Spectra Notes - Insurance Compilation
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(2) Societas Spectra Legis Insurance. TABLE OF CONTENTS INTRODUCTION ............................................................................................................................................................. 7 Definitions ................................................................................................................................................................................................................................... 7. GENERAL PROVISIONS ................................................................................................................................................... 8 SECTION 1. .................................................................................................................................................................................................................................. 8 SECTION 2. ................................................................................................................................................................................................................................ 13 VIRGINIA CALANOC vs PHILIPPINE AMERICAN LIFE INSURANCE CO .................................................................................................................................................................14 EMILIA T. BIAGTAN vs THE INSULAR LIFE ASSURANCE COMPANY ....................................................................................................................................................................15 FIGURACION VDA. DE MAGLANA vs CONSOLACION ..........................................................................................................................................................................................17 ANDREW PALERMO vs PYRAMID INSURANCE CO ..............................................................................................................................................................................................19 ZENITH INSURANCE vs CA .....................................................................................................................................................................................................................................19 VILLACORTA vs INSURANCE COMMISSION .........................................................................................................................................................................................................20 SUN INSURANCE OFFICE vs CA; NERISSA LIM .....................................................................................................................................................................................................22 PERLA COMPANIA DE SEGUROS vs. CA, HERMINIO LIM and EVELYN LIM ........................................................................................................................................................23. SECTION 3. ................................................................................................................................................................................................................................ 27 ENRIQUEZ vs SUN LIFE INSURANCE .....................................................................................................................................................................................................................28. SECTION 4. ................................................................................................................................................................................................................................ 29 SECTION. 5. ............................................................................................................................................................................................................................... 30 SECTION 6. ................................................................................................................................................................................................................................ 30 SECTION 7. ................................................................................................................................................................................................................................ 31 SECTION 8. ................................................................................................................................................................................................................................ 32 GEAGONIA vs CA and COUNTRY BANKERS INSURANCE CORPORATION ...........................................................................................................................................................32 FORTUNE INSURANCE vs CA .................................................................................................................................................................................................................................33 EDILLON vs MANILA BANKERS LIFE ......................................................................................................................................................................................................................34 PERLA COMPANIA DE SEGUROS vs CA, MILAGROS CAYAS ................................................................................................................................................................................34 AISPORNA vs CA ....................................................................................................................................................................................................................................................35 COUNTRY BANKERS INSURANCE vs LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE..........................................................................................................35 AMERICAN HOME ASSURANCE COMPANY vs TANTUCO ENTERPRISES, INC ....................................................................................................................................................36. PERFECTION OF CONTRACTS CASES: ...................................................................................................................................................................................... 37 GREAT PACIFIC LIFE ASSURANCE vs CA................................................................................................................................................................................................................37 DBP vs CA ...............................................................................................................................................................................................................................................................37 PEREZ vs CA ............................................................................................................................................................................................................................................................38. SUBROGATION CASES .............................................................................................................................................................................................................. 39 MALAYAN INSURANCE vs CA ................................................................................................................................................................................................................................39 MANILA MAHOGANY MANUFACTURING CORPORATION vs. CA AND ZENITH INSURANCE CORPORATION ..................................................................................................40 PAN MALAYAN INSURANCE vs CA ........................................................................................................................................................................................................................40 CEBU SHIPPING AND ENGINEERING WORKS, INC. VS. WILLIAM LINES INC. AND PRUDENTIAL GUARANTEE AND ASSURANCE COMPANY, INC. ......................................41. SECTION. 9. ............................................................................................................................................................................................................................... 43 SECTION. 10. ............................................................................................................................................................................................................................. 44 SECTION 11. .............................................................................................................................................................................................................................. 47 SECTION 12. .............................................................................................................................................................................................................................. 49 SECTION 13. .............................................................................................................................................................................................................................. 50 SECTION 14. .............................................................................................................................................................................................................................. 51 SECTION 15. .............................................................................................................................................................................................................................. 52 SECTION 16. .............................................................................................................................................................................................................................. 52 SECTION 17. .............................................................................................................................................................................................................................. 53. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 2.
(3) Societas Spectra Legis Insurance SECTION 18. .............................................................................................................................................................................................................................. 53 SECTION 19. .............................................................................................................................................................................................................................. 54 SECTION 20. .............................................................................................................................................................................................................................. 55 SECTION 21. .............................................................................................................................................................................................................................. 56 SECTION 22. .............................................................................................................................................................................................................................. 56 SECTION 23. .............................................................................................................................................................................................................................. 57 SECTION 24. .............................................................................................................................................................................................................................. 57 SECTION 25. .............................................................................................................................................................................................................................. 57. CONCEALMENT.............................................................................................................................................................58 SECTION 26. .............................................................................................................................................................................................................................. 58 SECTION 27. .............................................................................................................................................................................................................................. 58 SECTION 28. .............................................................................................................................................................................................................................. 59 SECTION 29. .............................................................................................................................................................................................................................. 60 SECTION 30. .............................................................................................................................................................................................................................. 60 SECTION 31. .............................................................................................................................................................................................................................. 61 SECTION 32. .............................................................................................................................................................................................................................. 62 SECTION 33. .............................................................................................................................................................................................................................. 62 SECTION 34. .............................................................................................................................................................................................................................. 62 SECTION 35. .............................................................................................................................................................................................................................. 62. REPRESENTATION .........................................................................................................................................................63 SECTION 36. .............................................................................................................................................................................................................................. 63 SECTION 37. .............................................................................................................................................................................................................................. 63 SECTION 38. .............................................................................................................................................................................................................................. 63 SECTION 39. .............................................................................................................................................................................................................................. 64 SECTION 40. .............................................................................................................................................................................................................................. 65 SECTION 41. .............................................................................................................................................................................................................................. 65 SECTION 42. .............................................................................................................................................................................................................................. 65 SECTION 43. .............................................................................................................................................................................................................................. 66 SECTION 44. .............................................................................................................................................................................................................................. 66 SECTION 45. .............................................................................................................................................................................................................................. 67 SECTION 46. .............................................................................................................................................................................................................................. 67 SECTION 48. .............................................................................................................................................................................................................................. 68 SECTION 49. .............................................................................................................................................................................................................................. 69 SECTION 50. .............................................................................................................................................................................................................................. 72 SECTION 51. .............................................................................................................................................................................................................................. 74 SECTION 52. .............................................................................................................................................................................................................................. 75 SECTION 53. .............................................................................................................................................................................................................................. 76 SECTION 54. .............................................................................................................................................................................................................................. 77 SECTION 55. .............................................................................................................................................................................................................................. 77 SECTION 56. .............................................................................................................................................................................................................................. 77 SECTION 58. .............................................................................................................................................................................................................................. 77 SECTION 59. .............................................................................................................................................................................................................................. 77 SECTION 60. .............................................................................................................................................................................................................................. 77 SECTION 61. .............................................................................................................................................................................................................................. 78 SECTION 62. .............................................................................................................................................................................................................................. 78. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 3.
(4) Societas Spectra Legis Insurance SECTION 63. .............................................................................................................................................................................................................................. 79 SECTION 64. .............................................................................................................................................................................................................................. 79 SECTION 65. .............................................................................................................................................................................................................................. 79 SECTION 66. .............................................................................................................................................................................................................................. 80 SECTION 67. .............................................................................................................................................................................................................................. 81 SECTION 68. .............................................................................................................................................................................................................................. 82 SECTION 69. .............................................................................................................................................................................................................................. 82 SECTION 70. .............................................................................................................................................................................................................................. 82 SECTION 71. .............................................................................................................................................................................................................................. 83 SECTION 72. .............................................................................................................................................................................................................................. 83 SECTION 73. .............................................................................................................................................................................................................................. 83 SECTION 74. .............................................................................................................................................................................................................................. 84 SECTION 75. .............................................................................................................................................................................................................................. 84 SECTION 76. .............................................................................................................................................................................................................................. 84 Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462 ........................................................................................................................................................87 UCPB vs. MASAGANA ............................................................................................................................................................................................................................................88 Tibay vs CA – Fortune insurance ..........................................................................................................................................................................................................................88 South Sea Surety vs CA .........................................................................................................................................................................................................................................89. SECTION 79. .............................................................................................................................................................................................................................. 89 SECTION 80. .............................................................................................................................................................................................................................. 90 SECTION 84. .............................................................................................................................................................................................................................. 92 SECTION 85. .............................................................................................................................................................................................................................. 92 SECTION 86. .............................................................................................................................................................................................................................. 92 SECTION 87. .............................................................................................................................................................................................................................. 94 SECTION 89. .............................................................................................................................................................................................................................. 94 SECTION 89. .............................................................................................................................................................................................................................. 94 SECTION 92. .............................................................................................................................................................................................................................. 96 SECTION 93. .............................................................................................................................................................................................................................. 96 SECTION 94. .............................................................................................................................................................................................................................. 96 SECTION 95. .............................................................................................................................................................................................................................. 96 SECTION 96. .............................................................................................................................................................................................................................. 97 SECTION 98. .............................................................................................................................................................................................................................. 98 SECTION 99. .............................................................................................................................................................................................................................. 99 SECTION 100. ............................................................................................................................................................................................................................ 99. DEFINITION...................................................................................................................................................................99 INSURABLE INTEREST..................................................................................................................................................102 SECTION 102. .......................................................................................................................................................................................................................... 102 SECTION 103. .......................................................................................................................................................................................................................... 102 SECTION 104. .......................................................................................................................................................................................................................... 103 SECTION 105. .......................................................................................................................................................................................................................... 103 SECTION 106. .......................................................................................................................................................................................................................... 103 SECTION 107. .......................................................................................................................................................................................................................... 103 SECTION 108. .......................................................................................................................................................................................................................... 104 SECTION 111. .......................................................................................................................................................................................................................... 105 SECTION 112. .......................................................................................................................................................................................................................... 105. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 4.
(5) Societas Spectra Legis Insurance SECTION 113. .......................................................................................................................................................................................................................... 105 SECTION 114. .......................................................................................................................................................................................................................... 106 SECTION 118. .......................................................................................................................................................................................................................... 107 SECTION 119. .......................................................................................................................................................................................................................... 107 SECTION 120. .......................................................................................................................................................................................................................... 107 SECTION 122. .......................................................................................................................................................................................................................... 108 SECTION 127. .......................................................................................................................................................................................................................... 108. LOSS ...........................................................................................................................................................................109 SECTION 129. .......................................................................................................................................................................................................................... 109 SECTION 130. .......................................................................................................................................................................................................................... 109 SECTION 131. .......................................................................................................................................................................................................................... 109 SECTION 133. .......................................................................................................................................................................................................................... 109 SECTION 134. .......................................................................................................................................................................................................................... 110 SECTION 135. .......................................................................................................................................................................................................................... 110 SECTION 136. .......................................................................................................................................................................................................................... 110 SECTION 137. .......................................................................................................................................................................................................................... 110 SECTION 138. .......................................................................................................................................................................................................................... 110 SECTION 139. .......................................................................................................................................................................................................................... 111. ABANDONMENT .........................................................................................................................................................112 SECTION 140. .......................................................................................................................................................................................................................... 112 SECTION 141. .......................................................................................................................................................................................................................... 112 SECTION 142. .......................................................................................................................................................................................................................... 113 SECTION 143. .......................................................................................................................................................................................................................... 113 SECTION 144. .......................................................................................................................................................................................................................... 113 SECTION 145. .......................................................................................................................................................................................................................... 113 SECTION 145. .......................................................................................................................................................................................................................... 114 SECTION 147. .......................................................................................................................................................................................................................... 114 SECTION 148. .......................................................................................................................................................................................................................... 114 SECTION 149. .......................................................................................................................................................................................................................... 114 SECTION 150. .......................................................................................................................................................................................................................... 114 SECTION 153. .......................................................................................................................................................................................................................... 114 SECTION 154. .......................................................................................................................................................................................................................... 115 SECTION 155. .......................................................................................................................................................................................................................... 115 SECTION 156. .......................................................................................................................................................................................................................... 115 SECTION 157. .......................................................................................................................................................................................................................... 115. MEASURE OF INDEMNITY ...........................................................................................................................................115 SECTION 158. .......................................................................................................................................................................................................................... 115 SECTION 159. .......................................................................................................................................................................................................................... 115 SECTION 160. .......................................................................................................................................................................................................................... 116 SECTION 161. .......................................................................................................................................................................................................................... 116 SECTION 163. .......................................................................................................................................................................................................................... 116 SECTION 164. .......................................................................................................................................................................................................................... 117 SECTION 165. .......................................................................................................................................................................................................................... 117 SECTION 166. .......................................................................................................................................................................................................................... 117 SECTION 167. .......................................................................................................................................................................................................................... 117. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 5.
(6) Societas Spectra Legis Insurance SECTION 168. .......................................................................................................................................................................................................................... 117 SECTION 169. .......................................................................................................................................................................................................................... 118 SECTION 170. .......................................................................................................................................................................................................................... 119 SECTION 171. .......................................................................................................................................................................................................................... 119 SECTION 172. .......................................................................................................................................................................................................................... 119 SECTION 174. .......................................................................................................................................................................................................................... 120 SECTION 175. .......................................................................................................................................................................................................................... 120. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 6.
(7) Societas Spectra Legis Insurance. INTRODUCTION DEFINITIONS Variable contracts - a policy that provides a guaranteed minimum death benefit with the potential for increased benefits, without the necessity of paying additional premium. Law of large numbers – a theorem used by insurance companies to determine the chance of an event occurring. Authorized Driver Clause – an insurance clause which provides that if the person driving is other than the insured, he must have been duly authorized by the insured, to drive the vehicle to make the insurance company liable for the driver's negligence Mortgage Redemption Insurance - is a form of life insurance which pays for the mortgage of the insured in case of untimely death. Wager Policy - A pretended insurance where the insured has no interest in the thing insured and can sustain no loss by the happening of the misfortunes insured against. Cover notes – short term insurance policies that may be issued to afford immediate provisional protection to the insured until the policy is issued or rejected. No-fault insurance - any type of insurance contract under which insured are indemnified for losses by their own insurance company, regardless of fault in the incident generating losses. Alien enemy - an alien who is designated as an enemy during wartime due to permanent or temporary allegiance to a hostile power Factual Expectation - expectation not arising from any legal right or duty in connection with the property, and which do not constitute an insurable interest. Doctrine of Reasonable Expectation - a principle that relies on the reasonable expectations of the insured as a guide for insurance contract interpretation. Preliminary contract of present insurance – the insurer insures the subject matter usually by cover note, the contract to be effective until the formal policy is issued or the risk rejected. Assured - the person designated to receive the proceeds of the insurance. Risk – is the chance of loss. Peril – is the contingent event which may cause a loss. Hazard – the condition or situation that creates or increases chance of loss in an insured risk from a given peril. Loss – refers to the happening of the event insured. First meeting of the semester: Maybe we can now start with the preliminaries class… [insert here the sound of crickets chirping]. SOCIETAS SPECTRA LEGIS AND FRIENDS University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 7.
(8) Societas Spectra Legis Insurance. GENERAL PROVISIONS SECTION 1. This Decree shall be known as “The Insurance Code of the Philippines” Origin of the modern insurance Its origin is to be found in the mutual agreement among merchants of the Italian cities in the early middle ages engaged in common shipping ventures for distributing among the mutual contractors, the loss falling upon any one by reason of the perils of navigation. These Italian merchants founded trade houses in London in the 12th century and brought the custom of insuring against hazards of trade. The development of the several kinds of insurance has followed the same lines in the US as in England. The insurance industry of the US has grown to such extent that the English practices and decisions have little influence on insurance in the US. Development of insurance in the Philippines During the pre-Spanish times, when the political unit was then the family, if a member of the family died or suffered any other misfortune, it was borne by the family. Even now, this practice of furnishing some form of assistance to bereaved members of the family of someone who dies still exists. Eventually, mutual benefit societies and fraternal associations were organized for the purpose of rendering assistance in money or kind, to their members. Insurance, in its present concept was first introduced in the Philippines in 1892 when Lloyd’s of London appointed their representative here. In 1898, life insurance was introduced in this country with the entry of Sun Life Assurance of Canada. In 1906, the first domestic non-life insurance company, the Yek Tong Lin Fire and Marine Insurance Company, was organized, while the first domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized in 1910. Concept of social insurance Social insurance is any government-sponsored program wherein the benefits, eligibility requirements and other aspects of the program are defined by statute. It is funded by taxes or premiums paid by (or on behalf of) participants (although additional sources of funding may be provided as well) and the program serves a defined population, and participation is either compulsory or the program is subsidized heavily enough that most eligible individuals choose to participate. Examples of social insurance Government Service Insurance System (GSIS) and Social Security Insurance (SSS) Sources of insurance law in the Philippines 1) The Code of Commerce and the old Civil Code of 1889;. 2) Act No. 2427 (Insurance Act), which expressly repealed the provisions of the Code of Commerce. 3) R.A. No. 386 (NCC), which expressly repealed those provisions of the old Civil Code on insurance. 4) P.D. No. 612 (The Insurance Code), which repealed Act No. 2427, as amended. 5) P.D. No. 1460 (The Insurance Code of 1978), which reenacted P.D. No 612, as amended. It has been amended by P.D. No. 1814 and No. 1981 and Batas Pambansa Blg. 874. 6) R.A. No 10607. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 8.
(9) Societas Spectra Legis Insurance Laws governing insurance 1) The Insurance Code of 1978 (PD NO 612, as amended by Presidential Decree Nos. 1141, 1280, 1455, 1460, 1814 and 1981, and Batas Pambansa Blg. 874, and R.A. No. 10607) 2) Civil Code (Article 739 and 2012, on void donations; Article 2011, on the applicability of the Civil Code; Articles 2021-2027, with respect to life annuity contracts; Article 2186, on compulsory motor vehicle liability insurance; Article 2207, on the insurer’s right of subrogation) Insurance contracts are governed primarily by the Insurance Code but if it does specifically provide for a particular matter in question, the provision of the Civil Code on contracts and other special laws shall govern. ARTICLE 2207.If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. 3) Special laws a) P.D. No. 612 (The Insurance Code) b) P.D. No. 1146, as amended (The Revised Government Insurance Act of 1977), with respect to insurance of government employees. c) R.A. No. 1161, as amended (The Social Security Act of 1954) 4) Others – a) R.A. No. 656, as amended (Property Insurance Law, dealing with government property) b) R.A. No. 4898, as amended, providing life, disability and accident insurance coverage to barangay officials. c) Exec. Order No. 250, which increased, integrated and rationalized the insurance benefits of barangay officials under R.A. No. 4898 and members of the LGU councils. d) R.A. No. 3591, as amended, which established the Philippines Deposit Insurance Corporation which insures the deposits of all banks which are entitled to the benefits of insurance under the Act. Concept of subrogation Subrogation is the substitution of one person in place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies and securities. Purpose of subrogation (1) To make the person who caused the loss, legally responsible for it and (2) prevent the insured from receiving a double recovery from the wrongdoer and the insurer. SIR: The concept of subrogation is very important in your insurance law. Must there be a lawsuit in order to have a subrogation? No. Subrogation accrues simply upon payment of the insurance claim by the insurer.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 9.
(10) Societas Spectra Legis Insurance Concept of subgrogation in terms of insurance law Subrogation refers to the process an insurance company uses to seek reimbursement from the responsible party for a claim it has already paid. Your insurance company may pay your claim, and then seek reimbursement from the other party. SIR: At the time when the insurer paid the insured the proceeds of the insurance, he steps into the shoes of the insured. He can now the recover whatever the damage caused from the wrongdoer or tortfeasor. A insured his life in the amount of P10 million, making B, his wife as his beneficiary. There was a time that B quarreled with A. B murdered A. B went to the insurance company and asks for the proceeds of the insurance, to which the latter obliged. The prosecution file a case of murder against B. B was convicted and sent to jail. Upon learning that B was convicted for murder with finality, the insurer went to B and told B, “I have to get the P10 million from you because I am now subrogated when I paid the amount of the proceeds”. Is the insurer correct? No. The value of human life is regarded as unlimited and therefore, no recovery from a third party can be deemed adequate to compensate the insured’s beneficiary. Why is subrogation limited only to property insurance? The pecuniary value of a human life to the beneficiary of a life insurance policy can seldom be determined with accuracy, except where the insurance is taken by a creditor on the life of a debtor to secure a debt. SIR: The creditor has an insurable interest over the life of his debtor. But not to any extent. The creditor can only insure the life of the debtor up to the amount of his debt. Such that if the debt is only P5 million, the creditor cannot get as proceeds the entire amount of P10 million. Even if the creditor insured the life of his debtor in the amount of P10 million, later on if the insurer learns that the credit is only P5 million, then only P5 million will be released to the creditor because his insurable interest is only up to P5 million. Supposing A insured his BMW car in the amount of P3 million. While he was driving, it was hit by B, who was driving negligently. A went to the insurer and asks for the proceeds of the insurance. He was able to prove that the damage to his car amounted to P2 million so he was able to receive the proceeds of the insurance up to P2 million. Since the insurer once took up Insurance Law in the USC-College of Law (later on na one-timebig-time ni Torregosa), he knew of the concept of subrogation so he went directly to B. But B said, “I will not pay you because there was no assignment. In fact, you cannot produce any single document which shows that there was payment or the rights of A was assigned to you. Is that correct? No because the right of subrogation is not dependent upon any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. The presentation in evidence of the insurance policy is not indispensable before the insurer may recover. The subrogation receipt, by itself, is sufficient to establish not only the relationship of the insurer and the insured, but also the amount paid to settle the insurance. (Privity of contract or assignment by insured of claim not essential.) What if there is no receipt? Then the wrongdoer should not pay.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 10.
(11) Societas Spectra Legis Insurance SIR: If you are the wrongdoer class, even if that is the concept of subrogation, you should, at the very least, ask for some documents before releasing the amount. Otherwise, if he has no documents to prove that payment was made, why will you be compelled to pay. Let him file a case against you. Supposing in the same example, the damage caused by negligence of a person is an excluded risk. Despite the presence of such excluded risk in the insurance, still the insurer paid A. After that, the insurer went to B and ask for reimbursement. Will that prosper? No because the cause of the loss or injury must be a risk covered by the policy to entitle the insurer to subrogation and since the insurer paid the insured for a loss which is not a risk covered by the policy, the insurer has no right of subrogation against the third party liable for the loss. (Loss or injury for risk must be covered by the policy.) Is there no instance where the insurer can go after B? Yes there is. The insurer may recover from the third party responsible for the damage to the insured property under Article 1236(2) of the Civil Code. Article 1236(2) Whoever[insurer] pays for another[insured] may demand from the debtor[wrongdoer] what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. What if that time B knew that the insurer will pay but before the insurer could deliver the amount of the proceeds of the insurance to A, B told the insurer, ”Do not to pay A because its outside the coverage of the insurance. It’s an issue between me and A”? Article 1236 still applies even if payment was made by the insurer against the will of the debtor. Can A recover from both the insurer and B? A may recover from either the insurer or B but he may only recover once. The right of subrogation given to the insurer prevents the insured from obtaining more than the amount of his loss. (Right of insured to recover from both insurer and third party.) In our example, the amount of the insurance taken by A from the insurer is P3 million, supposing the BMW owned by A is damaged to the tune of P4 million. Can he recover the entire amount from the insurer? No because their contract of insurance only covered an amount up to P3 million. Where can A recover the deficiency? A can recover the deficiency from B under Article 1236. Can you compel the insurer to exercise the right of subrogation? No because such right lies solely within the insurer’s discretion. (Exercise of right of subrogation by insurer discretionary). University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 11.
(12) Societas Spectra Legis Insurance Limitations to the right of subrogation (a) both the insurer and the consignee are bound by the contractual stipulations under the bill or lading. (b) the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. A, insure his car for P1 million against all risk. The car was hit by B and the car was damaged to the tune of P1 million. So A went to the insurer and the insurer paid the insured. After receiving payment from the insurer, A released B from any liability for the loss or damage to his car. What is the effect of the part of the action of A on the rights of the insurer? The insurer loses his rights against the wrongdoer since the insurer can be subrogated to only such rights as the insured may have. For defeating the insurer’s right of subrogation, A is under obligation to return to the insurer the amount paid thereby entitling A to recover the same. (Loss of right of subrogation by act of insured or insurer.) A, a merchant shipped his goods amounting to P1 million using the motor vessel owned by B. A, the insured, also insured them. Unfortunately, the vessel was devoured by a kraken. B, in good faith, settled his obligations with A. The insurer, without informing B, also settled the amount with A. May the insurer go after B? SIR: No because there is not subrogation in this case. A contract of insurance is a contract of indemnity. At the time when the insurer paid the A, there was no longer damage on the part of A, the insured. Whatever damaged A incurred was already paid by the carrier. There is no subrogation here. (Effect of assignment by insured of its rights against third party to insurer.) Applicability of the Civil Code in your insurance contract It is applied subsidiarily as insurance contracts are governed primarily by the Insurance Code. Provisions in the Civil Code which can apply in contracts of insurance 1) Contract is voidable when consent is vitiated. (Articles 1330, 1331). 2) When a contract is perfected. (Article 1319[2]) 3) Contract is void where the consideration is false or fraudulent. (Article 1353) 4) Obligation of mutual restitution in case of rescission. (Article 1385) 5) Prohibition on a common-law wife from becoming the beneficiary of the insured. (Article 2012 in relation to Article 739) 6) The award of moral and exemplary damages in case of unreasonably delay in the payment of insurance claims. What is meant by the construction of Insurance Code? It means the interpretation of the insurance law. When do you construe the provisions of the Insurance Code? Only in case of ambuigity.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 12.
(13) Societas Spectra Legis Insurance SECTION 2. Contract of insurance A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Concept of an unknown event An event which may or may not happen.. Contract of suretyship SIR: It is an agreement whereby a party called the surety guarantees the performance of another, called the principal or obligor, of an obligation or undertaking in favor of a third person, called the obligee. When contract of suretyship is deemed an insurance contract A contract of suretyship shall be deemed to be an insurance contract, only if made by a surety who or which, as such, is doing an insurance business under the Insurance Code. What do you mean by doing an insurance business or transacting an insurance business? 1) Making or proposing to make, as insurer, any insurance contract; 2) Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; 3) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; 4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. What is the concept of assurance and how do you differentiate it from assurance? Assurance is used to describe the life insurance business, referring to an event like death, which must happen while insurance refers to a contingent event which may or may not happen. As used in the Insurance Code, the term insurance covers assurance. Elements of a contract 1) Subject matter – refers to the thing insured. 2) Consideration – premium paid by the insured 3) Object and purpose – transfer and distribution of risk or loss. Definition of insurance from the viewpoint of: Economic –it is a method which reduces risk by a transfer and combination (pooling) of uncertainty in regards to a financial loss. Business – it is a plan by which large numbers of people associate themselves and transfers to the shoulder of all, risks that attach to individuals. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 13.
(14) Societas Spectra Legis Insurance Mathematical – it is the application of certain actuarial (insurance mathematics) application. Social – it is a social device whereby uncertain risks of individuals may be combined in a group and thus made more certain, with small periodic contributions by the individuals providing a fund out of which those who suffer losses may be reimbursed. Nature and characteristics of an insurance contract 1) It is consensual because it is perfected by the meeting of the minds of the parties. 2) It is voluntary in the sense that it is not compulsory and the parties may incorporate such terms and conditions as they may deem convenient which will be binding. 3) It is aleatory in the sense that it depends upon some contingent event. 4) It is executed as to the insured after the payment of the premium, and executory on the part of the insurer in the sense that it is not executed until payment for a loss. 5) It is conditional because it is subject to the conditions the principal one of which is the happening of the event insured against. 6) It is a contract of indemnity because the promise of the insurer is to make good only the loss of the insured. 7) It is a personal contract between the insurer and the insured. 8)As a contract, it is a property in legal contemplation. They are in the nature of property and do not represent a personal agreement between the insurer and the insured. Does the concept of contract of indemnity apply to life insurance? No because the pecuniary value of a human life to the beneficiary of a life insurance policy can seldom be determined with accuracy. Insurance, a risk-distributing device The device of insurance equitably distributes losses out of a general fund contributed by all. It serves to spread the risk of financial or economic loss faced by the insured among as many possible of those who are subject to the same kind of risk. By paying a pre-determined amount into a general fund out of which payment will be made for an economic loss of a defined type, each member contributes to a small degree toward compensation for losses suffered by any member of the group. Contract of adhesion A contract in which most of the terms do not result from mutual negotiation between the parties as they are prescribed by the insurer in final printed forms which the insured may reject or to which he may “adhere” if he chooses but which he cannot change. In case of doubt in an insurance policy, who should be in favored, the insurer or the insured? The insured because it is not really his fault. It should be construed against the party who caused such ambiguity, the insurer. VIRGINIA CALANOC vs PHILIPPINE AMERICAN LIFE INSURANCE CO FACTS: Melencio Basilio was a watchman of the Manila Auto Supply. He secured a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached a supplementary contract covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda. Virginia Calanoc, the widow, was paid the sum of P2,000, face University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 14.
(15) Societas Spectra Legis Insurance value of the policy, but when she demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company from liability. ISSUE: Whether Basilio’s death was accidental or caused by one of the risks excluded by the supplementary contract which exempts the company from liability. HELD: Accidental. There is no proof that the death of Basilio is the result of assault or murder for the record is barren of any circumstance showing how the fatal shot was fired. Nor can it be said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he wanted to take his life. Basilio cannot be considered as making an arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for certainly he did not go there for that purpose nor was he asked to do so by the policeman. While as a general rule the parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom, it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and understanding of the insured. For if the terms are doubtful or obscure the same must of necessity be interpreted or resolved against the one who has caused the obscurity so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved. EMILIA T. BIAGTAN vs THE INSULAR LIFE ASSURANCE COMPANY FACTS: Juan S. Biagtan was insured with defendant InsularLife Assurance Company for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident ... and independently of all other causes. The clause, however, expressly provided that it would not apply where death resulted from an injury "intentionally inflicted by another party. On the night of May 20, 1964 a band of robbers entered the house of the insured Juan S. Biagtan. That in committing the robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards the door of the second floor room, where they suddenly met a person near the door of oneof the rooms who turned out to be the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death. Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death benefit clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third parties and therefore was not covered. ISSUE: Whether the wounds received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-mortal — were inflicted intentionally. HELD: Yes. It cannot be denied that the act itself of inflicting the injuries was intentional. Where a gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether they prove fatal or not. Nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned. Thus, it has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 15.
(16) Societas Spectra Legis Insurance reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. What is the difference between this case and the case of Calanoc? In the case of Calanoc, the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim whereas in this case, nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned.. The contract of insurance is considered as uberrimae fidei, a contract in utmost good faith This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal (questionnaire). Otherwise, if you will die, the problem will lie to the beneficiaries because the insurer might not release the amount of the insurance as you did not with your insurer in good faith. The same goes with the insurer, he is also required to deal with you in good faith. Such that whatever is provided for in the policy, it can be made binding to the insurer. Elements of a contract of insurance 1) The insured possesses an interest of some kind susceptible of pecuniary estimation known as “insurable interest”. 2) The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils. 3) The insurer assumes that risk of loss. 4) Such assumption of risk is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk. 5) As consideration for the insurer’s promise, the insured make a ratable contribution called “premium”, to a general insurance fund. Concept of insurable interest 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. Risk shifting-device vs Risk-distributing device: In a risk-shifting device, the contract possesses only the first three (3) elements of a contract of insurance whereas a risk-distributing device equitably distributes losses out of a general fund contributed by all. Example of a risk-shifting device A contract of guaranty, where the creditor is exposed to impairment by the happening of contingent events such as the insolvency of the principal debtor and the risk of the creditor is merely assumed by the guarantor. Example of a risk-distributing device A contract of insurance.. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 16.
(17) Societas Spectra Legis Insurance Concept of risk A situation where the probability of a loss is known but when a mode of occurrence or the actual value of the occurrence is not. Ways people cope with risk By: 1) limiting the probability of loss. 2) limiting the effects of loss. 3) self-insurance. 4) ignoring the risk. 4) transferring the risk to another. Ways you can limit the risk or probability of loss 1) Installing guards or safety devices in a cutting machine. 2) Using concrete materials instead of wood in constructing buildings. 3) Installing loss prevention devices such as firewalls, sprinkler systems. Way you can limit the effects of loss 1) By using seat belts while riding in automobiles. 2) Installing sprinkler systems inside the building. How self-insurance work An owner chooses to bear the risk himself thru special funds set aside to cover the loss. Disadvantages of self-insurance 1) It’s expensive. 2) The funds set aside may not be sufficient to cover the loss. 3) You do not know when the loss may occur. 4) Loss may occur before the owner is fully prepared for it. Ignoring risk You engage in the activity without doing anything further with regard to the risk. (self-explanatory) Transferring risk to another By entering into a contract of insurance. Distinction between a risk preferring, risk neutral and risk averse individual: Risk preferring people would choose to forego the certain loss in the hope incurring no loss despite the equal probability of suffering a large loss. Risk neutral people are indifferent to the alternatives. Risk averse people would choose to lose P500 with certainty instead of confronting the 50% change of losing twice as much. FIGURACION VDA. DE MAGLANA vs CONSOLACION. University of San Carlos – School of Law and Governance | Based on the outlined discussion of EVS. Page 17.
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