INSURANCE CODE

INSURANCE CODE
Elements of Insurance business as hereinafter provided. (Sec. 2,
Insurance Code of the Philippines (ICP))
The following are the elements of insurance:
What does the term "doing an insurance business" or
1. The insured has an insurable interest: "transacting an insurance business" mean?
2. The insured is subject to a risk of loss by the
happening of the designated peril; The Insurance Code states:
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general (2) The term "doing an insurance
scheme to distribute actual losses among a business" or "transacting an insurance
large group of persons bearing a similar risk; business", within the meaning of this Code,
and shall include: (a) making or proposing to make,
5. In consideration of the insurer's promise, the as insurer, any insurance contract; (b) making
insured pays a premium. (Philamcare Health or proposing to make, as surety, any contract
Systems, Inc. vs. Court of Appeals, 379 SCRA of suretyship as a vocation and not as merely
356, G.R. No. 125678, 18 March 2002) incidental to any other legitimate business or
activity of the surety; (c) doing any kind of
What is a Contract of Insurance? business, including a reinsurance business,
specifically recognized as constituting the
The Insurance Code provides: doing of an insurance business within the
(1) A "contract of insurance" is an meaning of this Code; (d) doing or proposing to
do any business in substance equivalent to any
agreement whereby one undertakes for a
of the foregoing in a manner designed to evade
consideration to indemnify another against the provisions of this Code.
loss, damage or liability arising from an
unknown or contingent event. In the application of the provisions of this
A contract of suretyship shall be deemed Code the fact that no profit is derived from the
making of insurance contracts, agreements or
to be an insurance contract, within the
transactions or that no separate or direct
meaning of this Code, only if made by a surety
consideration is received therefor, shall not be
who or which, as such, is doing an insurance deemed conclusive to show that the making
thereof does not constitute the doing or

1|P age
 Transacting of an insurance business. (Sec. 2, Marine Services, Inc. vs. Pioneer Insurance and Surety
ICP) Corporation, G.R. No. 154514, 28 July 2005)

Explain the nature of Suretyship. Mortgage Redemption Insurance

A contract of suretyship is an agreement whereby a A "Mortgage Redemption Insurance" is a group
party called the surety, guarantees the performance by insurance policy of mortgagors which is intended as a
another party, called the principal or obligor, of an device for the protection of both the mortgagee and the
obligation or undertaking in favor of another party called mortgagor.
the oblige. By its very nature, under the laws regulating
On the part of the mortgagee, it has to enter into
suretyship, the liability of the surety is joint and several
such contract so that in the event of the unexpected
but is limited to the amount of the bond, and its terms
demise of the mortgagor during the subsistence of the
are determined strictly by the terms of the contract of
mortgage contract, the proceeds from such insurance
suretyship in relation to the principal contract between
will be applied to the payment of the mortgage debt,
the obligor and the oblige.
thereby relieving the heirs of the mortgagor from paying
Although the contract of suretyship is, in essence, the obligation. In a similar vein, ample protection is given
secondary only to a valid principal obligation, the to the mortgagor such that in the event of death, the
surety's liability to the creditor is direct, primary, and mortgage obligation will be extinguished by the
absolute; he becomes liable for the debt and duty of application of the insurance proceeds to the mortgage
another although he possesses no direct or personal indebtedness. Consequently, where the mortgagor pays
interest over the obligations nor does he receive any the insurance premium under the group insurance
benefit therefrom. (American Home Insurance Co. of policy, making the loss payable to the mortgagee, the
New York vs. F.F. Cruz & Co., Inc., G.R. No. 174926, 10 insurance is on the mortgagor's interest, and the
August 2011) mortgagor continues to be a party to the contract. In this
type of policy insurance, the mortgagee is simply an
Mutual Insurance Company
appointee of the insurance fund, such loss-payable
It is a cooperative enterprise where the members clause does not make the mortgagee a party to the
are both the insurer and insured. In it, members all contract. (Great Pacific Life Assurance Corp vs. Court of
contribute, by a system of premiums or assessments, to Appeals, 316 SCRA 677)
the creation of a fund from which all losses and liabilities
are paid, and where the profits are divided among
themselves, in proportion to their interest. (White Gold
 INSURANCE CODE

Retirement Insurance NOTE: Life insurance policies are always valued

policies.
Retirement insurance is primarily intended for the
benefit of the employee to provide for his old age, of 3. Running Policy - A running policy is one which
incapacity, after rendering service (in the government) contemplates successive insurances, and
for a required number of years. If the employee reaches which provides that the object of the policy may
the age of retirement, he gets the retirement benefits be from time to time defined, especially as to
even to the exclusion of the beneficiary or beneficiaries the subjects of insurance, by additional
statements or indorsements. (Sec. 62, 1C)
named in his application for retirement insurance. The
beneficiary of the retirement insurance can only claim The obscurity of the language of the policy shall be
the proceeds of the retirement insurance if the construed in favor of the insured.
employee dies before the retirement. (Vda. De
In the Endorsement, the obscurity is patent. In the
Consuegra vs. GSIS, 37 Phil. 315)
first sentence of the Endorsement, it is not entirely clear
INSURANCE POLICY; INTERPRETATION whether the phrase "effective June 22, 1999" refers to
the subject or the sentence, namely "the reinstatement
Types of insurance policy
of this policy," or to the subsequent phrase "changes are
1. Open Policy - An open policy is one in which made on the policy."
the value of the thing insured is not agreed
Accordingly, the subject policy is deemed
upon, and the amount of insurance merely
reinstated as of June 22, 1999. Thus, the period of
represents the insurer's maximum liability. The
contestability has lapsed. (The Insular Life
value of such thing insured shall be
Assurance Company, Ltd. vs. Khu, 789 SCRA
ascertained at the time of loss. (Sec. 60, 1C)
544, G.R. No. 195176, 18 April 2016)
2. Valued Policy - A valued policy is one which The policy reads: "The insurance of any eligible Lot
expresses on its face an agreement that the Purchaser shall be effective on the date he contracts
thing insured shall be valued at a specific sum. a loan with the Assured. However, there shall be no
(Sec. 61, IC) It is one in which the parties insurance if the application of the Lot Purchaser is not
expressly agree on the value of the subject approved by the Company." It would appear that at the
matter of insurance thereby avoiding the time of loss, a loan has been contracted with the
trouble of ascertaining the actual amount of Assured but it is not clear whether the Insurer has
loss when it happens.
3|P age
approved the insurance application. When did the Cover notes are interim or preparatory contracts of
policy take effect? insurance. An Interim coverage may be necessary
because the insurer may need more time to process the
While one provision appears to state that the
insurance application. The issuance of cover notes is
Insurance coverage of the clients of Assured already
subject to the following:
became effective upon contracting a loan with the
Assured, another appears to require the Insurer to (1) Issuance or renewal is upon approval of the
approve the insurance contract before the same can Insurance Commission.
become effective. (2) Duration is not more than 60 days from
issuance.
It must be remembered that an insurance contract
is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the
(3) Cancellation by either party is upon prior 7-day
insurer in order to safeguard the latter's interest. Thus, notice to the other.
the vague contractual provision must be construed in
favor of the insured and in favor or the effectivity of the (4) Main policy to be issued within 60 days after
insurance contract. cover note was issued.
The seemingly conflicting provisions must be
(5) Extension of 60-day coverage is subject to
harmonized to mean that upon a party's purchase of a
insurance Commission's approval.
memorial lot on installment from the Assured, an
insurance contract covering the lot purchaser is created INSURABLE INTEREST
and the same is effective, valid, and binding until
Anyone has an insurable interest in property who
terminated by the Insurer by disapproving the insurance
derives a benefit from its existence or would suffer loss
application. The second sentence is in the nature of a
from its destruction. (Gaisano Cagayan, Inc. vs.
resolutory condition which would lead to the cessation of
Insurance Company of North America, 490 SCRA 286,
the insurance contract. Moreover, the mere inaction of
G.R. No. 147839, 8 June 2006).
the insurer on the insurance application must not work
to prejudice the insured; it cannot be interpreted as a Basic Concepts:
termination of the insurance contract. The termination of
the insurance contract by the insurer must be explicit a) Life Insurance
and unambiguous. (Eternal Gardens Memorial Park vs.
Philamlife, G.R. No. 166245, 9 April 2008) Every person has an insurable interest in the life
and health :
What are Cover Notes? What are the limitations on the 1. of HIMSELF, his SPOUSE, and of his
issuance of cover notes? CHILDREN;
 INSURANCE CODE

2. of any person on whom he depends wholly or in INSURABLE INTEREST IN PROPERTY VS INSURABLE

part for education or support, or in whom he has INTEREST IN LIFE:
PECUNIARY INTEREST;
LIFE PROPERTY
3. of any person under a legal obligation to him for As to extent
the payment of money, or respecting property or unlimited Limited to the actual value
services, of which death or illness might delay of the interest thereon
or prevent the performance; As to time when insurable interest must exist
4. of any person upon whose life any estate or Enough that it exists at the It is necessary that it exists
interest vested in him depends. time the policy takes effect when the insurance takes
and need not exist at the effect and when the loss
Take note: In general, the test is whether or not time of the loss occurs, but need not exist
in the meantime.
the person is interested in the preservation of As to expectation of benefit to be derived
the insured life despite the insurance. Need not have legal basis There must be legal basis
As to the beneficiary’s interest
b) In what does insurable interest in PROPERTY If the insured himself Beneficiary must have
consists? secured the policy- the insurable interest in the
beneficiary need not have property insured.
1. It may consist in an existing interest an inchoate insurable interest over the
interest founded on an existing interest, or any life of the insured;
expectancy coupled with an existing interest.
If the insurance was
2. In general, a person has an insurable interest in the
obtained by the beneficiary
property, if he derives pecuniary benefit or
(not the insured)- the
advantage from its preservation or would suffer beneficiary must have
pecuniary loss, damage or prejudice by its insurable interest over the
destruction whether he has or has no title in, or lien life of the insured.
upon, or possession of the property.
3. The existence of insurable interest is a matter of
public policy. Hence the principle of estoppel
cannot be invoked.

5|P age
A vendor or seller retains an insurable interest in the When must interest in the property insured exist?
property until full payment of the value of the delivered State the reason for this requirement.
goods.
Insurable interest in the property insured must exist
Unlike the civil law concept of res perit domino, at the time the insurance takes effect and at the time
where ownership is the basis for consideration of who the loss occurs. The basis of such requirement is based
bears the risk of loss, in property insurance, one's on sound public policy; to prevent a person from taking
interest is not determined by concept of title, but out an insurance policy on property upon which he has
whether insured has substantial economic interest in the no insurable interest and collecting the proceeds of said
property. (Id.) policy in case of loss of the property. (Sps. Cha vs. Court
of Appeals, 277 SCRA 690)
It is sufficient that the insured is so situated with
reference to the property that he would be liable to loss Insurable interest of beneficiary and assignee of the
should it be injured or destroyed by the peril against policy.
which it is insured. Anyone has insurable interest in
a) Property Insurance
property who derives a benefit from its existence or
The beneficiary and the assignee must have
would suffer loss from its destruction. Indeed, a vendor
insurable interest. Consent of the insurer must be
or seller retains an insurable interest in the property sold
secured before the assignment.
so long as he has any interest therein, in other words, so
long as he would suffer by its destruction, as where he
b) Life Insurance
has a vendor’s lien. (Id.)
If the insured takes the insurance on his own life,
Does the buyer have insurable interest over the goods he can designate anybody who does not have
even while the goods are still in transit? insurable interest.
Yes. The buyer’s interest is based on the perfected
If a third person takes the policy, the beneficiary
contract of sale. The perfected contract of sale between
must have insurable interest.
him and the seller/shipper of the goods operates to vest
in him an equitable title even before delivery or before
In case of assignment, the assignee need not have
he performed the conditions of the sale. The contract of
insurable interest.
shipment, whether under “F.O.B.”, “C.I.F.”, or “C & F” is
immaterial in the determination of whether the buyer
has insurable interest or not in the goods in transit.
(Filipino Merchants Insurance Co. vs. Court of Appeals,
G.R. No. 85141, 28 November 1989)
 INSURANCE CODE

TRANSFER OF POLICY person taking his interest in the thing insured. (Sec.
23, ICP)
May the policy be transferred without the consent of the
5. A transfer of interest by one of several
insurer?
partners, joint owners, or owners in common,
YES in life insurance but NO in property insurance. who are jointly insured, to the others, does not avoid
an insurance even though it has been
agreed that the insurance shall cease upon an
What is the effect of the transfer of the property alienation of the thing insured. (Sec. 24, ICP)
insurance policy without the consent of the insurer? 6. A policy may be so framed that it will inure to
the benefit of whomsoever, during the
The insurance policy is suspended and will not be avoided continuance of the risk, may become the owner
until the interest in the thing and the interest in the of the interest insured. (Sec. 57, ICP)
insurance are vested in the same person.

As a rule, a change of insurable interest without a Risks Insured Against.

corresponding transfer of the policy, suspends the It maybe any contingency or unknown event the
insurance. What are the exceptions? happening of which will damnify a person having insurable
The exceptions are: interest or will create liability against him. Even fortuitous
events may be insured against.
1. In life, health and accident insurance;
2. A change in interest in a thing insured, after General rule: A future event is the only event that can be
the occurrence of an injury which results in a covered by an insurance contract.
loss, does not affect the right of the insured to Exception: A past event may be covered by a marine
indemnity tor the loss. (Sec. 21, 1CP) insurance- if the loss of the vessel in the past could not
3. A change of interest in one or more several have been known by ordinary means of communication.
distinct things, separately insured by one
policy, does no avoid the insurance as to the
others. (Sec. 22, ICP)
4. A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the
7|P age
PREMIUM Development Insurance and Surety Corp., G.R.
No. 190702, 27 February 2017)
- The consideration paid to an insurer for
undertaking to indemnify the insured against a
specific peril.
The notice of the availability of the check, by itself,
a) Where parties are barred by estoppel.
does not constitute payment of premium.
PREMIUM PAYMENT
There is no dispute that the check was delivered to
General Rule: Cash and Carry Rule and was accepted by respondent's agent, Trans-Pacific,
only on September 28, 1996. No payment of premium had
Notwithstanding any agreement to the contrary, no
thus been made at the time of the loss of the vehicle on
Policy or contract of insurance issued by an insurance
September 27, 1996. While petitioner claims that Trans-
company is valid and binding unless and until the
Pacific was informed that the check was ready for pickup
premium thereof has been paid.
on September 27, 1996, the notice of the availability of the
Exceptions are: check, by itself, does not produce the effect of payment of
the premium. TransPacific could not be considered in
1. In case of life or industrial life policy, whenever delay in accepting the check because when it informed
the grace period provision applies as expressly petitioner that it will only be able to pick up the check the
provided by Section 77 itself; next day, petitioner did not protest to this, but instead
2. Where the insurer acknowledged in the policy or allowed Trans-Pacific to do so. Thus, at the time or loss,
contract of insurance itself the receipt of there was no payment of premium yet to make the
premium, even premium has not been actually insurance policy effective. (ld.)
paid, as expressly provided by Section 79 itself;
3. Where the parties agreed that premium When is return of premium required?
payment shall be in installments and partial
Return of premium is warranted in the following
payment has been made at the time of loss;
cases:
4. Where the insurer granted the insured a credit
term for the payment of the premium, and loss (1) The thing insured was not exposed to the peril
occurs before the expiration of the term; insured against.
5. Salary deduction of government employees (2) Time policy is surrendered before the stipulated
under Section 78; and period lapses.
6. Where the insurer is in estoppel as when it has (3) The contract is voidable due to fault or
consistently granted a 60 to 90-day credit term misrepresentation of the insurer or default of ne
for the payment of premiums. (Gaisano vs. insured other than actual fraud.
(4) Over-insurance by several insurers.
 INSURANCE CODE

(5) Insurer never incurred liability Test of materiality: determined not by the event, but
(6) When recission is granted due to the insurer’s solely by the probable and reasonable influence of
breach of contract the facts upon the party to whom the
communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in
How to prevent the lapse of life insurance policy
making his inquiries or in fixing the premium rate.
The insured may avail of:
Effect of concealment: It vitiates the contract and
a) Grace period entitles the insurer to rescind, EVEN IF THE
b) Automatic policy loan from the policies’ cash DEATH OR LOSS IS DUE TO A CAUSE NOT
surrender value RELATED TO THE CONCEALED MATTER.
c) Application of dividend
d) Reinstatement clause Is “GOOD FAITH” a defense?

NO. Concealment whether intentional or

DEVICES USED FOR ASCERTAINING AND unintentional entitles the insurer to rescind the
CONTROLLING RISK AND LOSS insurance contract.
The Primary Concerns of the Insurer:
2) Representation
a) Correct estimation of risk - Factual statements made by the insured at the time
b) Delimitation of the risk of or prior to the issuance of the policy to give
c) Control of risk information to the insurer and otherwise induce him
d) Determine if loss occurs and if so, the amount to enter into the insurance contract
thereof
Devices used by Insurer for ascertaining and Test of Materiality: It is determined by the
controlling risks and loss probable and reasonable influence of the facts on
the party on whom communication is due, in
1) Concealment forming his estimate of the contract, risks and
- A neglect to communicate that which a party knows premium.
and ought to communicate

9|P age
 Effects of Misrepresentation: The injured party is
entitled to rescind from the time when the 5) Exception
representation becomes false. - Make more definite the coverage indicated by the
general descriptions of the risk by excluding certain
3) Warranty specified risks that otherwise would be included
- Statements or promises by the insured set forth in under the general language describing the risks
the policy itself or incorporated in it by proper assumed.
reference, the untruth or non-fulfillment of which in
any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or RESCISSION OF INSURANCE CONTRACT
nonfulfillment render the policy voidable by the
insurer. Test of Materiality
Materiality is to be determined not by the event, but solely
Kinds: by the probable and reasonable influence of the facts upon
the party to whom the communication is due, in forming
a) Express his estimate of the disadvantages of the proposed
b) Implied contract, or in making his inquiries. (Sec. 31, ICP)
c) Affirmative
d) promissory Other Insurance Clause
It is a provision in the policy to the effect that the policy
Effect of breach of warranty: It gives the insurer shall be void if the insured has, or subsequently procures,
the right to rescind. any other insurance on the property or any part thereof
without the insurer's consent. The purpose is to prevent
Exceptions: over-insurance and thus avert the perpetration of fraud.

1) loss occurs before the time of performance of

the warranty What is the Incontestability Rule?
2) the performance becomes unlawful
3) performance becomes impossible The insurer has two (2) years from the date of issuance of
the insurance contract or of its last reinstatement within
4) Condition which to contest the policy, whether or not, the insured still
- The insurer, to also protect itself from fraudulent lives within such period.
claims of loss, insets conditions which take the form What are the defenses that are not barred by the
of either conditions precedent or subsequent. incontestability rule?
 INSURANCE CODE

a) The person taking the insurancelacked insurable same person is insured by several insurers
interest separately in respect to the same subject and interest.
b) The cause of the death of the insured is an
The policies here were issued to two different persons or
excepted risk
entities. Further, the interest of the consignee over the
c) The conditions of the policy relating to military or
cargo is different from that of the insurer. The policy
naval services have been violated
secured by the consignee was in consideration of
d) The fraud is of a particularly viscios type
e) Beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy
after the loss has happened its legal and/or equitable interest over its own goods. On
f) The action was not brought within the time specified the other hand, the one issued to the forwarder was over
the latter's insurable interest over the safety of the
goods, which may become the basis of the latter's
liability in case of loss or damage to the property.
DOUBLE INSURANCE
Therefore, even though the two concerned insurance
Double insurance exists where the same person is insured
policies were issued over the same goods and cover the
by several insurers separately in respect to the same
same risk, there arises no double insurance since they
subject and interest. Thee requisites in order for double
were issued to two different persons/entities having
insurance to arise are as follows: the person insured is the
distinct insurable interests. (Malayan Insurance Co., Inc.
same, two or more insurers insuring separately; there is
vs. Philippines First Insurance Co., Inc. and Reputable
identity of subject matter; there is identity of interest
Forwarder Services, G.R. No. 184300, 11 July 2012)
insured; and there is identity of the risk or peril insured
against. (Malayan Insurance Co., Inc. vs. Philippines First REINSURANCE
Insurance Co., Inc. and Reputable Forwarder Services,
G.R. No. 184300, July 11, 2012) Concept

Two different policies were respectively obtained by the A contract of reinsurance is one by which an insurer
consignee and the forwarder on the same goods. Discuss procures a third person to insure him against loss or
whether this constitutes double insurance. liability by reason of such original insurance. (Sec. 97, ICP)
It is presumed to be a contract of indemnity against liability,
There is none. By the express provision of Section 93 of and not merely against damage. (Sec. 99, ICP)
the Insurance Code, double insurance exists where the

11 | P a g e
Original insured's right to recover from reinsurer Reinstatement had been processed and approved by
Insular Life during Eulogio's lifetime and good health.
The original insured has no interest in a contract of
Thus, it is settled that the reinstatement of an insurance
reinsurance. (Sec 100, 1CP) There is no privity of contract
policy should be reckoned from the date when the same
between the original insured and the reinsurer. In
was approved by the insurer. (The Insular Life Assurance
reinsurance, there are two existing contracts of insurance.
Company, Ltd. vs. Khu, 789 SCRA 544, G.R. No.
The first one is between the original insured and the
195176, 18 April 2016)
original insurer and the second one is between the original
insurer and the reinsured. Both contracts are independent
of the other.
CLAIMS SETTLEMENT
Thus, as a rule, the insured cannot directly recover from
Is non-presentation of the policy fatal to an insurance
the reinsurer nor is the latter directly liable to the former.
claim?
However, if the reinsurance was taken for the benefit of
Non-presentation of the insurance contract or policy is not
the insured under the first contract of insurance,
necessarily fatal. In Delsan Transport Lines, Inc. v. Court
(stipulation pour autrui), the insured, as beneficiary, may
of Appeals, the Court stated that the presentation of the
directly pursue the reinsurer. Also, where the reinsurance
insurance policy was not fatal because the loss of the
amounts to a novation of the original insurance by virtue
cargo undoubtedly occurred while on board the petitioner's
of which the reinsurer undertakes to indemnify the insured,
vessel.
then direct recourse against the reinsurer by the insured is
permissible. Even though it was not offered in evidence, it still can be
considered by the court as long as they have been
The reinstatement of an insurance policy should be
properly identified by testimony duly recorded and they
reckoned from the date when the same was approved
have themselves been incorporated in the records of the
by the insurer.
case.
To reinstate a policy means to restore the same to
The subrogation receipt, by itself, is sufficient to establish
premium-paying status after it has been permitted to
not only the relationship of herein private respondent as
lapse. In the instant case, Eulogio's death rendered
insurer and Caltex, as the assured shipper of the
impossible full compliance with the conditions for
lost cargo of industrial fuel oil, but also the amount
reinstatement of Policy No. 9011992. True, Eulogio,
paid to settle the insurance claim. The right of
before his death, managed to file his Application for
subrogation accrues simply upon payment by the
Reinstatement and deposit the amount for payment of
insurance company of the insurance claim. (Asian
his overdue premiums and interests thereon with
Terminals, Inc. vs. Malayan Insurance, Co., Inc., G.R.
Malaluan; but Policy No. 9011992 could only be
No. 171406, 4 April 2011)
considered reinstated after the Application for
 INSURANCE CODE

Under the policy, disabilities which existed before the negligent operation of motor vehicles. The victims and
commencement of the agreement are excluded if they their dependents are assured of immediate financial
become manifest within one year from its effectivity. assistance, regardless of the financial capacity of vehicle
The insured allegedly prevented presentment by the owners.
insurer of the doctor who will testify on her medical
Be that as it may, the direct liability of the insurer under
condition because of the doctor-patient privilege. The
indemnity contracts against third party liability does
insurer thus assumed that the testimony would be
not mean that the insurer can be held liable in solidum with
adverse as it was willfully suppressed by the insured.
the insured and/or the other parties found at fault.
Decide whether the insurer is liable.
For the liability of the insurer is based on contract,
It is an established rule in insurance contracts that when that of the insured carrier is based on tort. (Tiu vs.
their terms contain limitations on liability, they should be Arriesgado, G.R. No. 138060, 1 September 2004)
construed strictly against the insurer. These are
Interest on insurance proceeds
contracts of adhesion the terms of which much be
interpreted and enforced stringently against the insurer The interest on the proceeds of the policy for the duration
which prepared the contract. (Blue Cross Health Care, Inc. of the delay at the rate of twice the ceiling prescribed by
vs. Olivares, G.R. No. 169737, 12 February 2008) the Monetary Board under Sections 243 and 244 (now,
Sections 248-249) of the Insurance Code apply only when
The insurer never presented any evidence to prove that
the court finds an unreasonable delay or refusal in the
the insured's stroke was due to a pre-existing condition. It
payment of the claims. (Tio Khe Chio vs. Court of Appeals,
merely speculated that the doctor's report would be
202 SCRA 119, G.R. Nos. 76101-02, 30 September 1991)
adverse to the insured based on her invocation of doctor-
patient privilege. This was a disputable presumption at The ruling above does apply in this case as what here is
best. (ld.) involved is an order for petitioner to refund to respondents
the insurance premium paid as a consequence of the
In a third party liability insurance, could the insurer be
rescission of the insurance contract on account of the
sued directly by the victim? Could the insurer be made
latter’s concealment of material information in his
solidarity liable with the insured or the wrongdoer?
insurance application. Moreover, petitioner did not
The victim may proceed directly against the insurer for unreasonably deny or withhold the insurance proceeds as
indemnity. The insurance is intended to provide it was satisfactorily established that Norberto was guilty
compensation for death or bodily injuries suffered by of concealment. (Sun Life of Canada [Philippines], Inc. vs.
innocent third parties or passengers as a result of the

13 | P a g e
Tan Kit, 738 SCRA 371, G.R. No. 183272, 15 October Company and Philam Insurance Company, Inc., G.R. No.
2014) 150094, 18 August 2004)
SUBROGATION Exceptions to subrogation
Subrogation is the substitution of one person by There is no subrogation in the following cases:
another with reference to a lawful claim of right, so that
(1) When the insured, by his own act, releases
he who is substituted succeeds to the rights of the other
the party at fault from liability.
in relation to a debt of claim, including its remedies or
securities. The principle covers a situation wherein an (2) When the insurer pays the insured without
insurer has paid a loss under an insurance policy is nothing the carrier who has in good faith settled
entitled to all the rights and remedies belonging to the the insured’s claim for loss.
insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution (3) When the insurer pays the insured for a loss
such that it places the party subrogated in the shoes of excepted from the policy.
the creditor, and he may use all means that the creditor (4) When life insurance is involved.
could employ to enforce payment.
Payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies
that the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out
of, any privity of contract. It accrues simply upon payment
by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice; and is the
mode that equity adopts to compel the ultimate payment
of a debt by one who, in justice, equity, and good
conscience, ought to pay. (Malayan Insurance Co., Inc. vs.
Alberto, G.R. No.194320, 1 February 2012) In the exercise
of its subrogatory right, an insurer may proceed against an
erring carrier. To all intents and purposes, it stands in
the place and in substitution of the consignee. (Federal
Express Corporation vs. American Home Assurance
 INSURANCE CODE

MARINE INSURANCE ship is HYPOTHECATED by a BOTTOMRY

LOAN, the insurable interest is only up to the
What is a marine insurance?
excess of the value of the vessel over the loan.
It is an insurance that covers risks connected with
navigation, to which a ship, cargo, freightage, profits or 2. Over expected freightage
other insurable interest in movable property, may be
exposed during a certain voyage or a fixed period of b) Cargo owner/Shipper has insurable interest over
time. the cargo and expected profits.

What is Marine Protection and Indemnity Insurance? c) Charterer has insurable interest over:
This is an insurance against the legal liability of the
insured for loss damage, or expense incident to the 1. the vessel up to the extent of the amount he is
ownership, chartering, use or repair of a vessel or liable to the shipowner, if the ship is lost or
instrumentality in use in oceans and/or sea. damaged during the voyage
2. His expected profits or freightage if he accepts
The fact that the seaworthiness of the ship was cargoes from other persons for a fee
unknown to the insured is immaterial in ordinary marine 3. His own cargo or his client’s cargo.
insurance, and may not be used by him as a defense in
order to recover on the marine insurance policy. It
therefore becomes the obligation of a cargo to look for a Special Marine Insurance Contracts
reliable common carrier which keeps its vessels in a
seaworthy condition. The shipper of the cargo may have a) Insurance Against All Risks
no control over the vessel, but he has full control in the
It covers all losses during the voyage, whether arising
choice of the common carrier that will transport his goods.
from a marine peril or not including pilferage losses
Insurable Interest in Marine Insurance during the war, But, it does not cover loss through the
willful and fraudulent act of the insured.
a) Shipowner has insurable interest over the
1. Value of the vessel (even if chartered and the An "All Risks" insurance policy covers all kinds of loss
charterer agreed to pay the shipowner the value other than those due to willful and fraudulent act of the
of the vessel in case of loss, however, the insured. (Mayer Steel Pipe vs. Court of Appeals, 274
shipowner can only recover the amount not SCRA 432)
recoverable from the charterer. However, if the
15 | P a g e
 b) Inchamaree Clause Meaning of Seaworthiness/Cargoworthiness.
This is a clause included in a hull policy to cover the For a vessel to be seaworthy, it must be adequately
loss or damage through the bursting of the boiler, breaking equipped for the voyage and manned with a sufficient
of shafts or through latent defects of the machinery or number of competent officers and crew. It is also the
equipment, hull or its appurtenances and faults or errors in sufficiency of the vessel in materials, construction,
navigation or management of the vessel. (Cebu Shipyard equipment, officers, men, and outfit, for the trade or
Engineering Works, Inc. vs. William Lines, Inc., G.R. No. service in which it is employed. It includes the fitness of a
132607, 5 May 1999) The clause should be expressly ship for a particular voyage with reference to its physical
provided for because damage of this sort are not included and mechanical condition, the extent of its fuel and
in the term "perils of the sea." (ld.) provisions supply, the quality of its officers and crew, and
its adaptability for the time of voyage proposed.
What is Concealment?
It is the failure to disclose any material fact or circumstance
which is within or ought to be within the knowledge of one How is the Implied Warranty of seaworthiness
party, and of which the other has no actual or presumptive applied?
knowledge.
The fact that the unseaworthiness of the ship was
Effect of Concealment: unknown to the insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in
If material, the concealment entitles the innocent party to
order to recover on the policy.
rescind.

What is Deviation?
What are the Implied Warranties in Marine Insurance?
Departure of vessel from course of voyage, or an
a. The ship is seaworthy at the inception of the
unreasonable delay in pursuing voyage, or the
insurance
commencement of an entirely different voyage.
b. The ship will not deviate from the agreed voyage
unless deviation is proper. When is Deviation proper?
c. The ship will not engage in an illegal venture
a. If due to circumstances outside the control of the
d. Possession of documents of neutrality – that the
ship captain or ship owner
ship will carry the requisite documents of nationality
b. If done to comply with a warranty
or neutrality of the ship or cargo where such
c. If made in good faith to avoid a peril
nationality or neutrality is expressly warranted.
e. Presence of insurable interest.
 INSURANCE CODE

d. If made to save human life or another distressed FPA or Free from Particular Average clause limits the
vessel. liability of the insurer in case of partial loss. (Sec. 136, ICP)
Loss and Abandonment?
1. Total Loss LIFE INSURANCE
a. Actual total loss
In what cases is the designation of beneficiary in life
i. Total destruction
insurance void due to disqualifications under the law?
ii. Loss by sinking
iii. Damage rendering the thing valueless In the following cases, the designation of
iv. Total deprivation of owner of possession beneficiary is void:
of thing insured
(a) Those made between persons who were guilty
b. Constructive total loss of adultery or concubinage at the time of the
i. Actual loss of more than ¾ of the value donation;
of the object (b) Those made between persons found guilty of
ii. Damage reducing value by more than ¾ the same criminal offense, in consideration
of the value of the vessel and of cargo thereof,
iii. Expenses of shipment exceed ¾ of value (c) Those made to public officer or his wife,
of cargo. descendants and ascendants, by reason of his
office.
(NOTE: The disqualification applies to life
insurance (Article 2012, NCC) and the insurance contract
itself remains valid, only the designation of beneficiary is
State the requisites of Co-Insurance in marine
void.)
insurance.
Devices used to prevent lapse of life insurance policy
Co-insurance in marine insurance is subject to the
following requisites: (a) there must be partial loss; and (b) To prevent lapse of life insurance policy, the
the insurance coverage is less than the value of the following devices are used: (a) grace period; (b)
property insured. automatic policy loan; (c) application of dividend; and (d)
restatement clause. (Aquino, Essentials of Insurance
Explain the FPA Clause.
Law, p. 80)

17 | P a g e
Non-default options in life insurance For a life insurance policy to be incontestable, the
requisites are: (a) The insurance is a life insurance policy
In the case of individual life or endowment
payable on the death of the insured; and (b) It has been
insurance, the policy shall contain in substance the
following conditions, among other things: in force during the lifetime of the insured for at least two
(2) years from its date of Issue or of its last
A provision specifying the options to which the
reinstatement. The period of two (2) years may be
policyholder is entitled to in the event of default in a
shortened but it cannot de extended by stipulation. If the
premium payment after three (3) full annual premiums
insured dies after the two (2) year period, the insurer
shall have been paid. Such option shall consist of:
cannot rescind the contract due to his misrepresentation
(1) A cash surrender value payable upon or concealment. (Sec. 48, 1CP)
surrender of the policy which shall not be less
Two-year period to contest a life insurance policy due
than the reserve on the policy, the basis of
to concealment/misrepresentation; Effect of death of
which shall be indicated, for the then current
the insured within the two-year period of contest
policy year and any dividend additions thereto,
reduced by a surrender charge which shall not Under Section 48 of the Insurance Code, an insurer
be more than one-fifth (1/5) of the entire is given two years - from the effectivity of a life
reserve or two and one-half percent (2½%) of insurance contract and while the insured is alive - to
the amount insured and any dividend additions discover or prove that the policy is void ab initio or is
thereto; and rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the
(2) One or more paid-up benefits on a
two-year period lapses, or when the insured dies within
plan or plans specified in the policy of such
the period, the insurer must make good on the policy
value as may be purchased by the cash
even though the policy was obtained by fraud,
surrender value. (Sec. 233[f], ICP)
concealment, or misrepresentation. (Manila Bankers
Industrial Life insurance Life Insurance Corporation vs. Aban, 702 SCRA 417, G.R.
No. 175666, 29 July 2013)
An industrial life insurance Is one where the
premiums are payable either monthly or oftener, if the The insurer has two years from its issuance to
face amount of the insurance provided in any policy is investigate and verify whether the policy was obtained by
not more than 500 times that of the current statutory fraud, concealment, or misrepresentation. Upon the
minimum daily wage in the City of Manila, and if the death of the insured within the two-year period from the
words "industrial policy" are printed upon the policy as issuance of the policy, the insurer loses its right to
part of the descriptive matter. (Sec. 229, 1CP) rescind the policy. (Sun Life of Canada (Philippines), Inc.
vs. Ma. Daisy's Sibya, G.R. No. 211212, 8 June 2016)
Explain the Incontestability Rule on life insurance.
 INSURANCE CODE

FIRE INSURANCE COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

Friendly vs. Hostile Fire No-Fault Indemnity Claim

Friendly fire is one that burns in a place where it The no-fault indemnity clause of the Compulsory
was intended and ought to burn. Fire is hostile when it Motor Vehicle Liability Insurance (CMVLI) allows the
occurs outside of the usual confines or begins as a victim of a vehicular incident to recover indemnity from
friendly fire and becomes hostile by escaping from the the insurer of the relevant insurer without the necessity
place where it should be or one that becomes
of showing fault.
uncontrollable or breaks out from where it was intended
to be. The general rule is that the insurer will only be Claim may be made against one motor vehicle only.
liable in cases of hostile fire. The policy should not be so In the case of an occupant of a vehicle, claim, shall lie
construed to the insured form injury consequent upon against the insurer of the vehicle in which the occupant
his negligent use or management of fire, so long as it is is riding, mounting or dismounting from. In any other
confined to the place where it ought to be. (American
case, claim shall lie against the insurer of the directly
Towing Co. vs. German Fire Ins. Co., 21 A. 553)
offending vehicle. In all cases, the right of the party
Distinguish between: Loss Payable Clause and paying the claim to recover against the owner of the
Standard or Union Mortgage Clause. vehicle responsible for the accident shall be maintained
(Sec. 391, 1CP)
Under a Loss Payable Cause, the mortgagee is
made merely a beneficiary under the contract. Any In a third-party liability insurance, could the insurer be
default on the part of the mortgagor, which by the terms sued directly by the victim? Could the insurer be made
of the policy defeat his rights, will also defeat all rights of solidarity liable with the insured or the wrongdoer?
the mortgagee under the contract, even though the
The victim may proceed directly against the insurer
latter may not have been in any fault.
or indemnity. The insurance is intended to provide
On the other hand, a Standard or Union Mortgage compensation for death or bodily injuries suffered by
Clause create collateral independent contracts between innocent third parties or passengers as a result of the
the insurer and the mortgagee and provide that the negligent operation of motor vehicles. The victims and
rights of the mortgagee shall not be defeated by the acts their dependents are assured of immediate financial
or defaults of the mortgagor. (Vance, pp. 654-655) assistance, regardless of the financial capacity of vehicle
owners.

19 | P a g e
 Be that as it may, the direct liability of the insurer vehicle responsible for the accident shall be maintained
under indemnity contracts against third party liability does (Sec. 391/C, TCP)
not mean that the insurer can be held liable in
solidum with the insured and/or the other parties found
No-fault claim; Proofs required
at fault. For the liability of the insurer is based on
contract, that of the insured carrier is based on tort. (Tiu Claim for death or injury to any passenger or third-
vs. Arriesgado, G.R. No. 138060, 1 September 2004) party shall be paid without the necessity of proving fault
or negligence of any kind. Proofs of loss are: (1) Police
Can the carrier and insurer be held solidarity liable for
report of accident; and (2) Death certificate and
the loss of the cargo?
evidence sufficient to establish the proper payee; or (3)
Where the insurance contract provides for Medical report and evidence of medical or hospital
indemnity against liability to third person, the liability of disbursement in respect of which refund is claimed.
the insurer is direct and such third persons can directly (Sec. 391, 1CP)
sue the insurer. The direct liability of the insurer under
Entitlement to no-fault claim
indemnity contracts against third party-liability does not
mean, however, that the insurer can be held solidarity Passengers and third parties may claim as defined
liable with the insured and/or the other parties found at below:
fault, since they are being held liable under different
obligations. The liability of the insured carrier or vehicle "(b) Passenger is any fare paying person
owner is based on tort, in accordance with the provisions being transported and conveyed in and by a
of the Civil Code: while that of the insurer arises from motor vehicle for transportation of passengers
contract, particularly, the insurance policy. (Malayan for compensation, including persons expressly
Insurance Co., Inc. vs. Philippines First insurance Co. authorized by law or by the vehicle's operator
Inc. and Reputable Forwarder Services, G.R. No. or his agents to ride without fare.
184300, 11 July 2012) (d) Third party is any person other than a
Against whom no-fault claim may be made in a CMVL passenger as defined in this section and shall
also exclude a member of the household, or
Claim may be made against one motor vehicle only. a member of the family within the second
In the case of an occupant of a vehicle, claim, shall lie degree of consanguinity or affinity, of a motor
against the insurer of the vehicle in which the occupant vehicle owner or land transportation operator,
is riding, mounting or dismounting from. In any other as likewise defined herein, or his employee in
case, claim shall lie against the insurer of the directly respect of death, bodily injury, or damage to
offending vehicle. In all cases, the right of the party property arising out of and in the course or
paying the claim to recover against the owner of the employment. (Sec. 386, ICP)
 INSURANCE CODE

Period to claim/tile legal action under the CMVLI

xxx Notice of claim must be filed within six (6)
months from the date of accident, otherwise the claim
shall be deemed waived. Action or suit for recovery of
damage due to loss or injury must be brought, in proper
cases, with the Commissioner or the courts within one
(1) year from denial of the claim, otherwise, the //mnnvgp
claimant's right of action shall prescribe. (Sec. 397, ICP)

21 | P a g e