Insurable interest is a right or relationship in regard to the subject matter of the insurance such that the insured 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. The requirement of insurable interest to support a contract of insurance is based upon considerations of public policy which render wager policies invalid. A wager policy has been defined as a pretended insurance where the insured has no interest in the thing insured and can sustain no loss by the happening of the misfortunes against the insured. To better illustrate, for example, a person who has no insurable interest insures the life of another. Since he will not suffer any loss, he may in fact cause the death of the life of the person insured, in order to gain profit in the insurance contract. Hence, in this situation, the contract of insurance results in murder for profit. Hence, if there is no insurable interest, the contract of insurance is void. Sec. 10 of the Insurance Code provides: Every person has an insurable interest on the life/health: 1. Of himself, his spouse, and of his children. 2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; 3. Of any person under legal obligation to him for the payment of money, or respecting property or services, of which death or illness may delay or prevent the performance; and 4. Of any person upon whose life any estate or interest vested in him depends. Every person has an unlimited insurable interest in his own life whether the insurance is for the benefit of himself or of another, and it is not necessary that the beneficiary designated have any interest in the life of the insured. A person cannot lawfully procure insurance for his own benefit on the life of another in whose life he as no insurable interest. He must have an interest in the preservation of the life of the person to be insured. Hence, one can insure the life of his spouse, his children and those on whom he depends for his education or support, or whom he has a pecuniary interest in. An example for #2 would be a company insuring the life of its CEO, assuming that the company is deriving profits from the existence of the CEO. For #3, would be a creditor insuring the life of the debtor. However, he may only obtain insurance to the extent of his credit. For #4, one may insure the life of a person where the continuation of the estate or interest vested in him who takes the insurance depends upon the life insured. Consent of the insured is generally not necessary according to our laws, provided that the one getting the insurance proves that he has insurable interest.
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Sec. 11. The insured shall have the right to change the beneficiary in the policy, unless he has expressly waived this right in said policy. Beneficiary: those although not parties to the contract, are mentioned in it as recipients of the proceeds of the insurance. A limitation in the appointment of beneficiary is that a person who is forbidden from receiving any donation under art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Sec. 12. The interest of a beneficiary in the life insurance policy shall be forfeited when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest. Sec. 14: An insurable interest in property may consist in: A. An existing interest in terest B. An inchoate interest founded fo unded on o n an exiting exitin g interest; interest ; C. An expectancy, expectanc y, coupled c oupled with an existing interest in that t hat out of which the expectancy arises. Sec. 15. A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof. Sec. 16. A mere m ere contingent or expectant interest in anything, not founded on an actual right tot the thing nor upon any valid contract for it, is not insurable. Sec. 19: An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. CONCEALMENT SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment. Act of holding back information that may be pertinent to the issuance of an insurance policy even though the insured was not asked about that particular subject. Concealment presupposes that the person has knowledge of the fact concealed at the time of the effectivity of the policy. Exception:
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A. The party stipulates that upon approval and issuance of the policy, the effectivity retroacts to the date of the application B. The change occurs after the consummation of the insurance orally although the formal policy has not been issued yet. He who alleges concealment must prove the same. SEC. 27. A concealment whether international or unintentional entitles the injured party to rescind a contract of insurance. 3 grounds of rescission of an insurance contract: A. Concealment: neglect to reveal a fact that the insured knows and ought to communicate B. Misrepresentation: false statement of a fact by the insured C. Breach of warranty
MISREPRESENTATION WARRANTY /CONCEALMENT It is material if it affects the A promise by the insured underwriting decision of the party that statements insurer affecting the validity of the contract are true •
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Rescission presupposes the existence of a valid and binding contract Reason for rescission: it misleads/deceives the insurer into accepting the risk or accepting it at the rate of premium agreed upon.
Materiality is to be determined by the PROBABLE and REASONABLE influence influence of the facts on the insurer. Intentional/Unintentional: The statute does not require proof that concealment be “intentional” in order to authorize rescission by the injured party. Materiality does not depend on the state of mind/actual or physical events/good faith Waiver of a medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy of not. Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to !"#$%&' )*+",
which he makes no warranty, and which the other has not means of ascertaining. Sec. 29. An intentional and fraudulent omission on the part of the insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. If the omission is connected with a warranty, the same must be intentional and fraudulent to entitle the insurer to rescind. Fraud cannot exist unless an intent to deceive is present. Fraud is a fact question which needs to be tried and resolved by the trier of facts. Sec. 30. Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: a. Those which the other knows; b. Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; c. Those of which the other waives communication; d. Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and e. Those which relate to a risk excepted from the policy and which are not otherwise material. Both parties are required by law to treat the contract of insurance as an uberrimae fidei contract. Knowledge of the agent is knowledge of the principal even if in reality there is no communication between them with respect to the matter. Sec. 31. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. For an information to be material, it is not necessary that it be the cause of the loss. To be material, it is sufficient that the insurer would have been influence in deciding whether or not to issue the policy and in determining the rate of premium. Matters subject of special inquiries are deemed conclusively material, and the failure of an apparently complete answer to make full disclosure will avoid the policy. Sec. 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the .
political or material perils contemplated; ad all general usages of trade. Sec. 33. The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated. Right to rely on the truthfulness of answers given in an insured’s application. Imperfect answers; unless made by a doctor or an expert, information given by the insured cannot be expected to be perfect. The insured has the duty to make further inquiries.
Statement of a material fact which turns out not to be true; Material fact is one that shows the nature and extent of the risk, and may induce the other party to enter into a contract.
Suppression of a material fact within the knowledge of either party, which the other has not the means of knowing, or is not presumed presumed to know. know.
Representation may be made orally or in writing. If one party states a material fact at such time and under such circumstance, as that the other may be supposed to have been thereby induced to enter into a contract, the statement is a representation. Sec. 37. A representation may be made at the time of, or before, issuance of the policy.
Sec. 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by sec. 51.
Representation applies only to statements “made” by the insured or by his authority.
Sec. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters m atters in question.
Sec. 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.
Only facts are required to be disclosed, and not mere opinions, speculations or expectations.
Sec. 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.
REPRESENTATION SEC. 36. A representation may be oral or written. Representation A collateral statement statemen t in writing, not inserted in the policy, or by parol, of such facts or circumstances relative to the purposed adventure as are necessary to be communicated to the underwriters to enable them to form a just estimate of the risk. Representations must be exactly true, for the contract of insurance requires the most perfect fairness.
Misrepresentation Misrepresentation is a statement of something as a fact which is untrue and material to the risk, and which the insured states, knowing to be untrue in an attempt to deceive, or which he states positively as true without knowing it to be true, and which has a tendency to deceive.
Representation Statement made by or on behalf of an applicant for insurance to induce an insurer to enter into a contract. The representation is not a part of the insurance contract.
Warranty If the representation is incorporated by reference into the contract, the representation becomes a warranty.
Misrepresentation
Concealment
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A representation represen tation may m ay be either: eith er: Affirmative, as where the insurer avers the existence of some fact which may affect the risk Or Promissory, as when he engages for the performance of something executory. •
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Statement of belief/expectation Contingent and not intended as a known fact but merely an intention. Falsity of such will not avoid the policy;
Promissory representation Promise to be performed after the effectivity of a contract. Falsity of such entitles the injured party to rescind the contract.
Sec. 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. Representation Warranty Only a matter of collateral A condition upon which the information or intelligence on contract is to take effect, is the subject of the voyage always a part of the written insured, and makes no part of policy, and must appear on its the policy.; sufficient if the fact;’ it must be strictly and representation be true in literally complied with substance. /
A representation not being written in the policy cannot qualify those which are expressly provided in the policy. However, it may qualify those which are only implied.
Mistatement of age: The amount payable under the policy shall be such as the premium would have purchased at the correct age.
An express warranty or stipulation, including a fact represented, or inconsistent with it, will control and supersede the representation since the written agreement, as far as its express provisions extend, is conclusive proof of the conditions on which the contract is made.
Sec. 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission.
Sec. 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards. Sec. 42. A representation must be presumed to refer to the date on which the contract goes into effect. Sec. 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer, and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty is to give the information. In marine insurance the belief or opinion of a 3rd person is material and must be disclosed. Concealment or misrepresentation by an agent is considered to be that of his principal, and has the same effect. Sec. 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations Misrepresentation is willfully misleading the insurance company with regard to information affecting the acceptance of a risk, the issuing of a policy or the settling of a claim and knowledge making false statements about the facts of a businesss, property or claim. When facts fail to correspond with the statements, then the representation is false. The insurance cannot be avoided where the statements are substantially true although not strictly and literally true. A concealment or misrepresentation is held to defeat a contract on the ground of fraud. However, it is not necessary that it should be an intended deception. Fact of Loss Not material. Mistake/Forgetfulness which causes material facts to be suppressed or misrepresented, even without any fraudulent purpose, has the effect of defeating a contract.
Kinds of Misrepresentation: A. Fraudulent Misrepresentation: One makes representation with intent to deceive and with the knowledge that is false. B. Negligent Misrepresentation at common law occurs when defendant carelessly makes a representation while having no reasonable basis to believe it to be true. C. Negligent misrepresentation under Statue. It is for the person who made the negligent statement to prove that the statement was either not one of fact but opinion and that “had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true – the so-called innocent defense. D. Innocent representation – someone makes the representation believing that what he/she is doing is true or had reasonable grounds for believing that his or her false statement was true. No misrepresentation in case of ambiguous questions. WON a question is ambiguous is to de determined by “Taking the language of the question according to its normal usage.” Contract language is unambiguous when it has a definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis for a difference of opinion. There is ambiguity where a reasonable intelligent person who has examined the context of the entire agreement could find more than one meaning. Hence, it must be so plain and intelligible that any applicant can readily comprehend them. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. Acceptance by the insurer fo the premium payments despite knowledge of the ground for rescission will constitute a waiver of the right to rescind. Sec. 46. The materiality of a representation is determined by the same rules as the m ateriality of a concealment.
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4. Determination of materiality: if the representation was m aterial to the risk insured against and would have influenced the insurer in determining whether to issue a policy. - Such representation was made with the intent to deceive Sec. 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation. Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. Incontestability clause: Prevents an insurer from denying benefits on the ground of misrepresentation in the application. The clause applies only when the policy has been in effect for a specified period of time, usually 2-3 years. Requisites: 1. Life insurance policy payable upon the death of the insured 2. Policy must have been in force for a period of at least 2 years during the lifetime of the insured either from date of issue or date of last reinstatement. Exceptions to incontestability clause: 1. That he person taking the insurance lacked insurable interest; 2. That the cause of the death of the insured is an excepted risk 3. That the premiums have not been paid 4. That the condition of the policy relating to military or naval service have been violated 5. That the fraud is of particular vicious type 6. An imposter was used to deceive the insurance company into issuing the policy. Rationale of Imposter defense: 1. If impostor applies for a policy and takes a physical, no contract is formed; basically due to lack of meeting of the minds. 2. Serious and difficult to detect nature of the fraud 3. Equitable toling of the incontestability period where the fraud was ongoing through multiple encounters. !"#$%&' )*+",
Whether a tort action for fraud may be brought by the insurer to recover the incontestable policy proceeds, creating a result similar to that of a cigar-smoking arsonist.
Title 6 THE POLICY Sec. 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance. Policy of Insurance - contract of insurance, describing the term, coverage, premiums and deductibles also called policy - contract detailing an insurance policy and outlining what risks are insured, what insurance premiums are to be paid by the policyholder, what deductibles prevail and all the details associated with a policy Sec. 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement. Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.
Contracts are obligatory in whatever form, provided all the essential requisites for their validity are present. However, if the law requires them to be in some form in order for it to be valid or enforceable or to be proved in certain way, that requirement is absolute and indispensable. All contracts where the amount involved exceeds P500 must appear in writing. It is a consensual contract; it is perfected by mere consent of the parties on the object and consideration of the contract, the concurrence of the offer and the acceptance. 1
Riders, Clause, Warranty and Endorsement After issuance of policy, sometimes it is necessary to modify the policy. Hence, these are used instead of cancelling the policy.
B. Contributory: the employee pays at least part of the premium; After completing the probationary period, he must enroll within the eligibility period [usually within a month after probationary pd] to avoid medical underwriting. If he does not apply during the said pd, but decides later to enroll, he will be required to take a physical examination and will be selected/rejected on an individual basis, just as if the policy were being underwritten for an individual
Rider: An amendment to a contract or policy. It is a written form attached to an insurance policy that alters the policy’s coverage, terms or conditions. Clauses: sentences and paragraphs describing various coverage’s, exclusions, duties of the insured, locations covered, and conditions that suspend or terminate coverage. Warranty: Promise by the insured party that statements affecting the validity of the contract are true. Endorsement: Written document attached to an insurance policy that modifies the policy by changing the coverage afforded under the policy. The counter-signature of the insured is not necessary when rider, endorsement, clause, or a warranty is issued along or attached with the policy. It is only needed when it is issued after the issuance of the policy, but depending on who requested for its issuance. - If it is the insured who requested for its issuance, his counter-signature is not necessary. Otherwise, it is necessary as evidence of his assent to the rider, endorsement, or clause or warranty. Group Insurance: 1. Members and Adverse selection - Written on a group of people - Underwriter focuses on the group as a whole, rather than its singular members Underwriting: RISK SELECTION PROCESS; Underwriting does occur to prevent/avoid ADVERSE SELECTION - Adverse selection – tendency of those individuals who would be considered poor risks to seek and be covered for insurance more often than average-risk persons. - Underwriter considers: type of work being performed, ages of the participants, probability of the particular group being an adverse risk to the insurance company 2. Turnover - underwriter: concerned with the number of new group entrants; they are not fond of groups that have no turnover 3. Probationary Period - individuals joining an insured group will be required to serve a probationary period before becoming eligible for the insurance coverage A. Noncontributory: employer pays the entire insurance premium; each individual becomes immediately covered after the probationary period !"#$%&' )*+",
Group Annuity - contract providing a monthly income benefit to members of a group of employees - same characteristics as an individual annuity, except that it is underwritten on a group basis - ex. Pension/retirement plan in which one periodic premium payment is made for an entire group
Sec. 51. A policy of insurance must specify: (a) The parties between whom the contract is made; (b) The amount to be insured except in the cases of open or running policies; (c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; (d) The property or life insured; (e) The interest of the insured in property insured, if he is not the absolute owner thereof; (f) The risks insured against; and (g) The period during which the insurance is to continue. Parties -
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the names of the insured and the insurer must be specified in the policy of insurance. But it is enough that the names can be sufficiently established. Any typographical error or mistake in the spelling is immaterial. In fact, the specific name need not be stated. Considering the who: exposure identification is the cornerstone of the risk management process. WHO CAN IT HAPPEN TO. Owner/bailee
“Named Insured” – person / entity identified as such in the policy declarations or supplemental declarations if there is more than 1 named insured. He has the broadest insurable interest in covered property and business interruption coverage and is the person or entity that purchases the policy and pays the premium “Additional insured” – may be unrelated to the named insured and may appear as a person or entity that has a specific insurable interest in specific insured object, building or contents.
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*** Both have insurable interests in the same object BUT for different reasons. Common Policy Conditions: only between the insurer and named insured. It allows the first named insured great latitude in his actions for administration of the policy that can affect coverage for all other insured’s in the policy. Loss Payee: An additional insured is a loss payee as respect to its insurable interest in the object subject to policy coverage. As their interests may appear [ATIMA]: The name insured obtains a benefit as well when the additional insured defines its specific insurable interest in the policy. Omnibus clause, when properly structured, is an acceptable way of extending policy coverage to many insured’s without identifying each by specific name. Amount of Insurance The most an insurer will pay for any single loss, the maximum amount an insured can collect should be provided in terms of a specific policy. Premium Sum paid by a policyholder to keep an insurance policy in force Failure to pay = Lost of Insurance coverage Property, Life or Liability Insured The insurer is only liable to the loss of property or life stated in the policy Interest of the insured in property - must be specified if the ownership is not absolute - need not specify if ownership is absolute - A special or qualified interest is equally the subject of insurance Risk Insured against - must be stated in the contract - the liability of the insurer is limited to losses, damages or liabilities caused by the risks insured against Period during which the insurance is to continue The term of the effectivity of the contract must be stated in the policy Sec. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.
determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations. An agent, who has been supplied by the insurer with blank cover note forms, has implied authority to bind the insurers by the issue of a cover note. A preliminary contract of insurance [cover note] is intended to afford protection ending the investigation of the risk and formal issuance of the policy. No separate premiums are intended or required to be paid on a cover note. Sec. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy. Insurance proceeds – payable only to the interest of the person designated in the policy. Civil Code: Payment is to be made: - to the person constituted - OR his successor in interest, - OR any person authorized to receive it Third party’s right to sue insurer: a. there is an assignment of rights b. Final Judgment against c. Stipulation pour Autrui [Art. 1131]: if there is a stipulation in favor of a third person The liability of the insurer to the 3 rd party is not solidary with that of the insured. - Insurer’s liability: Based on the Contract; limited to the face value of the policy - Insured’s liability: Based on torts
Sec. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy. An agent or trustee in possession of a property may insure the property for his protection or for the benefit of the principal or trustor. The fact that the principal or beneficiary is the real party in interest must be indicated in the policy by: a. describing the insured as agent or trustee b. other general words in the policy
Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he !"#$%&' )*+",
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Sec. 55. To render an insurance effected by one partner or partowner, applicable to the interest of his co-partners or other partowners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. A contract of insurance is a personal contract between the insurer and the insured only. To make it applicable to the interest of the co-partners, it should be stated as such. Sec. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy. Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Sec. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. Sec. 59. A policy is either open, valued or running. Sec. 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. Sec. 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum. Sec. 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements. Open Policy: the amount of the interest of the insured is not fixed by the policy, but it is ascertained in case of loss. A maximum limit is usually set with respect to the liability of the insurer. Valued Policy: Founded on sound public policy. Dual purpose: 1. to relieve the insured from the burden of proving the value of his property after its total destruction 2. to prevent over insurance by discouraging insurance companies from collecting premiums on overvalued property, but then contesting its value, and hence liability, when it becomes to their advantage to do so. *** Possible that 1 policy may be a valued and open one. Ex. Ship is insured at a certain value and the freight is insured in the same policy without a valuation; or where a part only of the goods insured in the same policy are valued. !"#$%&' )*+",
Running Policy: successive insurances and usually where there is a constant change either in the location of the property insured or valuation thereof.
Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void. Prescription by agreement They may agree on a prescriptive period which is less than 10 years provided it is not less than 1 year from the time the cause of action accrues. Cause of action will start to accrue not from the date of loss but from receipt by the insured of the notice of denial of the claim. If insurer does not act on claim the cause of action will never accrue. For Compulsory Motor Vehicle Liability Insurance: Notice must be sent to the insurer w/in 6 months from the date of the accident, otherwise it would constitute a waiver on the part of the claimant. The action must be brought w/in 1 year from the denial of the claim. If the contract of insurance is an oral one, the action must be brougnt within 6 years pursuant to the civil code. Claims must be presented within 1 year after rejection is essential because it must be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared. One year prescriptive pd starts to run from the time of rejection and not when the petition for reconsideration had been resolved by the insurer. Sec. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; (d) discovery of willful or reckless acts or omissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. 4
Sec. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. Cancellation is the termination of an insurance policy before the expiry date. It occurs during the life of a policy and does not include policies that re not renewed at their renewal date. -
send written notice of cancellation [sec. 65] state grounds mentioned in sec. 64
Sec. 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.
If insurer has no intention to renew the policy or intends to set a condition for renewal If policy is for a period less than 1 year
Inform the insured at least 45 days prior to the end of the policy It shall be considered written for a term of 1 year
Title 7 WARRANTIES Sec. 67. A warranty is either expressed or implied. Parties’ primary concerns: 1. The correct estimation of the risk which 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 which determines the extent of the contingent duty to pay undertaken by the insurer; 3. Such control of the risk after it is assumes 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.
1. 2. 3. 4. 5.
concealment representations warranties conditions exceptions or exclusions
Exception/Exclusion: provision in an insurance policy that indicates what is denied coverage Conditions: actions that the insured must take, or continue to take, for the insurance policy to remain in force and the insurance company to process a claim. It must be strictly construed against the insurers, because they have for their object to limit the scope and defeat the purpose of the principal contract, and as the insurer prepares the contract and furnishes the language used, any ambiguity in the contract must be taken most strongly against him. Warranty: Promise by the insured party that statements affecting the validity of the contract are true. - must be strictly construed against the insurer, but they should likewise be reasonably interpreted, in light of the factual conditions prevailing in each case Sec. 68. A warranty may relate to the past, the present, the future, or to any or all of these. Warranty may refer to: A. Future: promise that a particular thing shall be done or shall not be done, or that some condition shall be fulfilled B. Past/Present: Policyholder affirms or negatives the existence of a particular state of facts Warranties, 2 types: 1. Affirmative: Statement regarding a fact at the time the contract was made. - if untruthful, makes the insurance policy void at its inception 2.
Promissory: Statement about future facts or about facts that will continue to be true throughout the term of the policy - if a promissory warranty becomes true, the insurer may cancel coverage at such time as the warranty becomes untrue
Sec. 69. No particular form of words is necessary to create a warranty. Intention of the parties determine whether a statement is a warranty or not. The use of the word warranty does not necessarily make one a warranty. It is often confused with representation .
Devices to ascertain and control risks and losses: Warranty !"#$%&' )*+",
Representation 5
Being a condition upon which the contract is to take effect, is always a part of the written policy, and must appear on the face of it. It is in the nature of a condition precedence, hence must be strictly and literally complied with.
Only a matter of collateral information or intelligence on the subject of the voyage insured, and makes no part of the policy Sufficient if representation be true in substance; as long as made without fraud, and be not false in any material point, or if it be substantially, though not literally, fulfilled. False warranty avoids the False representation is no policy [breach of the condition]; breach of contract, but if insurer is not liable material, avoids the policy on the ground of fraud or at least because the insurer has been misled by it. Sec. 70. Without prejudice to section fifty-one, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it. Warranty is a part of the contract. Only a misstatement of fact concerning a warranty can render a policy void ab initio. If a misstatement renders the policy void ab initio, such facts must appear clearly and unambiguously from the terms of the policy. Sec. 71. A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. Express Specifically set out in the policy; must be a fact and not an opinion;
Implied Not specifically stated within the policy
Implied Warranty Where by the mere act of effecting insurance, the assured is presumed to give the underwriters to understand that certain facts are true, or certain acts shall be done, relating to the risk; It is made by the mere act of effecting the insurance Production of the policy by the assured is a proof of all the
Representation
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implied warranties and conditions on which it was made
underwriter
The effect of misrepresentation or concealment involves the principle of an implied warranty or condition; it avoids the policy because there is an implied agreement of the assured to make a fair disclosure of the circumstances affecting the risk, and the insurer subscribes upon the condition that he has complied with this agreement. Express warranty Representation An agreement expressed in the policy, whereby the assured 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. It is not required that the circumstance or act warranted should be material to the risk. Materiality/immateriality signifies NOTHING. The only question is as to the mere fact. Must be strictly and literally complied with
Sufficient that a representation is complied with equitably and substantially.
Intention of the parties is not to be inquired into, except as to the meaning of the words Must be strictly performed, nothing tantamount will do. It is a matter of indifference whether the thing warranted be material or not, but it must be literally complied with. Express warranty/condition Is always a part of the policy, but, like any other part of the express contract, may be written in the margin, or contained in proposals or documents expressly referred to in the policy, and so made a part of it. Any direct, or even incidental allegation of a fact relating to the risk, has been held to constitute warranty.
Sec. 72. A statement in a policy which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place. It must at least be expressed, either in writing or verbally Requires other proof, which must be produced by the
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no misrepresented warranty should cancel an insurance contract if the same was not fraudulent and did not increase the risks covered by the policy. Sec. 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy. Non-compliance with a warranty, though it occasions no damage and does not change or increase the risk, has the effect of discharging the insurers from their liability. A temporary non-compliance with a warranty by a defect, which is remedied before any los happens, still discharges the underwriters. Compliance dispensed with: - if it be rendered unlawful by a law enacted after the time of making the policy - by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract as when performance becomes impossible or a loss happens before the required time for performance Sec. 74. The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind. Insurer is not required to pay any claims that arise after the date of the breach, even if the breach is later remedied or had nothing to do with the loss in question.
Violation of an immaterial provision in the contract will not avoid the policy. The parties may stipulate that a violation of a specific provision will avoid the policy, whether material or not. Sec. 76. A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk. A policy is avoided in case of breach of warranty. IF there is no fraud, the same is avoided from the time of the breach and the insured is entitled to a return of the premiums: proportionate if the breach occurred after the risk has attached to all the premiums if the risk has not attached. Inc ase there is fraud, the policy is void ab initio and the insured is not entitled to a return of premiums. Title 8 PREMIUM Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. •
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When there is a breach of warranty, there need not even be a casual connection between the warranty and the cause of the loss. •
Not all misstatements made by an insured party can give the insurer the right to cancel a policy or refuse a claim. The statement must be expressly included in the contract, and the provision must clearly show that the parties intended that the rights of the insured and insurer would depend on the truth of the statement.
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Payment of premium is essential to the validity of the insurance Consideration on the part of the insurer: premium paid by the insured Consideration on the part of the insured: the protection, the promise, the undertaking on the part of the insurer to indemnity the insured in the case of loss Nonpayment of premium – puts an end to an insurance contract [bec. The time of payment is peculiarly of the essence of contract] Time is of the essence in respect of the payment of the insurance premium so that if it is not paid, the contract does not take effect unless there is still another stipulation to the contrary
A breach of warranty may be waived by the insurer.
Sec. 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
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Sec. 78. An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. Cash and Carry Basis: “No premium payment no policy” Exception: 1. In case of life or industrial life policy whenever the grace period provision applies 2. Whenever there has been acknowledgment in the policy of the receipt of premium, which is deemed conclusive evidence of its payment, so far as to make the policy binding notwithstanding any stipulation therein that it shall not be binding until premium is actually paid 3. When the insured and the insurer have agreed to the payment of the premium by installments and payment has been made at the time of loss 4. When the insurance company has by practice renewed the fire insurance over the years, under a clear credit term arrangement on the payment of premium and the loss occurred during the credit period, and such payment were accepted by the insurer 5. When estoppel bars the insurer from invoking Sec. 77 to avoid recovery on a policy providing a credit term for the payment of the premiums as against the insured who relied in good faith on such extension 6. In case of contract of suretyship or bonding, where the obligee has accepted the bond, it becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety.
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but within the credit term. Agreement must be clear and definite
Payment by Promissory Notes or Bills of Exchange - only have the effect of payment when they have been cashed through the fault of the debtor
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Art. 1249: Payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines The delivery of PN payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through he fault of the creditor they have been impaired. In the meantime, the action derived from the obligation shall be held in the abeyance.
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Acknowledgment in the policy of receipt of premium is conclusive evidence. If no payment yet, the policy is still binding. But the conclusiveness refers only to the binding effect of the policy and not to the fact that the premium has not been paid. Insured is still liable to the insurer for the payment of premiums.
Payment by Installments: - must be approved by the insurer - Sec. 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy - If they have an understanding that the insured allows the premium to be paid in installments, then such is not prohibited. Credit Agreement: - Art. 1306: The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy - If insurance contract provide a credit term within which to pay the premiums, such is valid. Thus, he can recover even though the premium is paid after the loss !"#$%&' )*+",
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Sec. 79. A person insured is entitled to a return of premium, as follows: • (a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; • (b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law. Sec. 80. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned. Sec. 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy. Sec. 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.
The insured can demand for a return of the entire premium IF: 1. the thing insured was never exposed to the peril insured against because there was no assumption of risk 2.
when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy
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No Assumption of risk/No Liability incurred premium and risk are the very essence of a contract if no risk has attached – may ask for return of premium if the property has, for however short a time, been exposed to the risks insured against and within the conditions of the policy, in such manner that the insurers might have been liable for a loss, no
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when the contract is voidable on account of fraud or misrepresentation of the insurer or of his agent
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return of premium for insurance of the property so at risk can be claimed. Ex. Insured cargoes. But the cargoes were never placed in the vessel. Hence, can recover premium paid.
Fraud/Misrepresentation of the insurer If insurer committed fraud/misrepresented facts to the insured Ex. Represented that it covers peril against terrorism; but it was not written in the policy.
when the contract is voidable on account of facts, the existence of which the insured was ignorant without his fault - Ignorance of Facts - The insured is entitled to the return of the entire premium when the contract is voidable on account of facts, the existence of which the insured was ignorant without his fault
Return of Portion of Premium: 1. The insurance is made for a definite period of time and the insured surrenders his policy Discontinuance of Policy: - insured decide to discontinue his policy - refund is a proportionate amount corresponding to the unexpired term of the policy or based on the short period scale provided for in the policy - short period rate – stipulation in the policy stating the amount of premium for specified short times, or premiums at short-time rate, reflect in a table format not pro-rata, but only the balance o after deducting the percentage to be retained by the insurer in the short period table 2. Where there is an over-insurance by several insurers Exceeds Actual Value. Ex. House: 10 M. Insured it for 15 M. Can recover premium paid for the 5M value.
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No Return of Premiums: 1. if a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned 2. in life insurance unless there is sufficient cause; Life insurance is indivisible; premium payments are consideration for the entire insurance although made for several periods. 3. If insured committed fraud or misrepresentation
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proving that the loss comes within the exception. Title 9 LOSS Sec. 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.
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Art. 1189: It is understood that the thing is lost when it perishes, goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered. In Insurance, loss is compensable whether total or partial The insurer cannot prohibit the insured from transferring or assigning his claim after the loss has happened; What is being transferred or assigned is the claim/insurance proceeds and not the policy. If made before the occurrence of any loss, then it is invalid. Valid because it is a RIGHT TO DISPOSE PROPERTY. Ascertaining Loss: Must determine the value of the subject; It is necessary to ascertain the value of the subject insured, for the purpose of determining whether the underwriter is liable to pay the whole, or only a part, and what part, of a loss. Fixing the value of property: As certain rules are adopted in fixing the value of the property insured in cases of loss, the assured must have a regard to these rules in effecting insurance, to determine the amount to be insured, in order to give him, as nearly as possible, an indemnity for his loss. Value not agreed upon: if the value of the interest insured is not agreed upon in the policy, it must be proved by the assured before he can recover a loss. The value of the interest is to be estimated at the time of the commencement of the risk. Indemnity Refers to the Beginning of the risk:
Sec. 84. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause. General Rule: The insurer is liable if the peril insured against is the proximate cause of the loss. Proximate Cause: that cause, which, in natural and continuous sequence, unbroken by an efficient intervening cause, produces the injury, and without which the result would not have occurred. An excepted risk constitutes a defense by the insurer because it has not assumed that risk. The insurer has the burden of !"#$%&' )*+",
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Sec. 85. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.
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Ex. Barratry of the master or mariners
When evidence shows that the insured’s negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
in case a thing insured was rescued form the peril insured against but was lost due to another peril not covered by the policy, the insurer remains to be liable. However, the insured must prove that the same would nonetheless have been lost if not saved from the peril insured against. The insurer is liable if the loss is caused by efforts to save the things from the peril insured against
Sec. 86. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.
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if the peril insured against is only the immediate cause, the liability of the insurer would depend if the proximate cause is an excepted peril or not
Sec. 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others. Willful act and negligence - Mere negligence on the part of the insured will not exonerate the insurer - if the loss was brought about by the willful act of the insured or with connivance, the insurer is not liable Negligence or Misconduct of Agents - although a loss may be immediately and directly occasioned by a peril insured against, yet if the operation of that peril in causing the loss is occasioned by conduct of the assured or his agents, which is not insured against, the insurers are not liable for the loss - if a loss happened from the want of that which the assured themselves ought to have provided, it could not have been within the intention of the parties to the contract that the underwriters should be liable Agreement to indemnity - although the underwriters are held not liable, in general, for any loss occasioned by the fault of the assured or his agents, yet it has already appeared that they may, make a valid agreement to indemnify the assured against damage and loss by the negligence, or misconduct of the master and crew, or other persons, employed by the assured and entrusted with the property to which the insurance relates. !"#$%&' )*+",
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delay, as grounds of objection, are waived. Title 10 NOTICE OF LOSS Sec. 88. In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay. Condition – one of the devices used by the parties in controlling risk of loss - Condition-precedent – must be fulfilled before the effectivity of the policy - Condition-subsequent – must be fulfilled after the effectivity of the policy Example: notice of loss to insurer o Non-performance or non-compliance of conditions subsequent will not avoid the policy, but it may result to the forfeiture of the rights of the insured against the insurer. The policy will remain valid despite non-performance of such conditions. Requisites for recovery: 1. the insured must have an insurable interest in the subject matter 2. the interest must be properly covered by the policy 3. there must be a loss 4. As a general rule, the loss must be proximately caused by the peril insured In case of insurance against fire, the notice of loss should be given to the insurer without unreasonable delay so that the insured can take further steps or actions to prevent or minimize further losses and determine the extent of its liability to prevent the filing of fraudulent claims. Failure to do so, esp. in fire insurance, will exonerate the insurer.
Sec. 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if he omits to take objection promptly and specifically upon that ground. Defects of notice and/or proof of loss are waived if: 1. the insurer omits to specify to the insured grounds which the latter might remedy without unnecessary delay; and 2. caused by any act of insurer, or if he omits to take objection promptly and specifically upon that ground Sec. 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified. Reasonable diligence must be exercised in procuring a required certificate or testimony. In case the same cannot be obtained, reasonable evidence is required to show that such refusal was not due to disbelief. Title 11 DOUBLE INSURANCE Sec. 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. Double Insurance Coverage by 2 different insurance companies upon the identical interest in the identical subject matter Can rarely collect because it is considered a form of unjust enrichment and a majority of insurance contracts contain provisions that prohibit this Requisites: The same person is insured o By 2 or more insurers o With respect to the same subject matter o Involving the same insurable interest o Against the same risk o SAME SUBJECT MATTER, SAME INTEREST and SAME RISK Double insurance is not contrary to law or public policy so its existence is not a ground for the rescission of the policy. However, a policy may provide for the prohibition of the same or require the giving of notice in case there are other insurances. In case of violation, the policy becomes void. [Check terms and conditions of the policy if it allows double insurance, or if there is a need to reveal existing or subsequent insurance policies acquired by the insured] To prevent over-insurance and discourage perpetration of •
Sec. 89. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence which he has in his power at the time. Submission of proof of loss – enable the insurer to determine whether or not there was really a loss, and the amount of damage. The law does not require any particular form, unless the policy provide for a particular form to be submitted.
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Vehicular accidents: police report, affidavits of witness, picture of damaged car, and estimate of invoice Death: death certificate Injury: medical certificate and hospital and medicine receipts
Sec. 90. All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary !"#$%&' )*+",
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fraud; Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. If, with the knowledge of the existence of other insurances which the defendant deemed violations of the contract, it has preferred to continue the policy, its actions amounts to a waiver of the annulment of the contract.
Sec. 94. Where the insured is overinsured by double insurance: (a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; (b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; (c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. Overinsurance by Double Insurance Overinsurance by double insurance exists where there are 2 or more policies on the same adventure and interest or any part of it, and the sums insured exceed the insurable value in the case of an unvalued policy or the value fixed by the policy in the case of a valued policy. Double insurance is lawful, hence, one can make a claim to both insurers in the event of loss. However, the insured cannot profit, or recover more than the loss he has suffered. Thus, the insurers are bound to share the actual loss in the same proportion they share to the premium. Unless the policy otherwise provides, payment can be claimed from the insurers in any order. Cannot recover doubly If double insurance results in over insurance, the premiums paid corresponding to the excess will be refunded because as far as the exces is concerned, there is no assumption of risk on the part of the insurer. •
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Title 12 REINSURANCE Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. •
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b. Or on a per policy basis [Facultative Reinsurance[ Usually bought by the Insurance underwriter who underwrote the original insurance policy a. Quota Share b. Or Excess of loss basis Commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions.
Reinsurance is a means by which an insurance company can protect itself against the risk of losses with other insurance companies Reinsurance are considered as “insurance to insurance companies” •
Functions: 1. Risk Transfer: Reinsurance allows an insurance company to offer higher limits of protection to a policy holder than its own assets would allow 2. Income Smoothing: Helps make insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage 3. Surplus relief: Insurance company’s writings are limited by its balance sheets [solvency margin]. Once the limit is reached, its either they stop writing new business or increase its capital of buy “surplus relief” reinsurance. Basically, to raise additional capital. o 4. Arbitrage: Insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than what they charge the insured for the underlying risk. Types of Reinsurance: 1. Proportional One of more reinsurers taking a stated percent share of each policy that an insurer produces [“writes”] a. Quota Share b. Surplus reinsurance [Variable Quota Shares] •
2. Non-proportional It only responds if the loss suffered by the insurer exceeds a certain amount, which is called the “Retention” or “priority” Forms: a. Excess of loss reinsurance i. Per Risk XL [Working XL] ii. Per Occurrence or Per Event XL [Catastrophe or Cat XL] iii. Aggregate XL b. Stop loss reinsurance Reinsurance contracts can either: a. Cover more than one policy [treaty] Usually bought by a senior executive at the insurance company a.
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Continuous – continues indefinitely, but generally has a “notice” period whereby either party can give its intent to cancel or amend the treaty within 90 days Term basis – has a built-in expiration date
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The rules on representation and concealment apply in reinsurance Retrocession: Reinsurance companies themselves also purchase reinsurance from other reinsurance companies Reinsurance company that sells the reinsurance: o Retrocessionaires Reinsurance company that purchases the o reinsurance: Retrocedent Insurance company is obliged to indemnify its policyholder for the loss under the insurance policy whether or not the reinsurer reimburses the insurer
Importance of Reinsurance: 1. To protect against large claims – to reinsure with other insurance companies so that the loss is not so severe for any one insurer 2. To avoid undue fluctuations in underwriting results – balanced set of results each year without peaks and troughs 3. To obtain an intentional spread of risk – to spread risk to other countries 4. To increase the capacity of the direct insurer – to accept the risk by insuring the whole risk and then reimbursing the part it cannot keep for itself to other reinsurers REINSURANCE Made by a former insurer, his executors or assigns, to protect himself and his estate from a risk to which they were liable by the first insurance. Hector De Leon: Reinsurance Insurer becomes the insured, insofar as the reinsurer is concerned. The subject of insurance is the original insurer’s risk An insurance of a different interest The original insured has no interest in the contract of reinsurance which is
DOUBLE INSURANCE The insured makes 2 insurances on the same risk and the same interest.
Double Insurance Insurer remains as the insurer
The subject of the insurance is property It is an insurance of the same interest THe insured is the party in interest in all the contracts -5
independent of the original contract of insurance The consent of the original insured is not necessary
The insured has to give his consent
Policy and Treaty is not synonymous. Policy Treaty A reinsurance policy is a A reinsurance treaty is merely contract of indemnity one an agreement between 2 insurer makes with another to insurance companies whereby protect the first insurer from a one agrees to cede and the risk it has already assumed. other to accept reinsurance business pursuant to the provisions specified in the treaty. Reinsurance policies are Treaties are contracts for contracts of insurance. insurance.
Sec. 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk. The Reinsured must communicate [Otherwise, it shall avoid the policy]: c. All the representations of the original insured d. All the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk
Sec. 97. A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage. Reinsurance is not a contract of indemnity against damage but one against liability •
Sec. 98. The original insured has no interest in a contract of reinsurance. A contract of reinsurance is between the insurer and the reinsurer only and legally there is no direct link between the original insured and any reinsurer. The original insurer is still the one who must pay any claim from the insured – the insurer must hen make its own separate claim against the reinsurer. The reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. •
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Chapter II CLASSES OF INSURANCE Title I MARINE INSURANCE Sub-Title 1- A DEFINITION Sec. 99. Marine Insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks; (b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles); (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise;
Assured [insured]: agrees to pay a premium Assurer [Carrier]: agrees that, if certain losses or damage occurs to certain interests of the insured, the insurer will indemnify the insured.
Coverage Marine Insurance covers the loss or damage of ships, cargo, terminals and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination. 1. Loss or damage to any of the properties enumerated in the Insurance Code 2. Liability insurance pertaining to marine protection and indemnity insurance. Insurer will be liable for any liability that the insured may insure arising from marine operations. •
Generally, insurers are not liable for the loss of goods stowed on deck, since the goods are exposed to greater perl if they were stowed in the usual manner. But this seems to depend in some decree upon usage. Hull Insurance and Marine Cargo Policy Basic Marine Policy covers either shipowner or shipper of goods Cargo Policy: if for goods; includes goods, o cargoes, merchandise including air cargo and parcels Marine Cargo Insurance covers the transfer of goods, cargoes or merchandise either by land, sea or air from its origin to the final destination. Kinds: Open Policy: automatic cover for all shipments of the assured, who is obligated to declare all shipments. Risk notes are issued on a per declaration basis Individual or Voyage Policy: Covers only one shipment at one time per voyage. The assured must declare the policy prior to shipment. Duration From the time the goods leave the warehouse/place of storage and terminates on delivery, either: To the final warehouse o To any warehouse prior o to or at the destination which the assured elect to use for storage •
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(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
General Principles: There are two parties:
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Hull Insurance: if for ship; insurance of vessels, craft, hull machinery including builders risk Hull Insurance provides insurance cover to hull, machinery, and everything connected in a vessel or ship Liners – any ship working to a regular time schedule Passenger ships: designed to carry passenger Tankers: Carry both dry and liquid cargo [oil tanker] Baulk Carriers: Designed to carry a particular type of cargo in bulk Container ship: Primarily for the carriage of container boxes Reefers: containing ship constructed with refrigerator holds Ferries: Any vessel which engages in a regular patter of short sea transit Lighters: Craft used to bring cargo alongside a ship for loading Tugs Motorized Banca: used for assisting ship in harbor areas o
assured who has parted with or lost his interest in the subjectmatter insured cannot ssign. Perils of the Sea vs. Perils of the Ship
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Marine Policies: document containing the terms and conditions of the contract Includes names of the assured, insurer[s], subject matter, risk covered, period of time… Kinds: 1. Voyage Policy: when the contract is to insure the subject matter at and from one place to another; the risk attaches only when the ship starts on the voyage 2. Time Policy: Subject matter is insured for a definite period of time. The ship ay pursue any course it likes. The policy would cover all the risks from perils of the sea for the stated period of time. Cannot be for more than 1 year, but may contain a continuation clause. 3. Mixed Policy: Combination of voyage and time policies; covers risk for a specified period of time. 4. Valued Policy: specifies the agreed value of the subject-matter insured 5. Open or Unvalued Policy: Value of the subject matter is not specified; It will be subsequently ascertained. 6. Floating Policy: only mentions the amount for which the insurance is taken out and leaves the name of the ship[s] and other particulars to be defined by subsequent declarations. •
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Perils of the Sea Insurer is liable Something which may or may not happen and not something which must happen
Perils of the Ship Insurer is not liable Usual or ordinary movements of the sea like waves, ordinary wear and tear of the vessel, or negligent failure of the owner of the master to provide the vessel with the necessary equipment Losses from extraordinary occurrences: Perils form the sea includes such losses as are extraordinary in nature, or arise from some overwhelming power, which cannot be guarded against the ordinary exertion of human skill and prudence. Includes: winds, waves, lightning, rocks, shoals, running foul of other vessels, all causes of loss and damage to the property insured, arising form the elements and inevitable accidents, other than those of capture and detention •
Collision and Running Down clause: Provision is contained in the standard hull policy to cover liability incurred for damage to another vessel or structure and sometimes even personal injuries incurred. Barratry: any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners and to the prejudice of the owner’s interest. Must be willful and intentional act Considered as a peril of the sea, hence proper object of insurance • •
Inchmaree clause: Extension of cover to include damage or loss due to latent causes such as breakage of the ship’s drive shafts, bursting of its boilers, unseen defects in its hull, machinery, and auxiliary equipment, errors in navigation, negligence of its captain, officers, engineers, crew, pilots, etc. All Risks Policy: Broad and Comprehensive meaning: All risks whatsoever and covering all losses by an accidental cause of any kind Any loss other than a willful and fraudulent act of the insured Insured must prove that the cargo was in good condition when the policy attached and that the cargo was damages when unloaded form the vessel. Thereafter, the burden then shifts to the insurer to show the exception to the coverage Special insurance •
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Assignment of Policy: A marine policy is assignable by endorsement, or in any other customary manner, and the assignee can sue on it in his own name and subject to any defense which would have been available against the person who effected the policy. The assignment may be made either before or after the loss, but an !"#$%&' )*+",
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Wages of Mariners and Property on Board Wages of Mariners are universally considered not to be insurable Property on Board, even though bought with the money received as wages, are insurable. •
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Sub-Title 1-B INSURABLE INTEREST Sec. 100. The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer. Requirement of Insurable Interest: A person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof. The amount of the insurable interest in the ship is accordingly its value at the time of the commencement of the risk •
The ship is chartered, just as a hull. The charterer will have to equip the ship with personnel, fuel and other necessaries and operate the ship. This charter is usually for a long period.
Charterer’s Liability For time charter and voyage charter: the charterer becomes liable as he occupies a position similar to an owner towards the sub-contracting party [subcharterer or cargo owner]. He is also liable to third parties, similar to those of a shipowner. He also assumes liabilities towards the party he charters the ship from – the vessel owner or another charterer. Usually, the claimant has a freedom of choice to claim compensation either from the charterer or the owner •
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Charter Party Insurable Interest A charter party is a contract of lease whereby the o owner or the agent leases the hull of the vessel or part thereof, or the transportation of the tools or passengers or both, for a fixed price The contracting parties will view the charterer as o the “owner” of the ship; the charterer assumes liabilities towards the vessel o owner charterer also have an insurable interest if the ship o sustains damage resulting in a particular average; also lost earnings represent an insurable interest Charter Party [Chartia Partita – divided document]: Formal contract drawn up between the shipowner and the charterer •
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Kinds of Charter 1. Time Charter: the ship is chartered as a functioning operating unit for a period of time. The charterer pays the hire money and the ship transport cargo wherever the charterer wishes; The entire ship’s capacity is let out. The master and the crew are appointed by the owners. But the owners do not act as carrier •
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Voyage Charter The ship is chartered to carry cargo on specified voyage between places. The shipowner pays for everything except perhaps the loading and discharging costs. Parties have to agree on lay time. The master is appointed by the owners. Owners act as carriers.
Charterer’s Interest: Chartered vessel usually represents future income. Hence, if the ship is lost, the charterer will not pay charter hire, but it will be hard to secure a replacement vessel. Thus, the charterer may not earn the future freight, as anticipated. Hence, he can protect himself by a total loss insurance known as Charterer’s Interest. Charterer’s Loss of Hire: If the chartered ship is sublet an the charterer wish to insure the difference between the charter rates paid and received, this section of the cover will indemnify the charterer in the event that the ship sustains a particular average. Sec. 101. The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry. Respondentia It is a loan upon goods laden on board a ship; It is called Respondentia because the money is lent on the personal responsibility of the borrower It is a loan upon the goods The ship and the tackle, being hypothecated, are liable, as well as the person of the borrower
Bottomry
It is a loan on the ship The lender has, in general, only te personal security of the borrower
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The payment of bottomry and respondentia loans is conditional. It is subject to the condition that the vessel and goods, as the case may be, which is given as a security, shall arrive safely at the port of destination.
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Insurable interest of lender on bottomry and respondentia: if the property is lost, he loses his debt; lender has an insurable interest in the ship or goods hypothecated.
Demise Charter: Bareboat or Bare Bottom Charter
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Insurable interest of borrower: they also have insurable interest in the property pledged; if the hypothecated ship or goods are lost, the borrower is discharged from his debt. The owner of a vessel bottomried for more than its full value has no insurable interest. Bottomry and respondentia loans ae not subject to the usury law. Sec. 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others. Sec. 103. The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. Sec. 104. The interest mentioned in the last section exists, in case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage.
performed, which makes it necessary to hire another ship to carry on the cargo to the port of destination in order to earn the freight; or a loss of apart of the cargo, whereby the ship is prevented from earning a part of the freight. Arrival in bulk: If goods arrive in bulk, even if they are of no value due to sea damage, the whole freight is due, and the assured on freight has no claim for loss. If destruction on part of the goods, the underwriter pays their value according to the invoice or valuation. Sec. 105. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits. A person who possess insurable interest in a thing has insurable interest in the profits. Accssory follows the principal. Sec. 106. The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss. The charterer may insure the ship up to the extent of the damage that he will suffer in case of loss of the same. The amount depends on the amt he is liable to pay in case of her being lost. The interest however is limited to the value of the ship.
Existence of Interest in Freightage: Denotes the compensation for the use of ship and sometimes for the transportation of merchandise Freightage pertains to al the benefits derived by the owner from: Chartering of the ship and/or o Its employment for the carriage of his own goods or o those of others Sec. 14: Expectancy is insurable if coupled with an existing interest in that out of which the expectancy arises Hence, expected freightage, being an expected o profit, is insurable, although it is in the nature of a mere hope or expectancy Interest in expected freightage exists: In case of a charter party, when the ship has o broken ground on the chartered voyage If a price is to be paid for the carriage of goods it o exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage •
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Ship Owner’s Interest on Freight: The owner of a ship, navigated on his account, has an insurable interest in the freight. It commences when the owner, having goods ready to ship, or a contract with another person for freight, has commenced the voyage, or incurred expenses and taken steps towards earning the freight Partial Lost on Freight: Occasioned by the loss of the ship, after a part of the voyage is !"#$%&' )*+",
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Sub-Title 1-C CONCEALMENT Sec. 107. In marine insurance each party is bound to communicate, in addition to what is required by section twentyeight, all the information which he possesses, material to the risk, except such as is mentioned in Section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose. Sec. 108. In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.
(b) The liability of the thing insured to capture and detention; (c) The liability to seizure from breach of foreign laws of trade; (d) The want of necessary documents; (e) The use of false and simulated papers. General Rule: No need for casual connection between what was concealed or misrepresented and the cause of the loss; but gives the insurer the right to rescind the contract of insurance. The instances specified will exenorate the insurer from liability if such instance is the cause o the loss. If the cause is something else, the insurer will still be liable.
Sec. 109. A person insured by a contract of marine insurance is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication. Stricter application of rules on concealment and representation. – due to nature of the property being insured and its location Same rules on concealment and representation are also applied in marine insurance. The assured must disclose every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk. Required Disclosure: Sec. 28: Each party is bound to communicate to the other: a. all facts within his knowledge which are material to the contract b. and as to which he makes no warranty c. and which the other has not the means of ascertaining … SEC. 30: Those which no need to disclose Belief or expectation of third person: The information of belief or expectation of a 3rd person, in reference to a material fact, is material and the insured is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of Communication.
Sec. 110. A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed: (a) The national character of the insured; !"#$%&' )*+",
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Sub-Title 1-D REPRESENTATION Sec. 111. If a representation by a person insured by a contract of marine insurance, is intentionally false in any m aterial respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract. Sec. 112. The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance. The marine insurance contract requires a high degree of good faith Representation can either be: As to a matter of fact As to a matter of expectation or belief It is true, if it be substantially It is true if it is made in good correct, that is, if the difference faith between what is represented and what is actually correct would not be considered material by a prudent insurer A representation may be withdrawn or corrected before the contract is concluded. Whether a particular representation be material or not is, in each case, a question of fact.
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1-E IMPLIED WARRANTIES Sec. 113. In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Implied Seaworthiness: an implied agreement on the part of the assured in every policy, whether on the ship, cargo or freight, that the ship is seaworthy, and sufficient and well fitted for the voyage on which she is bound Warranties: Express/Implied Implied warranties : those deemed to be parts of the contract even if not expressly agreed upon 1. that the vessel is sea worthy 2. the vessel will not make any improper deviation 3. the vessel will not engage in any illegal venture 4. if there is an express warranty as to the nationality or neutraly of the vessel, there is an implied warranty that it will carry the requisite documents; and 5. presence of insurable interest If non-compliance as to the implied warranty: underwriters are discharged from liability •
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other necessary or proper stores and implements for the voyage.
Sec. 117. Where different portions of the voyage contemplated by a policy differ in respect to the things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion.
Sec. 118. When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom.
Sec. 119. A ship which is seaworthy for the purpose of an insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo. Sec. 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.
Presumption: SEAWORTHY; it is upon the insurers to show that it has not been complied with. Presumption only applies if such is in NAVIGATION; the warranty is not INDEFINITE and does not apply at all times. Sec. 114. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. Sec. 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of commencement of the risk, except in the following cases: (a) When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time; (b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage, or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage.
Sec. 116. A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and !"#$%&' )*+",
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Sub-Title 1-F THE VOYAGE AND DEVIATION Sec. 121. When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the voyage insured in one which conforms to the course of sailing fixed by mercantile usage between those places. Sec. 122. If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine insurance policy is that way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural, direct and advantageous. Sec. 123. Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. Sec. 124. A deviation is proper: (a) When caused by circumstances over which neither the master nor the owner of the ship has any control; (b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; (c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or (d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress. Sec. 125. Every deviation not specified in the last section is improper. Sec. 126. An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.
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Sub-Title 1-G LOSS Sec. 127. A loss may be either total or partial.
the port of destination, of the entire thing insured.
Sec. 128. Every loss which is not total is partial. Sec. 129. A total loss may be either actual or constructive. Sec. 130. An actual total loss is cause by: (a) A total destruction of the thing insured; (b) The irretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or (d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured. Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon, under Section one hundred thirtynine. Sec. 132. An actual loss may be presumed from the continued absence of a ship without being heard of. The length of time which is sufficient to raise this presumption depends on the circumstances of the case. Sec. 133. When a ship is prevented, at an intermediate port, from completing the voyage, by the perils insured against, the liability of a marine insurer on the cargo continues after they are thus reshipped. Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability. Sec. 134. In addition to the liability mentioned in the last section, a marine insurer is bound for damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses incurred in saving cargo reshipped pursuant to the last section, up to the amount insured. Nothing in this or in the preceding section shall render a marine insurer liable for any amount in excess of the insured value or, if there be none, of the insurable value. Sec. 135. Upon an actual total loss, a person insured is entitled to payment without notice of abandonment. Sec. 136. Where it has been agreed that an insurance upon a particular thing, or class of things, shall be free from particular average, a marine insurer is not liable for any particular average loss not depriving the insured of the possession, at the port of destination, of the whole of such thing, or class of things, even though it becomes entirely worthless; but such insurer is liable for his proportion of all general average loss assessed upon the thing insured. Sec. 137. An insurance confined in terms to an actual loss does not cover a constructive total loss, but covers any loss, which necessarily results in depriving the insured of the possession, at !"#$%&' )*+",
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Sub-Title 1-H ABANDONMENT Sec. 138. Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured. Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against: (a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths; (c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or (d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding sub-paragraph. But freightage cannot in any case be abandoned unless the ship is also abandoned. Sec. 140. An abandonment must be neither partial nor conditional. Sec. 141. An abandonment must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make inquiry. Sec. 142. Where the information upon which an abandonment has been made proves incorrect, or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual.
Sec. 147. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal abandonment. Sec. 148. Upon an abandonment, acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit. Sec. 149. Where notice of abandonment is properly given, the rights of the insured are not prejudiced by the fact that the insurer refuses to accept the abandonment. Sec. 150. The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance. Sec. 151. The acceptance of an abandonment, whether express or implied, is conclusive upon the parties, and admits the loss and the sufficiency of the abandonment. Sec. 152. An abandonment once made and accepted is irrevocable, unless the ground upon which it was made proves to be unfounded. Sec. 153. On an accepted abandonment of a ship, freightage earned previous to the loss belongs to the insurer of said freightage; but freightage subsequently earned belongs to the insurer of the ship. Sec. 154. If an insurer refuses to accept a valid abandonment, he is liable as upon actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured. Sec. 155. If a person insured omits to abandon, he may nevertheless recover his actual loss.
Sec. 143. Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally, a written notice of such abandonment shall be submitted within seven days from such oral notice. Sec. 144. A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof of interest or of loss. Sec. 145. An abandonment can be sustained only upon the cause specified in the notice thereof. Sec. 146. An abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity. !"#$%&' )*+",
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Sub-Title 1-I MEASURE OF INDEMNITY Sec. 156. A valuation in a policy of marine insurance in conclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud on his part; except that when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract. Sec. 157. A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. Sec. 158. Where profits are separately insured in a contract of marine insurance, the insured is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole. Sec. 159. In case of a valued policy of marine insurance on freightage or cargo, if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part. Sec. 160. When profits are valued and insured by a contract of marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they are expected to arise, and the valuation fixes their amount. Sec. 161. In estimating a loss under an open policy of marine insurance the following rules are to be observed: (a) The value of a ship is its value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured; (b) The value of the cargo is its actual cost to the insured, when laden on board, or where the cost cannot be ascertained, its market value at the time and place of lading, adding the charges incurred in purchasing and placing it on board, but without reference to any loss incurred in raising money for its purchase, or to any drawback on its exportation, or to the fluctuation of the market at the port of destination, or to expenses incurred on the way or on arrival; (c) The value of freightage is the gross freightage, exclusive of primage, without reference to the cost of earning it; and (d) The cost of insurance is in each case to be added to the value thus estimated. Sec. 162. If cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port, of the thing so damaged, bears to the market price it would have brought if sound. !"#$%&' )*+",
Sec. 163. A marine insurer is liable for all the expenses attendant upon a loss which forces the ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor for the recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either case, being in addition to a total loss, if that afterwards occurs. Sec. 164. A marine insurer is liable for a loss falling upon the insured, through a contribution in respect to the thing insured, required to be made by him towards a general average loss called for by a peril insured against; provided , that the liability of the insurer shall be limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. Sec. 165. When a person insured by a contract of marine insurance has a demand against others for contribution, he may claim the whole loss from the insurer, subrogating him to his own right to contribution. But no such claim can be made upon the insurer after the separation of the interests liable to the contribution, nor when the insured, having the right and opportunity to enforce the contribution from others, has neglected or waived the exercise of that right. Sec. 166. In the case of a partial loss of ship or its equipment, the old materials are to be applied towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for only two-thirds of the remaining cost of repairs after such deduction, except that anchors must be paid in full. Title 2 FIRE INSURANCE Sec. 167. As used in this Code, the term "fire insurance" shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. Fire insurance is concerned obviously with the principal or main peril of fire. However, there are other “allied perils” which are considered within the scope of fire insurance: 1. Earthquake fire and shock a. Earthquake Fire: Against direct loss or damage caused by fire following an earthquake b. Earthquake shock: Against loss or damage [other than fire] occasioned by or through or in consequence of an earthquake 2. Typhoon and Flood a. Typhoon – extension of a typhoon is based on the records of the Weather Bureau which has defined it as having a wind velocity of 64 knots or over b. Flood – Entry of water into the premises insured, from without, due to the inundation of land not usually covered by water i. By reason of extraordinary tide, or /.
ii. Following typhoon, cyclone, and/or windstorm, or iii. Due to the bursting or overflowing or rivers, reservoirs, canals and the like Extended Coverage Endorsement This is a package endorsement covering perils of explosion, aircraft, vehicle and smoke Riot and Strike those caused by: strikers and locked out workers o persons disturbing peace o lawful authorities acting to o suppress/prevent the disturbance Bursting or overflow of water tanks, apparatus or pipes
An alteration by the insured in violation of the policy without the consent of the insurer, by means within his control and which increases the risks, entitles the insurer to rescind.
If the loss is caused by these things [allied risks], as to whether the insured will recover will depend on whether such perils are: 1. covered by the policy itself 2. or under a separate policy
But if the provision is immaterial the policy must expressly state that a violation thereof shall avoid it. Otherwise, it shall not avoid the policy. Further, even if the act of the insured increases the risk, the policy is not avoided if no provision thereof has been violated.
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Earthquake shaking damage is paid for by insurers only when they have explicitly included earthquakes as a peril in the insurance contract. FIRE: a. b.
Friendly: That is deliberate and remains within the limits intended for it Hostile: Fire that goes out of control and beyond the limits intended for it. To be covered by fire insurance, the ff. must be present: 1. fire is the proximate cause 2. fire is hostile 3. accidental in origin 4. flame or ignition of sustaining velocity
Losses: a.
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direct or actual: generally, the insurer is liable only for direct and actual losses [ provided fire is the proximate cause] indirect or consequential
Lightning: discharge of atmospheric electricity. For loss to be covered, item damaged by lightning must also burn as a result of lightning GR: Double Insurance is allowed. Exception: A clause may be provided requiring the insured to give notice of the existence of other insurance/s Sec. 168. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a !"#$%&' )*+",
contract of fire insurance. Sec. 169. An alteration in the use or condition of a thing insured from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance. Sec. 170. A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.
Sec. 171. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which at the time of the injury; but if there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of marine insurance. Sec. 172. Whenever the insured desires to have a valuation named in his policy, insuring any building or structure against fire, he may require such building or structure to be examined by an independent appraiser and the value of the insured's interest therein may then be fixed as between the insurer and the insured. The cost of such examination shall be paid for by the insured. A clause shall be inserted in such policy stating substantially that the value of the insured's interest in such building or structure has been thus fixed. In the absence of any change increasing the risk without the consent of the insurer or of fraud on the part of the insured, then in case of a total loss under such policy, the whole amount so insured upon the insured's interest in such building or structure, as stated in the policy upon which the insurers have received a premium, shall be paid, and in case of a partial loss the full amount of the partial loss shall be so paid, and in case there are two or more policies covering the insured's interest therein, each policy shall contribute pro rata to the payment of such whole or partial loss. But in no case shall the insurer be required to pay more than the amount thus stated in such policy. This section shall not prevent the parties from stipulating in such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed. If the fire insurance is an open policy, the indemnity is equivalent to the expense to replace the thing lost. In case of valued policy, the valuation is conclusive in the //
adjustment of either a partial or total loss. Unlike in marine insurance, the principle of co-insurance does not apply in fire insurance but the parties may, however, stipulate on the applicability of the same. The parties may stipulate on the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed in lieu of payment for the value of the loss.
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If jeepney, driver + owner = Solidarily liable
Accidental Means: A person is a victim of an accident when, from victim’s POV, occurrence causing injury or death is not a natural and probable result of victim’s own acts Test: NOT WON the result is foreseeable; Rather WON IT IS EXPECTED Expected: High degree of certainty of the outcome Accidental: Unintended or unexpected An effect which is the natural and probable consequence of an act or course of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim that every man must be held to intend the natural and probable consequence of his deeds. IF the insured was assaulted/murdered, it is still considered as “accident” which will render the insurer liable •
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Sec. 173. No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured. The policy m ay not be transferred to any party who acts as agent or representative of the insurer.
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Title 3 CASUALTY INSURANCE Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glassinsurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. Direct Result of Accident Casualty insurance policies are written to cover loss that is the direct result of accident. Life, health and property insurance are typically excluded from the definition To describe an area not particularly or directly concerned with life insurance, fire insurance or automobile insurance Refers to liability, crime, and plate glass insurance, but may include surety as well. Excludes losses which by law or custom are considered as falling exclusively within the scope of other types of insurance •
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Direct Suit Against the Insurer If the insurance is for the indemnity of a 3rd party, such 3rd party can directly sue the insurer The Insurer is not solidarily liable Insurer’s liability: based on the contract Insured’s liability: Based on tort !"#$%&' )*+",
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Title 4 SURETYSHIP Sec. 175. A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206. Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (As amended by Presidential Decree No. 1455). Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided , That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be. chanrobles virtual law library
Undertakes to pay only when the principal debtor cannot pay by reason of insolvency
undertakes to perform the obligation of another party called the debtor in favor of another party called the creditor Surety undertakes to pay the principal obligation if the debtor does not pay, regardless of whether the latter, is solvent or insolvent;
Guarantor is entitled to the benefit of excussion Guarantor in an insurer of the Surety is an insurer of the debt solvency of the debtor Both cannot exist independently, there has to be a valid and binding principal obligation 3 Contracts: Creditor – Debtor: Principal Obligation, 1st. Surety – Creditor: Contract of Suretyship; 2nd. To protect the creditor. Surety – Debtor: Indemnity Agreement, 3rd. To Protect the Surety. A contract of suretyship is essentially a credit accommodation. A surety is not supposed to suffer a loss unlike the insurer Surety pays the creditor, but he can ask for reimbursement/indemnification from the principal debtor. The extent of the liability of the surety depends on the contract of surety in relation to the principal contract •
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Sec. 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.
Surety’s obligation: Pay the debts of or answer for the default of another Three party-contract: 1 Party [SURETY]: undertakes to answer to a second party [obligee] for the debt or default of a third [principal] resulting form the third party’s failure to pay or perform as required by an underlying contract or legal obligation •
Guaranty
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Surety DEF. An agreement whereby a party called a surety /1
Title 5 LIFE INSURANCE
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Sec. 179. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.
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Sec. 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code. In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy. Life insurance is a contract between the insurer and the policy owner [policyholder] whereby a benefit is paid to the designated beneficiary [or beneficiaries] if an insured event occurs which is covered by the policy. To be a life policy, the insured event must be based upon life [or lives] of the people named in the policy. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Exclusions are usually written in the contract to limit the liability of the insurer, such as: - suicide - fraud - war - riot - civil commotion Life based contracts usually have 2 major categories: A. Protection policies – designed to provide a benefit in the event of specified event, typically a lump sum payment. a. Ex: Term Insurance B. Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums Parties: 1. Insured/Policy Owners Insured and Policy Owner may be 2 different persons, but usually they are the same person. - If X buys a policy on his own life, he is both the insured and the policy owner - But if X’s wife buys a policy on X’s life, X’s wife is the Policy owner, and X is the insured !"#$%&' )*+",
Policy Owner: Guarantee, and he/she will pay for the policy Insured: Participant, but not necessarily a party to the contract
2. Beneficiary He receives the proceeds of the policy upon the insured’s death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrevocable beneficiary designation - If irrevocable beneficiary: beneficiary must agree to any beneficiary changes, policy assignments or cash value borrowing If the policy owner is not the insured [Cestui Qui Vit or CQV], insurance companies have sought to limit policy purchases to those with an insurable interest in the CQV. - Close family members - Business partners - Purchaser will actually suffer some kind of los if the CQV dies; basically to prevent people from benefiting from the purchase of purely speculative policies on people they expect to die Types of Life Insurance: A. Temporary [Term]: Provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. It is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else. A policy holder insures his life for a specified term. If he dies before that term, his estate or named beneficiary will receive a payout. If he does not die before the term is up, he receives nothing. Payouts do occur on death by suicide, provided that he commits suicide after 2 years. But if he commits suicide within the first two policy years, the insurer will just return the premiums paid. B. Permanent: Life insurance that remains in force until the policy matures [pays out], unless the owner fails to pay the premium when due [the policy expires or policies lapse]. Can only be cancelled by the insurer by reason of FRAUD in the application, and the said cancellation must be done within a period of time defined by law [usually 2 years]. It builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time. The owner can access the money in the cash /2
value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. a. Whole Life Coverage IT PROVIDES FOR A LEVEL PREMIUM AND A CASH VALUE TABLE INCLUDED IN THE POLICY GUARANTEED BY THE COMPANY. Advantages: - Guaranteed death benefits - Guaranteed cash values - Fixed and known annual premiums - Mortality and expense charges will not reduce the cash value shown in the policy Disadvantages - Premium inflexibility - Internal rate of return may not be competitive with other savings alternatives Riders are available that can allow one to increase the death benefit by paying additional premium. Death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are much higher than term insurance in the short-term, but cumulative payments are roughly equal if policies are kept in force until average life expectancy. Cash value can be accessed at any time through policy “loans.” Since these loans decrease the death benefit if not paid back, payback is optional. Cash values are not paid to the beneficiary upon the death of the insured; the beneficiary receives the death benefit only. If the dividend option: elected, dividend cash additional death benefit death benefit of the beneficiary.
Paid up additions are values will purchase which will increase the policy to the named
b. Universal Life Coverage Intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher Internal rate of return. It includes a cash account. Premiums increase the cash account. Interest is paid within the policy on the account at a rate specified by the company. This rate has a guaranteed minimum but usually is higher than that minimum. Mortality charges and administrative costs are charged against the cash account. The surrender value of the policy is the !"#$%&' )*+",
amount remaining in the cash account less applicable surrender charges, if any. Two functions that make it work: 1. Mortality function Pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die for a given period of time. 2. Cash Function If a person is to reach age 95-100 [the age varies depending on state and company], then the policy matures and endows the face value of the policy. - a minimum rate of investment return on the premiums will be required in the event that a policy matures Universal life policies guarantee, to some extent, the death proceeds, but not the cash function – thus the flexible premiums and interest returns. [see book] Variable universal life insurance [VUYL] is not the same as universal life, even though they both have cash value attached to them. These differences are in how the cash accounts are managed. The cash account within a VUIL is held in the insurer’s “separate account.” c. Limited Pay All premiums are paid over a specified period after which no additional payment are due to keep the policy in force. Ex. 10 year, 20 year, paid up at age 65 d. Endowments Cash value build up inside the policy, equals the death benefit [face amount] at a certain age. This age is known as the endowment age. Endowments are considerable more expensive than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. e. Accidental Death Limited life insurance that is designed to cover the insured when they pass away due to an accident. Include anything from an injury, but NOT those resulting from serious health problems or suicide. Less expensive than other life insurances Commonly offered as “accidental death and dismemberment insurance” [AD&D policy]: Covers Accidental death and loss of limbs or bodily functions such as sight, hearing etc. /3
