Insurance Finals Transcript

INSURANCE
Based on the discussion Atty. EDUARDO VILLAPAZ SOLENG JR./ de Leons Insurance Code - Annotated
Page 1
Commit to the Lord whatever you do, and your plans will succeed.
-Proverbs 16:3
RED Codal Provisions

Italic Situational Questions and Answers/Comments by the transcriber
Blue Atty. S
Policy of insurance is different from the contract of insurance. The policy is the formal
written instrument evidencing the contract of insurance, entered into by the insured and the
insurer. The contract of insurance, is the law between them.
THE POLICY 08-23-2014
SEC. 49. The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.
Under Sec. 226, no policy shall be issued or delivered in the Philippines, UNLESS in the form
previously approved by the Commissioner. It must be evidenced by a POLICY and it MUST BE IN
THE FORM PREVIOUSLY APPROVED BY THE COMMISSIONER..
It must be in a printed form, any word, phrase, clause, or word necessary to complete the
contract of insurance shall be written on the blank spaces provided in the policy.
In case of conflict between the written and printed portions of the policy, the written portion
prevails.
o
Q: X applied for an insurance contract and paid the premium thereof, after lapse of 1
year, still no acceptance was made. Thereafter X died, can the beneficiaries still claim
the proceeds of the insurance?
A: No. If an application for insurance has not been either accepted or rejected by the
insurer, there is no contract yet as it is merely an offer or proposal. The contract is not
perfected where the applicant dies before its approval or it does not appear that the
acceptance of the application ever came to the knowledge of the applicant.
A contract of insurance must be assented to by the parties, either in person or by their agents.
Consent is manifested by meeting of the minds and acceptance of the thing and cause which
constitute the contract.
o
The mere signing of an application for life insurance and payment of premium, do not
bind the insurer to issue a policy, where there is no evidence of contract between
them.
o
The application may be so drafted that the insurance became effective on its signing
by the prospective insured and the parties are bound by its terms for which
application is made, until it is terminated by the rejection. (Cover Note)
o
The contract to be binding from the date of application, must be a completed contract
one that leaves nothing to be done before it shall take effect.
o
Parties may impose additional conditions precedent to the validity of the policy.
Usual conditions is that the CONTRACT IS NOT BINDING until, POLICY IS DELIVERED
AND PREMIUM IS PAID.
It must be in the form previously approved by the Commissioner. It can be in electronic form,
subject to the Electronic Commerce Act.
Q: Supposing you applied for an insurance. The insurance company send you a policy through
email, and the insurer also appended to such email, his electronic signature, saying, This is a copy
of the policy. Is that allowed?
A: Yes. For as long as, it is subject to the pertinent provisions of the Electronic Commerce Act, which
provides for, how to authenticate an electronic document or evidence. One of the manner in
authenticating is an electronic signature on the part of the person sending it.
It is signed only by the insurer or his duly authorized representative. It need not be signed by
the insured, EXCEPT where express warranties are contained in a separate instrument forming
part of the policy.
Policy is a measure of insurers liability, its terms constitute the measure of the insurers
liability, and in order to recover, insured must show himself within the terms.
Policy is a contract of adhesion.
o
Contract of Adhesion is a description of the manner by which the contract is
formed. Where one party having superior bargaining power, imposes its choice of
terms on the other party.
o
According to Prof. Williston, Insurance contracts are drafted with the aid of skillful
and highly paid legal talent, from which no deviation desired by an applicant will be
permitted. The underwriter is magnificently qualified to understand and protect its
own selfish interests, while the applicant is short lamb driven to accept whatever the
contract may be offered on a take-it or leave-it basis.
o
Here, although the insured can choose from a variety of coverages, he cannot
negotiate the substance with the insurer.
o
A contract of insurance which is a contract of adhesion is perfectly valid contract.
However if the language used in an insurance contract is to create ambiguity, the
same should be resolved liberally in favor of the insured and strictly against the party
responsible.
o
It is a cardinal principle of law that forfeitures are not favored, and that any
construction which would result in forfeiture of the benefits of the policy will be
avoided, if it is possible to construe the policy in a manner which would permit
recovery.
o
However when the terms are clear and unambiguous and there is no room for
construction, such terms cannot be enlarged or diminished by judicial construction.
Cover note, is one that is issued to bind the Insurance temporarily pending the issuance of the
policy.
Who makes the offer and who accepts the offer?
o
In property and liability insurance, it is the insured who technically makes an offer
to the insurer, who accepts the offer, rejects it or makes a counter-offer. It is usually
accepted by an insurance agent on behalf of the insurer.
o
In life and health insurance, it depends:
If the insured does not pay the premium, his application is considered an
invitation to the insurer to make an offer.
If the insured pays the premium, his application will be considered as an

offer.
Life and health insurance agents, do not have authority to bind

immediately the insurers they represent. Instead, they customarily issue a
binding receipt.
INSURANCE
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Binding receipt, issued to make the coverage effective on the 1.) date of the application or 2.)
the date of medical examination. It is a conditional acceptance by the insurer.
o
Q: Supposing you applied for a life insurance policy, in addition you paid the premiums,
that is considered as offer. Thereafter the insurer issues in your favor an insurance
policy, is that considered as an acceptance of your offer?
A: Yes that is considered acceptance of the offer, if there are no issues at all with
respect to the terms and conditions of your application and the terms and conditions in
the insurance policy. However if there is a variance in the application and the issued
policy, it is not considered as acceptance even if a policy is issued in your favor.
Delivery, is the act of putting the insurance policy (physical document) into the possession of
the insured.
It is important in 2 ways:
o
As evidence of making the contract and its terms
o
As communication of the insurers acceptance of the insurers offer.
Another thing:
o
Determination of the policy period. E.g. Policy provides that coverage terminates 1
year after delivery.
Delivery is also significant, as it is the decisive act that ordinarily marks the end of the insurers
opportunity to decline the coverage.
The delivery of the policy is not a prerequisite to a valid contract of insurance. The contract may
be completed prior to delivery of the policy or without delivery of the policy, depending on the
INTENTION OF THE PARTIES.
Atty S: In contract of insurance it is necessary that there is meeting of the minds between the insured and
the insurer. I offer, Mr. Insurer here is the premium, etc.. The insurer will have to accept that, in order for
there to be a valid contract of insurance. But it does not end there, that acceptance must be communicated
to the insured.
In that case of ENRIQUEZ (Sun Life), thats the means of communication of acceptance the delivery of the
policy itself. Such that prior to the delivery, he did not know that there was already an acceptance, because
he transferred his residence. Considering that there is no meeting of minds, no valid contract of insurance.
It would have been different if, the insurer after making an application, would tell you, Yes your
application is now approved Mr. Offeror, signed insurer, lovingly yours. In that case there is already a valid
contract of insurance. Such that even if the insurer is yet to deliver, the contract is already perfected. In
effect, delivery, its not really material in order for you to have a valid contract of insurance. It becomes
material, if that delivery is the means of communicating the acceptance on the part of the insurer.
Modes of delivery:
o
Actual Delivery
o
Constructive Delivery
Q: X applied for an insurance and paid for the premium. It was approved by insurer and the
policy was transmitted to the insurance agent. Before it is delivered to the insured, the latter
died. Can the beneficiary claim for the proceeds?
-Proverbs 16:3
A: There are two views:

o
o
1st View, That the beneficiaries cannot recover, because the insurance agent is not
the insured
2nd view. That the beneficiaries can recover, because the insured having complied
every condition required of him, actual delivery to him is not essential t give the
policy a binding effect. Moreover, it would be financially unfair to the beneficiary
where the amount of premium is computed from the date of application, in effect
insured paid premium for a period during which he did not receive any protection.
Atty S: Whether or not there is already meeting of minds. If there is, such that the
insurer already knew that the contract of insurance is already approved even if its in
the hands of the agent, HE CAN RECOVER. Under present jurisprudence, acceptance
on the part of the insurer has to be communicated to the insured. E.g. the insurer
transmits the policy to the agent, then the insurer contacted the insured telling him
that, Mr. Insured, I have accepted.
Where delivery is conditional, the non-performance of the condition precedent, prevents the
contract from taking effect.
If the delivery is unconditional, the delivery consummates the contract and the policy delivered
becomes the final contract between the parties.
o
Where premium is still unpaid after unconditional delivery, the insurer cannot be
presumed to have extended credit from the mere fact of unconditional delivery of the
insurance without prepayment of the premium.
SEC. 50. The policy shall be in printed form which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and
which is pasted or attached to said policy is not binding on the insured, unless the descriptive title
or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank
spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued
after the original policy shall be countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.
Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise known as the Electronic Commerce Act and to such
rules and regulations as may be prescribed by the Commissioner
Rider, is a small printed or typed stipulation contained in a slip of paper attached and forming
an integral part of the policy. It constitutes additional stipulations between the parties. It is
necessary in the conduct of insurance business to add, modify, waive or make a desired change
in the policy, saving the trouble and expense of making an entirely new contract.
INSURANCE
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In case of conflict between rider, etc. and printed stipulations of a policy, the Rider prevails, as
being a more deliberate expression of the contracting parties.
A rider, slip or other paper becomes part of a contract or policy of insurance if properly and
sufficiently attached or referred therein as to leave no doubt as to the intentin of the parties.
Effect of Lack of description, any rider, clause, warranty, or endoresement (RCWE),
purporting to be a part of the contract of insurance and which is pasted or attached to said
policy is not binding on the insured, UNLESS the descriptive title or name of the rider
(RCWE) is mentioned and written on the blank spaces provided in the policy.
Effect of Lack of signature, if the RCWE which is physically attached contemporaneously with
the execution of the policy, and delivered to the insured and sufficient referrence is made in the
policy, the fact that it is WITHOUT the signature of the insurer or of the insured will NOT
prevent its inclusion and construction as part of the insurance contract.
SAME RULE APPLIES: Where RCWE, although issued AFTER the original policy, was applied for
the insured or owner.
EXC: Countersignature of the insured is required to any RCWE, which is not applied for by him.
Warranty, are inserted or attached to a policy to eliminate specific potential increases of hazard
during the policy term, owing to 1.) actions of the insured or 2.) conditions of the property.
Clause, agreement between the insurer and the insured on certain matter relating to the
liability of the insurer. E.g. liability of the insurer will not exceed of the loss
Endorsement, any provision added to an existing insurance contract altering its scope or
application. E.g. Permit authorizing removal of the insured property and providing coverage for
another location.
Effect of Failure of the insured to read the policy
Majority Rule, acceptance is not negligence per se, that the insureds acceptance and retention
of the policy is not laches as will defeat his right to reformation. The basis being that
insurance contracts are contracts of adhesion and not of bargaining, that insured purchases the
contract prepared solely by the insurer.
Minority Rule, that the insured has the duty to read his policy and is bound by his contract
as written whether he reads it or not.
EXCEPTIONS TO THE MINORITY RULE:
o
It is obvious that insurer cannot complain of the failure of the insured to read, where
insured could not have discovered the erroneous statements b such reading.
o
Insured is induced by fraud of the agent of the insurer not to read his policy.
o
The insured is illiterate or unable to read.
o
In settings where the contracts are long, complicated, and difficult to understand, that
even if read, it may not be reasonable to expect people to take time to read, before
manifesting intent to be bound by them.
Better View: MINORITY RULE, the law is already in the insureds favor, in giving liberal
construction to him and strictly construing it against the party who caused the ambiguity.
Likewise, the contract is the law between the contracting parties.
-Proverbs 16:3
Insurers duty to explain his policy
GR: Where terms of policy are clear and unambiguous, the insurer has no affirmative duty to
explain the policy or its exclusions to the insured.
EXC: It is subject to important caveats:
o
Reasonable expectations of insured or so called doctrine of reasonable
expectations, operates to impose a de facto duty to the insurer to explain the policys
coverage to the insured.
o
Options available to insured esp. in motor vehicle insurance, where law made
certain kinds of coverage optional, courts have imposed a duty on the insurer to
explain the options to the insured.
o
Information expected by insured from insurers agent agents owe their
customers a duty to exercise the skill and care that a reasonable agent would exercise
in the circumstances. E.g. explaining to the customer kinds of coverage and helping
the insured to choose the appropriate coverage.
o
Contractual rights of insured after denial of coverage when insured disputes
Atty. S: As to whether terms of the policy are clear or unambiguous, these are Factual Issues that is left to
be determined with the best discretion of the trial court.
SEC. 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis and rates upon which
the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
Names of the parties is essential in all contracts. The fact the name of the insured was
incorrectly misspelled is of no importance, provided that the identity of the party can be
sufficiently established.
Amount of the insurance is necessary to determine the amount of indemnity to be paid to the
insured, in case of loss or damage, especially if it is only partial. To provide a maximum limit of
insurers liability for loss or damage suffered by the insured.
o
Automatic increase, increase of insurance coverage shall depend upon the
happening of an event.
o
Deductible, is the stated amount to be deducted from any loss, which is shouldered
by the insured making the insurer liable for the excess.
Premium is essential considering that it represents the consideration of the contract. The rates
are developed on the basis of the nature and character of the risk assumed.
o
Life insurance, based on average lifespan of a person
o
Fire insurance, e.g. structure, construction, loss-prevention or protection facilities.
Property or life insured is essential as it constitutes the subject matter of the contract.
INSURANCE
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Interest of insured in property, is essential to determine the actual damage suffered by the
insured in case of loss of the property covered by the policy.
Risk insured against is essential such that, the insurer is liable to indemnify the insured if it is
the risk insured against.
Term or duration of insurance, is essential, such that the insurer would not be liable UNLESS
it occurred during the duration of the insurance.
o
Life of the policy, period of time which insurer assumes the risk
o
Annual policies, policies issued for a term of 12 months
o
Short period policies, those issued for a lesser period.
-Proverbs 16:3
regulations dispense with the requirement of written approval by him in the case of extension in
compliance with such rules and regulations.
Cover notes, also called binder, are short term insurance policies that may be issued to
afford immediate provisional protection to the insured until the insurer can inspect or evaluate
the risk in question and issue the proper policy.
o
Preliminary contract of present insurance, insurer insures the subject matter
usually by binder or cover note, the contract to be effective until the formal policy is
issued or the risk rejected.
o
Preliminary executory contract of insurance, insurer makes a contract to insure
the subject matter at some subsequent time which may be definite or indefinite.
Under such executory contract, the right acquired by insured, is merely to demand
delivery of a policy in accordance with the terms agreed upon, and obligation of the
insurer is to deliver such policy.
Cover note is temporary in nature. The fact that no separate premium was paid on the cover
note, does not militate against its binding effect.
Rules on Cover Notes
o
Insurance companies doing business in the Philippines may issue cover notes, to bind
insurance temporarily, pending issuance of the policy
o
Cover note shall be deemed to be a contract of insurance
o
No cover note shall be issued UNLESS in the form previously approved by the
Commissioner
o
If cover note is not cancelled, policy of insurance shall be issued within 60 days after
issuance of such cover note.
o
GR: It can be extended or renewed beyond the period of 60 days, with written
approval of the Insurance Commission.
EXC: written approval may be dispensed with, upon certification of the president,
vice-president, or general manager of insurance company, that the risk involved,
value of risk or premiums, have not yet been determined, and such extension is not
contrary and for the purpose of violating provisions of the code.
o
Insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium, but in no case less than 500.00.
KINDS OF INSURABLE RISK

1.
2.
3.
Personal Risk those involving the person. It is chiefly concerned with the time of death or
disability.
Property Risk those involving loss or damage to property.
a. Direct loss e.g. caused by fire, flood, or other forces of nature
b. Indirect loss e.g. loss of profits, rents or favorable leases
Liability Risk those involving liability for injury to the person or property of others.
Sometimes called third party risk.
Risk, the chance of loss, or the possibility of the occurrence of a loss.

Peril, the contingent or unknown event which may cause a loss.
Hazard, condition or factor, tangible or intangible, which may create or increase the chance of
loss from any given peril.
o
Physical hazards, terms include everything relating to location, structure,
occupancy, exposure, etc.
o
Moral hazards, those factors that have their inception in mental attitudes.
REQUIREMENT OF RISK TO BE INSURABLE not all risks are insurable

1.
2.
3.
4.
5.
Importance, must be important enough to warrant existence of a contract.

Calculability, risk must permit reasonable statistical estimate.
Accidental Nature
No Catastrophic loss, large numbers of people must not be subject to the same kind of losses at
the same time.
Definiteness, losses should be fairly definite as to cause, time, place and amount, otherwise,
estimates of possible loss are difficult.
o
The above requirements are NOT ABSOLUTE,
SEC. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under the cover note and the premium
therefor.
Cover notes may be extended or renewed beyond such sixty (60) days with the written approval of
the Commissioner if he determines that such extension is not contrary to and is not for the purpose
of violating any provisions of this Code. The Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing such violations and may by such rules and
SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.
As against the insured, third persons have no right either in a court of equity or in a court of
law to the proceeds of the policy, UNLESS there be some contract of trust, express or implied,
between the insured and third persons.
As against the insurer, a third person, in the absence of any provision in the policy, has no
right to proceeds thereof.
Contract pour atrui, contract between two parties, when there is a clear and express provision
giving a benefit to a third person.
SEC. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact
that his principal or beneficiary is the real party in interest may be indicated by describing the
insured as agent or trustee, or by other general words in the policy.
INSURANCE
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Insurance may be taken by a person personally or through his agent or trustee. Agent should
indicate that he is merely acting in a representative capacity by signing as agent or by other
general terms in the policy.
SEC. 55. To render an insurance effected by one partner or part-owner, applicable to the interest
of his co-partners or other part-owners, it is necessary that the terms of the policy should be such
as are applicable to the joint or common interest.
Insurable interest in property of a partnership exists in both partnership and partners.

A partner has an insurable interest in the firm property, which will support a policy taken for
his own benefit.
If a partner insures partnership property in his own name, this limits the contract to his
individual share UNLESS the terms of the policy clearly show that the insurance was meant to
cover also the shares of other partners. He can insure the entire property of the partnership, if the
terms are applicable to the joint or common interest.
SEC. 56. When the description of the insured in a policy is so general that it may comprehend any
person or any class of persons, only he who can show that it was intended to include him, can claim
the benefit of the policy.
The policy of insurance must specify the parties between whom the contract is made.
If the description of the thing insured is so general, it does not avoid the policy. Provided that
the person claiming to be the insured could be clearly identified.
He must prove that 1.) he is the person named or described or 2.) he belongs to the class of
persons comprehended in the policy.
e.g. For the owner
SEC. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured.
A contract of insurance is a Personal Contract, it does not attach or run with the property
insured.
A purchaser of property who does not take the precaution to obtain a transfer of the policy of
insurance cannot, in case of loss, recover upon such contract, as the transfer has the effect of
suspending the insurance until the purchaser becomes the owner of the policy as well as the
property insured.
SEC. 59. A policy is either open, valued or running.

SEC. 60. An open policy is one in which the value of the thing insured is not agreed upon, and the
amount of the insurance merely represents the insurers maximum liability. The value of such
thing insured shall be ascertained at the time of the loss.
SEC. 61. A valued policy is one which expresses on its face an agreement that the thing insured
shall be valued at a specific sum.
-Proverbs 16:3
SEC. 62. A running policy is one which contemplates successive insurances, and which provides
that the object of the policy may be from time to time defined, especially as to the subjects of
insurance, by additional statements or indorsements.
Open or unvalued policy does not predetermine the value of the insured property but
establishes a maximum amount the insured will pay in case of total loss.
Insured must establishes the fair market value (FMV) at the time of loss. If FMV is higher, the
maximum will control. If FMV is lower, the FMV will control.
Valued policy, the value of the insured property is predetermined and the value is the amount
to be used in case of total loss. Take note: there are two values:
o
Face value of the policy
o
Value of the thing insured
*The liability of insurer under a life policy is measured by the face value of the policy.
Running policy, this is intended t provide indemnity for property which cannot be well covered
under valued policy, because of frequent change of location and quantity, or that is of such
nature as not to admit gross valuation. E.g. stock of goods
Q: X insured his house in an open policy, face value is 1,000,000. The actual loss is 500,000. Thereafter the
house was gutted by fire, how much can X claim from the insurer?
A: The insured can recover the actual loss of 500,000.
Atty. S: Take note class, that under an open policy, the valuation of the property may only be made after the
occurrence of the loss. The insurer through its adjusters or appraisers will survey the area, and determine the
value of the property of the loss.
Q: Suppose the value of the property in a valued policy is at 10,000,000. But you insured it for 5,000,000. The
house is gutted by fire, how much can the insured claim from the insurer?
A: It depends on the amount of the insurance or the policy you get with the insurer. The amount which the
insured can recover is only 5,000,000.
Atty S: If the value of the house is 10,000,000, you insured it for 15,000,000. If the house is gutted by fire,
insurer is only liable up to 10,000,000. Transcriber submits that the insured cannot recover, more than the
value of the property.
In running policy, say for example Henry Sy, owner of the SM department store, day in-day out the stocks will
be depleted each day, you cannot expect him to go to the insurer daily. What he will do is he will get a
Running policy. So for the entire Mall of Asia, I am insuring it for 50 billion pesos, it will COVER everything.
So if a portion of MOA is gutted by fire, the insured can only claim the amount of the loss. The 50 billion, is the
maximum of loss that the insured can recover.
Blanket policy, is one covering by a single amount of insurance, the same kind of property at
different locations or different kinds of property at a single location.
INSURANCE
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-Proverbs 16:3
08-30-2014
3.
Section 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues, is void.
4.
GR: A clause in the insurance policy to the effect that an action upon the policy must be brought
within a certain period is valid and will prevail over the general law on limitations.
EXC: If the period is less than one year from the time the cause of action accrues, the stipulation
is void.
However, in case of industrial life insurance, the period cannot be less than six years after the
cause of action accrues. (Sec 231 (d))
The requirement that a claim must be presented within a certain period is not merely a
procedural requirement, it is in the nature of a condition precedent to the liability of the insurer.
Bringing action against the agent of the insurer cannot have any legal effect except notifying
agent of such claim.
o
Time cause of action accrues the cause of action in an insurance contract does not
accrue until the insureds claim is finally rejected by the insurer.
o
Cause of action (R O V D), there is right of the plaintiff, an obligation on the part of
the defendant not to violate such right, an act or omission violating such right, and
damage.
A policy stipulating that prescriptive period begins from the happening of a loss is void. Because
necessarily, the loss occurs before the rejection of the insurers claim (accrual of cause of action)
Stipulation is based upon a written contract, the time limit is 10 years from the time the cause
of action accrues. (In the absence of stipulation)
Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon
prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable; or
(f) a determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code.
Section 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed
or delivered to the named insured at the address shown in the policy, and shall state (a) which of
the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the cancellation is based.
Cancellation, is the termination by either the insured or insurer before its expiration.
Insured can cancel the insurance contract at his election by surrendering such policy.
Form and sufficiency of notice of cancellation by insurer

1.
2.
Prior notice of cancellation to the insured

The notice must be based on one or more grounds mentioned in Sec. 64.
It must be in writing, mailed or delivered, to the named insured at the address shown in the
policy
It must state which grounds set forth is relied upon.
It is the duty of the insurer, upon written request of the named insured, to furnish the facts on
which the cancellation is based.
The purpose of a prior notice, is to prevent the cancellation of the policy, without allowing the
insured ample opportunity to negotiate for other insurance for its own protection.
Section 66. In case of insurance other than life, unless the insurer at least forty-five days in advance
of the end of the policy period mails or delivers to the named insured at the address shown in the
policy notice of its intention not to renew the policy or to condition its renewal upon reduction of
limits or elimination of coverages, the named insured shall be entitled to renew the policy upon
payment of the premium due on the effective date of the renewal. Any policy written for a term of
less than one year shall be considered as if written for a term of one year. Any policy written for a
term longer than one year or any policy with no fixed expiration date shall be considered as if
written for successive policy periods or terms of one year.
A renewal of insurance by payment of a new premium and issuance of a receipt, where there is
no provision in the policy for its renewal, is a new contract on the same terms as the old
one. Depends primarily on the intention of the parties
In case of insurance other than life, the insured is given the right to renew the contract with
the same terms and conditions on the original policy, upon payment of the premium on the
effective date of renewal,
o
UNLESS, the insurer at least 45 days in advance of the end of the period, mails or
delivers to the insured, notice of its intention not to renew the policy or to
condition its renewal upon reduction of its amount or elimination of some
coverages.
A policy written for a term of less than 1 year is considered for a term of (1) one year. While
policy written longer or with no fixed expiration date, is considered written for successive
policy period or term of 1 year.
Q: Suppose a fire insurance was issued for 30 days, when should the insurer inform the insured of its intention
not to renew?
A: Ambot
Q: Suppose the insurance is for 5 years, and the insurer does not want to extend, what should he do?
A: The insurer has to inform the insured at least 45 days in advance before the end of each successive policy
period on each year.
Title 7
WARRANTIES
Section 67. A warranty is either expressed or implied.
Warranty Statement or promise by the insured, contained, incorporated, or attached by proper
reference to the policy, the falsity or nonfulfillment of which, regardless of whether the insurer has
suffered loss or prejudice as a result, renders the policy voidable at the election of the insurer.
INSURANCE
Page 7
-Proverbs 16:3
Kinds of Warranties:
Express warranties, an agreement contained in the policy or clearly incorporated, which

stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the
same subjects have been or shall be done.
Implied warranties, is a warranty, which from the very nature of the contract or from the
general tenor of words, although no express warranty is mentioned is necessarily embodied in
the policy as part thereof which binds the insured as expressed in the contract. Ex: That a vessel
is seaworthy
Affirmative warranty, is one which asserts the existence of a fact or condition at the time it is
made. The warranty is continuing if it is one that must be satisfied during the entire coverage
period. Ex: That building is free of materials causing fire at the time of issuance.
Promissory warranty (executory), is one where the insured stipulates that certain facts or
conditions pertaining to risk shall exist or that certain things with reference, shall be done or
omitted. Ex: there shall be installation of fire protection devices.
o
Warranties are presumed affirmative.
Atty S: When you say warranty, there is this specific warranty provided for in the policy and that warranty
turns out to be a false warranty, where you did not fulfill such warranty. It is not merely considered as a
violation, but a breach of such insurance contract. Ex: you had an agreement with your insurer that the
building insured will be inhabited(someone will take care of it) for the life of the policy and because of that
the premium was lowered. Then again during the life of a contract, the building became uninhabited, at the
time the insurer has the right to ask for cancellation because it is considered as voidable.
Section 68. A warranty may relate to the past, the present, the future, or to any or all of these.
Stipulation that insured never suffered any ailment
Stipulation that the a building is occupied as a
dwelling
Stipulation, that the insured would employ a
watchman or install fire extinguishers
warranty that relates to the past

warranty that relates to the present
warranty that relates to the future
Section 69. No particular form of words is necessary to create a warranty.
Word warranty in an insurance contract does not necessarily constitute warranty. Whether
the statement made by the insured is a warranty, depends upon the intention of the parties.
In case of doubt, it would be construed as a representation rather than a warranty. The
parties must intend a statement to be a warranty, and it must be included as part of the
contract.
Difference between Representations and Warranties
o
Representations are merely considered as collateral inducements, while
Warranties are considered as parts of the contract.
o
Representations may be written in a totally disconnected paper or may be oral.
Warranties are always written on the face of the policy.
o
Falsity of a Representation renders the policy voidable on the ground of fraud. Non
fulfillment of a Warranty operates as a breach of contract.
o
Representations require only substantial truth, Warranties must be strictly
complied with
Warranties are presumed material, while insurer must show materiality of a

Representation in order to defeat action on the policy
Before a representation will be considered a warranty, it must be expressly included or

incorporated by clear reference in the policy.
Section 70. Without prejudice to section fifty-one, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument signed by the
insured and referred to in the policy as making a part of it.
GR: In order that a stipulation may be considered a warranty, it must not only be clearly shown
that parties intended as such, but it must
o
also form part of the contract itself, or
o
if contained in another instrument, must be signed by the insured and referred to
in the policy as making a part of it.
EX: Warranty contained in a rider, which is attached to a policy is part of the contract. It need
not be signed by the insured nor referred to in the policy as making part of it.
Section 71. A statement in a policy of matter relating to the person or thing insured, or to the risk,
as a fact, is an express warranty thereof.
Q: Policy says that X is 35 years old. In truth and in fact, X is 45 years old. Is that an express warranty?
A: It is an express warranty. Statement in the policy relating to a person or thing insured is a fact.
Q: Policy says, that I believe I am a good driver?
A: Not an express warranty, as the statement merely refers to be an opinion or belief.
Section 72. A statement in a policy which imparts that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such act or omission shall take place.
Q: In a insurance policy, the insured and insurer agreed that insured will insure his other building within 2
months from the effectivit y of the original policy. If he did not insure such building then the fire broke out
then gutted out the building insured in the original policy, can he claim the proceeds of the policy?
A:Yes the insured can still claim, it is not a warranty. This is a promissory warranty, the breach of promises or
agreements as to future acts will not avoid a policy, UNLESS promises are material to the risk.
Material to the risk, the act or omission is material to the risk if it increases the risk. Under the
law, only substantial increase of risks works forfeiture of the policy which is avoided for
increase in hazard.
Section 73. When, before the time arrives for the performance of a warranty relating to the future,
a loss insured against happens, or performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the policy.
Other instances where breach of warranty does not avoid policy:
1. Loss occurs before time for performance
Ex: Insured warrants that after 5 days after execution contract, he will install fire extinguishers. On the
second day fire broke out.
2. Performance becomes unlawful
Ex: Policy expressly contains warranty that the insured house which is at the time rented, shall cease to be
rented and shall be used as a private dwelling for the family of the insured. A law was later passed,
prohibiting the ejectment of tenants of a period of less than 1 year.
3. Performance becomes impossible. (May be Physical or Legal Impossibility)
Physical, insured warrants to change the party wall to concrete. However there was no cement available
for private use without the fault of the insured, and subsequently loss happens.
INSURANCE
Page 8
Insurer barred by waiver or estoppel
Waiver, an intentional relinquishment of a known right.

Ex: Failure on the part of the insurer to assert a forfeiture upon a breach of warranty or
condition, upon knowledge thereof, amounts to a waiver.
Estoppel, the insurer is precluded, because of some action or inaction on its part. Relying on an
otherwise valid defense as against the insured who has been induced to enter into the contract
by the insurers representation or conduct. Ground of estoppel is that it would be against Equity
and Good Conscience.
Estoppel vs. Waiver:

o
Estoppel in the conduct of the insurer prevents it from avoiding liability. While in
Waiver, the failure of the insurer to assert as a defense prevents it from asserting that
defense in the event of a claim filed by the insured.
Examples in the book:
o
Other insurance clause violated, insurer knowing that insured has violated a clause
prohibiting making of other insurance on the same property without giving notice to
the insurer, preferred to continue the policy by demanding and collecting premium.
o
Premium not paid, an extension of time for payment of premium amounts to a
waiver of insurers right to require payment of premium on due date.
o
Warranty clause violated, insurer was aware even before policy was issued that in
premises insured, the number of fire hydrants was less than that demanded.
Nevertheless it issued a policy and accepted premiums. Insurer is barred by waiver
or estoppel.
o
Insured vehicle is not a common carrier, insurer knew all along that insured
owned a private vehicle and not a common carrier when it issued a common carriers
accident insurance. NOT ONCE BUT TWICE, without any objection on its part, the
insured on the other hand is a man of scant(barely sufficient) education.
Section 74. The violation of a material warranty, or other material provision of a policy, on the part
of either party thereto, entitles the other to rescind.
Section 75. A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.
Parties may expressly stipulate that the violation of a particular provision (although immaterial)
in the policy shall avoid it.
Ex: Insurance policy expressly states that if the insurer does not procure a fire insurance for
his other building (meaning not the building he insured), violation of such stipulation although
immaterial, will avoid insurance policy.
Section 76. A breach of warranty without fraud merely exonerates an insurer from the time that it
occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.
Fraud not essential for breach
In order that insurer may be entitled to rescind a contract of insurance on the ground of breach
of warranty, fraud is not essential.
Effect if without Fraud
If there is no fraud, the policy is avoided only from the time of breach, and insurer is
entitled to
o
the return of premium paid at pro rata from the time of breach.
o
All premiums if its broken during the inception of the contract. (VOID AB INITIO)
-Proverbs 16:3
Effect if with Fraud
Where there is fraud the policy is void ab initio, and the insured is not entitled to the return of
premium paid.
Condition, is an event in which either an occurrence or non-occurrence thereof, alters the

previously existing legal relations of the parties to the contract.
o
Parties may impose whatever conditions, as long as they are not contrary to law,
morals, good customs, public order or public policy.
Difference between Conditions and Warranties:
As to effect:
o
Warranty does not suspend or defeat the operation of the contract, but breach
affords a remedy expressly provided in the contract or by law. While a condition
precedent is one without performance of which, the contract, does not spring into
life.
Condition is a limitation to the attachment of risk, while Warranty does

not necessarily have such effect.
As to nature:
o
If the insured warrants that if representations made by him in his application for
insurance are not true, the policy shall be null and void, such statements are not
conditions precedent but rather of the nature of a defeasance. Promissory
warranties are usually regarded as conditions subsequently to be performed after the
policy has become a valid contract, non-performance will work a defeasance.
Exceptions, are inserted in a contract of insurance for the purpose of withdrawing from the
coverage of the policy, as delimited by the general language describing risk assumed, some
specific risks which insurer declares himself unwilling to undertake.
Ex: Insurer issues policy covering a store and its contents against loss by fire may CUT DOWN
the meaning of contents, by excepting money and securities, or RESTRICT the peril of fire, by
excepting fire caused by lightning.
Exceptions distinguished from warranties and conditions

Policy contains warranted statement that insured building is
occupied
Policy declares that this entire policy shall be void if the insured
building becomes vacant or unoccupied for more than 30 days
Atty: This usually comes from the insurer.
Policy provides that insurer will not be liable for loss, while the
insured building is vacant or unoccupied for
WARRANTY
CONDITION
EXCEPTION
INSURANCE
Page 9
Effects of breach on legal relations of parties
-Proverbs 16:3
Premium the agreed price for assuming or carrying risk. Consideration paid to an insurer for
undertaking to indemnify the insured against a specified peril.
Assesment, a sum specifically levied by mutual insurance companies or associations, upon a

fixed or definite plan, to pay losses and expenses.
Premium vs Assessments
o
Premiums are levied and paid to meet anticipated losses. These are not enforceable
against the insured. Premium is not a debt.
EXC:
In fire, casualty and marine insurance premium becomes a debt as
soon as the risk attaches
In life insurance the premium becomes a debt only when, in case of the
first premium, the contract has become binding, and in the case of
subsequent premiums, when the insurer has continued the insurance after
maturity of the premiums
o
While Assessments are collected to meet actual loses. Unless otherwise agreed, these
are legally enforceable once levied. Assessment, if properly levied, is a debt.
Binding force of contract
The occurrence of a breach of warranty or condition, even though such breach be temporary.
Renders the entire contract defeasible or voidable, even though breach may not have affected
the risk or contributes to the loss.
But occurrence of an excepted peril (vacancy of the house) does not in the least effect affect the
binding force of the contract.
o
If a loss happens during such vacancy, it falls outside the coverage of the policy and
the insurer is not liable.
o
But if no loss occurs (house is reoccuppied) the contract relations continue to be
unchanged.
On liability where there is waiver
Breach of warranty or condition may be waived without consideration. But insurer does not
become liable for an excepted loss by waiver UNLESS such waiver amounts to a new contract
on valuable consideration.
Q: X got a fire policy for a period of 5 years, the policy says that fire caused by lightning is an excepted peril.
On its third year, the building gutted by fire due to lightning. X tried to claim the proceeds, however the
insurer said it is an excepted peril. X then went back to the insurer, saying that he cannot use his defense of
excepted peril, because the policy became incontestable already.
A: The insurer may not be compelled to pay the proceeds, because it is an excepted peril netty.
"TITLE 8
"PREMIUM
"Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies, or whenever under the broker and agency
agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No
credit extension to a duly licensed intermediary should exceed ninety (90) days from date of
issuance of the policy.
"Section 78. Employees of the Republic of the Philippines, including its political subdivisions
and instrumentalities, and government-owned or -controlled corporations, may pay their
insurance premiums and loan obligations through salary deduction: Provided, That the
treasurer, cashier, paymaster or official of the entity employing the government employee is
authorized, notwithstanding the provisions of any existing law, rules and regulations to the
contrary, to make deductions from the salary, wage or income of the latter pursuant to the
agreement between the insurer and the government employee and to remit such deductions to
the insurer concerned, and collect such reasonable fee for its services.
Q: May the government employee pay the insurance premium through salary deduction, what are the
requirements?
A: Yes. Provided that the treasurer, cashier, paymaster or official of the entity employing the government
employee is authorized, to make deductions from the salary, wage or income of the Govt employee pursuant
to the agreement between the insurer and the government employee, and to remit such deductions to
the insurer concerned and collect such reasonable fee for such services.
Q: X insured his building with Y for fire for 1 year with premium of 20,000.00. May Y demand for payment of
the 20,000 premium? There was no first or prior payment of premium.
Atty S: Insurance company cannot claim for payment of the premium. Because there is no valid contract
between the insured and the insurer. Unless there was already payment of the first premium, although partial,
as insured only paid 10,000.Insured cannot enforce it, because premium is not a debt.
Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462

Facts:
The insurer issued a insurance policy for the properties of Makati Tuscany, this insured policy was
renewed 3 times and premiums were paid in installments. On its 3rd year, Makati failed to pay the
subsequent premiums and they contended that they are no longer required to pay for the subsequent
premiums alleging that the insurance policy never took effect and is not binding, because full payment of
the premiums must be paid in order for the insurance policy to take effect.
Ruling:
Sec 77 of the Insurance code precludes the party from stipulating that the policy is valid even if the
premiums are not paid, but does not prohibit an agreement granting credit extension, such an
agreement is not contrary to law, morals, good customs or public policy. SC also said that the risk already
attached upon payment of the first installment or premium.
INSURANCE
Page 10
Q: There is a fire insurance policy for a period of 5 years. On its 3rd year the building was gutted by fire. The
insured asked for the proceeds. The insurer denied saying that it is an excepted peril. The insured says no,
because it is already covered by incontestable clause.
A: No. The incontestable clause is only proper in life insurance, and not in non-life insurance.
Effect of nonpayment of premium
The ability of the insurer to meet its contingent obligations to the public depends upon prompt payment of
all premiums due to it.
In case of First premium, the non-payment of the first premium UNLESS waived, prevents the
contract from becoming binding notwithstanding the acceptance of the application nor issuance
of the policy.
In case of Subsequent premiums, the non-payment of subsequent premiums does not affect
the validity of the contracts UNLESS by express stipulation, it is provided that the policy shall in
that event be suspended or shall lapse.
Atty S: If the insurer already received the first premium, and after demanding from the insured, the insured
will no longer want to pay. He has the option to go to court either to 1.)demand payment 2.) ask for
rescission. But from the very start if at the start, the premiums on the policy were not paid by the insured, he
did not pay not even a single cent. In this case, if the insured building is gutted by fire, the insurer is not at all
liable, not a single cent of the proceeds shall be given to the insured.
In Fortuitous events Even the act of God rendering the payment of the premium wholly
impossible , it will not prevent the forfeiture of the policy when the premiums will be paid. The
insurer must have some efficient means of enforcing punctuality.
o
The rule is not affected by the fact that the nonpayment is due to war or the insured
has not been negligent.
Atty S: It would be case to case basis, if you know for a fact that there is a typhoon coming and your duty to
pay falls on that date which the typhoon is expected to come, of course, prudence would dictate that you have
to pay in advance. If in another case you were hit by a magnitude 9 earthquake, of course it would necessarily
excuse you from paying.
-Proverbs 16:3
consider the policy binding before actual payment.
1992- The SC ruled that Sec. 77 merely precludes that the policy is valid even if premiums are not paid. But
it does not expressly prohibit an agreement granting credit extension. Likewise this case mentions about
the exceptions to Sec. 77, that the policy is valid and binding notwithstanding non-payment of the
premium. They are: 1.) Granting credit extension and 2.) estoppel.
Tibay vs CA Fortune insurance
Facts:
Sps. Tibay insured their property with Fortune insurance. The premium was for 2900, but only 600 were
paid by the insured. The building insured was razed by fire. Two days later Violeta Tibay paid for the
balance of the premium and on the same day filed a claim against Fortune insurance. Is the policy valid and
binding upon partial payment of premium?
Ruling: No, SC ruled that premium must be paid in full in order for the policy to be valid and binding. This
case is different from Makati Tuscany, because in the Makati, there was a practice that payment shall be in
installments. Neither is there any stipulation granting any credit extension. Likewise, payment of premiums
is the elixir vitae of insurance business because the insurer must maintain a legal reserve fund to meet its
contingent liabilities.
South Sea Surety vs CA
Facts:
Insured obtained a marine insurance cargo policy for its logs loaded on the vessel. Insured gave check
payment to Victorino Chua. A day after, the vessel sank. South Sea cancelled the insurance policy alleging
non-payment of premiums. Is Victorino Chua an agent of the insurer and therefore payment was accepted.
Ruling: Yes. Victorino Chua is an agent of the insurer. Under the code, an insurance company which
delivers to an agent or broker a policy or contract of insurance shall be deemed to have an authorized
agent or broker to receive payment on its behalf of premiums which is due.
UCPB vs. MASAGANA

Facts:
UCPB insured Masaganas properties. Two months before expiration of the policy, UCPB gave written
notice to Masagana for non renewal of the policies. Then the property insured was razed by fire. A month
after Masagana gave a check for payment of the premium and the following day filed a complaint to clam
the proceeds of the policy.
Malayan Insurance Co. (MICO) vs Arnaldo

DMD!! Dili ko kaapas sa storya ni Jamica :c
Exceptions to Sec. 77
1.
2.
3.
Ruling:
4.
1991 The SC ruled that the insurance policies had expired. Because an insurance policy other than life is
not valid and binding until actual payment of the premium, any agreement to the contrary is void. The
parties may not agree expressly or impliedly on the extension of the credit time to pay the premium and
5.
6.
In case of a life or industrial policy where grace period provision applies

Under the broker and agency agreements, where a 90-day extension is given
There is an acknowledgement in the policy of receipt of the premium, even if there is a
stipulation that it shall not be binding until the premium is actually paid.
There is an agreement allowing insured to pay in installments and partial payment is made at
the time of loss
There is an agreement to grant the insured a credit extension for the payment of the premium
Estoppel - receipt of the insurer of the premium even after the expiration of the credit term but
before the loss.
INSURANCE
Page 11
Section 79. An acknowledgment in a policy or contract of insurance or the receipt of premium is

conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the premium is actually paid.
-Proverbs 16:3
Insured entitled to recover premiums
1.
No part of the thing insured has been exposed to any peril insured against
Ex:
a.
In a policy which requires acceptance to be effective, the insured cannot be held
liable for accruing premiums if the policy is not accepted. He can recover
premium(Risk does not attach)
b. Insured pays premiums in advance for an insurance to take effect on a later date (15
days from receipt). On the 5th day the insured building was gutted by fire, the insured
can ask return of the premium. NB: He cannot also claim the proceeds
2.
Insurance is for a definite period and insured surrenders his policy before termination
- Insured can recover premiums paid at pro rata rate
Ex:
a. X insures his house for 2 years and pays premium of 24,000. After 6 months, he
surrenders the policy. He shall be entitled to collect or 6,000.
Conditions for Sec. 80b to apply:
i. Must be a definite period
ii. Not a life insurance
GR: Not a divisible contract, insured cannot recover.
EXC: Insured is entitled to receive the cash surrender value of his policy,
after 3 full annual premiums have been paid.
iii. Not a short period rate (a table or proportion is stipulated)
3.
Contract is voidable and is subsequently annulled because of fraud or misrepresentation

of the insurer or his agent. Ex:
a.
Insured is induced upon representation of the insurers agent that policy is issued to
him within one month. He can refuse and recover premiums paid if not issued within
said period.
4.
When contract is voidable, because of existence of facts which insured was ignorant
without his fault. Ex:
a. Insured pays premiums on his vessel not knowing it has already been lost.
5.
When insurer never incurred any liability under the policy because of the default of the
insured other than actual fraud. Ex:
a.
Insurer pays in advance premiums. The vessel is still under repair, however due to
reasons other than actual fraud, the repair of vessel is not completed when voyage is
about to start. The insured can recover the premiums paid.
6.
There is over-insurance
- Amount of insurance is beyond the value of the insureds insurable interest.
Ex:
a. X insures his house w/c has an insurable value of 1.5 million. Insures it with A for 1 M
and B for 2 M. He pays premiums of 100,000 each for A and B. There is over insurance
of 500,000. He can recover ____________________.
(Syntax Error) #%@ Please refer to your classmates
Effect of acknowledgement of receipt of premium in policy:
Waiver of condition of prepayment The insurer has waived the condition of prepayment,
the acknowledgement being declared by law as conclusive evidence of premium payment.
Recovery of premium if unpaid The conclusive presumption extends only to the question of
binding effect of the policy. It is only a prima facie evidence of the fact of such payment and
insurer may still dispute its acknowledgement, only for the purpose of recovering the
premium due and unpaid.
Effect of acceptance of premium
Acceptance of the premium merely assures continued effectivity of the insurance policy with its
terms.
Acceptance does not stop the insurer from interposing any valid defense under the terms of the
insurance policy.
Section 80. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of
the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured surrenders his
policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata
rate, unless a short period rate has been agreed upon and appears on the face of the policy,
after deducting from the whole premium any claim for loss or damage under the policy which
has previously accrued: Provided, That no holder of a life insurance policy may avail himself of
the privileges of this paragraph without sufficient cause as otherwise provided by law.
"Section 81. If a peril insured against has existed, and the insurer has been liable for any period,
however short, the insured is not entitled to return of premiums, so far as that particular risk is
concerned.
"Section 82. A person insured is entitled to a return of the premium when the contract is voidable,
and subsequently annulled under the provisions of the Civil Code; or on account of the fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which
the insured was ignorant of without his fault; or when by any default of the insured other than
actual fraud, the insurer never incurred any liability under the policy.
"A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a
claim is denied by reason of fraud.
"Section 83. In case of an over insurance by several insurers other than life, the insured is entitled
to a ratable return of the premium, proportioned to the amount by which the aggregate sum
insured in all the policies exceeds the insurable value of the thing at risk.
INSURANCE
Page 12
7.
-Proverbs 16:3
Rescission is granted due to the insurers breach of contract.
o
o
o
Where insurance is illegal
GR: When the insurance is void, because it is illegal, the premiums can be recovered.
If parties are not in pari delicto, the law will allow the innocent insured to take again his
premiums as when insured was ignorant of the facts which rendered the insurance illegal.
EXC: When the parties are in pari delicto (Both parties are equally guilty)
Basis of right to recover premiums

(Over-insurance, double insurance, Short interest)
Insurer could have been called to pay the whole sum insured.
o
If insurer could AT ANY TIME and under conceivable circumstances, have been called
to pay the whole sum on which he has received the premium, in such case the whole
premium is earned and there shall be no return.
Insurer could have been called to pay only the part of the whole sum insured.
o
If he is not called on to pay the whole, but only a part of his subscription (half or a
fourth) he ought not to retain a larger proportion than one half or one fourth of the
premium.
Section 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril
insured against was the proximate cause, although a peril not contemplated by the contract may
have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against
was only a remote cause.
Loss injury, damage or liabilty sustained by the insured in consequence of the happening of
one or more perils.
Loss with reference to reinsurance the reinsurers share of the loss on risk ceded.
Liability of insurer for loss
Extent of loss of the insurer depends upon whether the insured suffers a loss and the extent
upon such loss. (Contract of insurance is a contract of indemnity)
Loss is satisfied by:

o
Payment
o
Reinstatement or repair or restoration
o
Replacement with another similar property
The INSURED has the burden of proof where loss has occurred. The INSURER has the burden of
proof that loss occurred under an excepted peril.
o
Contract of insurance is a contract of indemnity, therefore it proscribes the insured
from profiting from the loss which constitutes unjust enrichment.
Proximate cause natural and continuous sequence that which produces an event and without
which the event would not have occurred. It is also called efficient cause, but not immediate
cause, the proximate cause may give rise to a immediate cause.
Immediate cause is the peril insured against.
Remote cause a cause which is far remote from the injury caused, because of a supervening
event.
Section 84. An insurer may contract and accept payments, in addition to regular premium, for the
purpose of paying future premiums on the policy or to increase the benefits thereof
"TITLE 9
"LOSS
Section 85. An agreement not to transfer the claim of the insured against the insurer after the loss
has happened, is void if made before the loss except as otherwise provided in the case of life
insurance.
Claim a demand for satisfaction of a loss suffered within the purview of an insureds policy. It
may be: (Who may make such claim?)
o
Party insured
o
Insurer with right of subrogation
o
Non-party but with a right against the insured
Ex: 3rd party who suffered a loss by reason the negligent acts of the insured.
Effect of agreement not to transfer claim of insured AFTER a loss.
If BEFORE a loss has occurred, an insurance policy, except a life insurance policy, is NOT
ASSIGNABLE, without the consent of the insurer.
If AFTER a loss has occurred, the insured has an absolute right to transfer or assign his claim
against the insurer. A stipulation which attempts to prohibit such transfer is void. Rationale:
Hinders free transmission of property

Transfer involves money claim or right of action
Transfer involves no Moral Hazard, it cannot increase the insurers risk of loss that
has already occurred. Moral Hazard, risk that insured may be induced for the
destruction of the thing that is insured than to its preservation.
Q: X insured his building against fire, in the policy, fire caused by lightning is an excepted peril. Another
building is struck by lightning and it was razed by fire. This affected his building close to it. Can he ask for
the proceeds?
A: No. The proximate cause of the fire is the lightning which struck the building. The fire which gutted his
building is the immediate cause.
Under the Code, the insurer is not liable if the proximate cause which is a excepted peril from the policy
caused the immediate cause which is not an excepted peril.
Q: Suppose his building was destroyed because the building close to it, when struck by lightning
crumbled and the debris scattered all over his building causing the damage.
A: Still No.
INSURANCE
Page 13
Friendly Fire Fire is in a place where it is intended to burn and ought to be.
o
Fire burning in a furnace, stove or lamp damage caused by such fires
Hostile Fire When fire occurs outside the usual confines or begins as a friendly fire and
becomes hostile, by escaping from the place where it ought to be some where it ought to be.
o
Flames escaped through a crack in a stove releasing a sprinkle head above.
o
Even if fire remain in its proper place, when it is by accident becomes so excessive
and is now beyond control.
Fire insurance provides indemnification for losses caused by a hostile fire, but not for damage or
loss due to a friendly fire.
o
We have to determine whether Fire is friendly or hostile. If Friendly, insured cannot
claim for the proceeds. Hostile, insured can claim.
Q: Suppose you have important documents which were insured against fire, you went to the province, and
you left those documents. There was a fiesta and people was roasting pig near the house, which eventually
caused the fire, can you claim for the proceeds?
A: No.
Section 87. An insurer is liable where the thing insured is rescued from a peril insured against that
would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril
not insured against, which permanently deprives the insured of its possession, in whole or in part;
or where a loss is caused by efforts to rescue the thing insured from a peril insured against
Q: X insured his paintings against fire. One night she heard Sunog, considering that her most precious
possessions are her paintings, she removed it and put it outside her house, and when she got back, the
paintings were lost. Can he claim for the proceeds?
A: Yes. If the loss of the thing insured is by theft, during the removal of the goods to save them from loss by
fire, is covered by a policy against fire. UNLESS there is a stipulation exempting the insurer from liability.
LOSS TOOK PLACE WHILE BEING RESCUED FROM THE PERIL INSURED AGAINST.
(Example stated above)
LOSS IS CAUSED BY EFFORTS TO RESCUE THE THING INSURED FROM A PERIL INSURED
AGAINST.
Section 89. 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
Q: X insured his entire building against fire, but he connived with his friend Y. Can he recover from the
proceeds? If there is a Co-insured, can he recover from the proceeds?
A: X cannot recover. But the Co insured can recover, because he was innocent and not guilty of the wrong
doing. The intentional destruction by one of the co-insured should not be interpreted to deny recovery by
other co-insured.
Atty S: Class Take note
If the peril insured against is the proximate cause of loss, the insurer is liable.
If the peril insured against is the immediate cause of loss, IT DEPENDS.
-Proverbs 16:3
o
o
The insurer is liable only if the proximate cause is NOT AN EXCEPTED PERIL.
Stated otherwise, if the PERIL IS AN EXCEPTED PERIL, insurer is liable.
09-20-2014
Q: X insured his entire building against fire, but he connived with Y to set in on fire? Can he recover?
A: No.
Section 89. 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.
Loss caused by negligence of the insured

o
Where there is only ordinary negligence it does not constitute a defense on the
part of the insured.
Ex: Insured lighted some straw under the barn to smoke out bees, but the fire rapidly
spread and destroyed the property.
o
Where there is gross negligence Have the effect of relieving the insurer from
liability.
Ex: Insured sees a small fire start and make no attempt to put it out.
TITLE 10
"NOTICE OF LOSS
"Section 90. In case of loss upon an insurance against fire, an insurer is exonerated, if written
notice thereof be not given to him by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay. For other non-life insurance, the Commissioner may specify
the period for the submission of the notice of loss.
"Section 91. When a preliminary proof of loss is required by a policy, the insured is not bound to
give such proof as would be necessary in a court of justice; but it is sufficient for him to give the
best evidence which he has in his power at the time.
CONDITIONS AFTER LOSS:
Written notice of loss must be given to the insurer.
A Preliminary proof of loss must also be given (If required by the policy)
*These are in the nature of a condition subsequent to the breach, which affects rights
which already accrued.
Notice of loss is more or less a FORMAL NOTICE given to the insurer by the insured or
claimant under a policy, of the occurrence of the loss insured against.
PURPOSE: To apprise the insurance company with the occurrence of the loss, so it may gather
information and make proper investigation, and to protect its interest against fraud.
NECESSITY OF LOSS:
Under the law, if notice of loss is not given to the insurer by the insured without unnecessary
delay or in a timely manner.
o
Unreasonable delay depends on the circumstances of a particular case.
INSURANCE
Page 14
For non-life insurance, other than fire, Commissioner may specify the period for
the submission of the notice of loss.
o
Parties may stipulate period within which notice of loss must be given.
Formal notice of loss is not necessary, if insurer already has actual notice.
o
PROOF OF LOSS
Poof of loss more or less a formal evidence given by to the insurer by the insured or claimant
under the policy, of the occurrence of the loss. To enable the company to determine its liability
and the amount thereof.
o
Purpose:
Give insurer extent of his liability
Afford him means of detecting any fraud
To operate as a check, upon extravagant claims.

BURDEN OF PROOF
The insured has the burden of proof that he has suffered a loss.
Once the insured makes a prima facie case in his favor, the burden of evidence shifts to the
insurer to controvert the insureds prima facie case, and show it falls under an exception or
limitations in the policy.
-Proverbs 16:3
Double insurance is synonymous with other insurance.

Distinction between double insurance and over-insurance:
o
Over-insurance exist when the amount of the insurance is beyond the value of the
insureds insurable interest. In double insurance, there may be no over-insurance.
o
In Over-insurance, there may be one insurer. In double insurance, there are always
several insurers.
A policy which contains no stipulation against additional insurance, is not invalidated by

procuring such insurance. Stated otherwise, if there is a stipulation prohibiting such, policy may
be invalidated.
o
Purpose of prohibiting double insurance: To avoid perpetration of fraud.
Section 96. Where the insured in a policy other than life is over insured 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;
Section 92. All defects in a notice of loss, or in preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of
objection, are waived.
"(b) Where the policy under which the insured claims is a valued policy, any sum
received by him under any other policy shall be deducted from the value of the policy
without regard to the actual value of the subject matter insured;
Section 93. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by
any act of him, or if he omits to take objection promptly and specifically upon that ground.
"(c) Where the policy under which the insured claims is an unvalued policy, any sum
received by him under any policy shall be deducted against the full insurable value, for
any sum received by him under any policy;
WAIVER OF DELAY OF PRESENTATION OF NOTICE OR PROOF OF LOSS:

1. By an act of the insurer
2. By Failure to take objection promptly and specifically upon that ground
"(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;
Section 94. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of
a person other than the insured, it is sufficient for the insured to use reasonable diligence to
procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence
to the insurer that such refusal was not induced by any just grounds of disbelief in the facts
necessary to be certified or testified.
"TITLE 11
"DOUBLE INSURANCE
Section 95. A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.
Requisites:
1. The person insured is the same
2. Two or more insurers insuring separately
3. Identity of subject matter
4. Identity of interest insured
5. Identity of risk or peril insured against
"(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.
Rules for payment of claims where there is over-insurance by double insurance
The liability of the insurers in case of over-insurance by double insurance is joint and several.
Joint and several liability
Ex: X insured his building valued at 1,000,000. He insured it with A for 1M, for B with
2M and C with 3M. In case of loss, he can recover from either A, B or C for 1M.
- Supposing X already got 1M from A, he can no longer recover from B or C.
- Supposing he got 1 peso from A, he can claim 999,999 from B or C. B or C cannot
raise as a defense that you should have recovered the whole amount from A, because
the obligation is joint and several.
INSURANCE
Page 15
The insured can recover no more than the amount of his insurable interest whether the
insurance is contained in one policy or several policies.
Contribution clause a stipulation which provides that, the insurance company shall not be
liable to pay or contribute more its ratable portion of the loss or damage.
-SKIPPED COMPUTATION-
"TITLE 12
"REINSURANCE
"Section 97. 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.
Retrocession, the reinsurer insures the risk covered in an insurance.

Primary/Direct/Ceding Insurer The insurance company originally writing the insurance.
Reinsurance vs. Double Insurance:
Double Insurance
Reinsurance
Insurer becomes the insured

The subject is the insurers risk
The original insured has no interest in the contract
of reinsurance
Insurance of different interest
Insurer remains to be the insured

The subject of the insurance is the property
The insured is the party in interest in all the
insurance contracts
Insurance of the same interest
Retention the limit on the maximum claim an insurance company wishes to pay out of its own
resources.
Net Retention The portion of the risk retained by the primary insurer.
-Proverbs 16:3
Reinsurance Treaty, an agreement between 2 insurance companies, whereby one agrees to

cede and the other to accept insurance. It is a contract for insurance as opposed to reinsurance
policies which are contracts of insurance.
Section 99. A reinsurance is presumed to be a contract of indemnity against liability, and not
merely against damage.
It is not necessary that the insurer shall have first paid a loss accruing as a condition precedent
to his demanding payment to the reinsurer.
Liability insurance one which is concerned with loss, damage or liability caused to third
persons, by reason of the negligence of the insured.
Right of Subrogation is applicable in reinsurance. The reinsurer on payment of a loss, acquires
the same rights by subrogation as are acquired in similar cases where original insurer pays the
loss.
In an action on a contract of insurance, the reinsurer is entitled to avail of every defense which
the reinsured might urge in an action by the person originally insured.
09-27-2014
Section 100. The original insured has no interest in a contract of reinsurance.
GR: There is no privity of contract between the original insured and the reinsurer. The
insured has no concern with the reinsurance, and the reinsurer is not liable to the insured.
EXC:
o
The contract of reinsurance contains a stipulation assigning the right of the insurer in
favor of the insured.
o
Contract of reinsurance with stipulation in
o
Contract of reinsurance amounts to novation of the original contract.
Section 98. 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.
GR: The original insurer has the duty to communicate all the representations of the original
insured and all the knowledge and information he possess, whether previously or
subsequently acquired, which are material to the risk.
EXC: Automatic reinsurance treaties
o
It is an agreement between the reinsurer and the reinsured, where the reinsured is
bound to cede and the reinsurer is obligated to accept, a fix share of the risk which
has to be insured under the contract.
Facultative Insurance There is no obligation either to cede or to accept participation in the
risk insured, each party having a free choice.
o
Automatic Reinsurance Treaties are more advantageous at the point of view of the
reinsured. While Facultative Insurance is more advantageous on the part of the
reinsurer.
"CHAPTER II
"CLASSES OF INSURANCE
"TITLE I
"MARINE INSURANCE
"SUB-TITLE 1-A
"DEFINITION
"Section 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, instruments of debts,
valuable papers, bottomry, and respondentia interests and all other kinds of property
INSURANCE
Page 16
and interests therein, in respect to, appertaining to or in connection with any and all
risks or perils of navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while awaiting
shipment, or during any delays, storage, transhipment, or reshipment incident thereto,
including war risks, marine builders risks, and all personal property floater risks;
(2) Person or property in connection with or appertaining to a marine, inland marine,
transit or transportation insurance, including liability for loss of or damage arising out of
or in connection with the construction, repair, operation, maintenance or use of the
subject matter of such insurance (but not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to any person arising out of ownership,
maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether in course of transportation
or otherwise; and
(4) Bridges, tunnels and other instrumentalities of transportation and communication
(excluding buildings, their furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and appurtenant facilities
for the control of waterways.
(b) Marine protection and indemnity insurance, meaning insurance against, or against legal
liability of the insured for loss, damage, or expense incident to ownership, operation, chartering,
maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or
inland waterways, including liability of the insured for personal injury, illness or death or for loss
of or damage to the property of another person.
-Proverbs 16:3
Atty S: In the Bar Exams, you are asked what is the coverage of Marine Insurance. You should one or two or
three classes of Marine Insurance.
Marine insurance may be in the form of:

o
Property Insurance, indemnifying the insured for loss or damage to property.
o
Liability Insurance, protecting the insured against loss or damage to property
personal injury or death of another person.
Marine risk note Not an insurance policy. Merely an acknowledgement or declaration of the
insurer confirming the specific shipment covered by a marine open policy.
Presumption that goods are shipped under deck
Perils of the sea
GR: If goods are shipped on deck, they are not covered by the policy
EXC: There is a specified notice of the stowage and he accepts the enhanced risk.
o
Rationale: Presumption is that the deck of a vessel is not designed to carry goods.
Transportation insurance concerned with the perils of property in transit, as opposed to

perils at a general fixed location.
Perils of the sea/perils of navigation those casualties due to the unusual violence or
extraordinary action of wind and wave, or other extraordinary causes connected with
navigation.
Perils of the sea, include only such losses which are extraordinary in nature, which cannot be
guarded against by the ordinary exertion of human skill or prudence, as distinguished from
ordinary wear and tear of the voyage and from injuries suffered by the vessel as consequence of
not being seaworthy (perils of the ship).
Perils of the Ship loss which results from a) the natural and inevitable action of the sea, b) the
ordinary wear and tear of the ship, or c) the negligent failure of the ships owner to provide
proper equipment to convey cargo under ordinary conditions.
o
Jettison/Jettisoning intentional casting overboard, of any part of a venture

exposed to a peril, in the hope of saving the rest of the venture. covered under perils
of the sea
Barratry any willful misconduct on the part of the master or crew, in pursuance of
an unlawful or fraudulent purpose, without consent of the owner and to the prejudice
of the owners interest. still covered under perils of the sea
TEMPEST not a peril of the sea.
Divisions of Marine Insurance

1.
2.
Ocean Marine Insurance Insurance against risk connected with navigation, to which a ship,
cargo, freightage, profits or other insurable interest in movable property.
Inland Marine Insurance covers primarily the land or over the land transportation perils of
property, rivers, lakes and other waterborne perils outside those falling within the ocean
marine category.
Scope of Marine Insurance (L.E.G.S.)

1.
2.
3.
4.
Liability incurred by the owner or any party interested in or responsible

Earnings
Goods or cargoes
Ships or hulls
Perils of the sea must be the proximate cause of the loss
The insurer is liable only for such losses or damages proximately caused by the perils insured
against. Ex:
o
A vessel insured which was caught by a storm was shipwrecked and it reached a
barbaric island, and the barbaric people caused fire on the ship. However the policy
provides that fire is an excepted peril.
INSURANCE
Page 17
-Proverbs 16:3
Ans: The proximate cause of loss is the act of piracy. However, the insurer is still liable
even it was an excepted peril. Because, it was not able to deliver itself out of the original
peril of shipwreck.
b.
In case of Cargo the insurable interest is in the shipper or consignee.

i. FOB factory the buyer has the obligation to insure from the time the
goods leave the factory.
ii. FOB point of destination the buyer does not assume responsibility until
goods are received from the carrier. (Seller has the obligation to insure)
iii. CIF (Cost Insurance Freight) The seller assumes complete
responsibility.
iv. C & F (Cost and Freight) The buyer procures his own insurance.
c.
In case of a buyer/consignee of goods the buyer can insure cargo. Because there
is already a perfected contract of sale, even without delivery, it vests in the vendee an
equitable title or an existing interest over the goods sufficient to be the subject of
insurance.
All risk marine insurance
All risk marine insurance, insures against all causes of loss or damage, except as otherwise
excluded in the policy or due to fraud or intentional misconduct of the insured.
Perils of the ship is included in the all risk policy. Since it covers all losses during the voyage
whether marine peril or not.
Classes of Inland Marine Insurance
To be eligible for inland marine insurance, the risk must involve an element of transportation.
1.
2.
Property in transit
Bailee liability persons who have temporary custody of goods. (carriers, laundrymen,
warehousemen, etc)
Fixed Transportation property - eligible for insurance because they are essential part of the
marine transportation system.
Floater the property is insured wherever it may be located.
3.
4.
Section 103. The insurable interest of the owner of the ship hypothecated by bottomry is only the
excess of its value over the amount secured by bottomry
Loan on Bottomry is one which is payable only if the vessel, given as security for the loan,
completes in safety, the contemplated voyage.
Respondentia loan - one which is payable only if the cargo, given as security for the loan,
completes in safety, the contemplated voyage.
o
Ex: X is the owner of a vessel valued at 2,000,000. He borrows from Y by way of loan
on bottomry for 800,000. X can insure the vessel for 1,200,000. On the otherhand, Y
can also insure the same for 800,000.
SUB-TITLE 1-B
INSURABLE INTEREST
Section 102. The owner of a ship has in all cases an insurable interest in it, even when it has been
chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the
insurer shall be liable for only that part of the loss which the insured cannot recover from the
charterer
Insurable interest of insured in marine insurance
GR: Marine insurance is invalid, unless there is an insurable interest in the thing insured.
o
There can be no valid insurance unless there is something to insure.
EXC: In an insurance taken upon a ship or cargo lost or not lost, the insurer expressly agrees
that he will be bound in any event, even though the vessel was already lost.
o
There can be a valid insurance even though there is nothing to insure when contract
was made.
Section 104. Freightage, in the sense of a policy of marine insurance, signifies all the benefits
derived by the owner, either from the chartering of the ship or its employment for the carriage of
his own goods or those of others.
Section 105. The owner of a ship has an insurable interest in expected freightage which according
to the ordinary and probable course of things he would have earned but for the intervention of a
peril insured against or other peril incident to the voyage.
Freight the benefit which is to accrue to the owner of the vessel, from its use in the
contemplated or the benefits derived from the employment of the ship.
a.
Chartering the ship
b. Carriage of his own goods
c.
Carriage of the goods of others
Passage money It is customarily payable in advance. Here only the passenger can insure his
advances. However the ship owner cannot insure, unless it is payable only upon completion of
the voyage.
Expected freight is insurable, while passage money is not insurable because it is paid in
advance.
o
However if freight is payable in any event or the freight is already paid, the ship
owner has no insurable interest in such freight, because it is no longer expected.
Insurable interest of owner of the ship
The owner of the ship has an insurable interest on the vessel to the extent of its value.
Ex:
X is the owner of the ship valued at 10,000,000. He charters it to Y who agrees to pay its value in
case of loss. He insures the vessel. In case he recovers only from Y to the amount of 4,000,000.
He can recover 6,000,000 from the insurer.
Insurable interest and sale contracts

a.
In case of the vessel- insurable interest Is possesed by the owner, mortgagor or

lessee.
To give the insurer an insurable interest in the expected freightage, he must have an
inchoate right to the freight, that nothing could prevent him from ultimately having a
right to it, but the intervention of perils insured against.
INSURANCE
Page 18
Section 106. The interest mentioned in the last section exists, in case of a charter party, when the
ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it
exists when they are actually on board, or there is some contract for putting them on board, and
both ship and goods are ready for the specified voyage.
One having a reasonable expectation of profits from a marine adventure, may take out
insurance to protect such profits.
EX: Owner of a cargo to be carried on a trading voyage, has an insurable interest in the cargo
and from the expected profit from the sale of the cargo.
Section 108. The charterer of a ship has an insurable interest in it, to the extent that he is liable to
be damnified by its loss.
Charter party a contract by which an entire ship or a principal part thereof, is lent by the
owner to another person, for a specified time or use.
a.
Bareboat / Demise charter The ship owner turns over full possession and control of his
vessel to the charterer. The charterer becomes, the owner for the voyage or the service
stipulated, and subject to liability for damages caused by negligence. The ship master or
the crew become agents of the charterer. In this case the charterer/owner pro hac vice, is
held liable for expenses of the voyage, including wages of seamen.
b.
Contract of Affreightment the owner of the vessel, leases part or all of its space to haul
goods for others. The Shipowner retains possession, command and navigation of the ship.
The charterer is free from liability of to third persons in respect to the ship.
a.
Voyage Charter contract of carriage of goods from one ports of loading to one
or more ports of unloading.
b.
Time Charter contract for use of the vessel for a specified period of time or
for the duration of one or more specified voyages.
09-29-2014
Owner pro hac vice
In a demise or bareboat charter, the charterer is treated as owner pro hac vice - owner for the
time being or for that particular instance.
Concealment in Marine Insurance
Concealment in marine insurance is the failure to disclose any material fact or circumstance
which in fact or law is within or which ought to be within the knowledge of one party and of
which the other has no actual or presumptive knowledge.
Rules as to misrepresentations and concealments are more strict
Possession of a material fact
This is due to the difference in the character of the property, and the greater facility the insurer
possesses in obtaining information as to its conditions and surrounding circumstances in cases
of insurance on buildings than on vessel.
Under Section 107, to constitute concealment, it is sufficient that the insured is in possession of
a material fact concealed although he may not be aware of it.
Example:
Thus, if an agent failed to notify his principal of the loss of a cargo and the latter, after the loss
but ignorant thereof, secured insurance lost or not on the venture, such insurance will be void
on the group of concealment.
Seeking ship a vessel looking for cargo to be transported, the ship owner has no insurable
interest in the freight to be earned on goods not loaded.
Section 107. One who has an interest in the thing from which profits are expected to proceed has an
insurable interest in the profits.
-Proverbs 16:3
Opinions or expectations of third persons
Insurance in general - a party to a contract of insurance need not communicate information of

his own judgment to the insurer much less what he learns from a third person.
In marine insurance - however the rule is quite strict because the insured in bound to
communicate to the insurer not only facts but also:
1) beliefs or opinions of third persons, or
2) expectations of third persons.
The only requirement is that the information be in reference to a material fact. Thus, there is
concealment where the insured at the time of application for insurance did not disclose the
opinion of marine experts who inspected the vessel insured that the ship was unseaworthy.
SEC. 111. A person insured by a contract of marine insurance is presumed to have knowledge, at
the time of insuring, of a prior loss, if the information might possibly have reached him in the usual
mode of transmission and at the usual rate of communication.
Reason for the the presumptionis the quickness in the transmission of news by means of
modern communication.
When not applicable. The insured is not bound, to use all accessible means of information at
the very last instant of time to ascertain the condition of the property insured.
Effect of concealment
SEC. 112. A concealment in a marine insurance, in respect to any of the following matters, does not
vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk
concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents; and
(e) The use of false and simulated papers.
As a rule, the concealment of a material fact entitles the injured party to rescind the entire
contract of insurance. However, concealment of matters indicated from paragraphs (a) to (e)
does not avoid the policy ab initio.
If the vessel be lost due to any of the causes mentioned which was conceal, the insurer is not
liable; but if the vessel be lost due to other perils of the sea, like storm, the insurer is not
exonerated.
INSURANCE
Page 19
-Proverbs 16:3
Representation in marine insurance
2.
SEC. 113. If a representation by a person insured by a contract of marine insurance, is intentionally

false in any material respect, or in respect of any fact on which the character and nature of the risk
depends, the insurer may rescind the entire contract.
In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be
seaworthy at the commencement of each particular voyage
3.
In the case of a voyage policy contemplating a voyage in different stages, the ship must be
seaworthy at the commencement of each portion
SEC. 114. The eventual falsity of a representation as to expectation does not, in the absence of
fraud, avoid a contract of marine insurance.
A substantial misrepresentation of any material fact or circumstance relating to marine

insurance avoids the policy.
The general rule that a representation is material where it would influence the judgment of a
prudent insurer in fixing the premium or in determining whether he would take the risk, is
applicable to marine insurance.
Effects of false representation
Intentional - any misrepresentation of a material fact made with fraudulent intent avoids the
policy
Not intentional - if not intentional or fraudulent but the the fact misrepresented is material to
the risk, the insurer may also rescind the contract from the time the representation becomes
false.
Applicability(of warranty of seaworthiness) to a cargo owner

It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its
vessels in seaworthy conditions. The shipper may have no control over the vessel but he has
control in the choice of the common carrier that will transport his goods (Roque v. IAC, 139
SCRA 596)
Scope of seaworthiness
SEC. 118. A warranty of seaworthiness extends not only to the condition of the structure of the ship
itself, but requires that it be properly laden, and provided with a competent master, a sufficient
number of competent officers and seamen, and the requisite appurtenances and equipment, such
as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary
or proper stores and implements for the voyage.
Warranty-In marine insurance, a warranty has been defined as a stipulation, express or implied,
forming part of the policy as to some fact, condition, or circumstance relating to the risk.
Implied warranty - In every insurance upon marine venture whether of vessel, cargo, or freight,
there are conditions upon the underwriters liability for the risks assumed.
The insurer will not be liable for any loss under the policy in case the vessel:
1.
2.
3.
4.
is unseaworthy at inception of insurance

deviates from agreed voyage
engages in illegal venture
does not carry requisite documents of nationality
Seaworthiness is a relative term depending upon the nature of the ship, voyage, service and
goods, denoting in general a ships fitness to perform the service and to encounter the ordinary
perils of the voyage, contemplated by the parties to the policy,
Transhipment when a cargo is unloaded from another ship and then loaded to another ship
Seaworthiness requires that the vessel must have equipment and appliances appropriate to the
voyage in which it is engaged and the cargo it carries; it must have sufficient fuel, stores and
provisions to last the entire voyage; sufficient number of competent officers and men;
And if the insurance is on cargo, the same must be properly loaded, stowed, dunnaged and
secured so as not to imperil the navigation of the vessel or to cause injury to the vessel or cargo.
Seaworthiness during voyage in stages

SEC. 119. Where different portions of the voyage contemplated by a policy differ in respect to the
things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with
if, at the commencement of each portion, the ship is seaworthy with reference to that portion.
Where the policy contemplates a voyage in different stages during the the subject matter insured
will be exposed to different degrees or kinds of perils, or the ship will required different kinds of
equipment, she must be seaworthy at the commencement of each stage, but it is sufficient that she
be seaworthy for the purpose of that stage.
What if it becomes seaworthy during the voyage?
When seaworthiness complied with.

(General Rule) At Commencement of risk
The warranty of seaworthiness is complied with if theship be seaworthy at the time of the
commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the
warranty nor is it material that the vessel arrives in safety at the end of her voyage.
Exceptions:
1.
In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she
may undertake
SEC. 120. When the ship becomes unseaworthy during the voyage to which an insurance relates, an
unreasonable delay in repairing the defect exonerates the insurer on ship or shipowners interest
from liability from any loss arising therefrom.
It is the duty of the master as the agent of the shipowner, to exercise due diligence to make it
seaworthy again.
INSURANCE
Page 20
-Proverbs 16:3
Express warranty as to nationality of neutrality
SEC. 122. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to show such nationality or neutrality and that it
will not carry any documents which cast reasonable suspicion thereon.
Actual total loss exists when the subject matter of the insurance is wholly destroyed or lost,
or when it is so damaged as no longer to exist in its original character.
Complete physical destruction is not essential to constitute actual total loss
A warranty of national character - A warranty of nationality does not mean that the vessel was
built in such country, but that the property belongs to a subject thereof.
A warranty of neutrality imports that the property insured is neutral in fact.
Limited Liability Rule

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons, which may arise from the conduct of the captain in the care of the goods which
he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel
with all her equipment and the freight it may have earned during the voyage.
Implied warranty to carry requisite documents

That warranty of nationality requires that the vessel be conducted and documented as of such
nation
The warranty of neutrality requires that the insured property shall be accompanied by
documentary evidence of its neutral character.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
interest in the common fund for the results of the acts of the ship captain referred to in
Article 587.
Deviation-A departure from the course of the voyage insured, or an unreasonable delay in
pursuing the voyage or the commencement of an entirely different voyage
Instances:
o
Departure of vessel from thecourse of the sailing fixed bymercantile usage
o
Departure of vessel from the most natural, direct and advantageous route if not fixed
by mercantile usage
o
Unreasonable delay in pursuing voyage
o
Commencement of an entirely different voyage
Each co-owner may exempt himself from this liability by the abandonment,
before a notary of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section,
shall be understood as limited to the value of the vessel with all its appurtenances and
freightage served during the voyage.
Kinds of Deviation
Proper:
1. When caused by circumstances outside the control of the ship captain or ship owner;
2. When necessary to comply with a warranty or to avoid a peril;
3. When made in good faith to avoid a peril;
4. When made in good faith to save human life or to relieve another vessel in distress (Sec. 126)
The insurer is not exonerated from liability for loss happening after proper deviation. The effect is
as is there was no deviation.
Section 133. A constructive total loss is one which gives to a person insured a right to abandon,
under Section 141.
-
SEC. 127. Every deviation not specified in the last section is improper.
10-04-2014
SUB-TITLE 1-G
LOSS
Section 129. A loss may be either total or partial.
Section 130. Every loss which is not total is partial.
Section 131. A total loss may be either actual or constructive.
Constructive total loss (technical total loss) is one which the loss, although not actually total, is of
such character that the insured is entitled, if he thinks fit, to treat as total by abandonment.
Importance:
In case of actual total loss, abandonment is not necessary
If the loss is merely constructively total, an abandonment is necessary to recover for a

total loss.
Section 134. An actual loss may be presumed from the continued absence of a ship without being
heard of. The length of time which is sufficient to raise this presumption depends on the
circumstances of the case.
Presumption of actual total loss
Where vessel is not heard of at all within a reasonable time after sailing or after it was last seen,
it will be presumed to have been lost from a peril insured against.
INSURANCE
Page 21
Section 135. When a ship is prevented, at an intermediate port, from completing the voyage, by the
perils insured against, the liability of a marine insurer on the cargo continues after they are thus
reshipped.
Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard
be increased by this extension of liability.
Liability of insurer in case of reshipment
If the ship is disabled, and the master acting with wise discretion as the agent of the merchant
forwards the cargo to another ship, such will not discharge the insurer of the goods from
liability for any loss on the goods subsequent to such reshipment.
Section 136. In addition to the liability mentioned in the last section, a marine insurer is bound for
damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses
incurred in saving cargo reshipped pursuant to the last section, up to the amount insured.
Nothing in this or in the preceding section shall render a marine insurer liable for any amount in
excess of the insured value or, if there be none, of the insurable value.
-Proverbs 16:3
Requisites:
1.
2.
3.
4.
5.
6.
7.
There must be a common danger to the vessel or the cargo

The part of the vessel or cargo was sacrificed deliberately
The sacrifice must be for the common safety or for the benefit of all
It must be made by the master or upon his authority
It must not be caused by any fault of the party asking the contribution
It must be succesful
It must be necessary
Jettison the intentional act of casting overboard any part of a venture exposed to a peril in the
hope of saving the rest of the venture.
Ex: On board a tiny boat with a capacity of 4 persons, is borbie, joan, bop2x and TJ. Due to the
strong waves and the boat being overloaded, the boat is slowly being filled with seawater. So TJ
should be jettisoned to save the other 3 lives. Ing-ana ra na concept. #bored
Liability of insurer for general average
Amount of insurance
Total amount or value
General Average
Loss (GAL)
Proportion of GAL for

w/c insurer is liable
Caveat: walay computation sa exam. If interested see page 377.

Section 137. Upon an actual total loss, a person insured is entitled to payment without notice of
abandonment.
Right of insured to payment upon actual total loss
In constructive total loss, an abandonment by the insured is necessary in order to recover for a
total loss.
In actual total loss, the right of the insured to the whole insurance is absolute, no need to give
notice of abandonment or formally abandon the remains of the insured property.
Section 138. Where it has been agreed that an insurance upon a particular thing, or class of things,
shall be free from particular average, a marine insurer is not liable for any particular average loss
not depriving the insured of the possession, at the port of destination, of the whole of such thing, or
class of things, even though it becomes entirely worthless; but such insurer is liable for his
proportion of all general average loss assessed upon the thing insured.
Section 139. An insurance confined in terms to an actual loss does not cover a constructive total
loss, but covers any loss, which necessarily results in depriving the insured of the possession, at the
port of destination, of the entire thing insured
SUB-TITLE 1-H
"ABANDONMENT
Section 140. Abandonment, in marine insurance, is the act of the insured by which, after a
constructive total loss, he declares the relinquishment to the insurer of his interest in the thing
insured.
Average any extraordinary or accidental expense incurred during the voyage for the
preservation of the cargo, vessel or both and all damages to the vessel and cargo from the time it
is loaded and the voyage commenced until it ends and the cargo is unloaded.
Kinds of average:
1.
Gross or general average damages and expenses which are deliberately caused by the
master or upon his authority, in order to save the vessel from a known risk.
2.
Simple or particular average all damages and expenses caused to the vessel or her cargo
which have not inured to the common benefit and profit of all persons interested in the vessel
and her cargo.
DIFFERENCE: General average, interest saved are compelled to contribute ratably or
proportionately based on the value of the said interest to the owner of interest sacrificed.
Abandonment also defined as, act of the insured notifying the insurer that owing to damage
done to the subject of insurance, he elects to take the amount of the insurance in the place of the
subject thereof, the remnant of which he concedes to the insurer.
Requisites of valid abandonment

1.
2.
3.
4.
5.
6.
7.
There must be actual relinquishment

There must be a constructive total loss
The abandonment must be neither partial nor conditional (absolute)
It must be made within a reasonable time after receipt of reliable information
It must be factual
It must be made by giving notice of thereof, to the insurer which may be orally or in writing
Notice must be explicit and shall specify the particular cause of abandonment
INSURANCE
Page 22
Necessity for abandonment
There is no obligation upon the insured to abandon, it is a matter of his own election. If he does
not abandon, he recover his actual total loss.
However when the vessel is totally lost, abandonment is not required, as there is no vessel
to abandon.
-Proverbs 16:3
Section 144. Where the information upon which an abandonment has been made proves incorrect,
or the thing insured was so far restored when the abandonment was made that there was then in
fact no total loss, the abandonment becomes ineffectual.
Information need not be direct or positive
Section 141. A person insured by a contract of marine insurance may abandon the thing insured, or
any particular portion thereof separately valued by the policy, or otherwise separately insured,
and recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths () thereof in value is actually lost, or would have to be
expended to recover it from the peril;
It is sufficient that information is of such facts and circumstance as to render it highly probable
that a constructive total loss has occurred and facts sufficient to constitute a total loss exists.
Section 145. Abandonment is made by giving notice thereof to the insurer, which may be done
orally, or in writing: Provided, That if the notice be done orally, a written notice of such
abandonment shall be submitted within seven (7) days from such oral notice.
(b) If it is injured to such an extent as to reduce its value more than three-fourths ();
(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully
performed without incurring either an expense to the insured of more than three-fourths
() the value of the thing abandoned or a risk which a prudent man would not take
under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed,
nor another ship procured by the master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like expense or risk mentioned in
the preceding subparagraph. But freightage cannot in any case be abandoned unless the
ship is also abandoned.
RULE
English Rule
When can there be abandonment?

Subject matter, while still existent in specie, is so damaged as not to be worth.
American Rule
When it is so damaged that the cost of repairs would exceed of its value
fifty percent rule dili 50 Cent rule nagjoke si sir hahaha
Philippine Rule
When the loss or damage is more than of the value
If insurance is severable or divisible and separately insured, it can also be separately

abandoned.
GR: the extent of the injury to the vessel is to be considered with reference to its general market
value immediately preceding the disaster, even if the policy is valued,
EXC: if the valuation is expressly provided.
The notice may be made orally, unless the policy requires it to be in writing. If done orally,
insured must submit to the insurer within 7 days, a written notice of abandonment.
MADE BY WHOM
MADE TO WHOM
Insured or his authorized agent
Insurer or to a Broker who is an authorized agent for both parties
Section 145. Abandonment is made by giving notice thereof to the insurer, which may be done
orally, or in writing: Provided, That if the notice be done orally, a written notice of such
abandonment shall be submitted within seven (7) days from such oral notice.
Notice of abandonment must specify the particular cause It is sufficient that notice shows the
probable cause for the abandonment. It is not required to be accompanied with proof or interest of loss.
Section 147. An abandonment can be sustained only upon the cause specified in the notice thereof.
Section 148. An abandonment is equivalent to a transfer by the insured of his interest to the
insurer, with all the chances of recovery and indemnity.
Effect of Abandonment
-
Insurer becomes entitled to all the rights which the insured possessed in the thing insured.
The effect of abandonment retroacts to the time of loss
Section 142. An abandonment must be neither partial nor conditional.

Section 143. An abandonment must be made within a reasonable time after receipt of reliable
information of the loss, but where the information is of a doubtful character, the insured is entitled
to a reasonable time to make inquiry.
When insured has received notice of a loss, he must elect within a reasonable time whether he
will abandon to the insurer, and if he elects to abandon must give notice.
Reasonable time* depends on the circumstances of the case.
If the character of the loss is not made clearly to appear (information is doubtful in character),
insured is entitled to a sufficient interval to ascertain its real nature.
Section 149. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to
whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal
abandonment.
The acceptance by the insured of payment is deemed an offer of abandonment on his part, in case the
insurer pays for a loss as if it were an actual total loss.
Section 150. Upon an abandonment, acts done in good faith by those who were agents of the
insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer, and for
INSURANCE
Page 23
-Proverbs 16:3
his benefit.
o
o
Section 151. Where notice of abandonment is properly given, the rights of the insured are not
prejudiced by the fact that the insurer refuses to accept the abandonment
Section 152. The acceptance of an abandonment may be either express or implied from the conduct
of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall
be construed as an acceptance.
X owns a vessel valued at 1,000,000 he insured it for 600,000. Damaged up to 400,000. Up to

how much is the liability of the insurer?
Solution: [Partial Loss/Value of the Thing insured] x Amount of Insurance
[400,000/1,000,000]x600,000 = 240,000
Rationale! Why cant the insured collect the whole 400,000? Under Marine insurance, there is
this concept of co-insurance, where the insured is obliged to look for an insurer for the whole
amount of the value. Otherwise, he will be considered as a co-insurer as to the difference.
Therefore the insured is liable up to 40% of the damage, while insurer is liable to the other 60%.
Section 153. The acceptance of an abandonment, whether express or implied, is conclusive upon
the parties, and admits the loss and the sufficiency of the abandonment.
Section 154. An abandonment once made and accepted is irrevocable, unless the ground upon
which it was made proves to be unfounded.
Take Note: The Co-insurer clause will only apply if there is partial loss, and not in case where
it is totally lost.
Effects of Acceptance of a valid abandonment

Insurer becomes liable for the whole amount of the insurance, and becomes entitled to all
rights which insured possessed in the thing insured.
REJECT/
Insurer is liable for actual total loss, less any proceeds the insured may have received on
account of the damage property if he succeeds in selling the property. Art. 156
REFUSES
Section 160. Where profits are separately insured in a contract of marine insurance, the insured is
entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which
the value of the property lost bears to the value of the whole.
X insures his expected profits in the amount of 500,000. The cargo is 1,000,000. However the
cargo upon examination, the portion of it was lost, and the value of it was only 500,000. How
much is liability of the insurer? Solution: [500,000/1,000,000]x500,000 = 250,000
Atty S: Supposing class the vessel is partially damaged, and the damage caused is of the value . But if after it
was examined, it was determined that the damage was only for 50% of its value. It was abandoned and there
was already acceptance. In this case, the insurer may REVOKE THE ABANDONMENT.
Section 155. On an accepted abandonment of a ship, freightage earned previous to the loss belongs
to the insurer of said freightage; but freightage subsequently earned belongs to the insurer of the
ship.
Section 156. If an insurer refuses to accept a valid abandonment, he is liable as upon an actual total
loss, deducting from the amount any proceeds of the thing insured which may have come to the
hands of the insured.
Section 157. If a person insured omits to abandon, he may nevertheless recover his actual loss.
Section 161. In case of a valued policy of marine insurance on freightage or cargo, if a part only of
the subject is exposed to risk, the valuation applies only in proportion to such part.
Effect where only a part of cargo insured is exposed to risk
The insured cannot claim the entire value of the insurance. He cannot claim for that portion
which is not exposed to risk.
The insurer is also liable to return a portion of the premium paid by the insured which cannot
be insured, because of the thing insured is not subjected to a risk of loss (element of insurance)
He cannot be compelled to abandon even if abandonment is proper.

MEASURE OF INDEMNITY
Section 158. A valuation in a policy of marine insurance is conclusive between the parties thereto
in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there
is no fraud on his part; except that when a thing has been hypothecated by bottomry or
respondentia, before its insurance, and without the knowledge of the person actually procuring the
insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to
rescind the contract.
If there is fraud in the valuation of the policy, the insurer may be entitled to rescind the
contract.
Section 159. A marine insurer is liable upon a partial loss, only for such proportion of the amount
insured by him as the loss bears to the value of the whole interest of the insured in the property
insured.
Acceptance is not necessary if the abandonment is properly made. The insureds right to
abandon is absolute. It may be:
o
Express Acceptance
o
Implied Acceptance, the act of the insurer in consequence of an abandonment which
can be justified under a right derived by abandonment.
ACCEPT
Valued the value of the property is fixed in advance.

Open the value of the property is determined at the time of loss.
A policy of insurance may be VALUED or OPEN
Section 163. In estimating a loss under an open policy of marine insurance the following rules are
to be observed:
(a) The value of a ship is its value at the beginning of the risk, including all articles or
charges which add to its permanent value or which are necessary to prepare it for the
voyage insured;
(b) The value of the cargo is its actual cost to the insured, when laden on board, or where
the cost cannot be ascertained, its market value at the time and place of lading, adding
the charges incurred in purchasing and placing it on board, but without reference to any
loss incurred in raising money for its purchase, or to any drawback on its exportation, or
INSURANCE
Page 24
to the fluctuation of the market at the port of destination, or to expenses incurred on the
way or on arrival;
(c) The value of freightage is the gross freightage, exclusive of primage, without reference
to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the value thus estimated.
Rules in estimating losses under an open policy of marine insurance
In determining the value of the vessel, the value is to be taken as of the commencement of the
risk and not its value at the time it was built.
In determining the value of the cargo, the value of the cargo is its actual cost to the insured or if
that cannot be ascertained, the market value at the time and place of shipment.
-Proverbs 16:3
Section 167. When a person insured by a contract of marine insurance has a demand against others
for contribution, he may claim the whole loss from the insurer, subrogating him to his own right to
contribution. But no such claim can be made upon the insurer after the separation of the interests
liable to contribution, nor when the insured, having the right and opportunity to enforce
contribution from others, has neglected or waived the exercise of that right.
Section 168. In the case of a partial loss of ship or its equipment, the old materials are to be applied
towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable
for only two-thirds (2/3) of the remaining cost of repairs after such deduction, except that anchors
must be paid in full.
The vessel owned by A incurred a partial loss, particularly in its equipment, the cost of repair is
1,000,000. A the owner of the vessel would like to claim the amount of said repair to the insurer.
How much can he recover from the insurer?
Atty S: If there is a partial loss, you can recover everything. So if you own a vessel the value is 1
million and insured it for 1 million. You suffered losses for 400,000. You will get 400,000. However
in this case, worth 1,000,000. That vessel suffered partial loss amounting 400,000, and because the
cost of repair is 400,000. When you go to the insurer, instead of paying you the full 400,000, the
Insurer will only pay you 2/3 of the 400,000.
Rationale is, it makes the vessel more valuable than before the loss.
Primage small compensation paid by shipper to the master of the vessel for his care and trouble
bestowed on the shippers goods and which the master is entitled.
Demurrage compensation provided for in the contract of affreightment for the detention of the vessel
beyond the time agreed on for loading or unloading or for sailing.
Section 164. If cargo insured against partial loss arrives at the port of destination in a damaged
condition, the loss of the insured is deemed to be the same proportion of the value which the
market price at that port, of the thing so damaged, bears to the market price it would have brought
if sound.
X owns fresh fruits valued at 1,000,000, he insured it for 500,000. He loaded it to a particular
vessel. In the port of destination it was discovered that the fruits were damaged, and the Market
Value is only 500,000. How much if any can recover?
=(Reduction in value / Market price in Sound State) x Amount of Insurance
=(500,000 / 1,000,000) x 500,000
=250,000
TITLE 2
FIRE INSURANCE
Section 169. As used in this Code, the term fire insurance shall include insurance against loss by
fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate policies.
Fire Insurance Defined
Fire insurance is a contract of indemnity by which the insurer, for a stipulated premium, agrees
to indemnify the insured against loss, damage to, a property caused by hostile fire.
Fire is oxidation which is so rapid as to produce either a flame or glow, which is caused by
combustion.
Fire and extended coverage

Port of Refuge expenses expenses incurred in repairing damages suffered by the vessel because of
perils insured against, as well as those incurred for saving the vessel from perils (raising or launching or
towing the vessel or navigating it to port of safety).
Fire insurance includes not only insurance against loss by fire, but also insurance in the socalled Allied lines, where some risk are covered by extension to fire insurance policies.
In our Jurisprudence, fire may not be considered natural calamity or disaster since it almost arises
from some act of man. It cannot be an act of God, UNLESS caused by lightning or a natural disaster.
Section 165. A marine insurer is liable for all the expenses attendant upon a loss which forces the
ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor for
the recovery of the property, the insurer is liable for the expense incurred thereby, such expense,
in either case, being in addition to a total loss, if that afterwards occurs.
Difference between Ocean Marine and Fire Policies
Section 166. A marine insurer is liable for a loss falling upon the insured, through a contribution in
respect to the thing insured, required to be made by him towards a general average loss called for
by a peril insured against: Provided, That the liability of the insurer shall be limited to the
proportion of contribution attaching to his policy value where this is less than the contributing
value of the thing insured.
Importance of the distinction
Ocean Marine Policies

A policy of insurance on a vessel engaged in
navigation
Ocean Marine Policies
Fire insurance Policies

The hazard is fire alone and the subject is an
unfinished vessel, never afloat for voyage.
Fire insurance Policies
Rules in constructive total loss and abandonment

applies.
Constructive total loss and abandonment does not

apply.
Concept of co-insurance applies
Concept of co-insurance does not apply
INSURANCE
Page 25
Kinds of Indirect losses

1. Physical damage caused to other property
-Proverbs 16:3
Measure of Indemnity under an Open Fire policy
2. Loss of Earnings to interruption of business by damage to insureds property.

3. Extra expense or additional expenditure.
Section 170. An alteration in the use or condition of a thing insured from that to which it is limited
by the policy made without the consent of the insurer, by means within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Measure of Indemnity under a Valued Policy
Section 171. An alteration in the use or condition of a thing insured from that to which it is limited
by the policy, which does not increase the risk, does not affect a contract of fire insurance.
When alteration in thing insured entitles insured to rescind
Requisites:
1.
2.
3.
4.
5.
The use or condition of the thing is specifically limited or segregated

Such use or condition as limited by the policy is altered.
Alteration is made without the consent of the insurer
The alteration is made by means within the control of the insured
The alteration increases the risk
Increase of Risk or Hazard

There is an insurance contract, there is no provision against increase of risk in the said policy.
You are the owner of the house, you bring Gasoline or kerosene and store it inside the house, did
it increase the risk?
Yes. An increase of hazard takes place whenever the insured property is put to some use, and
the new use increases the chance of loss.
Section 172. A contract of fire insurance is not affected by any act of the insured subsequent to the
execution of the policy, which does not violate its provisions, even though it increases the risk and
is the cause of the loss.
Q: Supposing an article which increases the risk, is brought inside the building, what is the effect?
Atty S: If an article which increases the risk is brought inside the building, you have to determine first
whether Sec. 77 applies. If it is stipulated that you are not supposed to bring these materials, even if it
will not increase the risk, it has to be followed. Suppose you are not supposed to bring in marshmallows
it is stipulated in the policy itself, whether or not it will increase the risk, the insurer may deny
payment.
Supposing you are not prohibited in the policy, you apply Sec. 171, is that if it will increase the risk,
the insurer will not be considered liable. However there are exceptions.
These are:
If it is necessary to the business

ex: To store a limited amount of gasoline
If it will render the property useless without such alteration.
The insured is only entitled to recover the amount of loss sustained, and the burden is upon
him to establish amount by mere preponderance of evidence.
o
Liability of insurer will not exceed what it would cost the insured to repair or
replace the thing insured with the like kind and quality, with proper deduction for
depreciation considering the age and condition before loss.
Market value which may be readily determined can be applied to determine amount of loss
sustained.
The valuation is conclusive between the parties, unless there was fraud. Liability cannot exceed
the amount of insurance or actual loss suffered.
X owns a building worth 1 million and insured it for 1million, the policy is an open policy. At the time
of loss, the value of the house is worth 3 million. Supposing only 2/3 of the house is destroyed, how
much can he recover? X can only recover 1 million See topic under Open and Valued policy
Section 174. Whenever the insured desires to have a valuation named in his policy, insuring any
building or structure against fire, he may require such building or structure to be examined by an
independent appraiser and the value of the insureds interest therein may then be fixed as between
the insurer and the insured. The cost of such examination shall be paid for by the insured. A clause
shall be inserted in such policy stating substantially that the value of the insureds interest in such
building or structure has been thus fixed. In the absence of any change increasing the risk without
the consent of the insurer or of fraud on the part of the insured, then in case of a total loss under
such policy, the whole amount so insured upon the insureds interest in such building or structure,
as stated in the policy upon which the insurers have received a premium, shall be paid, and in case
of a partial loss the full amount of the partial loss shall be so paid, and in case there are two (2) or
more policies covering the insureds interest therein, each policy shall contribute pro rata to the
payment of such whole or partial loss. But in no case shall the insurer be required to pay more than
the amount thus stated in such policy. This section shall not prevent the parties from stipulating in
such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or
partially damaged or destroyed.
Co-insurance clause a clause requiring the insured to maintain an insurance to an amount

equal to the value or specified percentage of value of the insured property under penalty of
becoming a co-insurer to the extent of the deficiency.
Option to rebuild clause Insurer is given the option to reinstate or replace the property
damaged or destroyed, or any part thereof, instead of paying the amount of the loss or damage.
Section 175. No policy of fire insurance shall be pledged, hypothecated, or transferred to any
person, firm or company who acts as agent for or otherwise represents the issuing company, and
any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as
it may affect other creditors of the insured.
GR: After the loss has occurred, the insured may pledge or transfer a fire insurance policy or
rights thereunder. Consent of or notice to, the insurer is not required.
EXC: Insured cannot transfer a policy of fire insurance to any person or company who acts as
agent of the insurer. (It might defraud creditors of the insured)
EFFECT: VOID

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INSURANCE

RED Codal Provisions

THE POLICY 08-23-2014

If the insured pays the premium, his application will be considered as an

Life and health insurance agents, do not have authority to bind

A: There are two views:

Effect of Failure of the insured to read the policy

KINDS OF INSURABLE RISK

Risk, the chance of loss, or the possibility of the occurrence of a loss.

REQUIREMENT OF RISK TO BE INSURABLE not all risks are insurable

Importance, must be important enough to warrant existence of a contract.

Insurable interest in property of a partnership exists in both partnership and partners.

SEC. 59. A policy is either open, valued or running.

Form and sufficiency of notice of cancellation by insurer

Prior notice of cancellation to the insured

Express warranties, an agreement contained in the policy or clearly incorporated, which

Warranties are presumed affirmative.

warranty that relates to the past

Section 69. No particular form of words is necessary to create a warranty.

Warranties are presumed material, while insurer must show materiality of a

Before a representation will be considered a warranty, it must be expressly included or

Insurer barred by waiver or estoppel

Waiver, an intentional relinquishment of a known right.

Estoppel vs. Waiver:

Condition, is an event in which either an occurrence or non-occurrence thereof, alters the

Difference between Conditions and Warranties:

Condition is a limitation to the attachment of risk, while Warranty does

Exceptions distinguished from warranties and conditions

Effects of breach on legal relations of parties

Assesment, a sum specifically levied by mutual insurance companies or associations, upon a

Binding force of contract

On liability where there is waiver

Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462

UCPB vs. MASAGANA

Malayan Insurance Co. (MICO) vs Arnaldo

In case of a life or industrial policy where grace period provision applies

Section 79. An acknowledgment in a policy or contract of insurance or the receipt of premium is

Contract is voidable and is subsequently annulled because of fraud or misrepresentation

Effect of acknowledgement of receipt of premium in policy:

Effect of acceptance of premium

Section 80. A person insured is entitled to a return of premium, as follows:

Rescission is granted due to the insurers breach of contract.

Where insurance is illegal

Basis of right to recover premiums

Liability of insurer for loss

Loss is satisfied by:

Effect of agreement not to transfer claim of insured AFTER a loss.

Hinders free transmission of property

Loss caused by negligence of the insured

Give insurer extent of his liability

Afford him means of detecting any fraud

To operate as a check, upon extravagant claims.

Double insurance is synonymous with other insurance.

A policy which contains no stipulation against additional insurance, is not invalidated by

WAIVER OF DELAY OF PRESENTATION OF NOTICE OR PROOF OF LOSS:

Rules for payment of claims where there is over-insurance by double insurance

Retrocession, the reinsurer insures the risk covered in an insurance.

Insurer becomes the insured

Insurer remains to be the insured

Reinsurance Treaty, an agreement between 2 insurance companies, whereby one agrees to

Marine insurance may be in the form of:

Presumption that goods are shipped under deck

Perils of the sea

Transportation insurance concerned with the perils of property in transit, as opposed to