1. Define Motor Car Insurance.

It is a contract whereby one (1) party promises for a consideration to indemnify the other for direct loss or
damage of the insured vehicle and to pay any claim for death of or bodily injury to and property damage of
any Third Party caused by or arising from the ownership or operation of the vehicle.

In summary, the motor car insurance shall cover the following:

a. Death or bodily injury or death of a third party.

b. Property damage to third parties and

c. Loss of or Damage to the insured vehicle.

2. What are the kinds of motor car insurance policies?

There are five (5) kinds of motor car insurance policies?

a. Private Car

b. Commercial Vehicle

c. Motor Trade

d. Motor Cycle

e. Land Transportation Operators Policy

II. COVERAGES

3. What is a comprehensive motor car insurance policy?

A comprehensive motor car insurance policy is one in which all four (4) sections are availed of by the
insured. It shall cover death or bodily injury or death of a third party, property damage to third parties, and
damage to or theft of the insured vehicle.

4. What are the four (4) main sections of Standard Motor Car Insurance policy?

They are as follows:

a. Section 1 - Compulsory Third Liability Insurance (CTPL)

b. Section 2 - No Fault Indemnity Clause

c. Section 3 - Own Damage Cover

d. Section 4 - Excess Third Party Bodily Injury Cover

Other than the CTPL, the rest are optional covers. Availment of the rest of the sections is subject to the
payment of additional premium.

2.a. Compulsory Third Party Liability Insurance (CTPL)

5. What are the brief features of CTPL?

It is a compulsory insurance cover for death and/or bodily injury. It is a pre-requisite for the registration of
ones motor vehicle.

The overriding consideration in compelling motor vehicle owners or operators to have a third party liability
insurance is to assure victims or their dependents, especially when they are poor, immediate financial
assistance or indemnity, regardless of the financial capacity of the motor vehicle owners or operators
responsible for the accident.

The insurers liability is primary and accrues immediately upon the occurrence of the injury or event upon
which the liability depends, and does not depend on the recovery of judgment by the injured party against
the insured.

Notes:

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a. Per Insurance Commission Memorandum Circular 04-2006, the total sum insured for CTPL was
increased to Php 100,000.00 from Php 50,000.00. An additional Php 100,000.00 for passenger liability if the
motor vehicle is used as a public utility vehicle.

b. No cancellation of the CTPL shall be valid, unless the following are complied with:

i. Written notice thereof is given to the land transportation operator or owner of the vehicle and to the
Land Transportation Commission at least fifteen (15) days prior to the intended effective date
thereof.

ii. Upon receipt of such notice, the Land Transportation Commission, shall order the immediate
confiscation of the plates of the motor vehicle covered by such cancelled policy unless it receives
submits a new insurance or guaranty in cash or Surety bond, or an endorsement of revival of
the cancelled one.[1]

6. Will the CTPL respond. the vehicle involved is the accident is not owned by the insured?

It depends. If is it is a private car, the claim will be paid. Under the Private Car Motor Insurance Policy, the
policy shall indemnify the insured while "personally driving a private car not belonging to him and not hired
to him under a hire purchase agreement."

7. Define Authorized Drivers Clause.

An authorized driver is defined as:

a. The insured; or

b. Any person driving on the insureds order or with his permission.

Provided that the person driving is permitted, in accordance with the licensing law or other regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by
reason of any enactment or regulation in that behalf, provided that for Section I and II only of this Policy an
authorized driver shall include a duly licensed driver but whose license at the time of the accident had
expired.

In the past, the last paragraph was part of item b.

Now, it appears that whether the driver at the time of the accident is the insured himself or his authorized
driver, he must be in possession of a valid driver's license, otherwise, the claim will be denied IF the claim
will be lodged against Sections III and IV of the policy.

Claims under Section I and II, on the other hand, will not be defeated by the fact that the driver's license at
the time of the accident is already expired.

Here are some Supreme Court decisions based on the old format.

In Andrew Palermo vs. Pyramid Insurance Co., Inc. (G.R. No. L-36480 May 31, 1988), the authorized driver's
clause was applied in connection with a total loss claim, and it was worded in the following manner:

(a) The Insured.

(b) Any person driving on the Insured's order or with his permission. Provided that the person driving is
permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle and is not
d isqualified from driving such motor vehicle by order of a Court of law or by reason of any enactment or
regulation in that behalf.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a
license or with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a
bar to recovery under the insurance contract. It however renders him subject to the penal sanctions of the
Motor Vehicle Law.

The Supreme Court held that the requirement that the driver be "permitted in accordance with the licensing
or other laws or regulations to drive the Motor Vehicle and is not disqualified from driving such motor
vehicle by order of a Court of Law or by reason of any enactment or regulation in that behalf," applies only
when the driver" is driving on the insured's order or with his permission." It does not apply when the
person driving is the insured himself.

In Villacorta vs. Insurance Commission and Empire Insurance Company, 100 SCRA 467, where it was held
that:

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The main purpose of the "authorized driver" clause, as may be seen from its text, is that a person other
than the insured owner, who drives the car on the insured's order, such as his regular driver, or with his
permission, such as a friend or member of the family or the employees of a car service or repair shop, must
be duly licensed drivers and have no disqualification to drive a motor vehicle.

The said case concerns a situation wherein insured's car is wrongfully taken without the insured's consent
from the car service and repair shop to whom it had been entrusted for check-up and repairs (assuming
that such taking was for a joy ride, in the course of which it was totally smashed in an accident),
respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car
key to the shop owner and employees who are presumed to have the insured's permission to drive the car
for legitimate purposes of checking or road-testing the car. The mere happenstance that the employee(s) of
the shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust
reposed in the shop by the insured car owner does not mean that the "authorized driver" clause has been
violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid
driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's order
to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks the car.
There is no question of his being an "authorized driver" which allows recovery of the loss although his trip
was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause,
not the "authorized driver" clause, that applies, where a car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of the car shop or not to whom it had been entrusted,
and taken on a long trip to Montalban without the owner's consent or knowledge, such taking constitutes or
partakes of the nature of theft as defined in Article 308 of the Revised Penal Code, viz. "Who are liable for
theft. Theft is committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of another without the latter's
consent," for purposes of recovering the loss under the policy in question.

The Supreme Court rejects respondent commission's premise that there must be an intent on the part of
the taker of the car "permanently to deprive the insured of his car" and that since the taking here was for a
"joy ride" and "merely temporary in nature," a "temporary taking is held not a taking insured against."

In an American case, where the insured herself was personally operating her automobile but without a
license to operate it, her license having expired prior to the issuance of the policy, the Supreme Court of
Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which act is a statutory crime is not
precluded by public policy from enforcing a policy indemnifying her against liability for bodily injuries The
inflicted by use of the automobile." (Drew C. Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass.
367, 136 N.E. 154, 23 A.L.R. 1467.)

In Tanco, Jr. vs. Phil. Guaranty Co. (G.R. No. L-17312 November 29, 1965), the plaintiff's brother, who was
at the wheel at the time of the collision, did not have a valid license because the one he had obtained had
already expired and had not been renewed as required by Section 31 of the Motor Vehicle Law.

That he had renewed his license one week after the accident did not cure the delinquency or revalidate the
license which had already expired. The denial of the claim for repairs amounting to P2,536.99 was upheld
by the Supreme Court.

In Perla Compania De Seguros, Inc. vs. The Court of Appeal, Herminio Lim and Evelyn Lim (G.R. No. 96452
May 7, 1992), petitioner Perla denied the claim on November 18, 1982 on the ground that Evelyn Lim, who
was using the vehicle before it was carnapped, was in possession of an expired driver's license at the time
of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision
or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or
knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the
"AUTHORIZED DRIVER" clause that should apply.

. . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the

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intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand,
accident, although it may proceed or result from negligence, is the happening of an event without the
concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I,
1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a
typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should
be understood, and not in contemplation or anticipation of an event such as theft. The distinction often
seized upon by insurance companies in resisting claims from their assureds between death occurring as
a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar.
Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then,
appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or
destruction of the vehicle resulting from the accident. But in the present case. The loss of the insured
vehicle did not result from an accident where intent was involved; the loss in the present case was caused
by theft, the commission of which was attended by intent.

In Agapito Gutierrez vs. Capital Insurance & Surety Co., Inc. (G.R. No. L-26827 June 29, 1984), it tackled the
authorized drivers clause in a death claim.

In the said case, the insured jeepney figured in an accident at Buendia Avenue, Makati, Rizal. As a result, a
passenger named Agatonico Ballega fell off the vehicle and died. The authorized driver of the insured,
Teofilo Ventura, the jeepney driver, was duly licensed for the years 1962 and 1963. However, at the time of
the accident he did not have the license.

Gutierrez paid P4,000 to the passenger's widow, Rosalina Abanes Vda. de Ballega, by reason of her
husband's death.

The Supreme Court ruled that the expiration bars recovery under the policy.

In liability insurance, "the parties are bound by the terms of the policy and the right of insured to recover is
governed thereby" (44 C.J.S. 934).

But the instant case deals with an insurance policy which definitively fixed the meaning of "authorized
driver". That stipulation cannot be disregarded or rendered meaningless. It is binding on the insured.

8. What is the nature of the insureds liability under the CTPL?

The insurers liability is primary and accrues immediately upon the occurrence of the injury or event upon
which liability depends, and does not depend on the recovery of judgment by the injured party against the
insured. [2]

9. What is extent of liability of an insurer in any given accident?

The limit of liability of an insurer shall be Php 100,000.00 per accident regardless of the number of
passengers killed or injured. This is notwithstanding the courts finding that the insured will have to pay
more than the total sum insured. [3]

10. Sheryl insured her newly-acquired car, a Nissan Maxima against loss or damage from Php 50,000.00 with
the XYZ Insurance Corp. (XYZ). Under the policy, the car must be driven only by an authorized driver who is either:
(1) the insured, or (2) any person driving on the insureds order or with his permission: provided that the person
driving is permitted in accordance with the licensing or other laws or regulations to drive the motor vehicle and is not
disqualified from driving such motor vehicle by order of a court.

During the effectivity of the policy, the car, then driven by Sheryl herself, who had no drivers license, met an
accident and was extensively damaged. The estimated cost of repair was Php 40,000.00. Sheryl immediately
notified XYZ but the latter refused to pay on the policy alleging the she violated the terms thereof when she drove it
without a drivers license.

Is the insurer correct? (1991 Bar Examination)

No. The provision requiring the driver to be not in violation of any motor vehicle law applies only if the one
driving the insured vehicle is other than the insured. Since Sheryl is the insured herself. The insurer is
liable to pay her for the loss she suffered.

11. Mayari obtained a comprehensive insurance policy on his car. The policy carried the stand authorized driver
clause which states that the insurance company is not liable for any loss, accident or damage sustained while the
car is being driven by someone other than a duly authorize driver. Kaibigan had been driving for the past fives years
but it appears that his drivers license was irregularly because he cannot read or write; neither did he take any of the
prescribed drivers test. After the initial license was issued, merely asked his wife to go to the LTO to get the
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renewal of his license. Mayari did not know about the irregularity in the drivers license of Kaibigan.

Can Mayari recover on the insurance policy? Explain. (1986 Bar Examination)

Mayari cannot recover under the policy since Kaibigan, at the time of the accident, did not qualify as an
authorized driver. An irregular license is not a license at all.

12. Will the policy respond if the driver of the insured vehicle gets involved in an accident with an expired license?

It depends.

Yes. If the driver is the insured himself. While the motor vehicle law prohibits a person from operating a
motor vehicle on the highway without a license or with an expired license, an infraction of the law on the
part of the insured is not a bar to recovery under the insurance contract. It, however, renders him liable to
the penal provisions of the motor vehicle law.[4]

No. If the driver is other than the insured himself, the requirement that the driver must not be in violation of
motor vehicle law applies.[5]

13. In case the insured vehicle is unlawfully taken and was subsequently damaged, will the claim be denied on
account of the Authorized Drivers Clause?

No. The Authorized Drivers Clause will not apply in case of theft. Theft is an entirely different legal concept
from that of an accident and risk against accident is distinct from the risk against theft. There is no causal
connection between the possession of a valid drivers license and the loss of the insured vehicle.[6]

14. Can a third party file a claim directly against the motor car insurance?

Yes. If the claim will be made against Section 1 - Compulsory Third Liability Insurance (CTPL). If the
claimant is a third party, the claim shall lie against the insurer of the directly offending vehicle. [7]

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the Principal before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred
favor upon a third person. [8]

15. Who is a third party?

It is defined as any person other than a passenger, excluding: (1) a member of the household, (2) or a
member of the family within the second degree of consanguinity or affinity, of the insured vehicles owner
or (3) his employee in respect of death, bodily injury or damage to property arising out of and in the course
of employment.

16. Who is a passenger?

Passenger refers to any fare paying person being transported and conveyed in and by a motor vehicle for
transportation of passengers for compensation, including persons expressly authorized by law or by the
vehicle's operator or his agent to ride without fare.

Meaning, they are individuals on board a common carrier such as bus and jeepney and paying a fare. Once
the passenger alights from the common carrier, the individuals become a third party.

2.b. No Fault Indemnity Clause

17. What is your understanding of a no fault indemnity clause found in an insurance policy? (1994 Bar
Examination)

It shall answer for the payment of expenses incurred in an accident without the necessity of proving fault or
negligence on the part of the insured.

In the case of a common carrier, is presumed to be at fault or to have acted negligently in case of the loss
of the effects of passengers, or the death or injuries to passengers. (Sps Perea vs. Sps Zarate, G.R. No.
157917, August 29, 2012)

A common carrier is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering such services

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to the public. (Article 1732 of the New Civil Code).

Compared to a private carrier, the diligence required of a private carrier is only ordinary, that is, the
diligence of a good father of the family. In contrast, a common carrier a common carrier is required to
observe extraordinary diligence. They are presumed to be at fault unless proven otherwise.

18. What are the distinct features of the No Fault Indemnity clause?

Some of the distinct features of the No Fault Indemnity clause are the following:

a. It shall answer for the payment of expenses incurred in an accident without the necessity of proving
fault or negligence on the part of the insured.[9]

b. Per Insurance Commission Memorandum Circular 04-2006, the total sum insured for No Fault
Indemnity Clause was increased to Php 15,000.00 from Php 10,000.00.

19. In case of an accident, to whom shall the victim file a claim?

In the case of the occupant - The victim must file a claim against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from.

In any other case - The victim must file a claim against the insurer of the directly offending vehicle.

Notes:

a. An occupant includes both the passenger and a third party so long as they are riding, mounting or
dismounting from a motor vehicle.[10]

2.c. Own Damage Cover

20. What are the risks/perils covered under the Own Damage and Theft Section?

It provides protection to the insured vehicle and its accessories and spare parts in case of loss or damage
due to the following:

a. Accidental collision or overturning, collision or overturning consequent upon mechanical breakdown

or consequent upon wear and tear;

b. By fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

c. Malicious act; or

d. Whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
rail, inland waterway, lift or elevator.

21. Define malicious act.

It refers to intentional acts committed by a third party to cause damage to the insured vehicle like
scratching or vandalizing the vehicle. Consequently, if the damage was caused by the insured, his wife or
children or any member of the household, the loss is not covered.

22. Does the Own Damage claim include carnapping claims?

Yes. Loss of the vehicle includes carnapping and theft of the insured vehicle. No claim shall be paid unless
the 90 day recovery period had lapsed. That is the only time the insured can obtain a Certificate of Non-
Recovery from the Traffic Management Group of the Philippine National Police.

23. What is a deductible and how does it work?

Deductible works in two (2) ways:

a. If the amount exceeds the deductible, it serves as the share of the insured in the loss. For example,
assuming the deductible is Php 3,000.00 and the amount of loss is Php 5,000.00. The insurer will only pay
Php 2,000.00 while the Php 3,000.00 will serve as the insureds share in the loss.

b. If the amount does not exceed the deductible, it serves as a bar to recovery. For example, if the
deductible is Php 3,000.00 and the amount of loss is only Php 2,000.00, the full amount of the loss shall be
shouldered by the insured.

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24. What is a deductible and how does it work?

The purposes of a deductible are:

a. To eliminate nuisance or petty claims.

b. To compel the insured to exercise extra care in the use of the insured vehicle as if he/she is not
insured at all.

Notes:

a. Per the Philippine Insurance Rating Association (PIRA), the deductible in motor insurance are as
follows:

1. Private Car 0.5% of the Insured vehicles fair market value or Php 2,000.00, whichever is higher.

2. Commercial Vehicle 1% of the Insured vehicles fair market value or Php 3,000.00, whichever is
higher.

b. Deductible applies only in Section 3 or Own Damage claims and not to CTPL and Third Party Property
and Bodily Injury Claims.

2.b. Excess Liability Insurance

24. What are the benefits under Excess Liability Insurance?

They are as follows:

a. Third Party Excess Death/Bodily Injury Cover or Excess BI Unlike the CTPL, it is a lump sum benefit
and not subject to a Schedule of Indemnities.

b. Third Party Property Damage Cover or TPPD Like Excess BI, it is a lump sum benefit which shall
answer for any liability arising from the damage to a third partys property.

25. When will Excess BI be triggered?

a. The limits under Section I and II are exhausted.

b. If the loss exceeds the limit under Section 377 of the Insurance Code in the event no coverage exist as
described in the preceding paragraph.

26. Will the TPPD Cover respond if the vehicle being driven by the insured not owned by Insured causes damage
to another vehicle?

It depends. If it is a private car, the claim will be paid. Under Section IV of the Private Car Motor Insurance
Policy, "the Scheduled Vehicle shall include any private car while being personally driven by the Insured
not belonging to him and not hired to him under a hire purchase agreement."

27. Will the TPPD Cover respond to cover the cost of repair or damage to the vehicle being driven by the insured
that is not owned by him?

No. Section IV provides that the insured shall not be liable "in respect of damage to the property belonging
to the Insured, held in trust by, or in the custody or control of the Insured or any member of the Insured's
household, or being conveyed by the Scheduled Vehicle."

The said car borrowed by the Insured is considered as a property held in trust by or in the custody or
control of the Insured.

[1] Insurance Code of the Philippines, Section 380.

[2] Schafer vs. Judge RTC, 167 SCRA 386 [1986]; First Integrated Bonding and Insurance Co., Inc. vs. Hernando,
199 SCRA 796

[3] First Quezon City, Inc. Co. vs. Court of Appeals, 218 SCRA 525 [1993]

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[4] Palermo vs. Pyramid Insurance Co., Inc., 161 SCRA 677 [1988]

[5] Villacorta vs. Insurance Commission, 100 SCRA 467 [1980]

[6] Perla Compania de Seguros, Inc. vs. Court of Appeals, 208 SCRA 487 [1992]

[7] Perla Compania de Seguros, Inc. vs. Ancheta, 164 SCRA 144 [1988]

[8] New Civil Code, Article 1311.

[9] Insurance Code of the Philippines, Section 387.

[10] Perla Compania De Seguros, Inc. vs. Ancheta, 164 SCRA 144 [1988]

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