SURETYSHIP

The liability of the surety or sureties under a bond is jointly and several, or solidary. This means that upon
default by the obligor in complying with his obligation as secured by the bond, the surety becomes primarily
liable to the obligee who has right to demand payment under the terms and conditions of the bond.

DACSATA

SURETYSHIP PROPERTY INSURANCE

Dependent on the existence of a principal contract
Always 3 parties: surety, principal debtor (obligor),
and creditor (obligee)
Credit accommodation with surety assuming primary
liability
Surety entitled to reimbursement from the principal
and his guarantors
A bond can only be cancelled by or with the obligee’s
consent/Commissioner/court of competent
jurisdiction
To become valid and enforceable, such requires the
obligee’s acceptance
A risk-shifting device, the premium paid being in the
nature of the service fee
Principal contract itself
Only 2: insurer and insured
Generally a contract of indemnity
No right of recovery for the loss the insurer may
sustain except when the insurer is entitled to
subrogation (however, the 3rd party against whom the
insurer may proceed is not a party to the contract)
May be cancelled either by the insured or by the
insurer on grounds provided by law
No need for any third party’s acceptance
Risk-distributing device, the premium paid being
considered a ratable contribution to a common fund

Rules on Payment of Premiums (D-VARSA)

1. Premium becomes a DEBT as soon as the suretyship is perfected, or bond is delivered to the obligor
2. Suretyship not VALID unless premium has been paid.
3. But where obligee has ACCEPTED the bond, it shall be valid even if premium not paid
4. Surety shall collect only REASONABLE amount if suretyship or bond not accepted by or filed with the
obligee
5. No SERVICE fee/stamps/taxes imposed shall be collected by surety if non-acceptance due to surety fault
or negligence
6. Obligor shall pay the subsequent ANNUAL premium if continuing bond

Arranz vs. Manila Fidelity – The failure of the surety to pay the debt for the principal’s account did not have
the effect of relieving the principal of his obligation to pay the premiums. As long as the loan and interest
remain unpaid, surety continues to be bound to the creditor, and as a corollary its right to collect the
premiums on the bond also continues.

Capital Insurance vs. Ronquillo – The principal is not liable to pay renewal premiums because the principal
opted not to renew the contracts. Where a contract of surety is terminated under its terms, the liability of the
principal for premiums such termination ceases notwithstanding the pendency of a lawsuit to enforce a
liability that accrued during its stipulated lifetime.

Philippine Pryce vs. CA – The surety is liable where the obligee has accepted the bond, irrespective if the
premium has been paid, as the suretyship is in existence, pursuant to Article 177 of the Insurance code.
CASUALTY INSURANCE

Accident, as defined in the cases of De La Cruz and Calanoc, is the unusual effect of a known cause.

2 GENERAL DIVISIONS:

1. Insurance which may affect the person/property of the insured (Personal accident, robbery/theft, etc.)
2. Insurance which may give rise to insured’s liability (Workmen’s compensation, Motor vehicle liability)

There is liability for non-fulfillment of contract, whether having done or having failed to do. There is also
liability for criminal negligence if such acts are accidental, even though gross and attended by criminal
consequences such as homicide through reckless imprudence. However, deliberate criminal acts are not
insurable.

Sun Insurance Office vs. CA – Suicide imports a positive act of ending such life whereas wilful exposure to
needless peril indicates reckless risking of it that it is almost suicidal in intent. However in this case, the
insured was unquestionably negligent but it should not prevent his beneficiary from recovering from the
insurance. Indeed, most accidents are caused by negligence, the firing of the gun was the additional,
unexpected, independent happening that led to the insured’s death.

Guingon vs. Del Monte – No action clause in the policy cannot prevail over the Rules of Court provisions
aimed at avoiding multiplicity of suits. Rules on joinder of causes of action and on permissive joinder of
parties cannot be superseded, at least with respect to third persons not a party to the contract.

Calanoc vs. CA – He cannot be considered making an arrest as an officer of the law simply because he went
with the traffic policeman. Much less can it be pretended that he died in the course of an assault or murder
considering the very nature of these crimes. These defenses are included among the risks excluded in the
suppletory contract. Although parties may limit the coverage of the policy to certain risks, it should be clearly
expressed so, for if the terms are obscure, it must be interpreted against the insurer.

Perla Compania vs. Ramolete – The insurer becomes liable as soon as the liability of the insured to the injured
third person attaches. Prior payment by the insured to the injured third person is not necessary in order that
the obligation of the insurer may arise. Form the moment the insured became liable to the third person, the
insured acquired an interest in the insurance contract, which may be garnished like any other credit.

Shafer vs. RTC – There is no need for the insured to wait for the decision finding him guilty. A third party
complaint is allowed to minimize the number of lawsuits.

Poe vs. Malayan Insurance – The direct liability of the insurer under indemnity contracts against third person
liability does not mean, however, that the insurer can be held solidarily liable with the insured and or other
parties found at fault, since they are being held liable under different obligations.

Finman vs. CA – While the act may not exempt the unknown perpetrator from criminal liability, the fact
remains that the happening was a pure accident on the part of the victim. The insured died from an event that
took place without his foresight or expectation. The failure of the insurer to include death resulting from
murder or assault among the prohibited risks leads to the conclusion that it did not intend to exempt itself
from liability for such death.
FIRE INSURANCE

This is indemnification against loss of, or damage to, a property caused by hostile fire, which occurs outside of
the usual confines, unlike a friendly fire where fire burns where it was intended to burn. For example, a fire
caused by a lighted cigarette on a rug is a hostile fire.

There is a distinction between fire insurance alone and fire-and-extended coverage, which is insurance in the
so-called allied risks such as fire, lightning, windstorm, tornado or earthquake.

Ignition constitutes fire. Presence of heat, stem or even smoke is evidence of fire, but will not prove the
existence of fire.

The standard fire contract is an agreement to repay the insured for direct loss. It is apparent, however, that the
consequences of direct loss may be greater than the damage itself:

a. Physical damage – A fire may result in the loss of valuable record or papers that cannot be recopied
b. Loss of earnings – Explosion destroys refrigeration facilities of a meat-packing plant, the plant loses,
during its period of inactivity (interruption of business)
c. Extra expense – The cost of doing business at a location other than the usual premises of the insure

MARINE INSURANCE FIRE INSURANCE

Rules on constructive total loss and abandonment Does not apply
apply
Insured is a co-insurer of the uninsured portion, in Insured may only be a co-insurer if expressly agreed
case of partial loss of a thing insured for less than its upon by the parties
actual value

MEASURE OF INDEMNITY:

1. Open policy- The actual loss sustained, or the amount necessary to indemnify him
2. Valued policy- Same as in a policy of marine insurance, which means that the valuation is conclusive
between the parties in the adjustment of either partial or total loss if the insured had an insurable interest
and was not guilty of fraud
*But, the insurer may be given the option to reinstate or replace the property damaged instead of paying
(Option to rebuild clause)
3. Under two or more policies –Pro-rata contribution to payment of loss

Under the usual contract of fire insurance, the insurer, in case of a partial loss of the subject, is required to give
full indemnity for such loss up to the amount written in the policy. With the co-insurance clause, the recovery
in case of partial loss is reduced to but a portion of the sum named in the policy. This is because said clause
requires the insured to maintain insurance to an amount equal to the value of the insured property.

Phil. Home Assurance vs. CA – Fire may not be considered a natural disaster or calamity since it almost
always arises from some act of man or by human means.

Young vs. Midland Textile – The policy is avoided by any alteration in the use or condition of the property
insured increasing the risk as where firecrackers are placed in the insured building.

Bachrach vs. British American – Even though the policy contains certain provisions prohibiting specified
articles from being kept in the insured premises, the policy will not be avoided by a violation of these
provisions if the articles are necessary or ordinarily used in the business conducted in the insured premises,
like benzene kept in a furniture factory for purposes of operating or for cleaning machinery.
MARINE INSURANCE

Against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest
in movable property, may be exposed during a certain voyage or a fixed period of time

It is a well-understood and well-established function of marine insurance that goods are presumed UNDER
DECK. If the goods are shipped ON DECK, they are not covered by the policy unless special notice of the
stowage is given to the underwriter and he accepts the enhanced risk.

PERILS OF THE SEA PERILS OF THE SHIP

Includes only those casualties due to the unusual In the ordinary course of events which results from
violence or extraordinary action of wind and wave, or the natural and inevitable action of the sea, from the
to other extraordinary causes connected with ordinary wear and tear of the ship, or from the failure
navigation of the ship’s owner to provide the vessel with proper
equipment to convey the cargo under ordinary
conditions
Extends to barratry, which is any wilful misconduct
on the part of the master or crew in pursuance of
some unlawful or fraudulent purpose without the
consent of the owners, and to the prejudice of the
owner’s interest
Insurer is liable only for such losses or damages Not insurable
proximately caused by the perils insured against

“ALL RISKS” MARINE INSURANCE POLICY

This type of policy has been evolved to grant greater protection than that afforded by the “perils clause.”

Filipino Merchants vs. CA – The insured under an “all risks insurance policy” has the initial burden of proving
that the cargo was in good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the
coverage.

INSURABLE INTEREST

In the case of vessel:

1. The owner of a vessel, undoubtedly has an insurable interest on the vessel, even if has mortgaged it, or has
chartered it to a third person who agrees to pay him its value in case of loss.
* His insurable interest is only the excess of its value over the amount secured by bottomry.
2. The one who holds mortgage on the vessel, if money has been borrowed, has an insurable interest.
*LOAN ON BOTTOMRY – one which is payable only if the vessel, given as a security for the loan,
completes in safety the contemplated voyage, by which the lender is entitled to receive a high rate of
interest to compensate him for the risk of losing his loan
3. 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 – contract by which an entire ship (bareboat/demise) or some principal part thereof
(contract of affreightment) is lent by the owner to another person for a specified time (time – or for the
duration of one or more specified voyages) or use (voyage - carriage of goods from one or more ports of
loading to one or more ports of unloading, on one or on a series of voyages, in the employ of the owner)
 *The value of chartered vessel, belonging to X, by Y is P2,000,000. Y may insure it for P2,000,000. If the
agreement with X is that Y would pay P200,000 for the charter, whether lost or not, Y’s insurable interest is
P2,200,000.
*Same owner and charterer. Agreement with X is that Y would pay charter only upon safe arrival of the
vessel. Y engages to carry goods of Z for P300,000. The expected profits of P300,000 exceed the chartered
hire of P200,000 by P100,000. Thus, Y can insure the vessel to the extent of P2,100,000.

In the case of cargo:

1. The insurable interest is in the shipper or the consignee depending upon the terms of sale.
a. When buyer assumes responsibility
i. FOB factory – when the goods leave the factory
ii. FOB point of destination – when goods are received from the carrier
iii. C&F – procures own insurance
b. When seller assumes responsibility
i. CIF – procures own insurance

In the case of goods in transit:

1. The vendee/consignee has such existing interest, and his interest over the goods is based on the perfected
contract of sale between him and the shipper of the goods.

In expected freightage:

FREIGHTAGE – the benefit derived from the chartering of the ship, its employment for the carriage of his
own goods, its employment for the carriage of the goods of others

To give such, the insured must have an inchoate right to freight:

1. Where freight is the price to be paid for the hire of the ship under a charter party, the shipowner has an
inchoate right to freight as soon as there is an inception of performance by the ship under the charter
party.
2. Where the inchoate right to freight accrues as soon as the goods are actually put on board and where part
of the goods has been loaded and the balance is ready, there is an insurable interest in the whole freight.
3. Where the shipowner has made a binding contract or freight and the ship is in readiness to receive the
goods, he has an insurable interest.

In expected profits:

1. The owner of a cargo to be carried on a trading voyage has an insurable interest not only on the value of
the cargo but also on the expected profit from the sale of the cargo (interest on thing involved based on
some legal right)
2. One who has made a contract for purchase of property which has been made ready for shipment, although
not loaded and who has contracted to sell it for profit (interest of insured if based on a valuable
consideration)

CONCEALMENT IN MARINE INSURANCE CONCEALMENT IN INSURANCE CONTRACT

Material fact/circumstance ought to be within the Matters made the subject of inquiry deemed material;
knowledge of one party and of which the other has no that which a party knows and ought to communicate
actual or presumptive knowledge
Bound to communicate not only facts, but also beliefs The duty to disclose is confined to facts
or opinions of third persons, or expectations of third
persons
Concealment of these matters: Entitles the insurer to rescind
- National character of the insured
- Liability of the thing insured to capture and
detention
- Liability to seizure from breach of foreign
laws of trade
- Want of necessary documents
- Use of false and simulated papers
Does not vitiate the entire contract, but merely
exonerate the insurer

REPRESENTATION

The rules governing representation with respect to insurance policies generally have been held to apply to
marine insurance policies.

1. The insured makes erroneous statement of facts

2. Materiality determined by the same rules in concealment
3. Insurer given the right to rescind
*Section 111 qualifies the general provision in Section 45 under which the injured party may rescind only
from the time when the representation become false, although the representation is intentionally false
4. Injured party entitled to rescind on the ground of false misrepresentation
5. The rules likewise apply to the insurer

The eventual falsity of a representation as to expectation is not a ground for rescission unless made with
fraudulent intent.

WARRANTIES

It is a statement or promise by the insured (or the insurer) set for the policy itself or incorporated in it by
proper reference, which may relate to the past/present/future, must be strictly complied, and the non-
fulfillment of such operates as a breach of contract. This may be express or implied.

It would seem that implied warranties are generally warranties in marine insurance. The insurer will not be
liable for any loss under his policy in case the vessel is: (UDETI)

1. Unseaworthy at the inception of the insurance

*Seaworthiness – when reasonably fit to perform service, and to encounter the ordinary perils of the
voyage contemplated by the parties to the policy, at the time of the commencement of the risk. Except:
a. TIME POLICY – must be seaworthy at the commencement of every voyage; no implied warranty
that the vessel will remain in a seaworthy condition throughout the life of the policy
HOWEVER, it is the duty of the master to exercise due diligence to make it sea worthy again
b. CARGO POLICY – same
c. VOYAGE – at the commencement of each portion
*Go Tiaco vs. Union Insurance – A ship which is seaworthy for the purpose of insurance upon the ship
may yet be unseaworthy for the purpose of insurance upon the cargo. Thus, a ship was held unseaworthy
for cargo because of a defective pipe which the shipowner failed to repair, with the result that the water
entered the vessel and the cargo was damaged.
*Becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in
seaworthy condition
*Roque vs. IAC – The shipper may have no control over the vessel but he has full control in the choice of
the common carrier that will transport his goods. Or, the cargo owner may enter into a contract of
 insurance which specifically provides that the insurer answers not only for the perils of the sea but also
provides for coverage of perils of the ship.
2. Deviates from the agreed voyage
*DEVIATION – any unexcused departure from the regular course or route of the insured voyage
*CASES OF DEVIATION: (DDUT)
a. Departure from the course of sailing fixed by mercantile usage
b. Departure from the most natural, direct, and advantageous route
c. Unreasonable delay in pursuing the voyage
d. The commencement of an entirely different voyage
*PROPER DEVIATION: (CWGS)
a. Caused by circumstances over which neither the master nor the owner has any CONTROL
b. Necessary to comply with a WARRANTY, or to avoid a peril
c. Made in GOOD FAITH
d. When made in good faith, for the purposes of SAVING human life or relieving another vessel in
distress
*EFFECT OF IMPROPER DEVIATION – insurer not liable for any loss happening to the thing insured
3. Engages in an illegal venture
4. The ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such
nationality or neutrality is expressly warranted
5. Insured has an insurable interest in the subject matter insured

LOSS (and NOTICE AND PROOF OF LOSS)

Loss is the injury, damage or liability sustained by the insured in consequence of the happening of one ore
more of the perils against which the insurer, inconsideration of the premium, has undertaken to indemnify the
insured.

Proximate cause is the efficient cause, the one that sets others in motion. This is not the same as immediate
cause.

The other rules on loss are as follows:

1. The insurer is not liable if the proximate cause of the loss a peril excepted from the policy although the
immediate cause is a peril not excepted.
Fire insurance policy which excludes loss through explosion:
a. Explosion first, then fire, which results in a loss – INSURER NOT LIABLE
b. Hostile fire, then explosion – INSURER IS LIABLE (the excepted being the immediate)
2. The insurer is liable if the loss took place while being rescued from the peril insured against, and where
the loss is caused by efforts to rescue the thing insured from a peril insured against.
3. The insurer is not liable for a loss caused by the intentional act (for instance, suicide) of the insured or
through his connivance.
4. Where there is ordinary negligence, the insurer is not liable. Where there is gross negligence, it is liable.

CCC Insurance vs. CA – Robes can recover from the insurance the loss/expenses he incurred by virtue of
Reyes having been issued a license by the Cavite Motor Office, and qualified as an authorized driver

Country Bankers vs. Lianga Bay – Since the insurer is defending on the ground of non-coverage, it has the
burden of proving the facts upon which excepted risk is based, by a preponderance of evidence.

Maritime Agencies vs. CA – As the bags were in good order when received in the vessel, the presumption is
that they were damaged or lost during the voyage as a result of their negligent improper stowage. For this, the
shipowner should be held liable.
NOTICE OF LOSS

As a condition precedent to the right of recovery, there must be compliance on the part of the insured with the
terms of the policy. Thus, were a FIRE INSURANCE POLICY required, as one of its conditions, the insured
to give notice of other insurance, if any, upon the same property, in the absence of such notice,
notwithstanding that there are other insurance policies on the property, the policy is null and void, and the
insured cannot recover.

NOTICE OF LOSS PROOF OF LOSS

Formal notice given the insurer without necessary
delay so that the insurer may make proper
investigation necessary to protect its interest from
fraud or imposition; if not given, insurer cannot be
held liable to pay
Formal evidence, the particulars thereof and the
necessary data to enable the company to determine
its liability and the amount thereof; not what is known
in the court as evidence for the consideration of the
trial court;

It is the duty of the dissatisfied insurer to indicate the defects in the proofs of loss as given, so that the
deficiencies may be supplied. His retention of the defective proofs constitutes a waiver of his objections. Also,
delay in the presentation of notice or proof of loss is waived if caused by any act of his or if he omits to take
objection.

If the policy requires by way preliminary proof of loss, the certificate or testimony of a person other than the
insured, such requirement must be complied with by the insured as part of the contract. However, the insured
is only required to exercise due diligence to procure it.

Go Ly vs. Yorkshire – In an action on a fire insurance policy to recover the value of the goods alleged to have
been destroyed by fire, it devolves upon the plaintiff to prove the amount of his loss by a preponderance of
evidence.

LaO vs. Yek Tong Lin – In this connection, the cost price is competent evidence to show the value of the
articles destroyed by fire

Finman vs. CA – Indeed, as regards the submission of the documents to prove loss, substantial, not strict
compliance with the requirements will always be deemed sufficient.

Go Lu vs. Yorkshire – Although the original entries in plaintiff’s books would be evidence which should have
some weight, they are not sufficient to overcome the absence of any evidence of the physical facts existing
after the fire.

LOSS IN MARINE INSURANCE

The complete physical destruction of the subject matter, as in the case of fire, is not essential to constitute an
actual total loss.

LIMITED LIABILITY RULE- The shipowner’s or ship agent’s liability is limited to the value of the vessel, its
appurtenances and freightage earned in the voyage, provided that the owner or agent abandons the vessel.
When the vessel is totally lost in which case there is no vessel to abandon, abandonment is not required.
Because of such total loss, the liability of the shipowner or agent for damages is extinguished.

AS AN EXCEPTION to the limited liability rule, a shipowner or ship agent may be held liable for
damage when the sinking of the vessel is attributable to the actual fault or negligence of the
shipowner or its failure to ensure the seaworthiness of the vessel. (Aboitiz vs. CA)
ACTUAL TOTAL LOSS CONSTRUCTIVE TOTAL LOSS
No abandonment is necessary to recover; Abandonment becomes necessary to recover
presumption of abandonment - the continued
absence of a ship without being heard of; does not
cover a constructive total loss

Other rules on notice of loss in marine insurance:

1. 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.
2. Additional liability of insurer of goods: damages, expenses of discharging, storage, reshipment, extra
freightage, et al.
3. AVERAGE – any extraordinary or accidental expense incurred during the voyage for the preservation of
the vessel, cargo, 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 unloaded
a. The liability of the insurer for general average – “but he is liable for his proportion of all general
average loss assessed upon the thing insured”
b. The liability of the insurer for particular average – policies contain stipulations with respect to
certain class of goods which are perishable or peculiarly subject to damage under which the
insurer will not be liable for loss arising from the perils of the sea; it may be agreed by the parties
that the insurance shall be free from particular average

ABANDONMENT

Requisites for valid abandonment: ACNNERF

1. ACTUAL RELINQUISHMENT of interest

2. There must be CONSTRUCTIVE TOTAL LOSS
* As to when a constructive total loss exists, the insured may not abandon the thing insured unless the loss
or damage is more than ¾ of its value.
* Any particular portion of the thing insured separately valued by the policy may be separately abandoned.
Oriental Assurance vs. CA – The fact that the logs were loaded in two different barges did not make
the contract of insurance several and divisible as to the items insured because the logs on the two
barges were separately valued or separately insured, for only one premium was paid for the entire
shipment...The logs having been issued as one inseparable unit, the totality of the shipment of logs
should be the basis for the existence of constructive total loss.
* The extent of the injury of to the vessel is to be considered with reference to its general market value
immediately before the disaster
3. Abandonment NEITHER partial nor conditional
4. Made within REASONABLE TIME after receipt of reliable information of the loss
5. Must be FACTUAL
6. Made by giving NOTICE to the insurer
*If the notice be done orally, the insured must submit to the insurer within 7 days from such oral notice, a
written notice of abandonment
*The abandonment may be made by an authorized agent
*Where notice is properly given, the rights of the insured are not prejudiced by the fact that the insurer
refuses to accept the abandonment.
7. Said notice must be EXPLICIT and must specify the particular cause of the abandonment

Other rules on abandonment:

1. EFFECT OF VALID ABANDONMENT: Transfers to the insurer the interests in the subject matter
covered by the policy subject to the rights and interests, if any, of third persons.
*Hence, freightage earned subsequent to the loss belongs to the insurer of said ship. But freightage
earned previously belongs to the insurer of said freightage who is subrogated to the rights of the insured
up to the time of loss.
2. EFFECT OF REFUSAL TO ACCEPT VALID ABANDONMENT: Insurer is liable as upon an actual
total los less any proceeds the insured may have received on account of the damaged property as when the
insured succeeds in selling the property as damaged.
3. EFFECT OF IMPROPER ABANDONMENT: The insured may recover to the extent of the damage
proved.
4. EFFECT OF FAILURE TO MAKE ABANDONMENT: Insured may await the final event and recover
accordingly for a total or partial loss, as the case may be, since the insured has an election to abandon or
not, and cannot be compelled to abandon.
5. 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.
6. From the moment of valid abandonment, the master and agents of the insured become the agents of the
insurer.
7. The abandonment, when made, relates back to the time of the loss, and if effectual, the title of the insurer
becomes vested as of that date and he is responsible for the reasonable expenses incurred by the master
after that date in an attempt to save the vessel.
8. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an
acceptance.
9. An abandonment once made is irrevocable, unless the ground upon which it was made proves to be
unfounded.

MEASURE OF INDEMNITY

Valuation is conclusive upon the parties provided that the insured has some interest at risk, and there is no
fraud on his part.

When profits are separately insured from the property out of which they are expected to arise, the insured, in
case of partial loss of the property, is entitled merely to partial indemnity for the profits lost. If the property is
totally lost, pro tanto the total profits are also lost. Thus, such loss of the profits is conclusively presumed from
the loss of the property and the valuation agreed

Formulas:

1. Amount recoverable when insured is a co-insurer

Partial Loss / Value of thing insured x Amount of Insurance = Amount of recovery

2. Amount recoverable when loss of profits separately insured

Value of lost property/Value of whole insured x Amount of Insurance = Amount of recovery

3. Amount recoverable when only a part of a cargo or freightage exposed to risk

Ex: ¼ of the entire valuation, but bound to reture ¾ not exposed to risk

4. Amount recoverable when loss of profits is conclusively presumed from the loss of the property
 Ex: Value of the profits insured fixed at P100,000; the insured can recover the total amount of P100,000

Rules for estimating loss under an open policy:

1. Value of the vessel – As of the commencement of the risk

2. Value of the cargo – Its actual cost to the insured, when laden on board, or when that cost cannot be
ascertained, its market value at the time and place of shipment
3. Value of the freightage – Gross amount of the freightage
4. Cost of insurance – always added in calculating the value of the ship, cargo or freightage or other subject
matter in an open policy

Other Formulas and Rule:

1. Amount recoverable where cargo insured against partial loss is damaged

(Market price in sound state – Market price in damaged state = Reduction in value)/Market price in
sound state x Amount of Insurance = Amount of recovery

2. General rule, insurer is not liable for more than the amount of the policy; Except, expenses incurred in
repairing the damages suffered by a vessel because of the perils insured against as well as those incurred
for saving the vessel from such perils

3. The liability of the insurer for any general average loss is limited to the proportion of contribution
attaching to his policy value where this is less than the contributing value of the thing insured:

Amount of Insurance/Value of thing insured x Proportion of Gen. Insurance = Limit of liability of insurer

4. Liability of insurer in case of partial loss of ship or its equipment

1/3 of the cost of repair is laid upon the insured as burden; 2/3 liability of the insurer
PREMIUM

Premium is the agreed price for assuming and carrying the risk. In fire, casualty and marine insurance, the
premium becomes a debt as soon as the risk attaches. In suretyship, as soon as the contract or bond is
perfected and delivered to the obligor

PREMIUM ASSESSMENT
Levied and paid to meet anticipated losses Collected to meet actual losses
Payment of such, after the first, not enforceable as it Legally enforceable once levied, unless otherwise
is not a debt agreed, as it is a debt

When policy is valid and binding notwithstanding non-payment of premium: GAICE

1. Whenever the GRACE period provision applies, in the case of life or an industrial policy
2. Whenever there is an ACKNOWLEDGMENT in a policy or contract of receipt of premium even if there is
a stipulation that it shall not be binding until the premium is actually paid
3. When there is an agreement allowing the insured to pay in INSTALLMENTS and partial payment has
been made at the time of the loss (Makati Tuscany vs. CA)
4. When there is an agreement to grant the insured CREDIT EXTENSION for the payment of the premium,
and loss occurs before the expiration of the credit term
5. ESTOPPEL

When insured entitled to recover premiums: EDFELOR

1. No part of the thing insured has been EXPOSED to any of the perils insured against
2. Insurance is for a DEFINITE period and the insured surrenders his policy before the termination thereof
*Recovery of premiums paid is not allowed in life insurance if the insured surrenders his policy
3. When contract is voidable because of the FRAUD or misrepresentation of the insurer or his agent
4. When contract is voidable because of the EXISTENCE of facts which the insured was ignorant without
his fault
5. When the insurer never incurred LIABILITY under the policy because of the default of the insured
6. When there is OVER-INSURANCE
7. When RESCISSION is granted due to the insurer’s breach of contract

Phil Phoenix vs. Woodworks (1967) – Nonpayment of the balance of the premium due does not produce the
cancellation of the contract of insurance. The balance of the premium was still collectibe. As the contract had
become perfected, the parties could demand from each other the performance of whatever obligations they
had assumed.

Phil Phoenix vs. Woodworks (1979) – There can be no recovery of unpaid premium. The continuance of the
insurer’s obligation is conditioned upon the payment of the premium, so that no recovery can be had upon a
lapsed policy, the contractual relations between the parties having ceased.

Makati Tuscany vs. CA – The payment of partial premium should not be considered as the payment required
by the law and the stipulation by the parties. Rather, it must be taken in the concept of a deposit to be held in
trust by the insurer until such time that the full amount has been tendered and duly receipted for.

Ang Tibay vs. CA – The fire insurance policy is not valid upon mere partial payment of the premium because
by express agreement by the parties, no vinculum juris was to be established until full payment was effected
prior to the occurrence of the risk insured against.
DOUBLE INSURANCE

This is also known as co-insurance. The purpose of prohibition against double insurance is to prevent over-
insurance and thus avert the perpetration of fraud.

Requisites of double insurance: PS-SIR

1. PERSON insured the same

2. Two or more insurers insuring SEPARATELY
3. The SUBJECT matter is the same
4. The INTEREST insured is also the same
5. The RISK/peril insured is likewise the same

DOUBLE INSURANCE OVER-INSURANCE

There may be no over-insurance Amount of insurance is beyond the value of the
insured’s insurable interest
There are always several insurers There may be only one insurer
May exist at the same time or neither may exist at all May exist at the same time or neither may exist at all

Rules of payment of claim where there is over-insurance by double insurance:

1. Several or solidary liability of insurers under their respective contracts – If property damages, insured,
unless the policies otherwise provide, may claim payment from each of the insurers in such order as he
may select, up to the amount for which each is liable under the contract.
2. Where insured claims under a valued policy – insured may recover only the amount which is the difference
between the valuation and his recovery from one, from either of the insurers, or both, so long as the
amount recovered does not exceed the difference.
3. Where insured claim under an unvalued policy – Value of the loss must be ascertained, by which insured
may recover said amount from the insurers in such order as he may select up to the amount for which they
are severally liable under their respective contracts
4. Liability of each insurer to contribute ratably to the loss –
Amount of policy/Total insurance x Loss = Liability of insurer
5. Where sum received by insured exceeds total insurance taken – insured cannot recover more than full
indemnity, excess held in trust for the insurers

Ulpiano Sta Ana vs. Commercial Union – Since all companies, to which people apply for insurance upon
property already assured, have an interest in knowing what other policies issued by other companies the
insured already holds, the absolute absence of such notice when it is one of the conditions specified renders
the policy null and void.
REINSURANCE

The reinsurer agrees to indemnify the reinsured (original insurer), either in whole or in part against loss or
liability which the latter may sustain or incur under a separate and original contract of insurance with a third
party (original insured). This is sometimes referred to as treaties. The reinsurance of reinsurance is known as
retrocession.

REINSURANCE DOUBLE INSURANCE

The insurer becomes the insured
Subject is the original insurer’s risk
An insurance of a different interest
Original insured has no interest in the contract of
reinsurance which is independent of the original
contract of insurance
Consent of the original insured is not necessary
The reinsured has duty to disclose facts
The insurer remains as the insurer
Subject is property
An insurance of the same interest
Insured is the party in interest in all the contracts
Insured has to give his consent
The insured has duty to disclose facts

AUTOMATIC METHOD FACULTATIVE METHOD

Reinsured bound to cede and reinsurer obligated to No obligation to cede or to accept participation in the
accept a fixed share of the risk which has to be risk insured as each party has a free choice.
reinsured under the contract

Phil Am vs. Auditor General – (Citing Pioneer Life vs. Alliance Life) Reinsurance treaties and reinsuance
policies are not synonymous. Treaties are contracts for insurance, while reinsurance policies are contracts of
insurance

Pioneer Insurance vs. CA – In general, a reinsurer on payment of a loss, acquires the same rights by
subrogation as are required in similar cases where the original insurer pays the loss

Gibson vs. Revilla – The reinsurer is entitled to avail itself of every defense which the reinsured might urge in
an action by the person originally insured.
INSURABLE INTEREST (Focused on life insurance)

Insurable interest in the life and health: HELE

a. Of HIMSELF, of his spouse and of his children

b. Of any person whom he depends for EDUCATION or support, or in who he has a pecuniary interest
Who are obliged to support each other
o Spouses, legitimate ascendants/descendants, parents and their legitimate/illegitimate
children, parents and their illegitimate children and their legitimate/illegitimate children,
legitimate brothers and sisters, whether full or half
o Relationship by affinity – in laws
c. Of any person under a LEGAL obligation to him for the payment of money
o Partner-co-partner, employer-employee, surety-principal, creditor-debtor
d. Of any person upon whose life any ESTATE or interest vested in him depends

The consent of the person insured is not essential to the validity of the policy.

BENEFICIARY – person that is named or designated in a contract of life, health or accident insurance as the
one who is to receive the benefits which become payable, according to the terms of the contract, upon the
death of the insured

Kinds of beneficiary:

a. He may himself be
b. Third person who paid a consideration
c. Third person through mere bounty of insured

Limitations in the appointment of the beneficiary:

a. Those made between persons who were guilty of ADULTERY/CONCUBINAGE at that time
b. Those made between persons found guilty of the same CRIMINAL OFFENSE, in consideration thereof
c. Those made to a PUBLIC OFFICER or his wife, descendants and ascendants by reason of his office
d. When the beneficiary is the principal, accomplice, or accessory in wilfully bringing about the death of the
insured

Liability of insurer on death of insured:

1. Death at the hands of the law – insurer is liable

2. Death by suicide – insurer not liable in case intentionally committed
3. Death by suicide while insane – insurer is liable
4. Death caused by the beneficiary – beneficiary cannot receive any benefit under the contract, but where the
death was an accident or in self-defense, or while insane, the rights of the beneficiary are not affected
5. Death caused by violation of law – would not warrant an outright denial of liability; the insurer to avoid it
must further establish that the commission of the felony or the violation of the law was the cause or had a
causal connection with the accident resulting in death of the insured

Young vs. Midland Textile – Life insurance contracts are not contracts of indemnity. The amount fixed
payable at the death of the insured is not considered as the true value of the thing insured because the life of a
person is priceless, but is simply the measure of indemnity which the insurer has bound himself to pay the
insured.