Aquino Insurance Reviewer Until Ch. X Carrasco

provide for the performance of FUTURE SERVICES,
PAYMENT OF MONETRAY CONSIDERATIONS or

INSURANCE DELIVERY OF OTHER BENEFITS at the time of ACTUAL
NEED or AGREED MATURITY DATE, as specified
I. GENERAL CONCEPTS therein, IN EXCHANGE FOR CASH OR INSTALLMENT
AMOUNTS with or without interest or insurance
CONTRACT OF INSURANCE coverage and includes LIFE, PENSION, EDUCATION,
(Sec.2(1), Insurance Code) INTERMENT and other plans, instruments, contracts
-it is an agreement whereby ONE UNDERTAKES or deeds as may be determined by Insurance Code.
for a consideration to INDEMNIFY another against
LOSS, DAMAGE or LIABILITY arising from an
UNKNOWN or CONTINGENT EVENT. VARIABLE CONTRACT
- any policy or contract on either a GROUP or an
INDIVIDUAL BASIS issued by an insurance company
TEST providing for BENEFITS or other CONTRACTUAL
-determine its PAYMENTS or values.
>PURPOSE
>EFFECT
>CONTENTS “DOING AN INSURANCE BUSINESS”
>IMPORT -Sec. 2(2) of the Insurance Code
(NOT NECESSARILY BY THE TERMINOLOGY USED) (a) making or proposing to make, as insurer, any
insurance contract;
NOTES: *A contract may be considered an (b) making or proposing to make, as surety, any
insurance even if it is referred to a HEALTH PLAN contract of suretyship as a vocation and not as
(Philamcare v. CA) merely incidental to any other legitimate business or
activity of the surety;
*A health plan is NOT ONE OF THE (c) doing any kind of business, including a
PRE-NEED PLANS expressly recognized reinsurance business, specifically recognized as
under the Pre-Need Code and its IRR. constituting the doing of an insurance business
within the meaning of this Code;
*A Pre-Need company may be (d) doing or proposing to do any business in
authorized to issue plans if it is any or all of substance equivalent to any of the foregoing in a
the ff. Types of plan: manner designed to evade the provisions of this
-EDUCATIONAL PLAN Code.
-PENSION PLAN In the application of the provisions of this Code
-LIFE/MEMORIAL PLAN the fact that NO PROFIT IS DERIVED FROM the
making of insurance contracts, agreements or
transactions or that NO SEPARATE OR DIRECT
CONTRACT OF SURETYSHIP CONSIDERATION IS RECEIVED THEREFORE, shall not
(Sec.2(1), Insurance Code) be deemed conclusive to show that the making
-it shall be deemed to be an insurance contract thereof does not constitute the doing or transacting
within the meaning of the Insuracnce Code WHEN of an insurance business.
MADE BY A SURETY WHO OR WHICH IS DOING AN
INSURANCE BUSINESS.
-it is an agreement whereby one binds himself BANCASSURANCE
SOLIDARILY with the pricipal debtor. -the PRESENTATION and SALE to BANK
CUSTOMERS by an insurance company of its
insurance producsts w/in the the premises of the
PRE-NEED PLANS head office of such banks duly licensed by the BSP or
- these are CONTRACTS, AGREEMENTS, DEED OR any of its branches by some rules an regulations
PLANS for the BENEFIT OF PLANHOLDERS which
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 1

which the commisioner and the BSP may
promulgate. RISK - uncertainty is a feature of insurance
business because it requires the presence of an
MUTUAL INSURANCE COMPANIES unknown or contingent event. THE LOSS MAY OR
-entities that are “doing an insurance business” MAY NOT HAPPEN.
-a company OWNED BY POLICYHOLDERS *in the case of LIFE INSURANCE, the
-designed to PROMOTE THE WELFARE OF ITS uncertaity is with respect to the time death will
MEMBERS and the money collected from among occur.
them is solely for their own protection.
-the member is BOTH the INSURED and the REQUIREMENTS OF INSURABLE RISK:
INSURED. 1. There must be a large number of
-it has NO CAPITAL STOCK. homogeneous exposure units.
-the PREMIUMS or contributions of the 2. The loss must be accidental and
members are the ONLY SOURCES OF FUNDS TO unintentional.
MEET LOSSES AND EXPENSES. 3. The loss must be determinable and
measurable
4. The loss should not be catastrophic.
APPLICABLE LAWS 5. The chance of loss must be calculable.
- Insurance Code 6. The premium must be economically
-Civil Code feasible.
-Corporation Code
DISTINCTIONS:
RIGHT OF SUBROGATION
(Article 2207, New Civil Code)
-If the plaintiff's PROPERTY has been INSURED, PURE RISK SPECULATIVE RISK
and HE HAS RECEIVED INDEMNITY FROM THE -A situation where -results in either
INSURANCE COMPANY for the INJURY OR LOSS the possibility is loss or gain. (ex:
arising out of the WRONG OR BREACH OF CONTRACT either the person gambling).
COMPLAINED OF, the insurance company shall be involved will suffer a
SUBROGATED TO THE RIGHTS OF THE INSURED loss or not.
against the WRONGDOER or the person who has -results in either loss
violated the contract. IF the AMOUNDT PAID by the or no loss.
insurance company DOES NOT FULLY COVER THE PERIL
INJURY OR LOSS, the aggrieved party shall be -uncertainty that the -specific CAUSE of
entitled to RECOVER the deficiency FROM THE property or person loss
PERSON CAUSING THE LOSS OR INJURY. insured will be lost
or damaged by
reason of the
ELEMENTS designated or some
1. The insured has an INSURABLE INTEREST other peril.
2. The insured is SUBJECT TO A RISK OF LOSS by
the happening of the DESIGNATED PERIL
3. The insurer ASSUMES THE RISK PAST EVENT - It is peculiar to Marine
4. Such assumption of risk is part of the Insurance. For example, in a arine insurance
GENERAL SCHEME TO DISTRIBUTE ACTUAL LOSSES policy. At the time the policy was taken, the
AMONG A LARGE GROUP OF PERSONS BEARING A parties are not aware is the ship is already lost.
SIMILAR RISK; and THE INSURER WILL PAY EVEN IF THE SHIP TURNS
5. In consideration of the insurer’s promise, the OUT TO BE ALREADY LOST AT THE TIME THE
INSURED PAYS A PREMIUM POLICY WAS TAKEN.

DISTINCTIONS: NATURE AND PURPOSE
-a plan for dealing with the risk of economic loss.
The insured sacrifices a present monetary loss in the
FORTUITOUS form of premium payment in order to avoid a
RISK
EVENT greater loss in the future.
-not the equivalent
of condition under
the NCC. HOW PEOPLE DEAL WITH RISK
RISK HAZARD a. Risk avoidance
-Circumstances or conditions that b. Risk retention
create or increase the risk of loss. c. Risk transfer
-Hazards may either be: d. Loss control
1. PHYSICAL- refers to the physical e. Insurance
condition of the thing or the
person that increases the chance
of loss. HOW INSURANCE DEALS WITH RISK
2. MORAL- involves dishonesty or
character defects in the individual A. RISK DISTRIBUTING DEVICE- the risk of loss is
that increase the chance of loss. not actually transferred to the insurer but a number
3. MORALE- includes carelessness of people constituting the clients of the insurer
or indifference to a loss because of contribute to a common fund by paying premiums.
the existence of the insurance. B. LAW OF LARGE NUMBERS- the greater the
LOSS number of exposures, the more closely will the
-end result of the risk insured actual results approach the probable results that are
against. expected from an infinite number of exposures.
-involves diminution of value or
disappearance of value resulting
from a risk. CHARACTERISTICS
A. ALEATORY
ASSUMPTION OF RISK - the insurer -Article 2010, NCC
promises to pay the insured if the risk insured -It is in the sense that, what the
against occurred. insured will pay in pesos is not equal to
what he will receive in case of loss.
Note: The promise of the insurer MAY
INVOLVE THE PROMISE TO DELIVER THE B.UNILATERAL
EQUIVALENT OF THE PROPERTY THAT WAS -upon payment of the premium, there
LOST. is only one party who has the obligation,
that is, the insurer’s obligation to pay the
OPTION TO REBUILD CLAUSE - it is proceeds of the insurance in case of loss.
allowed under Section 174 of the Insurance
Code. (Example: Fire Insurance Policy- C. PERSONAL
where the beneficiary is not automatically -because the contract is entered into
entitled to cash but there is an option to with due consideration to the
rebuild clause under which the parties circumstances of the parties.
stipulate the repairing, rebuilding or
replacing of buildings or structures wholly D. CONSENSUAL
or partially damaged or destroyed.)

-perfected by mere consent without
the need of delivery or any formality.
EFFECT OF NON-ACCEPTANCE
E. UBBERIMAE FIDAE -NO CONTRACT
-It is one of perfect good faith. Parties -Prof. Vance: A mere delay by the
must avoid material concealment or insurer, although unreasonable, in acting
misrepresentations. upon the application raises no implication
of acceptance nor does it estop the insurer
F. EXECUTORY AND CONDITIONAL to deny the existence of the contract.
-ACCEPTANCE OF AN OFFER CAN BE
IMPLIED. However, Implied Acceptance can
SOCIAL VALUE be established only if there are other
-far outweighs its social costs. circumstances that will indicate such
acceptance other than inaction or delay.
GENERAL BENEFITS OF INSURANCE

1. It gives peace of mind KINDS OF INSURANCE
2. It keeps families and businesses together 1. PRIVATE INSURANCE
3. It increases marginal utility if assets* 2. GOVERNMENT INSURANCE
4. It facilitates credit transactions
5. It stimulates savings Note: Government Insurance includes
6. It provides investment capital the insurance coverage provided by the SSS
7. It provides incentive to business and to employees of the private sector and the
individuals insurance coverage under the GSIS which
8. It helps in loss prevention. extends to the employees in the
government service. Thse are called
“SOCIAL INSURANCE” Contracts.
PERFECTION
-(Article, 1319, NCC) CLASSIFICATION ACCORDING TO OBJECT:
Consent is manifested by the meeting of the -PRIVATE INSURANCE can either be:
offer and the acceptance upon the thing and the 1. Life or Health Insurance
cause which are to constitute the contract. The offer 2. Property Insurance
must be certain and the acceptance absolute. A 3. Liability Insurance
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not SPECIAL TYPES OF INSURANCE
bind the offerer except from the time it came to his 1. Marine Insurance
knowledge. The contract, in such a case, is presumed 2. Casualty Insurance
to have been entered into in the place where the 3. Fire Insurance
offer was made. 4. Life Insurance
5. Compulsory Third Party Liability
-Cognition Theory Insurance
-INSURED MAKES THE OFFER by submitting the 6. Microinsurance
application to the insurer or its authorized agent.
-It may be that the INSURER OFFERS a contract LIFE INSURANCE
which is accepted by the insured with or without -may be made:
writing; or the agent to whom the application for 1. According to the period when it
insurance is made may have authority to accept the is force
offer without reference, and this ACCEPTANCE may 2. According to its object
be WRITTEN or ORAL. 3. According to its special
-COURTS CANNOT IMPOSE A CONTRACT IN THE charactersistics.
ABSENCE OF A PERFECTED CONTRACT.

-may be classified into: -this meant to prevent the insured from
1. TERM INSURANCE- life is profiting from insurance and to reduce moral hazard.
insured on a temporary basis or for a
limited period.
2. WHOLE LIFE INSURANCE- a
person is insured during his entire EXCEPTIONS:
lifetime. 1. Life Insurance- because the amount to
3. ENDOWMENT POLICY- the be paid by the insurer can never be equal to the
insured is paid a certain amount or the value of the life that is being insured.
face value of the policy if the insured 2. Valued Policies- the insurer will pay thr
survives a certain period and the value fixed in the policy regardless of the actual
beneficiary will get the proceeds if the cash value in case of total loss.
insured does not survive.
4. INDUSTRIAL LIFE- whic the MANIFESTATIONS:
premiums are payable monthly or 1. Insurable interest is indispensable
oftener, IF the face amount is NOT 2. The value of the interest destroyed or
MORE THAN FIVE HUNDRED TIMES damage is generally the measure of indemnity
OF THE CURRENT STATUTORY (except in the cases above)
MINIMUM DAILY WAGE IN THE CITY 3. Co-insurance clause in marine insurance
OF MANILA, and IF THE WORDS 4. Subrogation in property insurance.
“INDUSTRIAL POLICY” ARE PRINTED
UPON THE POLICY AS PART OF THE
DESCRIPTIVE MATTER.
PROPERTY INSURANCE
-includes:
1. FIRE INSURANCE and ALLIED
INSURANCE
2. MARINE INSURANCE
3. CASUALTY INSURANCE
MICROINSURANCE
-Section 187, Insurance Code
Microinsurance is a FINANCIAL
PRODUCT or SERVICE that meets the risk
protection needs of the poor where:
"(a) The AMOUNT of contributions,
premiums, fees or charges, computed on a
daily basis, DOES NOT EXCEED 7.5% of the
current daily minimum wage rate for
non-agricultural workers in Metro Manila;
and
"(b) The maximum sum of guaranteed
benefits is NOT MORE THAN 1,000 times of
the current daily minimum wage rate for
non-agricultural workers in Metro Manila.
PRINCIPLE OF INDEMNITY
-this means that the insured should not collect
more than the actual cash value of the loss.

The consent of the spouse is not
necessary for the validity of an insurance
policy taken out by a married person on his
or her life or that of HIS OR HER CHILDREN.
-”HIS OR HER CHILDREN”- does not
limit to an insurance taken on the common
II. THE PARTIES childen of the spouses.
EXCEPTION:
A. If the property regime of
PARTIES the spouses is ABSOLUTE
1. INSURER COMMUNITY.
-the party who promises to pay in case loss - Hence, the taking of
results because the peril insured against occurred. the insurance policy should
be JOINTLY made by the
2. INSURED spouses.
-the owner of the policy whose property or life -IN CASE OF
is insured or who took out the insurance over the life DISAGREEMENT, it is the
of persons in whom he has insurable interest. husband that will
prevail.
3. BENEFICIARY (third person)
-the person in whose favor the insurance was Note: If a spouse takes an
taken by the insured and who will receive the insurance policy on his own life and a
proceeds of the insurance in case of loss. 3rd perso who is TOTALLY UNRELATED
-in strict legal sense, the beneficiary is not a to them, is a made a beneficiary, then
party to the contract unless he is the insured himself. it is believed that the taking of the
insurance and payment of the
premium is in the nature of a
INSURED DONATION, that SHOULD BE
-the person who applied for and to whom an APPROVED by BOTH SPOUSES
insurance policy is issued to cover his life, property pursuant to Section 98 of the Family
or the life or property of other person/s in whose life Code.
or property he has insurable interest or liability to
other persons.
EFFECT OF DEATH OF OWNER
ASSURED AND THE OWNER -Section 3(last par.), Insurance Code
-in LIFE INSURANCE, if a person insures the All rights, title and interest in the policy of
LIFE OF ANOTHER, the person whose life is insurance taken out by an original owner on the
insured is called the INSURED while the person life or health of the person insured shall
who took out an insurance is called the automatically vest in the latter upon the death
ASSURED. of the original owner, unless otherwise provided
for in the policy.
CAPACITY
-an insurance contract is VOIDABLE if the -EXAMPLE: When the parents who
INSURED is a minor, insane, or otherwise insure the life of their minor child, will die,
incapacitated. all the rights, title and interest in the policy
shall be automatically vested in the minor.
SPOUSES
-MARRIED WOMEN CAN enter into PUBLIC ENEMY
insurance contract WITHOUT THE CONSENT -Section 7, Insurance Code
of their husbands (vice versa). Anyone except a public enemy may be
-Section 3(par. 2), Insurance Code: insured.

MUTUAL BENEFIT ASSOCIATIONS
EFFECT OF WAR -Section 403, Insurance Code
-if there is no war yet at the time “Any society, association or corporation,
of the taking of the policy but war WITHOUT CAPITAL STOCK, formed or organized
ensues between the Philippines and not for profit but mainly FOR THE PRUPOSE OF
the COUNTRY OF THE INSURED, the PAYING SICK BENEFITS TO MEMBERS, or of
insurance policy is deemed FURNISHING FINANCIAL SUPPORT TO MEMBERS
ABROGATED. WHILE OUT OF EMPLOYMENT, or of paying to
relatives of deceased members of fixed or any
Filipinas Compania v. Christern sum of money, irrespective of whether such aim
-the purpose of war is to cripple or purpose is carried out by means of fixed dues
the power and exhaust the resources or assessments collected regularly from the
of the enemy, and it is inconsistent members, or of providing, by the issuance of
that one country should destroy its certificates of insurance, payment of its
enemy’s property and repay in members of accident or life insurance benefits
insurance the value of what has been out of such fixed and regular dues or
so destroyed, or that it should in such assessments, but in no case shall include any
manner increase the resources of the society, association, or corporation with such
enemy, or render it aid, and the mutual benefit features and which shall be
commencement of war determines, carried out purely from voluntary contributions
for like reasons, all trading intercourse collected not regularly and/or no fixed amount
with the enemy, which prior thereto from whomsoever may contribute”.
may have been lawful.
MUTUAL INSURANCE COMPANIES

INSURER -Section 268, Insurance Code
-Section 6, Insurance Code Any domestic stock life insurance company
Every corporation, partnership, or association, doing business in the Philippines may convert
duly authorized to transact insurance business as itself into an incorporated mutual life insurer.
elsewhere provided in this Code, may be an insurer. To that end it may provide and carry out a plan
for the acquisition of the outstanding shares of
-Insurer or Insurance company shall include all its capital stock for the benefit of its
partnerships, associations, cooperatives, or policyholders, or any class or classes of its
corporations, including GOCCs or entities, engaged policyholders, by complying with the
as principals in the insurance business, EXCEPTING requirements of this chapter.
MUTUAL BENEFIT ASSOCIATIONS.
CERTIFICATE OF AUTHORITY
PROFESSIONAL REINSURER -it is required for the insurance company to
-Section 288, Insurance Code transact any insurance business in the Philippines.
-required because contracts of insurance involve
public interest and regulation thereof by the State is
DOMESTIC AND FOREIGN COMPANY necessary.
-Domestic company shall include
companies formed, organized or existing under
the laws of the Philippines. BASIC QUALIFICATIONS:
-Foreign company shall include companies -Section 192, Insurance Code
formed, organized or existing under any laws No corporation, partnership, or association
other than those of the Philippines. of persons shall transact any insurance
business in the Philippines except as agent
of a corporation, partnership or association

authorized to do the business of insurance h. Misrepresentation of the true nature of
in the Philippines, UNLESS the policy
1. possessed of the capital and assets i. To make any misleading
required of an insurance corporation doing misrepresentation for the purpose of
the same kind of business in the Philippines inducement.
and invested in the same manner;
2. the Commissioner shall have granted it a
certificate to the effect that it has complied BENEFICIARY
with all the provisions of this Code. -the beneficiary MAY BE A THIRD PERSON.
-UNLESS, he is the insured himself, the
beneficiary is not one of the contracting parties.
TERM OF THE CERTIFICATE
The certificate of authority issued by the WHEN A BENEFICIARY IS DESIGNATED
Commissioner shall *expire on the last day of -if designation is NOT INVALID, it is the
December, *three (3) years following its date of designated beneficiary who is entitled to receive the
issuance, and *shall be renewable every three proceed and NOT THE HEIRS OF THE INSURED.
(3) years thereafter,
subject to the company’s continuing Note: NO OTHER PARTY can recover the
compliance with the provisions of this Code, proceeds other than the beneficiary.
circulars, instructions, rulings or decisions of the
Commission.
THIRD PARTIES
GROUNDS FOR DISAPPROVAL OF APPLICATION -The insurer has NO OBLIGATION to turn over
-Section 193, Insurance Code the proceeds of the insurance to third persons even
if the third persons are immediate relatives IF THERE
IS A DESIGNATED BENEFICIARY.
PROHIBITED ACTS OF THE INSURER
a. To transact in the PH both the business
of life and non-life insurance unless specifically WHEN THERE IS NO BENEFICIARY
authorized to do so. -(when there is no beneficiary or when the
b. To have equity in an adjustment designation is VOID), the LAWS OF SUCCESSION are
company applicable.
c. To negotiate any contract of insurance
other than is plainly expressed in the policy
d. To directly or indirectly, pay or allow or EFFECT OF USE OF CONJUGAL FUNDS
offer to pay or allow to the insured or to any -if conjugal funds are used to pay for the
employee of such insured, either as an premium, the proceeds of the policy constitute
inducement to the making of such insurance or COMMUNITY PROPERTY if made payable to the
after such insurance has been effected, any deceased’s estate. (One half of the proceeds belong
rebate from the premium or any special favor or to the estate and the other half to the surviving
advantage in the dividends or other benefits to spouse).
accrue thereon.
e. To give or offer to give any valuable
consideration or inducement of any kind, VESTED INTEREST OF BENEFICIARY
directly or indirectly, which is not specified -should be measured on its FULL FACE VALUE
f. To make any discrimination and not on its cash surrender value.
g. To issue or circulate or cause or permit
to be issued or circulated….misrepresenting the
terms of policy REVOCABILITY

-GENERAL RULE: the designation of the
beneficiary is REVOCABLE TRUSTEE OR AGENT
-EXCEPTION: unless EXPRESSLY PROVIDED -when an insurance contract is executed with an
-EXCEPTION TO THE EXCEPTION: If the insured agent or trustee as the insured, the fact that his
does not change the beneficiary during his lifetime, principal or beneficiary is the REAL PARTY IN
the designation shall be DEEMED IRREVOCABLE INTEREST may be indicated by describing the insured
-EXCEPTION TO THE EXCEPTION OF THE as agent or trustee, or by other general words in the
EXCEPTION: Article 64, of the Family Code provides policy.
that after the finality of the DECREE OF LEGAL
SEPARATION, the INNOCENT SPOUSE may revoke the
designation even if such is stipulated to be PARTNER
irrevocable. -it is NECESSARY that the terms of the policy
should be such as are applicable to the joint or
FORFEITURE OF RIGHTS OF BENEFICIARY common interest.
The interest of a beneficiary in a life insurance Note: If the policy is SECURED FOR THE
policy shall be forfeited when the beneficiary is the BENEFIT OF A PARTNERSHIP, a change in the
PRINCIPAL, ACCOMPLICE, OR ACCESSORY in willfully name of the partnership DOES NOT AVOID the
bringing about the death of the insured. In such a policy.
case,
1. the share forfeited shall pass on to the OTHER
BENEFICIARIES, unless otherwise disqualified. ASSIGNEE OF LIFE INSURANCE
2. In the absence of other beneficiaries, the -A life or health insurance policy CAN BE
proceeds shall be paid in accordance with the POLICY TRANSFERRED even WITHOUT THE CONSENT of the
CONTRACT. insurer.
3. If the policy contract is silent, the proceeds -Section 184, Insurance Code
shall be paid to the STATE OF THE INSURED. 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
DISQUALIFICATION OF BENEFICIARY such person may recover upon it whatever the
-Article 2012, Article 739, New Civil Code insured might have recovered.
1. Those made between persons who were

guilty of adultery or concubinage at the time of the HOW TO TRANSFER
adoption. -No formalities are required.
2. Those made between persons found guilty of -Under the NCC, DELIVERY OF THE PROOF
the same criminal offense, in consideration thereof; OR EVIDENCE OF THE RIGHT as one of the
3. Those made to a public officer or his wife, modes of transferring ownership.
descendants and ascendants, by reason of his office.
Note: While notice to the insurer is not
Notes: required, it is more advantageous to the
-this provision would not certainly apply to assignee to give notice to the insurer of such
children borne out of wedlock. The illegitimate transfer.
children are not covered by the prohibition.
-CONVICTION IS NOT NECESSARY in order
for one to be disqualified due to adultery or DOUBLE ASSIGNMENT
concubinage. -ENGLISH RULE- the assignee WHO FIRST
-while the concubine is disqualified, the GIVES NOTICE is the one entitled to the
illegitimate children of the insured are not proceeds if he has no notice of any prior
disqualified. assignment.

-AMERICAN RULE- the assignee UNDER THE of the insurance company concerned in
FIRST ASSIGNMENT has the preferable claim. connection with actions or other legal
proceedings against said insurance company.
*The AMERICAN RULE applies in this
jurisdiction. CLASSES OF AGENTS
(principle: prius tempore portior jure - first 1. SALARIED EMPLOYEES- those who keep
in time, stronger in right) definite hours and work under the control and
supervision of the company.
(governing laws:
ASSIGNEE OF PROPERTY INSURANCE - the Contract of Employment
-Section 58, Insurance Code - the provisions of the Labor
The mere transfer of a thing insured does not Code.)
transfer the policy, but suspends it until the same
person becomes the owner of both the policy and 2. INDEPENDENT CONTRACTOR- who work
the thing insured. on a commission basis.
(governing laws:
GENERAL RULE: The policy can be transferred so -the Contract of Agency
long as the TRANSFEREE HAS INSURABLE INTEREST in -the provisions of the NCC on
the thing insured. NEVERTHELESS, THE INSURER’S Agency.)
ASSENT IS NECESSARY FOR THE TRANSFER.
EXCEPTIONS:(Insurer’s consent is not necessary) COLLUSION BETWEEN THE INSURED AND

1. Transfer through will or succession THE AGENT
2. Other instances of transfer by operation -although the insurance agent
of law represents the insurer, the insured cannot
3. Transfer among partners escape the effect of the falsity that the
agent committed with his complicity.
INSURANCE AGENT NOTE: The provisions in the policy that

-Section 309, Insurance Code specifies and limits the powers and duties of an
Any person who for compensation solicits or agent is binding on the insured.
obtains insurance on behalf of any insurance
company or transmits for a person other than
himself an application for a policy or contract of INSURANCE BROKER
insurance to or from such company or offers or -Section 310, Insurance Code
assumes to act in the negotiating of such insurance. Any person who for any compensation,
-shall thereby become liable to all the duties, commission or other thing of value acts or aids in any
requirements, liabilities and penalties to which an manner in soliciting, negotiating or procuring the
insurance agent is subject. making of any insurance contract or in placing risk or
-REPRESENTS THE INSURER taking out insurance, on behalf of an insured other
than himself.
-An insurance agent is an INDEPENDENT -shall thereby become liable to all the duties,
CONTRACTOR and NOT AN EMPLOYEE of the requirements, liabilities and penalties to which an
company represented. insurance broker is subject.
-ACTS FOR AND IN BEHALF OF THE INSURED
GENERAL AGENT
-must be empowered by a written POWER
OF ATTORNEY duly executed by such insurance EFFECT OF RECEIPT OF PREMIUM
company, and REGISTERED WITH THE -the premium of or any portion thereof
INSURANCE COMMISSIONER to receive notices, collected from the insured which is to be paid to an
summons and legal processes for and in behalf insurance company, shall be held by the agent or

broker in a FIDUCIARY CAPACITY and SHALL NOT BE
MISAPPROPRIATED OR CONVERTED TO HIS OWN
USE OR ILLEGALLY WITHHELD.
Note: agent or broker must be authorized

to collect to receive on its behalf payment of
any premium which is due on such policy or
contract.
NO JURISDICTION OVER INSURER-AGENT RELATIONSHIP

- The power of the Commissioner does not
cover the relationship between the insurance
company and its agents/brokers.
Note: The insurance agents/brokers are under

the regulatory powers of the Insurance
Commissioner. Hence, the latter CAN REVOKE their
license in proper cases as well as imposition of
administrative sanctions. III. INSURABLE INTEREST
CONCEPT
-It may be stated, generally to be such an
interest arising from the relation of the party
obtaining insurance, either as creditor of or surety
for the assured, or from ties of blood or marriage to
him, as will justify a reasonable expectation of
advantage or benefit from the continuance of his
life.
Notes:
-In LIFE INSURANCE, Section 10 provides for
an exclusive list who may have insurable
interest in the life of another.
-In PROPERTY INSURANCE, the basic
concept of insurable interest is provided for in
Section 13.
-LACK OF INSURABLE INTEREST is a
DEFENSE for the benefit of society, not for the
benefit of any insurance company.
PURPOSES:
1. the presence of insurable interest reduces
moral hazard.
2. Insurable interest likewise helps in measuring
the loss of the insured.
NOTE:

-IF THE INSURED HAS NO INSURABLE INTEREST *the law does NOT REQUIRE hat
OVER THE LIFE OR PROPERTY HE INSURES, the the person on whom he depends
insurance contract is considered UNENFORCEABLE. wholy or in part for education or
-IF IT CAN BE ESTABLISHED THAT THE support is LEGALLY OBLIGATED to do
CONTRACT IS REALLY A WAGER, THE SAME CAN BE so.
CONSIDERED VOID FOR BEING AGAINST PUBLIC
POLICY. c) OTHER PECUNIARY INTEREST
-Section 25, Insurance Code -Accordingly, one has insurable
Every stipulation in a policy of interest over the life of his partner or
insurance for the payment of loss whether his employee.
the person insured has or has not any -In case of a partner, it is
interest in the property insured, or that the reasonable to conclude that the
policy shall be received as proof of such continuance of partnership and the life
interest, and every policy executed by way of of a partner furnished a reasonable
of gaming or wagering, is VOID. expectation of advantage to the other
partners.
-The loss of the life of the
employee will result in economic loss
on the part of the employer because of
the deprivation of service.
INSURABLE INTEREST IN LIFE INSURANCE
Every person has an insurable interest in the life CREDITOR
and health: -Section 10( c), Insurance Code
"(a) Of himself, of his spouse and of his children; -A creditor SHALL HAVE insurable interest over
"(b) Of any person on whom he depends wholly the life of the debtor who msy hve obligated to
or in part for education or support, or in whom he deliver money or peroperty or to provide some
has a pecuniary interest; service.
"(c) Of any person under a legal obligation to -HOWEVER, THE DEBTOR CANNOT INSURE THE
him for the payment of money, or respecting LIFE OF THE CREDITOR, because he will not be
property or services, of which death or illness might damnified by the loss of the creditor’s life.
delay or prevent the performance; and
"(d) Of any person upon whose life any estate or
interest vested in him depends.
MORTGAGE REDEMPTION INSURANCE
-Debtors may be insured into GROUP LIFE
CLASSES OF INSURABLE INTEREST IN LIFE INSURANCE INSURANCE known as mortgage redemption
1. Insurable interest in the insured’s own life. insurance.
2. Insurable interest in the life of another -It is a device for the PROTECTION of both the
person. mortgagee and the mortgagor.
a) RELATIONSHIP BY BLOOD
-LIMITED to insurable interest -On the part of the MORTGAGEE, it has to enter
over the life of a SPOUSE or of one’s into some form of contract so that in the event of
children. the unexpected demise of the mortgagor during the
*Blood relationship alone would subsistence of the mortgage contract, the proceeds
not suffice in other cases. from such insurance will be applied to the payment
of the mortgage debt.
b) BUSINESS RELATIONSHIP
-(Section 10(b),Insurance Code) -Where the NORTGAGOR PAYS THE INSURANCE
-Education or Support PREMIUM under the policy, making the LOSS
PAYABLE TO THE MORTGAGEE, the insurance is on

the MORTGAGOR’S INTEREST AND THE MORTGAGOR the owner has insurable interest in the property
CONTINUES TO BE A PARTY to the contract. that he is occupying.
-Such loss payable clause does not make a
mortgagee a party to the contract. -In sale of goods, an UNPAID SELLER
-the mortgagee is simply an APPOINTEE of RETAINS INSURABLE INTEREST over the goods
the insurance fund. even if ownership had already been transferred
to the vendee upon delivery.
-reason: an unpaid seller has a
INSURABLE INTEREST IN PROPERTY INSURANCE vendor’s lien and therefore he will be
-Section 18, Insurance Code damnified by the loss of the goods even if
No contract or policy of insurance on property after delivery.
shall be enforceable except for the benefit of some
person having an insurable interest in the property -the vendee or BUYER HAS INSURABLE
insured. INTEREST over the goods even while the goods
are still in transit.
-See. Sections 13,14,16,17, Insurance Code -The PERFECTED CONTRACT OF SALE
even without the delivery vests the vendee
an EQUITABLE TITLE, an existing interest
TEST over the goods sufficient to be the subject
-Whether one will derive PECUNIARY BENEFIT of insurance.
OR ADVANTAGE from its preservation, or will SUFFER *The contract of shipment whether,
PECUNIARY LOSS OR DAMAGE from its destruction, FOB,CIF,.. is IMMATERIAL.
termination, injury by the happening of the event
insured against. -Cases where insurable interest in property
exists: (Harvardian Colleges of San Fernando
Pampanga v. CBIC)
KINDS OF INSURABLE INTEREST
-Section 13, Insurance Code 1. When the insured possesses a legal title
1. existing interest to the property insured, whether vested or
2. Inchoated interest founded on an existing contingent, defeasible or undefeasible.
interest 2. When he has equitable title of whatever
3. Expectancy, coupled with n existing interest character and in whatever manner acquired.
out of which the expectancy arises. 3. When he possesses a qualified property
or possessory right in the subject.
4. When he has mere possession or right of
EXISTING INTEREST possession
-includes the interest of an owner. 5. When he has neither possession nor any
HOWEVER, TITLE OR OWNERSHIP IS NOT other legal interest BUT stands in such relation
ESSENTIAL. that he may suffer from its destruction, loss of a
legal right dependent upon its continued
-Following persons have insurable interest existence.
over the property EVEN if they are not the
owner thereof:
1. Lessee INCHOATE INTEREST
2. Depositary -MUST BE FOUNDED ON AN EXISTING
3. Usufructuary INTEREST, otherwise, the loss of the property
4. Borrower in commodatum will not directly damnify the insured.
-a possessor who is holding the property

without consideration WITH THE CONSENT of EXPECTANCY

-MUST BE COUPLED WITH AN EXISTING mortgagee, or assigns a policy of insurance to a
INTEREST. mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be
a party to the original contract, and any act of his,
DISTINCTIONS: prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the
INSURABLE INTEREST IN INSURABLE INTEREST IN property is in the hands of the mortgagee, but any
PROPERTY LIFE act which, under the contract of insurance, is to be
AS TO THE EXTENT: performed by the mortgagor, may be performed by
-Unlimited EXCEPT if
-Limited up to the value of the mortgagee therein named, with the same effect
secured by the creditor.
the property. as if it had been performed by the mortgagor.
TIME WHEN IT MUST EXIST:
-at the time of the -the mortgagor and the mortgagee have
-at the time of the
perfection of the insurance each an independent insurable interest and
perfection of the contract
contract. both may be covered by one policy or each may
and at the time of the loss.
NEED FOR LEGAL BASIS: take out a separate policy.
-Expectation of benefit -need not -the MORTGAGOR’S insurable interest
must have legal basis. covers the FULL VALUE OF THE MORTGAGED
-if the insured took out the PROPERTY, even the mortgage debt is
policy on his own life and equivalent to the full value of the property.
BENEFICIARY’S INTEREST: -the MORTGAGEE’S insurable interest is to
designated another, NOT
-beneficiary must have the EXTENT OF THE DEBT, not exceeding the
NECESSARY, UNLESS took
insurable interest. value of the property mortgaged.
out an insurance on the life
of another.
INSURABLE INTEREST OF BAILEE -USUAL PRACTICE: The mortgagor takes out an
-Section 15, Insurance Code insurance for the benefit of the mortgagee.
A carrier or depository of any kind has an WAYS WHERE THE MORTGAGEE MAY BE MADE
insurable interest in a thing held by him as such, to THE BENEFICIAL PAYEE:
the extent of his liability but not to exceed the value 1. With the consent of the insurer
thereof. 2. A mere pledgee without such consent, or
the original policy may contain a mortgage
-Reason: the carrier may be damnified by the clause.
loss of the goods because he may be obligated to 3. A rider making the policy payable to the
pay the shipper any damage to the property. mortgagee “as his interest may appear” my be
Similarly, a depositary is obligated to take care of the attached
thing deposited, otherwise liable for the damage. 4. A “standard mortgage clause” may be
Thus both of them have insurable interest over the attached.
property. 5. The policy, through by its terms payable
absolutely to the mortgagor…..
6. The policy may provide for a loss payable
INSURABLE INTEREST OF THE MORTGAGOR AND THE clause in favor of the mortgagee.
MORTGAGEE
-The mortgagor is the owner of the mortgaged
property, hence, he has an existing interest that may Note: A “loss payable clause” should be
be the subject of the insurance. distinguished from a “union mortgage clause” where
there is a transfer of an insurance from the
-Section 8, Insurance Code mortgagor to the mortgagee with the assent of
Unless the policy otherwise provides, where a insurer.
mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the
-Sec. 9, Insurance Code

If an insurer assents to the transfer of an -In LIFE INSURANCE, all that is required is that
insurance from a mortgagor to a mortgagee, and, at the insured has insurable interest over the life that is
the time of his assent, imposes further obligations on insured at the time the insurance takes effect.
the assignee, making a new contract with him, the -EXAMPLE: A spouse can insure the life of
acts of the mortgagor cannot affect the rights of said the other spouse. The spouse who took out the
assignee. insurance can still recover IF at the time of the
death of the spouse whose life was insured,
UNION MORTGAGE their marriage was already annulled.
LOSS PAYABLE CLAUSE
CLAUSE
(Sec. 9)
(Sec. 8) -In PROPERTY INSURANCE, the insured can
-the mortgagee is made -creates collateral recover even if he lost his insurable interest AFTER
merely a beneficiary under independent contracts THE PERFECTION OF THE INSURANCE CONTRACT so
the contract, recognized as between the insurer and long as he recovers the same before the loss occurs.
such by the insurer BUT the mortgagee -EXAMPLE: A, owner of the car, insured
NOT made a party to the with X Company. After the issuance of the policy,
contract itself. -provide that the rights of A sold and delivered the car to B. Later, A
the mortgagee shall not be re-acquired the car to B. It was after the
-any default on the part of defeated by the acts or re-acquisition, the car was destroyed.
the mortgagor, whch by default of the mortgagor. - A can still recover even if there is
the terms of the policy a period between the time of the
defeat his rights, will also -GENERAL RULE: taking of the insurance and the time of
defeat all the rights of the mortgagee’s rights remain the loss that A had no insurable
mortgagee, even though unaffected by any default interest over the car.
the latter may not have or breach of condition by -the insurance is SUSPENDED
been in any fault. the mortgagor to which a when B became the owner and
mortgagee is not a party. possessor of the car by virtue of
INSURABLE INTEREST OF MORTGAGEE SECTION 58 of the Insurance Code. The
-RULE: a mortgagee may, independently of insurance is automatically reinstated
the mortgagor, insure the mortgaged property in his when A re-acquires the property.
own name and for his own interest.
HOWEVER, the mortgagee is not Except in the cases specified in
allowed to retain his claim against the the next four sections, and in the cases
mortgagor, but it passes by subrogation to of life, accident, and health insurance,
the insurer, to the extent of the insurance a change of interest in any part of a
money paid. thing insured unaccompanied by a
corresponding change of interest in
the insurance, suspends the insurance
to an equivalent extent, until the
WHEN MUST INSURABLE INTEREST EXIST interest in the thing and the interest in
-Section 19, Insurance Code the insurance are vested in the same
An INTEREST IN PROPERTY INSURED must exist person.
when the insurance takes effect, and when the loss
occurs, but need not exist in the meantime; and -Section 58, Insurance Code
INTEREST IN THE LIFE AND HEALTH OF A PERSON The mere transfer of a thing
INSURED must exist when the insurance takes effect, insured does not transfer the policy,
but need not exist thereafter or when the loss but suspends it until the same person
occurs. becomes the owner of both the policy
and the thing insured.

-Transfer or change of interest in the -Payment may be made to the insurer
property with the consent of the insurer WILL himself or its agent having authority to receive
NOT SUSPEND THE POLICY. In such a case, the or collect. Such payment is equivalent to
policy will inure to the benefit of anyone to payment to the principal himself.
whom the property is insured.
-INDUSTRIAL LIFE POLICY- In this case,
-Section 57, Insurance Code insurance shall not lapse for non-payment of
A policy may be so framed that it premium if such non-payment was due to the
will inure to the benefit of failure of the company to send its agent to the
whomsoever, during the continuance insured at the latter’s residence or at some
of the risk, may become the owner of other place indicated for the purpose of
the interest insured. collecting such premium (Section 235, Insurance
Code).
*Such rule DOES NOT APPLY when the
EXCEPTIONS TO SEC. 20 OF THE INSURANCE CODE, premium remains unpaid for 3 mos. Or 12
WHERE THE CHANGE OF INTEREST WILL NOT SUSPEND weeks after the grace period has expired.
THE INSURANCE.
-See. Sections 21-24, Insurance Code EFFECT OF NON-PAYMENT

-The obligation of the insurer will not become
Note: In Sec. 22, two or more properties are valid and binding, IF THE FIRST PREMIUM HAS NOT
insured but they are insured separately. Thus, if two BEEN PAID.
buildings are insured in one policy but they are -IF THE SUBSEQUENT PREMIUMS HAVE NOT
insured separately, the change of interest in one BEEN PAID, The policies issued will be deemed to
building does not suspend the insurance as to the have lapsed.
other building.
NOTES:
WHEN TRANSFER OF THE PROPERTY INSURANCE POLICY -The insured CANNOT BE SUED for
IS MADE AFTER THE LOSS non-payment of the premium. The only effect of
-Beneficiary’s insurable interest is no longer non-payment being that the POLICY WILL NOT
necessary. (See. Sec. 85, Insurance Code) GO INTO FORCE. AFTER THE INSURANCE COMES
IV. PREMIUM INTO FORCE AFTER THE PAYMENT OF PREMIUM,
IT IS ONLY THE INSURER THAT MAKES A LEGALLY
ENFORCEABLE PROMISE.
PREMIUM REQUIRED FOR POLICY TO BE BINDING *(To give the insurer the right to
-Section 77, Insurance Code sue the insured would be the height of
An INSURER IS ENTITLED TO PAYMENT OF INJUSTICE AND UNFAIR dealings.)
PREMIUM as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of WEHN BINDING EVEN IF PREMIUM IS UNPAID
insurance issued by an insurance company is valid -(UCPB General Insurance Co., Inc. V. Masagana
and binding unless and until the premium thereof Telemart, Inc.)
has been paid, EXCEPT IN THE CASE OF A LIFE OR AN
INDUSTRIAL LIFE POLICY, or WHENEVER UNDER THE -GENERAL RULE:
BROKER AND AGENCY AGREEMENTS WITH DULY The policy is NOT VALID AND BINDING
LICENSED INTERMEDIARIES, a ninety (90)-day credit unless the premiums have been paid.
extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days -EXCEPTIONS:
from date of issuance of the policy. 1. When the GRACE PEPRIOD applies in
case of LIFE AND INDUSTRIAL LIFE POLICY.
NOTES:

2. When there is an ACKNOWLEDGEMENT policyholder shall be liable for the payment of a pro
in the policy or RECEIPT that the premium has rata premium for the time the policy is in force
been paid. during such grace period.
3. When there is an AGREEMENT that the
premium shall be PAYABLE ON INSTALLMENT. -Section 236(a), Insurance Code
4. When there is a CREDIT EXTENSION. In the case of industrial life insurance, the
5. When EQUITTABLE DOCTRINE OF policy shall contain in substance the following
ESTOPPEL applies. provisions:
"(a) A provision that the insured is entitled to a
grace period of four (4) weeks within which the
GRACE PERIOD payment of any premium after the first may be made,
-The period after the date of the premium is due except that where premiums are payable monthly,
during which the premium can be paid with no the period of grace shall be either one (1) month or
interest charged and the policy remaining in force. thirty (30) days; and that during the period of grace,
the policy shall continue in full force, but if during
-Sec. 233(a), Insurance Code such grace period the policy becomes a claim, then
In the case of individual life or endowment any overdue and unpaid premiums may be deducted
insurance, the policy shall contain in substance the from any amount payable under the policy in
following conditions: settlement;
"(a) A provision that the policyholder is entitled
to a grace period either of 3O DAYS or of 1 MONTH
within which the payment of any premium after the ACKNOWLEDGEMENT
first may be made, subject AT THE OPTION OF THE -Section 79, Insurance Code
INSURER to an interest charge not in excess of six An acknowledgment in a policy or contract of
percent (6%) per annum for the number of days of insurance or the receipt of premium is CONCLUSIVE
grace elapsing before the payment of the premium, EVIDENCE OF ITS PAYMENT, so far as to make the
during which period of grace the policy shall policy binding, notwithstanding any stipulation
continue in full force, but in case the policy becomes therein that it shall not be binding until the premium
a claim during the said period of grace before the is actually paid.
overdue premium is paid, the amount of such
premium with interest may be deducted from the NOTE: - The insurer’s obligation will already be
amount payable under the policy in settlement. in force if there is agreement, EVEN if, in fact, the
insured has not yet paid the premium.
HOWEVER, this doesn’t mean that the
-Section 234, Insurance Code insured is excused from paying the
No policy of group life insurance shall be issued premium that is due. The insurer can still
and delivered in the Philippines unless it contains in demand payment of the premium.
substance the following provisions, or provisions
which in the opinion of the Commissioner are more
favorable to the persons insured, or at least as INSTALLMENT
favorable to the persons insured and more favorable -An undertaking to allow insured to pay
to the policyholders: premium in installments not so proscribed.
"(a) A provision that the policyholder is entitled
to a grace period of either thirty (30) days or of one CREDIT EXTENSION
(1) month for the payment of any premium due after -Section 77 as amended by RA 10607
the first, during which grace period the death benefit “a ninety (90)-day credit extension is given. No
coverage shall continue in force, unless the credit extension to a duly licensed intermediaries”.
policyholder shall have given the insurer written
notice of discontinuance in advance of the date of -REQUISITES:
discontinuance and in accordance with the terms of 1. the credit extension must be provided
the policy. The policy may provide that the for under the broker and agency requirements.

2. The credit extension to a duly licensed treasurer, cashier, paymaster or official of the entity
intermediary should exceed 90 days from date employing the government employee is authorized,
of issuance of policy. notwithstanding the provisions of any existing law,
rules and regulations to the contrary, to make
-Notes: deductions from the salary, wage or income of the
-the credt extension is extended to the duly latter pursuant to the agreement between the
licensed intermediary which in turn can benefit insurer and the government employee and to remit
the insured. However, the 4th exception to Sec. such deductions to the insurer concerned, and
77means that if the insurer has granted the collect such reasonable fee for its services.
insured a credit term for the payment of the
premium and loss occurs before the expiration -REQUIREMENTS:
of the term, recovery on the policy should be -There must be an AGREEMENT between
allowed even though the premium is paid after the insurer and the gov’t employee authorizing
the loss but within the credit term. salary deduction of the premium.
-Under the old law, the insurance policy

would be valid and binding notwithstanding the SURETY
non-payment of premium if there was a clear -ANOTHER EXCEPTION ONLY WITH RESPECT TO
agreement to grant to the insured credit SURETYSHIP:
extension. Such agreement may be express or -the surety is already liable even if there is
implied. non-payment of the premium IF THE OBLIGEE
-Under the present law, Sec. 77 has deleted HAS ALREADY ACCEPTED THE BOND (Sec. 177,
the clause “unless there is agreement to grant Insurance Code).
the insured credit extension of the premium
due”.
-Velasco v. Apostol: credit transactons are VALID TENDER OF PAYMENT
no longer allowed because the law-making body -The act of the insurer or his agent in REFUSING
deliberately made the deletion precisely to THE TENDER OF PAYMENT of a premium properly
remove the exception. made, will necessarily STOP THE INSURER FROM
CLAIMING A FORFEITURE FROM NON-PAYMENT.
-When credit extensions were EXPRESSLY
ALLOWED, the policy is deemed
AUTOMATICALLY CANCELLED if the insured HOW TO PREVENT LAPSE OF LIFE INSURANCE POLICY
signed a PN stating that the insured will pay the 1. Grace period
premium on or before a fixed date and the 2. Automatic policy loan
insured failed to pay on the stipulated date. 3. Application of dividend
ESTOPPEL 4. Restatement clause
-it may bar an insurer from taking refuge under AUTOMATIC POLICY LOAN AND CASH SURRENDER
Section 77 if the insured relied in good faith on a VALUE
practice that they have been following with the -CASH SURRENDER VALUE (as applied in life
insurer. insurance) is the amount of money the company
agrees to pay to the holder of the policy if he
surrenders it and releases his claims upon it.
SALARY DEDUCTIONS FOR GOVERNMENT -surrender value is always a LESSER sum
EMPLOYEES than the total amount of premiums paid.
-Section 78, Insurance Code -the cash value or cash surrender value is
EMPLOYEES of the Republic of the Philippines, an amount which the insurance company holds
including its political subdivisions and in trust for the insured to be delivered to him
instrumentalities, and GOCCs, MAY PAY THEIR upon demand.
INSURANCE PREMIUMS AND LOAN OBLIGATIONS
THROUGH SALARY DEDUCTIONS: Provided, That the -Section 233(f), Insurance Code

A provision specifying the OPTIONS TO
WHICH THE POLICYHOLDER IS ENTITLED TO IN
THE EVENT OF DEFAULT IN A PREMIUM DIVIDENDS
PAYMENT AFTER 3 FULL ANNUAL PREMIUMS -(The life insurance policy may be participating
SHALL HAVE BEEN PAID. Such option shall or non-participating)
consist of:
"(1) A cash surrender value payable upon PARTICIPATING INSURANCE NON-PARTICIPATING
surrender of the policy which shall not be less POLICY INSURANCE POLICY
than the reserve on the policy, the basis of -The insured is ENTITLED to the - not entitled
which shall be indicated, for the then current dividends that may be available.
policy year and any dividend additions thereto,
reduced by a surrender charge which shall not -there must contain a provision
be more than one-fifth (1/5) of the entire that the company shall
reserve or two and one-half percent (2 陆%) of periodically ascertain and
the amount insured and any dividend additions apportion any divisible surplus
thereto; and accruing on the policy under
"(2) One or more paid-up benefits on a plan conditions specified therein.
or plans specified in the policy of such value as
may be purchased by the cash surrender value. -it may be provided that the
dividend shall be applied to the
-Section 233(g), Insurance Code premiums that are due or
A provision that at any time after a cash payable
surrender value is available under the policy and
while the policy is in force, the company will
advance, on proper assignment or pledge of the REINSTATEMENT CLAUSE
policy and on sole security thereof, a sum equal -A life insurance policy must contain a provision
to, or at the option of the owner of the policy, that the policyholder shall be entitled to have the
less than the cash surrender value on the policy, policy reinstated at any time within three (3) years
at a specified rate of interest, not more than the from the date of default of premium payment unless
maximum allowed by law, to be determined by the cash surrender value has been duly paid, or the
the company from time to time, but not more extension period has expired (Section 233(j),
often than once a year, subject to the approval Insurance Code).
of the Commissioner; and that the company will
deduct from such loan value any existing -The reinstatement will be made
indebtedness on the policy and any unpaid *upon production of evidence of insurability
balance of the premium for the current policy satisfactory to the company and
year, and may collect interest in advance on the *upon payment of all overdue premiums and
loan to the end of the current policy year, which any indebtedness to the company upon said policy.
provision may further provide that such loan -The insurer MAY DENY the application for
may be deferred for not exceeding six (6) reinstatement if it is not satisfied as to the
months after the application therefor is made; insurability of the insured and if the insured does not
pay the overdue premium.
-under an AUTOMATIC PREMIUM LOADN

CLAUSE, if at the end of the grace period the RETURN OF PREMIUM
premium due has not been paid, A POLICY LOAN -WHEN RETURN OF PREMIUM IS A MATTER OF
will automatically be made from the policy’s RIGHT?
cash value to pay the premium. -See. Sections 80-83, Insurance Code
-PURPOSE: to prevent unintentional
lapse of the policy. 1. when the thing was not exposed to the
peril insured

-HOWEVER, where the risk is ADVANCE PAYMENT
entire and the contract is -Section 84, Insurance Code
indivisible, the insured is NOT An insurer may contract and accept payments,
ENTILED to a refund of the in addition to regular premium, for the purpose of
premiums paid if the property paying future premiums on the policy or to increase
insured was exposed to the risk the benefits thereof.
insured for any period, however
brief or momentary.
REBATE OF PREMIUM
2. “time policy” when the policy is -Section 370, Insurance Code
surrendered before the expiration of the No insurance company doing business in the
stipulated time (the refund is pro rata) Philippines or any agent thereof, no insurance broker,
-the refund shall be on a pro and no employee or other representative of any such
rata basis EXCEPT if a short time insurance company, agent, or broker, shall make,
rate has been agreed upon and procure or negotiate any contract of insurance or
appears in the policy. agreement as to policy contract, other than is plainly
expressed in the policy or other written contract
3. When the contract is voidable and issued or to be issued as evidence thereof, or shall
subsequently annulled under the provisions of directly or indirectly, by giving or sharing a
the NCC commission or in any manner whatsoever, pay or
-the ground that the contract allow or offer to pay or allow to the insured or to any
is voidable should be on account employee of such insured, either as an inducement
of fraud or misrepresentation of to the making of such insurance or after such
the INSURER or of his agent, or on insurance has been effected, any rebate from the
account of facts, the existence of premium which is specified in the policy, or any
which the insured was ignorant special favor or advantage in the dividends or other
without his fault. benefits to accrue thereon, or shall give or offer to
*a person insured is not give any valuable consideration or inducement of
entitled to a return of premium if any kind, directly or indirectly, which is not specified
the policy is annulled, rescinded in such policy or contract of insurance; nor shall any
or if a claim is denied by reason of such company, or any agent thereof, as to any policy
fraud.(Sec. 82) or contract of insurance issued, make any
*the insurer CANNOT keep discrimination against any Filipino in the sense that
the premium that was paid by the he is given less advantageous rates, dividends or
insured if the insurer was never at other policy conditions or privileges than are
risk because the policy was accorded to other nationals because of his race.
inoperative and innefectual from
the beginning. -violation of Section 370 constitutes a
ground for the IMMEDIATE REVOCATION of the
4. When the contract is annulled on license issued to the erring insurance company,
account of the fraud or misrepresentation of the agent or broker and the imposition of a fine not
insurer or of his agent or on account of facts, or exceeding P25,000.
the existence of which the insured was ignorant
of without his fault. Notes:
5. When by any default of the insured -The purpose of these statutes is the
other than the actual fraud, the insurer never PREVENTION OF UNFAIR DISCRIMINATORY
incurred liability under the policy PRACTICES by insurance companies, agents
6. When there is over-insurance by several and brokers in order to ensure that equal
insurers terms are fixed for policyholders of the
same insurable class and eequal
expectation of life.

-the statutes prohibit such practices STATUTE OF FRAUDS INAPPLICABLE
involving rebates or preferential -Article 1403, NCC (Statute of Frauds) -requires
treatment with respect to the cost of the a contract to be in a note or memorandum if it is one
policy or the benefits allowed fo the of the cases covered by SoF. The include contracts
premium. that CANNOT BE PERFORMED W/IN 1 YEAR after the
contract is made.
-Insurance contracts are NOT COVERED by
statute of frauds.
-For instance, life insurance contracts
may remain in force for decades, the
obligation of the insurance company to pay
the proceeds may likewise be performed
w/in 1 year because the future event
(death-insured) may occur w/in one year.
POLICY
The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
-It is without prejudice to the no required form

for the perfection of the contract.
PRINTED FORM
-The policy shall be in printed form which
may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number,
or word necessary to complete the contract of
insurance shall be written on the blank spaces
provided therein (Sec. 50(1st par.), I.C).
ELECTRONIC DOCUMENT
- the policy may be in electronic form
subject to the pertinent provisions of Republic
Act No. 8792, otherwise known as the
‘Electronic Commerce Act’ and to such rules and
regulations as may be prescribed by the
Commissioner. (Sec. 50(4th par.), I.C).
V. THE POLICY
APPROVAL OF INSURANCE COMPANY
-No policy, certificate or contract of
CONSENSUAL insurance shall be issued or delivered within the
-an insurance contract is a consensual contract Philippines UNLESS in the FORM PREVIOUSLY
-perfected by mere consent APPROVED BY THE COMMISSIONER, and
-no formality is required -no application form shall be used with, and
*an absence of a policy DOES NOT BAR the -no rider, clause, warranty or endorsement
contract from coming into existence shall be attached to, printed or stamped upon
such policy, certificate or contract UNLESS THE

FORM OF SUCH APPLICATION, RIDER, CLAUSE,
WARRANTY OR ENDORSEMENT HAS BEEN DESIGNATION OF BENEFICIARY
APPROVED BY THE COMMISSIONER (Sec. 232, -should be made in unequivocal terms
I.C). -RULES: Section 53, Insurance Code
The insurance proceeds shall be applied
exclusively to the proper interest of the person in
CLASSIFICATION OF INSURANCE CONTRACTS whose name or for whose benefit it is made unless
1. Declarations otherwise specified in the policy.
2. Insuring agreements
3. Exclusions IDENTIFICATION OF THE INSURED
4. Conditions
-RULES ON THE DETERMINATION OF THE REAL
OWNER OF THE POLICY:
DECLARATIONS -Section 54. When an insurance contract is
-(See. Section 51, Insurance Code) executed with an AGENT OR TRUSTEE as the
-declarations identify the insured; insured, the fact that his principal or beneficiary
-describe the property, activity, or life is the real party in interest may be indicated by
insured describing the insured as agent or trustee, or by
-state the types of coverage purchased other general words in the policy.
-applicable policy limits -Section 55. To render an insurance
-term of coverage effected by ONE PARTNER OR PART-OWNER,
-indicate the premium paid for each applicable to the interest of his co-partners or
separate coverage purchases other part-owners, it is NECESSARY that the
terms of the policy should be such as are
Purpose: to give insurer sufficient information applicable to the joint or common interest.
to enable it, to issue the desired contract at a proper
price.
-WHEN THE INSURED IS NOT SPECIFICALLY
INSURING AGREEMENTS IDENTIFIED:
-describe the characteristics of the events -Section 56. When the description of the
covered. insured in a policy is so general that it may
-specify what the insurer promises to do comprehend any person or any class of persons,
only he who can show that it was intended to
EXCLUSIONS include him, can claim the benefit of the policy.
-these provisions exclude specified perils,
property, sources of liability, persons losses, -Hence, it is a question of proof if the
locations and time periods; impose limitations. person claims that he is one of those described
as insured in general terms.
CONDITIONS
-conditions that must be complied before -Thus, an insurance over a car may
the insurer can be made liable and may describe designate the registered owner as the insured.
the basis for computing the premium. In such case, it can easily be established by
presenting the COR of the car.
POLICY V. NOTES
-In Marine Insurance, the policy should be POLICY FORM
distinguished in “Marine Risk Notes”----an -The insurer is GENERALLY FREE TO PROVIDE for
acknowledgment/ declaration confirming the specific the terms and conditions of the policies that it will
shipment covered by its Marine Open Policy, the issue so long as the same are not contrary to Law,
evaluation of the cargo, and the chargeable premium. Morals, Customs, and Public Policy.
Such note is not the policy itself. -Subject to the approval of the
Insurance Commission

-(SEE. Section 226, Insurance Code) -IN CASE REPUGNANCE
EXISTS BETWEEN WRITTEN AND
-In some cases, the Insurance Commission PRINTED PORTIONS OF POLICY,
approved STANDARD POLICIES that should be used THE WRITTEN PORTION PREVAILS.
by the insurers. -A rider prevails over the
-(SEE. Circular Letter 14-93) - Standard printed clause it covers
Fire Policy
-In certain cases, the law provides for the CONTRACT OF ADHESION
MANDATORY PROVISIONS -Insurance policies are contracts of adhesion
-(SEE. Sections 233-235, I.C) because one one part(insurer) prepares the written
1. Individual life contract while the other party(insured) merely
2. Endowment insurance adheres to the contract.
3. Group life -The conformity of the insured to the
4. Industrial life terms of the policy is implied from his
failure to express any disagreement with
what is provided for therein.
RIDERS
-RULE: injured persons may accept policies
-RULES REGARDING RIDERS, CLAUSES, without reading them, and that this is not negligence
WARRANTIES OR ENDORSEMENTS THAT ARE NOT per se. (Dura lex sed lex)
PART OF THE ORIGINAL PRINTED FORM BUT ARE -NO EXCEPTIONS
MERELY ATTACHED TO THE POLICIES:
-(SEE. Section 50 (2nd,3rd par.), I.C)
INTERPRETATION AND PROOF
-REQUISITES for a rider, clause warranty or
endorsement to be binding: INTERPRETATION
1. the rider, clause warranty or -any doubt should be resolved against the
endorsement is ATTACHED in the policy insurer and in favor of the insured. Since an
insurance contract is a contract of adhesion.
2. the descriptive title or name of the rider, -Section 1377, I.C
clause, warranty or endorsement is MENTIONED The interpretation of obscure words or
AND WRITTEN ON THE LANK SPACES PROVIDED stipulations in a contract shall not favor the party
IN THE ORIGINAL PRINTED POLICY FORM. who caused the obscurity.
3. If not applied for by the insured or PROOF

owner, the rider, clause, warranty or -if the terms and conditions of the policy is in
endorsement issued after the original policy question in a case, THE PARTY WHO SEEKS TO PROVE
shall be COUNTERSIGNED BY THE INSURED OR SUCH TERMS AND CONDITIONS MUST PRESENT THE
OWNER. POLICY during trial and formally offer it as evidence.
-the obligation to attach the policy to
-A rider is an endorsement to an insurance the complaint as an actionable document
policy that modifies clauses and provisions of the and to present and offer the same APPLIES
policy, including or excluding coverage. EVEN IF THE PLAINTIFF IS AN INSURANCE
COMOANY THAT IS TRYING TO RECOVER
Note: BASED ON ITS RIGHT OF SUBROGATION.
-if the requirements of COVER NOTES
Section 50 of the Insurance Code -are interim or preparatory contracts of
are complied with, they take insurance
precedence over the original
policy provisions.

-these are necessary because the insurer may may be able to establish (there being no express
need more time to process the insurance evaluation in the policy).
application. -the actual loss will represent the total
-(SEE. Section 52, I.C.) indemnity due the insures from the insurer
EXCEPT ONLY that the total indemnity shall not
-REQUISITES: exceed the face value of the policy.
1. the cover note shall be ISSUED OR
RENEWED ONLY UPON PRIOR APPROVAL OF 3. RUNNING POLICY
THE INSURANCE COMMISION. -this policy is a typical running policy where the
2. Shall be VALID AND BINDING NOT MORE extent of the property insured shall be defined from
THAN 60 days from the date of the issuance. time to time because of the nature of the business
3. May be CANCELLED BY EITHER PARTY that is being insured.
upon prior notice to the other of at least 7 days
4. Should be ISSUED WITHIN 60 days after *read problems given in the book for
the issuance of the cover note this topic. :)
5. The 60-day period MAY BE EXTENDED
upon written approval of the Insurance
Commission CANCELLATION
-Cancellation of property insurance should be
-WHEN APPROVAL IS DISPENSED WITH made in accordance with Sections 64 and 65 of the
-upon the certification of the president, Insurance Code.
vice president or general manager of the insurer
-REQUISITES OF CANCELLATION:
NOTE: NO SEPARATE PREMIUM is required 1. prior notice of cancellation to insured
for the cover note. 2. Notice must be base on the occurrence
after effective date of the policy of one or more
of the grounds mentioned in Sec. 64.
KINDS OF PROPERTY INSURANCE POLICY 3. Notice must e in writing, mailed or
-(Sections 60-62, I.C.) delivered to the name insured at the address
shown in the policy or to his broker is
1. VALUED POLICY authorized in writing in the policy owner to
-expresses the agreed valuation of the thing receive the notice of cancellation on his behalf.
insured on the face of the policy 4. Notice must state the grounds relied
-binding on the parties upon provided in Section 64 of the Insurance
-no part can establish a different valuation in Code and upon request of insured, to furnish
case of loss facts on which cancellation is based.
-the measure of indemnity is the agreed
valuation and not the actual loss NOTES:
-exception to the principle of indemnity -SECTION 64 APPLIES ONLY TO PROPERTY
-A LIFE INSURANCE POLICY is always a valued INSURANCE, however some of the grounds
policy because the amount fixed in the policy is stated may apply in life insurance such as the
always not related to the actual loss. cancellation of policy for non-payment of
premium, fraud or material misrepresentation.
2. OPEN POLICY
-sometimes called an “unvalued policy” because -SECTION 65 requires a statement of the
it is one in which the value is not fixed, but is grounds relied upon. NEVERTHELESS, so long as
left to be definitely determined in case of loss. the ground is stated, written notice to the
-No valuation of property is stipulated in an insured need not be in any particular form in
open policy. order to form the basis for the cancellation of a
-the insurer is only entitled to recover the policy.
amount of the actual loss sustained by him as he

-ACTUAL PERSONAL NOTICE to the insured error or mistake in respect to the
is ESSENTIAL it is a condition precedent to a expression of their purpose.
cancellation of the policy by the insurer.
Consequently, a letter containing a notice of MISTAKE
cancellation which is mailed by the insurer but -It is also possible for the insured to recover
not received by the insured, is INEFFECTIVE AS even if there was a mistake. It is NOT NECESSARY
CANCELLATION. that there be reformation of the policy.
-RECEIPT OF NOTICE BY BROKER:

-GENERAL RULE: not binding on
the insured.
-EXCEPTION: notice can be given
to the broker PROVIDED that the
broker is authorized in writing by the
policy owner to receive the notice of
cancellation on his behalf.
-CANCELLATION OF THE INSURED

-while section 64 deals only with the
right of the insurer to cancel the policy, it
does not follow that the insured cannot
cancel the policy.
-RIGHT TO SURRENDER THE POLICY
(SEE. Sec. 80, Insurance Code).
RENEWAL OF POLICY
-The insured has the RIGHT TO RENEW A
NON-LIFE INSURANCE POLICY by simply PAYING THE
PREMIUM DUE ON THE EFFECTIVE DATE OF THE
RENEWAL.
-HOWEVER, the insured will not
have any right if NOTICE OF THE
INTENTION NOT TO RENEW IS GIVEN
BY THE INSURER AT LEAST 45 DAYS
PRIOR EXPIRATION OF THE POLICY.
(See. Sec. 45, insurance Code)
REFORMATION OF THE POLICY

-It may happen that what was agreed upon is
different from what is written in the policy. In such
case, the Court would have the power to reform the
contracts and give effect to them in the sense in
which the parties intended to be bound.
Note: In order to justify this, it
must be clearly made to appear that
the minds of the contracting parties
did not actually meet in agreement
and they labored under some mutual

and which the other has not the means of
VI. ASCERTAINING AND CONTROLLING RISK ascertaining.
NOTES:
- The obligation to communicate is
FOUR PRIMARY CONCERNS the obligation of each party, both
Prof. Vance: the insurer and the insured.
1. The correct estimation of the risk which enables - The duty to disclose is required
the insurer to decide whether he is willing to because insurance contracts are
assume it, and if so at what rate of premium. described as contracts uberrimae
2. The precise delimitation of the risk which fidae, that is, of utmost good faith.
determines the extent of the contingent duty to
pay undertaken by the insurer.
3. Such control of the risk after it is assumed as will MATERIALITY
enable the underwriter to guard against the - Sec. 31, I.C.
increase of the risk because of change in
conditions. Section 31. Materiality is to be determined not
4. Determining whether the loss has occurred, and if by the event, but solely by the probable and
so, the amount of the loss. reasonable influence of the facts upon the party
to whom the communication is due, in forming
his estimate of the disadvantages of the
NOTES: proposed contract, or in making his inquiries.
- Because of these concerns, NOTES:

different DEVICES were developed - ONLY MATERIAL FACTS are
to ascertain and control risks such required to be disclosed.
as concealment, representation,
warranty, condition, and - In relation to the INSURED, the
exceptions. matter he concealed are
considered material if such matter
- The correct estimation of the risk will affect the insurer’s action on
may be made if all material his application.
information are disclosed and if
the parties are certain that - In relation to the INSURER, the
disclosed information can be relied matters concealed re considered
upon. material if they will affect the
decision of the insured to enter
into insurance contract.
CONCEALMENT
- Sections 26 and 28, I.C.
- Generally, the matter concealed by the
Sec. 26. A neglect to communicate that which a INSURED is considered material IF IT RELATES
party knows and ought to communicate, is called a TO PHYSICAL HAZARD OR MORAL HAZARD.
concealment. - if the INSURER knows about the
circumstances relating to physical or
Sec. 28. Each party to a contract of insurance must moral hazard, it will give him a chance
COMMUNICATE to the other, IN GOOD FAITH, all to make further inquiries and to decide
facts within his knowledge which are material to on the basis of such inquiry.
the contract and as to which he makes no warranty,

- If there’s nothing in the policy that makes it an 2. The fact concealed must be material
obligation of the party to make disclosure 3. No warranty is extended by the party
during life of the contract, then THERE IS NO regarding the fact concealed
DUTY TO MAKE SUCH DISCLOSURE for facts 4. The other party does not have the means
occurring after the insurance takes effect. of ascertaining.
- SC: The basis of the rule vitiating the contract
in case of concealment is that it misleads or KNOWLEDGE OF AGENT OF INSURED
deceives the insurer into the accepting the risk, - Knowledge on the part of the agent of the
or accepting it at the rate of premium agreed insured CAN BE IMPUTED ONLY IF THE FF.
upon. CIRCUMASTANCES ARE PRESENT:
1. It was the duty of the agent to acquire
NOTES: and communicate information of the
- The transfer of the location of the facts in question.
insured machineries was 2. It was possible for the agent, in the
considered material concealment exercise of reasonable diligence, to
that should have been disclosed have made such communication
when the fire insurance policy was before the making of the insurance
renewed. [Malayan Insurance v. contract.
PAP Co. Ltd]
[READ: Florendo v. Philam Plans, Inc.]
- The SC ruled that there was
material fact in the event the
insured signed the insurance
application without filling in the WHEN THERE IS NO CONCEALMENT
details regarding his continuing - Secs. 30, 32-35, I. C.
treatments for heart condition and
diabetes. [Florendo v. Philam Plans, - There is no material concealment that
Inc.]. justifies the insurer to rescind the policy in
the fallowing cases:
CAUSATION NOT NECESSARY 1. When matters are KNOWN TO THE

- the matter concealed NEED NOT BE the OTHER PARTY;
cause of the loss. It is well-settled that the 2. When, in the exercise of ordinary care,
insured need not die of the disease if he had one party ought to know, and of which
failed to disclose to the insurer the existence the OTHER PARTY HAS NO REASON TO
of such disease. [Sun Assurance Company of SUPPOSE HIM IGNORANT;
Canada v. The Hon. CA and Spouses Bacani]. 3. When there is WAIVER of
communication;
- it is SUFFICIENT that his non-disclosure 4. When matters are those which PROVE
misled the insurer in forming his estimates of OR TEND TO PROVE THE EXISTENCE OF
the risks of the proposed insurance policy or A RISK excluded by a warranty;
in making inquiries. 5. When matters are those which RELATE
TO A RISK EXCEPTED FROM THE POLICY
and which are not otherwise material;
REQUISITES: 6. When the matter involves GENERAL
- requisites to justify one party to rescind the CAUSES that are OPEN TO INQUIRY of
policy on the ground of concealment. each party and WHICH MAY AFFECT THE
POLITICAL OR MATERIAL;
1. The party involved must know the fact 7. When the matter is included in
concealed or at least he ought to know the GENERAL USAGES OF TRADE;
same

8. INFORMATION of the nature or amount inception, such knowledge would constitute
of the insured property, IS NOT a WAIVER OF CONDITIONS IN THE
DISCLOSED UNLESS in answer to an CONTRACT INCONSISTENT WITH THE FACTS,
inquiry; AND THE INSURER IS ESTOPPED FROM
9. When what is involved is information of ASSERTING THE BREACH OF SUCH
the party’s own judgment upon the CONDITIONS.
matters in question. o REASON: it is contrary to the dictates
of honesty and fair dealing and so
- FACTS THAT NEED NOT BE DISCLOSED: closely related to positive fraud, as to
o The reason for the rule which obliges the abhorrent to fair-minded men.
parties to disclose is to prevent fraud
and to encourage good faith.
HOWEVER, NOT ALL FACTS ARE TO BE INTENTIONAL AND UNINTENTIONAL CONCEALMENT
DISCLOSED TO THE OTHER PARTY: - Section 27, I.C.
§ The underwriter need not be told
what lessen the risk agreed and A concealment whether intentional or
understood to be run by the unintentional entitles the injured party to
express terms of the policy. HE rescind a contract of insurance.
NEED NOT BE TOLD GENERAL
TOPICS OF SPECULATION. - This rule is consistent with the definition of
concealment as “negligence to communicate
§ OPINIONS OF THE INSURED NEED that which a party knows and ought to
NOT BE DISCLOSED- the duty of communicate”.
disclosure-- and the duty not to
misrepresent requires that the - The BASIS OF THE RULE vitiating the contract
statement to be made by one party in cases of concealment is that it misleads or
relates to facts and NOT TO deceives the insurer into accepting the risk,
OPINION. HOWEVER, there must or accepting it at the rate of the premium
§ be good faith and there must be no agreed upon. [Argente v. West Coast Life
intent to deceive. Insurance, Co.].
- Prof. Dover: concealment, or suppressio veri,

JUDGEMENT OR OPINION is nearly allied to allegatio falsi, and avoids a
contract upon principles of natural justice.
NOTE: Every concealment, whether arising fro
- there would be NO CONCEALMENT so long accident, negligence, inadvertence, or
as the answers are made in good faith and mistake, if material, will be equally fatal to
without intent to deceive even if the the contract as if it were intentional or
answers which are in the nature of opinions fraudulent.
are untrue. [Philamcare health Systems, Inc.
v. CA and Julita Trinos]. NOTE:
- GOOD FAITH IS NO DEFENSE IN
[READ: Sunlife Insurance Company of CONCEALMENT- materiality of the
Canada v. CA and Spouses Bacani]. information withheld does not
depend on the state of mind of the
insured. Neither does it depend on
KNOWLEDGE OF THE INSURER the actual or physical events which
- Where the insurer, at the time of the ensue.
issuance of a policy of insurance, has
knowledge if existing facts which would - Section 27 of the I.C. of 1978 is
invalidate the contract from its very properly read as referring to “any

concealment” without regard to o The majority view is consistent with
whether such concealment is what Prof. Vance referred to as the
intentional or unintentional. The ENGLISH DOCTRINE.
restoration in 1985 by B.P. Blg. 874
of the phrase “whether intentional - The minority view is to the effect that THE
or unintentional” merely CONTRACT CANNOT BE RESCINDE ON THE
underscored the fact that all GROUND OF CONCEALMENT IF THE
throughout (from 1914-1985), the NON-DISCLOSING PARTY DOES NOT KNOW
statute did not require proof that THE FAC INVOLVED.
concealment must be intentional o This view is supported by the
in order to authorize rescission by definition of in section 26 of the
the injured party. Insurance Code which states that
concealment is neglect to
- An exception to the rule that communicate that which a party
“knows and ought to
- Concealment may be intentional communicate.”
or unintentional is provided in § According to this view, when the
SECTION 29: An intentional and law states that the concealment is
fraudulent omission, on the part of intentional or unintentional, the
one insured, to communicate intent refers to the intent to
information of matters proving or deceive or “corrupt intent.
tending to prove the falsity of a
warranty, entitles the insurer to
rescind… because the requirement NOTES:
therein is that the omission is - it is required under Section 26 that the fact
intentional or fraudulent. allegedly concealed is known to the party or at
the very least, the fact is something that the
- There would still be material party who allegedly concealed ought to know.
concealment even if the insured
has no knowledge of the existence
of a duty to disclose. EXCEPTIONS:
- There were cases when the SC did not
- Concealment is present if the sustain the insurer’s position that the
insured has no knowledge of the insurance policies in question can be
fact which he already knows. A avoided on the ground of concealment
man may act in perfect good faith or misrepresentation.
within the meaning of the ordinary 1. When the matter allegedly concealed
term of the phrase, yet still be held is a MATTER OF OPINION
not to have acted in the utmost 2. When the insurer WAIVED HIS RIGHT
good faith in the legal sense. to the information as in the case
where the insured gave an imperfect
answer.
KNOWLEDGE OF THE FACT CONCEALED
- Under the majority view, absence of EXAMPLE:
knowledge of the fact concealed WILL NOT a. The insurer was not informed
DEPRIVE THE INSURER OF THE RIGHT TO on the medical condition of
INVOKE CONCEALMENT because the insured. The court ruled
unintentional concealment is still that the medical condition of
concealment that is contemplated in Section the insured is a matter of
26. opinion which cannot be
invoked SO LONG AS THERE

WAS NO INTENT TO DECEIVE.
Hence, if the insured stated
that he is in good health, such TIME OF REPRESENTATION
statement is a matter of - Sec. 37, Insurance Code
opinion and should not be
construed as material A representation may be made AT THE TIME
concealment. [UCPB General OF, OR BEFORE, issuance of the policy.
Insurance Case].
b. In life insurance, even if from NOTE:
the viewpoint of a medical - information statements made
expert, the information after the policy takes effects
communicated about the obviously will no longer have any
ailment of the insured was bearing on the decision of the
imperfect, there would be no insurer or the decision of the
ground to avoid the policy on insured to enter into a contract.
the ground of concealment if
the imperfect answer or
information is nevertheless MODIFICATION
sufficient to have induced - Section 47, I.C.
insurer to make further
inquiries about the ailment Note:
and operation of the insured. - The representation MAY ALSO BE ONE
THAT INDUCES THE PARTY TO AGREE
[READ: Ng Gan Zee v. Asian Crusader Life TO MODIFY THE CONTRACT.
Insurance Corporation]
REMEDY: DISTINCTIONS AND SIMILARITIES

- Section 27 provides that the
presence of concealment entitles CONCEALMENT REPRESENTTAION
the insurer to RESCIND the 1. it involves a
1. It involves an
insurance contract. positive assertion or
omission- nondisclosure
o NOTE: affirmation
- the RIGHT TO RESCIND 2. CAN pertain to the
should be exercised 2. CANNOT refer to
future because it can
previous to the future acts
be a promissory
commencement of an
action on the contract. 3. Same test of materiality applies
- it is subject to the
incontestable clause. (read 4. A party can rescind.
problems in the book)
KINDS
REPRESENTATION
1. AS TO FORM
- It refers to statements made to give information to
a) ORAL
the insurer to induce him to enter into the insurance
b) WRITTEN
contract.
2. AS TO THE NATURE
- A representation is a COLLATERAL COMMUNICATION
a) AFFIRMATIVE
made to the other party in writing or by word of
mouth.

§ Statements dealing with facts o Thus, there is deemed to be material
existing at the time the misrepresentation if the knowledge of
contract is made. one party thereof will affect the
insurer’s action on his application.
b) PROMISSORY
§ Statements made by the
insured concerning what is to - EXAMPLES:
happen at the time the a. The representation is material if it
insurance is already effective. relates to health, freedom from disease,
habits and medical attendance. There
NOTE: are instances when family relationships
- Under Sec. 39, I.C.: A representation as to and family history may also be
the future is to be deemed a promise, important.
UNLESS it appears that it was merely a b. Representations as to age in Life
statement of belief or expectation. Insurance. [Section 233(d)].
INTERPRETATION Note:
- Construed liberally in favor of the insured - A misstatement of the age of the
and are required to be only substantially insured DOES NOT AVOID the policy.
true. The only result is that any amount
payable or benefit accruing under the
NOTES: policy will be equal to to what the
- Section 38: the language of a premium paid by the insured would
representation is to be interpreted have purchased if the age had been
by the same rules as the language correctly stated.
of contracts in general.
o Arts. 1370-1379, NCC may - the standard life insurance company
be applied. policy issued under Cir. Letter No.
14-93, June 25, 1993 includes that:
- Section 42: a representation must “ ….
be presumed to refer to the date If at the correct age, the insured
on which the contract goes into is not eligible for any coverage under
effect. this policy or its riders, the company
o Example: the will refund the corresponding
representation that the premiums actually received by the
house is not occupied company less any indebtedness under
related to the time the this policy.”
contract takes effect.
- the correct age of the insured is the
- Section 40: a representation CHIEF CORNER-STONE of the life
cannot qualify an express insurance structure. The prudent thing
provision in a contract of insurance for the insurer to do then is to require
but it may qualify an implied the submission of the Certificate of
warranty. Live Birth of the insured.
- If such will not be required and
the insurer merely relied on the
TEST OF MATERIALITY representation of the insured, the
- The materiality of a representation is insurer’s only recourse is to make
determined by the same rules as the adjustment regarding premium if there
materiality of a concealment. was misstatement.

non-fulfillment, renders the policy voidable by the
- it is believed that the misstatement insurer.
as to the age o the insured must be
done in GOOD FAITH. KINDS
- [otherwise, a ground to rescind a. EXPRESS
for misrepresentation] - stated in the policy or any of its
attachments
c. Erroneous description of building in fire
insurance. b. IMPLIED
- Misdescription of the building - natural element of the contract
without the fault of the insured imposed by law and are part of the
cannot be considered material policy without the need that it be stated
representation. in the policy
c. AFFIRMATIVE WARRANTY
REMEDY - affirmation of fact that exist at the
- RIGHT TO RESCIND under Sec. 45: If a TIME THEY ARE MADE.
representation is false in a material point, whether d. PROMISSORY WARRANTY
affirmative or promissory, the injured party is - stipulates that certain things shall be
entitled to rescind the contract from the time when done or a specified condition shall exist
the representation becomes false. during the currency of life of the
insurance contract.
WHEN RESCISSION IS UNAVAILABLE
i. POSITIVE ACT
1. When there is waiver – [insured in a fire insurance may
2. When an action has already been warrant that the firewall of the building
commenced on the contract will be modified to the height and
3. When the incontestable clause applies specifications stated in the policy
ii. OMISSION
NOTE: - [where the insured warrants that he
- ESTOPPEL IS NO LONGER will not store gasoline or kerosene in
APPLICABLE the insured building].
- Acceptance of the premium
will not estop the insurer from NOTES:
rescinding the policy on the - Promissory warranties are subject
ground of misrepresentation. to Sections 72 and 73 of the
- In other words, the insurer can Insurance Code:
still rescind the policy even if it
accepted the premium despite Section 72. A statement in a policy, which
knowledge of the ground for imparts that it is intended to do or not to
rescission provided that other do a thing which materially affects the risk,
defenses are not available like is a warranty that such act or omission
shall take place.
the incontestability clause.
Section 73. When, before the time arrives
for the performance of a warranty relating
WARRANTIES to the future, a loss insured against
- It is an affirmation of fact or a promise that forms happens, or performance becomes
part of the terms and conditions of the policy. unlawful at the place of the contract, or
- It is a statement or promise set forth in the policy, or impossible, the omission to fulfill the
by reference incorporated therein, the untruth or warranty does not avoid the policy.

- HOWEVER, Non- compliance with
FORMALITIES OF EXPRESS WARRANTY a warranty is excused when by
- No particular form of words (Sec. 69) reason of a change of
- HOWEVER, Section 70 states: Without circumstances, the warranty
prejudice to Section 51, every express ceases to be applicable to the
warranty, made at or before the execution of circumstances of the contract, or
a policy, (1) must be contained in the policy when compliance with the
itself, or (2) in another instrument signed by warranty is rendered unlawful by
the insured and referred to in the policy as any subsequent law.
making a part of it.
BREACH WITHOUT FRAUD

NOTES: - Section 76, I.C.
(Examples)
- A statement in a policy of a matter relating A breach of warranty without fraud merely
to the person or thing insured, or to the EXONERATES an insurer from the time that it
risk, as a fact, is an express warranty occurs, or where it is broken in its inception,
thereof. PREVENTS the policy from attaching to the
BREACH OF WARRANTY BY THE INSURED risk.
- Breach of warranty by the insured renders
the CONTRACT DEFEASIBLE.
o In order to avoid the policy, the insurer
must prove such breach consistent
with the rule that any violation must DISTINCTIONS:
be established by the person who is
making such allegation. WARRANTY REPRESENTATION
§ The insurer may elect to 1. Part of the 1. NOT PART but a
waive his right to avoid the contract collateral inducement
policy in case of breach by 2. Written on a 2. Can be oral or in
the insured. policy or its rider writing
3. Presumed to be 3. Must be established
REMEDY material to be material
- Section 74. The violation of a material 4. There must be 4. it must be
warranty, or other material provision of a strict compliance substantially true.
policy, on the part of either party thereto,
entitles the other to RESCIND.
- Section 75. A policy may declare that a OTHER DEVICES

violation of specified provisions thereof shall - Risks can also be limited or controlled using
avoid it, otherwise the breach of an ‘exceptions’, ‘exclusions’, and ‘conditions’.
immaterial provision does not avoid the
policy. [AVOID THE POLICY]
CONDITIONS
NOTES: - They do not relate to the risk covered or
- However, If the policy itself statement of facts but are in the NATURE OF
provides that breach of a warranty COLLATERAL PROMISES OR STIPULATIONS.
or a provision avoids the policy,
the warranty is deemed to be - An insurance contract with stipulated
material. conditions is the law between the parties. Its
terms and conditions constitute the measure

of the insurer’s liability and compliance policy is void ab initio or is rescindable by reason of
therewith is a condition precedent to the the fraudulent concealment or misrepresentation of
insurer’s right to recovery from the insurer. the insured or his agent.
- The burden is on the insurer to prove that

the insured breached the condition that is MANDATORY INCOTESTABLE CLAUSE
imposed. - Section 233 requires the following
incontestable clause in an Individual Life or
EXCEPTION, EXLUSION OR EXEMPTION Endowment Policy.
- The insurer may provide for exemptions or - Section 234 requires for group life insurance
exceptions in the policy. policies
- Section 236 for industrial insurance policies.
- HOWEVER, the rule is that, if the insurer
desires to Limit or RESTRICT the operation of RATIONALE
the general provisions of its contract by - The incontestable clause is upheld in law for
special proviso, exception or exemption, the the purpose of shutting off harassing
policy should express such limitation in clear defenses.
and unmistakable language. - The clause is designed to induce the insurer
to investigate and cat with reasonable
o The terms and phraseology of the promptness if it wishes to aid the policy.
exception clause be clearly expressed
so as to be within the easy grasp and NOTES:
understanding of the insured. - The facts can be ascertained and
o Exceptions to the general coverage are established if investigated within
construed most strongly against the the soonest possible time.
company. Investigation becomes harder
o The obligation to prove that the loss is through the passage of time.
covered by the exception rests with
the insurer. - The insurer has 2 YEARS from the
o The failure of the insurance company date of issuance of the insurance
to include death resulting from contract or of its last
murder or assault among the reinstatement within which to
prohibited risks leads inevitably to the contest the policy, whether or not,
conclusion that it did not intend to the insured still lives within such
limit or exempt itself from liability of period.
such death.
- After 2 years, the defenses of
concealment or misrepresentation,
INCONTESTABLE CLAUSE no matter how patent or well
- Section 48, I.C. founded, no longer lie.
Whenever a right to rescind a contract of insurance WHEN INAPPLICABLE

is given to the insurer by any provision of this - The incontestable clause cannot be invoked
chapter, such right must be exercised previous to the in cases:
commencement of an action on the contract. 1. Non- payment of premium
2. Violations of he conditions of the
After a policy of life insurance made payable on the policy relating to military or naval
death of the insured shall have been in force during service in times of war
the lifetime of the insured for a period of two (2) 3. Property insurance
years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the

WAR LIMITATION RIDER OR WAR CLAUSE - Good health is NOT THE SAME AS
- Section 227 requires a provision in the policy that INSURABILITY.
the INCONTESTABLE CLAUSE DOES NOT APPLY if Example: a criminal that is
there is a violation of the conditions of the policy condemned to death may be in perfect
relating to military or naval service in times of war. health but hardly insurable.
- The war clause itself is NOT REQUIRED by the - The insurability clause may likewise be
Insurance Code. However, the moment the parties stipulated upon by the parties for individual
include a war clause in the policy, the beneficiaries life and endowment policies. This clause
can no longer invoke the incontestable clause if the becomes more important when the insured
war clause is violated. is entitled to reinstatement or renewal of the
policy.
- The war limitation clause or rider limits the liability
of the insurer in the event the insured looses his - Proof of insurability at the time of the
life as a result of war. application for reinstatement is a proper risk
for insurance upon the basis of the original
- Hence, a war clause does not represent so much a contract.
limitation on the coverage in the broad sense as a
practical way of issuing coverage that would not
otherwise be made available to a large number of TIMELINESS OF RESCISSION
young men in times of war or when war is - The provision requiring the right to rescind
imminent. It permits the issuance of the life to be exercised previous to the
insurance policies that would not otherwise be commencement of an action is a copy of
issued. section 47 in the old law.
DEFENSES OF INSURED AGAINST REVOCATION - If an insurer cannot rescind the contract

- Aside from incontestable clause because of the commencement of an action,
1. Guaranteed insurability clause the insurer can still set up the ground for
2. Failure to invoke before commencement of the rescission as a defense.
action
3. Waiver
4. Estoppel WAIVER
- It is the intentional relinquishment of a
known right.
GUARANTEED INSURABILITY CLAUS - It always involves consent but it does not rise
- Under Section 228, statements that tend to to the level of contract.
show that the insured is uninsurable cannot - Waiver may be EXPRESS or IMPLIED.
be used against him in the ff. cases:
NOTES:
1. If the insurance has been in force prior - The right to information of material facts
to the contest for a period of two years may be waived, either by the terms of the
during the person’s lifetime. insurance or by neglect to make inquiry
2. If the statement is not in writing and/or as to such facts, where they are distinctly
not signed by the insured. implied in other facts of which
information is communicated.
NOTES:
- The term “insurability” includes all matters - Waiver is also illustrated in Section 33: The
EXCEPT AGE OF THE INSURED. It includes right to information of material facts may
such elements as habits, occupation, be waived, either by the terms of
finances and good health. insurance or by neglect to make inquiry as
to such facts, where they are distinctly

implied in other facts of which - is that cause which, in natural and continuous
information is communicated. sequence, unbroken by any efficient intervening
cause, produces the injury and without which the
result would not have occurred.
ESTOPPEL
- Article 1431, NCC: Through estoppel an
admission or representation is rendered REMOTE CAUSE
conclusive upon the person making it, and - that cause which some independent force
cannot be denied or disproved as against the merely took advantage of to accomplish
person relying thereon. something which is no the natural effect thereof.
- (CAUSA PROXIMA NON REMOTA SPECTATOR)
- Estoppel may be in pais or by deed. -THE INSURER WILL NOT BE LIABLE if a
peril insured is a mere remote cause.
- Unlike a waiver, there is element of consent
in estoppel.
NOTES:
[READ: Fieldmen’s Insurance Company v. - There must be a DIRECT and
Mercedes Vargas Vda. De Songco] UNINTERRUPTED sequence between the
proximate cause and the ultimate loss.
- The INTENTION of the parties comes
into play because of the element of the
perils insured against. UNLIKE IN TORT
CASES, there is a threshold question in
insurance if the peril is covered by the
insurance.
- INITIALLY, the policy should be
VII. LOSS AND NOTICE OF LOSS examined to determine WHAT
ARE THE PERILS INSURED
AGAINST AND THE PERILS THAT
LOSS ARE EXCLUDED.
- The injury or damage sustained by the injured in - Afterwards, another question is
consequence of the happening of one or more of WHETHER OR NOT THE EVENT
the accidents or misfortune against which the THAT TRANSPIRED FALLS WITHIN
insurer, in consideration of the premium, has THE CONTEMPLATION OF WHAT
undertaken to indemnify the insured. IS EXPRESSLY PROVIDED FOR.
- [PROPERTY INSURANCE] IMMEDIATE CAUSE

- it is the pecuniary detriment consisting of - It suggests proximity in time to the loss.
the total cash value of the property IN CASE OF - What is usually contemplated is a situation
TOTAL LOSS; or the reduction of the cash value IN where 2 causes are occurred: One cause occurs
CASE OF PARTIAL LOSS. after the other.
- Example: an explosion occurs in a
- [LIFE INSURANCE] building which was followed by fire which
- loss occurs when the person dies while in destroyed the building. (immediate cause:
health insurance; - fire).
- loss occurs in case of injury to or disability
of the insured.
NOTES:
- The rules in QUASI-DELICT is that the
PROXIMATE CAUSE tortfeasor is liable only if his NEGLIGENT

act or omission IS THE PROXIMATE CAUSE - (In tort law, where the negligent acts of 2 or
OF THE LOSS. more persons concur in bringing about an injury
- In INSURANCE CASES, it would be to another, the joint tortfeasors shall be solidarily
possible for the insured to recover even if liable;
the insured against is not the proximate - solidary liability is present if the causes are
cause the loss. The insurer may be liable over-determined, that is, the acts or omissions
even if the peril insured against is just an concur but can separately cause the same injury
immediate cause and another cause is even if only one occurs;)
the proximate cause.
- In insurance cases, the issue is WHETHER THE
SUMMARIZED [SECTIONS 86-88] INSURER IS LIABLE IF THE PERIL INSURED
1. THE INSURER IS LIABLE if the peril insured AGAINST IS ONLY ONE OF THE CONCURRENT
against is the proximate cause of the loss. (the CAUSES. When an insurance policy provides
liability is present even if it is accompanied by a coverage for losses produced by some causes,
remote cause or an immediate cause and whether and excludes coverage for losses from other
or not such causes are excepted perils). causes, courts frequently hold that coverage
extends to the loss even though an excluded
2. THE INSURER IS NOT LIABLE if the peril insured element is a contributory cause.
against is the remote cause.
- An incidental peril outside the policy,
3. THE INSURER IS LIABLE if the thing insured is contributing to the risk insured against, will not
damaged because it was being rescued from the defeat recovery nor may the insurer defend by
peril insured against. showing that an earlier cause brought the loss
not within a peril insured against, where the
4. THE INSURER IS LIABLE for damages caused by a insured peril was the last step prior to loss.
peril not insured against to which the thing was
exposed while the same was being rescued from a - Where only concurring cause of loss is insured
peril insured against. against and damage and damage by each cause
cannot be distinguished, the party responsible for
5. THE INSURER IS LIABLE if the peril insured the dominating efficient cause has been held
against is the immediate cause of the loss if the liable for the loss.
proximate cause is NOT an excepted peril.
- Where there are several concurring causes of loss,
6. THE INSURER IS NOT LIABLE if the peril insured and the damages by the respective perils can be
against is the immediate cause but the proximate distinguished, each party must bear his
cause is an excepted peril. proportion.
- It has also been observed that California courts

Example: have applied a rule that WHERE TWO PROXIMATE
- FIRE (proximate cause); EXPLOSION CAUSES JOIN IN CAUSING AN INJURY ONE OF
(immediate cause) WHICH IS INSURED AGAINST, THE INSURER IS
- If fire is a peril insured against, even if LIABLE UNDER THE POLICY irrespective of the
explosion is an excepted peril, the eventuality that there is another concurrent
INSURER IS LIABLE. proximate cause which constitute an uncovered
- If fire is an excepted peril and explosion is risk.
the one insured against, the INSURER IS
NOT LIABLE.
NEGLIGENT AND INTENTIONAL ACTS OR OMISSIONS
- Section 89, I.C.
CONCURRENT CAUSES An insurer is NOT liable for a loss caused by the
willful act or through the connivance of the

insured. BUT he(insurer) is not exonerated by the communicate it. (in another case, the SC ruled
negligence of the insured, or of insurance agents that the words “immediate notice” can be
or others. construed to mean only within a reasonable time.
- RULE: NOTES:
1. The insurer is NOT LIABLE for losses caused - It is sufficient that there is substantial
by intentional acts caused by the insured. compliance with the provision in the policy
2. The insurer is LIABLE if the loss was caused requiring notice of loss.
through negligence.
- WAIVER OF NOTICE OF LOSS: there is a
- It is a basic rule in insurance that the carelessness waiver f the requirement of notice of loss if
and negligence of the insured or his agents the claim is denied on the ground that the
constitute no defense on the part of the insurer. policy is null and void. (reason: furnishing of
such notice would be useless)
- NOTE: While mistake and negligence of the
insured or his agent constitute part of the perils
that the insurer is obliged to incur, such PROOF OF LOSS
negligence or recklessness MUST NOT BE OF - General rule: It is NOT REQUIRED for the insured
SUCH GROSS CHARACTER as to amount to to submit a preliminary proof of loss.
misconduct or wrongful acts; OTHERWISE, such - Exception: there is a stipulation in the policy
negligence shall release the insurer from liability requiring submission of proof of loss.
under the insurance contract.
NOTES:
- If there is a contractual stipulation,
NOTICE OF LOSS compliance should be in accordance with
- Note that this notice is different from the claim Sections 91 and 94 of the Insurance Code.
itself although a claim within the period of giving
notice is already deemed compliance within the Section 91. When a preliminary proof of loss
requirement. is required by a policy, the insured is not
- The parties may agree on a stipulation in the bound to give such proof as would be
policy that notice should be given within a certain necessary in a court of justice; but it is
period from the time of the loss. sufficient for him to give the best evidence
- The parties may also agree that the absence of which he has in his power at the time.
notice of loss within the period agreed upon will
extinguish the loss. Section 94. If the policy requires, by way of
preliminary proof of loss, the certificate or
- HOWEVER, in Fire Insurance, notice of loss is testimony of a person other than the insured,
mandatory under SECTION 90: Notice may be it is sufficient for the insured to use
given either by: reasonable diligence to procure it, and in
1. The insured case of the refusal of such person to give it,
2. The person entitled to the benefit of then to furnish reasonable evidence to the
the insurance insurer that such refusal was not induced by
any just grounds of disbelief in the facts
- Under Section 90, the notice should be given necessary to be certified or testified.
without UNNECESSARY DELAY. (it would depend
on the circumstances if there was unnecessary
delay in giving the notice of loss.) - The law DOES NOT REQUIRE preponderance of
- If the policy requires IMMEDIATE NOTICE: Notice evidence because the insured is not bound to
will be considered IMMEDIATE if it has been submit preliminary proof. Substantial evidence is
given as soon as the circumstances permitted the also NOT REQUIRED because the latter is required
insured in the exercise of reasonable diligence, to only in quasi-judicial cases. ALL THAT THE LAW

REQUIRES is for the insured to give the best Delay in the presentation to an insurer of notice
evidence which he has in his power to submit at or proof of loss is waived if caused by any act of
that time. him, or if he omits to take objection promptly and
specifically upon that ground.
- If the policy is valued, the valuation fixed in fire
insurance policy is conclusive in case of total
loss.\ CASES WHEN DELAY IS EXCUSED
- If the policy is an open policy, the valuation is not 1. When delay is attributable to the insurer.
conclusive and the loss and its amount may be 2. When there was no prompt objection.
determined on the basis of such proof as may be 3. There was an objection but not specifically
offered by the insured, which need not be of such on the ground that there was delay of notice
persuasiveness as is required in the judicial or proof of loss.
proceedings.
- HOWEVER, if the claim is denied and the insured

is constrained to file a case in court, the burden
of proof is on the insured to prove his loss. If a
case is filed in court, the insured must prove his
cause of action by preponderance of evidence
- In an accident insurance, the insured’s
BENEFICIARY has the burden of proof in
demonstrating that the cause of death is due to
the covered peril. Once established, the burden
then shifts to the INSURER to show any excepted
peril that may have been stipulated by the parties.
HOWEVER, when the insured risk is specified it
lies with the claimant of the insurance proceeds
to initially proof that the loss is caused by the
covered peril.
DEFECTS IN NOTICE AND PROOF

- Section 92, I.C.
All defects in a notice of loss, or in preliminary

proof thereof, which the insured might remedy,
and which the insurer omits to specify to him, VIII. CLAIMS SETTLEMENT AND SUBROGATION
without unnecessary delay, as grounds of
objection, are waived.
The expectation of payment for his loss is the primary
- NOTE: There is no defect of proof even if an reason why the insured entered into the insurance
adjuster’s report is not submitted. There in contract. For the insured, it is imperative that the insurer
nothing in the I.C. that makes the participation of effect a fair and prompt payment for his loss. For the
an adjuster in the assessment of the loss insured, it is imperative that the insurer effect a fair and
imperative or indispensable. prompt payment for his loss.
CLAIMS SETTLEMENT
EFFECT OF DELAY - Section 247, I.C.
- Section 93:
No insurance company doing business in the
Philippines shall refuse, without just cause, to pay

or settle claims arising under coverages provided claims submitted in which liability has
by its policies, nor shall any such company engage become reasonably clear;
in unfair claim settlement practices. Any of the 5. Compelling policyholders to institute suits to
following acts by an insurance company, if recover amounts due under its policies by
committed without just cause and performed offering without justifiable reason
with such frequency as to indicate a general substantially less than the amounts
business practice, shall constitute unfair claim ultimately recovered in suits brought by
settlement practices. them.
TERMS:
- Insurance Adjusting- the term used to denote the LIFE INSURANCE POLICY
function of loss payment. - In this policy, the proceeds shall be paid
- Adjuster- the person employed by the insurer in immediately upon maturity of the policy.
property and casualty insurance to settle in - HOWEVER, the policy may provide that the
behalf of the insurer the claim of the insured. The proceeds are made payable in installments or as
adjuster evaluates the insurance claim and makes an annuity as they become due.
the proper recommendation to the insurer.
Under the insurance code, the adjuster may be NOTES:
an Independent Adjuster or a Public Adjuster. - In the case of a policy maturing by the death
(NOTE: however, that the functions of an adjuster of the insured, the proceeds shall be paid
are merely to settle and adjust claims in behalf of within 60 days after presentation of the
his principal. The adjuster does not assume claim and filing of the proof of death of the
personal liability.) insured.
- Independent Adjuster- any person, partnership, - Refusal or failure to pay the claim within the
association or corporation which, for money, time prescribed therein will entitle the
commission or any other thing of value, acts for beneficiary to collect interest on the
or on behalf of an insurer in the adjusting of proceeds of the policy for the duration of the
claims arising under insurance contracts or delay at the rate of twice the ceiling
policies issued by such insurer. prescribed by the Monetary Board, unless it
- Public Adjuster- is any person, partnership, is based on the ground that the claim is
association or corporation which, for money, fraudulent. (Section 249)
commission or any other thing of value, acts of an
insured in negotiating for, or effecting, the
settlement of a claim or claims of the said insure NON-LIFE INSURANCE POLICY
arising under insurance contracts or policies, or - The amount of any loss or damage for which an
which advertises for or solicits employment as an insurer may be liable shall be paid with 30 days
adjuster of such claims. after proof of loss is received by the insurer and
ascertainment of the loss or damage is made
either by agreement or by arbitration.
UNFAIR CLAIMS SETTLEMENT
1. Knowingly misrepresenting to claimants the NOTES:
pertinent facts or policy provisions relating to - If ascertainment of loss is not had or made
coverage at issue; within 60 days after such receipt by the
2. Failing to acknowledge with reasonable insurer of the proof of loss, then the loss or
promptness pertinent communications with damage shall be paid within 90 days after
respect to claims arising under its policies; receipt of the proof of loss.
3. Failing to adopt and implement reasonable
standards for the prompt investigation of - Refusal or failure to pay the claim within the
claims arising under its policies; time prescribed therein will entitle the
4. Not attempting in good faith to effectuate beneficiary to collect interest on the
prompt, fair and equitable settlement of proceeds of the policy for the duration of the

delay at the rate of twice the ceiling insured, the interest is 6% per annum from the
prescribed by the Monetary Board (“double time of demand.
interest” = 12% (6% x 2)), unless it is based o HOWEVER, even if the BSP will eventually
on the ground that the claim is fraudulent. increase the rate of interest to a rate that
(Section 249) is higher than 6% for loan or forbearance
of money or goods, then the higher rate
- The insurer must settle the claim even is still not applicable to insurance claim
without the participation of an adjuster. because the insurance claim is not a loan
[there is nothing in I.C. that makes or forbearance of money.
participation of an adjuster imperative or § HOWEVER, in case such increase
indispensable nor require as a prerequisite in of legal interest back to 12%
the settlement of the insurance claim]. would be made, consistent with
the general rule under the NCC,
the interest of 12% should
UNREASONABLE DENIAL OR WITHHOLDING OF CLAIM already be applied from the time
- It shall be the duty of the Commissioner or the the judgment of court ordering
Court to make a finding as to whether the the payment of the insurance
payment of the claim of the insured has been claim becomes final and
unreasonably denied or withheld. executory.
- It should be noted that failure to pay any such
claim within the time prescribed in Sections 248 - Mere denial of the claim does not warrant of the
and 249 of the I.C. shall be considered prima facie award of moral and exemplary damages and
evidence of unreasonable delay in payment. attorney’s fees. In order that a person may be
made liable to the payment of moral damages,
INTEREST AND DAMAGES the LAW REQUIRES THAT HIS ACT BE WRONGFUL.
- The insurance company shall be adjudged to The adverse result of an action does not per se
pay the ff. if the claim has been make the act wrongful and subject the act to the
unreasonably denied or withheld: payment of moral damages.
1. Attorney’s fee
2. Other expenses incurred by the insured
by reason of such unreasonable denial or FRAUDULENT CLAIM
withholding - The insurer may unjustifiable reject a claim that is
3. Interest of 12% fraudulent. Similarly, the denial of the claim may
4. Amount of the claim also be justified if the loss is grossly overvalued.
NOTES:
- For an insurance company to be held liable
for unreasonable delaying and withholding
payment of insurance proceeds, the DELAY
must be WANTON, OPPRESSIVE, or - Section 251, I.C.
MALEVOLENT. However, an insurer may in
GOOD FAITH and HONESTY entertain a It is unlawful to:
difference of opinion as to its liability. (a) Present or cause to be presented any
- The insurer cannot be deemed to be guilty fraudulent claim for the payment of a loss
UNLESS the evidence and circumstances under a contract of insurance; and
show that such refusal was WILLFUL and (b) Fraudulently prepare, make or subscribe any
WITHOUT REASONABLE CAUSE as the facts writing with intent to present or use the same,
appear to a reasonable and prudent man. or to allow it to be presented in support of
any such claim. Any person who violates this
- IF THERE IS NO UNREASONABLE DELAY OR section shall be punished by a fine not
UNJUSTIFIED REFUSAL in settling the claim of the exceeding twice the amount claimed or

imprisonment of two (2) years, or both, at - General Rule: I.C. provides no prescriptive period
the discretion of the court. for the filing of a complaint for the recovery of
the proceeds.
- The first paragraph is clear that the person who - Exception: 1-year period provided for in the case
presented or caused to be presented any of Compulsory Third Party Liability Insurance
fraudulent claim is criminally liable. However, under Sec. 397.
with respect to second paragraph, it is believed
that the same cannot be interpreted to mean
that mere preparation of a claim form is enough STIPULATION
to make one liable. If the form was prepared - Parties may stipulate a prescriptive period in the
with the intent to present or use the same BUT policy subject to the limitation under Sec. 63, I.C.:
the form was not submitted because the person A condition, stipulation, or agreement in any
who prepared it changed his mind and kept it in policy of insurance, limiting the time for
his drawer, then there should be NO LIABILITY. commencing an action thereunder to a period of
Even if violation of Section 251 is mala prohibita, less than one (1) year from the time when the
it is absurd to make one liable just by preparing cause of action accrues, is void.
the claim. ACCRUAL
- The right of the insured to the payment of his loss
- It is believed that Section 251 (b) presupposes accrues from the happening of the loss.
that a claim was already presented since the HOWEVER, the cause of action in an insurance
word “fraudulently” indicates that the insurer contract does not accrue until the insured’s claim
was already aware of the claim. is finally rejected by the insurer.
o The rejection referred to should be
- If a fraudulent claim was filed, the PERSONS WHO construed as the rejection in the first
MAY BE MADE CRIMINALLY LIABLE under Section instance, for if what is being referred to is
251 are as follows: a reiterated rejection conveyed in a
1. The person who presented the fraudulent resolution of a petition for
claim reconsideration, such should have been
2. The person who caused the filing of the the expressly stipulated.
fraudulent claim
3. The person who prepared or made the - a stipulation in a policy that no action shall be
fraudulent claims with intent to present or sustainable unless commenced within 12 months
use the same, or to allow it to be presented after the loss, is binding, and bars a suit
in support of any such claim commenced after that time, even though a prior
4. The person who subscribed any writing with suit was commenced within 12 months, and
intent to present or use the same, or to failed without fault on the part of the plaintiff.
allow it to be presented in support of any
such claim.
RULE IF THERE IS NO STIPULATION
- Under Section 82, of the I.C.: “A person insured is - if none, the prescriptive period is 10 years from
NOT ENTITLED to a return of premium if the policy the rejection of the claim by the insurer.
is annulled, rescinded or fi a claim is denied by
reason of fraud.” It follows, that the insurer is also SUBROGATION
not liable to pay interest for its refusal to pay the - Subrogation is an arm of equity that may guide or
claim based on the ground that the claim is even force one to pay a debt for which an
fraudulent. obligation was incurred but which was in whole
or in part paid by another.
- Subrogation is founded on the principle of justice
PRESCRIPTIVE PERIOD and equity and its operation is governed by
principles of equity.

- Under Article 2207, NCC: If the plaintiff's property right of subrogation against the third party liable
has been insured, and he has received indemnity for the loss.
from the insurance company for the injury or loss 4. When life insurance is involved.
arising out of the wrong or breach of contract
complained of, the insurance company shall be
subrogated to the rights of the insured against
the wrongdoer or the person who has violated the LIMITATIONS
contract. If the amount paid by the insurance - If the claim of the insured against a third party is
company does not fully cover the injury or loss, limited, the right of subrogation of the insurer is
the aggrieved party shall be entitled to recover likewise limited. (An example would be in cases
the deficiency from the person causing the loss or where a common carrier is responsible for the
injury. damage and there as a valid limitation in the bill
of lading as to the amount recoverable from the
- If the insured property is destroyed or damaged carrier. If the insurer, after paying the claim of
through the fault or negligence of a party other the insured under the insurance is subrogated
than the assured, then the insurer, upon payment merely to the rights of the assured. And as
to the assured, will be subrogated to the rights of subrogee, it can recover only the amount that is
the assured to recover from the wrongdoer to recoverable by the latter.)
the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured - If the amount recoverable by the insured from
operates as an equitable assignment to the the person who caused the loss is more than the
former of all remedies which the latter may have face value of the policy, the insurer can only
against the third party whose negligence or recover from the person who caused the loss the
wrongful act caused the loss. amount that it actually paid to the insured.
- If the claim of the insured is subject to a

REQUISITES OF SUBROGATION prescriptive period, the claim of the insurer by
1. The insurance involved is PROPERTY INSURANCE virtue of its right of subrogation is also subject to
2. There is a loss arising from the risk insured the same prescriptive period.
against
3. The insured received indemnity from the insurer
for the loss DISCRETION OF INSURER TO EXERCISE RIGHT
4. The indemnity is covered by the face value of - Whether or not the insurer should exercise the
the policy rights of the insured to which it has been
subrogated lies solely within the former’s sound
discretion. The insurer may opt not to exercise its
WHEN THERE IS NO SUBROGATION (instances): right of subrogation.
1. If the assured by his own act releases the
wrongdoer or third party liable for the loss or
damage, from liability, the insurer’s right of
subrogation is defeated.
2. Where the insurer pays the assured the value of
the lost goods without notifying the carrier who
has in good faith settled the assured’s claim for
loss, the settlement is binding on both the IX. DOUBLE INSURANCE
assured and the insurer, and the latter cannot
bring an action against the carrier on his right of When two or more insurers issue separate insurance
subrogation. policies over the same subject, the inevitable conflict
3. Where the insurer pays the assured for a loss results and the danger that fraud may permeate the
which is not a risk covered by the policy, thereby, transactions becomes greater.
effecting “voluntary payment,” the former has no

insurance in excess of the value of the property
DEFINITION insured
Sec. 95, I.C.
- It shows that policy can be rescinded if two
A double insurance exists where the same person conditions are present: (1) another insurance
is insured by several insurers separately in coverage is discovered; (2) the total insurance is
respect to the same subject and interest. in excess of the value of the property insured.
- THUS, the general rule is that taking other

REQUISITES insurance coverage is NOT PROHIBITED provided,
1. The same person is insured that the total insurance is not in excess of the
2. There are two or more insurers that insured the value of the property insured.
person separately
3. The insurance is over the same subject
4. The same interest is involved OTHER INSURANCE CLAUSE
5. The same peril is insured against - Taking of another insurance policy over the same
property may also be prohibited by stipulation in
NOTES: what is known as the “OTHER INSURANCE
- There is double insurance if the owner of a house CLAUSE”.
will insure it with 2 insurers (if requisites are
present) ALTERNATIVE FORMS
- There is NO double insurance if the owner and 1. A condition that states that procurement of
the lessee of the same house insures the same additional insurance without the consent of the
with two insurers. (there being 2 separate insurer renders void the policy ipso facto.
interests are insured by different persons) 2. A provision that requires the insured to disclose
- There is NO double insurance if the mortgagor the existence of any other insurance on the
and the mortgagee separately insures the property. (otherwise, the contract may be
mortgaged property. (they do not involve the avoided for material concealment).
same interest) 3. A warranty that there is no other existing
- There is NO double insurance because although insurance over the same property.
the same person and subject are involved in both
insurance policies, the peril insured against are NOTE: the standard fire insurance policy usually
different. contains a condition that the insured shall give notice
- There is NO double insurance if the owner and to the insurer of any insurance or insurance already
the carrier separately insured the same goods. effected,.. and unless such notice is given and the
(the carrier’s insurance interest is recognized particulars of such insurance or insurances is stated,
under Section 15, I.C.) all benefits under the policy shall be forfeited.
DOUBLE INSURANCE IN LIFE INSURANCE RATIONALE

- It is possible BUT there can never be - To prevent over-insurance and thus avert the
over-insurance. perpetration of fraud.
- The life of a person can be insured for any - The “other insurance clause” prevents the
amount and it would still be inadequate because increase of the moral hazard.
of the intrinsic value of life.
VALIDITY
NO GENERAL PROHIBITION AGAINST DOUBLE - The validity of a clause in a fire insurance policy
INSURANCE to the effect that the procurement of additional
- Exception: Section 64(f): Discovery of other insurance without the consent of the insurer
insurance coverage that makes the total render ipso facto the policy void is well-settled.

- The terms of the policy which required the
insured to declare other insurances, the
statement in question must be deemed to be a - Section 96, I.C.
statement (warranty) binding on both insurer and
insured, that there was no other insurance on the Where the insured in a policy other than life is
property. over insured by double insurance:
- Violation thereof entitled the insurer to rescind.
- Such misrepresentation is fatal. (a) The insured, unless the policy otherwise
- The materiality of non-disclosure of other provides, may claim payment from the
insurance policies is not open to doubt. insurers in such order as he may select, up to
the amount for which the insurers are
severally liable under their respective
ADDITIONAL INSURANCE contracts;
- (*read cases in the book)
(b) Where the policy under which the insured
claims is a valued policy, any sum received by
OVER-INSURANCE BY DOUBLE INSURANCE him under any other policy shall be deducted
- There is over-insurance if the insured takes out from the value of the policy without regard to
an insurance over the property insured in an the actual value of the subject matter
amount which is in excess of the value of his insured;
insurable interest.
(c) Where the policy under which the insured
NOTES: claims is an unvalued policy, any sum
- Over-insurance MAY EXIST even if there is only received by him under any policy shall be
one insurer and one policy. deducted against the full insurable value, for
- Over-insurance MAY EXIST if there is double any sum received by him under any policy;
insurance.
o Example: Mr. x owns a house valued at (d) Where the insured receives any sum in excess
400k and he insures it with ABC Insurance of the valuation in the case of valued policies,
Corporation against fire for 300K and XYZ or of the insurable value in the case of
I.C. against fire for 300K. unvalued policies, he must hold such sum in
- It does not follow that there will be trust for the insurers, according to their right
over-insurance if there is double-insurance. In of contribution among themselves;
fact, there can be under- insurance if there is
double insurance. (e) Each insurer is bound, as between himself and
the other insurers, to contribute ratably to the
loss in proportion to the amount for which he
RULES IN CASE OF OVER-INSURANCE BY DOUBLE is liable under his contract.
INSURANCE
- In this case, it is necessary to determine from
whom and how much can the insured recover.
- It is also necessary to determine the rights of the
insured. One indispensable consideration is that
an insurance contract is a contract of indemnity.
THUS, if there is over-insurance, he cannot
recover beyond his loss. [it is to emphasize,
however, that this is true only with respect to
property insurance because insurance over the
life of a person is not a contract of indemnity and X. REINSURANCE
there cannot be over-insurance over the life of
any person.]

DEFINITION favor of the original insured which is allowed
- Section 97, I.C. under Article 1311(2nd par.).
o The stipulation must be clear and
A contract of reinsurance is one by which an unmistakable.
insurer procures a third person to insure him o HOWEVER, such provision would not be
against loss or liability by reason of such original affected or curtailed in any way, without
insurance. prejudice to the insurer in turn filing a
third party complaint against the
- A reinsurance transaction is reinsurer.
“an agreement between two parties, called the
reinsured and reinsurer, whereby the the latter - Since the reinsurer is not a party to the
agrees to accept a certain fixed share of the original insurance contract, the reinsurer
reinsured’s risk upon terms set out in the cannot intervene as a matter of right in an
agreement.” action filed by the original insured against
the insurer.
- The original insurer, who,
having issued a policy to an insured to cover a - Assignment. The original insured may
certain risk, desires to relieve itself of part likewise directly sue the reinsurer if the
thereof. It cannot exist without an original insurer-reinsured assigns the proceeds of the
insurance coverage. reinsurance policies to the original insured.
NATURE DISTINCTIONS:
- The peril insured against is
the risk that the insurer will suffer a loss when it
will be required to pay the original insured. DOUBLE- INSURANCE REINSURANCE
- The risk of damage to the - The insurer - The insurer
property insured by the insurer (reinsured) is not remains in such becomes an
assumed by the reinsurer although the same capacity only insured (reinsured)
damage triggers the liability of the reinsurer. in the reinsurance
policy
- Only 1 insured - 2 separate insured
PARTIES - the subject-matter - the subject-matter
- ORIGINAL INSURER (now called the: REINSURED) is the property is the liability of the
o [The reinsured is also called, the “ceding insured insured
company” or the “direct writing - the same interest is - involves separate
company” insured interest
- REINSURER - same peril is - different perils are
insured against in insured against in
NOTES: separate policies separate policies
- There is no privity between the original
insured and the reinsurer. “The original
insured has no interest in a contract of
REINSURANCE CO-INSURANCE
reinsurance”. Thus, the original insured
CANNOT FILE AN ACTION to recover from
- 2 separate - only 1 contract
the reinsurer even if he has difficulty in
contracts
recovering from the original insurer.
- the liability is fixed - the obligation on
in a separate the part of the
- The original insured may be allowed to
contract between insured is fixed by
directly sue the reinsurer if the reinsurance
different parties law or in a clause
policy contains a stipulation pour atrui in

stipulated upon reinsurer to accept or not to accept participation
- the insured will - the insured will in the risk insured. But once accepted, the
not shoulder part share in the loss obligation is absolute and the liability assumed
of the loss contemplated by thereunder can be discharged by one and ONLY
contemplated by the original WAY- payment of the share of the losses.
the reinsurance contract
contract NOTE: A facultative reinsurance is not the
- NOT MANDATED - PROVIDED by law in equivalent of facultative obligation under NCC, as
by law in marine marine insurance there is no alternative nor substitute prestation
insurance in reinsurance.
FUNCTIONS AUTOMATIC TREATY

- PRIMARY FUNCTION: to absorb those surplus - It involves a PRIOR AGREEMENT between the
amounts on each risk accepted by the reinsured insurer and the reinsurer that the latter is
which go beyond what it can safely retain for its compelled to accept what is being ceded by the
own account. insurer.
o It is a method whereby an ORIGINAL - It may be “QUOTA-SHARE TREATY”,
INSURER distributes its risks by giving off “SURPLUS-SHARE TREATY”, “EXCESS-OF-LOSS
the whole or some portion thereof to TREATY”, & “REINSURANCE POOL”.
another insurer, with the object of 1. “QUOTA-SHARE TREATY”- the insurer and the
reducing the amount of its possible loss. reinsurer agree to share losses and premiums
based on some proportion.
SIGNIFICANT FUNCTIONS: 2. “SURPLUS-SHARE TREATY”- the reinsurer accepts
1. It gives insurers the benefit of greater stability in excess of the ceding company’s retention limit
resulting from a widespread business. up to a maximum account.
- “by accepting many risks and scaling down by 3. “EXCESS-OF-LOSS TREATY”- losses in excess of the
reinsurance, all those that are larger than the retention limit are paid by the reinsurer up to
normal carrying capacity of the ceding company some maximum limit. This is often used for
justifies, uncertainty is reduced through the catastrophic loss.
application of the law of large numbers” 4. “REINSURANCE POOL”- it is an organization of
2. it enables insurers to have a single risk capacity to insurers that underwrites reinsurance on a joint
accommodate policies of large amounts, with the basis.
knowledge that they can protect themselves
against staggering losses by adjusting risks in such
a manner as to reduce the probability of serious INSURABLE INTEREST
inroad into their capital and surplus. - in reinsurance, the reinsured has no interest in
the property or life that is originally insured.
HOWEVER, THE REQUIREMENT OF INSURABLE
KINDS INTEREST IS COMPLIED WITH by the fact that the
1. FACULTATIVE REINSURANCE reinsured has issued the original policy and
2. AUTOMATIC TREATY accepted liability to its original insured.
FACULTATIVE REINSURANCE OBLIGATION

- It is an OPTIONAL, CASE-BY-CASE METHOD used - the REINSURER is obligated to pay the insurer or
when the ceding company receives an application ceding company the moment the latter is
for insurance. The reinsurer is under NO exposed to liability.
OBLIGATION TO ACCEPT THE INSURANCE.
- The term” facultative” is used in insurance
contracts merely to define the right of the MEASURE OF LIABILITY

- Measured by the extent of the liability of the - BORDEREAU- the policy form shows loss history
reinsured under the original policy and the and premium history with respect to specific
amount of the reinsurance. risks.
- The reinsurance CANNOT EXCEED the amount of
the liability of the insurer under the original
policy. CANCELLATION
- Reinsurance policies may be cancelled on the
GOOD FAITH same ground as ordinary insurance policies.
- Reinsurance is also a contract uberrimae fidae. It - Cancellation of treaty DOES NOT automatically
has been stated that the foundation of result in the cancellation of the reinsurance
reinsurance are: contracts.
1. Full information, so far as possessed by the
reinsured, as to the risk on which the
reinsurance is requested
2. Full information as to the amount retained by
the reinsured on the identical property which
the reinsurance is requested.
DUTY TO COMMUNICATE
- Section 98, I.C.
Where an insurer obtains reinsurance, except

under automatic reinsurance treaties, he must
communicate
(1) all the representations of the original insured,
and also
(2) all the knowledge and information he
possesses, whether previously or
subsequently acquired, which are material to
the risk.
DUTY TO COMMUNICATE IN A TREATY

- representations or other information NEED NOT
BE DISCLOSED by the insurer because the
reinsurer is compelled to accept what is being
ceded.
- However, the duty of good faith remains in
automatic treaty. In the general operation of the
treaty, the reinsured is bound to exercise the
utmost good faith toward its reinsurer.
- Thus, before entering into a treaty, the reinsurer
is necessarily interested in acquiring general
knowledge of the reinsured and the latter must
give information that relates to: (i) the standing
and reputation of the insured; (ii) the experience
and quality of its management; (iii) the general
underwriting policy of the reinsured; (iv) the
company’s limit of retention and their
relationship with the total premium income; (v)
the different areas from which the business is
derived.

XI. MARINE INSURANCE

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provide for the performance of FUTURE SERVICES,

PAYMENT OF MONETRAY CONSIDERATIONS or

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GENERAL BENEFITS OF INSURANCE

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MUTUAL INSURANCE COMPANIES

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1. Those made between persons who were

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EXCEPTIONS:(Insurer’s consent is not necessary) COLLUSION BETWEEN THE INSURED AND

INSURANCE AGENT NOTE: The provisions in the policy that

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Note: agent or broker must be authorized

NO JURISDICTION OVER INSURER-AGENT RELATIONSHIP

Note: The insurance agents/brokers are under

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-a possessor who is holding the property

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-See. Sections 21-24, Insurance Code EFFECT OF NON-PAYMENT

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-Under the old law, the insurance policy

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-under an AUTOMATIC PREMIUM LOADN

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-It is without prejudice to the no required form

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3. If not applied for by the insured or PROOF

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-RECEIPT OF NOTICE BY BROKER:

-CANCELLATION OF THE INSURED

REFORMATION OF THE POLICY

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- Because of these concerns, NOTES:

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CAUSATION NOT NECESSARY 1. When matters are KNOWN TO THE

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- Prof. Dover: concealment, or suppressio veri,

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REMEDY: DISTINCTIONS AND SIMILARITIES

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BREACH WITHOUT FRAUD

- Section 75. A policy may declare that a OTHER DEVICES

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