5Sundiang Aquino Commercial Law Insurance

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b) Bill of exchange versus check. G. Persons involved. H. Distinctions. I.

Requisites of negotiability.

J. Omissions and provisions that do not affect negotiability. K. Transfer and negotiation. L. Holders. M. Real and personal defenses. N. Persons with secondary and primary liability. O. How to enforce liability. P. Bills in set. Q. Discharge. R. Checks. III. Part 02 - Insurance Code. A. Definitions. (Chapter 1 in Aquino.) 1. Contract of insurance. a) An agreement where one undertakes for a consideration to indemnify another against loss,

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damage or liability arising from an unknown or contingent event.3 2. Contract of suretyship. a) An agreement where a surety guarantees the performance of another, a principal or obligor, of an obligation or undertaking in favor of a third party obligee. It is deemed an insurance contract if made by a surety who is doing an insurance business.4 3. Doing an insurance or transacting an insurance business. a) A person is doing or transacting an insurance business if he performs any of the following5: (1) As insurer, making or proposing to make any insurance contract; (2) As surety, making or proposing to make any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety;

3

2 Par. 2 ICP.

4

177 and 2 Par. 3 ICP.

5

2 Par. 4 ICP.

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(3) Reinsurance and similar acts, whose nature is doing any insurance business; (4) Any equivalent acts to the above either done or proposed. 4. Mutual insurance companies. a) An entity owned by policy holders which caters only to their needs is still engaged in insurance business. These entities have no capital stock. The contribution of their members are their only source of fund to cover expenses and losses.6 5. Bancassurance. a) Presentation and sale to bank customers of insurance companies of their products within the premises of a bank and its branches, duly licensed by the BSP.7 b) Bank cannot engage in insurance business in bancassurance. (1) The bank itself will not engage in insurance business as it is prohibited under the general banking law to engage in insurance business. 6

Republic v Sun Life / 158085 / 2005 October 14.

7

375 ICP.

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B. Characteristics. (Chapter 1 in Aquino.) 1. Characteristics (PURIAA): a) Personal; b) Uberrimae fides; c) Risk distributing; d) Indemnity; e) Adhesion or fine print; f)

Aleatory.

2. Discussion of characteristics. a) Insurance as a risk distributing device. (1) Insurance, as a device, distributes the risk of economic loss among as many as possible to those who are subject to the same kind of risk. This is because in paying a pre-determined amount to insure a defined risk, each member compensates the loss suffered by any contributor. This is known as the principle of risk distribution. b) Contract of adhesion or fine print rule. (1) Insurance is a contract of adhesion since its terms is not a result of mutual negotiations but

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on terms prescribed by the insurer which is usually a printed contract where the insured may adhere or reject in its entirety. (2) In view of such nature, doubt arising from ambiguity of the contract is strictly interpreted against the insurer and liberally in favor of the insured.8 (a) When the terms itself are clear; there is no room for interpretation so the courts are bound to adhere to it although, it may be onerous, as courts cannot make a contract for the parties because the terms are clear and unambiguous. c) Aleatory. (1) The nature of the obligation of the insurer is aleatory as it only arises upon happening of an event which is uncertain, or may occur at an indeterminate time.9 (2) It is likewise commutative as there are still exchange of equivalents, which in insurance are 8

Rizal Surety v CA / 336 SCRA 12 / 2000.

9

2010 NCC.

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the paid premiums by the insured and the corollary protection given by the insurer. d) Contract of indemnity. (1) Insurance contracts are contracts of indemnity, as it is the basis of property insurance. It means that the insured has insurable interest over a property but could only recover to the extent of his actual loss and he must establish the amount of such loss. (2) Life insurance, exception to indemnity rule. (a) The principle that insurance are contracts of indemnity are only applies to property insurance. This is because life insurance is not a contract of indemnity as we cannot peg an amount over the value of a life. From the foregoing, we can say: i)

There is no over insurance in life insurance; (1) Over insurance is only present in property insurance. If there is over insurance of a property, the insurer is liable to the extent of actual loss;

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ii) Insurance contracts are not wagering contracts10; iii) Exception, when life insurance becomes a contract of indemnity. (1) life insurance becomes a contract of indemnity when a creditor insures the life of his debtor as he can claim to the extent of his credit. e) Uberrimae fides contract. (1) This is a latin term which means utmost good faith if not perfect good faith (Faith though, is highly imperfect if not irrational.). This goes both ways to the insured and insurer as they have various reciprocal obligations. (2) It is uberrimae fides, from the point of view of the insurer, since the applicant has to disclose conditions, material facts, which he may know or ought to know, that may affect the risk. As these matters and circumstances can only be known by the insured, he must disclose the same; so

104

ICP.

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the insurer would not be inveigled to the contract without proper consideration of the risk involved. f)

Personal contract. (1) As the law presumes that consideration is given to the personal qualifications of the insured in approving the insurance application.

C. Elements of insurance. (Chapter 1 in Aquino.) 1. Elements of insurance contract. a) Insurable interest11; b) Risk of loss12; c) Assumption of risk13; d) Scheme to distribute losses; and e) Premium payments14. 2. Examples and critical ideas in given problems in the book. a) Examples. (1) Contracts between a law firm and a client, paid periodically in consideration of the former 1112

to 14 ICP.

12

51f ICP.

13

2 ICP.

14

77 ICP.

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representing the latter against lawsuits are not insurance contracts.15 (2) Where a corporation contracted, for a consideration of a stipulated amount, to defend a physician at its own expense against malpractice, the corporation is deemed engaged in the business of insurance.16 b) Problems. (1) Mind the elements of insurance contracts such as in HMO agreements where the HMO, for a consideration, pays the medical expenses of a subscriber. In this set-up, there is no insurance because: (a) The agreement is centric to medical services where, to avail of such services, it is simply paid in advance or pre-paid; (b) There may be risks too but it is not actuarial risk contemplated by the IC; and (c) There is no distribution of risk.17 15

PHCP v CIR / 167330 / 2009 September 18.

16


17


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D. Perfection. (Chapter 1 in Aquino.) 1. Perfection, discussed generally. a) In perfection of insurance, we follow the cognition theory, since it is consensual and thus perfected upon the moment there is a meeting of the minds with respect to the object and the cause or consideration.18 b) Generally, insured is the one making an offer by submitting an application and the insurer accepts by approving it. Hence, mere submission without approval do not result in perfection.19 (1) Exception, Eternal Gardens v Philam Life.20 c) Delivery of Policy. (1) Since, issuance contracts are consensual, delivery of the policy is not essential for perfection. In contrast to formal and real contracts. d) Delay in approval of policy.

18

See 1315, 1318 and 1319 of NCC.

19

Great Pacific v CA / 89 SCRA 543.

20

2008 April 9.

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(1) Mere delay in acceptance os insurance application do not result in a binding contract as the court cannot impose a contract to nonconsenting parties. (a) Exception, in proper cases, delay in the approval of the policy may result in tort liability to the insurer. (b) In Eternal Gardens v Philam Life21, there have been a prior agreement fixing the date of effectivity which is a year from the party's purchase of the memorial lot, on installment from the memorial park. 2. Cover notes. a) Cover notes, concept. (1) Persons who wish to be insured may get protection before perfection of the insurance contract, as it is perfected by notice of approval form; by securing a cover note. (2) The cover note issued by the insurer is deemed an insurance contract under Section 1(1) of the

21

166245 / 2008 April 09.

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IC but subject to various conditions under Section 52 of IC. (a) Rules on cover notes22: i)

Issued and renewed only upon prior approval of the commission;

ii) Valid and binding for not more than 60 days from issuance; iii) No separate premium is required23; iv) Can be cancelled by either party upon prior notice to the other of at lease 7 days; v) Policy should should be issued within 60 days after issuance of the cover note; vi) 60 day period may be extended via written approval of the commission; (1) Approval is dispensed when certification of the President, VP, GM of insurer that the risks and premiums are not yet determined and such extension do not violate the IC.24 22

52 ICP

23

Pacific Timber v CA / 112 SCRA 119.

24

Insurance Memo Circular No. 3-75.

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3. Policy. (Chapter 5 in Aquino.) a) Policy of insurance, generally. (1) Written instrument where terms and conditions of the contract of insurance are set forth.25 (2) The policy itself is not necessary for the perfection of the contract. However, it cannot be issued unless in the form approved the the commission.26 (3) The code do not provide for a prescribed form but requires certain provisions to be included in the policy.27 b) Basic contents of a policy. (1) Parties; (2) Amount of insurance, (a) Except in open or running policies; (3) Premium rate; (4) Property or life insured; (5) Insurable interest in property if insured is not the absolute owner; 25

49 ICP.

26

232 ICP.

27

233-237 ICP.

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(6) Risk insured against; (7) Effectivity period of the insurance. c) Rider. (1) Rider, defined. (a) An attachment to an insurance policy that modifies the conditions of the policy by expanding or restricting its benefits or excluding certain conditions from the coverage.28 (2) Rider, important concepts. (a) Riders, together with other attachments such as clause, warranty or endorsements are generally not binding to the insured. i)

Exception, it is binding when the descriptive title or name is mentioned and written on the blank spaces provided in the policy.29

(b) Riders and the like should be countersigned by the insured or owner.

28

Black's Law.

29

50 ICP.

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Exception, when he was the one who applied for the rider, clause, warranty etc.30

(c) When the requirements of the rider are complied with; including clause, warranty or endorsement; it is considered part of the policy. i)

Case law: (1) A rider containing an automatic increase clause, which increases the coverage subject to the attainment of a certain age of the insured is not a separate contract. It is part of the original contract in a nature of a conditional obligation.31

d) Cancellation of non-life policy. (1) Grounds.32 (a) Cancellation by the insurer of an insurance policy, other than life insurance requires: i)

Prior notice to the insured;

ii) Any of the following grounds: 30

50 ICP.

31

Commissioner of IR v Lincoln / 119176 / 2002 March 19.

32

64 ICP.

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(1) non-payment of premium; (2) conviction of a crime out of acts increasing the hazard insured against; (3) fraud or material misrepresentation; (4) willful or reckless acts or omissions increasing the risk insured against; (5) physical changes in the property insured making it uninsurable; (6) discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; and (7) d e t e r m i n a t i o n b y t h e i n s u r a n c e commissioner that the policy would violate the insurance code. (2) Requisites for cancellation.33 (a) Prior notice of cancellation to the insured; (b) Notice must be based on the occurrence after effective date of the policy of one or more grounds mentioned;

33

65 ICP.

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(c) Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy, or to his broker, i)

provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf; and

(d) Notice must state the grounds relied upon provided in Section 64 of the Insurance code, i)

and upon request of the insured, to furnish facts on which cancellation is based.34

e) Kinds of policies. (1) Property insurance are classified into: (a) Open policy. i)

The value of the thing insured is not agreed upon but left to be ascertained at the time of loss.The amount of the insurance is provided but it simply represents the insurer's maximum liability.35

(b) Valued policy.

34

65 ICP / Philamcare v CA / 125678 / 2002 March 18.

35

60 ICP.

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When a definite valuation is agreed by both parties and written on the face of the policy.36

(c) Running policy. i)

Contemplates successive insurances and provides that the subject of the policy may from time to time be defined.37

(2) Life insurance policies are always valued policies. f)

Reinstatement of the policy. (1) This is a stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application. However, it does not give the insured the absolute right to such reinstatement by the mere filing of application since the insurer can deny the reinstatement. After death of the insured, the insurer cannot reinstate the policy anymore since the conditions

36

61 ICP.

37

62 ICP.

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precedent to reinstatement can no longer be had.38 4. Various case problems and doctrines found in Part 4 of the reviewer. a) When an applicant to an insurance contract died before receiving a notice of acceptance from the insurer, his heirs cannot recover the premium paid as there is no perfected contract. Under 1319 of the NCC, acceptance of an offer by letter does not bind the offerer except from the time it came to his knowledge.39 b) When an insurance pool do not approve an application for insurance, no insurance contract is perfected; notwithstanding prior deduction of insurance premiums from a contract of loan in another transaction involving an agent of the insurer. In which case, the agent is liable to third persons if they are unaware of the limits of his authority and there is attendant deception via nondisclosure of the same. Contrary, we cannot make 38

Lalican v Insular Life / 183526 / 2009 August 25.

39

Enriquez v Sun Life / 41 Phil 269 / 79 ICP.

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a principal liable for an entirely speculative insured amount.40 E. Types of insurance contracts under the ICP. (Chapter 1 Aquino) 1. Life insurance. a) Individual life. (1) Insurance on human life, appertaining thereto or connected therewith41; b) Group life. (1) This is a blanket policy covering a number of individuals. It is usual in health insurance coverage of company employees.42 It do not need to be in printed form and can be typewritten43, but the law prescribes the contents of such policy44. It is further modified by RA10607 as this law provides that it must contain a provision that those who are insured

40

DBP v CA / 231 SCRA 370.

41

181 ICP.

42

Pineda v CA / 226 SCRA 754 / 1993.

43

50 ICP last paragraph.

44

234 ICP.

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under such kind of insurance may have an individual life policy issued to him to the extent of the coverage of such group policy, if he is insured in that manner; except, if it specifically states that the insurance ceases thereafter. c) Industrial life. (1) Form of life insurance where the premium is payable monthly or oftener, if the face of insurance is not more than 500 times than the statutory minimum wage in Manila and its face must have "industrial" printed on it and described. 2. Non-life insurance. a) Marine. (1) 101 to 168 ICP. b) Fire. (1) 169 to 175 ICP. c) Casualty. (1) 176 ICP. 3. Contract of suretyship. a) 177 to 180 ICP.

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4. Microinsurance. a) It is a financial product or service which meets the protection of the poor where: (1) The aggregate of its premium and charges do not exceed 7.5% of daily minimum wage of nonagricultural workers in Manila; (2) But the guaranteed benefit is not more than 1,000 times of the current daily minimum wage in Manila. F. Parties to insurance contract. (Chapter 2 in Aquino.) 1. Insurer. a) Insurer, generally. (1) The person who undertakes to indemnify another. b) Who may be insurers. (1) Insurers may be partnerships, associations or corporations who are duly authorized by the insurance commission to engage in insurance business.45

45

190 to 193 ICP.

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c) "Insurers" do not include "individuals" so an individual natural person cannot be an insurer. d) The term "insurer" includes the following: (1) Professional reinsurer. (a) Any person, partnership, association or corporation that exclusively transacts in reinsurance in the Philippines. (2) Mutual insurance companies. (a) Insurance companies which insure each other. See Section 280 of ICP for mutualization and demutualization. (3) Cooperatives. (a) Must have sufficient capital requirements under regulations issued by the commission.46 (b) Must have a certificate of authority issued by the commission which should be renewed every year.47 e) Foreign insurance corporations. (1) The ICP now allows foreign insurance corporations to conduct business in the 46

192 ICP.

47

193 ICP.

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philippines provided the following requirements are met: (a) Appointment of resident agent to serve notices, proof of loss and summons; (b) Unimpaired paid-up capital of 1 billion pesos48; (c) Deposit as security for policy holders and securities to satisfy the commission; (d) Investments should not exceed 20% of its net worth or 20% of its capital. f)

Certificate of authority. (1) No insurance company can transact business in the Philippines until it obtains a certificate of authority. It is issued by the insurance commissioner and expires on the last day of December, 3 years after issuance and renewable every three years thereafter.

2. Insured. a) Insured, generally.

48

197 ICP.

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(1) The person with capacity to contract and having an insurable interest in the life or property of the insured. (2) Public enemy cannot be insured. (a) A public enemy cannot be insured49, which is nation, including its citizenry which the Philippines is at war. In case of corporations, the litmus test is the composition of its controlling stockholders.50 Property insurance entered before the war loses its binding effect the moment the insurer becomes a public enemy. (3) Minors. (a) Minor cannot enter into insurance, but the contract is voidable. In the NCC, contracts entered by minors with capacitated persons are voidable. It is valid and stands until it is annulled and may be subject to ratification. (4) Spouses.

49

7 ICP.

50

Filipinas Compaña v Christern Huenfeld / 89 Phil 54 / 1951.

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(a) The consent of the spouse is not necessary for the validity of an insurance policy taken out by a married person on the life of other persons other than life of the spouses themselves or his or her children.51 (5) Effect of death of the owner of the policy. (a) In Section 3 ICP, it says that it automatically vests in the latter but who is the latter? UHAHAHA. 3. Beneficiary. a) Beneficiary, generally. (1) Person designated to receive the proceeds of the policy when risk attaches. b) Designation of the beneficiary. (1) General rule. (a) When one insures his own life, he may designate any person as the beneficiary whether or not the beneficiary has insurable interest in the life of the insured. (b) Exceptions.52 51

3 ICP.

52

739 in relation to 2012 NCC.

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Made between persons guilty of adultery or concubinage at the time of donation, (1) Actual conviction is not necessary;

ii) Between persons found guilty of the same criminal offense or in consideration of it; iii) Made to a public officer, his wife, descendants, ascendants by reason of his office. (c) The above exceptions are borrowed from the rules on donation from the NCC since being a beneficiary in an insurance contract is no different from a beneficiary in a donation as both are founded on liberality and would get the corresponding benefits. (d) Note also that when the insurance falls in the exceptions here, only the designation is void. The contract itself is binding and the proceeds will go to the estate. c) When forfeited. (1) Forfeiture in life insurance policy.

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(a) The interest of a beneficiary in a life insurance policy is forfeited when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured, in which case, the forfeited share will be disposed in the following order of priority: i)

other beneficiaries, unless disqualified;

ii) based on the stipulations in the policy; iii) silent policy, estate. d) Person insuring life of another. (1) If a person will insure the life of another payable to himself, he must have insurable interest on the life of the person whose life he is insuring. e) Beneficiary in property insurance. (1) In property insurance, the beneficiary must have insurable interest in the property. f)

Generally revokable. (1) The designation of a beneficiary is revokable unless the right to revoke is expressly waived in the policy.53

53

11 ICP.

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(a) Various rules in revocability and irrevocability. i)

The innocent spouse can revoke the designation of the guilty spouse notwithstanding stipulated irrevocability after legal separation.54

ii) When the contract is irrevocable, the insured cannot assign the beneficiary as the beneficiary has a vested right. iii) Without waiver of right to revoke based on Section 181 of the ICP, the assignment of the policy is considered as implied revocation. iv) If the insured refuses to pay the premiums, the designated irrevocable beneficiary may continue the policy by paying the premium. g) When premium is from conjugal funds. (1) If premiums are paid from conjugal funds, the proceeds are considered conjugal. (a) However, when the beneficiary is other than the insured's estate, the source of premiums

54

64 FC.

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is irrelevant as it must go to the designated beneficiary.55 h) Minor as beneficiary in life insurance. (1) Who can act in behalf of minor. (a) Generally, the judicial guardian. In the absence of a judicial guardian, the father, mother without necessity of a bond when the proceeds do not exceed 500 thousand or in a reasonable amount determined by the commissioner. (b) Powers that can be exercised. i)

The rights that can be exercised is not an exclusive enumeration. In the enumeration, it includes, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy and consenting to transactions in behalf of the minor.56

(c) Substitute of parents. i)

In the absence or incapacity of father or mother; the grandparent, eldest brother or

55

DelVal v DelVal / 29 Phil 534 . BPI v Posadas / 56 Phil 215.

56

182 ICP.

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sister at least 18 years old, or any relative who has custody of the minor insured or beneficiary, shall act as a guardian without need of a court order of a judicial appointment as guardian as long as he is not disqualified or incapacitated. Payment made by the insurer to him, relieves the insurer of any liability.57 i)

Illegitimate children as beneficiary. (1) The designation of an illegitimate children as beneficiary in a deceased father's

(perhaps

mother too) insurance policy is valid since there is no legal prohibition that bars illegitimate children from being designated as beneficiaries.58 G. Insurable interest. (Chapter 3 in Aquino.) 1. Basic concepts. a) Life insurance. (1) Codal provision of Section 10 ICP.

57

182 ICP.

58

Heirs of Maramag v Maramag / 181132 / 2009 June 5.

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(a) Every person has an insurable interest in the life and health: i)

Of himself, spouse and his children;

ii) Any person whom he depends in whole or part for education, support, or in whom he has pecuniary interest; iii) Of any person under legal obligation to him for the payment of money, property or services whose death or illness might delay or prevent the performance; or iv) Of any person upon whose life any estate or interest vested in him depends. (2) Generally, the litmus test is whether the person is interested in the preservation of the insured life despite the insurance. (3) The codal provision can be categorized as follows: (a) Mere relationship: i)

in the first enumeration.

(b) Pecuniary interest: i)

last three enumeration.

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(1) Hence, the interest of the creditor over the life of the debtor ceases upon full payment. b) What does insurable interest in property consist. (1) Codal provision, Sections 13 and 14 of the ICP. (a) Insurable interest in property is any interest therein, or liability in respect thereof, and it may consist in an existing interest, an inchoate interest founded on an existing interest, or any expectancy coupled with an existing interest. (2) Insurable interest in property, generally. (a) In general, a person has an insurable interest in the property, if: i)

he derives pecuniary benefit or advantage from its preservation59;

ii) would suffer pecuniary loss, damage or prejudice by its destruction; iii) whether he has or has no title in it or possession of the property.

59

Filipino Merchants v CA / 179 SCRA 638.

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(b) In property insurance, pecuniary interest over the property is always necessary. (c) The principle of estoppel cannot be invoked against the insurer because the requirement of the existence of insurable interest in property insurance is a matter of public policy. (d) A person having mere right of possession of a property can insure its full value in his own name, even if he is not responsible for its safekeeping nor paying rentals. This is because the existence of the thing benefits him which is pecuniary in character.60 (e) An heir has no insurable interest over properties he will inherit because the execution of a will do not vest its heir, even compulsory ones, an insurable interest. (f) During the redemption period over a property levied upon in an execution sale: the original owner has an insurable interest during such period as he is still the owner during that time;

60

Harvardiac Collages v Country Bankers / CA 03771 / 1986 January 06.

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the buyer has an interest over the subject property if the property is not redeemed since he acquires insurable interest at time of purchase. (g) The carrier has insurable interest over the goods being shipped.61 c) Various answers to problems in basic concepts of insurable interest. (1) Life insurance. (a) Friendship or a dating relationship is not an insurable interest in life insurance. A person has insurable interest over the life of another only if he has a pecuniary interest over the life of such person except if the person is his spouse or child. Hence, the insurer has no obligation to pay. (Make this more accurate) (b) A parent can insure the life of his child who is no longer a minor or married since insurable interest over the life of one's children is

61

Malayan Insurance v Philippine First / 2012 July 11.

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unqualified and imposes no distinction to a minor or married child. (c) A husband or wife can recover the insurance upon the death of the spouse if he or she is the designated beneficiary since one has insurable interest over the life of one's spouse and it only needs to exist when the contract takes effect. (d) A decree of legal separation do not divest insurable interest a spouse had over the other spouse so one can still claim the insurance proceeds as it insurable interest need only to exist upon perfection. (e) When a creditor took out a life insurance over his debtor, he cannot recover anymore when his debt has been paid in full since he has no insurable interest by then; on partial payment, the insurer is liable to the outstanding credit. (f) The heirs of a debtor whose life has been insured by the creditor do not have any

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insurance claim as there is no privity of contract between them and the insurer. (2) Property insurance. (a) A purchaser of goods in a perfected contract of sale, pending delivery already have interest over such property notwithstanding that the ownership is not yet transferred via delivery; this is because insurable interest attaches before actual receipt of the goods.62 (b) Mere hope or expectancy is uninsurable as it must be coupled with existing interest based on such expectancy; and moreover, founded on an actual right to the thing or upon a valid contract. (c) A depositary can insure the things deposited to him since he is responsible for the property deposited to him and he is liable in case of its damage or destruction; thus, this connotes insurable interest as he will be damnified by its loss.63 62

Filipino Merchants v CA / 179 SCRA 638.

63

15 ICP.

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2. Insurable interest in property compared to insurable interest in life insurance. a) Comparatives. (1) Extent. (a) Insurable interest in life is unlimited, unless taken by the creditor on the life of the debtor. (b) In property, it is limited to its actual value. (2) Time when insurable interest must exist. (a) In life insurance, it is sufficient that insurable interest exist at the time the policy takes effect and need not exist at the time of loss. (b) In property, it must exist at the time the insurance takes effect and when loss occurs, but need not exist in the meantime. (3) Expectation of the benefit to be derived. (a) In life, expectation of the benefit to be derived need not have any legal basis. (b) In property, there must be a legal basis. (4) As to beneficiary's interest. (a) In life insurance,

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if the insured himself secured the policy, the beneficiary need not have insurable interest over the life of the insured;

ii) if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured. (b) In property, the beneficiary is absolutely required to have insurable interest over the property. b) Answers presented to problems in the comparative of life and property insurance. (1) A buyer of goods have insurable interest after perfection of sale but before delivery because upon perfection, equitable title is vested to the vendee which is a sufficient basis of insurable interest. This is regardless to the mode of delivery as this issue is immaterial. (2) In property insurance, the insured must have insurable interest in the property at two points in time, both must concur or one cannot recover: (a) upon the perfection, and

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(b) time of loss. (3) Bear in mind again that the original owner, in cases where his property is levied, he only has insurable interest during the redemption period over such property and he loses such, after that period. (4) There can be recovery of insurance in case a husband who took it, when the policy took effect and when his wife died a few days after their annulment since this is a life insurance so insurable interest only need to exist at the time it takes effect and need not exist thereafter. Hence, subsequent annulment is no bar to recovery. 3. Insurable interest of mortgagor and mortgagee over mortgaged property. a) Insurable interest of mortgagor and mortgage, generally. (1) Both the mortgagor and the mortgagee have an insurable interest in the property mortgaged and this interest is separate and distinct from the

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other. They may take out separate policies at the same or separate times.64 b) Mortgagor. (1) Since the mortgagor is the owner, he has insurable interest to the extent of the value of the property, even though the mortgage debt equals (or maybe even higher) such value; because loss of the property will not extinguish the debt.65 (2) The mortgagee may be made the beneficial payee in the following ways: (a) As assignee with the consent of owner; (b) As pledgee without consent of insurer; (c) When the policy contains a mortgage clause; (d) A rider making the policy payable to the mortgagee, as his interest may appear, can be attached as a loss payable clause; (e) A standard mortgage clause containing a collateral independent contract between the mortgagor and the insurer, may be attached;

64

Rizal Commercial v CA / 289 SCRA 292 / 1998.

65

Geagonia v CA / 241 SCRA 152 / 1995.

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(f) When the contract, though payable to the mortgagor, is procured under contract to insure to the mortgagee's interest; hence, the latter acquires an equitable lien. c) Mortgagee. (1) The mortgagee has an insurable interest in the mortgaged property to the extent of the debt secured which continues until it is extinguished. (2) A mortgagee may procure a policy but the mortgagor pays the premium. In this case, though the mortgagee is the insured as he applied for the policy, informs the agent of his interest, pays premiums and obtains the policy on the assurance that it insures him, it is a form used to insure a mortgagor with "loss payable clause.66" d) Standard or union mortgage clause compared to loss payable mortgage clause. (1) Acts or mortgagor.67 (a) Standard or union mortgage clause. 66

Geagonia v CA / 241 SCRA 152 / 1995.O

67

8 and 9 ICP.

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i)

of 146 47

The subsequent acts the mortgagor do not affect the mortgagee.

(b) Loss payable mortgage clause. i)

The mortgagor do not cease to be a party to the contract.

(2) Nature of loss payable clause.68 (a) In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, i)

the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer, (1) but not made a party to the contract itself.

ii) This kind of policy covers only such interest as the mortgagee has at the issuance of the policy. e) Answers to problems in the subsection and the underlying critical ideas. (1) Both mortgagor and mortgagee have insurable interest over a mortgaged property. The

68

Geagonia v CA / Supra.

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of 146 48

mortgagor, to the extent of the value of the house since loss will not extinguish the loan. The mortgagee, to the extent that he can be damnified.69 (2) When the mortgagor and the mortgagee procures insurance contracts independent of each other, for their respective individual benefits, the independent contracts do not inure to the benefit of the other. This is because insurance is a personal contract. (a) A personal contract takes effect: i)

A personal contract takes effect only between the contracting parties, their heirs, successors and assignees, unless it contains a stipulation in favor of a third person.70

(b) Exception, mortgagee has equitable lien. i)

While an insurance procured by a mortgagor do not inure to the benefit of the mortgagee, the mortgagee has a lien on the

69

8 and 17 ICP.

70

1311 NCC / 53 ICP.

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of 146 49

proceeds of the policy under Article 2127 NCC. (3) The mortgagee loses insurable interest when the obligation of the mortgagee have been fulfilled, he cannot recover from the insurance anymore since he is not a party to the insurance contract. (4) When a property is insured for the purpose of securing a mortgage and the mortgage is extinguished, the former insured cannot recover anymore as he has no insurable interest is anymore. (5) Query, so why the fuck would one cunning person insure a house for a particular transaction only? 4. When interest retained by mortgagor. a) Codal provision, Section 8 ICP.71 (1) Unless the policy otherwise provides, (a) where a mortgagor of property effects insurance in his own name providing that:

71

PJ: I surmise that this is the general rule as it is more rational to retain the interest on the part of the mortgagor.

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i)

of 146 50

the loss shall be payable to the mortgagee, or

ii) assigns a policy of insurance to a mortgagee, (b) the insurance is deemed to be upon the interest of the mortgagor, i)

who do not cease to be a party to the original contract, and

ii) any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, (1) although the property is in the hands of the mortgagee, (c) but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

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of 146 51

b) Application of the above to Great Pacific v CA72 case. (1) In a group insurance policy, DBP insured the housing loan of its mortgagors. Mortgagors paid the premiums but it is payable to the bank. The court said that it was to the mortgagors interest and they are parties to the contract. Hence, if DBP forecloses a mortgagor's property, it can no longer resort to the insurance. The heirs of the mortgagor can recover since they did not cease to be a party to the contract. c) Indorsed insurance to mortgagee, cannot be garnished or levied to the extent of debt. (1) If the mortgagor takes an insurance over the mortgaged property endorsing the same to the mortgagee, apply Section 53 of ICP. In this case, the insurance proceeds apply exclusively to the person whose benefit it was made, tersely, to the beneficiary-mortgagee. To that end, the

72

316 SCRA 677.

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of 146 52

insurance cannot be levied or garnished to the extent of the debt to the mortgagee.73 5. Insurable interest of beneficiary and assignee of policy. a) Property insurance. (1) The beneficiary and assignee must have insurable interest. (2) The consent of the insurer must be secured before the assignment. b) Life insurance. (1) If the insured takes the insurance on his own life, he can designate anybody who does not have insurable interest. (2) If a third person takes the policy, the beneficiary must have insurable interest. (3) In case of assignment, the assignee need not have insurable interest. c) Critical problems and ideas presented in insurable interest of beneficiary and assignee of policy.

73

Rizal Commercial v CA / 289 SCRA 292 / 1998.

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of 146 53

(1) An provision in a contract of lease, making the lessee the automatic owner of an insurance contract procured by the lessee is void because it is contrary to law and public policy. Hence, the lessee - auto assignee (if such a term exists), cannot recover.74 (2) An insured, taking an insurance in his own life; can designate any person as his beneficiary. In this case, the beneficiary can recover the entire amount, regardless of their relationship. Hence, when a debtor makes a life insurance, making the creditor the beneficiary, the creditor can take the entire amount. (a) However, if a creditor takes an insurance policy over the life of his debtor, he only has insurable interest to the extent of his credit and can only recover to such extent. 6. Expectancy not insurable unless coupled with an interest in the thing from which it shall arise.

74

Cha v CA / 277 SCRA 690.

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of 146 54

a) Insurable interest in property need not be an existing interest. It can exist as an inchoate or expectant interest.75 (1) However, the expectancy must be coupled with an existing interest in which such expectancy arises. (a) Example. i)

An owner of a business can insure against a contingency which may cause loss of profits resulting from the cessation or interruption of his business.

7. Effect of change of interest in the thing insured unaccompanied by a change of interest in insurance. Exceptions. a) General rule. (1) A change in interest in any part of a thing insured, unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent, until the

75

14 ICP.

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of 146 55

interest in the thing and the interest in the insurance are vested in the same person.76 b) Exceptions. (1) Life, health, accident insurance;77 (2) Change of interest: (a) after occurrence of injury resulting in loss78, (b) one or more several distinct things which is separately insured79, (c) via will or succession upon death of the insured80; (3) Transfer of interest by one or several partners, or co-owners, jointly insured, to the others81; (4) The policy is framed in a manner that it benefits whoever is exposed in the continuance of a defined risk82.

76

20 ICP.

77

20 ICP.

78

21 ICP.

79

22 ICP.

80

23 ICP.

81

24 ICP.

82

57 ICP.

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of 146 56

(a) In this case, those who are exposed are the owners of the insured interest. c) Stipulation against alienation, effect. Freedom to stipulate applied in insurance contracts. (1) When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.83 H. Risk insured against. 1. Risk insured against, generally. a) The risk insured against may be84: (1) any contingency or unknown event: (a) the happening of which will damnify a person having insurable interest, or (b) will create a liability against him. (2) Fortuitous events can be insured against. 2. General rule. a) Only a future event can be covered by an insurance contract. 3. Exception. 83

1306 NCC.

84

3 ICP.

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of 146 57

a) Marine insurance. (1) If the loss of the vessel in the past may not have been known by ordinary means of communication, as the loss here transpired in the past. (2) Query: why in the fuck would an applicant insure a ship he cannot communicate to? That's funny. Unless it is an "as you like it" insurance contract. I.

Premium. (Chapter 4 in Aquino.) 1. Premium, generally. a) Premium is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril. 2. General rule. a) General rule: (1) No insurance policy, issued or renewed, is binding until actual payment of premium. Any agreement to the contrary is void.85 b) Exceptions:

85

77 ICP.

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of 146 58

(1) Grace period provision in life and industrial life insurance86; (2) Acknowledgement in the contract that premium has been paid87; (3) Agreement of payment by installment where an installment was paid before occurrence of loss or injury88; (4) There is a credit term agreed despite knowledge of Section 77 of ICP89, in a 60-90 day credit extension; (5) When parties are estopped. c) Credit extension.90 (1) Credit extension, generally. (a) A 90 day credit extension may be given when it is under a broker and agency agreement with a duly licensed intermediary. (b) Requisites of credit extension:

86

77 ICP.

87

78 ICP.

88

Makati Tuscany v CA.

89

UCPB v Masagana Telemart.

90

77 ICP.

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i)

of 146 59

It must be provided under broker and agency agreements; and

ii) The credit extension should not exceed 90 days from the date of issuance of the policy. d) Salary deductions from government employees.91 (1) Insurance and loan obligations can now be made via salary deduction pursuant to an agreement between the insurer and the government employee. The deduction will then be respectively remitted. A reasonable fee can be charged by the government for such transaction. e) Various rules on agency. (1) Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized such agent to receive a premium in its behalf.92

91

78 ICP.

92

306 ICP.

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of 146 60

(2) T h e i n s u r e r i s b o u n d b y i t s a g e n t ' s acknowledgement of receipt of payment or premium.93 3. Effect of payment of the premium by a postdated check. a) Check dated subsequent to loss. (1) Payment of premium via postdated check, that has a stated maturity subsequent to the loss is insufficient to put the insurance into effect. b) Check dated prior to loss. (1) A check or note, accepted by the insurer, dated prior to the loss, assuming it is sufficiently funded, is sufficient. It is still binding notwithstanding that the check is not cashed upon loss as encashment retroacts to the date of the instrument.94 4. When insured entitled to return of premium. a) Thing insured was never exposed to the risk insured against95; 93

American Home v Chua.

94

Vitug, Pandect on Commercial Law.

95

80 ICP.

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of 146 61

b) Contract is voidable: (1) because of fraud or misrepresentation of the insurer, (2) because of existence facts which the insured is ignorant without his fault c) Insurer never incurred liability96; d) Insurance is for a definite period and the insured surrenders his policy before termination; e) Over-insurance97; f)

Grant of rescission due to insurer's breach of contract; and

g) A n n u l m e n t o f c o n t r a c t b e c a u s e o f misrepresentation of the insurer or his agent, or because of facts where the insured is ignorant without his fault98. 5. Suretyship. a) Premium in suretyship, rule. (1) Premium is also necessary in order for the contract of suretyship or bond to be binding. 96

82 ICP.

97

83 ICP.

98

82 ICP.

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of 146 62

b) Exception. (1) When the obligee accepted the bond, it is binding even if the premium has not been paid subject to the right of the insurer to recover the premium from its principal.99 6. Non-default options insurance in life insurance. a) Default, generally. (1) When an insured defaults, he forfeits the benefits of the insurance contract. b) Hence, to prevent the lapse of life insurance policy, the insured may avail the following: (1) Grace period; (2) Automatic policy loan from the policy's cash surrender value; (3) Application of dividend; (4) Reinstatement clause. c) Reinstatement of a lapsed policy of life insurance. (1) Policy holders in life insurance shall have the policy reinstated at anytime within 3 years from the date of default of premium payment.100 99

179 ICP. Phil Pryce v CA / 230 SCRA 164 / 1994.

100

233[j] ICP.

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of 146 63

(a) Unless; i)

the cash surrender value has been duly paid to the insurer, or

ii) the extension period has expired. (b) Requisites to exercise reinstatement: i)

proof of insurability,

ii) payment of overdue premiums and any indebtedness plus interest. J. Transfer of policy. 1. May the policy be transferred without the consent of the insurer? a) Life insurance, yes. (1) In 184 of the ICP: (a) A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. b) Property insurance, no. (1) Property insurance cannot be transferred without insurer's consent since his approval is based on

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of 146 64

the personal qualification and insurable interest of the insured. 2. What is the effect of transfer of the property insurance policy without the consent of the insurer? a) The insurance policy is suspended, not avoided, until the interest in the thing and the interest in the insurance are vested in the same person. K. Devices used for ascertaining and controlling risks and loss. (Chapter 6 in Aquino.) 1. Four primary concerns of the insurer. (Categorically dichotomized.) a) Risk: (1) Correct estimation, if he will approve it, and at what premium; (2) Delimitation; (3) Control and guard against its increase. b) Determination if loss occurs and its respective amount. 2. Devices used by the insurer to ascertain and control risk. (1) List of devices.

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of 146 65

(a) Concealment; (b) Representation; (c) Warranty; (d) Condition; and (e) Exception. (2) General discussion of the devices. (a) Concealment, generally. i)

A neglect to communicate that which a party knows and out to communicate.101

(b) Representation, generally. i)

Factual statements of the insured prior to issuance of the policy in form of information that induces the insurer to enter into the contract.

(c) Warranty, generally. i)

Statements or promises included or referenced in the policy which makes the policy voidable if it is not true or not fulfilled. It can be express, implied, affirmative or promissory.

101

26 ICP.

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of 146 66

(d) Condition, generally. i)

Various conditions which take form of either conditions precedent or subsequent which must be fulfilled. Example: requirement of submission of immediate notice and proof of loss in a given period.

(e) Exception, generally. i)

This makes insurance contracts more definite by excluding certain specified risk from a general description which may otherwise be insured. (1) The burden of proving the loss caused by an excepted peril lies with the insurer.102 In a case, an insurer cannot outrightly deny a claim on a ground that stocks were burned by the NPA as they failed to prove that such peril is exempted.

3. Concealment. a) Test of materiality.

102

Country Bankers v Lianga Bay / 136914 / 2002 January 25.

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of 146 67

(1) Materiality is determined, not by the event. by the probable and reasonable influence of the facts upon the party from whom the communication is due, in forming his: (a) estimate of the disadvantages of the contract, or (b) making his inquiries, or (c) fixing premium rate. (2) Various case law. (a) Maters relating to the health of the insured are material and relevant.103 Moreso, when waived in a non-medical insurance contract. (b) Matters relating to health affects the insurer as it may be approved but with a higher premium or rejected.104 (c) Where matters of opinion or judgment are called for and answered in good faith and without intent to deceive will not avoid the policy though untrue.105 103

Sunlife v CA / 246 SCRA 268.

104

Florendo v Philam / Ibid.

105

Philam v CA / 125678 / 2002 March 18.

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i)

of 146 68

Applied: (1) Where an applicant who is not a doctor is asked regarding the medical history of his wife, when asked about history of highblood, heart trouble, diabetes, ulcer, liver disease and asthma; who categorically answered no; the policy was not avoided.

b) Effects of concealment. (1) Concealment vitiates the contract and entitles the insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter.106 c) Cause of loss. (1) The matter concealed need not be the cause of loss. (2) It is sufficient that non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.107 (a) Applied: 106

27 ICP.

107

Sunlife v CA / 105135 / 1995 June 22.

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i)

of 146 69

The insurer can deny an insurance claim where the insured two weeks prior to his application, did not disclose the fact that he had renal failure; since various medical questions were posed to him and he denied any medical attendance except for flu and colds.

d) Is good faith a defense in concealment? (1) Good faith is no defense in concealment because: (a) C o n c e a l m e n t w h e t h e r i n t e n t i o n a l o r unintentional entitles the injured party to rescind a contract of insurance108; (b) The materiality of the facts concealed do not depend on state of mind of the insured but on probable and reasonable influence of the facts upon the party to whom communication should have been made.109 e) Waiver and estoppel.

108

27 ICP.

109

Vda. de Canilang v CA / Supra.

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of 146 70

(1) An insurer may be estopped from raising concealment as well as exclusionary conditions or warranties as defense in the following instances: (a) When it accepted premium payments and issued the policy even if the insured supplied facts or informations which can hardly be overlooked in the application form110; (b) When the insured supplied information which requires further inquiry but the insurer failed to do so. (Just given in the reviewer.) (2) Instances where estoppel do not operate against the insurer. (a) Insurer cannot be estopped from raising concealment as defense if there was connivance between the insured and the soliciting insurance agent as well as the medical examiner. In which case, the agent performed acted ultra vires and is personally liable.111 110

Edillon v Manila Bank / 117 SCRA 187 / 1982.

111

Insular v Feliciano / 74 Phil 468 / 1943.

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i)

of 146 71

Application. (1) Insurer cannot be liable where the insured signed in blank answered negatively on questioning about suffering any lung ailment and died from a concealed tuberculosis, where the agent and examiner colluded. As he asked the agent to write for him, in turn, an agency is created in his favor and are party to the concealment.

f)

Case law. (1) Florendo v Philam. (a) SC ruled that even if the agent is aware that the insured has a pacemaker, there is still concealment since the duty not to conceal is imposed on the insured.

g) Various answers and ideas presented under concealment. (1) Where X a laundry woman, who negatively answered all medical queries, died of cancer, the beneficiary cannot collect from the insurer as

PJG


of 146 72

she concealed her illness. Despite her lack of knowledge about her medical condition, it is no excuse since Section 27 of the insurance code makes concealment an available defense to the insurer, whether the concealment is intentional or not. (2) Where Juan in negativing medical queries but forgot to mention confinement in a kidney hospital; His spouse cannot maintain a suit since Juan is guilty of concealment of material fact. Matters relating to health of the insured are material and relevant. In fact, waiver of medical examination in non-medical insurance makes it more material as the information supplied by the applicant may make or break the contract itself.112 (a) E x c e p t i o n , c o n c e a l m e n t b a r r e d b y incontestability. i)

In the Juan above. The wife can claim if the insurance has been in force for 2 years

112

Sunlife v CA / 246 SCRA 268 / 31 ICP.

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of 146 73

from the date of issuance. The insurer cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent concealment.113 4. Representation. a) Representation, defined. (1) It is an oral ow written statement of fact or condition affecting the risk, made by the insured to the insurer, tending to induce the insurer to assume the risk.114 b) Kinds.115 (1) Affirmative. (a) Affirmation of a fact when the contract begins. (2) Promissory. (a) Promised to be performed after the policy was issued. c) Test of materiality.

113

48 ICP.

114

36 ICP.

115

39 ICP.

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of 146 74

(1) It is determiend by the probable and reasonable influences of such facts on tha party on whom communication is due, in forming his: (a) Estimate of the contract; (b) risks; and (c) premium.116 d) Effects of misrepresentation. (1) The injured party is entitled to rescind from the time when the representation becomes false. e) Estoppel, immaterial in misrepresentation. (1) Acceptance of the premium will not estop the insurer from rescinding the policy on the ground of misrepresentation.117 (a) As aptly observed by Aquino that the RA10607 omitted a part making estoppel applicable herein. 5. Warranty. a) Warranty, defined. (1) A statement or promise set forth or referenced in the policy which when not true or not fulfilled, 116

31 and 46 ICP.

117

45 ICP.

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of 146 75

regardless if it is prejudicial to the insured, renders the policy voidable. b) Kinds.118 (1) Express. (2) Implied. (a) Warranties which are deemed included in the contract though not expressly mentioned. (b) These are only found in marine insurance. (3) Affirmative. (a) Asserts the existence of a fact or condition at the time it is made. (4) Promissory. (a) The insured stipulates that certain facts or conditions shall exist or something shall be done or omitted. c) Effect of breach of warranty. (1) It gives the insurer the right to rescind.119 (a) Exceptions, insurer cannot rescind: i)

Loss occurs before the time of performance of the warranty;

118

67 ICP.

119

74 to 76 ICP.

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of 146 76

ii) The performance becomes unlawful; and iii) Performance becomes impossible.120 d) Immaterial provisions. (1) Immaterial provisions, concept.121 (a) Not all breach of the provisions in the policy may give the right to rescind the policy. (b) Immaterial provisions do not avoid the policy. (2) Exception, immaterial by stipulation becomes material. (a) When the parties stipulate that violation of a particular provision, though normally immaterial, shall avoid the policy. In effect, the parties converted the immaterial provision into a material one. 6. Distinctions. a) Warranty v representation. (1) Part of contract. (a) Warranty is a part of the contract, (b) representation is a collateral inducement. (2) Writing. 120

73 ICP.

121

75 ICP.

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of 146 77

(a) Warranty is written in the policy or a valid rider or attachment, (b) representation need not be in writing. (3) Conclusive. (a) Warranty is generally conclusively presumed to be material, (b) representation should be established as material. (4) Compliance. (a) Warranted facts should be strictly complied with, (b) r e p r e s e n t a t i o n r e q u i r e s o n l y t o b e substantially true. 7. Other insurance clause. a) Other insurance clause, defined. (1) It is a warranty that entitles the insurer to rescind in case of breach.122 Usually stipulated by the insurer. (a) Relevant ICP provision.

122

General Insurance v Ng Hua / 106 Phil 1117.

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i)

of 146 78

There is a ground to rescind the policy in property insurance upon discovery of other insurance coverage that makes the total insurance in excess of the value of the property.123

(b) Application in case law. i)

A clause in the policy that provides that the policy shall be void if the insured procures additional insurance without the consent of the insurer. The purpose is to avoid overinsurance and avoid perpetration of fraud.124

ii) Other insurance clause may be waived but it must be express, if implied, there must be clear intent to waive such right. There must be clear showing that the insurer knew about the violation of the clause.125 8. Various answers to problems in warranty, condition and representation. 123

64[f] ICP.

124

Pioneer Insurance v Yap / 61 SCRA 426 / 1974.

125

Ibid.

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of 146 79

a) Where jose insured his building warranting not to store flammable materials and flammable materials are discovered in unburned portion; breach of warranty is available defense although not a cause of loss, since non-fulfillment of the warranty itself makes the contract voidable regardless if the insurer is prejudiced. b) When the face of the policy has the annotation "coinsurance declared" the insured can recover from the policy despite requirement of notification of other insurance he may avail since that annotation is a form of notice of existence of other insurance contract on the property insured.126 c) Where Julie had her business burned (wait whut!?) and she is claiming insurance, insurance companies interjected breach of policy against double insurance, denying her claim. She argued that the agents knew of the double insurance. Knowledge of the agents are not valid defense

126

General Insurance v Ng / L-14373 / 1960 January 30.

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of 146 80

because the contract itself is what is binding and violation of it definitely bars one from recovery. L. Incontestability clause. (Chapter 6 in Aquino.) 1. Definition. a) After a policy of life insurance made payable on the death of the insured shall have been in force during the life of the insured for 2 years from issuance or last reinstatement, the insurer cannot prove the policy as void ab initio or rescindible because of fraudulent concealment or misrepresentation of the insured or his agent.127 2. Requisites. a) Life insurance policy payable on the death of the insured. b) The same has been in force during the lifetime of the insured for at least 2 years from date of issue or last reinstatement.128 (1) The two year period can be shortened but not lengthened by stipulation.

127

48 ICP. Florendo v Philam / 186983 / 2012 February 22.

128

48 ICP.

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of 146 81

3. Defenses that are not barred by the inconstestability clause. a) The person taking the insurance lacked insurable interest in cases required by law; b) The cause of death of the insured is an excepted risk; c) The premiums have not been paid129; d) Fraud of a particularly vicious type; e) The beneficiary failed to: (1) furnish proof of death, (2) comply with any condition imposed by the policy after the loss happened; and f)

The action was not brought within the time specified.

4. Various answers to problems in incontestability. a) It is immaterial if the insured died within the two year period and the contract was not rescinded yet. As long as the contract is still contestable, it can be rescinded since to allow otherwise would allow

129

77, 233[b], 234 [b] and 236 [b] of ICP.

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of 146 82

policy holders to collect eveb if ths insured fraudulently concealed material facts.130 b) Where the insured realized he made mistakes in answering the application form, he sent corrections to the same via mail which was lost. 2 years after, he died. The benefits can still be claimed as by then, the insurance contract already became incontestable and may not be questioned anymore. M. Double insurance and reinsurance. (Chapter 9 and 10 of Aquino) 1. Double insurance. a) Double insurance, generally. (1) It exists when the same person is insured by several insurers separately in respect to the same subject and interest.131 (a) It is not prohibited by law but it may be prohibited by thru "other insurance clause." (b) No double insurance in life insurance since it is not a contract of indemnity. (2) Requisites of double insurance. 130

Tan v CA / 174 SCRA 403 /1989 June 29.

131

95 ICP.

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of 146 83

(a) Same: i)

Person insured;

ii) Subject matter; iii) Insurable interest; iv) Risk or peril insured against; (b) Two or more insurers insuring separately. 2. Effects and rules of double insurance and overinsurance.132 (Sundiang, these rules have no application on the part of the insured as these are only applicable on the side of the insurers.) a) Insured can claim payment from the insurers in the order he selects, up to the amount for which the insurers are severally liable; b) In a valued policy, the sum he received shall be deducted from the value of the policy regardless of the value of subject matter, from sum received; c) In an unvalued policy, the sum he received shall be deducted against the full insurable value, from sum received;

132

96 ICP.

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of 146 84

d) In a valued policy where insured received sum in excess of valuation or insurable value in unvalued policy, he must hold the sum in trust for the insurers in accordance to their right of contribution among themselves; e) Each insurer is ratably bound to the proportionate amount of his contribution. (1) Liability of insurer = ((Amount of policy / Total Insurance taken) x loss)) 3. Reinsurance a) Reinsurance, generally. (1) Contract where the insurer procures a third person to insure him against loss or liability by because of the original insurance, also known as reinsurance cession.133 (a) The original insurance and reinsurance is distinct and covered by separate policies. (b) Grounds for cancellation are similar to ordinary insurance. b) Reinsurance, how made.

133

97 ICP.

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of 146 85

(1) Treaty. (a) A prior agreement where the reinsure accepts the reinsurance ceded by the reinsured/ original insurer. i)

Quota share - proportion.

ii) Surplus share - only the excess. iii) Excess of loss - maximum is defined. iv) Reinsurance pool - pool of insurers. (2) Facultative. (a) Where reinsurer may refuse to accept the ceded policy. c) No privity between original insured and reinsurer. (1) Original insurer has no interest over the reinsurance as there is no privity of contract.134 (2) As a general rule, the original insured cannot claim from the reinsurer because of the absence of priviry. (a) As exception, the insured can sue the reinsurer if the reinsurance policy contains a

134

100 ICP.

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of 146 86

stipulation pour autrui specifically in favor of the original insured. 4. Distinctions. a) Insurance v reinsurance. (1) Policy of insurance is the written document embodying the original insurance contract. # Reinsurance is the procurement of a third person to insure the insurer against liability over the original insurance. (2) The policy of insurance and reinsurance is covered by separate policies. b) D o u b l e i n s u r a n c e 135 ( D I ) c o m p a r e d t o reinsurance136 (RI). (1) Interest. (a) DI - involves the same interest, (b) RI - insurance of different interests. (2) Relations. (a) DI - insurer remains an insurer, (b) RI - insurer becomes insured in relation to the insurer. 135

95 ICP.

136

97 ICP.

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of 146 87

(3) Party in interest. (a) DI - insured in the 1st contract is a party in interest in the 2nd contract. (b) RI - original insured has no interest in reinsurance contract. (4) Subject. (a) DI - subject of insurance is property, (b) RI - subject of insurance is original insurer's risk. (5) Consent as requisite. (a) DI - insured has to give his consent. (b) R I - c o n s e n t o f o r i g i n a l i n s u r e d i s unnecessary. 5. Problems and answers in chapter of double insurance and reinsurance. a) Pussy has a burat house worth 600k, he had fire insurance over it as follows: X400k, Y200k and Z200k. No order of demand from policy, from whom can he recover?

PJG


of 146 88

(1) Pussy can recover from any or two or all insurers as long as the total amount recovered to not exceed the loss.137 Permutations: (a) Z alone for 600k. (b) All insurers, 200k each. (c) Combo: i)

400k from X.

ii) 200k from both Y or Z. b) Same problem, all are open policies and the value of the burat house are said to be 2.4 million. How much can he collect from X/Y/Z? (1) Pussy can recover the full amount from each insurer as all policies are open policies. In open policies, the actual value upon loss is the reference amount for claiming the loss. (a) But in the given problem, the maximum coverage is given so pussy can recover from each to their respective coverages: X-400k, Y-200k and Z-600k. This only totals to 1.2 million.

137

97 ICP.

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of 146 89

c) Same problem. But the policies are valued policies and the value of his house is pegged at 1 Million. How much can he recover from X is he obtained full payment from Y and Z. (1) Burat can only recover 200k. The underlying reasoning is that in valued policies, the valuation of the property is binding on the parties and it is unnecessary to determine actual value. In other words, the valuation itself is the actual value.138 d) Same problem, Burat collected from Y and Z. Can he keep the amount he collected from them? (1) No. This is because there is a surplus of 200k over the value of the property which is only 600k, as he collected a total of 800k. Burat can only be indemnified of his loss. The excess is then held in trust by Burat as prescribed by law.139 e) Same problem, what is the extent of liability of the insurance companies among themselves?

138

par. [b], 96 ICP.

139

96 ICP.

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of 146 90

(1) Each is pro-rata liable in proprotion to each's liability in their respective contracts. We follow the formula: (a) ( [ amount of policy / total insurance taken ] x loss ) = liability of each insurer. (b) Magically solved: i)

X-200k

ii) Y-100k iii) Z-300k (c) PJ - i cannot stress the importance of knowing simple fractions here. N. Loss and claims settlement. (Chapter 7 and 8 of Aquino) 1. Preliminaries. a) Loss is the damage sustained by the insured. (1) In property insurance, this consists of cash value depending on extent of loss. (2) In life insurance, it occurs upon death. (3) In health insurance, it occurs upon injury or disability. b) Kinds of causes.

PJG


of 146 91

(1) Proximate - cause which produced the injury, unbroken by any efficient intervening cause. (DS says that only proximate cause will make the insurer liable as it is stated in the codal provision.) (2) Remote - force which took advantage of the natural cause of events, the insurer is not liable for this one. (3) Efficient - efficient enough proximate to the loss in terms of efficiency, insurer is liable here. (4) Immediate - proximate in time to the loss. (5) Concurrent - two causes, but liable as long as an insured risk. (a) If not separable, dominant cause bear liability. When separable, liability will be rated. c) Note that the rules for tort and insurance laws are not the same. 2. Proximate cause and immediate cause. a) Definitions:

PJG


of 146 92

(1) Proximate cause - cause that is legally sufficient to produce the liability unbroken by supervening cause. b) Insurer is liable if: (1) The proximate cause of loss is the peril insured against140; (2) The cause of loss is an immediate cause which is a peril insured against, except if the proximate cause is an excepted peril141; (3) The cause of loss in the negligence of the insured, (a) except when the gross negligence amounts to a willful act; (4) When upon being rescued from a peril insured against, the thing is exposed to a peril not insured against resulting in absolute deprivation of the thing.142 c) Insurer not liable:

140

86 ICP.

141

88 ICP.

142

87 ICP.

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of 146 93

(1) Loss is by insured's willful act or gross negligence; (2) Loss due to connivance with the insured143; (3) Loss where the proximate cause is an excepted peril. d) Liability of insurer if insured is committing a felony. (1) Acts of negligence resulting in criminal acts are insurable as those are accidental. Such as homicide thru reckless imprudence in a car accident; (a) although gross and attended by criminal consequences, these are not void as against public policy. (2) Deliberate criminal acts are not insurable. 3. Notice and proof in fire insurance. a) Notice. (1) In case of loss, notice should be given without unnecessary delay, otherwise, insurer is exonerated144;

143

89 ICP.

144

90 ICP.

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of 146 94

(a) T h i s i s h i g h l y d e p e n d e n t o n t h e circumstances, as the law do not demand the impossible, it contemplates a reasonable time decided in favor of the insured. (b) In the same manner, substantial compliance is sufficient. (c) Notice is waived in case the policy is null and void. (d) All defects not raised by the insurer in the notice and proof is considered waived. (e) Effect of delay: i)

Waived when not promptly objected by the insurer;

ii) Delay excused: (1) Attributable to the insurer; (2) No prompt objection; (3) Objection is based on a different ground. b) Proof.

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of 146 95

(1) If proof of loss is required, providing the best evidence in insured's power is sufficient as it is not a court proceeding145; (a) Substantial compliance is always sufficient, even if a kind of proof is specified in the contract.146 c) Notice of settlement. (1) A stipulation requiring the consent of the insurer must first be obtained before any payment by the person responsible for the loss in the settlement is valid so as to avoid collusion between claimant and insured.147 4. Claims settlement. a) Preliminaries. (1) Liability of the insurer attaches when loss occurs via the risk insured against. (a) Role of adjuster is not required in claims settlement. Adjuster can be independent, in behalf of the insurer; or public which 145

91 ICP.

146

Finman v CA / 138737 / 2001 July 21.

147

Perla v CA / 185 SCRA 741.

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of 146 96

advertises on behalf of insured and engages of public solicitation. (2) Unfair claims settlement policies. (a) Misrepresentation: i)

coverage of policy.

(b) Failure to: i)

acknowledge communications promptly;

ii) provide investigation standards; (c) Settlement in bad faith; (d) Compelling suits to recover insured amount. (3) Fraudulent claims are prohibited. (a) Mere presentment of the claim; (b) Causing to file the claim; (c) Preparation with intent to present and/or allow to present such claim; (d) Subscription and in writing to the claim or allowance to its presentment. b) Life insurance. (1) Should be paid immediately upon maturity f maturity date is stipulated;

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of 146 97

(2) When policy matures upon death, it must be paid upon 60 days after presentation of claim and filing of proof of death of insured. (a) Refusal or failure to pay entitles one for damages unless delay is caused by fraud. c) Property insurance.148 (1) Proceeds shall be paid within 30 days after proof of loss is received by the insurer and ascertainment of the loss or damage is maid either by agreement or by arbitration. (2) When no ascertainment is made within 60 days after receipt of proof of loss, it must be paid within 90 days of such receipt. d) Effects of delay of insurer.149 (1) When the prescribed period above is not followed in life or property insurance the beneficiary may be entitled to: (a) Interest for the duration of delay at 6%; (b) Attorney's fees and litigation expenses; (c) Appropriate damages: 148

249 ICP.

149

250 ICP.

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i)

of 146 98

Moral damages;

ii) Exemplary damages; e) When insurer is liable to pay damages and interest. (1) Only upon finding of the court or commissioner that there was, on the part of the insurer in payment of the claim, @6% interest150 based on Article 2209 of the NCC: (a) Unreasonable delay; (b) Unreasonable refusal; O. Period of prescription.151 (Chapter 8 of Aquino) 1. In absence of stipulation, action will prescribe in 10 years. a) Exception: (1) Parties can agree to a shorter period as long as it is not less than 1 year from the time the cause of action accrues.152

150

Legal interest is pegged @6% by BSP. So it is immaterial that the claim itself do not arise from a loan or forebearance of money. 151

63 and 97 ICP.

152

63 ICP.

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of 146 99

(a) Cause of action accrues from the final rejection of the claim of the insured not from the time of loss. (2) Hence, you can surmise that the general rule is the agreement of the parties as it follows the principle of autonomy of contracts. Otherwise, if the stipulation is avoided as per ICP rule, 10 years prescriptive period should be followed.153 2. Policy provides for a prescriptive period. a) The prescriptive period runs from the moment the claim is denied. (1) Resolution or motion for reconsideration of the insured is not contemplated herein since it may be a scheme to waste time and destroy evidence.154 3. CMLVI, rule on prescription. a) In 397 of ICP: notice of claim must be filed within 6 months from accident date; otherwise, it is waived.

153

Sundiang.

154

Sun v CA / 195 SCRA 193.

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100 of 146

Denial of claim herein, suit must be brought within 1 year, otherwise, it prescribes.155 P. Right of subrogation. (Chapter 8 of Aquino) 1. Principle of subrogation. a) Payment to the insured automatically makes the insurer an assignee in equity. Such is the legal effect of the payment, even without stipulation because it is a normal incident of indemnity of property. This right is do not grow out of privity of contracts.156 (1) Requisites of subrogation: (a) Property insurance; (b) Loss from risk insured against; (c) Insured receives indemnity; (d) Indemnity is covered by the policy. (2) The effects of this principle are as follows: (a) No need for a formal assignment or stipulation, as it is the legal effect of payment; (b) The insurer can only recover to the extent the insured could have recovered. Hence, there 155

DeGabriel v CA / 1033883 / 1996 November 04.

156

2207 NCC.

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101 of 146

can be no recovery if the insurer voluntarily paid even if the loss is not covered by the policy. i)

Recovery is however, discretionary as the insurer can decide not to exercise his rights.

(c) Insurer cannot recover from the offending party unless there is deficiency. The deficiency herein is not covered by the right of subrogation. (d) Insurer must present the policy as evidence to determine the extent of coverage.157 2. Cases when there is no right of subrogation. a) When the insured releases the person liable thru his own acts; b) When the insurer pays the insured for a loss or risk not covered by the policy;158 c) Life insurance; d) For recovery of in excess of insurance coverage. Q. Marine insurance. (Chapter 11 in Aquino.) 1. Coverage. 157

Wallem v Prudential / 152158 / 2003 February 07.

158

Pan Malayan v CA / 184 SCRA 54.

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a) Marine insurance covers risks connected with navigation during a certain voyage or a fixed period of time which includes: ship, cargo, freightage, profits, and other insurable interest in movable property. (1) Cargo is also subject to marine insurance. When entered, implied warranty of seaworthiness automatically attaches to whoever insured the cargo though he has no control over the vessel because as shipper, he can control the choice of the vessel regardless of he owns the ship or not.159 b) In the present laws, inland marine insurance is covered.160 c) Section 101 of ICP provides a comprehensive coverage. Reproducing below: (1) Insurance against loss or damage to: (a) Vessel, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, 159

Roque v IAC / 139 SCRA 596.

160

101 ICP.

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103 of 146

choses in action, evidences of debt, valuable papers, bottomry, and respondentia interest and 2. Implied warranties in marine insurance. a) Seaworthiness of ship at inception.161 b) No deviation from agreed voyage unless proper.162 (1) Sundiang: rules on deviation? c) Not engaging in illegal venture. d) Warranty possession of documents of neutrality.163 e) Presence of insurable interest. 3. Insurable interest in marine insurance. a) Shipowner. (1) Value of the vessel; (a) if charterer agreed to pay in case of loss, shipowner can recover the difference from the insurer164.

161

115 ICP.

162

123 to 126 ICP.

163

122 ICP.

164

102 ICP.

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104 of 146

(b) When hypothecated by a bottomry loan, insurable interest is only to the excess of the value of the vessel over the loan.165 (2) Over expected freightage. b) Cargo owner / shipper. (1) Over the cargo and expected profits.166 c) Charterer. (1) Over the vessel, to the extent of the value he is liable to the owner if the ship is damaged or lost during the voyage;167 (2) Over his expected profits or freightage if he expects cargo from other persons for a fee; (3) Over his own and client's cargo. 4. Perils of the sea versus perils of the ship. a) Perils of the sea or navigation include casualties due to unusual violence or extraordinary causes connected with navigation which human prudence cannot overcome; as contrasted to ordinary wear

165

103 ICP.

166

107 ICP.

167

108 ICP.

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105 of 146

and tear suffered by the vessel because of her being unseaworthy. b) Perils of the ship is a loss in the ordinary cause of events: (1) Ordinary, natural, and inevitable action of the sea; (2) Wear and tear of the ship; (3) Negligence of ship owner in properly equipping the ship to convey the cargo under ordinary conditions. c) General rule, insured only perils of sea. (1) General rule. (a) In the absence of stipulation, the risks insured against are only perils of the sea.168 The insured to prove that the cause of loss is a peril of the sea. (b) Perils of the ship to be insured, must be stipulated. d) All risk policy, all risks are covered. Exception to insured only perils of sea.

168

Go v Union Insurance / 40 Phil 40.

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106 of 146

(1) In an all risk policy, all risks are covered unless expressly excepted. The burden rests on the insurer to prove that the cause of loss is an excluded cause.169 e) Barratry, willful misconduct of master or crew may be covered. (1) Barratry which is the willful misconduct on the part of the master or crew in doing an unlawful act against the owner's interest and consent, may be covered by the policy.170 (a) No honest error of judgment or mere negligence unless criminally gross, can be barratry. (b) If expressly covered, the proof of willful and intentional act is necessary. 5. Concealment. a) Opinions and beliefs. (1) In marine insurance, matters of belief, judgment, expectation of a third person and opinion are

169

Filipino Merchants v CA / 179 SCRA 638 / 1989.

170

Roque v IAC / 139 SCRA 596 / 1985.

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107 of 146

material when referenced to a material fact and must be disclosed.171 (a) This is an exception to the general rule in immateriality of opinion unless made by experts.172 b) In marine insurance, there may be concealments which do not vitiate the contract unless it caused the loss.173 (1) This is an exception to the rule that concealed matters need not be the cause of the loss. (2) The enumeration below, when concealed and caused the loss, vitiates the contract: (a) National character of the insured; (b) Liability of insured thing to capture or detention; (c) Liability to seizure from breach of foreign laws; (d) Want of necessary documents; (e) Use of false or simulated papers;

171

108 ICP.

172

35 ICP.

173

110 ICP.

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108 of 146

6. General average loss compared to particular average loss. a) General rule. (1) Insurer is liable only for general average contribution, not for particular average. (a) Only the insurer of the damaged cargo or vessel is liable for particular average if covered by the policy. (2) General average loss. (a) Damages and expenses deliberately caused by the master of the vessel or in his authority to save the vessel or cargo or both form a real or known risk. Hence, it is borne by all interest concerned in the venture. i)

Requisites to claim general average contribution: (1) Common danger to vessel or cargo; (2) Sacrifice; (a) Made deliberately; (b) For common safety or benefit of all; (3) Made by master or his authority;

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109 of 146

(4) Must be: (a) Necessary; (b) Successful. (3) Particular average loss.174 (a) Includes all damages and expenses caused to the vessel or cargo that do not inure to the benefit of all persons interested. (b) Refers to losses, in circumstances, which do not entitle the unfortunate owners to receive a contribution from other owners in the venture. i)

Example, when vessel runs aground and destroyed after the cargo is saved.

(4) Liability on partial loss. (a) Marine insurer is liable upon partial loss for the proportionate amount insured by him. This is because the loss bears the entire interest of the insured. (5) Problem: (a) A owns a P5 million vessel, en route to singapore to deliver goods owned by X/Y/Z,

174

138 ICP.

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110 of 146

each valued at P1 million, so P3 million total. Typhoon came so the captain jettisoned the cargoes of X. Cargo of Y and Z arrived safely. Vessel insured with RR insurance for full value. Cargo of Z fully insured with SS insurance. Can X recover from RR and SS? i)

Yes. X can recover from RR and SS. The casse involves a general average; hence, those who benefitted are liable to the one who incurred the loss for general average contribution. A/Y/Z are all liable for contribution as their respective properties were saved. Consequently, this makes the insurers of A and Z also liable.

7. What is co-insurance clause? a) This principle is applicable when a property is insured for less than its value; in which case, insured is a co-insurer over the difference. (1) Marine insurance is susceptible to co-insurance whenever the requisites are present under Section 159 of ICP which are:

PJG


111 of 146

(a) partial loss; (b) amount insured is less than the value of the property. b) In fire insurance, there has to be an express stipulation to such effect. c) Formula to determine insurer's liability: (1) ( [ loss / value ] x insurance ) = insurer's liability d) Problems and answers in con-insurance. (1) A vessel worth P1 million is owned by X is insured at P800k with A. It was damaged to an extent of P200k. How much can X recover from A? (a) X can recover P160k applying the formula to determine co-insurer's liability. Co-insurance applies since the vessel is insured for less than its value and there's only partial loss. Section 159 ICP: a marine insurer is liable upon partial loss only in proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in such property.

PJG


112 of 146

(2) Same problem. Suppose there is total destruction of the vessel, how much can X recover? (a) X can recover P800k, which is the full amount of the property since there is total loss. Coinsurance is inapplicable. (3) Will your answer to the first question be the same if the insurance is fire insurance and the property involved is a building? (a) No, if there is no co-insurance clause in provided in the policy. There is no coinsurance is fire policy unless expressly stipulated. 8. Seaworthiness. a) Seaworthiness, generally. (1) Seaworthiness connotes reasonable fitness to perform the service and encounter ordinary perils of the voyage as contemplated by the parties to the policy.175

175

116 ICP.

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113 of 146

(2) Hence, it is prudent to consider the nature, voyage and service of the ship.176 (3) Warranty of seaworthiness extends to the ship's proper lading, competent master, sufficient staffing; equipments such as ballasts, cables, anchors, cordage, sail, food, water, fuel, lights and other necessities of the voyage.177 (a) In this regard, seaworthiness extends beyond the structure of the ship itself. b) When ship should be seaworthy. (1) General rule, implied warranty of seaworthiness is complied if the ship is seaworthy at the commencement of the risk. (a) Exceptions, when warrant seaworthiness varies. i)

Time policy. (1) As the specified time operates as requirement that the ship be seaworthy during every voyage.178

176

Caltex v Sulpicio / 315 SCRA 709 / 1999.

177

118 ICP.

178

117[a] ICP.

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114 of 146

ii) Transshipment. (1) The commencement of each voyage, as per custom dictates, in each transshipment, the ship must be seaworthy.179 (a) Routes: terms of policy, description of voyage, established custom. iii) Portions of voyage contemplated. (1) Whenever contemplated that there will be different portions of the voyage, the ship must be seaworthy in each portion.180 iv) Unreasonable delay in repair. (1) As an unreasonable delay in repairing defects exonerates the insurer from liability arising therefrom. Though, the ship be seaworthy on the onset of the voyage.181 c) Applicability of implied warranty of seaworthiness to cargo owners.

179

117[b] ICP.

180

119[b] ICP.

181

120 ICP.

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115 of 146

(1) Ignorance of unseaworthiness of the cargo owner or the shipper is not a valid defense to recover over the insurance policy as the ball is in his court in the selection of a carrier. The issue of ignorance of a ships seaworthiness itself is immaterial in ascertaining the seaworthiness of the ship, hence its invalidity as defense.182 (a) In this case, the shipper can apply for an insurance covering sea and ship peril. d) Liability of insurer to cargo when cargo owner is unaware of unseaworthiness. (1) Repetition of the above, as the shipper have control in the selection of the common carrier. e) Effect of payment. (1) Payment operates as a waiver to the implied warranty of seaworthiness. (a) Exception: i)

Waiver extends only to the insured and can never be waived against the carrier; as the insurer can claim payment from the carrier

182

Roque v IAC / 139 SCRA 596.

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116 of 146

based on the principle of subrogation, where breach of contract will be the basis. 9. Deviation. a) Deviation, defined. (1) Departure of the vessel from the course of the voyage; or an unreasonable delay in pursing it, or commencement of an entirely different one.183 b) General rule, deviation exonerates an insurer. (1) Exception, cases of proper deviation:184 (a) Due to the circumstances outside the control of captain or owner; (b) Done to comply with a warranty; (c) Made in good faith to avoid a peril; (d) To save human life or distressed vessel. c) Answers to problems in deviation. (1) A master of a ship who diverted its course because of a belief that PAGASA report of a storm is true and the ship was damaged; the insurer cannot deny claim for improper deviation

183

125 ICP.

184

126 ICP.

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117 of 146

because there is good faith here which is believing to the information given by PAGASA. 10. Loss and abandonment. a) Actual total loss:185 (1) Total destruction; (2) Sinking; (3) Damage rendering the thing valueless; (4) Total deprivation of owner of possession of thing insured. b) Constructive total loss.186 (1) In these cases, there must be abandonment of the goods or the vessel to the insurer in order to claim for the entire value. Without abandonment, only partial loss may be claimed. (a) Actual loss of more than 3/4 of the value of object; (b) Damage reducing value by more than 3/4 of the value of vessel and cargo; (c) Expense of shipment exceeds 3/4 of value of the cargo. 185

132 ICP.

186

133 in relation to 141 ICP.

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118 of 146

c) Abandonment. (1) Act of the insured which after a constructive total loss, he declares relinquishment to the insurer of his interest in the thing insured.187 (a) Requisites of a valid abandonment. i)

Actual relinquishment by the person of his insured interest in the thing insured;188

ii) There must be constructive total loss;189 iii) Absolute abandonment, neither partial nor conditional;190 iv) Made in a reasonable time after receipt of reliable information of loss;191 v) Must be factual;192 vi) Made by giving notice to the insurer orally or in writing;193

187

140 ICP.

188

140 ICP.

189

141 ICP.

190

142 ICP.

191

143 ICP.

192

144 ICP.

193

145 ICP.

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vii) Notice of abandonment must be in explicit terms specifying the particular cause of abandonment.194 R. Fire insurance. (Chapter 12 in Aquino.) 1. Fire insurance.195 a) Contract of indemnity for a consideration where the insurer agrees to indemnify the insured or loss or damage to property by fire. (1) It may include loss by lightning, windstorm, tornado, earthquake and other allied risk when covered by an extension or separate policy over the original insurance. 2. Extent of liability under open policy. a) As a rule, the total indemnity will be determined by the actual loss due to the insured.196 (1) Exception, the total indemnity shall not exceed the total value of the policy. b) Answers to problem in extent of liability under open policy. 194

146 ICP.

195

169 ICP.

196

DIC v IAC / 149 SCRA 62.

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120 of 146

(1) A constructed a house in 1987 worth P200k at that time and insured for that amount too. When it was subsequently renewed, it was worth P400k but the insurance amount is still P200k. 1/4 of the house was destroyed by fire. How much can he recover? (a) Depends: i)

Valued policy - as the pegged value is P200k, 1/4 of it which is P50k;

ii) Open policy - present value is reckoning point so 1/4 of P400k or P100k. 3. Alteration. a) Alteration, generally. (1) Alteration in the use or condition of the thing as it is delimited in the policy, without the insurer's consent, within the control of the insured which increases the risk, entitles the insurer to rescind the contract of fire insurance.197 b) Effect of alteration in use or condition of thing as delimited in the policy, fire insurance.

197

170 ICP.

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121 of 146

(1) General rule, insurer may rescind following the below requisites: (a) Use or condition; i)

Delimited in the policy; (1) Designated as material provision which must be violated;

ii) Altered; (1) Alteration is without consent of the insurer; (2) Alteration is within the control of the insured; (3) Such alteration increases risk. (2) Examples of material alteration:198 (a) Conversion of residential to factory; (b) Transfer of machineries without consent as it changes the nature of the thing insured. 4. Friendly fire versus hostile fire. a) Friendly fire. (1) Fire that burns where it is supposed to or in a controlled manner.

198

Malayan v PAP / 2013 August 07.

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b) Hostile fire. (1) Fire that burns and escapes where it is not supposed to, or (2) May be friendly fire which went out of control or became too strong. S. Casualty insurance. (Chapter 14 in Aquino.) 1. Casualty insurance. a) Insurance covering loss or liability arising from accident, mishap but excluding other types of insurance such as fire or marine.199 2. Intentional versus accidental insurance. a) Intentional. (1) Intentional injuries are usually excepted since it implies consciousness and volition over the act. To invoke this exception, it is the intention of the person inflicting the injury which is necessary. This is because intentional acts of a third person relieves the insurer from liability.200 b) Accidental.

199

176 ICP.

200

Biagtan v Insular Life / 44 SCRA 58 / 1972.

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(1) Accident and accidental are generic terms without technical meaning. Hence, as long as the action is bereft of design or intent, unusual and unforeseen, without fault, recklessness or negligence of third parties; insurer may be liable.201 (a) But this is different from "no fault," as these concepts merely distinguish between intentional or malicious acts. 3. Third party liability. a) Casualty insurance itself may provide for third party liability in cases where a stipulation pour autrui is present. In which case, the third party may sue the insurer but the insurer is not solidarily liable with the tortfeasor.202 Subrogation operates when the insurer pays the third person. b) Without a stipulation pour autrui, no third person can sue the insurer as only the insured can recover. c) Liability of insurer arising from felony. 201

Pan Malayan Insurance v CA / 184 SCRA 54.

202

First Integrated Bonding v Hernando / 199 SCRA 769 / 1991.

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(1) Insurer may be liable if such felony is accidental which arises from negligence although there is criminal liability, such as crimes made thru reckless imprudence. (a) However, crimes committed with deliberate intents are not insurable. T. Compulsory motor vehicle liability insurance. (Chapter 14 in Aquino. Many kinds are not covered in that chapter.) 1. Mandatory insurance. a) Legal impetus. (1) The insurance code makes it unlawful for a land transportation operator or owner of a motor vehicle to operate their vehicles in public highways unless there is an insurance or guaranty to indemnify the third party or passenger arising from the use of such vehicle.203

203

389 ICP.

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125 of 146

(a) To that end; registration of any vehicle will not be made or renewed without complying with the insurance requirement.204 b) Forms of compliance. (1) Protection may be complied by using any of the following: (a) Insurance policy; (b) Surety bond; (c) Cash bond. c) Definitions. (1) Motor vehicle. (a) Any vehicle as defined in Section 3 Paragraph (a) of RA4136 or the Land Transportation and Traffic Code. (2) Passenger. (a) Any fare paying person transported and conveyed by a motor vehicle for transportation of passengers for compensation. It includes persons expressly authorized by law or

204

389 ICP.

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vehicle's operator or his agents to ride without fare. (3) Third party. (a) Any person other than a passenger. It includes member of the household, family member up to second degree of affinity and employee in the course of his employment of a motor vehicle or a land transportation operator. (4) Owner or motor vehicle owner. (a) The actual legal owner of a motor vehicle in whose name such vehicle is duly registered with the Land Transportation Commission. (5) Land transportation operator. (a) Owner or owners of motor vehicles for transportation of passengers for compensation, including school buses. 2. Purpose of CTPL. a) Immediate financial assistance to victims of motor vehicle accidents or their dependents regardless of

PJG


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the financial capability of motor vehicle owners or operators responsible for the accident.205 3. No fault clause.206 a) The injured third party or passenger may file a claim for death or injury without proving fault or negligence but under particular conditions given below: (1) T h e t o t a l i n d e m n i t y d o n o t e x c e e d P15,000.00.207 (2) Claim may be made against one motor vehicle only. (3) A proof of loss submitted under oath is sufficient to prove the claim when with: (a) Police report of accident; and i)

Death certificate and evidence sufficient to establish the proper payee; or

ii) Medical report and evidence of medical or hospital reimbursement in respect of which fund is claimed. 205

First Integrated Bonding v Hernando / 199 SCRA 746.

206

391 ICP.

207

391 ICP.

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4. From whom should the injured recover. a) Occupant of vehicle. (1) Claim lies against the insurer of the vehicle where he is riding, mounting or dismounting from. b) Not occupant of vehicle. (1) Claim lies directly to the insurer of the offending vehicle. c) All cases. (1) The right of the party paying the claim to recover against the owner of the vehicle responsible fro the accident shall be maintained. 5. Time to file and process claim. a) Period to file notice. (1) The written notice of claim; detailing the nature, extent and duration of the injuries as certified by a duly licensed physician; must be presented within six (6) months from the date of the accident; otherwise, the claim is deemed waived.208

208

397 ICP.

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b) Prescriptive period. (1) The action must be filed in court or insurance commission within one (1) year from the denial of the claim.209 c) If there is an agreement. (1) The insurance company shall ascertain the truth and extent of the claim and pay within five (5) working days after reaching an agreement.210 d) If no agreement is reached. (1) The insurance company shall only pay the "nofault" indemnity without prejudice to the claimant from making further claims. In this case, the claimant cannot be required or compelled by the insurance company to execute a quitclaim or a document releasing the insurer from liability under the insurance policy or surety bond issued.211 6. Liability of insurer. a) May a third person sue the insurer directly? 209

397 ICP.

210

398 ICP.

211

398 ICP.

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(1) Depends:212 (a) Policy provides for indemnity against liability: i)

The insurer can be sued directly.

(b) Policy provides for reimbursement after actual payment by the insured or indemnity against loss: i)

The third person has no cause of action.

b) Is the insurer solidarily liable with the insured? (1) No. While the insurer's liability is direct, it do not mean that the insurer is solidarily liable with the insured. First, the insurers' liability is based on contract while the insured is based on tort; second, the insurer has a limited liability to the extent of the amount of the insurance coverage.213 c) May the proceeds of a third party liability insurance be garnished? (1) Yes. This is because the insurance itself is just like any other credit which can be garnished. The insurer is obligated to pay the injured party 212

53 ICP.

213

Pan Malayan v CA / 184 SCRA 54.

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and he is liable when liability attaches to the insured, from which point, the insurance amount partakes the nature of an interest as credit which may be garnished. (a) It is not necessary that summons be served to the insurer as a notice of garnishment is sufficient. By such service, the garnishee becomes a virtual party or a forced intervenor.214 d) Coverage and extent of liability. (1) Coverage. (a) P100,000.00. i)

Plus P100,000.00 if what is involved is a public utility.

(2) Death indemnity. (a) P70,000.00 plus P30,000.00 for funeral expenses. (3) Case doctine. (a) The insurer's maximum liability will not exceed P100,000.00, plus another P100,000.00 or

214

Perla v Ramolete / 203 SCRA 487.

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P200,000.00, regardless of the number of passengers killed or injured.215 7. Other rules concerning motor vehicles. a) Authorized driver clause (ADC). (1) ADC, generally. (a) It is a stipulation in a motor vehicle insurance which provides that the driver , other than the insured owner, must be duly licensed to drive the motor vehicle; otherwise, the insured is excused from liability.216 (2) Meaning of ADC clause. (a) An ADC means that the insurer indemnifies the insured owner against loss or damage to the car but limits the use of the insured vehicle to the insured himself or any person who drives on his order or with his permission. (3) Various ADC rules. (a) The insured do not need to prove that he has a driver's license at the time of the accident if he was the driver. 215

First Quezon City v CA / 218 SCRA 525.

216

Villacorta v IC / 100 SCRA 467 / 1980.

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(b) If the claimant present's a drivers license, it is presumed genuine. i)

Even if it is established that the driver do not know how to read and write, the validity of the license will be sustained provided there is no proof of invalid issuance.217

(c) A driver, not the insured himself, who holds an expired driver's license is not an authorized driver.218 b) Theft clause. (1) Nature of theft clause. ADC inapplicable. Thief has no driver's license immaterial. (a) The risk insured against in the policy may include theft. In which case, if the vehicle is unlawfully taken, the insurer is liable under the theft clause as the ADC is inapplicable. The insured can recover even if the thief has no driver's license.219

217

CCC Insurance v CA / 31 SCRA 264.

218

Gutierez v Capital Insurance / 130 SCRA 618.

219

Perla v CA / 208 SCRA 487 / 1992.

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(2) Theft clause where driver using the car before car-nap have expired license immaterial. (a) Where the motor vehicle is unlawfully or wrongfully taken without the owner's consent or knowledge, we apply the theft clause instead of the ACD; whether or not the driver is using the car before it was car-napped and had an expired drivers license is of no moment.220 (3) Theft clause when employee commits theft or joyride. (a) There is theft if an employee or any person without juridical possession takes the vehicle of his employer without consent. The employee is liable to the insured for damage to the vehicle even if he has no driver's license. Theft clause is usually present in a comprehensive policy unless excepted. Theft clause operates and not the ADC when an

220

Perla v CA # Palermo v Pyramids / 161 SCRA 677.

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employee of a repair shop took the car that is being repaired for a joyride.221 (4) When theft clause applies. (a) Generally. i)

There is theft under the theft clause if the vehicle is taken with intent to gain without the consent of the insured-owner. Note that under criminal law, intent to gain is presumed upon the taking of the thing.

(b) Hence, there is theft even if: i)

The vehicle was returned;

ii) The vehicle was stolen by the driver of the insured222; iii) The vehicle was taken to the owner of a repair shop for the purpose of repair and in order to attach accessories223. U. Suretyship. (Chapter 15 in Aquino) 1. Suretyship.

221

Villacorta v Insurance Commission / 100 SCRA 469.

222

Alpha Insurance v Castor / 198174 / 2013 September 02.

223

Paramount Insurance v SpsRemondeulaz / 173773 / 2012 November 28.

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a) An agreement where the surety guarantees the performance of another of an undertaking or an obligation in favor of a third party.224 b) Forms or kinds. (1) Fidelity Bond. (a) Contract of insurance against loss from misconduct. (2) Fidelity bond guaranty insurance. (a) A contract where one, for a consideration, agrees to indemnify the assured against loss arising from the want of integrity, fidelity, or honesty of employees or other persons holding positions of trust. V. Life insurance. (Chapter 13 in Aquino.) 1. Life insurance. a) I n s u r a n c e o n h u m a n l i f e a n d i n s u r a n c e appertaining thereto or connected therewith which includes every contract of pledge for payment of endowment or equities.225 2. Effect of death of insured through suicide. 224

177 ICP.

225

181 ICP.

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a) General rule, the insurance itself may be claimed upon death or maturity, depending on the kind of insurance. (1) General rule, suicide do not make the insurer liable as it must coincide with peculiar conditions such as when the contract became incontestable or when committed in a state of insanity.226 b) Insurer liable in cases of suicide in the following cases:227 (1) When policy have been in force for a period of 2 years from date of issue or reinstatement; in short, when it has become incontestable; unless, the policy provides for a shorter period; (2) Commission of suicide in a state of insanity, regardless of commission date; 3. Kinds of life is insurance. a) Ordinary life, general life, old line policy. (1) Insurer pays premium every year until death. Surrender value after 3 years. b) Limited payment policy. 226

DS: Will a sane person commit suicide?

227

183 ICP.

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(1) Payment of premium for a limited period. Death within the period, beneficiary gets paid; when outlived, insured do not get anything. c) Endowment policy. (1) Premium is paid for a specified period. When period is outlived, insurer gets face value; if not, the beneficiaries receives the benefit. d) Term insurance. (1) Insurer pays premium once and is insured for a specified period. Death within the period, beneficiaries get the benefits; outliving it will give nobody any benefit. e) Industrial life. (1) Life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener. W. Variable contract. (Chapter 1 in Aquino.) 1. Variable contract, defined. Insurance contracts are variable contracts. a) Any policy or contract on either group or individual basis issued by an insurance company providing

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for benefits or other contractual payments or values thereunder to vary as to reflect investment results or any segregated portfolio investment.228 X. Powers of the insurance commissioner. (Chapter 17 in Aquino.) 1. Power of Insurance commissioner (IC). a) The duty to regulate insurance ocmpanies is vested with the insurance commissioner. The insurance of commissioner is appointed by the president for a term of six (6) years without reappointment, and he will serve until a successor have been appointed and qualified.229 2. Adjudicatory or quasi-judicial powers. a) Concurrent or confluent jurisdiction with civil courts. (1) Where a single claim do not exceed five million pesos (P5,000,000.00) involving liability arising from the following insurance contracts: (a) Insurance contract; (b) Suretyship contract; 228

238(b) ICP.

229

437 ICP.

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(c) Reinsurance contract; (d) Membership certificate in mutual benefit associations.230 b) Primary and exclusive jurisdiction. (1) Claim for benefits involving pre-need plans where the amount of benefits do not exceed P100,000.00.231 c) Inclusive authority in adjudicatory or quasi-judicial powers. (1) For any proceeding under Section 416 of ICP, the commissioner is empowered, provided it is material or relevant to the inquiry to: (a) Administer oaths and affirmations; (b) Subpoena witnesses; (c) Compel attendance of witnesses; (d) Take evidence; (e) Require the production of any books, papers documents or contracts or other records.

230

439 ICP.

231

55 / RA9829 Pre-need Code.

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d) Do the IC have jurisdiction to decide the legality of a contract of agency entered into between an insurance company and its agent? (1) No as it is not covered by doing or transacting business under Section 2 or by Section 439 which is the grant of adjudicatory power to the insurance commissioner under the ICP. 3. Revocation of certificate of authority. a) The certificate authority issued to the domestic or foreign company by the Commission may be revoked or suspended for any of the following grounds232, when the company: (1) Is in an unsound condition; (2) Failed to comply with law or regulations; (3) Condition or method s of business is hazardous to public or policy holders; (4) Paid-up capital stock in domestic stock company, or cash assets in a domestic mutual company, or security deposits in a foreign company, is impaired or deficient;

232

254 ICP.

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(5) Margin solvency is deficient. b) Upon revocation, suspension or disability of authority, no new business can be engaged by the company without restoration of such authority. This extends to all the agent of the corporation. c) Before restoring authority, the IC can require the company to submit a business plan which shows estimated receipts and disbursements, with accompanying basis, for the next succeeding three (3) years. 4. Insolvency. a) When the company is determined insolvent by the IC or cannot resume business, he may order its liquidation if public interest requires it.233 b) In contrast to a conservatorship where the company is continually unable or unwilling to maintain solvency or liquidity to protect the policy holders or creditors. In this case, the conservator will take charge of the management of the company.234 233

256 ICP.

234

255 ICP.

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5. Other persons regulated by the insurance commissioner. a) Insurance agent. (1) A p e r s o n w h o s o l i c i t s i n s u r a n c e f o r compensation in behalf of an insurance company or transmits to another person an application for insurance or acts in negotiation of the same. b) Insurance broker. (1) A person who aids, solicits, negotiates, placing the risk, taking out the or procures for a compensation in making the insurance contract on behalf of the insured. c) Reinsurance broker. d) Non-life company underwriter. e) Adjuster. f)

Actuary.

g) Rate organization. h) Self-regulatory organization. IV. Part 03 - Business Organizations. A. Basic types of organizations.

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1. Individuals and sole proprietorship. a) Business name. b) Merchants. c) Disqualification to engage in commerce. d) Disqualifications under the constitution. 2. Partnerships. a) Partnership b) Registration 3. Joint accounts. a) Concept. b) Distinguished from partnership. 4. Business trusts. a) It is a legal relation where one person, called the trustor, conveys a property to another for the benefit of a person called the beneficiary. The person in whom confidence is reposed as regards the property is called the trustee.235 5. Joint venture. a) Joint venture. 6. Cooperatives.

235

1440 NCC.

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B. Corporation code of the Philippines.236 C. Securities regulations code and other related laws. V. Part 04 - Banking Laws. A. General banking law and law on secrecy of bank deposits B. Other related laws. VI. Part 05 - Credit Transactions. A. Warehouse receipts law.237 B. General bonded warehouse act.238 C. Letters of credit. D. Trust receipts law.239 E. Bulk sales law.240 F. Mortgage. G. Recto law.241 H. Financial rehabilitation and insolvency act of 1020 and concurrence and preference of credits.242 236

BP 68.

237

AN 2137.

238

AN3839 and RA247.

239

PD115.

240

AN3952.

241

1484 NCC.

242

RA10142 and 2241 to 2244 NCC.

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VII. Part 06 - Laws on Transportation and Public Utilities. A. General concepts. B. Maritime law. C. Warsaw convention and civil aviation laws.243 D. Public service act. VIII.Part 07 - Intellectual Property Code.244 A.

243

RA9497 and RA6235.

244

RA8293.

5Sundiang Aquino Commercial Law Insurance

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