Insurance

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M

MEMORY EMORY A AIDID ININ C COMMERCIALOMMERCIAL L LAWAW

INSURANCE CODE

(P.D. No. 1460)

I. GENERAL CONCEPTS I. GENERAL CONCEPTS CONTRACT OF INSURANCE CONTRACT OF INSURANCE

 An agreement whereby one undertakesAn agreement whereby one undertakes for a consideration to indemnify another for a consideration to indemnify another against loss, damage or liability arising against loss, damage or liability arising from an unknown or contingent event. from an unknown or contingent event. (Sec. 2, par. 2, IC

(Sec. 2, par. 2, IC

“DO

“DOING ING AN AN INSINSURAURANCE NCE BUSBUSINEINESS SS OR OR T

TRRAANNSSAACCTTIINNG G AN AN IINNSSUURRAANNCCEE BUSINESS” (Sec. 2, !". 4)

BUSINESS” (Sec. 2, !". 4)

!

!.. ""aakkiinng g oor r pprrooppoossiinng g tto o mmaakke, e, aass insurer, any insurance contract# insurer, any insurance contract# 2

2.. ""aakkiinng g oor r prproopopossiinng g tto o mmaakkee, , aass surety, any contract of suretyship as surety, any contract of suretyship as a vocation, not as a mere

a vocation, not as a mere incident toincident to any other

any other leglegitiitimatmate e busbusineiness ss of of aa surety#

surety# $

$.. %%ooiinng g aanny y iinnssuurraanncce e bbuussiinneessss,, including a reinsurance business# including a reinsurance business# &

&.. %%ooiinng g oor r pprrooppoossiinng g tto o ddo o aannyy business in substance e'uivalent to business in substance e'uivalent to any of the foregoing

any of the foregoing

II. C#ARACTERISTICS OF AN INSURANCE II. C#ARACTERISTICS OF AN INSURANCE CONT

CONTRACTRACT (The Insurance Code of the(The Insurance Code of the Philippines Annotated, Hector de Leon, Philippines Annotated, Hector de Leon, 2002 ed.)

2002 ed.) !.

!. ConsensualConsensual  it is perfected by the  it is perfected by the meeting of the minds of the parties. meeting of the minds of the parties. 2.

2. Voluntary Voluntary   tthhe e ppaarrttiiees s mmaayy iinnccoorrppoorraatte e ssuucch h tteerrmms s aanndd c

coonnddiititioonns s aas s tthheey y mmaay y dedeeemm convenient.

convenient. $.

$. Aleatory Aleatory   it it dedepependnds s upupon on sosomeme contingent event.

contingent event. &.

&. nilateral nilateral  imposes legal duties only imposes legal duties only on

on ththe e ininsusurerer r whwho o prpromomisises es toto indemnify in case of loss.

indemnify in case of loss. ).

). ConditionalConditional   IIt t iis s ssuubb**eecct t ttoo co

condndititioions ns ththe e prprinincicipapal l onone e of of which is the happening of the event which is the happening of the event insured against.

insured against. +.

+. ContContract ract of of inde!inde!nity nity  -cept life  -cept life and

and accidaccident ent insuinsurancrance, e, a a contrcontractact o

of f iinnssuurraanncce e iis s a a ccoonntrtracact t oof f in

indedemnmnitity y whwhererebeby y ththe e ininsusurererr promises to make good only the loss promises to make good only the loss of the insured.

of the insured.

7.

7. _Personal_{Personal  each party having in view}_{ each party having in view}

the character, credit and conduct of the character, credit and conduct of the other.

the other.

R

RE$E$UUIISSIITTEES S OOF F A A CCOONNTTRRAACCT T OOFF INSUR

INSURANCEANCE (The Insurance Code of the(The Insurance Code of the Philippines Annotated, Hector de Leon, Philippines Annotated, Hector de Leon, 2002 ed.)

2002 ed.)

!. A sub*ect matter which the insured !. A sub*ect matter which the insured has an insurable interest.

has an insurable interest.

2. vent or peril insured against which 2. vent or peril insured against which m

maay y bbe e aanny y ffuututurre e ccoonntitinnggenent t oorr un

unknknowown n evevenent, t, papast st or or fufututure re anand d aa duration for the risk thereof.

duration for the risk thereof.

$. A promise to pay or indemnify in a $. A promise to pay or indemnify in a fi-ed or ascertainable amount.

fi-ed or ascertainable amount.

&. A consideration known as premium/. &. A consideration known as premium/. ). "eeting of the minds of the parties. ). "eeting of the minds of the parties.

% CARDINAL PRINCIPLES IN

% CARDINAL PRINCIPLES IN INSURANCEINSURANCE

!. Insurable Interest !. Insurable Interest

2. 0rinciple of 1tmost ood 3aith 2. 0rinciple of 1tmost ood 3aith

 An insurance contract re'uires utmost An insurance contract re'uires utmost go

good od fafaitith h ((u"erru"erri!ae i!ae fideifidei  betbetweeweenn the parties.

the parties. 4he applicant 4he applicant is en*oinis en*oined toed to di

discsclolose se anany y mamaterteriaial l fafactct, , whwhicich h hehe knows or ought to know.

knows or ought to know.

 #e #easasonon$$ An An insinsururancance e concontratract ct is is anan aleatory contract. 4he insurer relies on aleatory contract. 4he insurer relies on the representation of the applicant, who the representation of the applicant, who is in the best position to know the state is in the best position to know the state of his health.

of his health.

$. Contract of Indemnity $. Contract of Indemnity

 It is the basis of all property insurance. It is the basis of all property insurance. 4he insured who has insurable interest 4he insured who has insurable interest ov

over er a a prpropopererty ty is is ononly ly enentititltled ed toto rrececovover er tthe he amamouounnt t oof f acactutual al lolossss sustained and the burden is upon him to sustained and the burden is upon him to es

estatabblilissh h tthe he amamouounnt t of of ssucuch h lolossss ((##ee%%iiee&&eer r oon n CCoo!!!!eerrcciiaal l LLaa&&,, Professors 'undian and Auino)

Professors 'undian and Auino)

#ules$#ules$ a

a.. AApppplliiees s oonnlly y tto o pprrooppeerrttyy iinsnsururanance ce e-e-cecept pt wwhhen en ththee cre

creditditor or insinsureures s the the liflife e of of hishis debtor.

debtor. b.

b. 5i5ife infe insusurarancnce is noe is not a cont a contrtracactt of indemnity.

of indemnity. c

c.. IInnssuurraanncce e ccoonnttrraacctts s aarre e nnoott wagering contracts. (Sec. & wagering contracts. (Sec. & &. Contract of

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M

MEMORY EMORY A AIDID ININ C COMMERCIALOMMERCIAL L LAWAW

 "ost of the terms of the contract do "ost of the terms of the contract do no

not t reresusult lt frfrom om mumututual al nenegogotitiatatioionsns b

beettwweeeen n tthhe e ppaarrttiies es aas s ththey ey aarree prescribed by the insurer in final

prescribed by the insurer in final printedprinted form to which the insured may adhere/ form to which the insured may adhere/ if

if he he chchooooseses s bubut t whwhicich h he he cacannnnotot change. (6i7al Surety and Insurance Co., change. (6i7al Surety and Insurance Co., vs. CA, $$+ SC6A !2

vs. CA, $$+ SC6A !2 ). 0rinciple of

). 0rinciple of SubrogationSubrogation

 It is a It is a proprocescess s of of leglegal al subsubstistituttutionion where the insurer steps into the shoes of where the insurer steps into the shoes of the insured and he avails of the latter8s the insured and he avails of the latter8s rights against the wrongdoer at the time rights against the wrongdoer at the time of loss.

of loss.

 4he principle of 4he principle of subrogation is a normalsubrogation is a normal in

incicidedent nt of of inindemdemninity ty ininsusurarancnce e as as aa legal effect of payment# it inures to the legal effect of payment# it inures to the insurer without any formal assignment or insurer without any formal assignment or any e-press stipulation to that effect in any e-press stipulation to that effect in the policy. Said right is not dependent the policy. Said right is not dependent upon nor does it grow out of any private upon nor does it grow out of any private contract. 0ayment to the insured makes contract. 0ayment to the insured makes th

the e iinsnsururer er a a ssububrrogogeeee in in e'ue'uitityy.. ("alayan Insurance Co., Inc. v. CA, !+) ("alayan Insurance Co., Inc. v. CA, !+) SC6A )$+# see also Art. 229:, ;CC

SC6A )$+# see also Art. 229:, ;CC

  Purposes$ (The Insurance Code of the Purposes$ (The Insurance Code of the Philippines Annotated, Hector de Leon, Philippines Annotated, Hector de Leon, 2002 ed.)

2002 ed.) !.

!. 44o mo makake the pere the persoson who cn who cauausesed thed the loss legally responsible for it.

loss legally responsible for it. 2

2.. 44o o pprreevveennt t tthhe e iinnssuurreed d ffrroomm receiving a double recovery from the receiving a double recovery from the wrongdoer and the

wrongdoer and the insurerinsurer.. $.

$. 44o o prprevevenent t totortrtfefeasasorors s frfrom om bebeiningg fr

free ee frfrom om liliababililititieies s anand d is is ththusus founded on considerations of public founded on considerations of public policy.

policy.

 #ules$#ules$

!. Applicable only to

!. Applicable only to property insurance.property insurance. 2. 4he insurer can only recover from the 2. 4he insurer can only recover from the third person what the insured could third person what the insured could havehave recovered.

recovered.

$. 4here can be no subrogation in cases< $. 4here can be no subrogation in cases< a

a.. ==hherere e tthhe e iinnssuurreed d by by hhiis s oowwn n acactt releases the wrongdoer or third party releases the wrongdoer or third party liable for the loss or damage#

liable for the loss or damage# b.

b. =he=here tre the inhe insursurer paer pays thys the inse insureured thed the value of the loss without notifying the value of the loss without notifying the carrier who has in good faith settled carrier who has in good faith settled the insured8s claim for loss#

the insured8s claim for loss# c.

c. =he=here tre the inhe insursurer paer pays thys the inse insurured foed forr a loss or risk not covered

a loss or risk not covered by the policy.by the policy. (0

(0an an "al"alayaayan n InsInsuraurance nce ComCompanpany y vv.. CA, !>& SC6A )&

CA, !>& SC6A )& d.

d. In In lilife fe ininsusurarancncee

e

e.. 33oor r rreeccoovveerry y oof f lloosss s iin n ee--cceesss s oof f insurance coverage insurance coverage C COONNSSTTRRUUCCTTIIOON N OOF F IINNSSUURRAANNCCEE CONTRACT CONTRACT

 4h4he e amambibigguouous us tetermrms s arare e to to bebe con

constrstrued ued strstrictictly ly agaagainsinst t the the insinsururerer,, an

and d liliberberalally ly in in fafavovor r of of ththe e ininsusurered.d. ?owever, if the terms are clear, there is ?owever, if the terms are clear, there is no room for interpretation. (Calanoc vs. no room for interpretation. (Calanoc vs. Court of Appeals, @> 0hil. :@

Court of Appeals, @> 0hil. :@

III

III. . DISDISTINTINGUIGUIS#IS#ING NG ELEELE&EN&ENTS TS OF OF ANAN INSURANCE CONTRACT

INSURANCE CONTRACT

!.

!. 4h4he e ininsusurered d popossssesesseses s anan insura"leinsura"le interest

interest sususcscepeptitiblble e of of pepecucuniniararyy estimation#

estimation#

2. 4he insured is sub*ect to a

2. 4he insured is sub*ect to a ris* of lossris* of loss tthhrroouuggh h tthhe e ddeessttrruuccttiioon n oorr imp

impairairmenment t of of thathat t intintereserest t by by thethe happening of designated perils#

happening of designated perils# $. 4he insurer

$. 4he insurer assu!es that ris* of lossassu!es that ris* of loss## &. Such ass

&. Such assumptioumption is part of an is part of a eneral eneral sch

sche!e e!e to to disdistritri"ut"ute e actactual ual loslossesses amo

among ng a a larlarge ge grogroup up or or subsubstastantintialal number of persons bearing somewhat number of persons bearing somewhat similar risks# and

similar risks# and )

). . 44hhe e iinnssuurreed d mmaakkees s a a rraattaabbllee contribution (

contribution ( pre!iu! pre!iu! to a general to a general insurance fund.

insurance fund.

 A contract possessing only the first $ A contract possessing only the first $ elemen

elements above is ats above is a ris*+shiftin de%ice.ris*+shiftin de%ice. IIf f aalll l tthhe e eelleemmeennttss, , iit t iis s aa ris*+ris*+ distri"utin de%ice

distri"utin de%ice.. (The Insurance Code(The Insurance Code of the Philippines Annotated, Hector de of the Philippines Annotated, Hector de Leon, 2002 ed.)

Leon, 2002 ed.)

I'

I'. . PEPERFRFECECTITION ON OF OF AN AN ININSUSURARANCNCEE CONTRACT

CONTRACT

 An insurance contract is a consensualAn insurance contract is a consensual contract and is therefore perfected the contract and is therefore perfected the moment there is a meeting of minds with moment there is a meeting of minds with respect to the ob*ect and the cause or respect to the ob*ect and the cause or consideration.

consideration.

 =ha=hat t is is beibeing ng folfollowlowed ed in in insinsuraurancence c

conontrtraactcts s is is wwhhat at is is knknowown n as as ththee c

cooninitition on ththeoeoryry--. . 44hhuuss, , aann acceptance made by letter shall not bind acceptance made by letter shall not bind the person making the offer e-cept from the person making the offer e-cept from th

the e timtime e it it cacame me to to hihis s knknowowledledgege/./. (nri'ue7 vs. Sun 5ife Assurance Co. of (nri'ue7 vs. Sun 5ife Assurance Co. of Canada, &! 0hil. 2+@

Canada, &! 0hil. 2+@

B*+ Rece B*+ Rece

 A mere acknowledgment on behalf of A mere acknowledgment on behalf of the company that its branch office had the company that its branch office had

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MEMORY AID IN COMMERCIAL LAW

received from the applicant the insurance premium and had accepted the application sub*ect to processing by the head office.

Co-e" Noe (A* Ie")

 A concise and temporary written contract issued to the insurer through its duly authori7ed agent embodying the principal terms of an e-pected policy of insurance.

Purpose$ It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or re*ection of his application.

 uration$ ;ot e-ceeding +9 days unless a longer period is approved by Insurance Commissioner (Sec. )2.

R*e"/

 0rinted stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang iok Chip vs. Springfield, )+ 0hil. 2:)

 In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate e-pression of the agreement of the contracting parties. (C. Al%endia, The La& of Insurance in the Philippines, /1 ed.)

C!/e/

 An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. e Leon, p./)

E*o"/ee/

 Any provision added to the contract altering its scope or application. (Prof. e Leon, p./)

POLIC OF INSURANCE

 4he written instrument in which a contract of insurance is set forth. (Sec. &@

 Coe/3 (Sec. %1)

!. Parties

2. Amount of insurance, e-cept in open or running policies#

$. R ate of premium#

&. Property or life insured#

). Interest of the insured in the property if he is not the absolute owner#

+. R isk insured against# and :. Duration of the insurance.

 Pe"/o/ ee* o "eco-e" o e oc5 (/ec. %)3 4he insurance proceeds shall be applied e-clusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy.

7*/3

!. 0; 05ICB  value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. +9

 4he actual loss, as determined, will represent the total indemnity due the insured from the insurer e-cept only that the total indemnity shall not e-ceed the face value of the policy. (%evelopment Insurance Corp. vs. IAC, !&$ SC6A +2

2. A51% 05ICB  definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. +!

 In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount.

$. 61;;I; 05ICB  contemplates successive insurances and which provides that the ob*ect of the policy may from time to time be defined (Sec. +2

'. TPES OF INSURANCE CONTRACTS

!. Life insurance

a. _{Individual life (}_{Secs. !:@!>$, 22:} b. _{roup life}_{(Secs. )9, last par., 22>}

c. Industrial life (Secs. 22@2$! 2. 3on+life insurance

a. "arine (Secs. @@!++ b. 3ire (Secs. !+:!:$ c. Casualty (Sec. !:&

$. Contracts of "ondin or suretyship (Secs. !:)!:>

Noe3

!. ?ealth and accident insurance are either covered under life (Sec. !>9 or casualty insurance. (Sec. !:&.

2. "arine, fire, and the property aspect of casualty insurance are also referred to as property insurance.

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'I. PARTIES TO INSURANCE CONTRACT 1. Insurer + 0erson who undertakes to indemnify another.

 3or a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, !!$ SC6A &)@

2. Insured 8 4he party to be indemnified upon the occurrence of the loss. ?e must have capacity to contract, must possess an insurable interest in the sub*ect of the insurance and must not be a public enemy.

 A public enemy+ a nation with whom the 0hilippines is at war and it includes every citi7en or sub*ect of such nation.

. Beneficiary D A person designated to receive proceeds of policy when risk attaches.

 6ules in the designation of the beneficiary<

a. 5I3

i. A person who insures his o&n life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured sub*ect to the limitations under Art. :$@ and Art. 29!2 of the ;CC.

 #eason$ in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Eoth are founded on the same consideration of liberality. (Insular 5ife vs. brado, >9 SC6A !>!

ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec. !9

iii. As a general rule, the designation of a beneficiary is revocable unless the insured e-pressly waived the right to revoke in the policy. (Sec. !!

iv. 4he interest of a beneficiary in a life insurance policy

shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise dis'ualified. (Sec. !2

b. 06064B

 4he beneficiary of property insurance must have an insurable interest in such property, which must e-ist not only at the time the policy takes effect but also when the loss occurs. (Sec. !$ and !>.

E99ec/ o9 I""e-oc!:e De/+!o O9 Bee9c!"5

 Insured cannot<

1. _A_{ssign the policy}

2. _T_{ake the cash surrender value of}

the policy

3. _A_{llow his creditors to attach or}

e-ecute on the policy#

4. _A_{dd new beneficiary# or}

5. _C_hange _the _irrevocable

designation to revocable, even though the change is *ust and reasonable.

 4he insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 114, cited in de Leon, p. /0/, 2002 ed.)

'II. INSURABLE INTEREST A. In General

 A person has an insurable interest in the sub*ect matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or pre*udice.

B. Life

 very person has an insurable interest in the life and health<

a. of himself, of his spouse and of his children#

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34

b. of any person on whom he depends wholly or in part for education or support#

c. of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance# and

d. of any person upon whose life any estate or interest vested in him depends. (Sec. !9

 ;e  /o* e</3 =hen the insurance takes effect# not thereafter or when the loss occurs.

 Ao3

 5636#AL #L6$ 4here is no limit in the amount the insured can insure his life.

 67C6PTI83$ In a creditorDdebtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is e'ual to the amount of the debt.

Noe3 If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies.

C. Property

 very interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. !$, which may consist in<

!. an e-isting interest#

2. any inchoate interest founded on an e-isting interest# or

$. an e-pectancy coupled with an e-isting interest in that out of which the e-pectancy arises. (Sec. !&

 ;e  /o* e</3 =hen the insurance takes effect and when the loss occurs, but need not e-ist in the meantime.

 Ao3 4he measure of insurable interest in property is the e-tent to which the insured might be damnified by loss or in*ury thereof. (Sec. !:

INSURABLE INT ER ES T IN LIF E INSURABLE INTEREST IN PROPERT

"ust e-ist only at the time the policy takes effect and need not e-ist at the time of loss

"ust e-ist at the time the policy takes effect and when the loss occurs 1nlimited e-cept in life insurance effected by creditor on life of debtor. 5imited to actual value of interest in property insured. 4he e-pectation of

benefit to be derived from the continued e-istence of life need not have any legal basis whatever. A reasonable probability is sufficient without more. An e-pectation of a benefit to be derived from the continued

e-istence of the property insured must have a legal basis.

4he beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. ?owever, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.

4he beneficiary must have insurable interest over the thing insured.

SPECIAL CASES

/. In case of a carrier or depositary

 A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the e-tent of his liability but not to e-ceed the value thereof (Sec. !)

2. In case of a !ortaed property

 4he mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other.

a. "ortgagor  As owner, has an insurable interest therein to the e-tent of its value, even though the mortgage debt e'uals such value. 4he reason is that the loss or

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35

destruction of the property insured will not e-tinguish the mortgage debt.

b. "ortgagee  ?is interest is only up to the e-tent of the debt. Such interest continues until the mortgage debt is e-tinguished.

 4he lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 22: SC6A +@9 STANDARD OR UNION &ORTGAGE CLAUSE OPEN OR LOSS PAABLE &ORTGAGE CLAUSE Subse'uent acts of the mortgagor cannot affect the rights of the assignee Acts of the mortgagor affect the mortgagee. #eason$ "ortgagor does not cease to be a party to the contract. (Secs. > and @

E99ec/ o9 Lo// P!5!:e C!/e

a. 4he contract is deemed to be upon the interest of the mortgagor# hence, he does not cease to be a party to the contract.

b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee.

c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect.

d. In case of loss, the mortgagee is entitled to the proceeds to the e-tent of his credit.

e. 1pon recovery by the mortgagee to the e-tent of his credit, the debt is e-tinguished.

 In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against

the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the e-tent of the money paid by such insurer. (0alileo vs. Cosio

'III. RIS7

 =hat may be insured against<

!. 3uture contingent event resulting in loss or damage  -. 0ossible future fire

2. 0ast unknown event resulting in loss or damage  -. 3act of past sinking of a vessel unknown to the parties $. Contingent liability  -. 6einsurance

I=. PRE&IU& PA&ENTS

 Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.

 Easis of the right of the insurer to collect premiums< Assumption of risk.

 5636#AL #L6$ ;o policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec. ::

 67C6PTI83'$

!. In case of life or industrial life insurance, when the grace periods applies# (Sec. ::

2. =hen the insurer makes a written acknowledgment of the receipt premium# (Sec. :>

$. Section :: may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. ("akati 4uscany Condominium Corp. v. CA, 2!) SC6A &+2

&. =here a credit term has been agreed upon. (1C0E vs. "asagana 4elemart, $9> SC6A 2)@

). =here the parties are barred by estoppel. (1C0E vs. "aagana 4elemart, $)+ SC6A $9:

 Section :: merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. ("akati 4uscany Condominium Corp. v. CA, 2!) SC6A &+2

(7)

3

E99ec o9 Ac>o?e*+e o9 Rece o9 P"e  Poc53 Conclusi%e e%idence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. :>

ENTITLE&ENT OF INSURED TO RETURN OF PRE&IU&S PAID

A. 9hole$

!. If the thing insured was never e-posed to the risks insured against# (Sec. :@

2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents# (Sec. >! $. If contract is voidable because of

the e-istence of facts of which the insured was ignorant without his fault# (Sec. >!

&. =hen by any default of the insured other than actual fraud, the insurer never incurred liability# (Sec. >!

). =hen rescission is granted due to the insurer8s breach of contract. (Sec. :&

E. Pro rata$

!. =hen the insurance is for a definite period and the insured surrenders his policy before the termination thereof#

 -ceptions<

a. policy not made for a definite period of time b. short period rate is

agreed upon

c. life insurance policy 2. =hen there is overDinsurance

(Sec. >2#

I/!ce/ ?e "e/ !"e o "eco-e"!:e3

!. =hen the risk has already attached and the risk is entire and indivisible.

2. In life insurance.

$. =hen the contract is rescindable or rendered void ab initio by the fraud of the insured.

&. =hen the contract is illegal and the parties are in pari delicto.

PRE&IU& ASSESS&ENT 5evied and paid to

meet anticipated losses. Collected to meet actual losses. 0ayment is not enforceable against the insured. 0ayment is enforceable once levied unless otherwise agreed upon.

;ot a debt. It becomes a debt once properly levied unless otherwise agreed.

=. TRANSFER OF POLIC 1. Life Insurance

 It can be transferred even without the consent of the insurer e-cept when there is a stipulation re'uiring the consent of the insurer before transfer. (Sec. !>!

 #eason$ 4he policy does not represent a personal agreement between the insured and the insurer.

2. Property insurance

 It cannot be transferred without the consent of the insurer.

 #eason$ 4he insurer approved the policy based on the personal 'ualification and the insurable interest of the insured.

3. Casualty insurance

 It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 2)

 #eason< 4he moral ha7ards are as great as those of property insurance.

C#ANE OF INTEREST IN T#E T#ING INSURED

 4he mere (absolute transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. )>

#eason< Insurance contract is personal.

 5636#AL #L6$ A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an e'uivalent e-tent, until the interests in the thing

(8)

3!

and the interest in the insurance are vested in the same person. (Sec. 29

 67C6PTI83'$

!. In life, health and accident insurance.(Sec. 29#

2. Change in interest in the thing insured after occurrence of an in*ury which results in a loss. (Sec. 2!#

$. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22#

&. Change of interest, by will or succession, on the death of the insured. (Sec. 2$#

). 4ransfer of interest by one of several partners, *oint owners, or owners in common, who are *ointly insured, to others. (Sec. 2&#

+. =hen a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. ):#

:. =hen there is an e-press prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. !$9+, ;CC.

=I. ASCERTAIN&ENT AND CONTROL OF RIS7 AND LOSS

A. Fo" P"!"5 Coce"/ o9 e P!"e/3

!. Correct estimation of the risk# 2. 0recise delimitation of the risk# $. Control of the risk#

&. %etermining whether a loss occurred and if so, the amount of such loss.

B. De-ce/ /e* 9o" !/ce"!+ !* co"o+ "/> !* o//3

1. Coce!e  A neglect to communicate that which a party knows and ought to communicate (Sec. 2+

 6e'uisites<

a. A party knows a fact which he neglects to communicate or disclose to the other.

b. Such party concealing is duty bound to disclose such fact to the other.

c. Such party concealing makes no warranty as to the fact concealed.

d. 4he other party has not the means of ascertaining the fact concealed.

e. "aterial

 ffects< ntitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 2:.

Noe3 ood 3aith is not a defense in concealment. Sec. 2: clearly provides that, the concealment whether intentional or unintentional entitles the in*ured party to rescind the contract of insurance./

Te/ o9 &!e"!53 %etermined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his in'uiries (Sec. $!.

 -ception to Sec. $!< a. Incontestability clause

b. "atters under Sec.!!9 (marine insurance

 4he waiver of medical e-amination in a nonDmedical insurance contract renders even more material the information re'uired of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Eacani, 2&+ SC6A 2+>.

 4he right to information of material facts may be waived, either by the terms of the insurance or by neglect to make in'uiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.$$

 =here matters of opinion or *udgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they

(9)

3"

are untrue. #eason$ 4he insurer cannot rely on those statements. ?e must make further in'uiry. (0hilamcare ?ealth Systems vs. CA, .6. ;o. !2)+:>, "arch !>, 2992.

2. Re"e/e!o/  3actual

statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. 4hey are considered an active form of concealment.

 6e'uisites of a false representation (misrepresentation<

a. 4he insured stated a fact which is untrue.

b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead.

c. Such fact in either case is material to the risk.

 Characteristics<

a. It is not a part of the contract but merely a collateral inducement to it. b. It may be oral or written.

c. It is made at the same time of issuing the policy or before but not after.

d. It may be altered or withdrawn before the insurance is effected but not afterwards.

e. It always refers to the date the contract goes into effect.

 Finds<

a. A33I6"A4I  affirmation of a fact when the contract begins# and

b. 06"ISS6B  promise to be performed after policy was issued.

 ffect of "isrepresentation< the in*ured party is entitled to rescind from the time when the representation becomes false.

Te/ o9 &!e"!53 Same as that in concealment.

 =here the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for

that purpose. (Insular 5ife Assur. Co. vs. 3eliciano, :& 0hil. &+@

. ;!""!e/  Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or nonDfulfillment of which in any respect, and without reference to whether insurer was in fact pre*udiced by such untruth or nonDfulfillment, renders the policy voidable by the insurer.

 0urpose< 4o eliminate potentially increasing ha7ards which may either be due to the acts of the insured or to the change to the condition of the property.

 Finds<

a. G06SS  an agreement e-pressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same sub*ect have been or shall be done.

b. I"05I% 8 it is deemed included in the contract although not e-pressly mentioned. -ample< In marine insurance, seaworthiness of the vessel.

 ffects of breach of warranty< a. "aterial

 5636#AL #L6$ iolation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. :&

 67C6PTI83'$

a. 5oss occurs before the time of performance of the warranty. b. 4he performances becomes

unlawful at the place of the contract.

c. 0erformance becomes impossible. (Sec. :$

b. Immaterial (e-. ther insurance clause

 5636#AL #L6$ It will not avoid the policy.

 67C6PTI83$ =hen the policy e-pressly provides or declares that a violation thereof will avoid it. (Sec. :)

;ARRANT REPRESENTATION

0art of the contract "ere collateral inducement =ritten on the

policy, actually or by reference

"ay be written in the policy or may be oral.

(10)

3#

0resumed material "ust be proved to be material "ust be strictly complied with 6e'uires only substantial truth and compliance 4. Co*o/  vents signifying in its broadest sense either an occurrence or a nonDoccurrence that alters the previously e-isting legal relations of the parties to the contract. 4hey may be conditions precedent or conditions subse'uent.

 ffect of breach<

a. Condition precedent  prevents the accrual of cause of action b. Condition subse'uent  avoids

the policy or entitles the insurer to rescind

 4he insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. 3or instance, there are conditions re'uiring immediate notice of loss or in*ury and detailed proofs of loss within a limited period.

%. E<ceo/  0rovisions that may specify e-cepted perils. It makes more definite the coverage indicated by the general description of the risk by e-cluding certain specified risk that otherwise would be included under the general language describing the risks assumed.

 ffect< 5imit the coverage of the contract.

RESCISSION  G"o*/3

A. Concealment E. "isrepresentation

C. Ereach of material warranty %. Ereach of a condition subse'uent

 ;!-e" o9 e "+ o "e/c*3

Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. &)

 L!o/ o e "+ o9 e /"e" o "e/c*3

!. 3on+life  such right must be e-ercised prior to the commencement of an action on the contract#

2. Life  such right must be availed of during the first two years from the date of issue of policy or its last reinstatement# prior to incontestability./ (Sec. &>

CANCELLATION OF NON8LIFE

INSURANCE POLIC

 6ight of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a nonDlife policy.

G"o*/3

!. NonDpayment of premium#

2. Conviction of a crime out of acts increasing the ha7ard insured against#

$. Discovery of fraud or material misrepresentation#

&. Discovery of willful or reckless acts of omissions increasing the ha7ard insured against#

). Physical changes in property making the property uninsurable# and

+. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. +&

Re@"ee/3

1. _{0rior notice of cancellation to}

the insured#

2. _{;otice must be in writing,}

mailed or delivered to the named insured at the address shown in the policy#

3. _{;otice must state which of the}

grounds set forth in Sec. +& is relied upon and upon re'uest of the insured, the insurer must furnish facts on which the cancellation is based#

4. _{rounds should have e-isted}

after the effectivity date of the policy.

=II. INCONTESTABILIT CLAUSE

 Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period.

Re@/e/3

!. 5ife insurance policy

2. 0ayable on the death of the insured $. It has been in force during the

lifetime of the insured for a period of at least two years from the date

(11)

40

of its issue or of its last reinstatement

Noe< 4he period of 2 years may be shortened but it cannot be e-tended by stipulation.

 Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Prof. e Leon, p. /:; citin 9yatt and 9yatt, p. :) BARRED DEFENSES OF T#E INSURER DEFENSES NOT BARRED !. 0olicy is void ab initio 2. 0olicy is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent

!. 4hat the person taking the insurance lacked insurable interest as re'uired by law#

2. 4hat the cause of the death of the insured is an e-cepted risk#

$. 4hat the premiums have not been paid (Secs. ::, 22:Hb, 22>Hb, 2$9Hb#

&. 4hat the conditions of the policy relating to military or naval service have been violated (Secs. 22:Hb, 22>Hb# ). 4hat the fraud is of a particularly vicious type#

+. 4hat the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened# or :. 4hat the action was not brought within the time specified.

=III.

A. O'ER8INSURANCE  results when the insured insures the same property for an amount greater than the value of the

property with the same insurance company.

E99ec  c!/e o9 o//3

!. 4he insurer is bound only to pay to the e-tent of the real value of the property lost#

2. 4he insured is entitled to recover the amount of premium corresponding to the e-cess in value of the property#

B. DOUBLE INSURANCE  e-ists where same person is insured by several insurers separately in respect to same sub*ect and interest. (Sec. @$

Re@/e/3

!. 0erson insured is the same#

2. 4wo or more insurers insuring separately#

$. Sub*ect matter is the same# &. Interest insured is also the same# ). 6isk or peril insured against is

likewise the same.

 E99ec/3 =here double insurance is allowed, but over insurance results< (Sec. @&

!. 4he

insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts#

2. =here

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 sub*ect matter insured#

$. =here

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#

&. =here

the insured receives any sum in e-cess 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

(12)

41

their right of contribution among themselves#

). ach

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.

A**o! o" “Oe" I/"!ce” C!/e  A condition in the policy re'uiring the insured to inform the insurer of any other insurance coverage of the property insured. It is lawful and specifically allowed under Sec. :) which provides that (a policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it./

 A stipulation against double insurance.

 0urposes<

!. 4o prevent an increase in the moral ha7ard

2. 4o prevent overDinsurance and fraud.

4o constitute a violation of the clause, there should have been double insurance.

C. REINSURANCE  a contract by which the insurer procures a third person to insure him against loss or liability by reason of an original insurance (also known as #einsurance Cession-. (Sec. @)

 In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies.

DOUBLE INSURANCE

REINSURANCE Involves the same

interest

Involves different interest

Insurer remains in such capacity

Insurer becomes the insured in relation to reinsurer

Insured is the party in interest in the 2 contracts

riginal insured has no interest in the reinsurance contract. Sub*ect of insurance is property Sub*ect of insurance is the original insurer8s risk

Insured has to give his consent

Insured8s consent not necessary

TER&S3

1. Re/"!ce "e!5  "erely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. e Leon, p. ;01)

2. Ao!c "e/"!ce  4he reinsured is bound to cede and the reinsurer is obligated to accept a fi-ed share of the risk which has to be reinsured under the contract. (Prof. e Leon, p. ;04)

. F!c!-e "e/"!ce  4here is no obligation to cede or accept participation in the risk each party having a free choice. Eut once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. ('uitable Ins. J Casualty Co. vs. 6ural Ins. J Surety Co., Inc. & SC6A $&$

4. Re"oce//o  A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. e Leon, p. ;04)

=I'.

A. LOSS, IN INSURANCE

 In*ury or damage sustained by the insured in conse'uence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Eonifacio Eros. Inc. vs. "ora, 29 SC6A 2+! Lo// 9o" ?c /"e" / !:e Lo// 9o" ?c /"e" / o !:e !. 5oss the

pro-imate cause of which is the peril insured against (Sec. >&#

2. 5oss the immediate cause of which is the peril insured against e-cept where pro-imate cause is an e-cepted peril# !. 5oss by insured8s willful act# 2. 5oss due to connivance of the insured (Sec. >:# and

$. 5oss where the e-cepted peril is the pro-imate cause.

(13)

42

$. 5oss through negligence of insured e-cept where there was gross negligence amounting to willful acts# and

&. 5oss c aused b y efforts to rescue the thing from peril insured against# ). If during the course of rescue, the thing is e-posed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. >).

P"o<!e C!/e  An event that sets all other events in motion without any intervening or independent case, without which the in*ury or loss would not have occurred.

RE$UISITES FOR RECO'ER UPON INSURANCE

!. 4he insured must have insurable interest in the sub*ect matter#

2. 4hat interest is covered by the policy# $. 4here must be a loss# and

&. 4he loss must be pro-imately caused by the peril insured against.

NOTICE OF LOSS

I 9"e /"!ce I oe" 5e/ o9 /"!ce 6e'uired ;ot re'uired 3ailure to give

notice will defeat the right of the insured to recover.

3ailure to give notice will not e-onerate the insurer, unless there is a stipulation in the policy re'uiring the insured to do so.

B. CLAI&S SETTLE&ENT

 4he indemnification of the loss of the insured.

TI&E FOR PA&ENT OF CLAI&S

LIFE POLICIES NON8LIFE POLICIES a. <aturin upon the e=piration of the ter!  4he proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due. b. <aturin at the death of the insured, occurrin prior to the e=piration of the ter! stipulated  4he proceeds are payable to the beneficiaries within +9 days after presentation and filing of proof of death.

4he proceeds shall be paid within $9 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than @9 days from such receipt of proof of loss whether or not ascertainment is had or made.

 In case of an unreasonable delay in the payment of the insured8s claim by the insurer, the insured can recover< ! attorney8s fees# 2 e-penses incurred by reason of the unreasonable withholding# $ interest at double the legal interest rate fi-ed by the "onetary Eoard# and & the amount of the claim. (Kenith Insurance Corp. vs. CA, !>) SC6A $@>

='. PRESCRIPTI'E PERIOD (Sec/. 6  4)

#ules$

!. In the absence of an e-press stipulation in the policy, it being based on a written contract, the action prescribes in !9 years.

2. ?owever the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues.

$. 4he cause of action accrues from the re>ection of the clai! of the insured and not from the time of loss.

(14)

43

It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be used against him is destroyed. (Sun Insurance ffice, 5td. v. CA, !@) SC6A

&. In C"5I, the written notice of claim must be filed within + months from the date of the accident otherwise the claim is deemed waived. 4he suit for damages either with the proper court or with the Insurance Commissioner should be filed within ! year from the date of the denial of the claim by the insurer, otherwise claimant8s right of action shall prescribe. (Sec. $>&

PARTICULAR 7INDS OF INSURANCE CONTRACTS

='I. &ARINE INSURANCE

 Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be e-posed during a certain voyage or a fi-ed period of time. (Sec. @@

 Co-e"!+e3

A.

!. essels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation# 2. 0ersons or property in connection

with marine insurance#

$. 0recious stones, *ewels, *ewelry and precious metals whether in the course of transportation or otherwise# and

&. Eridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. @@

 Cargo can be the sub*ect of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not. (6o'ue v. IAC, !$@ SC6A )@+

E. "arine 0rotection and Indemnity Insurance

 C!//e/ o9 !* !"e /"!ce3

(Prof. e Leon, p. ;24)

!. Property in transit  provides protection to property fre'uently e-posed to loss while it is transportation form one location to another.

2. ?ailee lia"ility + insurance for those who have temporary custody of the goods.

$. @i=ed transportation property  they are so insured because they are held to be an essential part of the transportation system such as bridges, tunnels, etc. &. @loater  provides insurance to

follow the insured property wherever it may be located, sub*ect always to the territorial limits of the contract.

I/"!:e e"e/3

A.

1. _'hipo&ner

a. ver the vessel to the e-tent of its value, e-cept that if chartered, the insurance is only up to the amount not recoverable from the charterer. (Sec. !99.

b. ?e also has an insurable interest on e-pected freightage. (Sec. !9$. c. ;o insurable interest if he

will be compensated by charterer for the value of the vessel, in case of loss. 2. Caro o&ner

 ver the cargo and e-pected profits (Sec. !9).

;. Charterer

 ver the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. !9+.

E.

In loans on bottomry and respondentia

 6epayment of the loan is sub*ect to the condition that the vessel or goods, respectively, given as a security, shall arrive safely at the port of destination.

(15)

44

 %ifference between the value of vessel or goods and the amount of loan. (Sec. !9!

2. CreditorBlender

 Amount of the loan

Noe3 If a vessel is hypothecated by bottomry, only the e-cess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the e-tent of the loan accommodation. The sa!e rule &ould apply to the hypothecation of the caro "y respondentia. (Pandect of Co!!ercial La& and urisprudence, ustice ose Vitu, /: ed.)

PERILS OF T#E SEA

PERILS OF T#E S#IP Includes only those

casualties due to the<

!. unusual violence# or

2. e-traordinary action of wind and wave# or

$. ther

e-traordinary causes connected with navigation.

A loss which in the ordinary course of events, results from the<

!. natural and inevitable action of the sea

2. ordinary wear and tear of the ship or

$. ;egligent failure of the ship8s owner to provide the vessel with proper e'uipment to convey the cargo under ordinary conditions.

Noe< It is only perils of the sea which may be insured against unless perils of the ship is covered by an allDrisk policy.

SPECIAL &ARINE INSURANCE CONTRACTS AND CLAUSES

A. A R/>/ Poc5  insurance against all causes of conceivable loss or damage, e-cept< ! as otherwise e-cluded in the policy# or 2 due to fraud or intentional misconduct on the part of the insured.

 4he insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel# thereafter, the burden then shifts to the insurer to show the e-ception to the coverage. (3ilipinas "erchants Insurance vs. Court of Appeals, !:@ SC6A +$>

B. B!""!"5 C!/e

 A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the pre*udice of the owner8s interest. (6o'ue vs. IAC, !$@ SC6A )@+

C. Ic!!"ee C!/e

 A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the<

!. ;egligence of the captain, engineers, etc.

2. -plosions, breakage of shafts# and $. 5atent defect of machinery or hull.

(?ar #e%ie& <aterials in Co!!ercial La&, ore <ira%ite, 2002 ed.)

D. Se !* L!:o" C!/e

 A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such e-penses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. !+$

&ATTERS ALT#OUG# CONCEALED, ;ILL NOT 'ITIATE T#E CONTRACT E=CEPT ;#EN T#E CAUSED T#E LOSS (Sec. 110)

!. ;ational character of the insured# 2. 5iability of the thing insured to

capture or detention#

$. 5iability to sei7ure from breach of foreign laws#

&. =ant of necessary documents# and ). 1se of false or simulated papers.

Noe3 4his should be related to the general rule regarding material concealment.

DISTINCTIONS ON CONCEAL&ENT

(Co!!ercial La& #e%ie&er, A.@. A"ayani, / ed.)

&ARINE INSURANCE OT#ER

PROPERT INSURANCE 4he information of the

belief or e-pectation of $rd _persons _is

4he information or belief of a $rd_party

(16)

45

material and must be communicated

need not be communicated unless it proceeds form an agent of the insured whose duty it is to give information

4he concealment of any fact in relation to any of the matters stated in Sec. !!9 does not vitiate the entire contract but merely e-onerates the insurer from a risk resulting from the fact concealed

Concealment of any material fact will vitiate the entire contract, whether or not the loss results for the risk concealed.

I&PLIED ;ARRANTIES

!. Seaworthiness of the ship at the inception of the insurance (Sec. !!$#

2. Against improper deviation (Sec. !2$, !2&, !2)#

$. Against illegal venture#

4. _{=arranty of neutrality< the ship will}

carry the re'uisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is e=pressly warranted# (Sec. !29

). 0resence of insurable interest.

 =hile the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer8s right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessel8s seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (%elsan 4ransportation 5ines vs. CA, $+& SC6A 2&

Se!?o"e//

 A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship8s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. !!&.

 5636#AL #L6$ 4he warranty of seaworthiness is complied with if the

ship be seaworthy at the time of the commencement of the risk. 0rior or subse'uent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage.

 67C6PTI83'$

!. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake

2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be seaworthy at the commencement of each particular voyage

$. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion

 Ac!:5 o9 e* ?!""!5 o9 /e!?o"e// o c!"+o o?e"/3 It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. 4he shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (6o'ue v. IAC, !$@ SC6A )@+.

De-!o

 A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.!2$

 Instances<

!. %eparture of vessel from the course of the sailing fi-ed by mercantile usage

2. %eparture of vessel from the most natural, direct and advantageous route if not fi-ed by mercantile usage

$. 1nreasonable delay in pursuing voyage

&. Commencement of an entirely different voyage (Secs. !2!D!2$

 Finds<

!. 0roper D

a. =hen caused by circumstances outside the control of the ship captain or ship owner#

(17)

4

b. =hen necessary to comply with a warranty or to avoid a peril#

c. =hen made in good faith to avoid a peril#

d. =hen made in good faith to save human life or to relieve another vessel in distress (Sec. !2&

 ffect< In case of loss, the insurer is still liable.

2. Improper D very deviation not specified in Sec. !2& (Sec. !2).

 ffect< In case of loss or damage, the insurer is not liable. (Sec. !2+

LOSS

!. Total$

a. Actual D

i. 4otal destruction#

ii. Irretrievable loss by sinking# iii. %amage rendering the thing

valueless# or

iv. 4otal deprivation of owner of possession of thing insured. (Sec. !$9

b. Constructive D

i. Actual loss of more than L of the value of the ob*ect# ii. %amage reducing value by

more than L of the value of the vessel and of cargo# and iii. -pense of transshipment

e-ceed L of value of cargo. (Sec. !$!, in relation to Sec. !$@

 In case of constructive total loss, insured may<

!. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. !$@, or 2. =ithout abandoning vessel, claim for partial actual loss. (Sec. !)) 2. Partial$ 4hat which is not total (Sec. !2>.

A'ERAGE

 Any e-traordinary or accidental e-pense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded.

GENERAL PARTICULAR

?as inured to the common benefit and profit of all persons interested in the vessel and cargo

?as not inured to the common benefit and profit of all persons interested in the vessel and her cargo. 4o be borne e'ually

by all of the interests concerned in the venture.

4o be borne alone by the owner of the cargo or the vessel, as the case may be.

6e'uisites for the right to claim contribution< !. Common danger to the vessel or cargo# 2. 0art of the vessel or cargo was sacrificed deliberately# $. Sacrifice must be for the common safety or for the benefit of all# &. Sacrifice must

be made by the master or upon his authority# ). It must be not be caused by any fault of the party asking the contribution# +. It must be successful, i.e. resulted in the saving of the vessel or cargo# and ;ecessary.

RIG#T OF INSURED IN CASE OF GENERAL A'ERAGE

 5636#AL #L6$ 4he insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or demand contribution from the other interested parties as soon as the vessel arrives at her destination

(18)

4!

 67C6PTI83'$

!. After the separation of interests liable to contribution

2. =hen the insured has neglected or waived his right to contribution

FPA C!/e (F"ee F"o P!"c!" A-e"!+e)

A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. !$+

ABANDON&ENT

 4he act of the insured by which, after a constructive total loss, he declared the relin'uishment to the insurer of his interest in the thing insured. (Sec. !$>

 Re@/e/ 9o" -!*53

!. 4here must be an !ctual relin'uishment by the person insured of his interest in the thing insured (Sec. !$>#

2. 4here must be a constructive total loss (Sec. !$@#

$. 4he abandonment be neither artial nor conditional (Sec. !&9#

&. It must be made within a reasonable

ime after receipt of reliable information of the loss (Sec. !&!# ). It must be 9 actual (Sec. !&2#

+. It must be made by giving otice thereof to the insurer which may be done orally or in writing (Sec. !&$# and

:. 4he notice of abandonment must be

e-plicit and must specify the particular cause of the abandonment (Sec. !&&.

 E99ec/3

!. It is e'uivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (4ransfer of Interest (Sec.!&+

2. Acts done in good faith by those who were agents of the insured in respect to the thing insured, subse'uent to the loss, are at the risk of the insurer and for his benefit. (4ransfer f Agency(Sec.!&>

 If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.!)&

CO8INSURANCE

 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. !):

 =hen the property is insured for less than its value, the insured is considered a coDinsurer of the difference between the amount of insurance and the value of the property.

Re@/e/3

!. 4he loss is partial#

2. 4he amount of insurance is less than the value of the property insured.

Re/3

!. CoDinsurance applies only to marine insurance

2. 5ogically, there cannot be coD insurance in life insurance.

$. CoDinsurance applies in fire insurance when e-pressly provided for by the parties.

CO8INSURANCE REINSURANCE

A percentage in the value of the insured property which the insured himself assumes to act as insurer to the e-tent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount of the insurance bears to the designated percentage of the full value of the property insured. (?ar #e%ie& <aterials in Co!!ercial La&,

Situation where the insurer procures a $rd

party called the reinsurer to insure him against liability by reason of an original insurance. Easically, reinsurance is an insurance

against liability which the original insurer may incur in favor of the original insured.