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Insurance Law

Memory Aid (for Recitations)

Part 1. Pertinent Codal Provisions What may be insured?
Section 3.
General Provisions Any contingent or unknown event, whether past or future,
Section 2. which may damnify a person having an insurable interest,
Whenever used in this Code, the following terms shall have
or create a liability against him, may be insured against,
the respective meanings hereinafter set forth or indicated,
subject to the provisions of this chapter.
unless the context otherwise requires:
The consent of the spouse is not necessary for the validity
(a) A contract of insurance is an agreement whereby one
of an insurance policy taken out by a married person on his
undertakes for a consideration to indemnify another
or her life or that of his or her children.
against loss, damage or liability arising from an unknown or
contingent event. All rights, title and interest in the policy of insurance taken
out by an original owner on the life or health of the person
A contract of suretyship shall be deemed to be an insurance
insured shall automatically vest in the latter upon the death
contract, within the meaning of this Code, only if made by a
of the original owner, unless otherwise provided for in the
surety who or which, as such, is doing an insurance business
as hereinafter provided.

(b) The term doing an insurance business or transacting an

insurance business, within the meaning of this Code, shall Parties to the Contract
Section 6.
(1) Making or proposing to make, as Every corporation, partnership, or association, duly
insurer, any insurance contract; authorized to transact insurance business as elsewhere
provided in this Code, may be an insurer.
(2) Making or proposing to make, as

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surety, any contract of suretyship as a vocation
and not as merely incidental to any other
legitimate business or activity of the surety; Insurable Interest
(3) Doing any kind of business, including Section 10.
a reinsurance business, specifically recognized as Every person has an insurable interest in the life and health:
constituting the doing of an insurance business
(a) Of himself, of his spouse and of his children;
within the meaning of this Code;
(b) Of any person on whom he depends wholly or
(4) Doing or proposing to do any
in part for education or support, or in whom he
business in substance equivalent to any of the
has a pecuniary interest;
foregoing in a manner designed to evade the
provisions of this Code. (c) Of any person under a legal obligation to him
for the payment of money, or respecting property
In the application of the provisions of this Code, the fact
or services, of which death or illness might delay
that no profit is derived from the making of insurance
or prevent the performance; and
contracts, agreements or transactions or that no separate
or direct consideration is received therefor, shall not be (d) Of any person upon whose life any estate or
deemed conclusive to show that the making thereof does interest vested in him depends.
not constitute the doing or transacting of an insurance
business. Section 12.
The interest of a beneficiary in a life insurance policy shall
(c) As used in this Code, the term Commissioner means be forfeited when the beneficiary is the principal,
the Insurance Commissioner. accomplice, or accessory in willfully bringing about the
death of the insured. In such a case, the share forfeited shall
pass on to the other beneficiaries, unless otherwise
disqualified. In the absence of other beneficiaries, the 1
proceeds shall be paid in accordance with the policy
contract. If the policy contract is silent, the proceeds shall
be paid to the estate of the insured.
Section 13. Section 31.
Every interest in property, whether real or personal, or any Materiality is to be determined not by the event, but solely
relation thereto, or liability in respect thereof, of such by the probable and reasonable influence of the facts upon
nature that a contemplated peril might directly damnify the the party to whom the communication is due, in forming his
insured, is an insurable interest. estimate of the disadvantages of the proposed contract, or
in making his inquiries.
Section 14.
An insurable interest in property may consist in:

(a) An existing interest Representation

(b) An inchoate interest founded on an existing
interest; or Section 48.
(c) An expectancy, coupled with an existing interest Whenever a right to rescind a contract of insurance is given
in that out of which the expectancy arises. to the insurer by any provision of this chapter, such right
Section 17. must be exercised previous to the commencement of an
The measure of an insurable interest in property is the action on the contract.
extent to which the insured might be damnified by loss or
After a policy of life insurance made payable on the death
injury thereof.
of the insured shall have been in force during the lifetime of
Section 18. the insured for a period of two (2) years from the date of its
No contract or policy of insurance on property shall be issue or of its last reinstatement, the insurer cannot prove
enforceable except for the benefit of some person having that the policy is void ab initio or is rescindable by reason of
an insurable interest in the property insured. the fraudulent concealment or misrepresentation of the
insured or his agent.
Section 19.
An interest in property insured must exist when the
insurance takes effect, and when the loss occurs, but need
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not exist in the meantime; and interest in the life or health The Policy
of a person insured must exist when the insurance takes
Section 51.
effect, but need not exist thereafter or when the loss A policy of insurance must specify:
(a) The parties between whom the contract is

Concealment (b) The amount to be insured except in the cases

of open or running policies;
Section 26.
A neglect to communicate that which a party knows and (c) The premium, or if the insurance is of a
ought to communicate, is called a concealment. character where the exact premium is only
determinable upon the termination of the
Section 27.
A concealment whether intentional or unintentional contract, a statement of the basis and rates upon
entitles the injured party to rescind a contract of insurance. which the final premium is to be determined;

Section 28. (d) The property or life insured;

Each party to a contract of insurance must communicate to
(e) The interest of the insured in property insured,
the other, in good faith, all facts within his knowledge which
if he is not the absolute owner thereof;
are material to the contract and as to which he makes no
warranty, and which the other has not the means of (f) The risks insured against; and
(g) The period during which the insurance is to
Section 29. continue.
An intentional and fraudulent omission, on the part of one
insured, to communicate information of matters proving or Section 63.
2 A condition, stipulation, or agreement in any policy of
tending to prove the falsity of a warranty, entitles the
insurer to rescind. insurance, limiting the time for commencing an action
thereunder to a period of less than one (1) year from the Marine Insurance
time when the cause of action accrues, is void.
Section 101.
Section 64. Marine Insurance includes:
No policy of insurance other than life shall be cancelled by
the insurer except upon prior notice thereof to the insured, (a) Insurance against loss of or damage to:
and no notice of cancellation shall be effective unless it is
(1) Vessels, craft, aircraft, vehicles, goods,
based on the occurrence, after the effective date of the
freights, cargoes, merchandise, effects,
policy, of one or more of the following:
disbursements, profits, moneys, securities,
(a) Nonpayment of premium; choses in action, instruments of debts, valuable
papers, bottomry, and respondentia interests and
(b) Conviction of a crime arising out of acts all other kinds of property and interests therein,
increasing the hazard insured against; in respect to, appertaining to or in connection
with any and all risks or perils of navigation,
(c) Discovery of fraud or material
transit or transportation, or while being
assembled, packed, crated, baled, compressed or
(d) Discovery of willful or reckless acts or similarly prepared for shipment or while awaiting
omissions increasing the hazard insured against; shipment, or during any delays, storage,
transhipment, or reshipment incident thereto,
(e) Physical changes in the property insured which including war risks, marine builders risks, and all
result in the property becoming uninsurable; personal property floater risks;
(f) Discovery of other insurance coverage that (2) Person or property in connection with or
makes the total insurance in excess of the value appertaining to a marine, inland marine, transit or
of the property insured; or transportation insurance, including liability for

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loss of or damage arising out of or in connection
(g) A determination by the Commissioner that the
with the construction, repair, operation,
continuation of the policy would violate or would
maintenance or use of the subject matter of such
place the insurer in violation of this Code.
insurance (but not including life insurance or
surety bonds nor insurance against loss by reason
of bodily injury to any person arising out of
Warranties ownership, maintenance, or use of automobiles);

Section 68. (3) Precious stones, jewels, jewelry, precious

A warranty may relate to the past, the present, the future, metals, whether in course of transportation or
or to any or all of these. otherwise; and

(4) Bridges, tunnels and other instrumentalities of

transportation and communication (excluding
Double Insurance buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers,
Section 95.
wharves, docks and slips, and other aids to
A double insurance exists where the same person is insured
navigation and transportation, including dry
by several insurers separately in respect to the same subject
docks and marine railways, dams and
and interest.
appurtenant facilities for the control of

Reinsurance (b) Marine protection and indemnity insurance, meaning

insurance against, or against legal liability of the insured for
Section 97. loss, damage, or expense incident to ownership, operation,
A contract of reinsurance is one by which an insurer chartering, maintenance, use, repair, or construction of any
procures a third person to insure him against loss or liability vessel, craft or instrumentality in use of ocean or inland 3
by reason of such original insurance. waterways, including liability of the insured for personal
injury, illness or death or for loss of or damage to the Fire Insurance
property of another person.
Section 169.
As used in this Code, the term fire insurance shall include
insurance against loss by fire, lightning, windstorm, tornado
Implied Warranties or earthquake and other allied risks, when such risks are
Section 116. covered by extension to fire insurance policies or under
A ship is seaworthy when reasonably fit to perform the separate policies.
service and to encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
Casualty Insurance
Section 176.
The Voyage and Deviation Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of
Section 126.
A deviation is proper: loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance
(a) When caused by circumstances over which such as fire or marine. It includes, but is not limited to,
neither the master nor the owner of the ship has employers liability insurance, motor vehicle liability
any control; insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as
(b) When necessary to comply with a warranty, or
written by non-life insurance companies, and other
to avoid a peril, whether or not the peril is insured
substantially similar kinds of insurance.

(c) When made in good faith, and upon

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reasonable grounds of belief in its necessity to Suretyship

avoid a peril; or
Section 177.
(d) When made in good faith, for the purpose of A contract of suretyship is an agreement whereby a party
saving human life or relieving another vessel in called the surety guarantees the performance by another
distress. party called the principal or obligor of an obligation or
undertaking in favor of a third party called the obligee. It
includes official recognizances, stipulations, bonds or
Loss undertakings issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.
Section 132.
An actual total loss is caused by:

(a) A total destruction of the thing insured; Life Insurance

(b) The irretrievable loss of the thing by sinking, Section 181.
or by being broken up; Life insurance is insurance on human lives and insurance
appertaining thereto or connected therewith.
(c) Any damage to the thing which renders it
valueless to the owner for the purpose for which Every contract or undertaking for the payment of annuities
he held it; or including contracts for the payment of lump sums under a
retirement program where a life insurance company
(d) Any other event which effectively deprives the manages or acts as a trustee for such retirement program
owner of the possession, at the port of shall be considered a life insurance contract for purposes of
destination, of the thing insured. this Code.

Part 2. Objective Questions Courts misfortune Seeks to avoid misfortune

Tends to increase the Tends to equalize fortune

Who is the owner of the policy, insured or beneficiary? inequality of fortune
Suggested answer: Both. Insured holds the policy as
evidence of his right. When death occurs, beneficiary has
the right to claim for the proceeds of the policy.
Note: The law does not authorize an insurance for or
Source: Armando Mata against the drawing of any lottery, or for or against any
chance or ticket in a lottery drawing a prize. (Sec. 4)
What are the nature and characteristics of an insurance
contract? Source: Perez Quizzer, page 16
1. Consensual
2. Voluntary
3. Aleatory
4. Unilateral What is the doctrine of subrogation?
5. Contract of indemnity Suggested answer: The doctrine of subrogation is basically
6. Conditional a process of legal substitution; the insurer, after paying the
7. Personal contract amount covered by the insurance policy, stepping into the
shoes of the insured, as it were, and availing himself of the
Source: Insurance Law by De Leon, page 19, 2014 ed.
latter's rights that exist against the wrongdoer at the time
What are the distinguishing elements of the contract of of the loss. It has its roots in equity. It is designed to
insurance? promote and to accomplish justice and is the mode which
1. The insured has an insurable interest which is equity adopts to compel the ultimate payment of a debt by
capable of pecuniary estimation one who in justice and good conscience ought to pay. (Phil.
2. The insured is subject to a risk of loss through the American General Insurance Co., Inc. vs. Court of Appeals)
destruction or impairment of that interest by the

Insurance Law
happening of designated perils Source: Insurance Law by De Leon, page 8, 2014 ed.
3. The insurer assumes that risk of loss
4. Such assumption of risk is part of a general Suggested answer: If the plaintiff's property has been
scheme to distribute actual losses among a large insured, and he has received indemnity from the insurance
group or substantial number of persons bearing a company for the injury or loss arising out of the wrong or
similar risk breach of contract complained of, the insurance company
5. As consideration for the insurer's promise, the shall be subrogated to the rights of the insured against the
insured makes a ratable contribution called wrongdoer or the person who has violated the contract. If
"premium" the amount paid by the insurance company does not fully
What are the main classifications of insurance under the cover the injury or loss, the aggrieved party shall be entitled
Code? to recover the deficiency from the person causing the loss
1. Life insurance contracts or injury. (Art. 2207 of NCC)
a. Individual life
b. Group life Suggested answer:
c. Industrial life
2. Non-life insurance contracts General Rule: Payment by the insurer to the insured for loss
a. Marine under the policy entitles the insurer to be subrogated to the
b. Fire rights of the insured against the wrongdoer. (Art. 2207)
c. Casualty
3. Contracts of suretyship or bonding Exceptions:

Source: Insurance Law by De Leon, page 43, 2014 ed. 1. Where the insured released the wrongdoer from
2. Where the insurer pays without notifying the
carrier, which in good faith had already paid the
Distinguish insurance from gambling. insured
Gambling Insurance 3. Where the insurer pays the insured for a loss
which is not included in the risks insured against 5
May result in profit Seeks to indemnify the by the policy. (Pan Malayan vs CA)
insured against losses
4. The insurer loses his rights against the wrongdoer prejudiced by such untruth or nonfulfillment, renders the
since the insurer can only be subrogated to only policy voidable by the insurer.
such rights as the insured may have.
5. For recovery of loss in excess of insurance Source: Insurance Law by De Leon, page 226, 2014 ed.
6. Life insurance

Source: UST Golden Notes 2011 Distinguish warranty from representation?

Representation Warranty
What is the prevailing rule on changing beneficiary in life
insurance? Collateral inducement to Considered part of the
GR: Whether or not the policy reserves to the insured the the contract contract
right to change the beneficiary, the insured has the power
to so change the beneficiary without the consent of the Must be substantially Must be strictly and
latter who acquires no vested right but only an expectancy correct literally performed
of receiving the proceeds under the insurance.
Must be shown to be Materiality is presumed
It follows that the insured retains the right: material

(1) to receive the cash value of the policy, Misrepresentation sets Falsity or non-fulfillment
(2) to take out loans against the cash value, aside a policy on the of a warranty operates as
(3) to assign the policy, or ground of fraud a breach
(4) to surrender it without the consent of the
beneficiary. May be made by both the Made only by the insured
insured and the insurer
Effect of death of insured: The insured's power to
extinguish the beneficiary's interest ceases at his death, and Source: Perez Quizzer, page 86
cannot be exercised by his personal representatives or
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When breach of warranty does not avoid policy?
Where right to change is waived: The insured has no power 1. When loss occurs before time of performance
to make such change without the consent of the 2. When performance becomes unlawful
beneficiary. 3. When performance becomes impossible

Source: Insurance Law by De Leon, page 235, 2014 ed.

(a) The beneficiary acquires an absolute and vested
interest to all benefits accruing to the policy from
the date of its issuance and delivery, including
Distinguish concealment from misrepresentation.
that of obtaining a policy loan to the extent stated
Suggested answer: In concealment, the insured withholds
in the schedules of values attached to the policy.
the information of material facts from the insurer, whereas
(b) Neither can a new beneficiary be added to the
irrevocably designated beneficiary for this would in misrepresentation, the insured makes erroneous
in effect reduce the latter's vested rights. statements of facts with the intent of inducing the insurer
(c) The insured does not even retain the power to to enter into the insurance contract.
destroy the contract by refusing to pay premiums
for the beneficiary can protect his interest by Source: UST 2011 Commercial Law Reviewer
paying the premiums for the reason that the
Note: Concealment and misrepresentation compared:
fulfillment of an obligation may be made by a
third person even against the will of the debtor (1) In concealment, the insured withholds information of
and if he has an interest in the fulfillment of the
material facts from the insurer, whereas in
obligation, even against the will of the creditor.
misrepresentation, the insured makes erroneous
Source: Insurance Law by De Leon, page 104, 2014 ed. statements of facts with the intent of inducing the insurer
to enter into the insurance contract.

What is a warranty? (2) The materiality of a concealment is determined by the

6 Warranty is a statement or promise by the insured set forth same rules as applied in cases of misrepresentation.
in the policy itself or incorporated in it by proper reference,
the untruth or nonfulfillment of which in any respect and
without reference to whether the insurer was in fact
(3) A concealment on the part of the insured has the same contract to the same extent and with like effect as if actually
effect as a misrepresentation and gives the insurer a right embodied in the policy.
to rescind the contract.
(2) Necessity for riders, etc. The necessity for riders, etc.,
(4) Whether intentional or not, the injured party is entitled is found in the fact that in the conduct of insurance
to rescind a contract of insurance on ground of business, it often becomes necessary to add a new
concealment or false representation. provision to a policy, or to modify or waive an existing
provision, or to make any desired change in the policy. This
(5) Since the contract of insurance is said to be one of saves the trouble and expense of making an entirely new
utmost good faith on the part of both parties to the contract.
agreement, the rules on concealment and representation
apply likewise to the insurer. (3) Rule in case of conflict between a rider, etc. and printed
stipulations of a policy. When there is an inconsistency
Source: Insurance Law by De Leon, page 170, 2014 ed. between a rider and the printed stipulations in the policy,
the rider prevails, as being a more deliberate expression of
the agreement of the contracting parties. This principle
What is deviation? applies to the interpretation of clauses, warranties, or
Suggested answer: Deviation is: indorsements which are attached to policies to vary their
(a) a departure from the course of the voyage
insured; Source: Insurance Law by De Leon, page 190, 2014 ed.

(b) an unreasonable delay in pursuing the voyage;

and What are the kinds of warranties?
1. Express warranty an agreement contained in
(c) the commencement of an entirely different the policy or clearly incorporated therein as part
voyage. thereof whereby the insured stipulates that

Insurance Law
certain facts relating to the risk are or shall be
Source: Perez Quizzer, page 163 true or certain acts relating to the same subjects
have been or shall be done.
2. Implied warranty which from the very nature of
What is representation? the contract or from the general tenor of the
Suggested answer: Representation is a statement made by words, although no express warranty is
the insured at the time of, or prior to, the issuance of the mentioned, is necessarily embodied in the policy
as a part thereof and which binds the insured as
policy (Sec. 37.), as to an existing or past fact or state of
though expressed in the contract
facts, or concerning a future happening, to give 3. Affirmative warranty one which asserts the
information to the insurer and otherwise induce him to existence of a fact or condition at the time it is
enter into the insurance contract. made
4. Promissory warranty one where the insured
It may also be made by the insurer but as the insured stipulates that certain facts or conditions
seldom desires to avoid the contract, the cases nearly pertaining to the risk shall exist or that certain
always involve to representations made by the insured. things with reference thereto shall be done or
Source: Insurance Law by De Leon, page 155, 2014 ed.
Source: Insurance Law by De Leon, page 226, 2014 ed.

What is a rider?
Suggested answer: A rider is a small printed or typed Distinguish warranty from representation
stipulation contained on a slip of paper attached to the Warranties Representation
policy and forming an integral part of the policy.
Part of the contract Collateral inducements to
(1) Additional binding stipulations between the parties. a contract
Riders are usually attached to the policy because they 7
constitute additional stipulations between the parties. Any
rider, etc., properly attached to a policy is a part of the
Written on the face of the May be written in a totally (b) No improper deviation from the voyage will be
policy, actually or by disconnected paper or made
reference may be oral (c) The vessel will not engage in illegal venture
(d) Where nationality or neutrality of a ship or cargo
Must be strictly complied Substantial truth only is is expressly warranted, it is implied that the ship
with required will carry the requisite documents to such
nationality or neutrality and will not carry any
Falsity or nonfulfillment Falsity renders the policy document which casts reasonable suspicion
operates as a breach of void on the ground of thereon
contract fraud
Source: Perez Quizzer, page 158
Presumed material Insurer must show the
What is seaworthiness? When is a vessel seaworthy?
materiality in order to Suggested answer: A ship is seaworthy when reasonably fit
defeat an action on the to perform the service and to encounter the ordinary perils
policy of the voyage contemplated by the parties to the policy.
Source: Insurance Law by De Leon, page 229, 2014 ed. (Sec. 114)

Seaworthiness of a vessel is a relative term depending upon

the nature of the ship, the voyage, and the service in which
Distinguish double insurance from over-insurance she is at the time engaged.
Double insurance Over-insurance
Source: Perez Quizzer, page 158
There may be no over- The amount of the
insurance as when the insurance is beyond the
sum total of the amounts value of the insured's What is perils of the sea?
of the policies issued does insurable interest Suggested answer: Perils of the sea embrace all kinds of
Insurance Law

not exceed the insurable marine casualties and damages done to the ship or goods
interest of the insured at sea by the violent action of the winds or waves, one that
could not be foreseen and not attributable to the fault of
There are always several There may be only one
insurers insurer involved
Source: Perez Quizzer, page 147
Source: Insurance Law by De Leon, page 308, 2014 ed.

What is perils of the ship?

Distinguish hostile fire from friendly fire.
Suggested answer: Perils of the ship are losses or damages
Hostile Fire Friendly Fire
resulting from: (a) natural and inevitable action of the sea,
One which burns at a place One which is confined (b) ordinary wear and tear of the ship, or (c) negligent
where it is intended to be, within the place where it failure of the ships owner to provide the vessel with proper
was intended to and equipment to convey the cargo under ordinary condition.
OR employed for the ordinary
Source: Perez Quizzer, page 147
Breaks out from where it is purpose of lighting,
intended to be and heating, or manufacturing
becomes uncontrollable What are implied warranties?
Suggested answer: An implied warranty is a warranty which
Insurer is liable Insurer is not liable from the very nature of the contract or from the general
tenor of the words, although no express warranty is
mentioned, is necessarily embodied in the policy as a part
thereof and which binds the insured as though expressed in
What warranties are implied in marine insurance?
Suggested answer: In marine insurance, the following the contract.
8 warranties are implied: Source: Insurance Law by De Leon, page 354, 2014 ed.
(a) The ship is seaworthy