Insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to or damage to property of others. (third party liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and their property, who may maintain an action against him in case of their injury or destruction, respectively.
Examples: workmen's compensation, motor vehicle liability
In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the injured third party to whom the insured is liable. Prior payment by the insured to the third person is not necessary in order that the obligation may arise. The moment the insured becomes liable to third persons, the insured acquires an interest in the insurance contract which may be garnished like any other credit. (Perla Comapnia de Seguro, Inc vs. Ramolete, 205 SCRA 487)
Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisions applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the parties must be determined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law.
In burglary, robbery and theft insurance, the opportunity to defraud the insurer – the moral hazard – is so great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the hazard. Persons frequently excluded are those in the insured's service and employment. The purpose of the exception is to guard against liability should theft be committed by one having unrestricted access to the property. (Fortune Insurance vs. CA, 244 SCRA 208)
Right of a third party injured to sue the insurer
1. Indemnity against liability – A third party injured can directly sue the insurer.
2. Indemnity for actual loss or reimbursement after actual payment by the insured – A third party has no cause of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurer's liability is based on contract; that of the insured is based on torts. Furthermore, the insurer's liability is limited by the amount of the insurance coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
"INTENTIONAL" vs. "ACCIDENTAL" AS USED IN INSURANCE POLICIES
1. Intentional – Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972)
2. Accidental – That which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen.
NO ACTION CLAUSE
A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del Monte, 20 SCRA 1043)
XIX. Compulsory Motor Vehicle Liability INSURANCE (CMVLI)
A species of compulsory insurance that provides for 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 motor vehicle by its owner.
Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA 386).
Claimants/victims may be a "passenger" or a "3rd party"
It applies to all vehicles whether public and private vehicles.
Note: It is the only compulsory insurance coverage under the Insurance Code.
Method of coverage
1. Insurance policy
2. Surety bond
3. Cash deposit
Passenger – Any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare. (Sec. 373[b])
Third Party – Any person other than the passenger, excluding a member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, or his employee in respect of death or bodily injury arising out of and in the course of employment. (Sec. 373[c])
"No-Fault" Clause
A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for death or injury without the necessity of proving fault or negligence of any kind.
Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents.
Rules:
1. Total indemnity - maximum of P5,000
2. Proofs of loss -
a. Police report of accident;
b. Death certificate and evidence sufficient to establish proper payee;
c. Medical report and evidence of medical or hospital disbursement.
3. Claim may be made against one motor
vehicle only
4. Proper insurer from which to claim -
a. In case of an occupant: Insurer of the vehicle in which the occupant is riding, mounting or dismounting from;
b. In any other case: Insurer of the directly offending vehicle. (Sec. 378)
The claimant is not free to choose from which insurer he will claim the "no fault indemnity" as the law makes it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying may recover against the owner of the vehicle responsible for the accident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)
This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000 and there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the excess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon, p. 716)
The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their heirs immediate compensation although in limited amount, pending final determination of who is responsible for the accident and liable for the victims injuries or death. (Ibid.)
SPECIAL CLAUSES
a. Authorized Driver Clause
A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use of the insured vehicle to the insured himself or any person who drives on his order or with his permission (Villacorta v. Insurance Commissioner)
The requirement that the person driving the insured vehicle is permitted in accordance with the licensing laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the person driving is other than the insured.
B. Theft Clause
A clause which includes theft as among the risks insured against.
Where the car is unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and thus, it is the "theft clause" and not the "authorized driver clause that should apply (Palermo v. Pyramids Ins., 161 SCRA 677).
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such information and assistance as the insurer may require, usually requiring attendance at trials or hearings.
XX. Suretyship
An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. (Sec. 175)
It is essentially a credit accommodation.
It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec. 20
When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party (insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated like non-life insurance in some respects.
Nature of liability of surety
Solidary;
Limited to the amount of the bond;
It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Sec. 176)
SURETYSHIP
Property insurance
Accessory contract
Principal contract
3 parties: surety, obligor and oblige
2 parties: insurer and insured
Credit accommodation
Contract of indemnity
Surety can recover from principal
Insurer has no such right; only right of subrogation
Bond can be cancelled only with consent of obligee, Commissioner or court
May be cancelled unilaterally either by insured or insurer on grounds provided by law
Requires acceptance of obligee to be valid
No need of acceptance by any third party
Risk-shifting device; premium paid being in the nature of a service fee
Risk-distributing device; premium paid as a ratable contribution to a common fund
XXI. Life Insurance
Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities. (Sec. 179)
Kinds: (bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies. Surrender value after 3 years.
Group Life – Essentially a single insurance contract that provides coverage for many individuals. Examples: In favor of employees, "mortgage redemption insurance".
Limited Payment Policy – insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything.
Endowment Policy – pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit.
Term Insurance – insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance.
Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener.
Mortgage Redemption Insurance
A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of the loan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance will be used to pay for his indebtedness to the lender assured and the deceased's heirs will thereby be relieved from paying the unpaid balance of the loan. (Great Pacific Life Assurance Corp. vs. Court of Appeals, 316 SCRA 677)
LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED
1. Suicide
Insurer is liable in the following cases:
If committed after two years from the date of the policy's issue or its last reinstatement;
If committed in a state of insanity regardless of the date of the commission unless suicide is an excepted peril. (Sec. 180-A)
If committed after a shorter period provided in the policy
Any stipulation extending the 2-year period is null and void.
2. At the hands of the law (E.g. by legal execution)
It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy exception. (Vance,p.572 cited in de Leon, p. 107)
Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates against recovery as being more in consonance with public policy and as being implicit under Section 87, ICP. (Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)
3. Killing by the beneficiary
GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12)
EXCEPTIONS:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured
If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is other than the insured's estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534)
the measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a creditor insures the life of his debtor. (Sec. 183)
IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE POLICY?
It depends. If the designation of the beneficiary is irrevocable, the beneficiary's consent is essential because of his vested right. If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere expectancy to the proceeds. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
Cash Surrender Value
As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of at least 3 full annual premiums, is entitled to receive if he surrenders the policy and releases his claims upon it.
LIFE INSURANCE
FIRE INSURANCE
Contract of investment not of indemnity
Contract of indemnity
Valued policy
Open or valued policy
May be transferred or assigned to any person even if he has no insurable interest
The insurable interest of the transferee or assignee is essential
Consent of insurer is not essential to validity of assignment
Consent of insurer must be secured in the absence of waiver
Contingency that is contemplated is a certain event, the only uncertainty being the time when it will take place
Contingency insured against may or may not occur
A long-term contract and cannot be cancelled by the insurer
May be cancelled by either party and is usually for a term of one year
Beneficiary is under no obligation to prove actual financial loss
Insured is required to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance.
XXII. Variable Contract
Any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment.
XXIII. INSURANCE COMMISSIONER
Main agency charged with the enforcement of the Insurance Code and other related laws.
Functions:
1. ADJUDICATORY/QUASI-JUDICIAL
a. Exclusive original jurisdiction – Any dispute in the enforcement of any policy issued pursuant to Chapter VI (CMVLI). (Sec. 385, par. 2)
b. Concurrent original jurisdiction (with the RTC) – Where the maximum amount involved in any single claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime jurisdiction)
Where the amount exceeds P100,000, the RTC has jurisdiction.
The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered into between an insurance company and its agent. The same is not covered by the term "doing or transacting insurance business" under Sec 2, ICP, neither is it covered by Sec. 416 of the same Code which grants the Commissioner adjudicatory powers (Philippine American Life Insurance Co. v. Ansaldo, 234 SCRA 509).
2. ADMINISTRATIVE/REGULATORY
a. Enforcement of insurance laws
b. Issuance, suspension or revocation of certificate of authority
c. Power to examine books and records, etc.
d. Rule-making authority
e. Punitive
