MARINE INSURANCE QUESTION:

QUESTION: Jacob, the owner of a barge, offered to transport

the logs of Esau from Palawan to Manila. Esau
Paolo, the owner of an ocean-going vessel, offered to accepted the offer not knowing that the barge was
transport the logs of Constantino from Manila to manned by an irresponsible crew with deep-seated
Nagoya. Constantino accepted the offer, not resentments against Jacob, their employer.
knowing that the vessel was manned by an
irresponsible crew with deep-seated resentments Esau inured his cargo of logs against both perils of
against Paolo, their employer. the sea and barratry.

Constantino insured the cargo of logs against both The logs were improperly loaded on one side, thereby
perils of the sea and barratry. The logs were causing the barge to tilt and to navigate on an
improperly loaded on one side, thereby causing the uneven keel. When the strong winds and high waves,
vessel to tilt on one side. On the way to Nagoya, the normal for that season, started to pound the barge,
crew unbolted the sea valves of the vessel causing the crew took advantage of the situation and
water to flood the ship hold. The vessel sank. unbolted the sea valves of the barge, causing sea
water to come in. the barge sank.
Constantino tried to collect from the insurance
company which denied liability, given the When Esau tried to collect from the insurance firm,
unworthiness of both the vessel and its crew. the latter stated that it could not be held
responsible considering the unworthiness of both
Constantino countered that he was not the owner the barge and its crew. Esau countered that he was
of the vessel and he could therefore not be not the owner of the barge and he could not be held
responsible for conditions about which he was responsible for conditions about which he was
innocent. innocent.

(1) Is the insurance company liable? Why or why Is the insurance company liable? Decide with
not? (3%) reasons.

What is "barratry" in marine insurance? (2%) ANSWER:

ANSWERS: No. The Insurer in not liable as to the

unseaworthiness of the barge. In marine insurance,
(1) The insurance company is not liable. According to the implied warranty of seaworthiness of the vessel
the case of Roque vs. Intermediate Appellate applies also to the insurance of the cargo. In an
Court, there is an implied warranty in every marine insurance against perils of the sea, it is the
insurance that the ship is seaworthy whoever is responsibility of the insured rather than the insurer
insuring the cargo, whether it be the ship-owner or to see to it that the vessel is seaworthy. That
not. There was a breach of warranty in this case responsibility, however, shifts to the insurer where
because the logs were improperly loaded and the the covered risks include perils of the ship.
crew was irresponsible. It is the obligation of the Accordingly, the insurance company in the problem
owner of the cargo to look for a reliable common can be held liable.
carrier which keeps its vessel in seaworthy
condition. (Transportation Law)
However, as to Barratry, Art. 809 of the Code of
(2) Barratry as defined in American Insurance Law Commerce provides that particular averages
is "any willful misconduct on the part of master or include: (9) Any loss suffered by the cargo through
crew in pursuance of some unlawful or fraudulent the fault, negligence, or barratry of the captain or
purpose without the consent of the owners, and to of the crew, without prejudice to the right of the
the prejudice of the owner's interest” (Roque v. owner to recover corresponding indemnity from the
Intermediate Appellate Court, G.R. No. L-66935, captain, the vessel, and the freightage.
[November 11, 1985]).
The Insurer is liable without prejudice to the right
to recover under the principle of subrogation the
corresponding indemnity from the captain, the
vessel, and the freightage.
QUESTION:
The sum total of the damage to the vessel was only
An inter-island vessel, insured for P2 M against P1,340,000.00 (P40,000 for the salvors, and
“total and constructive total loss,” sank in 150 ft of P1,300,000 for the restoration of the vessel to its
water one mile off Paranaque during a typhoon. original condition) which amount is not more than ¾
After the typhoon, the ship owner gave written of the value of the vessel (P2 M).
notice of abandonment of his interest in the entire
sunken ship to the insurance company. Refusing to c) Yes, the shipowner may still recover from the
accept the offer of abandonment, the insurer hired insurer his actual loss. Under Section 159 of the
salvors to refloat the vessel at a total cost of Insurance Code, a marine insurer is liable upon a
P40,000. Because the refloated vessel needed partial loss, only for such proportion of the amount
repairs, the insurer issued invitations to bid for insured by him as the loss bears to the value of the
repairs. Several firms submitted separate sealed whole interest of the insured in the property
bids ranging from P1.2 M to P1.3 M for the insured. The amount of P1,340,000.00 is now only
complete refurbishing and/or restoration of the partial loss. Since the said amount was already
vessel to its original condition. On the basis of the spent by the insurer on the vessel, the insurer is no
following facts, the insurance company rejected the longer liable to the shipowner, except to deliver the
claim of the ship owner for payment of total loss on vessel.
the ground that there was no constructive total
loss. QUESTION:

a) Was the notice of abandonment given by the A shipped 100 pieces of plywood from Davao City to
owner properly made? Reason. Manila. He took a marine insurance policy to insure
the shipment against loss or damage due to “perils
b) Is the position of the insurance company as to of the sea, barratry, fir, jettison, pirates and other
the absence of constructive total loss well taken? such perils”.
Reason.
When the ship left the port of Davao, the shipman
c) Assuming that the ship owner failed to give the in charge forgot to secure one of the portholes, thru
proper notice of abandonment, may he still recover which sea water seeped during the voyage,
from the insurer? Why? damaging the plywood. A filed a claim against the
insurance company which refused to pay on the
ANSWER: ground that the loss or damage was not due to a
peril of the sea or any of the risks covered by the
a) The notice of abandonment made in writing by policy. It was admitted that the sea was
the insured to the insurer was sufficient, had the reasonably calm during the voyage and that no
loss been a constructive total loss of the vessel, strong winds or waves were encountered by the
meaning the loss is more than ¾ of the value of the vessel.
vessel. Second Suggested Answer: The notice of
abandonment made in writing was not proper, since How would you decide the case? Explain.
the existence of the constructive total loss of the
vessel had not yet been determined. (Sec. 141, ANSWER:
Insurance Code)
I would decide in favor of the insured A because the
b) Yes, the position of the insurance company as to insurer was guilty of breach of the implied warranty
the absence of constructive total loss is well taken. of seaworthiness.

Under Section 141 of the Insurance Code, a person Under Section 115 of the Insurance Code, in every
insured by a contract of marine insurance may marine insurance upon a ship or freight, or
abandon the thing insured, or any particular portion freightage, or upon anything which is the subject of
thereof separately valued by the policy, or marine insurance, a warranty is implied that the
otherwise separately insured, and recover for a ship is seaworthy. Seaworthiness refers not only to
total loss thereof, when the cause of the loss is a the structure of the ship but also as to its being
peril insured against: “(a) If more than three- properly laden. In other words, a ship which is
fourths (¾) thereof in value is actually lost, or seaworthy for the insurance on the ship, may, by
would have to be expended to recover it from the reason of being unfit to receive the cargo, be
peril…” unseaworthy for the purpose of insurance upon the
cargo. In this case, the fact that the porthole was abandoned. Moreover, the High Court elaborated
not secured at the port of departure made the ship that for the said provision to apply, the separate
unseaworthy as far as the cargo of plywood was vessels must be insured separately, not to be
concerned. Thus, the insurer should be liable for the insured as one indivisible unit. Here, the marine
damage thereto although the loss was not one due insurance policy covered the entire 1,000 pieces of
to perils insured against. Mindoro Garden stones. Since the same are not
separately insured, no right to abandon is given to
QUESTION: the person insured. There is no constructive loss,
making the insurance company not liable under its
An insurance company issued a marine insurance policy.
policy covering a shipment by sea from Mindoro to
Batangas of 1,000 pieces of Mindoro Garden stones QUESTION:
against “total loss only.” The stones were loaded in
two lighters, the first with 600 pieces and the RC Corporation purchased rice from Thailand, which
second with 400 pieces. Because of rough seas, it intended to sell locally. Due to stormy weather,
damage was caused the second lighter resulting in the ship carrying the rice became submerged in sea
the loss of 325 out of the 400 pieces. The owner water, and with it the rice cargo. When the cargo
of the shipment filed claims against the insurance arrived in Manila, RC filed a claim for total loss with
company on the ground of constructive total loss the insurer, because the rice was no longer fit for
inasmuch as more than 3⁄4 of the value of the human consumption. Admittedly, the rice could still
stones had been lost in one of the lighters. Is the be used as animal feed. Is RC’s claim for total loss
insurance company liable under its policy? Why? justified? Explain.

ANSWER: ANSWER:

NO. The insurance company is not liable under its Yes, RC’s claim for total loss is justified.
policy covering against “total loss only” the shipment
of 1,000 pieces of Mindoro Garden stones. The In a case decided by the Supreme Court, the
Supreme Court, in the case of Oriental Assurance complete physical destruction of the rice is not
Co. v Court of Appeals, ruled that for there to be essential to constitute an actual total loss. Loss
constructive loss, the right to abandon must be exists when the thing insured has become totally
given to the person insured, following the useless for the purpose for which it was intended.
requirements of Sec. 139 (now, Sec. 141) of the
Insurance Code. The provision provides: a person Here, the rice, which was imported from Thailand
insured by a contract of marine insurance may for sale locally, is obviously intended for consumption
abandon the thing insured, or any particular portion by the public. The complete physical destruction of
thereof separately valued by the policy, or the rice is not essential to constitute an actual total
otherwise separately insured, and recover for a loss. Such a loss exists in this case since the rice,
total loss thereof, when the cause of the loss is a having been soaked in sea water and thereby
peril insured against: (a) If more than three- rendered unfit for human consumption, has become
fourths (¾) thereof in value is actually lost, or totally useless for the purpose for which it was
would have to be expended to recover it from the imported (Pan Malayan Ins Co v CA gr 95070 Sep
peril; (b) If it is injured to such an extent as to 5, 1991)
reduce its value more than three-fourths (¾); (c)
If the thing insured is a ship, and the contemplated QUESTION:
voyage cannot be lawfully performed without
incurring either an expense to the insured of more A marine insurance policy on a cargo state that “the
than three-fourths (¾) the value of the thing insurer shall be liable for losses incident to perils of
abandoned or a risk which a prudent man would not the sea.” During the voyage, seawater entered the
take under the circumstances; or (d) If the thing compartment where the cargo was stored due to
insured, being cargo or freightage, and the voyage the defective drainpipe of the ship. The insured
cannot be performed, nor another ship procured by filed an action on the policy for recovery of the
the master, within a reasonable time and with damages caused to the cargo. May the insured
reasonable diligence, to forward the cargo, without recover damages? (5%)
incurring the like expense or risk mentioned in the
preceding subparagraph. But freightage cannot in
any case be abandoned unless the ship is also
ANSWER: B. Was it proper for the shipowner to send a notice
of abandonment to the insurance company? Explain.
NO. ‘Perils of the sea’ has been said to include only
such losses as are of extraordinary nature, or arise ANSWER:
from some overwhelming power, which cannot be
guarded against by the ordinary exertion of human A. There was constructive total loss. Section 133,
skill and prudence. in relation to Section 141, ICP provides of the
circumstances where a person insured by an contract
In this case, the proximate cause of the damage of Marine Insurance may abandon the thing insured
was the defective drainpipe, a result of ordinary when the cause of the loss is a peril insured against.
wear and tear. Ordinary wear and tear pertains to When the vessel sank, it was likely that it would be
‘perils of the ship.’ totally lost because of the improbability of recovery.
Thus, there is constructive total loss.
Thus, since the proximate cause of the damage falls
under ‘perils of the ship’ and not ‘perils of the sea,’ B. Yes. It was proper for the ship owner to send a
the insured cannot recover under the policy. notice of abandonment to the insurance company.
Abandonment is defined in Section 140, ICP as the
QUESTION: act of the insured by which, after a constructive
total loss, he declares the relinquishment to the
What warranties are implied in marine insurance? insurer of his interest in the things insured.
Abandonment is made by giving notice thereof to
ANSWER: the insurer as provided in Section 145, ICP. Since
there was reliable information of the loss of the
The following warranties are implied in marine vessel, it is therefore proper to send notice to the
insurance: insurance company

a. That the ship is seaworthy to make the voyage QUESTION:

and/or to take in certain cargoes;
b. That the ship shall not deviate from the voyage On a clear weather, MV Sundo, carrying insured
insured; cargo, left the port of Manila bound for Cebu. While
c. That the ship shall carry the necessary at sea, the vessel encountered a strong typhoon
documents to show nationality or neutrality and forcing the captain to steer the vessel to the
that it will not carry document which will cast nearest island where it stayed for 7 days. The
reasonable suspicion thereon; vessel ran out of provisions for its passengers.
d. That the ship shall not carry contraband, Consequently, the vessel proceeded to Leyte to
especially if it is making voyage through belligerent replenish its supplies.
waters.
A. Assuming that the cargo was damaged because
QUESTION: of such deviation, who between the insurance
company and the owner of the cargo bears the loss?
MV Pearly Shells, a passenger and cargo vessel, was Explain.
insured for P40 M against “constructive total loss”. B. Under what circumstances can a vessel properly
Due to typhoon, it sank near Palawan. Luckily, there proceed to a port other than its port of
were no casualties, only injured passengers. The destination? Explain.
shipowner sent a notice of abandonment of his
interest over the vessel to the insurance company ANSWER:
which then hired professionals to afloat the vessel
for P900,000. When re-floated, the vessel needed A. The insurance company should bear the loss.
repairs estimated at P2 M. the insurance company Departure of vessel from course of voyage or an
refused to pay the claim of the shipowner, stating unreasonable delay in pursuing voyage, or the
that there was “no constructive total loss.” commencement of an entirely different voyage. (Sec.
125 ICP) The Deviation is proper if it one of those
A. Was there “constructive total loss” to entitle the enumerated in Section 126 of the Insurance Code of
shipowner to recover from the insurance company? the Philippines. Since the deviation was caused by a
Explain. strong typhoon, it was caused by circumstances
beyond the control of the captain, and also to avoid
a peril whether or not insured against. Thus, such
deviation was proper and the Insurance company (C) No, because T relied merely on his supposed gift
shall bear the loss. of prophecy.
(D) Yes, because the deviation took place based on a
B. A vessel can properly proceed to a port other reasonable belief of the captain.
than its port of destination in the following cases
(Section 126, ICP): QUESTION:
1. When caused by circumstances over which neither
the master or the owner of the ship has any control; For a constructive total loss to exist in marine
2. When necessary to comply with a warranty, or to insurance, it is required that the person insured
avoid a peril, whether or not the peril is insured relinquish his interest in the thing insured. This
against; relinquishment must be:
3. When made in good faith, and upon reasonable
grounds of belief in the necessity to avoid peril; (A) actual.
4. When made in good faith for the purpose of (B) constructive first and if it fails, then actual.
saving human life or relieving another vessel in (C) either actual or constructive.
distress. (D) constructive.

QUESTION: QUESTION:

T Shipping, Co. insured all of its vessels with R Perils of the ship, under marine insurance law, refer
Insurance, Co. The insurance policies stated that to loss which in the ordinary course of events results
the insurer shall answer for all damages due to from
perils of the sea. One of the insured's ship, the MV
Dona Priscilla, ran aground in the Panama Canal (A) natural and inevitable actions of the sea.
when its engine pipes leaked and the oil seeped into (B) natural and ordinary actions of the sea.
the cargo compartment. The leakage was caused by (C) unnatural and inevitable actions of the sea.
the extensive mileage that the ship had (D) unnatural and ordinary actions of the sea.
accumulated. May the insurer be made to answer for
the damage to the cargo and the ship? QUESTION:

(A) Yes, because the insurance policy covered any or X Shipping, Co., insured its vessel MV Don Teodoro
all damage arising from perils of the sea. for Php100 Million with ABC Insurance, Co. through
(B) Yes, since there appears to have been no fault T, an agent of X Shipping. During a voyage, the
on the part of the shipowner and ship captain. vessel accidentally caught fire and suffered
(C) No, since the proximate cause of the damage damages estimated at Php80 Million. T personally
was the breach of warranty of seaworthiness of informed ABC Insurance that X Shipping was
the ship. abandoning the ship. Later, ABC insurance denied X
(D) No, since the proximate cause of the damage Shipping’s claim for loss on the ground that a notice
was due to ordinary usage of the ship, and thus not of abandonment through its agent was improper.
due to a peril of the sea. Is ABC Insurance right?

QUESTION: (A) Yes, since X Shipping should have ratified its

agent’s action.
T, the captain of MV Don Alan, while asleep in his (B) No, since T, as agent of X Shipping who procured
cabin, dreamt of an Intensity 8 earthquake along the insurance, can also give notice of abandonment
the path of his ship. On waking up, he immediately for his principal.
ordered the ship to return to port. True enough, (C) Yes, since only the agent of X Shipping relayed
the earthquake and tsunami struck three days the fact of abandonment.
later and his ship was saved. Was the deviation (D) No, since in the first place, the damage was
proper? more than ¾ of the ship's value.

(A) Yes, because the deviation was made in good

faith and on a reasonable ground for believing that
it was necessary to avoid a peril.
(B) No, because no reasonable ground for avoiding a
peril existed at the time of the deviation.
QUESTION: QUESTION:

On December 1, 2010, Kore A Corporationshipped ELP Insurance, Inc. issued Marine Policy No. 888 in
from South Korea to LT Corporation in Manila some favor of FCL Corp. to insure the shipment of 132
300,000 sheets of high-grade special steel. The bundles of electric copper cathodes against all risks.
shipment was insured against all risks by NA Subsequently, the cargoes were shipped on board
Insurance (NA). The carrying vessel arrived at the the vessel "M/V Menchu" from Leyte to Pier 10,
Port of Manila on January 10, 2011. When the North Harbor, Manila.
shipment was discharged, it was noted that 25,000
sheets were damaged and in bad order. The entire Upon arrival, FCL Corp. engaged the services of
shipment was turned over to the custody of ATI, CGM, Inc. for the release and withdrawal of the
the arrastre operator, on January 21, 2011 for cargoes from the pier and the subsequent delivery
storage and safekeeping, pending its withdrawal by to its warehouses/plants in Valenzuela City. The
the consignee’s authorized customs broker, RVM. goods were loaded on board twelve (12) trucks
owned by CGM, Inc., driven by its employed drivers
On January 26 and 29, 2011, the subject shipment and accompanied by its employed truck helpers. Of
was withdrawn by RVM from the custody of ATI. the twelve (12) trucks en route to Valenzuela City,
On January 29, 2011, prior to the withdrawal of only eleven (11) reached the destination. One (1)
the last batch of the shipment, a joint inspection of truck, loaded with eleven (11) bundles of copper
the cargo was conducted per the Request for Bad cathodes, failed to deliver its cargo.
Order Survey (RBO) dated January 28, 2011. The
examination report showed that 30,000 sheets of Because of this incident, FCL Corp. filed with ELP
steel were damaged and in bad order. Insurance, Inc. a claim for insurance indemnity in
the amount of P1,500,000.00. After the requisite
NA Insurance paid LT Corporation the amount of investigation and adjustment, ELP Insurance, Inc.
P30,000,000.00 for the 30,000 sheets that were paid FCL Corp. the amount of P1,350,000.00 as
damaged, as shown in the Subrogation Receipt insurance indemnity.
dated January 13, 2013. Thereafter, NA
Insurance demanded reparation against ATI for ELP Insurance, Inc., thereafter, filed a complaint
the goods damaged in its custody, in the amount of for damages against CGM, Inc. before the Regional
P5,000,00.00. ATI refused to pay claiming that Trial Court (RTC), seeking reimbursement of the
the claim was already barred by the statute of amount it had paid to FCL Corp. for the loss of the
limitations. ATI alleged that the Carriage of Goods subject cargo. CGM, Inc. denied the claim on the
by Sea Act (COGSA) applies in this case since the basis that it is not privy to the contract entered
goods were shipped from a foreign port to the into by and between FCL Corp. and ELP Insurance,
Philippines. NA Insurance claims that the COGSA Inc., and hence, it is not liable therefor. If you are
does not apply, since ATIis not a shipper or carrier. the judge, how will you decide the case? (4%)
Who is correct? (5%)
ANSWER:
ANSWER:
CGM, Inc. should be held liable for damages against
NA Insurance is correct. ATI should be ordered to ELP Insurance, Inc. The insurer, upon happening of
pay NA Insurance notwithstanding the lapse of the the risk insured against and after payment to the
one-year prescriptive period for filing a suit under insured is subrogated to the rights and cause of
the COGSA. The term “carriage of goods” under action of the latter. As such, the insurer has the
Section 1 in COGSA, covers the period from the time right to seek reimbursement for all the expenses
when the goods are loaded to the time when they paid.
are discharged from the ship infer that the period
of time when the goods have been discharged from
the ship and given to the custody of the arrastre
operator is not covered by the COGSA. The COGSA
does not mention that an arrastre operator may
invoke the prescriptive period of one year; hence, it
does not cover the arrastre operator.
QUESTION: FIRE INSURANCE

Absolute Timber Co. (ATC) has been engaged in the QUESTION:

logging business in Isabela. To secure one of its
shipments of logs to be transported by Andok In 1964, Jose constructed a house worth
Shipping Co., ATC purchased a marine policy with an P50,000.00, which he insured against fire for the
all-risk provision, Because of a strong typhoon then same amount. The insurance for the same amount
hitting Northern Luzon, the vessel sank and the was renewed every year. In 1974, when the house
shipment of logs was totally lost. ATC filed its claim, was already worth P100,000.00 on account of
but the insurer denied the claim on several grounds, inflationary prices (in case of a rebuilding), one-fifth
namely: (1) the vessel had not been seaworthy; (2) (1/5) of the house was destroyed by fire. As nothing
the vessel’s crew had lacked sufficient training; (3) illegal about the contract, how much, if any, can Jose
the improper loading of the logs on only one side of successfully recover from the Insurance Company?
the vessel had led to the tilting of the ship to that Reason.
side during the stormy voyage; and (4) the
extremely bad weather had been a fortuitous event. ANSWER:

ATC now seeks your legal advice to know if its claim Property Insurance policies may be classified into an
was sustainable. What is your advice? Explain your open policy, valued policy or running policy. According
answer. (3%) to Sec. 60 of the Insurance Code, an open policy is
one in which the value of the thing insured is not
ANSWER: agreed upon, and the amount of the insurance
merely represents the insurer’s maximum liability.
ATC’s claim is sustainable because the policy The value of such thing insured shall be ascertained
procured by ATC is an all-risk policy. at the time of the loss; according to Sec. 61 of the
Insurance Code, a valued policy is one which
As held in the case of New World International expresses on its face an agreement that the thing
Development v. NYK FilJapan Shipping Corporation, insured shall be valued at a specific sum; according
G.R. No. 171468, August 24, 201, an all-risk policy to Sec. 62 of the Insurance Code, a running policy is
is one which covers all causes of conceivable loss or one which contemplates successive insurances, and
damage except when otherwise excluded or when which provides that the object of the policy may be
the loss or damage was due to fraud or intentional from time to time defined, especially as to the
misconduct committed by the insured. The policy subjects of insurance, by additional statements or
covered all losses during the voyage whether or not indorsements.
arising from a marine peril.
Applying said principles to the problem, the
In the case at bar, ATC availed a marine policy with insurance may be an open policy or valued policy. If
an all-risk provision without any list of excluded said insurance policy is an open one, then under the
risks. Absent any showing that ATC committed Iaw appraisal of loss is made after the fire. Since
fraud or intentional misconduct, the all-risk policy the house was worth P100,000.00 at such time,
covers the insured. then the loss of Jose is P20,000.00 and he can
recover this amount under such an open policy.
Therefore, ATC may claim or recover under the
marine policy with an all-risk provision against the If the fire policy is a valued one, under the
insurer. Insurance Code, the valuation in a valued policy is
conclusive between the parties in the absence of
fraud and the value is based on the face of the
agreement, then Jose is only limited to the amount
of 1/5 of P50,000 or P10,000.
QUESTION: nonetheless, the rule has been modified by the
decisions of the Supreme Court after the
Queens Insurance Company insured X, a resident of promulgation of the Insurance Code. Thus, in UCPB
Baguio City, “against all direct loss and damage by General Insurance v. Masagana Telemart (G.R. No.
fire.” X lived in a house heated by a furnace. His 137172, April 4, 2001), it was held that if the
servant built a fire in the furnace using material insurer has granted the insured a credit term for
that was highly flammable. The furnace fire cause the payment of the premium and loss occurs before
intense heat and great volumes of smoke and soot the expiration of the term, recovery on the policy
that damaged the furnishings in the rooms of X. should be allowed even though the premium is paid
When X tried to collect on the policy, Queens after the loss but within the credit term.
Insurance refused to pay contending that the
damage is not covered by the policy, where the fire In this case, although the payment of the premium
is confined within the furnace. Decide. through check was made after the building was
destroyed by fire, Alfredo may still recover since the
ANSWER: check was payable within the 15-day credit given by
the insurance company.
The refusal of Queens Insurance Company to pay is
justified. The law provides that liability on the part Hence, Alfredo may still recover on the insurance
of the insurer will ensue only if there is a “hostile company despite the destruction of the thing prior
fire” and not a “friendly fire.” A hostile fire is one to the actual payment of the premium.
that is uncontrolled, whereas a friendly fire is one
contained in its proper receptacle. Once a fire has
passed outside the limits assigned to it, it becomes b. Yes. Section 86 of the ICP provides that the
a hostile fire. In the given facts, since the fire insurer shall be liable the loss, the proximate cause
remained confined within the furnace, it is merely a of which is the peril insured against. Section 86 of
friendly fire. Therefore, not being a hostile fire, the the same Code also provides that the insurer shall
insurance company is justified in its refusal. also be liable for the loss if the immediate cause of
which is the peril insured against except where the
QUESTION: proximate cause is an excepted peril.

Alfredo took out a policy to insure his commercial In this case, although the proximate cause of the
building against fire. The broker for the insurance loss is the explosion, the fire is still the immediate
company agreed to give a 15-day credit within which cause of the destruction of the building. The
to pay the insurance premium. Upon delivery of the insurance company is still liable since the explosion
policy on May 15, 2006, Alfredo issued a postdated was not an excepted peril in the insurance policy.
check payable on May 30, 2006. On May 28, 2006,
a fire broke out and destroyed the building owned by Hence, Alfredo may still recover from the insurance
Alfredo. policy even if the fire is only the immediate cause of
the loss.
a. May Alfredo recover on the insurance policy?
b. Would your answer in (a) be the same if it was c. Yes, Alfredo can still recover. Section 89 of the
found that the proximate cause of the fire was an ICP provides that an insurer is not liable for a loss
explosion and that fire was but the immediate cause caused by the willful act or through the connivance
of loss and there is no excepted peril under the of the insured; but the insurer is not exonerated by
policy? the negligence of the insured, or of the insurance
c. If the fire was found to have been caused by agents or others.
Alfredo's own negligence, can he still recover on the
policy? In this case, mere negligence of Alfredo will not
exonerate the insurance company from its liability
ANSWER: against the former. Since the negligence was not
provided to be gross, the insurer is still liable based
a. Yes, Alfredo can recover on the insurance policy. on the insurance policy. Hence, Alfredo can still
recover.
Although Section 79 of the Insurance Code of the
Philippines (ICP) provides that in fire insurance,
payment of premium is necessary for validity of the
policy (also known as “cash and carry” provision),
QUESTION: QUESTION:

Suppose that Fortune owns a house valued at If each of the policies obtained by Fortune in
P600,000 and insured the same against fire with 3 problem (a) above is an open policy and it was
insurance companies as follows: immediately determined after the fire that the
value of Fortune’s house was P2.4 M, how much
X ------------------- P400,000.00Y may he collect from X, Y and Z?

Y-------------------- P200,000.00Z ANSWER:

Z-------------------- P600,000.00 In an open policy, the insured may recover his total
loss up to the amount of the insurance coverage.
In the absence of any stipulation in the policies from Thus, the extent of recovery would be P400,000
which insurance company or companies may Fortune from X; P200,000 from Y; and P600,000 from Z.
recover in case of fire should destroy his house
completely? QUESTION:

ANSWER: In problem (a), what is the extent of the liability

of the insurance companies among themselves?
Fortune may recover from the insurers in such order
as he may select up to their concurrent liability. ANSWER:

In the problem (a), the insurance companies among

QUESTION: themselves would be liable, viz:

If each of the fire insurance policies obtained by X — 4/12 of P600,000 = P200,000

Fortune in problem (a) is a valued policy and the Y — 2/12 of P600,000 = P100,000
value of his house was fixed in each of the policies Z — 6/12 of P600,000 = P300,000
at P1 M, how much would Fortune recover from X if
he has already obtained full payment on the QUESTION:
insurance policies issued by Y and Z?
Supposing in problem (a) above, Fortune was able to
ANSWER: collect from both Y and Z, may he keep the entire
amount he was able to collect from the said 2
One Answer (assuming that the real value is P1 M): insurance companies?

Fortune may still recover only the balance of ANSWER:

P200,000 from X Insurance Company since the
insured may only recover up to the extent of his loss. No, he can only be indemnified for his loss, not profit
thereby;
Another Answer (assuming that the real value is
P600,000): hence, he must return P200,000 of theP800,000
he was able to collect.
Having obtained full payment on the insurance
policies issued by Y and Z, Fortune may no longer
recover from X Insurance Company.
(Homework Questions) QUESTION:

QUESTION: A property insurance covers losses caused by

lightning. Lightning produced the fire that
What are allied risks in a fire insurance policy? What destroyed the machine in the field but fire is not one
is the condition for these allied risks to be covered of the perils insured against. Will the insured
by a fire insurance policy? recover. Reason.

ANSWER: ANSWER:

Allied risks in fire insurance are those additional Yes, the insured may recover. Although fire is not
risks which are not within the scope of fire one of those risks insured against, lightning, which
insurance policy but which may increase the risks of is the peril insured, is the proximate cause of the
fire or may pose the thing insured to risks other loss. This is in accordance with Section 86 of the
than fire such as lightning, windstorm, tornado, Insurance Code which makes the insurer liable if the
earthquake, etc. There must be extension to fire peril insured against is the proximate cause of the
insurance policy or these risks must be insured under loss even if the loss is accompanied by a remote
separate policies to be effective against the cause or an immediate cause whether or not such
insurer. causes are excepted perils.

QUESTION: QUESTION:

Differentiate between friendly fire and hostile fire? Due to power outage, the insured used a candle
Which type of fire does the liability of the insurer temporarily to provide light in the house. The
attach? insured fell asleep momentarily forgetting to blow
the candle out. The house was totally destroyed.
ANSWER: Insurer refuses to pay reasoning that the insured
increased the risk by using the candle. Is the
A hostile fire is one that is uncontrolled, whereas a Insurer correct?
friendly fire is one contained in its proper receptacle.
Loss or damage due to hostile fire is what entitles ANSWER:
the insured to recover. Hence, liability of insurer
attaches in hostile fire. If a property is damaged No, the insurer is incorrect. The insured has a right
due to a friendly fire such as an insured property to recover. Under Section 171 of the Insurance Code,
accidentally fell unto a friendly fire, no right to for insurer to be excused from liability, there must
recovery can be had by the insured. be an increased in the risk it assumed but if such
alteration does not increase the risk, it does not
QUESTION: affect the contract of fire insurance. There is an
increase in risk if there is a substantial change in
Differentiate between direct and indirect loss. Is the conditions affecting the risk as to materially
indirect loss also covered in a fire insurance policy? increase it. Mere negligence, which is the case in the
situation, which temporarily endangers the
ANSWER: property, is not the material increase of risk
contemplated by the law.
Direct loss is that loss which directly affects the
thing insured or that kind of loss which cause
financial loss due to the direct physical damage it
caused to the thing insured. Indirect loss is the
consequential loss that the insured suffers as a
result of the loss or damage to the property
insured. Example of an indirect loss is a
manufacturing plant which cannot operate because
fire cripples its machineries. As a result of non-
operation, profits are not earned while expenses
continue to run.
QUESTION: QUESTION:

When Loida built his house, he spent a million peso Mariel took out an open policy fire insurance. At the
for its construction. He took out an open policy time she built the house, she spent 2 million pesos.
insurance for this house. Recently, the house got Now, the house is worth 3 million pesos if it is to be
totally destroyed by fire. She would need about 2 rebuilt. If the house is partially destroyed such
million pesos to rebuild the house at the exact size that half of the house is destroyed while the other
and using the same materials. How much should the half is intact, how much can Mariel recover from the
insurer pay Loida? open policy?

ANSWER: ANSWER:

The insured should pay to Loida the amount of 2 Mariel can recover as much as 1.5 million Pesos, the
million Pesos as this is the amount that Loida needs amount needed in order for her to rebuild the loss.
in order to repair or replace the thing insured taking Mariel cannot recover the entire amount of 3 million
into consideration proper deduction for depreciation. Pesos since the loss is not a total loss. A contract of
This is in accordance with Section 173 which insurance is a contract of indemnity the purpose of
provides for the measure of indemnity for open which is to indemnify the insured of her loss. It is
valued policy. In an open policy where there is no not designed for the insured to profit from his/her
valuation in the policy, the measure of indemnity in losses.
an insurance against fire is the expense it would be
to the insured at the time of the commencement of QUESTION:
the fire to replace the thing lost or injured in the
condition in which at the time of the injury. In problem 8, Loida's house was damaged to the
extent of Php500,000. There is a co-insurance
QUESTION: clause in the policy. How much should the Insurer
But if Loida took out a valued policy for 1 million pay to Loida?
pesos in the above-mentioned house, how much is
she entitled to recover? ANSWER:
The insurer pays Php250,000 to Loida, the other
ANSWER: half shall be shouldered by Loida being a co-insurer
to the policy to the extent of one half of the loss
Loida can recover 1 million Pesos for total loss since which is the percentage of the deficiency in an
her policy is a value policy. In valued policy, the insurance where the value of the property is 1
valuation fixed in the policy shall be binding on the million Pesos. But if the property was totally lost,
parties. This is in accordance with the last sentence then the Insurer must pay Loida the total amount
of Section 173. of Php500,000. Co-insurance only applies in case of
partial loss.
QUESTION:

What if Loida insured the house for only

Php500,000 and it was totally destroyed. The value
of the house is actually Php1,000,000. How much is
Loida entitled to recover?

ANSWER:

Loida is entitled to recover only Php500,000 even if

the value of the house is 1 million Pesos. In valued
policy, the amount fixed in the contract or policy is
binding on the parties. The maximum recovery is the
amount of the insurance or the actual loss suffered,
whichever is lower.
 CASUALTY INSURANCE ANSWER:

QUESTION: Yes. This is similar to the case of De la Cruz vs.

Capital Insurance and Surety Co. The Supreme
In a course of a voluntary boxing content, B who had Court in said case defined accident as an event that
an accident insurance policy, slid and slipped, enabling takes place without one's foresight or expectation
his opponent boxer to hit him with a blow that — an event that proceeds from an unknown cause,
threw him to the ropes, hitting his head against or is an unusual effect of a known cause and,
the canvass, causing B’s eventual death. There is therefore, not expected. Thus, for one to be able to
nothing in the insurance contract appertaining to claim from such accident insurance policy, the injury
boxing. Is the Insurance Company liable? Reasons. sustained should be within the meaning of an
accident. In said case, it was established that while
ANSWER: the participation of the insured in the boxing
contest is voluntary, the injury was sustained when
Yes. This is similar to the case of De la Cruz vs. he slid, giving occasion to the infliction by his
Capital Insurance and Surety Co. The Supreme opponent of the blow that threw him to the ropes
Court in said case defined accident as an event that of the ring. Without this unfortunate incident, that
takes place without one's foresight or expectation is, the unintentional slipping of the deceased,
— an event that proceeds from an unknown cause, perhaps he could not have received that blow in the
or is an unusual effect of a known cause and, head and would not have died. The fact that boxing
therefore, not expected. Thus, for one to be able to is attended with some risks of external injuries does
claim from such accident insurance policy, the injury not make any injuries received in the course of the
sustained should be within the meaning of an game not accidental. In boxing as in other equally
accident. In said case, it was established that while physically rigorous sports, such as basketball or
the participation of the insured in the boxing baseball, death is not ordinarily anticipated to
contest is voluntary, the injury was sustained when result.
he slid, giving occasion to the infliction by his
opponent of the blow that threw him to the ropes If, therefore, it ever does, the injury or death can
of the ring. Without this unfortunate incident, that only be accidental or produced by some unforeseen
is, the unintentional slipping of the deceased, happening or event as what occurred in this case.
perhaps he could not have received that blow in the Thus, the father, being the beneficiary or the
head and would not have died. The fact that boxing person designated to receive proceeds of policy when
is attended with some risks of external injuries does the risk attaches, may successfully claim from the
not make any injuries received in the course of the Insurance Company.
game not accidental. In boxing as in other equally
physically rigorous sports, such as basketball or QUESTION:
baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or Mr. Gonzales was the owner of a car insured with
death can only be accidental or produced by some Masagana Insurance Company for “Own Damage”,
unforeseen happening or event as what occurred in “Theft”, and “Third Party Liability” effective May
this case. Thus, the Insurance company is liable. 14, 1986 to May 14, 1987. On May 2, 1987, the
car was brought to a machine ship for repairs. On
QUESTION: May 11, 1987, while in the custody of the machine
shop, the car was taken by one of the employees (of
Luis was the holder of an accident insurance policy the machine shop) to show off to his girlfriend.
effective November 1, 1988 to October 31, 1989. While on the way to his girlfriend’s house, the car
At a boxing contest held on January 1, 1989 and smashed into a parked truck and was extensively
sponsored by his employer, he slipped and was hit on damaged. Mr. Gonzales filed a claim for recovery
the face by his opponent so he fell and his head hit under the policy but was refused payment. The
one of the posts of the boxing ring. He was rendered insurance company averred that the car was not
unconscious and was dead on arrival at the hospital stolen, and therefore was not covered by the “Theft
due to “intracranial hemorrhage.” Clause”.

Can his father who is a beneficiary under said Decide the merits of the insurer’s contention, with
insurance policy successfully claim indemnity from the reasons.
insurance company? Explain your answer.
ANSWER: ANSWER:

The insurance company should answer for the The insurer is liable to “A” under the “Theft
damage of the car and allow Mr. Gonzales to claim Clause”.
recovery under the policy.
The Supreme Court held in the case of Villacorta v.
The coverage of the policy was rather Insurance Commissioner that where a car is
comprehensive than limited in scope. The “Theft unlawfully and wrongfully taken by some people, be
Clause” particularly, by the intendment of the they employees of the car shop or not to whom it
parties should cover all situations of the loss of the had been entrusted, and taken on a long trip
property occasioned by the taking or use by another without the owner's consent or knowledge, such
without the authority of the insured. In the case taking constitutes or partakes of the nature of
of Villacorta v. Insurance Commission the Supreme theft as defined in Article 308 of the Revised Penal
Court held that “when a person, either with the Code.
object of going to a certain place, or learning how to
drive, or enjoying a free ride, and takes possession of In the case at bar, A’s car was taken from the
the vehicle belonging to another, without the repair shop by the one of the employees without his
consent of the owner, he is already guilty of theft consent. Regardless of the reason behind such
because by taking possession of the property taking, and even though temporary and only for a
belonging to another and using it, his intent to gain joy ride, such amounts to theft. Therefore, the
is evident since he derives therefrom utility, insurer is liable for the damage incurred due to the
satisfaction, enjoyment, and pleasure.” car accident.
In this case, although the car was taken not within
the strict meaning of the word “theft,” at the time QUESTION:
of the accident it was driven by one who had no
authority to drive the car, and the use thereof was S Insurance Co. issued a personal accident policy to
without authority of the owner, therefore, it is Bob Tan with a face value of P500,000. In the
within the coverage of the insurance policy. evening of September 5, 1992, after his birthday
party, Tan was in a happy mood but not drunk. He
Hence, Masagana Insurance Company should be was playing with his hand gun, from which he
liable for the damages. previously removed the magazine. As his secretary
was watching television, he stood in front of her and
QUESTION: pointed the gun at her. She pushed it aside and said
that it may be loaded. He assured her that it was
“A” was the owner of a car insured with Fortune not and then pointed it at his temple. The next
Insurance Company for “Own Damage”, “Theft”, moment, there was an explosion and Tan slumped to
and “Third-Party-Liability” effective May 16, 1977 the floor lifeless.
to May 16, 1978. On May 9, 1978, the car was
brought to a machine shop for repairs. On May 11, The wife of the deceased sought payment on the
1978, while in the custody of the machine shop, the policy but her claim was rejected. The insurance
car was taken by one of the employees to be driven company agreed that there was no suicide. However,
out to a certain place. While travelling along the it was the submission of the insurance company
highway, the car smashed into parked truck and that there was no accident. In support thereof, it
suffered extensive damage. contended a) that there was no accident when a
deliberate act was performed unless some
“A” filed a claim for recovery under the policy but additional, unexpected, independent and unforeseen
was refused payment. The insurance company happening occur which produces or brings about the
averred that the car was not stolen and, therefore, injury or death; and b) that the insured willfully
was not covered by the “Theft Clause.” exposed himself to needless peril and thus removed
himself from the coverage of the insurance policy.
Decide the merits of the insurer’s contention, with
reasons. Are the two contentions of the insurance company
tenable? Explain.
ANSWER: fact that BOY is a minor, and the injured parties
are also children. Accordingly, it is possible that CNI
No, the contentions of the insurance company are may not prosper. ATT's report is not conclusive on
untenable. Bob Tan was unquestionably negligent POS or the court.
and that negligence cost him his own life. But it
should not prevent his widow from recovering from QUESTION:
the insurance policy he obtained precisely against
accident. There is nothing in the policy that relieves Sun-Moon Insurance issued a Personal Accident
the insurer of the responsibility to pay the Policy to Henry Dy with a face value of P500,000. A
indemnity agreed upon if the insured is shown to provision in the policy states that “the company
have contributed to his own accident. Indeed, most shall not be liable in respect of bodily injury
accidents are caused by negligence. consequent upon the insured person attempting to
commit suicide or willfully exposing himself to
QUESTION: needless peril except in an attempt to save human
life”. 6 months later, Henry died of a bullet wound in
CNI insure SAM under a homeowner's policy against his head. Investigation showed that one evening
claims for accidental injuries by neighbors. SAM's Henry was in a happy mood although he was not
minor son, BOY, injured 3 children of POS, a neighbor, drunk. He was playing with his handgun from which
who sued SAM for damages. SAM's lawyer was he had previously removed its magazine. He pointed
ATT, who was paid for his services by the insurer the gun at his sister who got scared. He assured
for reporting periodically on the case to CNI. In one her it was not loaded. He then pointed the gun at
report, ATT disclosed to CNI that after his his temple and pulled the trigger. The gun fires and
investigations, he found the injuries to the 3 Henry slumped dead on the floor.
children not accidental but intentional.
Henry’s wife, Beverly, as the designated beneficiary,
SAM lost the case in court, and POS was awarded sought to collect under the policy. Sun-Moon rejected
one million pesos in damages which he sought to her claim on the ground that the death of Henry
collect from the insurer. But CNI used ATTs report was not accidental. Beverly sued the insurer. Decide.
to deny the claim on the ground that the injuries to Discuss fully.
POS's 3 children were intentional, hence excluded
from the policy's coverage. POS countered that CNI ANSWER:
was estopped from using ATTs report because it
was unethical for ATT to provide prejudicial Beverly can recover the proceeds of the policy from
information against his client to the insurer, CNI. the insurer. The death of the insured was not due
to suicide or willful exposure to needless peril which
Who should prevail: the claimant, POS; or the are the excepted risks. The insured’s act was purely
insurer, CNI? Decide with reasons briefly. (5%) on act of negligence which is covered by the policy
and for which the insured got the insurance for his
ANSWER: protection. In fact, he removed the magazine from
the gun and when he pointed the gun to his temple
The CNN claim cannot prevail because as a rule it is he did so because he thought that it was safe for
the insurer who has the burden of proof to show him to do so. He did so to assure his sister that the
that the peril was excepted as it is the insurer that gun was harmless. There is none in the policy that
seeks avoidance from the liability. would relieve the insurer of liability for the death of
the insured since the death was an accident. (BAR
Moreover, in Finman General Assurance Corp. v. 1995)
Court of Appeals, 213 SCRA 493 (1992), it was
explained that there is no "accident" in the context
of an accident policy, if it is the natural result of the
insured's voluntary act, unaccompanied by anything
unforeseen except the injury. There is no accident
when a deliberate act is performed unless some
additional and unforeseen happening occurs that
brings about the injury.

This element of deliberateness is not clearly shown

from the facts of the case, especially considering the
QUESTION: (Casualty Insurance/Motor Vehicle (3) Medical report and evidence of medical or
Liability Insurance) hospital disbursement in respect of which refund is
claimed;
“X” owns and operates several passenger jeepneys in
Metro Manila. He entered into a contract with Gold c. Claim may be made against one motor vehicle only.
Mine Insurance & Surety Co., insuring the operation xxx”
of his jeepneys against accidents with third-party-
liability. In this case, as long as the requisites of provision
are met, the defenses provided cannot be used by
During the effectivity of the insurance, one of his the insurance company.
jeepneys bumped “B”, who had just alighted from
another passenger jeepney whose driver unloaded
passengers in the middle of the street. “B” suffered LIFE INSURANCE
bodily injury as a consequence and filed a claim
against the insurance company. The latter refused QUESTION:
to pay on the ground that the driver of the jeepney
from which passenger “B” alighted was guilty of On January 1, 2000, Antonio Rivera secured a life
negligence in unloading in the middle of the street, insurance from SOS Insurance Corp. for P1 Million
and that the driver of the insured operator was not with Gemma Rivera, his adopted daughter, as the
at fault. beneficiary. Antonio Rivera died on March 4, 2005
and in the police investigation, it was ascertained
Can passenger “B” recover from the insurance that Gemma Rivera participated as an accessory in
company? Explain. the killing of Antonio Rivera. Can SOS Insurance
Corp. avoid liability by setting up as a defense the
ANSWER: participation of Gemma Rivera in the killing of
Antonio Rivera? Discuss with reasons. (4%)
Yes, passenger B may recover from the insurance
company. As explained by the Supreme Court in ANSWER:
Bonifacio Brothers v Mora, under the doctrine of
stipulation pour autrui, a third person is allowed to No. SOS Insurance Corp. cannot avoid liability by
avail himself of a benefit granted to him by the setting up as defense the participation of Gemma
terms of the contract, provided that the Rivera in the killing of Antonio Rivera. Although the
contracting parties have clearly and deliberately Insurance Code provides that the interest of the
conferred a favor upon such person. In this case, beneficiary in a life insurance policy shall be forfeited
the insurance covers the operation of X’s jeepneys when the beneficiary is the principal, accomplice, or
against accidents with third parties, and therefore accessory in willfully bringing about the death of the
B may directly recover from the insurance company. insured, the same law also provides that in such an
event, the nearest relative of the insured shall
Furthermore, the insurance company cannot refuse receive the proceeds of said insurance if not
to pay on the ground that driver of the insured otherwise disqualified. The facts of the case reveal
operator was not at fault. Section 391 of the that Gemma Rivera's participation as accessory is
Insurance Code expressly provides that: “Any claim only based on the findings of a police investigation.
for death or injury to any passenger or third-party In other words, there is yet no final judgment of
pursuant to the provisions of this chapter shall be conviction. But assuming arguendo that a mere
paid without the necessity of proving fault of police investigation is enough to disqualify Gemma,
negligence of any kind: Provided, that for the the fact remains that the law itself provides that
purposes of this section: the insurance proceeds shall pertain to the nearest
relatives of the insured. Hence, all premises
a. The total indemnity in respect of any person shall considered, the insurer cannot therefore escape
not be less than 15,000 pesos. b. The following liability by simply raising the defense of Gemma's
proofs, when submitted under oath, shall be participation as an accessory to the crime.
sufficient evidence to substantiate the claim:

(1) The police report of accident; and

(2) Death certificate and evidence sufficient to
establish the proper payee; or
(Incontestability Clause) COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE
QUESTION:

On May 5, 1982, Juan applied for a life insurance QUESTION:

policy with Acme Life Insurance Co. The policy was
issued to Juan on June 30, 1982 but the date of As a rule, an insurance contract is consensual and
issue, as appearing on the policy was May 15, 1982, voluntary. The exception is in the case of: (2014)
the date of his application. Juan subsequently
realized that some of his answers in the insurance A. Inland Marine Insurance
application were erroneous. Accordingly, he supplied B. Industrial Life Insurance
the insurance company with the correct replies. C. Motor Vehicle Liability Insurance
However, his letter to the insurance company was D. Life Insurance
lost in the mails. Juan died June 1, 1984.
ANSWER:
The insurance company now refuses to pay Juan’s
beneficiary contending that Juan misrepresented C. Motor Vehicle Liability Insurance
the state of his health at the time of his
application. Is the insurance company liable? State Chapter VI of the Insurance Code deals with this
your reason. (BAR 1984) kind of insurance which is properly referred to
as “Compulsory Motor Vehicle Liability Insurance”
ANSWER:
In this case, the three other choices (A, B and D)
Yes. The incontestability clause that must be are all consensual and voluntary and only C is
contained in every individual life insurance policy consensual but compulsory as the name it was given
refers to the date of its issue as shown in the policy. by the Insurance Code expressly provides.
Since the policy of life insurance had been in force
during the lifetime of the insured, Juan, for a period Hence, only C is not consensual and voluntary but it
of 2 years from May 15, 1982, the date of issue as is compulsory.
shown in the policy, the policy has become
incontestable. The insurance company can no longer (No Fault Indemnity Clause)
prove that the policy is void ab initio or rescindable
by reason fraudulent concealment or QUESTION:
misrepresentation of the insured.
“X” owns and operates several passenger jeepneys in
Metro Manila. He entered into a contract
with Gold Mine Insurance & Surety Co., insuring the
operation of his jeepneys against accidents
with third-party-liability.

During the effectivity of the insurance, one of his

jeepneys bumped “B”, who had just alighted
from another passenger jeepney whose driver
unloaded passengers in the middle of the street.

“B” suffered bodily injury as a consequence and filed

a claim against the insurance company. The latter
refused to pay on the ground that the driver of the
jeepney from which passenger “B” alighted was
guilty of negligence in unloading in the middle of the
street, and that the driver of the insured operator
was not at fault.

Can passenger “B” recover from the insurance

company? Explain. (1981)
ANSWER: the directly offending vehicle. In all cases, the right
of the party paying the claim to recover against the
Yes, passenger “B” may recover from the insurance owner of the vehicle responsible for the accident
company. As provided under Section 391 of the shall be maintained.
Insurance Code, any claim for death or injury to
passengers or third-party pursuant to the (Theft Clause)
provisions of the Compulsory Motor Vehicle
Insurance shall be paid without the necessity of QUESTION:
proving fault or negligence of any kind.
“A” was the owner of a car insured with Fortune
In this case, the insurance policy of X covers the Insurance Company for “Own Damage”, “Theft”,
operation of “X’s” jeepneys against accidents and “Third-Party-Liability” effective May 16, 1977
with any person other than the passenger. to May 16, 1978. On May 9, 1978, the car was
Therefore, the insurance covers the liability for body brought to a machine shop for repairs. On May 11,
injuries suffered by “B” when he was bumped by one 1978, while in the custody of the machine shop, the
of X’s jeepneys. car was taken by one of the employees to be driven
out to a certain place. While travelling along the
Thus, B can directly claim from the insurer of X, highway, the car smashed into a parked truck and
without the need of proving fault or negligence on suffered extensive damage. “A” filed a claim for
X’s part, provided that the total indemnity in recovery under the policy but was refused payment.
respect of any person shall be in accordance as The insurance company averred that the car was
provided under the law. not stolen and, therefore, was not covered by the
“Theft Clause.” Decide the merits of the insurer’s
QUESTION: contention, with reasons. (1981)

What do you understand by the “no fault indemnity” ANSWER:

provision in the Insurance Code? What are the rules
on claims under said provision? (1989) The insurer is liable to A. As held in the case of Perla
Compania de Seguros, Inc. v. CA., the risk insured
ANSWER: against in the policy may include theft and if there
is such a policy and the vehicle was unlawfully taken
The “no fault indemnity” under Section 391 of the from its rightful owner, the insurer is liable under
Insurance Code provides that any claim for the theft clause.
death or injury to a passenger or to a third party
should be paid without the necessity of proving In this case, when the car of A which was brought
fault or negligence, subject to the following rules: to the machine shop and which was subsequently
taken by one the employees without A’s consent, the
(a) The total indemnity in respect of any person car is deemed to have been stolen. The taking of A’s
shall not be less than fifteen thousand car without his permission is sufficient to place it
pesos (P15,000.00); under the ambit of the word theft as contemplated
in A’s insurance policy. and thus, can hold the
(b) The following proofs of loss, when submitted insurance company liable for the loss suffered by
under oath, shall be sufficient evidence reason of theft.
to substantiate the claim:
Therefore, insurer is liable for total loss due to car
(1) Police report of accident; and accident of A’s car which was wrongfully taken,
(2) Death certificate and evidence sufficient to without the insured’s consent, from the machine
establish the proper payee; or shop entrusted for repairs.
(3) Medical report and evidence of medical or
hospital disbursement in respect of
which refund is claimed;

Claim may be made against one motor vehicle only.

In the case of an occupant of a vehicle, claim, shall
lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In
any other case, claim shall lie against the insurer of
(Authorized driver Clause) ANSWER:

QUESTION: No. The insurer was not correct in denying the claim
of Sheryl.
Mayari obtained a comprehensive insurance policy on
his car. The policy carried the standard “authorized As held in the case of Palermo v. Pyramid Insurance,
driver” clause which states that the insurance while the Motor Vehicle Law prohibits a person from
company is not liable for any loss, accident, or damage operating a motor vehicle on the highway without
sustained while the car is being driven by someone a license or with an expired license, an infraction of
other than a duly authorized driver. One day, the Motor Vehicle Law on the part of the insured,
Mayari allowed his friend, Kaibigan, to drive the car. is not a bar to recovery under the insurance
Kaibigan figured in a mishap and the car was a total contract. It however renders him subject to the
loss. penal sanctions of the Motor Vehicle Law.
Furthermore, the court ruled that the requirement
Kaibigan had been driving for the past five years that the driver be ""permitted in accordance with
but it appears that his driver’s license was the licensing or other laws or regulations to drive
irregularly issued because he cannot read or write; the Motor Vehicle and is not disqualified from driving
neither did he take any of the prescribed driver’s such motor vehicle by order of a Court of Law or by
tests. After the initial license was issued, he merely reason of any enactment or regulation in that
asked his wife to go to the LTC Office to get a behalf,"" applies only when the driver ""is driving on
renewal of his license. Mayari did not know about the the insured's order or with his permission."" It does
irregularity in the driver’s license of Kaibigan. not apply when the person driving is the insured
himself.
Can Mayari recover on the insurance policy? Explain.
(1986) Applying the said decision in this case, Sheryl did not
violate the terms of her insurance policy despite
ANSWER: driving her vehicle without driver’s license because
the same only applies when the driver is driving on
No, Mayari cannot recover from the policy. The the insured's order or with his permission. It does
standard “authorized driver” clause requires that not apply when the person driving is the insured
the driver at the time of the accident must be duly himself.
authorized and licensed to drive. An irregular
license is not a license at all. Therefore, Mayari Therefore, Sheryl can still recover the proceeds of
cannot recover. her insurance and ZYZ Insurance Corp. erred in
denying the claim of the former. (1991)
QUESTION:
QUESTION:
Sheryl insured her newly acquired car, a Nissan
Maxima against any loss or damage for P50,000 and Rick de la Cruz insured his passenger jeepney with
against third party liability for P20,000 with the Asiatic Insurers, Inc. The policy provided that the
XYZ Insurance Corp. Under the policy, the car must authorized driver of the vehicle should have a valid
be driven only by an authorized driver who is either: and existing driver’s license. The passenger jeepney
(1) the insured, or (2) any person driving on the of Rick de la Cruz which was at the time driven by
insured’s order or with his permission: provided that Jay Cruz, figured in an accident resulting in the
the person driving is permitted in accordance with death of a passenger. At the time of the accident,
the licensing or other laws or regulations to drive Jay Cruz was licensed to drive but it was
the motor vehicle and is not disqualified from driving confiscated by an LTO agent who issued him a
such motor vehicle by order of the court. During the Traffic Violation Report (TVR) just minutes before
effectivity of the policy, the car, then driven by the accident. Could Asiatic Insurers, Inc., be made
Sheryl herself, who had no driver’s license, met an liable under its policy?
accident and was extensively damaged. The
estimated cost of repair was P40,000. Sheryl ANSWER:
immediately notified XYZ, but the latter refused to
pay on the policy alleging that Sheryl violated the Yes, Asiatic Insurers, Inc. can be made liable under
terms thereof when she drove it without a driver’s the policy. According to the Authorized Driver
license. Is the insurer correct? (1991) Clause, the driver, other than the insured owner,
must be duly licensed to drive the motor vehicle,
otherwise, the insurer is excused from liability. In from the insured whatever it has paid to the
the case at bar, Jay Cruz, the driver other than latter, unless the release was made with the
the insured owner, was a licensed driver. The fact consent of the insurer. In this case, there was no
that he was merely holding a TVR does not violate such consent given by Cala. Therefore, it may
the condition that the driver should have a valid recover the amount of P5,000 from Luz.
and existing driver’s license. Moreover, Therefore,
Asiatic Insurers, Inc. is liable. QUESTION:

(3rd Party Liability; Quitclaim) While driving his car along EDSA, Cesar sideswiped
Roberto, causing injuries to the latter, Roberto sued
QUESTION: Cesar and the third party liability insurer for
damages and/or insurance proceeds. The insurance
Raul’s truck bumped the car owned by Luz. The car company moved to dismiss the complaint, contending
was insured by Cala Insurance. For the damage that the liability of Cesar has not yet been
caused, Cala paid Luz P5,000.00 in amicable determined with finality.
settlement. Luz executed a release of claim,
subrogating Cala to all her rights against Raul. I. Is the contention of the insurer correct? Explain.
When Cala demanded reimbursement from Raul, the
latter refused saying that he had already paid Luz
II. May the insurer be held liable with Cesar?
P4,500 for the damage to the car as evidenced by
(1996)
a release of claim executed by Luz discharging Raul.
ANSWER:
So, Cala demanded reimbursement from Luz, who
refused to pay, saying that the total damage to
I. No, the contention of the insurer is not correct.
the car was P9,500.00 Since Cala paid P5,000 only,
Luz contends that she was entitled to go after Raul
Where an insurance policy insures directly against
to claim the additional P4,500.00
liability, the insurer’s liability accrues immediately
upon the occurrence of the injury or event upon
I. Is Cala, as subrogee of Luz, entitled to which the liability depends (Sherman Shafer v
reimbursement from Raul?
Judge RTC Olongapo City Branch 75 GR l-78848,
Nov 14 88 167s386)
II. May Cala recover what it has paid Luz? (1994)
In this case, there is no need to wait for the
ANSWER:
decision of the court determining Cesar’s liability
with finality before the third party liability insurer
I. No, Cala is not entitled to reimbursement. The could be sued. The occurrence of the injury to
principle of subrogation is a normal incident of
Roberto immediately gave rise to the liability of the
indemnity property insurance as a legal effect of
insurer under its policy.
payment; it inures to the insurer without any formal
assignment or any express stipulation to that
Thus, contention of the insurer is incorrect.
effect in the policy. However, in this case, there is
no right of subrogation because Luz executed a
II. No. The insurer cannot be held solidarily liable
release in favor of Raul. (Manila Mahogany Corp. v.
with Cesar.
CA) The insured by her own act released the
wrongdoer liable for the loss. Therefore, Cala cannot
The liability of the insurer is based on contract while
claim against Raul. that of Cesar is based on tort. If the insurer were
solidarily liable with Cesar, it could be made to pay
II. Yes, Cala may recover from Luz. In Manila
more than the amount stated in the policy. This
Mahogany Corp v. CA, the Court explained that the
would, however, be contrary to the principles
insurer can be subrogated to only such rights as the
underlying insurance contracts. On the other hand,
insured may have, should the insured, after
if the insurer were solidarily liable with Cesar and it
receiving payment from the insurer, release the
is made to pay only up to the amount stated in the
wrongdoer who caused the loss, the insurer loses his insurance policy, the principles underlying solidary
rights against the latter. Cala lost its right
obligations would be violated. (Malayan Ins Co v CA
against Raul because of the release executed by
GR L-36413 Sep 26, 88 165s536; Figuracion vda
Luz. However, the above-mentioned case further
states that the insurer will be entitled to recover
de Maglana v Consolacion GR 60506 Aug 6, 92
212s268)

Thus, the insurer cannot be held solidarily liable with

Cesar.

QUESTION:

X was riding a suburban utility vehicle (SUV) covered

by a comprehensive motor vehicle liability insurance
(CMVLI) underwritten by FastPay Insurance
Company when it collided with a speeding bus owned
by RM Travel Inc. The collision resulted in serious
injuries to X; Y, a passenger of the bus; and Z, a
pedestrian waiting for a ride at the scene of the
collision. The police report established that the bus
was the offending vehicle. The bus had CMVLI
policy issued by Dragon Ins Co. X, Y, and Z jointly sued
RM Travel and Dragon Ins for indemnity under the
Insurance Code of the Phils (PD1460). The lower
court applied the ―no fault indemnity policy of the
statute, dismissed the suit against RM Travel, and
ordered Dragon Ins to pay indemnity to all three
plaintiffs. Do you agree with the court‘s judgment?
Explain. (2000)

ANSWER:

No. I do not agree with the court’s judgment

because Dragons Ins and RM Travel have different
liabilities, such that, the liability of the insurer is
based on contract while that of the insured carrier
or vehicle owner is based on tort.

It is well-entrenched in jurisprudence that although

the victims may proceed directly against the insurer
for indemnity, the third-party liability is only up to
the extent of the amount covered by the insurance
policy.

Herein, the court should have ordered Dragon Ins

to pay each of X, Y , and Z to the extent of the
insurance coverage, but whatever amount is agreed
upon in the policy should be answered first by RM
Travel and the succeeding amount should be paid by
Dragon Insurance up to the amount of the
insurance coverage. The excess of the claims of X, Y,
and Z, over and above such insurance coverage, if
any, should be answered or paid by RM Travel.

Thus, I do not agree with the court’s judgment.