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VIII. DOUBLE INSURANCE AND REINSURANCE A. DOUBLE INSURANCE 1. Definition Sec. 93, I.C. 2. Requisites Sec. 93, I.C.

C. Sec. 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. a. Same person is insured b. Two or more insurers that insured the person separately c. Insurance is over the same subject d. Same interest is involved e. Same peril is insured against Pacific Banking Corp. vs. Court of Appeals (1988), supra Pioneer Insurance and Surety Corporation vs. Yap G.R. No. L-36232 December 19, 1974 Yap owned a store in a 2 storey building, where she sold shopping bags and footwear. Her son-in-law was in charge of the store. On April 19, 1962 Yap took out Fire Insurance Policy No. 4216 from Pioneer with a face value of P25,000 covering her stocks, office furniture, fixtures, etc. Among the conditions set forth in the policy: The Insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in, or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited . (emphasis supplied) It is understood that, except as may be stated on the face of this policy there is no other insurance on the property hereby covered and no other insurance is allowed except by the consent of the Company endorsed hereon. Any false declaration or breach or this condition will render this policy null and void. At the time of insurance of Policy 4219(April 19, 1962), an insurance policy for P20,000 issued by the Great American Insurance Company covering the same properties was noted on said policy as coinsurance. On August 29, 1962 parties executed an endorsement on Policy 4219 stating: It is hereby declared and agreed that the co-insurance existing at present under this policy is as follows: P20,000.00 Northwest Ins., and not as originally stated. (emphasis supplied) Except as varied by this endorsement, all other terms and conditions remain unchanged. On September 26, 1962 Yap took out another fire insurance policy for P20,000 covering the same properties, from Federal Insurance Company. This policy was procured without notice to and the written consent of Pioneer, and was therefore not noted as a co-insurance in Policy 4219. On December 19, 1962 fire burned Yaps store. Issue: WON petitioner should be absolved from liability on Fire insurance Policy No. 4219 on account of any violation by respondent Yap of the co-insurance clause therein Held: Yes. There was a violation by Yap of the co-insurance clause contained in Policy No. 4219 which resulted in the avoidance of the petitioners liability. By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required no affirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever the specified conditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional insurance. The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has no right to complain, for he assents to comply with all the stipulation on his side, in order to entitle

himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for those stipulation would not have been entered into." New Life Enterprises vs. Court of Appeals G.R. No. 94071 March 31, 1992 Julian Sy and Jose Sy Bang are partners engaged in the business of selling construction materials under the business name New Life Enterprises. Julian Sy insured against fire the stocks in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc., and Equitable Insurance Corporation in the aggregate amount of P1,550,000.00. When the building where New Life Enterprises was located, along with the stocks in trade therein, were gutted by fire, petitioners filed an insurance claim against the three companies. The insurance companies all denied Julian Sys claim on the ground of breach of policy condition, (i.e., the other insurance clause which required New Life Enterprises to inform each of the insurance companies in case the former insures with another company the same property already insured by each of the insurance companies).
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Because of the denial of their claims for payment by the 3 insurance companies, petitioners filed separate civil actions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for trial. The trial court ruled in favor of petitioner. However, the Court of Appeals reversed the trial courts decision, found petitioner to have violated Clauses 3 and 27 of the separate insurance policies issued by the 3 companies, and exonerated the insurance companies from liability. Issue: WON petitioners violated the Other Insurance Clause of the insurance policies. Held: Yes. Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of which compensation is claimed by petitioners. It is further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring indication of any co-insurance although there were 3 policies subsisting on the same stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00 and two 2 policies of Reliance in the total amount of P1,000,000.00. The coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the 3 private respondents, warranting forfeiture of all benefits thereunder if we are to follow the express stipulation in Policy Condition No. 3. The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would stop the insurers from denying the claim. Besides, the socalled theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicability here has likewise been roundly refuted by respondent court whose factual findings we find acceptable. The mere fact that Yap Kam Chuan was an agent for both Reliance and Equitable does not justify the allegation that the two are sister companies. Availment of the services of the same agents and adjusters by different companies is a common practice in the insurance business and such facts do not warrant the speculative conclusion of the trial court. Considering the terms of the policy which required the insured to declare other insurances, the statement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were no other insurance on the property. The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitled the insurer to rescind. The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus

avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. The insured has no right to complain, for he assents to comply with all the stipulations on his side, in order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for those stipulations, would not have been entered into. It is not disputed that the insured failed to reveal before the loss three other insurances. By reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud. As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy. Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had elapsed from petitioners' receipt of the insurers' letter of denial on November 29, 1982.
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The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared. Geagonia vs. Court of Appeals G.R. No. 114427 February 6, 1995 Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 Dec 1989, he obtained from the private respondent fire insurance policy for P100,000.00. The period of the policy was from 22 Dec 1989 to 22 Dec 1990 and covered the ff: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business. The policy contained the following condition: "3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were completely destroyed prompting him to file w/ the private respondent a claim under the policy. On 28 Dec 1990, the private respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by two fire insurance policies for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the private respondent w/ the Insurance Commission for the recovery of P100,000.00 under fire insurance policy, for attorney's fees, and costs of litigation. He claims that the time he obtained the private respondent's fire insurance policy he knew that the two

policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the private respondent's agent; and had it been so mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, w/c was P1M. The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on the petitioner's testimony that he came to know of the PFIC policies only when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their premiums w/o informing him. The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC
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Issue: WON the petitioner had prior knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy Held: Yes. We agree w/ the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original. Issue: WON he is precluded from recovering therefrom Held: No It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua or in Pioneer Insurance & Surety Corp. vs. Yap, which read: "The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be effected covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited." or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." Interpretation: It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection which the insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the person claiming thereunder, will be

avoided, if it is possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for such forfeiture. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to operate. The reason for this is that, except for riders which may later be inserted, the insured sees the contract already in its final form and has had no voice in the selection or arrangement of the words employed therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal advisers who had acted exclusively in the interest of the insurers and the technical language employed therein is rarely understood by ordinary laymen. With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of
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collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. 3. Other Insurance Clause a. Alternative forms b. Rationale c. Validity d. Additional insurance 4. Over-Insurance By Double Insurance Sec. 94, I.C. Sec. 94. Where the insured is overinsured by double insurance: (a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; (b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; (c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. B. REINSURANCE 1. Definition Sec. 95, I.C. Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. Equitable Insurance and Casualty Co., Inc. vs. Rural Insurance and Surety Co., Inc. G.R. No. L-17436 January 31, 1962 Plaintiff Equitable Insurance file a complaint with the CFI of Manila against defendant Rural Insurance alleging, as first cause of action, that they entered into a reciprocal facultative reinsurance agreement, wherein they agreed to cede to each other. Pursuant to said agreement, plaintiff reinsured for P2k with

defendant the stock covered by fire insurance Policy No. 5880 issued by plaintiff which was later burned; the share of the loss of defendant as per insurance agreement was computed at P2,024 for which plaintiff sent to defendant a statement of account for payment by the latter. Despite repeated demands by plaintiff, defendant refused to pay. On the second cause of action, plaintiff reinsured for P2k with defendant stock covered by fire insurance Policy No. 6062 which also burned. Again, defendant refused to pay its share of the loss of P1,334 hence said complaint. Defendant filed a motion to dismiss on the ground that it states no cause of action, as pursuant to Art VIII of the Reinsurance Agreement between the parties, before a court action can be brought, the parties agreed to submit all disputes to a board of arbitrators. The Court denied the motion and required defendant to answer. Defendant filed its answer, alleging that the nature of the agreement is self-liquidating between the parties, the reinsurer becoming the reinsured and vice versa; and that said agreement has not yet been abrogated so the liability of either to the other is not yet known. Defendant prayed that the complaint be dismissed and plaintiff filed a motion for judgment on the pleadings which the court denied.
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Instead of going into a formal hearing, the parties submitted their case for decision stipulating the ff facts: defendant admits the allegations of the complaint and that plaintiff admits that the issues of the complaint were not submitted to a Board of Arbitrators as provided in par VIII of the complaint, but instead referred it to the Insurance Commissioner. The CFI rendered judgment in favor of plaintiff. Hence this appeal. Issue: WON Equitable had no cause of action as the matter was not referred to the decision of arbitrators Held: No The requirement of submission for decision to 2 arbitrators or an umpire the matter of losses by fire or the liability of the parties thereto under Art VIII of the agreement arises only if the same is disputed by one of the parties. In the instant case, there is no dispute between the parties; in the stipulation of facts defendant admitted that plaintiff had paid its liability and defendant likewise admitted that it ignored plaintiffs demands for reimbursement for defendants failure to pay its share as reinsurer. As held in Maligad v United Assurance Co., if in the course of the settlement of a loss, the action of the company or its agents amounts to refusal to pay, the company will be deemed to have waived the condition precedent with reference to arbitration and a suit upon the policy will lie. Issue: WON in a facultative obligation the right to choose an alternative remedy lies only with the debtor (here the defendant) under Art 1206 Held: No There is no connection between Art 1206 NCC and the agreement of this action. The term facultative is used in reinsurance contracts, and it is so used in this particular case, merely to define the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share is accepted, as it was in the case at bar, the obligation is absolute and the liability assumed thereunder can be discharged by only one waythe payment of the share of the losses. Phil. American Life Ins. Co. vs. Auditor General G.R. No. L-19255 January 18, 1968 Philamlife, a domestic life insurance corp., and American International Reinsurance Company (Airco), a

corporation organized under the laws of the Republic of Panama, entered into a REINSURANCE TREATY wherein Philamlife agrees to reinsure with Airco on January 1950. Philamlife agreed to pay premiums for all reinsurances on an annual premium basis. In July 16, 1959, the Margin Law was approved and became effective, which exempts certain obligations from payment of margin fees, particularly contractual obligations calling for payment of foreign exchange issued, approved and outstanding as of the date this Act takes place. Central Bank of the Philippines collected P268,747.48 as foreign exchange margin on Philamlife remittances to Airco purportedly totalling $610,998.63 and made subsequent to July 16, 1959. Philamlife filed a claim for refund on the ground that the reinsurance premiums remitted were paid in pursuant to the January 1950 reinsurance treaty, and therefore exempted. Monetary Board exempted Philamlife from payment of margin fee. However, Auditor of CB refused to pass in audit Philamlifes claim for refund. Philamlife sought reconsideration but was denied, saying reinsurance treaty NOT EXEMPTED. Issue: WON the premia remitted were in pursuance of the reinsurance treaty between Philamlife and Airco of January 1959, a contract antedating the Margin Law, and therefore, Philamlife exempted from paying margin fee Held: No
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For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty provided, a "reinsurance cession" which may be automatic or facultative. Ratio: A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. . . . In contradistinction, a reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on substandard risks under special arrangements. The lumping of the different agreements under a contract has resulted in the term known to the insurance world as 'treaties.' Such a treaty is, in fact, an agreement between insurance companies to cover the different situations described. Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts for insurance; reinsurance policies or cessions are contracts of insurance. Even if reinsurance treaty preceded the Margin Law by over nine years, nothing in the treaty obligates Philamlife to remit to Airco a fixed, certain, and obligatory sum by way of reinsurance premiums. The reinsurance treaty per se cannot give rise to a contractual obligation for the payment of foreign exchange. Philamlifes obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. It is only after a reinsurance cession is made that payment of reinsurance premium may be exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay the margin fee arises. Issue: WON Margin Law impairs the obligation of contract Held: No Existing laws form part of the contract "as the measure of the obligation to perform them by the one party and the right acquired by the other. If the obligation does not inhere and subsist in the contract itself, propio vigore, but in the law applicable to the contract. When petitioner entered into the reinsurance treaty of January 1, 1950 with Airco, it did so with the understanding that the municipal laws of the Philippines at the time said treaty was executed, became an unwritten condition thereof. Such municipal laws constitute part of the obligation of contract. Rationale of Margin Law: to reduce the excessive demand on and prevent further decline of our international reserves; to provide the Central Bank with an additional instrument for effectively coping with the problem and achieving domestic and international stability of our currency; to reduce the excessive demand-for foreign exchange. Issue: WON reinsurance contracts abroad would be made impractical by the imposition of the 25%

margin fee Held: No First, there is no concrete evidence that such imposition of the 25% margin fee is unreasonable, Second, if really continuance of the existing reinsurance treaty becomes unbearable, that contract itself provides that petitioner may potestatively write finis thereto on ninety days' written notice. Petitioner is not forced to continue its reinsurance treaty indefinitely with Airco. Fieldmens Insurance Co., Inc. vs. Asian Surety & Insruance Co. G.R. No. L-23447 July 31, 1970 On various dates between April 11, 1960 and Jan. 9, 1961 the Asian Surety & Insurance Company, Inc. and the Fieldmen's Insurance Company, Inc. entered into 7 reinsurance agreements under which the former, as the ceding company undertook to cede to the latter, as the reinsuring company, a specified portion of the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate of the premium applicable with respect to each cession after deducting a commission. Said agreements were to take effect from certain specific dates and were to be
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in force until cancelled by either party upon previous notice of at least 3 months by registered mail to the other party, the cancellation to take effect as of Dec. 31 of the year in which the notice was given. On Sep. 19, 1961 FIELDMEN'S, by means of registered mail, served notice to ASIAN of the former's desire to be relieved from all participation in its various agreements with the latter effective Dec. 31, 1961. This communication, although admittedly received by ASIAN on Sep. 25, 1961, did not elicit any reply from ASIAN. On Dec. 7, 1961 FIELDMEN'S sent another letter to ASIAN expressing regrets at alleged violations committed by the latter with respect to the various agreements between them and reiterated its position that it would consider itself "no longer at risk for any reinsurance and/or cession" given by ASIAN which might be in force on Dec. 31, 1961. Not having received any formal reply from ASIAN, FIELDMEN'S sent a new a letter on Feb. 17, 1962 reminding ASIAN of the cancellation of all the reinsurance treaties and cessions as of Dec. 31, 1961 and requested ASIAN to submit its final accounting of all cessions made to the former for the preceding months when the reinsurance agreements were in force. Meanwhile one of the risks reinsured with FIELDMEN'S issued in favor of the GSIS became a liability when the insured property was burned on February 16, 1962. Since the policy was issued on July 1, 1961, it was supposed to expire on July 1, 1962. 2 The next day, Feb. 17, ASIAN immediately notified FIELDMEN'S of said fire loss. FIELDMEN'S, relying on the sufficiency of its notice of termination dated September 19, 1961 and obviously bent on avoiding its liability under the reinsurance agreements with ASIAN, filed a petition for declaratory relief with the CFI of Manila to seek a declaration that all the reinsurance contracts entered into between them had terminated as of December 31, 1961 and to obtain an order directing ASIAN to render final accounting of the transactions between them with respect to said reinsurance treaties as of the cut-off date. In its answer below ASIAN denied having received FIELDMEN'S letter dated Sep 19, 1961, and argued that even assuming it did, FIELDMEN'S could not have terminated the reinsurance treaties as of Dec 31, 1961 because the letter was merely an expression of FIELDMEN'S desire to cancel the treaties and not a formal notice of cancellation as contemplated in their reinsurance agreements. By way of special defense Asian contended that even if the Sep. 19 letter were considered sufficient notice of cancellation thereby rendering the reinsurance agreements terminated as of December 31, 1961 the liability of FIELDMEN'S with respect to policies or cessions issued under two of the said agreements prior to their

cancellation continued to have full force and effect until the stated expiry dates of such policies or cessions. On Dec. 4, 1962, the trial court declared 6 of the 7 reinsurance agreements in question cancelled as of Dec 31, 1961. At the same time, it upheld ASIAN'S position that all cessions of reinsurance made by it to FIELDMEN'S prior to the cancellation of the reinsurance treaties continued in full force and effect until expiry dates and ordered FIELDMEN'S to make an accounting of its business transactions with ASIAN within 30 days. On appeal to the CA, the decision of the trial court was substantially affirmed, with the slight modification that the order for accounting was eliminated, without prejudice to the filing of a proper action between the parties for that purpose. Issue: WON the cancellation as of Dec. 31, 1961 of the reinsurance treaties had the effect of terminating also the liability of FIELDMEN'S as reinsurer with respect to policies or cessions issued prior to the termination of the principal reinsurance contracts or treaties Held: NO to the 2 reinsurance contracts. Of the 6 reinsurance contracts, 2 contain provisions, which clearly and expressly recognize the continuing effectivity of policies ceded under them for reinsurance notwithstanding the cancellation of the contracts themselves. The said treaties provide "that in the event of termination of this Agreement . . ., the liability of the Fieldmen's under current cessions shall continue in full force and
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effect until their natural expiry . . .;" and the 4th paragraph of Article VI of the Personal Accident Reinsurance Treaty states: "4. On the termination of this Agreement from any cause whatever, the liability of the REINSURER (Fieldmen's) under any current cession including any amounts due to be ceded under the terms of this Agreement and which are not cancelled in the ordinary course of business shall continue in full force until their expiry unless the COMPANY (Asian) shall, prior to the thirty-first December next following such notice, elect to withdraw the existing cessions . . ." Thus, insofar as the two reinsurance agreements are concerned, there is clearly no merit in FIELDMEN'S claim that their cancellation carried with it ipso facto the termination of all reinsurance cessions thereunder. Such cessions continued to be in force until their respective dates of expiration. Since it was under one of said agreements that the reinsurance cession corresponding to the GSIS policy had been made, FIELDMEN'S cannot avoid liability which arose by reason of the burning of the insured property. With respect to the other 4 agreements, it would seem that the petition for declaratory relief is moot, and that no useful purpose would be served by defining the respective rights and obligations of the parties thereunder. The said agreements have been cancelled, and it does not appear that any claim by or liability in favor of the insured has actually arisen under any of the reinsurance cessions made prior to such cancellation. Future conflicts of the same nature as those which have motivated the present action can of course be obviated by using more precise and definite terminology in the reinsurance agreements which the parties may enter into henceforth. 2. Distinguish from Double Insurance 3. When Required Secs. 215-222 and 275, I.C. Sec. 215. No insurance company other than life, whether foreign or domestic, shall retain any risk on any one subject of insurance in an amount exceeding twenty per centum of its net worth. For purposes of this section, the term "subject of insurance" shall include all properties or risks insured by the same insurer that customarily are considered by non-life company underwriters to be subject to loss or damage from the same occurrence of any hazard insured against. Reinsurance ceded as authorized under the succeeding title shall be deducted in determining the risk retained. As to surety risk, deduction shall also be made of the amount assumed by any other company authorized to transact surety business and the value of any security mortgage, pledged, or held subject to the surety's control and for the surety's protection.

Sec. 216. An insurance company doing business in the Philippines may accept reinsurances only of such risks, and retain risk thereon within such limits, as it is otherwise authorized to insure. Sec. 217. No insurance company doing business in the Philippines shall cede all or part of any risks situated in the Philippines by way of reinsurance directly to any foreign insurer not authorized to do business in the Philippines unless such foreign insurer or, if the services of a non-resident broker are utilized, such non-resident broker is represented in the Philippines by a resident agent duly registered with the Commissioner as required in this Code. The resident agent of such unauthorized foreign insurer or non- resident broker shall immediately upon registration furnish the Commissioner with the annual statement of such insurer, or of such company or companies where such broker may place Philippine business as of the year preceding such registration, and annually thereafter as soon as available. Sec. 218. All insurance companies, both life and non-life, authorized to do business in the Philippines shall cede their excess risks to other companies similarly authorized to do business in the Philippines in such amounts and under such arrangements as would be consistent with sound underwriting practices before they enter into reinsurance arrangements with unauthorized foreign insurers. Sec. 219. Any insurance company doing business in the Philippines desiring to cede their excess risks to foreign insurance or reinsurance companies not authorized to transact business in the Philippines may do so under the following conditions:
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(1) Except in facultative reinsurance and excess of loss covers, the full amount of the reserve fund required by law shall be set up in the books of and held by the ceding company for so long as the risk concerned is in force: Provided, That in case of facultative insurance, the ceding company shall show to the satisfaction of the Commissioner that the Philippine market cannot provide the facilities sought abroad. (2) The reserve fund withheld shall be invested in bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of governmentowned or controlled corporations and entities, including the Central Bank, and/or other securities acceptable under section two hundred. Should any reinsurance agreement be for any reason cancelled or terminated, the ceding company concerned shall inform the Commissioner in writing of such cancellation or termination within thirty days from the date of such cancellation or termination or from the date notice or information of such cancellation or termination is received by such company as the case may be. Sec. 220. Every insurance company authorized to do business in the Philippines shall report to the Commissioner on forms prescribed by him the particulars of reinsurance treaties as of the first day of January of the year following the approval of this Code and shall thereafter similarly report to the Commissioner particulars of any new treaties or changes in existing treaties. Sec. 221. No credit shall be allowed as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise becoming effective after January first, nineteen hundred seventy-five, unless the reinsurance shall be payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract or contracts reinsured without diminution because of the insolvency of the ceding insurer nor unless under the contract or contracts of reinsurance the liability for such reinsurance is assumed by the assuming insurer or insurers as of the same effective date; nor unless the reinsurance agreement provides that payments by the assuming insurer shall be made directly to the ceding insurer or to its liquidator, receiver, or statutory successor except (a) where the contract specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer and (b) where the assuming insurer with the consent of the direct insured or insureds has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the

payees under such policies and in substitution for the obligations of the ceding insurer to such payees. Sec. 222. No life insurance company doing business in the Philippines shall reinsure its whole risk on any individual life or joint lives, or substantially all of its insurance in force, without having first obtained the written permission of the Commissioner. Sec. 275. Every foreign insurance company desiring to withdraw from the Philippines shall, prior to such withdrawal, discharge its liabilities to policyholders and creditors in this country. In case of its policies insuring residents of the Philippines, it shall cause the primary liabilities under such policies to be reinsured and assumed by another insurance company authorized to transact business in the Philippines. In the case of such policies as are subject to cancellation by the withdrawing company, it may cancel such policies pursuant to the terms thereof in lieu of such reinsurance and assumption of liabilities. 4. Matters to be Communicated by Reinsured Sec. 96, I.C. Sec. 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk. 5. Reinsurers Extent of Liability Sec. 87, I.C. Sec. 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others. 6. Original Insured No Interest in Reinsurance Sec. 98, I.C. Sec. 98. The original insured has no interest in a contract of reinsurance.
By: Elaine Marie G. Laceda 144

INSURANCE LAW

Artex Development Co., Inc. vs. Wellington Insurance Co., Inc. G.R. No. L-29508 June 27, 1973 Wellington Insurance Co. Inc. insured for P24,346,509.00 the buildings, stocks and machinery of plaintiff Artex Development Co. Inc. against loss or damage by fire or lighting upon payment of the plaintiff of the corresponding premiums; that said properties were insured for an additional sum of P883,034.00; that defendant insured plaintiff against business interruption (use and occupancy) for P5,200,000.00; Wellington entered into a contract of reinsurance with Alexander and Alexander, Inc. of New York. USA. The buildings, stocks and machineries of plaintiffs spinning department were burned. Notice of the loss and damage was given the defendant. As per report of the adjusters, the total property loss of the plaintiff was the sum of P10,106,554.40 and the total business interruption loss was P3,000,000.00. The defendant has paid to the plaintiff the sum of P6,481,870.07 of the property loss suffered by plaintiff and P1,864,134.08 on its business interruption loss, leaving a balance of P3,624,683.43 and P1,748,460.00, respectively. The counsel for Artex filed a Manifestation saying that in view of the Deeds of Discharge and Collateral Agreement, the only remaining liability subject of litigation shall be the proportion of the loss reinsured with or through Alexander and Alexander, Inc. of New York, USA, namely, P397,813.00. The document recited further that Artex acknowledges receipt of the sum of P3.6M paid by the insurer in full and final settlement of all or any claims of Artex against its insurer. It discharges its insurer from all actions, proceedings, claims, demands, costs and expenses in respect thereof. With regard the balance unpaid, Wellington contends that Artex should have been directed against the reinsurers to cover the liability and not against Wellington. Issue: WON the insured (Artex) has a cause of action against the reinsurer Held: No Unless there is a specific grant in, or assignment of, the reinsurance contract in favor of the insured or a manifest intention of the contracting parties to the reinsurance contract to grant such benefit or favor to

the insured, the insured, not being privy to the reinsurance contract, has no cause of action against the reinsurer. It is expressly provided in Section 91 the Insurance Act 1 that "(T)he original insured has no interest in a contract of insurance." Coquia vs. Fieldmen's Insurance Co., Inc. G.R. No. L-23276 November 29, 1968 On December 1, 1961, appellant Fieldmen's Insurance Company, Inc. issued, in favor of the Manila Yellow Taxicab Co., Inc. a common carrier accident insurance policy, covering the period from December 1, 1961 to December 1, 1962. Under the policy, the Insurer agreed indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or injury. While the policy was in force a taxicab of the Insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept it. Thus, the Insured and Carlito's parents filed a complaint against the Company to collect the proceeds of the aforementioned policy. CFI rendered a decision sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Issue: WON the Coquias have a cause of action against the Company.
By: Elaine Marie G. Laceda 145

INSURANCE LAW

Held: Yes. Although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading: If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation . A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Pursuant to the contract, the Company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" in other words, third parties. Guingon vs. Del Monte G.R. No. L-22042 August 17, 1967 Julio Aguilar entered into a contract with the Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability. During the effectivity of such insurance policy Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, bumped with the jeepney of Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter died some days thereafter. A corresponding information for homicide thru reckless imprudence was filed against Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was imposed on him. The heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc. Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it. CFI granted prayer.

Issue: WON the plaintiff could sue the Insurer jointly with the Insured. Held: Yes. The policy in the present case is one whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . ." Clearly, therefore, it is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer. The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone. The policy requires that suit and final judgment be first obtained against the insured; that only "thereafter" can the person injured recover on the policy; it expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. However, the "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits. Gibson v. Revilla, 92 SCRA 219 (1979)
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