chapter 8 marine, fire, casualty

8/3/2019 Chapter 8 Marine, Fire, Casualty...

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NOTE: Chino please edit na lang format and stuff. I was considering shortening thereviewers pero naisip ko if uber iksi naman wala naman akong maiintindihan. Nagpapahabalang feeling ko ung provisions, as they would be repeated naman sa notes afterwardsAsfor the headings and stuff, pa-edit na lang. Peace Chino! Sorry if sabog. Wala pa ring papereh. Boohoo.

CHAPTER8: SPECIAL KINDS OF INSURANCE CONTRACTSMarine InsuranceDefinition

Sec. 99. Marine Insurance includes:(1) Insurance against loss of or damage to:(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,disbursements, profits, moneys, securities, choses in action, evidences of debts, valuablepapers, bottomry, and respondentia interests and all other kinds of property and intereststherein, in respect to, appertaining to or in connection with any and all risks or perils ofnavigation, transit or transportation, or while being assembled, packed, crated, baled,compressed or similarly prepared for shipment or while awaiting shipment, or during anydelays, storage, transhipment, or reshipment incident thereto, including war risks, marine

builder's risks, and all personal property floater risks;(b) Person or property in connection with or appertaining to a marine, inland marine,transit or transportation insurance, including liability for loss of or damage arising out of orin connection with the construction, repair, operation, maintenance or use of the subjectmatter of such insurance (but not including life insurance or surety bonds nor insuranceagainst loss by reason of bodily injury to any person arising out of ownership, maintenance,or use of automobiles);(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportationor otherwise;(d) Bridges, tunnels and other instrumentalities of transportation and communication(excluding buildings, their furniture and furnishings, fixed contents and supplies held instorage); piers, wharves, docks and slips, and other aids to navigation and transportation,including dry docks and marine railways, dams and appurtenant facilities for the control of

waterways.(2) "Marine protection and indemnity insurance," meaning insurance against, or againstlegal liability of the insured for loss, damage, or expense incident to ownership, operation,chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentalityin use of ocean or inland waterways, including liability of the insured for personal injury,illness or death or for loss of or damage to the property of another person.

Marine Insurance: Insurance against risks connected with navigation, to which a ship,cargo, freightage, profits or other insurable interest in movable property, may be exposedduring a certain voyage or a fixed period of time.

Ocean Marine Insurance Inland Marine Insurance

an insurance against risk connected with

navigation, to which a ship, cargo,freightage, profits or other insurable interestin movable property, may be exposed duringa certain voyage or a fixed period of time

it is of comparatively recent origin and

covers primarily the land or over the landtransportation perils of property shipped byrailroads, motor trucks, airplanes, and othermeans of transportation. It also covers risksof lake, river, or other inland waterwaytransportation and other waterborne perilsoutside of those risks that fall definitelywithin the ocean marine category

Classes of inland marine insurance: (Prof. De Leon, p. 325)


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1. Property in transit provides protection to property frequently exposed to losswhile it is transportation form one location to another.

2. Bailee liability - insurance for those who have temporary custody of the goods.

3. Fixed transportation property they are so insured because they are held tobe an essential part of the transportation system such as bridges, tunnels, etc.

4. Floater provides insurance to follow the insured property wherever it may belocated, subject always to the territorial limits of the contract.

Risks CoveredA. In General

1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers,bottomry and respondentia, and interest in respect to all risks or perils of navigation;2. Persons or property in connection with marine insurance;3. Precious stones, jewels, jewelry and precious metals whether in the course oftransportation or otherwise; and

4. Bridges, tunnels, piers, docks and other aids to navigation and transportation.(Sec. 99)

Cargo can be the subject of marine insurance, and once it is entered into, theimplied warranty of seaworthiness immediately attaches to whoever is insuring the

cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA 596)B. Marine Protection and Indemnity Insurance

Perils of the Sea Perils of the ShipCovered by marine insurance Not covered by marine insurance

Denote nature accidents peculiar to the seawhich

1. do not happen by intervention of man2. cannot be prevented by human

prudence

Go Tiaoco v. Union Insurance(1919):1. Natural and inevitable2. Ordinary wear and tear3. Negligent failure of ship owner to

provide proper equipment

Insurable interest in marine insuranceSec. 100 The owner of a ship has in all cases an insurable interest in it, even when it, evenwhen it has been chartered by one who covenants to pay him its value in case of loss:Provided, That in this case the insurer shall be liable for only that part of the loss which theinsured cannot recover from the charterer

Sec. 101 The insurable interest of the owner of the ship hypothecated by bottomry is onlythe excess of its value over the amount secured by bottomry.

Sec. 102 Freightage, in the sense of a policy of marine insurance, signifies all the benefitsderived by the owner, either from the chartering of the ship or its employment for thecarriage of his own goods or those of others.

Sec. 103 The owner of a ship has an insurable interest in expected freightage whichaccording to the ordinary and probable course of things he would have earned but for theintervention of a peril insured against or other peril incident to the voyage

Sec. 104 The interest mentioned in the last section exists, in case of a charter party, whenthe ship has broken ground on the chartered voyage. If a price is to be paid for the carriageof goods it exists when they are actually on board, or there is some contract for puttingthem on board, and both ship and goods are ready for the specific voyage.

Sec. 105 One who has an interest in the thing from which profits are expected to proceedhas an insurable interest in the profits.


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Sec. 106. The charterer of a ship has an insurable interest in it, to the extent that he is liableto be damnified by its loss.

Parties with insurable interest

1. Shipownera. Over the vessel to the extent of its value

EXCEPT:(1) if chartered, the insurable interest is only up to the amount not

recoverable from the charterer. (Sec. 100). If the charterercompensated the shipowner the whole value in case of the loss, NOINSURABLE INTEREST

(2) If hypothecated by bottomry, the insurable interest is onlyt theexcess of its value over the amount secured by bottomry. (Sec. 101

b. He also has an insurable interest on expected freightage. (Sec. 103).In case of Charter party: when the ship has broken ground on the charteredvoyageIn price is to be paid for the carriage of goods: insurable interest exists when

goods are:(1) Actually on board(2) There is some contract for putting the goods on board(3) Both ship and goods are ready for the specific voyage (Sec. 104)

2. Cargo owner-Over the cargo and expected profits (Sec. 105).

3. Charterer-Over the amount he is liable to the shipowner, if the ship is lost or damaged duringthe voyage (Sec. 106).

Coastwise vs. CA (1995): Coastwise/barerboat charter vs. contract of affreightment

Demise/Bareboat charter Contract of AffreightmentCharterer regarded as owner of vessel

voyage stipulatedas the charter includesboth the vessel and its crew

Owner of vessel leases part or all of its space

to haul goods for others

Charter is liable Shipowner liableCommon carrier is deemed asprivatecarrier

Still a common carrier so required toexercise Extraordinary diligence in thevigilance over the goods and for the safety ofthe passengers it transports (PlantersProducts v. CA)

Concealment and misrepresentation

CONCEALMENTSec. 107. In marine insurance each party is bound to communicate, in addition to what isrequired by section twenty-eight, all the information which he possesses, material to therisk, except such as is mentioned in Section thirty, and to state the exact and whole truth inrelation to all matters that he represents, or upon inquiry discloses or assumes to disclose.

Sec. 108. In marine insurance, information of the belief or expectation of a third person, inreference to a material fact, is material.

Sec. 109. A person insured by a contract of marine insurance is presumed to haveknowledge, at the time of insuring, of a prior loss, if the information might possibly havereached him in the usual mode of transmission and at the usual rate of communication.


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Sec. 110. A concealment in a marine insurance, in respect to any of the following matters,does not vitiate the entire contract, but merely exonerates the insurer from a loss resultingfrom the risk concealed:(a) The national character of the insured;(b) The liability of the thing insured to capture and detention;

(c) The liability to seizure from breach of foreign laws of trade;(d) The want of necessary documents;(e) The use of false and simulated papers.

REPRESENTATION

Sec. 111. If a representation by a person insured by a contract of marine insurance, isintentionally false in any material respect, or in respect of any fact on which the characterand nature of the risk depends, the insurer may rescind the entire contract.

Sec. 112. The eventual falsity of a representation as to expectation does not, in the absenceof fraud, avoid a contract of marine insurance.

CONCEALMENTMarine Insurance Other Insurance

What must becommunicated(in GF + w/n hisknowledge)

1. all facts material to thecontract

2. all facts which he makesno warranty

3. all facts which the otherhas not the means ofascertaining (Sec. 28)

4. all information which hepossesses material tothe risk

1. all facts material to thecontract

2. all facts which he makesno warranty

3. all facts which the otherhas not the means ofascertaining (Sec. 28)

What needs not becommunicated(Sec. 30)

Information1. already known to the other party2. the other party ought to know w/ exercise of ordinary care

+ the former has no reason to suppose him ignorant3. already waived4. related to a risk excluded by a warranty + not material5. related to a excepted risk + not material

Information or belief of a3rd Party

Material and must becommunicated

GR: Not material, need not becommunicatedX:it proceeds from an agent ofthe insured whose duty is togive information

Effect of concealment If the fact concealed involves

the following, there is notvitiation of the entire contractBUT merely exonerates theinsurer from a risk resultingfrom the concealed fact:(a) The national character ofthe insured;(b) The liability of the thinginsured to capture anddetention;(c) The liability to seizure from

Concealment of any material

fact will vitiate the entirecontract, WON the loss resultsfrom the fact concealed.


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breach of foreign laws of trade;(d) The want of necessarydocuments;(e) The use of false andsimulated papers. (Sec. 110)

On representationGR: If representation is intentionally false, insurer may rescind the entire contract (Sec. 111)X: if the fact as to expectation was found to be eventually falseX to X: if there is fraud (Sec. 112)

Implied Warranties

IMPLIED WARRANTIES1. Seaworthiness of the ship at the inception of the insurance (Sec. 113);2. Against improper deviation (Sec. 123, 124, 125);3. Against illegal venture;

4. Warranty of neutrality: the ship will carry the requisite documents of nationality or

neutrality of the ship or cargo where such nationality or neutrality is expresslywarranted; (Sec. 120)

5. Presence of insurable interest.

Seaworthiness

Sec. 113. In every marine insurance upon a ship or freight, or freightage, or upon any thingwhich is the subject of marine insurance, a warranty is implied that the ship is seaworthy.

Sec. 114. A ship is seaworthy when reasonably fit to perform the service and to encounterthe ordinary perils of the voyage contemplated by the parties to the policy.

Sec. 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy atthe time of the of commencement of the risk, except in the following cases:

(a) When the insurance is made for a specified length of time, the implied warranty is notcomplied with unless the ship be seaworthy at the commencement of every voyage itundertakes during that time;(b) When the insurance is upon the cargo which, by the terms of the policy, description ofthe voyage, or established custom of the trade, is to be transhipped at an intermediate port,the implied warranty is not complied with unless each vessel upon which the cargo isshipped, or transhipped, be seaworthy at the commencement of each particular voyage.

Sec. 116. A warranty of seaworthiness extends not only to the condition of the structure ofthe ship itself, but requires that it be properly laden, and provided with a competent master,a sufficient number of competent officers and seamen, and the requisite appurtenances andequipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel andlights, and other necessary or proper stores and implements for the voyage.

Sec. 117. Where different portions of the voyage contemplated by a policy differ in respectto the things requisite to make the ship seaworthy therefor, a warranty of seaworthiness iscomplied with if, at the commencement of each portion, the ship is seaworthy with referenceto that portion.

Sec. 118. When the ship becomes unseaworthy during the voyage to which an insurancerelates, an unreasonable delay in repairing the defect exonerates the insurer on ship orshipowner's interest from liability from any loss arising therefrom.

Sec. 119. A ship which is seaworthy for the purpose of an insurance upon the ship may,


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nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for thepurpose of the insurance upon the cargo.

Sec. 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it isimplied that the ship will carry the requisite documents to show such nationality or neutrality

and that it will not carry any documents which cast reasonable suspicion thereon.

Seaworthiness when the ship is reasonably fit to perform the service and to encounter theordinary perils of the voyage contemplated by the parties to the policy, considering thenature of the ship, the voyage and the service to be performed (Sec. 114)

Requisites of Seaworthyness (Sec. 116)a. Not only condition of ships structureb. Ship properly laden

c. Competent master (Delsan Transport vs. CA)d. Sufficient number of competent officers and seamene. Requisite appurtenances and equipment and other necessary or proper stores and

implements for voyage

GENERAL RULE:The warranty of seaworthiness is complied with if the ship be seaworthy atthe time of the commencement of the risk. Prior or subsequent unseaworthiness is not abreach of the warranty nor is it material that the vessel arrives in safety at the end of hervoyage.EXCEPTIONS:

1. In the case of a time policy, the ship must be seaworthy at the commencement ofevery voyage she may undertake (Sec. 115a)

2. In the case of cargo policy, each vessel upon which the cargo is shipped ortransshipped must be seaworthy at the commencement of each particular voyage (Sec.115b)

3. In the case of a voyage policy contemplating a voyage in different stages, the ship

must be seaworthy at the commencement of each portion4. In the case when the ship becomes unseaworthy during the voyage to which an

insurance is related, delay in repairing the defect exonerates the insurer on ship orshipowners interest from liability from any loss arising therefrom. (Sec. 118)

Scope of Seaworthiness of vessel1. INSURANCE ON CARGO: it must be properly loaded, stowed, dunnaged, and secured so asnot to imperil the navigation of the vessel to cause injury to the vessel or cargo.2. INSURANCE ON VESSEL: ship is not unseaworthy because of some defect in loading orstowage which is easily curable by those on board, and was cured before the loss.3. DECK CARGO: carrying it raises a presumption of unseaworthiness which can beovercome only by showing affirmatively that the deck cargo was not likely to interfere withthe due management of the vessel.

Applicability of implied warranty of seaworthiness to cargo owners: For everycontract of insurance which is a subject of marine insurance, a warranty isimplied that the ship will be seaworthy (regardless if youre the shipper or thecarrier). It becomes the obligation of a cargo owner to look for a reliable common carrier,which keeps its vessels in seaworthy conditions. The shipper may have no control over thevessel but he has control in the choice of the common carrier that will transport his goods(Roque v. IAC, 139 SCRA 596).

Improper Deviation


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Sec. 121. When the voyage contemplated by a marine insurance policy is described by theplaces of beginning and ending, the voyage insured in one which conforms to the course ofsailing fixed by mercantile usage between those places.

Sec. 122. If the course of sailing is not fixed by mercantile usage, the voyage insured by a

marine insurance policy is that way between the places specified, which to a master ofordinary skill and discretion, would mean the most natural, direct and advantageous.

Sec. 123. Deviation is a departure from the course of the voyage insured, mentioned in thelast two sections, or an unreasonable delay in pursuing the voyage or the commencement ofan entirely different voyage.

Sec. 124. A deviation is proper:(a) When caused by circumstances over which neither the master nor the owner of the shiphas any control;(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril isinsured against;(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid

a peril; or(d) When made in good faith, for the purpose of saving human life or relieving anothervessel in distress.

Sec. 125. Every deviation not specified in the last section is improper.

Sec. 126. An insurer is not liable for any loss happening to the thing insured subsequent toan improper deviation.

Deviation: A departure from the course of the voyage insured, or an unreasonable delay inpursuing the voyage or the commencement of an entirely different voyage. (Sec.123) Instances:

1. Departure of vessel from the course of the sailing fixed by mercantile usage

2. Departure of vessel from the most natural, direct and advantageous route if not fixedby mercantile usage1. Unreasonable delay in pursuing voyage2. Commencement of an entirely different voyage (Secs. 121-123) Kinds:1. Proper -

a. When caused by circumstances outside the control of the ship captain or ship owner;b. When necessary to comply with a warranty or to avoid a peril;

e.g. vessel becomes so damaged as to render it unsafe without undergoing repairsc. When made in good faith to avoid a peril;d. When made in good faith to save human life or to relieve another vessel in distress (Sec.

124) Effect: In case of loss, the insurer is still liable.2. Improper - Every deviation not specified in Sec. 124 (Sec. 125). Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)

Kinds of losses coveredSec. 127. A loss may be either total or partial.

Sec. 128. Every loss which is not total is partial.

Sec. 129. A total loss may be either actual or constructive.


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Sec. 130. An actual total loss is cause by:(a) A total destruction of the thing insured;(b) The irretrievable loss of the thing by sinking, or by being broken up;(c) Any damage to the thing which renders it valueless to the owner for the purpose forwhich he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port ofdestination, of the thing insured.

Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon,under Section one hundred thirty-nine.

Sec. 132. An actual loss may be presumed from the continued absence of a ship withoutbeing heard of. The length of time which is sufficient to raise this presumption depends onthe circumstances of the case.

Sec. 133. When a ship is prevented, at an intermediate port, from completing the voyage, bythe perils insured against, the liability of a marine insurer on the cargo continues after theyare thus reshipped.

Nothing in this section shall prevent an insurer from requiring an additional premium if thehazard be increased by this extension of liability.

Sec. 134. In addition to the liability mentioned in the last section, a marine insurer is boundfor damages, expenses of discharging, storage, reshipment, extra freightage, and all otherexpenses incurred in saving cargo reshipped pursuant to the last section, up to the amountinsured.

Nothing in this or in the preceding section shall render a marine insurer liable for anyamount in excess of the insured value or, if there be none, of the insurable value.

Sec. 135. Upon an actual total loss, a person insured is entitled to payment without notice of

abandonment.

Sec. 136. Where it has been agreed that an insurance upon a particular thing, or class ofthings, shall be free from particular average, a marine insurer is not liable for any particularaverage loss not depriving the insured of the possession, at the port of destination, of thewhole of such thing, or class of things, even though it becomes entirely worthless; but suchinsurer is liable for his proportion of all general average loss assessed upon the thinginsured.

Sec. 137. An insurance confined in terms to an actual loss does not cover a constructivetotal loss, but covers any loss, which necessarily results in depriving the insured of thepossession, at the port of destination, of the entire thing insured.

Total Loss

Actual Constructive

1. Total destruction;

2. Irretrievableloss by sinking;3. Damage rendering the thingvalueless; or4. Total deprivation of ownerof possession of thing insured. (Sec.130)

1. Actual loss of more than of thevalue of the object;

2. Damage reducing value by more than of the value of the vessel and ofcargo; and

3. Expense of transshipment exceed of value of cargo or the ship. (Sec.131, in relation to Sec. 139)


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Notice of Abandonment not necessary Notice of Abandonment necessary to recoveras for the total loss; insured may:

1. Abandon goods or vessel to theinsurer and claim for whole insuredvalue (Sec. 139)

2. Without abandoning vessel, claim forpartial actual loss (Sec. 155)

May be presumed from the continuedabsence of a ship without being heard of(length of time for presumption to applydepends on the circumstances) (Sec. 132)

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Insured entitled to payment without notice ofabandonment

*Insured has the right to abandon the thinginsured by relinquishing to the insurer hisinterest in such thing, entitling him torecover for a total loss thereof (Sec. 138)*Insurer acquires all rights over the thinginsured (Sec. 146)*If abandonment is not proper or properly

made, the insurer would still be liable asupon the Actual Total Loss, deducting fromthe amount any proceeds from the thinginsured which may have come to the hand ofthe insured.

2. Partial: That which is not total (Sec. 128).-liability of insurer: only for such proportion of the amount insured by him as the lossbears to the value of the whole interest of the insured in the property insured. (Sec 157)

Loss in case the voyage cannot be completedIf ship is prevented from leaving an intermediate port by perils insured against, the mastermust make every exertion to procure, in the same or contiguous port, another ship for the

purpose of conveying the cargo to its destination-Before, in case of reshipment, insurer is liable. However, under Insurance Code, no mentionof insurers liability. Campos says that this may be merely an omission, thus concludes thatinsurer is liable:

1. For any loss which may take place on goods until they are reshipped if voyage cannotbe completed in any insurance upon cargo insurer may required additionalpremium if the hazard be increased by the extension of liability (Sec. 133)

2. Insurer also liable for expenses necessary to complete the transportaion of cargoreshipped; damages, expenses of discharging, storage, reshipment, extra freiathage,and all other expenses incurred in saving cargo reshipped such liability, however,cannot exceed the amount of insurance (Sec 134)

General Rule: if the original ship be disabled, and the master, acting with a wise

discretion, as the agent of the merchant and the shipowner, forwards the cargo in anothership, such necessary and justifiable change of ship will not discharge the underwriter on thegoods from liability for any loss which may take place on goods after such reshipment.

Exception: the general rule is not obligatory if the crew had to procure a vesselfrom distant places and there are serious impediments in the way of putting the cargo onboard.

Subsidiary Rule: additional premium may be required if the hazard is increased byextension of liability.

Special Marine insurance policies and clauses


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A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1)as otherwise excluded in the policy; or 2) due to fraud or intentional misconduct on the partof the insured.

The insured 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.(Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638)

B. Barratry Clause A clause which provides that there can be no recovery on the policy in case of any willfulmisconduct on the part of the master or crew in pursuance of some unlawful or fraudulentpurpose without consent of owners, and to the prejudice of the owners interest. (Roque vs.IAC, 139 SCRA 596)

C. Inchamaree Clause A clause which makes the insurer liable for loss or damage to the hull or machineryarising from the:

1. Negligence of the captain, engineers, etc.2. Explosions, breakage of shafts; and

3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, JorgeMiravite, 2002 ed.)

D. Sue and Labor Clause A clause under which the insurer may become liable to pay the insured, in addition to theloss actually suffered, such expenses as he may have incurred in his efforts to protect theproperty against a peril for which the insurer would have been liable. (Sec. 163)

Measure of indemnity

Sec. 156. A valuation in a policy of marine insurance is conclusive between the partiesthereto in the adjustment of either a partial or total loss, if the insured has some interest at

risk, and there is no fraud on his part; except that when a thing has been hypothecated bybottomry or respondentia, before its insurance, and without the knowledge of the personactually procuring the insurance, he may show the real value. But a valuation fraudulent infact, entitles the insurer to rescind the contract.

Sec. 157. A marine insurer is liable upon a partial loss, only for such proportion of theamount insured by him as the loss bears to the value of the whole interest of the insured inthe property insured.

Sec. 158. Where profits are separately insured in a contract of marine insurance, the insuredis entitled to recover, in case of loss, a proportion of such profits equivalent to the proportionwhich the value of the property lost bears to the value of the whole.

Sec. 159. In case of a valued policy of marine insurance on freightage or cargo, if a part onlyof the subject is exposed to the risk, the evaluation applies only in proportion to such part.

Sec. 160. When profits are valued and insured by a contract of marine insurance, a loss ofthem is conclusively presumed from a loss of the property out of which they are expected toarise, and the valuation fixes their amount.

Sec. 161. In estimating a loss under an open policy of marine insurance the following rulesare to be observed:(a) The value of a ship is its value at the beginning of the risk, including all articles or


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charges which add to its permanent value or which are necessary to prepare it for thevoyage insured;(b) The value of the cargo is its actual cost to the insured, when laden on board, or wherethe cost cannot be ascertained, its market value at the time and place of lading, adding thecharges incurred in purchasing and placing it on board, but without reference to any loss

incurred in raising money for its purchase, or to any drawback on its exportation, or to thefluctuation of the market at the port of destination, or to expenses incurred on the way or onarrival;(c) The value of freightage is the gross freightage, exclusive of primage, without referenceto the cost of earning it; and(d) The cost of insurance is in each case to be added to the value thus estimated.

Sec. 162. If cargo insured against partial loss arrives at the port of destination in a damagedcondition, the loss of the insured is deemed to be the same proportion of the value whichthe market price at that port, of the thing so damaged, bears to the market price it wouldhave brought if sound.

Sec. 163. A marine insurer is liable for all the expenses attendant upon a loss which forces

the ship into port to be repaired; and where it is stipulated in the policy that the insuredshall labor for the recovery of the property, the insurer is liable for the expense incurredthereby, such expense, in either case, being in addition to a total loss, if that afterwardsoccurs.

Sec. 164. A marine insurer is liable for a loss falling upon the insured, through a contributionin respect to the thing insured, required to be made by him towards a general average losscalled for by a peril insured against; provided, that the liability of the insurer shall be limitedto the proportion of contribution attaching to his policy value where this is less than thecontributing value of the thing insured.

Sec. 165. When a person insured by a contract of marine insurance has a demand againstothers for contribution, he may claim the whole loss from the insurer, subrogating him to his

own right to contribution. But no such claim can be made upon the insurer after theseparation of the interests liable to the contribution, nor when the insured, having the rightand opportunity to enforce the contribution from others, has neglected or waived theexercise of that right.

Sec. 166. In the case of a partial loss of ship or its equipment, the old materials are to beapplied towards payment for the new. Unless otherwise stipulated in the policy, a marineinsurer is liable for only two-thirds of the remaining cost of repairs after such deduction,except that anchors must be paid in full.

1. Open policy:-value of thing insured is not agreed upon, but left to be ascertained at time of loss;

-insurer liable only for the expense necessary to replace the thing lost or injured inthe condition it was at the time of the injury

WHAT VALUE in OPEN POLICY

Ship Value at beginning of risk (includes all articles which add to its permanentvalue or which are necessary to prepare if for the voyage insured), not thevalue at time she was built

Cargo Actual cost when laden on board.IF actual cost cant be determined, market value at time and place of lading,PLUS expenses incurred in purchasing and placing them on board.Expected profits are not considered since they can be separately isnured.


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Freightage

Gross freightage without reference to cost of earning it

In case of Total LossValue of total loss will be computed in rules stated above

Insurer liable for total loss, but it cant exceed face amount of policy

2. Valued policy-definite valuation is agreed upon by both parties, written on the face of the policy- the parties are bound by the valuationExceptions:

a. When there is fraud or mistakeb. When the thing has been hypothecated by bottomry or respondentia before

its insurance and without the knowledge of the person who actually procuredthe insurance: insurer may show the real value; can only rescind contractwhen he proves that the valuation was in fact fraudulent

In case of Total loss- Insurer must pay valuation fixed in the policy without any right to argue against its

correctness except on basis of fraud- Liability cant exceed amount in policy

In both Open and Valued Policy, in case of Partial Loss

the insured is deemed by law as co-insurer if the value of the insurance is less thanthe value of the property or interest insured, even in the absence of any agreementto that effect.

However, law does not prevent parties from stipulating otherwise

Note: It is very crucial to determine whether a marine vessel is covered by a marineinsurance or fire insurance. The determination is important for 2 reasons:

1. Rules on constructive total loss and abandonment applies only to marineinsurance;

2. Rule on co-insurance applies primarily to marine insurance;3. Rule on co-insurance applies to fire insurance only if expressly agreed upon.(Commercial Law Reviewer, Aguedo Agbayani, 1988 ed.)

Abandonment

Sec. 138. Abandonment, in marine insurance, is the act of the insured by which, after aconstructive total loss, he declares the relinquishment to the insurer of his interest in thething insured.

Sec. 139. A person insured by a contract of marine insurance may abandon the thinginsured, or any particular portion thereof separately valued by the policy, or otherwiseseparately insured, and recover for a total loss thereof, when the cause of the loss is a peril

insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expendedto recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performedwithout incurring either an expense to the insured of more than three-fourths the value ofthe thing abandoned or a risk which a prudent man would not take under the circumstances;or


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(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, noranother ship procured by the master, within a reasonable time and with reasonablediligence, to forward the cargo, without incurring the like expense or risk mentioned in thepreceding sub-paragraph. But freightage cannot in any case be abandoned unless the ship is

also abandoned.

Sec. 140. An abandonment must be neither partial nor conditional.

Sec. 141. An abandonment must be made within a reasonable time after receipt of reliableinformation of the loss, but where the information is of a doubtful character, the insured isentitled to a reasonable time to make inquiry.

Sec. 142. Where the information upon which an abandonment has been made provesincorrect, or the thing insured was so far restored when the abandonment was made thatthere was then in fact no total loss, the abandonment becomes ineffectual.

Sec. 143. Abandonment is made by giving notice thereof to the insurer, which may be done

orally, or in writing; Provided, That if the notice be done orally, a written notice of suchabandonment shall be submitted within seven days from such oral notice.

Sec. 144. A notice of abandonment must be explicit, and must specify the particular causeof the abandonment, but need state only enough to show that there is probable causetherefor, and need not be accompanied with proof of interest or of loss.

Sec. 145. An abandonment can be sustained only upon the cause specified in the noticethereof.

Sec. 146. An abandonment is equivalent to a transfer by the insured of his interest to theinsurer, with all the chances of recovery and indemnity.

Sec. 147. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled towhatever may remain of the thing insured, or its proceeds or salvage, as if there had been aformal abandonment.

Sec. 148. Upon an abandonment, acts done in good faith by those who were agents of theinsured in respect to the thing insured, subsequent to the loss, are at the risk of the insurerand for his benefit.

Sec. 149. Where notice of abandonment is properly given, the rights of the insured are notprejudiced by the fact that the insurer refuses to accept the abandonment.

Sec. 150. The acceptance of an abandonment may be either express or implied from theconduct of the insurer. The mere silence of the insurer for an unreasonable length of time

after notice shall be construed as an acceptance.

Sec. 151. The acceptance of an abandonment, whether express or implied, is conclusiveupon the parties, and admits the loss and the sufficiency of the abandonment.

Sec. 152. An abandonment once made and accepted is irrevocable, unless the ground uponwhich it was made proves to be unfounded.

Sec. 153. On an accepted abandonment of a ship, freightage earned previous to the lossbelongs to the insurer of said freightage; but freightage subsequently earned belongs to theinsurer of the ship.


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Sec. 154. If an insurer refuses to accept a valid abandonment, he is liable as upon actualtotal loss, deducting from the amount any proceeds of the thing insured which may havecome to the hands of the insured.

Sec. 155. If a person insured omits to abandon, he may nevertheless recover his actual loss.

Abandonment-The act of the insured by which, after a constructive total loss, he declared therelinquishment to the insurer of his interest in the thing insured. (Sec. 138)-the insured has right to abandon ONLY if peril insured against causes a loss of more than the thing insured or where the value is reduced by more than (constructive loss = morethan 75% loss = full recovery of the full amount in the policy)

i. Requisites

1. There must be actual relinquishment by the person insured of his interest in thething insured (Sec. 138)

2. There must be constructive total loss (Sec. 139). Any particular portion of the

thing insured separately valued by the policy may be separately abandoned as it isdeemed separately insured.-constructive loss = more than 75% loss-examples

3. It must be total and absolute (Sec. 140)GR: to cover the whole interest insured, abandonment must be unconditionalX: if only part of the thing is covered by the insurance, the insured need onlyabandon that part

4. It must be within a reasonable time after the receipt of reliable information of theloss (Sec. 141)-reasonable time depends on the facts and circumstances in each case, but should beenough for the insured to ascertain the facts and for the insurer not to be prejudiced

by the delay and to be able to take immediate steps for the preservation of theproperty

5. It must be factual (Sec. 142)-the existence of loss should be dependent on the facts at the time when offer toabandon was given to the insured (not before the offer, nor after the abandonmentwas made good)-information received need not be direct and positive, as long as from theinformation, it is highly probable that a constructive total loss has occurred, and factssufficient to constitute a total loss exist.

6. It must be made by giving notice thereof to the insurer which may be done orally orin writing (Sec. 143)-If done orally: insured must submit to the insurer a written notice w/n 7 days fromthe oral notice

7. Notice must be explicit and must specify the particular cause of theabandonment (Sec. 144)-intention to abandon should be apparent from the communication and the insuredshould not claim and use the property as his own after the notice was given-grounds must be stated with such particularity as to enable the insurer to determineWON he is bound to accept the offer

Acceptance of Abandonment by insurer: need not be express.ii. Effects of Acceptance


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1. Upon receiving notice of abandonment, the insurer may accept or rejectabandonment.

2. Insurer becomes liable for whole amount of insurance and becomes entitledto all the rights which the insured has over the thing

3. The parties rights become fixed.

4. The insurer may no longer rely on any insufficiency in the form, time orright of abandonment. WON the insured has a right to abandon is immaterialwhere offer is already accepted and there is no fraud.

5. EXCEPTION to the general effects of acceptance: when the ground upon which it wasmade proves to be unfounded.

6. Abandonment can be sustained only upon the ground specified in the notice.

-If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss,deducting form the amount any proceeds of the thing insured which may have come to thehands of the insured. (Sec.154)

AVERAGEAverageAny extraordinary or accidental expense incurred during the voyage for the preservation ofthe vessel, cargo, or both, and all damages to the vessel and cargo from the time it isloaded and the voyage commenced until it ends and the cargo unloaded.

General Average Particular Average

All expenses and damages which aredeliberately causedin order to save thevessel, its cargo or both from a real knownrisk

All expenses and damages caused to thevessel or cargo which have not incurred tothe common benefit

Intentionally caused NOT intentionally caused

Borne by owners of articles saved pro-rata Borne only by the owner of the property1. Common danger: Certain andimminent (and known)

2. Part of the vessel is sacrificed

3. Expenses follows from thesuccessfulsaving of the vessel orother cargo

4. Expenses incurred ONLY after takingproper legal steps and authority(Magsaysay v. Agan (1955))

GR: Insurer Liable if the owner of the articlessaved seeks right of contribution.

X: Cannot recover against the insurer1. After separation of interests liable to

contribution2. Insured has neglected or waived his

right to contribution

GR: Insurer Liable to the proportion ofcontribution attaching to the policy value of

the thing insuredX: if partial loss excluded by the policy

FIRE INSURANCEDefinition


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Sec. 167. As used in this Code, the term "fire insurance" shall include insurance against lossby fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risksare covered by extension to fire insurance policies or under separate policies.

Risks covered

INCLUDES Loss bya. Fireb. Lightningc. Windstormd. Tornadoe. Earthquakef. Other allied risks

Hostile Fire Friendly FireFire that escapes and burns in a place whereit is not supposed to be. May also refer to firethat started out as a friendly fire but escapesfrom its original place or it becomes too

strong as it becomes out of control; It mayalso be a friendly fire but unsuitablematerials were used to light the fire andbecomes inherently dangerous anduncontrollable

Fire that burns in a place where it issupposed to burn. It is employed for theordinary purpose of lighting, heating ormanufacturing.

Insurer liable Insurer NOT Liable

Prerequisites to recovery:1. Notice of loss must be immediately given, unless delay is waived expressly or

impliedly by the insurer2. Proof of loss according to best evidence obtainable. Delay may also be waived

expressly or impliedly by the insurer

Measure of indemnitySec. 171. If there is no valuation in the policy, the measure of indemnity in an insuranceagainst fire is the expense it would be to the insured at the time of the commencement ofthe fire to replace the thing lost or injured in the condition in which at the time of the injury;but if there is a valuation in a policy of fire insurance, the effect shall be the same as in apolicy of marine insurance.

Sec. 172. Whenever the insured desires to have a valuation named in his policy, insuringany building or structure against fire, he may require such building or structure to beexamined by an independent appraiser and the value of the insured's interest therein maythen be fixed as between the insurer and the insured. The cost of such examination shall bepaid for by the insured. A clause shall be inserted in such policy stating substantially thatthe value of the insured's interest in such building or structure has been thus fixed. In the

absence of any change increasing the risk without the consent of the insurer or of fraud onthe part of the insured, then in case of a total loss under such policy, the whole amount soinsured upon the insured's interest in such building or structure, as stated in the policy uponwhich the insurers have received a premium, shall be paid, and in case of a partial loss thefull amount of the partial loss shall be so paid, and in case there are two or more policiescovering the insured's interest therein, each policy shall contribute pro rata to the paymentof such whole or partial loss. But in no case shall the insurer be required to pay more thanthe amount thus stated in such policy. This section shall not prevent the parties fromstipulating in such policies concerning the repairing, rebuilding or replacing of buildings orstructures wholly or partially damaged or destroyed.


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1. Open policy: only the expense necessary to replace the thing lost or injured in thecondition it was at the time of the injury2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake

Note: It is very crucial to determine whether a marine vessel is covered by a marineinsurance or fire insurance. The determination is important for 2 reasons:

1. Rules on constructive total loss and abandonment applies only to marineinsurance;

2. Rule on co-insurance applies primarily to marine insurance;3. Rule on co-insurance applies to fire insurance only if expressly agreed upon.(Commercial Law Reviewer, Aguedo Agbayani, 1988 ed.)

Special clauses in Fire Insurance contracts1. Storage of Hazardous Things

GR: would render policy voidX: if hazardous thingsa. Essential to business

b. Causal/temporary usec. Would not increase the risk insured against

2. Sole and unconditional ownershipSole: no one else has any interestUnconditional: quality of ownership not limited or affected by accommodation-the insured alone would sustain the loss-this is a guard against moral hazard where the interest of insured in preservation ofthe property is not enough

3. Other insurance clause: insured should inform insurer and obtain their consent to getnew insurance on same subject matter and insurable interest for the insurer toassess interest of the insured in the preservation of the property

4. Chattel mortgage clause: should get consent of insurer before property insured besubject to a chattel mortgage

5. Alienation clause: lack of insurable interest of the insured would prevent him fromrecovering

6. Unoccupancy and vacancy clause: aims to prevent risk-should have intent to abandon, unless policy includes temporary absence

7. Nonsafe (?) clause: Put records of changing stocks inside fire-proof vault to preventguesswork

Casualty or Accidental InsuranceDefinition

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident ormishap, excluding certain types of loss which by law or custom are considered as fallingexclusively within the scope of other types of insurance such as fire or marine. It includes,

but is not limited to, employer's liability insurance, motor vehicle liability insurance, plateglass insurance, burglary and theft insurance, personal accident and health insurance aswritten by non-life insurance companies, and other substantially similar kinds of insurance.

Casualty Insurance-covers loss or liability arising from accident or mishap-excludes those falling under other types of insurance

Kinds1. Employers liability insurance: damages or injury to workmen as caused by

a. Negligence of employer or his agent


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b. Negligence of employers (?)c. Act/omission by fellow working employees in obedience to employers by lawsd. Particular instruction of one who has authority over workmen

2. Motor vehicle insurance (see later section)3. Plate gloss insurance: against loss from braking of glass windows

4. Burglary and theft insurance5. Personal accident and health insurance: from expense and loss in injuries or diseases6. Workmens Compensation insurance: industrial accident, causally or disease

Parties with insurable interestRight of a third party injured to sue the insurer1. Indemnity against liability A third party injured can directly sue the insurer.2. Indemnity for actual loss or reimbursement after actual payment by the insured A thirdparty has no cause of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA261).

The insurer is not solidarily liable with the insured. The insurers liability is based oncontract; that of the insured is based on torts. Furthermore, the insurers liability is limited

by the amount of the insurance coverage (Pan Malayan Insurance Corporation v. CA, 184SCRA 54).

Intentional vs. Accidental: testINTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition.Where a provision of the policy excludes intentional injury, it is the intention of the personinflicting the injury that is controlling. If the injuries suffered by the insured clearly resultedfrom the intentional act of the third person, the insurer is relieve from liability as stipulated.(Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972)2. Accidental That which happens by chance or fortuitously, without intention or design,which is unexpected, unusual and unforeseen.

Compulsory Motor Vehicle InsuranceDefinition

Sec. 373. For purposes of this chapter:(a) "Motor Vehicle" is any vehicle as defined in section three, paragraph (a) of Republic ActNumbered Four Thousand One Hundred Thirty-Six, Otherwise known as the "Land

Transportation and Traffic Code."

(b) "Passenger" is any fare paying person being transported and conveyed in and by a motorvehicle for transportation of passengers for compensation, including persons expresslyauthorized by law or by the vehicle's operator or his agents to ride without fare.

(c) "Third-Party" is any person other than a passenger as defined in this section and shallalso exclude a member of the household, or a member of the family within the second

degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator,as likewise defined herein, or his employee in respect of death, bodily injury, or damage toproperty arising out of and in the course of employment. (As amended by PresidentialDecree No. 1814 and 1981).

(d) "Owner" or "motor vehicle owner" means the actual legal owner of a motor vehicle, inwhose name such vehicle is duly registered with the Land Transportation Commission;

(e) "Land transportation operator" means the owner or owners of motor vehicles fortransportation of passengers for compensation, including school buses;


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(f) "Insurance policy" or "Policy" refers to a contract of insurance against passenger andthirty-party liability for death or bodily injuries and damaged to property arising from motorvehicle accidents. (As amended by Presidential Decree No. 1455 and 1814).

Sec. 374. It shall be unlawful for any land transportation operator or owner of a motor

vehicle to operate the same in the public highways unless there is in force in relation theretoa policy of insurance or guaranty in cash or surety bond issued in accordance with theprovisions of this chapter to indemnify the death, bodily injury, and/or damage to property ofa third-party or passenger, as the case may be, arising from the use thereof. (As amendedby Presidential Decree No. 1455 and 1814).

Sec. 375. The Commissioner shall furnish the Land Transportation Commissioner with a listof insurance companies authorized to issue the policy of insurance or surety bond requiredby this chapter. (As amended by Presidential Decree No. 1814).

Compulsory Motor Vehicle Insurance-A species of compulsory insurance that provides for protection coverage that will answer for

legal liability for losses and damages for bodily injuries or property damage that may besustained by another arising from the use and operation of motor vehicle by its owner.-Purpose: To give immediate financial assistance to victims of motor vehicle accidentsand/or their dependents, especially if they are poor regardless of the financial capability ofmotor vehicle owners or operators responsible for the accident sustained (Shafer v. Judge,RTC, 167 SCRA 386).

Methods of Coverage1. Insurance policy2. Surety bond3. Cash deposit

Parties affected

i. Owner of vehicle: the actual legal owner of a motor vehicle, in whose name suchvehicle is duly registered with the Land Transportation Commission;ii. Passenger: any fare paying person being transported and conveyed in and by a motorvehicle for transportation of passengers for compensation, including persons expresslyauthorized by law or by the vehicle's operator or his agents to ride without fare.iii. Third-party: any person other than a passenger as defined in this section and shallalso exclude a member of the household, or a member of the family within the seconddegree of consanguinity or affinity, of a motor vehicle owner or land transportation operator,as likewise defined herein, or his employee in respect of death, bodily injury, or damage toproperty arising out of and in the course of employment. (As amended by PresidentialDecree No. 1814 and 1981).

No-fault clause

Sec. 378. Any claim for death or injury to any passenger or third party pursuant to theprovisions of this chapter shall be paid without the necessity of proving fault or negligenceof any kind; Provided, That for purposes of this section:

(i) The total indemnity in respect of any person shall not exceed five thousand pesos;

(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence tosubstantiate the claim:(a) Police report of accident; and(b) Death certificate and evidence sufficient to establish the proper payee; or(c) Medical report and evidence of medical or hospital disbursement in respect of which


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refund is claimed;

(iii) Claim may be made against one motor vehicle only. In the case of an occupant of avehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding,mounting or dismounting from. In any other case, claim shall lie against the insurer of the

directly offending vehicle. In all cases, the right of the party paying the claim to recoveragainst the owner of the vehicle responsible for the accident shall be maintained.

A clause that allows the victim (injured person or heirs of the deceased) to an option tofile a claim for death or injury without the necessity of proving fault or negligence of anykind. Purpose: To guarantee compensation or indemnity to injured persons in motor vehicleaccidents. Rules:1. Total indemnity - maximum of P5,0002. Proofs of loss -

a. Police report of accident;b. Death certificate and evidence sufficient to establish proper payee;

c. Medical report and evidence of medical or hospital disbursement.3. Claim may be made against one motorvehicle only4. Proper insurer from which to claim -

a. In case of an occupant: Insurer of the vehicle in which the occupant is riding,mounting or dismounting from;

b. In any other case: Insurer of the directly offending vehicle. (Sec. 378)

The claimant is not free to choose from which insurer he will claim the no faultindemnity as the law makes it mandatory that the claim shall lie against the insurer of thevehicle in which the occupant is riding, mounting or dismounting from. That said vehiclemight not be the one that caused the accident is of no moment since the law itself providesthat the party paying may recover against the owner of the vehicle responsible for the

accident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)

This no-fault claim does not apply to property damage. If the total indemnity claimexceeds P5,000 and there is controversy in respect thereto, the finding of fault may beavailed of by the insurer only as to the excess. The first P5,000 shall be paid without regardto fault. (Prof. De Leon, p. 716)

The essence of the no-fault indemnity insurance is to provide victims of vehicularaccidents or their heirs immediate compensation although in limited amount, pending finaldetermination of who is responsible for the accident and liable for the victims injuries ordeath. (Ibid.)

Special Clauses

A. Authorized Driver Clause A clause which aims to indemnify the insured owner against loss or damage to the car butlimits the use of the insured vehicle to the insured himself or any person who drives on hisorder or with his permission (Villacorta v. Insurance Commissioner)

The requirement that the person driving the insured vehicle is permitted in accordancewith the licensing laws or other laws or regulations to drive the motor vehicle (licenseddriver) is applicable only if the person driving is other than the insured.

B. Theft Clause


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A clause which includes theft as among the risks insured against. Where the car is unlawfully and wrongfully taken without the owners consent orknowledge, such taking constitutes theft, and thus, it is the theft clause and not theauthorized driver clause that should apply (Palermo v. Pyramids Ins., 161 SCRA 677).

C. Cooperation Clause A clause which provides in essence that the insured shall give all such information andassistance as the insurer may require, usually requiring attendance at trials or hearings.

chapter 8 marine, fire, casualty

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