*Where the representation is true, it is ordinarily immaterial When violation of immaterial provisions shall avoid policy
whether it is a warranty or a representation The law makes a distinction between provisions that are material
and immaterial. The breach of any provision which is not material
SEC. 70 will not avoid the policy. (Sec. 74) However, the parties may
expressly stipulate that the violation of a particular provision
Express warranty, where contained (although immaterial) in the policy shall avoid it. (Sec. 75)
1. In a policy itself, or another instrument – it must form
part of the contract itself or if contained in another SEC. 76
instrument, it must be signed by the insured and
referred to in the policy as making a part of it. Mere Effect of breach of warranty by insured
reference alone is not sufficient to give this effect. 1. Fraud not essential for breach – the breach referred
2. Validity of construed in a rider – the rider attached to to under Sec. 76 is one without fraud
a policy is a part of the contract, to the same extent and 2. Effect if without fraud – the policy is avoided only from
with like effect as if actually embodied therein. It need the time of breach
not be signed by the insured nor referred to in the policy 3. Effect if with fraud – the policy is avoided ab initio, and
as making a part of it. the insured is not entitled to the return of the premium
paid
SEC. 71
Conditions in insurance policy
Express warranty regarding person, thing, or risk -Insurers may impose whatever conditions they please upon
1. Statement must refer to a fact – statement of the their obligations as long as they are not contrary to law, morals,
policy relating to the thing or person insured must be as good customs, public order, or public policy.
a fact and not as an opinion, or belief, to constitute an 2 kinds:
express warranty thereof 1. Condition precedent – calls for the happening of some event
2. Where statement in the nature of an opinion – a of the performance of some act after the terms of the contract
statement in the policy which, from the very nature of have been agreed upon, before the contract shall be binding on
the subject matter of the inquiry, can only be an the parties
expression of an opinion is not, strictly speaking, a 2. Condition subsequent – pertains not to the attachment of the
warranty of its truthfulness. risk and the inception of the policy, but to the contact of
insurance after the risk has attached and during the existence
SEC. 72 thereof.
Warranty of facts or omissions which materially affect the Warranties and conditions distinguished
risk Warranty Condition
Section 72 refers to a promissory warranty. Breach of promises Precedent
or agreements as to future acts will not avoid a policy unless the As to effect Does not suspend Without the
promises are material to the risk. or defeat the performance of
operation of the which, the contract,
SEC. 73 contract although in form
executed by the
When breach of warranty does not avoid policy parties and
The general rule is that a violation of a warranty avoids a delivered, does not
contract of insurance. Section 73 provides 3 exceptions: spring into life
1. When loss occurs before time of performance As to nature Promissory -if the insured
2. When performance becomes unlawful warranties are person contracts
3. When performance becomes impossible conditions and warrants that if
subsequent to be the representations
Where insurer barred by waiver or estoppel performed after made by him in his
Breach of warranty operates to discharge the insurer from the policy has application for
liability unless the insurer is liable because of a waiver of the become a valid insurance are not
warranty or an estoppel. contract true, the policy shall
1. The omission to fulfill a warranty or condition will -Non-performance be null and voice
likewise be excused where there is a waiver on the part of which will work -such statements
of the insurer. a defeasance are not conditions
2. Under estoppel, the insurer is precluded, because of precedent but
some action or inaction on its part, from relying on an rather of the nature
otherwise valid defense as against the insured who has of a defeasance
been induced to enter into the contract by the insurer’s
representation or conduct. Exceptions in insurance policy
3. Estoppel is different from waiver. In the former, the -Exceptions are inserted in a contract of insurance for the
conduct of the insurer prevents it from avoiding liability, purpose of withdrawing from the coverage of the policy, as
while in the latter, the failure of the insurer to assert a delimited by the general language describing the risk assumed,
defense prevents it from asserting the defense in the some specific risks which the insurer declares himself unwilling
event of a claim filed by the insured. to undertake.
NOTE: In nos. 1, 3, 4, and 5, the insured is entitled to a return WHERE THERE IS OVER-INSURANCE.
of the entire premium paid. The insured cannot recover The insurer is NOT liable for the total amount of
premiums unless they have actually been paid. Payment to insurance taken. His liability is only limited to the amount of the
insurer's agent is sufficient. The Code speaks of the return or insurable interest on the property insured. Ergo, he is not entitled
refund of premium payments. Fees like documentary stamps to the portion of the premium corresponding to the excess of the
tax and other taxes are not covered. insurance over the insurable interest of the insured. The
premiums to be returned shall be proportioned to the amount by
WHERE RISK HAS NEVER ATTACHED. which the aggregate sum insured in all the policies exceeds the
If the risk insured against does not or cannot attach, or if no insurable value of the thing at risk.
part of the interest is subject to any of the specified perils,
the insurer cannot claim or retain the premium thus paid, in WHERE INSURANCE IS ILLEGAL
the absence of any fraud or fault on the part of the insured. General rule: Premiums which are illegal cannot be
Reason: contrary honesty and fair dealing to allow the insurer to recovered.
treat the policy as valid long enough to get the premium on it and XPN: When the insured was ignorant of the facts which
leave it at liberty to renounce it the next moment. rendered the insurance illegal
Specific instances:
(1) Approval of application or acceptance of policy is absent BASIS OF RIGHT TO RECOVER PREMIUMS.
• Where the application for a policy was not approved (1) Insurer could have been called to pay the whole sum
• With respect to a policy requiring acceptance, insured insured.
cannot be held liable for accruing In such case the whole premium is earned and there
(2) Loss occurs before effective date shall be no return.
Where the insured pays in advance the annual premium (2) Insurer could have been called to pay only part of the
on a certain property, the insurance to take effect on a certain whole sum insured.
date and the loss occurs before said date, the insured is entitled He ought not to retain a larger proportion than one-half
to a return of the whole premium. or one-fourth of the premium and must return the remaining
(3) Insured and insurer become public enemies amount.
i.e. State of war, justice requires that premiums paid
after the declaration of war between the belligerent states be
returned to the insured. TITLE 9 - LOSS
(3) Burden of proof where loss has occurred. (2) Gross Negligence.
The burden is upon the insurer to prove by a Gross negligence or recklessness on the part of the
preponderance of evidence, that the loss arose from a cause insured will relieve the insurer from liability. (E.g. the insured
with is excepted or for which it is not liable, or from a cause sees a small fire start and makes no attempt to put it out).
which limits its liability.
NOTE: A general statement that proofs are defective is not (2) Additional insurance obtained by a third person.
sufficient to impose on the insured the duty to supply defects Insurance obtained by a third person without the
not pointed out. knowledge or consent of the insured WILL NOT affect his rights
under the policy in the absence of ratification.
SEC. 91
PROHIBITION AGAINST DOUBLE INSURANCE, Purpose.
WHEN DELAY IN PRESENTATION OF NOTICE OR PROOF To prevent over-insurance and thus avert the perpetration of
DEEMED WAIVED fraud.
Waiver of delay may be made:
(1) By an act of the insurer; or
(2) By failure to take objection promptly and SEC. 94
specifically upon that ground.
RULES FOR PAYMENT OF CLAIMS WHERE THERE IS
If the insured has attempted to comply with the OVER-INSURANCE BY DOUBLE INSURANCE.
stipulations of the policy and the company makes According to the Principle of Contribution enunciated by
objections, the insured is allowed a reasonable time after he Sec. 94, EACH INSURER IS REQUIRED TO CONTRIBUTE
They apply only where there is over-insurance by (2) From the standpoint of the insured.
double insurance (insurance is contained in several policies the The practice of reinsurance is beneficial to the insured for the
total amount of which is in excess of the insurable interest of the following reasons:
insured). a) It gives insurance companies that practice in greater
financial stability and thus makes the insured's individual policy
Paragraph (e) governs the liability of the insurers more reliable;
among themselves where the total insurance taken exceeds (b) If a large amount of insurance is needed, the
the loss. If the loss is greater than the sum total of all the insured may obtain it without negotiating with numerous
policies issued, each insurer is liable for the amount of his companies;
policy. (c) It enables the insured to obtain protection promptly,
without the delay that would be required to divide and
(1) Several or solidary liability of insurers under their distribute the amount among many companies;
respective contracts (par. a). (d) All the insurance can be written under identical
(2) Where insured claims under a valued policy (par. b). contract provisions, whereas otherwise these might vary
(3) Where insured claims under an unvalued policy (par. c). with the different companies among whom the insurance
(4) Liability of each insurer to contribute ratably to the loss is divided; and
(par. e). (e) Small companies are encouraged to divide large
(5) Where sum received by insured exceeds total insurance exposures for safety and enabled to accept a wide variety of
taken (par. d). applicants.
(2) Contract, separate from original insurance policy. TRANSPORTATION INSURANCE, Defined
The practice is for the reinsurer to pay the insurer even It is concerned with the perils of property IN TRANSIT
before the latter has indemnified the original insured. as opposed to property perils at a generally fixed location.
(DOES NOT include normal motor vehicleinsurance which is
(3) Contract based on original policy. treated separately)
(c) C. & F. (cost and freight) — The buyer procures his own Insurable interest in expected profits.
insurance. (1) Interest in thing involved based on some legal right. - The
(3) In the case of a vendee/consignee of goods in transit. —The interest in the goods or adventure out of which the profits are
contract of shipment, whether under F.O.B., C.I.F., or C. & F., is expected to be realized should be a legal interest although such
immaterial in the determination of whether the vendee has an interest may be contingent like commission to an agent or
insurable interest or not in the goods in transit. The perfected consignee. Thus, the owner of a cargo to be carried on a trading
contract of sale even without delivery vests in the vendee an voyage has an insurable interest not only on the value of the
equitable title, an existing interest over the goods sufficient to be cargo but also on the expected profit from the sale of the cargo
the subject of insurance. which is liable to be affected by the perils of the sea.
(2) Interest in thing involved based on a valuable
SEC. 103 consideration.
— The insured has sufficient interest if it is based
on a valuable consideration paid. For instance, one who has
A loan on bottomry is one which is payable only if the vessel, made a contract for purchase of property which has been made
given as a security for the loan, completes in safety the ready for shipment, although not loaded and who has contracted
contemplated voyage. Where a vessel is bottomed, the owner to sell it at a profit, has an insurable interest in the profits.
has an insurable interest only in the excess of its value over the
amount of the bottomry loan. The insurable interest of the lender
SEC. 147-158
= 𝐴𝑚𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦 Liability of insurer for expenses incurred for repair and
recovery.
SEC. 161 As a general rule, a marine insurer is not liable for more than the
amount of the policy. Under Section 165, however, expenses
Where only part of a cargo or freightage insured exposed to incurred in repairing the damages suffered by a vessel because
risk. of the perils insured against as well as those incurred for saving
Where cargo is insured under a valued policy but only a portion the vessel from such perils, such as the expenses of launching
of the cargo is actually carried by the vessel at the time of loss, or raising the vessel or of towing or navigating it into port for her
the valuation will be reduced proportionately. The insurer is safety, are items to be
borne by the insurer in addition to a total
bound to return such portion of the premium as loss if that afterwards takes place, Such expenses are known as
corresponds
with the portion of the cargo which had been "Port of refuge" expenses.
exposed to the risk.
SEC. 166-167
SEC. 162
Rights of insured in case of general average.
Presumption of loss of profits. (1) General rule. — The insurer is liable for any general average
Where profits are separately insured from the property out of loss (see Sec. 138.) where it is payable or has been paid by the
which they are expected to arise, the insured, in case of partial insured in consequence of a peril insured against. The insured
loss of the property, is entitled merely to partial indemnity for the may either hold the insurer directly liable for the whole of the
profits lost. (Sec. 160.) If the property is
totally lost, pro tanto the insured value of the property sacrificed for the general benefit,
subrogating him to his own right of contribution or demand
total profits are also lost. Thus, under Section 162, such loss of
contribution from the other interested parties as soon as he
the profits is conclusively presumed from the loss of the property
vessel arrives at her destination. In other words, the vessel need
and the valuation agreed upon in the policy fixes the amount of
not wait for an adjustment
recovery.
(2) Exceptions. — However, there can be no recovery for
general average loss against the insurer:
SEC. 163
(a) after the separation of the interests liable to contribution, that
is to say, after the cargo liable for contribution has been removed
Rules for estimating loss under an open policy of marine
from the vessel; or
insurance.
(b) when the insured has neglected or waived his right to
Section 163 refers to an open policy while Section 156 refers to
contribution.
valued policies.
In determining the loss under an open policy of marine
Limit as to liability of insurer.
insurance, the real value of the thing insured must be proved by
The liability of the marine insurer for any general average loss is
the insured in each case. Section 163 lays down the value to be
limited to the proportion of contribution attaching to his policy
used for indemnity purposes.
value where this is less than the contributing value of the thing
(1) Value of vessel. — Under paragraph (a), in ascertaining the
insured. (Sec. 164.) In other words, the liability of the insurer
value of a vessel, the value is to be taken as of the
shall be less than the proportion of the general average loss
commencement of the risk and not its value at the time she was
assessed upon the thing insured (see Sec. 138.) where its
built.
contributing value is more than the amount of the insurance. In
(2) Value of cargo. — Under paragraph (b), the value of the
such case, the insured is liable to contribute ratably with the
cargo is its actual cost to the insured, when laden on board, or
insurer to the indemnity of the general average.
where that cost cannot be ascertained, its market value at the 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
time and place of shipment. The expected profits from the cargo 𝑥 𝑃𝑟𝑜𝑝𝑜𝑡𝑖𝑜𝑛 𝑜𝑓 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑜𝑠𝑠
are not considered since they can be covered by a separate 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑖𝑛𝑔 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
insurance, (see Secs. 101, 160 ,162.) = 𝐿𝑖𝑚𝑖𝑡 𝑜𝑓 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑒𝑟
(3) Value of freightage. — Under paragraph (c), the gross
freightage and not the net freightage is the basis for determining SEC. 168
the value of the freightage. The reason is that the gross amount
of the freightage, as the measure of indemnity, can be easily and Liability of insurer in
case of partial loss of ship or its
exactly determined. On the other hand, to take the net amount of equipment.
the freightage as the basis, would lead to lawsuits over the In case of a partial loss of a vessel, by common usage
which
deductions which should be made. has the sanction of law, there is deducted from the cost of
repairs "one-third new for old," on the theory that the new
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The Insurance Code of the Philippines
materials render the vessel much more valuable than it was • Fire policies – where to hazard is fire alone and the subject
before the loss. When repairs are thus made, one-third of the is an unfinished vessel, never float for a voyage
cost of the repair is laid upon the insured as his burden, and the o absence of an agreement that it shall have incidents of
implied agreement under the policy is that in case of damage to marine policy
the ship by a peril within the policy, the loss shall be estimated at o insures materials in a shipyard for use in constructing the
two-thirds of the cost of repairs fairly executed or one-third new vessel
for old, as is commonly expressed. (44 Am. Jur. 2d 527.) o also when a vessel while moored and in sue as a hospital
Section 166 prescribes the deductions to be made from such
cost subject to other conditions stipulated in the policy. Importance of distinction
1. in marine insurance, the rules on constructive total loss
and abandonment apply but not in fire insurance
Title 2 Fire Insurance 2. in case of partial loss of a thing insured for less than its
actual value, the insured in a marine policy is a co-
SEC. 169 insurer of the uninsured portion, while the insured may
only become a co-insurer in fire insurance if expressly
Fire Insurance – contact of indemnity by which the insurer, for agreed upon by the parties
a stipulated premium, agrees to indemnify the insured against
loss of, or damage to, a property caused by hostile fire (Sec 86) SEC. 170-171
located at the place stated in the policy.
When alteration in thing insured entitles insurer to rescind
Fire-and-extended coverage – insurance against loss by fire, (requisites)
and also “allied lines” that protect against loss by lighting, 1. use or condition of the thing is specifically limited or
windstorm, etc. but only when such risks are covered by stipulated in the policy
extension to fire insurance policies or under separate policies 2. such use or condition as limited by the policy is altered
(subject to payment of additional premiums; it may be attached 3. the alteration is made without the consent of the insurer
by endorsements) 4. the alteration is made by means within the control of the
insured
Nature 5. the alteration increases the risk
• Indemnity – sole purpose • but a contract of fire insurance is not affected by any act of
• Any contract that contemplates a possible gain to the the insured subsequent to the execution of the policy, which
insured by the happening of the event upon which the does not violate its provisions even though it increases the
liability becomes fixed is contrary to it proper nature and risk and is the cause of the loss
is not allowed
Increase of risk or hazard in general
Fire • implied undertaking of insured – since every contract of
• Rapid oxidation as to produce a flame, glow or insurance is made with reference to the conditions
incandescence surrounding the subject matter of the risk and the premium
• Caused by combustion but combustion does not produce is fixed with reference thereto, there is an implied promise or
fire (spontaneous combustion may result to fire but does not undertaking on the part of the insured that he will not
necessarily mean that combustion is said to be fire) change the premises or character of the business
• The presence of heat, stem, or even smoke is evidence of • character of the increase in risk – an increase of hazard
fire, but taken by itself will not prove the existence of fire takes place whenever the insured property is put to some
• Heat sufficient to cause charring or scorching does not new use, and the new use increases the chance of loss
constitute fire, unless it is accompanied by ignition o There must be an actual increase of risk and while it is not
• Not a natural disaster or calamity necessary that the increased risk should have caused or
• Not an act of God unless caused by lightning or natural contributed to the loss, still it is necessary that the
disaster or casualty not attributable to human agency increase be of substantial character
Effect of no action clause in policy of liability insurance Distinctions between suretyship and guaranty
• “no action” clause in the policy cannot prevail over the Rules Suretyship Guaranty
of Court Provisions aimed at avoiding multiplicity of suits
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The Insurance Code of the Philippines
Surety assumes liability as a Liability depends upon an • Life policy is a valued policy – no way to measure the value
regular pary to the independent agreement to of human life
undertaking pay if the primary debtor fails o Value placed on the insured is basically decided by the
to do so amount the purchaser who is willing to pay the requisite
Primarily liable Secondarily liable premiums.
Not entitled to the benefit of Has the right to have all the o The amount is determined by the factors affecting the life
exhaustion of debtor’s assets property of the debtor and of the insured such as age, health, and occupation
legal remedies against the • Direct pecuniary loss not required
debtor first exhausted before o It is sufficient that the purchaser of a life insurance policy
he can be compelled to pay had an insurable interest in the life of the insured at the
the creditor time the policy was issued
• Surety undertakes to pay if the principal does not pay, the o Life policy – contract to pay the beneficiary a certain sum
guarantor binds himself to pay if the principal cannot pay of money to meet the financial crisis which may be caused
in the event of death of the insured or any disability
SEC. 179 resulting in loss of earning power provided certain
conditions are performed by the insured
Payment of Premiums o Measure of recovery is the face amount of the policy and
• Premium becomes a debt not the value of the insured’s life
• Not valid and binding unless and until the premium therefore
has been paid Life insurance distinguished from fire and marine insurance
• When obligee accepted the bond, it is valid and enforceable Life Fire and Marine
notwithstanding that the premium has not been paid Not a contract of indemnity, Contracts of indemnity
• If not accepted, the surety shall collect only a reasonable but a contract of investment
amount Regarded as valued policy Open or valued
• If the non-acceptance of the bond be due to the fault or Transferred or assigned to Transferee or assignee must
negligence of the surety, no service fee, stamps, or taxes any person even if he has no have an insurable interest in
imposed shall be collected by the surety insurable interest the thing insured
• In case of continuing bond (term longer than 1 year or with Consent of the insurer is not In absence of waiver by the
no fixed expiration date), the obligor shall pay the essential to the validity of the insurer, consent is essential in
subsequent annual premium as it falls due until the contract assignment of a life policy the assignment of a fire or
is cancelled marine policy
Insurable interest in the life or Insurable interest in the
Types of surety bonds health of the person insured property insured must exist
• Contract bonds – for the protection of the owner against a need not exist after the not only when the insurance
possible default by the contractor to comply with his contract insurance takes effect or takes effect but also when the
or his possible failure to pay material men, laborers, and when the loss occurs loss occurs
sub-contractors Insurable interest need not Must have legal basis
o Performance bond have any legal basis
o Payment bond Contingency that is Contingency insured against
• Fidelity bonds – pay employer for loss growing out of a contemplated is a certain may or may not occur
dishonest act of his employee event, the only uncertain
o Industrial bond being the time when it will
o Public official bond take place
• Judicial bonds – in connection with judicial proceedings Liability of the insurer to make Liability is uncertain because
o Ex. Injunction bonds, attachment bonds, replevin bonds, payment is certain, the only the happening of the peril
bail bonds, and appeal bonds uncertain element being when insured against is uncertain
such payment must be made (may not have to be paid)
SEC. 180 (amount paid sooner or later)
• Pertinent provisions of the Civil Code are applicable in a Cannot be cancelled by the Canceled by either party and
suppletory character insurer and is usually a long is usually for a term of 1 year
term contract
Loss of beneficiary can The reverse is true
TITLE 5: LIFE INSURANCE seldom be measured
accurately in terms of cash
SEC. 181-182 value
Beneficiary has no obligation Insured is required to prove
Life insurance defined to prove actual financial loss his actual pecuniary loss
• Insurance payable on the death of a person, or on his
surviving a specified period, or otherwise contingently on the • Any person who is forbidden from receiving any donation
continuance or cessation of life under art. 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make nay
Parties involved in a policy of life insurance donation to him (art 2012)
• Owner of the policy – has the power to name or change the
beneficiary, to assign the policy, cash it in for its surrender Exemption of life insurance policies from execution
value, or use it as collateral in obtaining a loan; and the • Exempted from execution regardless of the amount of the
obligation to pay the premiums annual premiums paid
• Cestui qui vie – person whose life is the subject of the policy
• Beneficiary Application of exemption to accident insurance
* one person may occupy all three by naming his estate as • When one of the risks insured in the latter is the death of the
beneficiary insured by accident, then such accident insurance may also
be regarded as a life insurance (thus, exemption also
Nature of life insurance applies)
• Liability absolutely certain – payment of a specified sum at • Accident insurance is not to be likened to an ordinary life
an uncertain time; and the premiums are so calculated that insurance where the insured’s death, regardless of the
in accordance with the insured’s expectancy of life under a cause thereof, would normally be compensable
specified mortality table • In accident insurance, claimant must prove that the loss is
• Amount of insurance generally without limit – difficulty in caused by the covered peril
fixing a pecuniary value upon life
Kinds of life insurance policies
Ceding of excess risks. (4) Coinsurance. — A plan of indemnity reinsurance under which
Sections 226 and 225 are designed to curb the activities of the reinsurer assumes the obligation on the amount reinsured in
foreign reinsurers. They also insure the retention of the the same fashion as the insurer is obligated to the insured
premiums in the Philippines, and consequently, provide for (excluding policy loans).
conservation of foreign exchange.
(5) Excess of loss. – A form of nonproportional reinsurance
The cession of excess risks may be done “under the terms and under which the reinsurer indemnifies the insurer for its share of
conditions which the Commissioner may prescribe.” a loss occurrence only after the loss to the insurer exceeds a
stipulated amount or percentage, the reinsurer paying only the
Rules and regulations on life reinsurancee transactions. portion of the loss exceeding such amount or percentage.
The following rules and regulations promulgated and adopted by (6) Facultative reinsurance treaty. – An indemnity reinsurance
the Insurance Commission govern life reinsurance transactions agreement under which there is no obligation on the part of the
in the Philippines: insurer to cede or the reinsurer to accept individual risks. The
(1) The retention of a life insurance company on any one reinsurer retains the “faculty” to accept or reject each risk offered
standard life insured shall not be less than the amount equal to by the insurer. The reinsurer’s liability commences after definite
one-half (1/2) of 1% of the latest verified stockholders equity. approval or acceptance of the risk.
(2) The minimum retention on substandard lives shall be graded
downwards from standard in accordance with sound underwriting (7) Modified coinsurance. – Same as coinsurance except the
practice. reinsurer lends the mean reserve to the insurer each year. (Each
(3) No reinsurance shall be placed abroad where the amount of year the current year’s mean reserve on the reinsured portion
risk is P3 million or less, per life standard risk, graded down for less the preceding year’s mean reserve, plus interest thereon, is
substandard lives. paid to the insurer, if this amount is positive, or returned to the
(4) No reinsurance shall likewise be placed abroad on accident insurer, if negative.)
riders where the accident risk does not exceed PI.5 million per
standard risk. (8) Net amount at risk. – This term is associated with the risk
(5) Reinsurance treaties abroad shall be on the yearly renewable premium reinsurance (RPR) plan. (infra) It is the reinsurer’s
term plan (amount of risk) only. liability in the event of death, determined by deducting from the
(6) Reinsurance abroad on other life insurance riders, group face amount reinsured the terminal reserve thereon, according to
insurance and all other life insurance business may be only after the insurer’s valuation basis for the plan of insurance issued to
it has been shown by the ceding company that such risk cannot the insured.
be absorbed by the Philippine market.
(9) Nonproportional reinsurance. – A plan of reinsurance under
Rules and regulations on non-life reinsurance transactions. which the reinsurer provides protection in any one occurrence
beyond the stipulated loss, deductible, or retention accepted by
1) Non-life insurance companies whose treaty limits and the reinsured regardless of the number of risks involved. The
premiums cessions as of Dec. 31 of the preceding yr. on the ff. retention is stated in terms of the loss, either as a percentage or
lines of business do not exceed the corresponding limits absolute amount, and as a function of either one event or a
hereunder indicated: period of time during which several events producing losses take
place, and is not proportionate or directly related to the risk
Lines of Treaty Limit Premium assumed in the original policy issued to the insured.
Business Cession Catastrophe, stop-loss, excess of loss, or aggregate
a) Fire P 10,000,000 P 5,000,000 excess of loss reinsurance are examples of nonproportional
b) Marine P 5,000,000 P 2,000,000 reinsurance.
c)Other lines P 3,000,000 P 1,000,000
(except motor (10) Proportional reinsurance. – A plan of reinsurance under
car) which the reinsurer provides protection in any one occurrence
when the loss exceeds the retention or risk assumed by the
2) Reinsurance abroad of Motor Car Business shall not be reinsured. The retention is stated in terms of the risk assumed,
allowed except on an excess of loss basis, where such coverage either as a percentage or absolute amount, is the function of one
could not be available locally. event, and is proportionate or related to the risk assumed in the
3) Every insurance company shall report to the Commisssion on original policy issued to the insured.
forms prescribed by it to determine the company’s compliance Risk premium reinsurance, coinsurance, and modified
with the pertinent laws, rules, and regulations on reinsurance. coinsurance are examples of proportional reinsurance.
4) The rules set forth in Sec. 225 of the Insurance Code.
5) Facultative reinsurance placements are still subject to prior (11) Quota share. – A plan of reinsurance under which an insurer
approval by the Commissioner. and a reinsurer are liable for a stipulated percentage of each risk
written under the defined category of business on a pro rata
Glossary of important reinsurance terms. basis (e.g. 60%, insurer and 40%, reinsurer). This plan of
reinsurance is particularly applicable to group-underwritten
The glossary of selected reinsurance terms below will give us an business.
overview of reinsurance terminology.
(1) Assumption reinsurance. — An agreement between two (12) Reinsurance (or indemnity reinsurance). – A business
insurers under which one insurer disposes of its entire in-force transaction under which one party, called the reinsurer, in
portfolio, or a specific block thereof, and the other insurer consideration of a premium paid to him, agrees to indemnify
assumes the functions and all obligations to the insured another party, called the reinsured, for part or all of the liability
connected with the policies involved. assumed by the latter party under a policy or policies of
insurance which it has issued. The reinsured may also be
(2) Automatic reinsurance treaty. — An agreement between an referred to as the reassured, original company, insurer, primary
insurer and a reinsurer under which the insurer is obligated to insurer, direct writing company, or ceding company.
c6de and the reinsurer is obligated to accept as reinsurance the
Time for payment of claims in non-life policies. The findings of the trial court will not necessarily
-Sections 249 refers to insurance policies other than life. The foreclose the administrative case before the
proceeds shall be paid within 30 days after recept by the insurer Commission, or vice versa. True, the parties are the
of proof of loss, and ascertainment of the loss or damage by same, and both actions are predicated on the same set
agreement of the parties or by arbitration but not later than 90 of facts, and will require the identical evidence, the
days from such receipt of proof of loss whether or not procedure to be followed, and the reliefs to be adjudged
ascertainment is had or made. by these two (2) bodies are different (Civil case =
preponderance of evidence, Administrative case =
Effect where claim is fraudulent. substantial evidence). In terms of procedure, the trial
-Fraud in any part of the claim taints the whole. The mere filing of court follows the rules provided under the Rules of
such a claim will exonerate the insurer. Court while the Commission has its own set of rules
-The burden of proving fraud rests on the insurer. and is not bound by the rigidities of technical rules of
procedure.
Effect of false statements innocently made.
-the rights of the insured are, however, in no way prejudiced by (4) Damages, recoverable – The damages to be awarded
false statements inadvertently and innocently made in his proofs are:
of loss despite a clause in the policy providing or its forfeiture in
the event of any false swearing; and although the false (a) Attorney’s fees
statements are as to a material matter to the insurer’s liability, (b) Other expenses incurred by the insured person by
the insured can recover for his loss. reason of such unreasonable denial or withholding
of payment
Reference to arbitration. (c) Interest at twice the ceiling prescribed by the
(1) Where arbitration not required should insurer deny liability. – Monetary Board of the amount of the claim due the
A stipulation in a fire insurance policy that in the event of a loss, insured; and
unless the company should deny liability, as a condition (d) The amount of the claim
precedent to bringing an action on the policy by the insured, the
latter should first submit to an arbitration, is one valid at law and (5) Propriety of award of moral and exemplary damages
unless it be first complied with, no action can be brought. But, if and attorney’s fees – In the case of Sun Insurance
in the course of the settlement of the loss, the company should in Office Ltd. Vs. CA, the Court ruled that the rules under
any case refuse to pay, it will be deemed to have waived the the Civil Code of the Philippines shall govern as regards
condition precedent with reference to arbitration, and suit upon the award of moral and exemplary damages.
the policy will lie.
Examination required of applicant Also, being a mere agent and representative, such agent is also
1. The applicant for license shall qualify himself in a not a real party in interest.
written examination for the kind of license applied for, if
not otherwise exempt from taking the same. Services of adjusters
2. He must be of good moral character and not having 1. Furnishing of prompt aid and advise following a loss, for
been convicted of a crime involving moral turpitude. an adjuster usually arrives very promptly after the loss.
3. He must satisfactorily show that he has been trained in 2. Aids in preventing further damage
the kind or kinds of insurance contemplated in the 3. Examination of policies and explanation of contract
license applied for. terms to the insured
4. A grade of 70% shall be necessary to pass the 4. Aids in securing promptness of settlement by supplying
examination. the formation and assistance of repairs, replacements,
engineering service, salvage, and the like.
No examination is required of the following: 5. Appraisal of value
1. One who presently holds or previously held at anytime 6. Assistance in making inventories, securing expert
during the last 10 years, a license. opinions, and preparing necessary documents.
TITLE 2
FEES AND OTHER SOURCES OF FUNDS
MISCELLANEOUS PROVISIONS
SEC. 442-448