1

1

INSURANCE CODE OF 19781

GENERAL PROVISIONS

Sec. 1. This Decree shall be known as “The Insurance Code of 1978.2”

A. Brief History

The business and contract of insurance in the Philippines are generally governed by the provisions of Presidential Decree No. 612 (PD 612), as amended, then known as the Insurance Code. The In-surance Code was ordained and instituted by Former President Fer-dinand E. Marcos (President Marcos) on 18 December 1974.

Prior to the enactment of PD 612, the applicable law was the Insurance Act which took effect on 1 July 1915. The Insurance Act was practically a verbatim copy of the California Insurance Act ex-cept for some provisions taken from the New York Insurance Law.

The Insurance Code had undergone several amendments since its promulgation on 18 December 1974. A substantial number of pro-visions were rendered obsolete by subsequent issuances of amenda-tory laws, decrees and executive orders. It then became imperative to consolidate, codify and integrate such amendatory laws, decrees and executive orders to harmonize their provisions for the proper guidance of the public and ef cient administration thereof. There likewise existed in the Insurance Code certain provisions which were impractical in application in the Philippines thereby necessitating revision in order to infuse exibility, keep pace with the changing needs and demands of industries in line with new risks and arising out of new international developments.

Thus, on 11 June 1978, then President Marcos signed Presi-dential Decree No. 1460 (PD 1460) for the purpose of consolidating and codifying all insurance laws embodied in PD 612 and various

1Presidential Decree No. 612 and related laws codi ed by Presidential Decree No. 1460.

2Inserted by virtue of Presidential Decree No. 1460.

2 THE INSURANCE CODE OF THE PHILIPPINES

laws, presidential decrees and executive orders. It is now known as the Insurance Code of 1978.

On 16 January 1981, Presidential Decree No. 1814 was signed into law amending certain sections of PD 1460 to: (i) ensure the due execution and performance of insurance contracts in the interests of the sound development of the national economy in view of the pre-vailing economic conditions during that time; and (ii) further assure reasonable insurance services for the protection of the interests of the policy holders and the public.

On 12 June 1985, Batas Pambansa Blg. 874 amended Sections 27, 45, 384 and 416 and inserted Section 180-A.

B. How Insurance Works3

“Life is a risk.” — A time proven cliché. The world is surround-ed by risks. There are risks everywhere. Some risks are minimal and can be lived with, but most are not. Thus, the need for insur-ance. But insurance does not work to protect one against the risks happening, instead, it covers the consequences of the happening.

Thus, insurance is something one buys hoping he never has to use. It is purchased to protect oneself from unexpected losses he cannot afford — the accident he hopes he never gets into, the re he prays never destroys his home, the storm he knows sooner or later is bound to batter his roof, the lawsuit that threatens to wipe out all his savings.

While it may seem complex, insurance is really quite simple: The payments (or premiums) of the many pay for the losses of a few. The premiums go into a large pool. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims — even large single claims like when someone is perma-nently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster.

Even when the pool comes close to emptying, there is another pool from which insurance companies can draw to pay claims. Some of the premiums are used by the insurance company to buy reinsur-ance — insurance for insurance companies. Sometimes losses are

3The Insurance Bureau of Canada, “How Insurance Works.”

3

so big — like those resulting from an earthquake — that there is no way that an insurance company can cover the costs. Reinsurance is an extra layer of protection against large losses.

C. Imbued with Public Interest

The business of insurance is imbued with public interest. It is subject to regulations by the State, with respect not only to the rela-tions between the insurer and the insured, but also to the internal affairs of insurance companies.4

Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:

(1) A “contract of insurance” is an agreement where-by one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

A contract of suretyship shall be deemed to be an insur-ance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance busi-ness as hereinafter provided.

(2) The term “doing an insurance business” or “trans-acting an insurance business,” within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a rein-surance business, speci cally recognized as constituting the doing of an insurance business within the meaning of this Code;

4Republic vs. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006.

INSURANCE CODE OF 1978GENERAL PROVISIONS

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PREFACE

Upon reaching the age of thirty (30) and after fi ve (5) academic years of teaching the subject, the author felt that it was time to collate his materials and sit down in writing his views and thoughts on the subject of insurance.

This book, although it consists of almost a thousand pages, rep-resents a simple discussion of the insurance law in the Philippines. A substantial proportion of the material is adapted from the legal provisions and jurisprudence, both here and abroad; opinions and annotations of authors, both local and foreign; and other published articles, both in the papers and in the internet. Some Supreme Court decided cases are reproduced herein in full for the readers to appre-ciate the correlation of insurance law principles with one another as well as with other laws, both substantive and remedial.

The author wrote this book in the hope that his humble work would be of great help to the law students, bar candidates and law practitioners.

E.V.M.D.

March 31, 2009

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CONTENTS

GENERAL PROVISIONS

Section 1 .................................................................................................. 1

A. Brief History ............................................................................ 1B. How Insurance Works ............................................................. 2C. Imbued with Public Interest ................................................... 3

Section 2 .................................................................................................. 3

A. Essential Elements of Insurance ............................................ 4B. Characteristics of an Insurance Contract .............................. 5C. Requisite of an Insurance Contract ....................................... 16D. Parties ...................................................................................... 19E. Consent .................................................................................... 20F. Theory of Cognition ................................................................. 23G. Defects of Consent ................................................................... 27H. Object ....................................................................................... 27I. Cause/Consideration ............................................................... 28J. Governing Law ........................................................................ 28K. Construction of the Insurance Code ....................................... 32L. Policy Construction ................................................................. 33

Case: QUA CHEE GAN vs. LA UNION AND ROCK INSURNACE CO. LTD. ................................. 38

M. Principle of Subrogation ......................................................... 43N. The Business of Insurance ...................................................... 50

Case: WHITE GOLD MARINE SERVICES INC. vs. PIONEER INSURANCE AND SURETY CORPORATION .......................................................... 52

O. Types of Insurance .................................................................. 56P. Classifi cation Under the Code ................................................ 59Q. Lending Investors vs. Insurance Companies ......................... 60

Chapter 1THE CONTRACT OF INSURANCE

Title 1WHAT MAY BE INSURED

Section 3 .................................................................................................. 62

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A. What may be Insured .............................................................. 62B. Minors ...................................................................................... 64C. Married Woman ...................................................................... 66

Section 4 .................................................................................................. 69

A. Drawing Lottery ...................................................................... 69B. Insurance is not Gambling ..................................................... 70C. Risk Management ................................................................... 71

Section 5 .................................................................................................. 73

Title 2PARTIES TO THE CONTRACT

Section 6 .................................................................................................. 74

A. Who may be an Insurer ........................................................... 74B. Certifi cate Authority ............................................................... 75C. Entities Prohibited to Act as an Insurer ................................ 76D. Separate License from an Insurance Agent ........................... 77

Section 7 .................................................................................................. 77

A. Who is a Public Enemy ........................................................... 78B. Control Test on the Corporations ........................................... 78C. Effect of War Generally .......................................................... 81D. Dealing with Dual Citizenship ............................................... 81E. Effect of Termination of War .................................................. 86

Case: FILIPINAS COMPAÑA DE SEGUROS vs. CHRISTERN, HUENEFELD AND CO., INC. .......... 86 CONSTANTINO vs. LIFE INSURANCE COMPANY .................................................................. 89 HIDALGO vs. MANUFACTURER’S LIFE INSURANCE COMPANY ........................................... 97

F. May a Public Enemy Be a Benefi ciary ................................... 102

Section 8 .................................................................................................. 103

Section 9 .................................................................................................. 103

A. Mortgagor and Mortgagee’s Interest ...................................... 103B. Mortgage Redemption Insurance ........................................... 105C. Types of Mortgage Clause ....................................................... 106D. Simple vs. Standard ................................................................ 107E. Proper Party to Bring the Suit ............................................... 111F. Effect of Assent of the Insurer to the Transfer of Insurance ............................................................................. 113

Case: GREAT PACIFIC LIFE ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 113

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Title 3INSURABLE INTEREST

Section 10 ................................................................................................. 120

A. Requirement of Insurable Interest ......................................... 120B. Moral Hazard in Life Insurance ............................................. 122C. In whose Life or Health does a Person Have an Insurable Interest ................................................................... 125D. Consent of Person Whose Life is Being Insured is not Estate Necessary ..................................................................... 135

Section 11 ................................................................................................. 135

A. Policy Owner, Insured and Benefi ciary ................................. 135B. Types of Benefi ciaries ............................................................. 136C. Revocable vs. Irrevocable ........................................................ 137D. Importance of Choosing a Benefi ciary ................................... 139E. Disqualifi ed to be Benefi ciaries .............................................. 141F. What if Benefi ciary Dies Before the Insured ......................... 144G. Paying Life Insurable Proceeds into a Trust ......................... 145

Section 12 ................................................................................................. 145

1) Rationale .................................................................................. 1452) Act Must be Felonious ............................................................. 1463) Nearest Relative as Benefi ciary ............................................. 147

Section 13 ................................................................................................. 149

Section 14 ................................................................................................. 150

A. Insurable Interest in Property ............................................... 150B. Title or Security Interest Not Required ................................. 151C. Exceptions to Insurable Interest ............................................ 154D. Stolen Property ........................................................................ 155E. Effects of War to Insurable Interest ....................................... 157F. Insurable Interest of Consignee, Factor or Agent ................. 158

Section 15 ................................................................................................. 158

Section 16 ................................................................................................. 159

Section 17 ................................................................................................. 160

Section 18 ................................................................................................. 161

1) Different Expressions ............................................................. 1612) Insurance not Invalid .............................................................. 163

Case: GARCIA vs. THE HONGKONG FIRE & MARINE INSURANCE CO., LTD. ............................ 163

Section 19 ................................................................................................. 167

A. Property and Liability Insurance ........................................... 168B. Life Insurance ......................................................................... 169

Section 20 ................................................................................................. 170

Section 21 ................................................................................................. 170

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Section 22 ................................................................................................. 170

Section 23 ................................................................................................. 170

Section 24 ................................................................................................. 170

A. Life and Health Insurance ...................................................... 171B. Change After the Occurrence of the Loss .............................. 172C. Change of Interest in One or More Several Distinct Things Separately Insured by One Policy ............... 173D. Change by Will or Succession ................................................. 173E. Transfer by One of Several Partners Joint Owners or Owners in Common ..................................... 173F. Policy Inures to the Benefi t of Whomsoever May Become the Owner .......................................................... 174

Section 25 ................................................................................................. 174

Title 4CONCEALMENT

Section 26 ................................................................................................. 176

1) Act of Withholding Information ............................................. 1762) Concealment Presupposes Knowledge ................................... 177

Section 27 ................................................................................................. 177

A. Grounds and Rationale for Rescission of Contract of Insurance ............................................................................. 177B. Intentional or Unintentional .................................................. 179C. Good Faith not a Defense ....................................................... 179

Case: GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS ................. 180

D. Waiver of Medical Examination ............................................. 185

Section 28 ................................................................................................. 187

A. Within the Knowledge ............................................................ 187B. Makes No Warranty ................................................................ 188

Section 29 ................................................................................................. 188

A. Truth of Warranty ................................................................... 188B. Intent to Deceive a Question of Fact ...................................... 188

Section 30 ................................................................................................. 189

A. What Need to be Disclosed ..................................................... 189B. Public Character and Notoriety ............................................. 189C. Insurer’s Duty to Inquire ........................................................ 191D. Obligation in Good Faith ........................................................ 191E. Knowledge of Agent ................................................................ 192

Section 31 ................................................................................................. 192

A. Inducement to Enter Into a Contract .................................... 192B. Need Not be the Cause of the Loss ......................................... 193

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C. Matters of Inquiries ................................................................ 194

Section 32 ................................................................................................. 195

A. General Causes Open to Inquiry ............................................ 195B. Full Conversant in the Usual Course of Trade ..................... 196C. Rule on Judicial Notice ........................................................... 197

Section 33 ................................................................................................. 198

A. Right to Rely on the Truthfulness of Answers ...................... 198B. Imperfect Answers .................................................................. 199

Cases: NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION ....................... 199

C. No Waiver in Non-Medical Insurance .................................... 203

Section 34 ................................................................................................. 203

Section 35 ................................................................................................. 203

Title 5REPRESENTATION

Section 36 ................................................................................................. 207

A. Representation vs. Misrepresentation ................................... 207B. Representation vs. Warranty ................................................. 208C. Misrepresentation vs. Concealment ....................................... 208D. Orally or in Writing ................................................................ 208E. Representation in the Application Process ............................ 209

Section 37 ................................................................................................. 210

A. Time in Which Representation is Made ................................. 210B. Effect of Provisions .................................................................. 211C. Must be Made by the Insured ................................................. 211

Section 38 ................................................................................................. 211

A. Construction ............................................................................ 211B. Applicability of Rules on Interpretation of Contracts ........... 212C. Applicability of the Rules of Court ......................................... 213

Section 39 ................................................................................................. 214

A. Affi rmative vs. Promissory ..................................................... 214B. Statement of Belief or Expectation vs. Promissory Representation ........................................................................ 215

Section 40 ................................................................................................. 215

A. Representation vs. Warranty ................................................. 216B. Qualifying an Implied Warranty ............................................ 216C. Express Warranty Supersedes Representation ..................... 216

Section 41 ................................................................................................. 216

Section 42 ................................................................................................. 217

Section 43 ................................................................................................. 217

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A. No Personal Knowledge ......................................................... 217

Case: HARDING vs. COMMERCIAL UNION ASSURANCE COMPANY ............................ 218

B. Knowledge of Agent ................................................................ 226

Cases: THE INSULAR LIFE ASSURANCE CO., LTD. vs. FELICIANO ......................................... 228 THE INSULAR LIFE ASSURANCE CO., LTD. vs. FELICIANO ......................................... 231

C. Knowledge of Insured Corporation ........................................ 235

Section 44 ................................................................................................. 235

A. False Representation .............................................................. 235B. No Misrepresentation if Substantially True .......................... 236C. Need not be Intended .............................................................. 236D. Facts of Loss Not Material ...................................................... 236E. Mistake of Forgetfulness ........................................................ 237F. Misstatement of Age ............................................................... 237

Section 45 ................................................................................................. 237

A. Contract of Speculation ........................................................... 237

Case: SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY ........... 238

B. Kinds of Misrepresentation .................................................... 241C. No Misrepresentation ............................................................. 242D. Affi rmative Defense ................................................................ 242E. Waiver by Acceptance of Premiums ....................................... 243

Case: EDILLON vs. MANILA BANKERS LIFE INSURANCE CORPORATION .................................. 243

Section 46 ................................................................................................. 247

A. Determination of Materiality ................................................. 247B. Falsity of Answers ................................................................... 248

Section 47 ................................................................................................. 248

Section 48 ................................................................................................. 249

A. Previous to the Commencement of Action ............................. 249B. Presupposes Existence of Contract ........................................ 250

Cases: TAN CHAY HENG vs. WEST COAST LIFE INSURANCE COMPANY ................... 250 ARGENTE vs. WEST COAST LIFE INSURANCE COMPANY ................................. 258

C. Incontestability Clause ........................................................... 265

Cases: PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS ................................................ 266 TAN vs. COURT OF APPEALS ................................. 272

D. Not a License to Commit a Fraud .......................................... 278

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E. Mutual Advantage of Insurer and Insured ............................ 279F. Applicability of Reinstated Policies ........................................ 279G. Exceptions to Incontestability Clause .................................... 279H. Rationale of Imposter Defense ............................................... 280

Title 6THE POLICY

Section 49 ................................................................................................. 281

Section 50 ................................................................................................. 281

A. Forms of Insurance Contract .................................................. 282B. Rider, Clause, Warranty and Endorsement .......................... 292C. Counter-Signature of the Insured .......................................... 293D. Group Insurance ...................................................................... 294E. Group Annuity ......................................................................... 295

Case: COMMISSIONER OF INTERNAL REVENUE vs. LINCOLN PHILIPPINES LIFE INSURANCE COMPANY, INC. ........................................................ 295

Section 51 ................................................................................................. 300

A. Parties ...................................................................................... 300B. Amount of Insurance ............................................................... 305C. Premium .................................................................................. 306D. Property, Life or Liability Insured ......................................... 307E. Interest of the Insured in Property ........................................ 308F. Risk Insured Against .............................................................. 309G. Period During Which the Insured is to Continue .................. 309

Section 52 ................................................................................................. 309

A. Cover Notes ............................................................................. 309B. Preliminary Contract of Insurance ........................................ 311C. Binding Receipt ....................................................................... 311D. Separate Premiums Not Required ......................................... 313

Case: PACIFIC TIMBER EXPORT CORPORATION vs. COURT OF APPEALS ................................................ 313

Section 53 ................................................................................................. 318

A. Person Designated in the Policy ............................................. 318

Case: SUNLIFE ASSURANCE COMPANY OF CANADA vs. TORIBIO ............................................... 318

B. Third Party’s Right to Insurer ................................................ 328C. Not Solidary ............................................................................. 328

Cases: LAMPANO vs. JOSE .................................................. 329 BONIFACIO BROS. INC. vs. MORA ......................... 333 COQUIA vs. FIELDMEN’S INSURANCE CO., INC. .................................................................... 338 GUINGON vs. DEL MONTE ...................................... 343

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Section 54 ................................................................................................. 347

Case: LOPEZ vs. DEL ROSARIO ......................................... 347

Section 55 ................................................................................................. 352

Section 56 ................................................................................................. 353

Section 57 ................................................................................................. 353

Section 58 ................................................................................................. 353

Section 59 ................................................................................................. 354

Section 60 ................................................................................................. 354

Section 61 ................................................................................................. 354

Section 62 ................................................................................................. 354

A. Open and Valued Policies ....................................................... 354B. Running Policy ........................................................................ 356

Section 63 ................................................................................................. 356

1) Prescription Under the Civil Code ......................................... 3562) Prescription by Agreement ..................................................... 357

Cases: ANG vs. FULTON ....................................................... 357 FILIPINO MERCHANT INSURANCE COMPANY, INC. vs. ALEJANDRO ........................... 361 MAYER STEEL PIPE CORPORATION vs. COURT OF APPEALS ................................................ 367

3) Oral Contract of Insurance ..................................................... 3704) Cause of Action ........................................................................ 3705) Denial of Reconsideration ....................................................... 371

Section 64 ................................................................................................. 372

Section 65 ................................................................................................. 373

Case: MALAYAN INSURANCE CO. vs. ARNALDO .......... 373

Section 66 ................................................................................................. 382

Title 7WARRANTIES

Section 67 ................................................................................................. 383

A. Primary Concerns ................................................................... 383B. Devices to Ascertain and Control Risk and Loss ................... 383C. Construction of Warranty ....................................................... 385

Case: AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISE, INC. ................................ 385

Section 68 ................................................................................................. 392

A. Past, Present of Future ........................................................... 392B. Affi rmative or Promissory ...................................................... 393

Section 69 ................................................................................................. 393

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Section 70 ................................................................................................. 394

Case: ANG GIOK CHIP vs. SPRINGFIELD FIRE & MARINE INSURANCE .......................................... 394

Section 71 ................................................................................................. 402

1) Express and Implied Warranty .............................................. 4032) Implied Warranty and Representation .................................. 4033) Express Warranty and Representation ................................. 4034) Forms of Express Warranty ................................................... 404

Section 72 ................................................................................................. 405

Section 73 ................................................................................................. 405

A. Effect of Non-Compliance ....................................................... 405B. When Compliance Dispense With .......................................... 406

Section 74 ................................................................................................. 406

A. Effect of Breach ....................................................................... 406B. Expressly Included .................................................................. 407

Case: YOUNG vs. THE MIDLAND TEXTILE INSURANCE COMPANY ........................................... 407

Section 75 ................................................................................................. 411

Case: GEAGONIA vs. COURT OF APPEALS ..................... 412

Section 76 ................................................................................................. 420

Title 8PREMIUM

Section 77 ................................................................................................. 422

Cases: ARCE vs. THE CAPITAL INSURANCE & SURETY CO., INC. ..................................................... 423 ACME SHOE RUBBER & PLASTIC CORPORATION vs. THE COURT OF APPEALS .... 425 THE MANUFACTURERS LIFE INSURANCE CO. vs. MEER .............................................................. 429

Section 78 ................................................................................................. 434

A. Exceptions to Cash and Carry Basis ...................................... 434B. Payment by Installments ........................................................ 437C. Credit Agreement ................................................................... 438

Case: UCPB GENERAL INSURANCE CO., INC. vs. MASAGANA TELEMART, INC. ................................ 439

D. Payment by Promissory Notes or Bill of Exchange ............... 456E. Acknowledgement of Receipt if Premium .............................. 456

Section 79 ................................................................................................. 456

Section 80 ................................................................................................. 457

Section 81 ................................................................................................. 457

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Section 82 ................................................................................................. 457

A. Return of Entire Premium ...................................................... 457B. Return of Portion of Premium ................................................ 460C. No Return of Premium ............................................................ 461

Case: GREAT PACIFIC LIFE INSURANCE CORPORATION vs. COURT OF APPEALS ............. 461

Title 9LOSS

Section 83 ................................................................................................. 466

A. Loss Under the Civil Code ..................................................... 466

Section 84 ................................................................................................. 469

A. Proximate Cause ..................................................................... 470B. Burden of Proof ....................................................................... 471

Case: COUNTRY BANKERS INSURANCE CORPORATION vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE ............................ 471

Section 85 ................................................................................................. 479

Section 86 ................................................................................................. 479

Section 87 ................................................................................................. 480

A. Willful Act and Negligence ..................................................... 480B. Negligence or Misconduct ....................................................... 480C. Agreement to Indemnity ......................................................... 481

Cases: FGU INSURANCE CORPORATION vs. THE COURT OF APPEALS ....................................... 481 SUNRISE INSURANCE OFFICE, LTD. vs. COURT OF APPEALS ................................................ 494

Title 10NOTICE OF LOSS

Section 88 ................................................................................................. 499

A. Condition ................................................................................. 499B. Requisite for Recovery ............................................................ 499C. Notice in Fire Insurance ......................................................... 500

Section 89 ................................................................................................. 500

Section 90 ................................................................................................. 500

Section 91 ................................................................................................. 500

Case: PACIFIC TIMBER EXPORT CORPORATION vs. COURT OF APPEALS ................................................ 501

Section 92 ................................................................................................. 506

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Title 11DOUBLE INSURANCE

Section 93 ................................................................................................. 507

A. When Double Insurance Exists .............................................. 507B. Same Subject Matter, Same Interest, and Same Risk .......... 508

Case: GEAGONIA vs. COURT OF APPEALS ..................... 508

C. Prohibition Against Double Insurance ................................... 516

Cases: SANTA ANA vs. COMMERCIAL UNION ASSURANCE COMPANY, LTD. ............................... 517 GENRERAL INSURANCE & SURETY CORPORATION vs. NG HUA .................................... 522

D. Waiver of Annulment .............................................................. 524

Section 94 ................................................................................................. 524

A. Over Insurance by Double Insurance .................................... 525B. Recovery from Insurers ........................................................... 525C. Cannot Recover Doubly ........................................................... 525D. Refund of Premiums ............................................................... 526

Title 12REINSURANCE

Section 95 ................................................................................................. 529

A. Protection if Insurer ................................................................ 529B. Functions of Reinsurance ....................................................... 530C. Types Reinsurance .................................................................. 531D. Contracts ................................................................................. 533E. Applicability of Rules on Representation and Concealment ............................................................................ 533F. Retrocession ............................................................................. 533G. Importance of Reinsurance ..................................................... 534H. Rules on Reinsurance Under the Insurance Code ................. 535I. Reinsurance vs. Double Insurance ......................................... 538J. Policy vs. Treaty ...................................................................... 538

Section 96 ................................................................................................. 538

Section 97 ................................................................................................. 539

Section 98 ................................................................................................. 539

A. Indemnity Against Liability ................................................... 539B. Defense of Reinsured Available to Reinsurer ........................ 540

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Chapter IICLASSES OF INSURANCE

Title IMARINE INSURANCE

Sub-Title 1- ADEFINITION

Section 99 ................................................................................................. 541

A. General Principles ................................................................... 542B. Coverage .................................................................................. 543C. Hull Insurance and Marine Cargo Policy .............................. 545D. Kinds of Marine Policies ......................................................... 546E. Assignment of Policy ............................................................... 547F. Perils of the Sea vs. Perils of the Ship ................................... 548

Cases: LA RAZON SOCIAL “GO TIAOCO Y HERMANOS” vs. UNION INSURANCE SOCIETY OF CANTON, LTD. ................................... 551 MALAYAN INSURANCE CORPORATION vs. COURT OF APPEALS ................................................ 556

G. Barratry ................................................................................... 564H. Inchmaree Clause ................................................................... 564I. All Risks Policy ........................................................................ 565

Case: FILIPINO MERCHANTS INSURANCE CO., INC. vs. COURT OF APPEALS ......................... 566

J. Wages of Mariners and Property on Board ........................... 572

Sub-Title 1-BINSURABLE INTEREST

Section 100 ............................................................................................... 573

A. Requirement of Insurable Interest ......................................... 573B. Charter Party .......................................................................... 574C. Kinds of Charter ...................................................................... 575D. Charterer’s Liability ............................................................... 576E. Charterer’s Interest ................................................................ 577F. Charterer’s Loss of Hire .......................................................... 577

Section 101 ............................................................................................... 578

A. Respondentia and Bottomry ................................................... 578B. Payment is Conditional ........................................................... 578C. Insurable Interest of Lender .................................................. 578D. Insurable Interest of Borrower ............................................... 579E. Not Subject to Usury Law ....................................................... 580F. Interest of Lender and Underwriter ...................................... 580

Section 102 ............................................................................................... 580

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Section 103 ............................................................................................... 580

Section 104 ............................................................................................... 580

A. Existence of Interest in Freightage ........................................ 580B. Ship Owner’s Interest on Freight ........................................... 581C. Partial Lost on Freight ........................................................... 582D. Arrival in Bulk ........................................................................ 582

Section 105 ............................................................................................... 582

Section 106 ............................................................................................... 583

Sub-Title 1-CCONCEALMENT

Section 107 ............................................................................................... 583

Section 108 ............................................................................................... 584

Section 109 ............................................................................................... 584

A. Stricter Application of Rules on Concealment and Representation ........................................................................ 584B. Required Disclosure ................................................................ 584C. Belief or Expectation of Third Person .................................... 585

Section 110 ............................................................................................... 585

Sub-Title 1-DREPRESENTATION

Section 111 ............................................................................................... 586

Section 112 ............................................................................................... 586

A. High Degree of Good Faith ..................................................... 586B. Matter of Fact or Expectation ................................................ 587

Sub-Title 1-EIMPLIED WARRANTIES

Section 113 ............................................................................................... 587

A. Implied Seaworthiness ............................................................ 587B. Express and Implied Warranties ........................................... 588

Section 114 ............................................................................................... 588

A. General Term .......................................................................... 588B. When is a Ship Seaworthy ...................................................... 589C. Presumption of Seaworthiness ............................................... 591D. Must be in Navigation ............................................................ 592

Section 115 ............................................................................................... 592

Section 116 ............................................................................................... 592

Section 117 ............................................................................................... 592

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A. Relative Term .......................................................................... 593B. Seaworthy at the Time of Sailing ........................................... 593

Section 118 ............................................................................................... 594

Section 119 ............................................................................................... 595

Section 120 ............................................................................................... 597

A. Warranty Not a Representation ............................................. 597B. Neutrality ................................................................................ 598C. Documents of Nationality or Neutrality ................................ 599

Sub-Title 1-FTHE VOYAGE AND DEVIATION

Section 121 ............................................................................................... 599

Section 122 ............................................................................................... 599

A. Covered Voyage ....................................................................... 599B. Common Usage ........................................................................ 599

Section 123 ............................................................................................... 600

A. Concept of Deviation ............................................................... 600B. Distinguished from Breach of Warranty ................................ 601C. Goods on Board ........................................................................ 601

Section 124 ............................................................................................... 602

Section 125 ............................................................................................... 602

Section 126 ............................................................................................... 602

A. Proper and Improper Deviation ............................................. 602B. Effect of Deviation ................................................................... 602C. What Constitute Deviation ..................................................... 604

Sub-Title 1-GLOSS

Section 127 ............................................................................................... 605

Section 128 ............................................................................................... 605

Section 129 ............................................................................................... 606

Section 130 ............................................................................................... 606

Section 131 ............................................................................................... 606

Section 132 ............................................................................................... 606

A. Actual and Constructive Loss ................................................. 606B. Right to Abandon .................................................................... 607C. Loss of Vessel ........................................................................... 608

Section 133 ............................................................................................... 609

Section 134 ............................................................................................... 609

A. Reshipment .............................................................................. 609

xix

B. Lien of Finder or Salvor .......................................................... 609C. Loss of Value ........................................................................... 610

Section 135 ............................................................................................... 610

Section 136 ............................................................................................... 611

A. Rules on Average ..................................................................... 611B. Particular and General ........................................................... 614C. Free From Particular Average Clause ................................... 615

Case: PHILIPPINE HOME ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 619

Section 137 ............................................................................................... 626

Sub-Title 1-HABANDONMENT

Section 138 ............................................................................................... 627

Section 139 ............................................................................................... 627

Section 140 ............................................................................................... 627

Section 141 ............................................................................................... 628

A. Restrictions on Abandonment ................................................ 628B. The Three-Fourth Rule ........................................................... 628

Section 142 ............................................................................................... 629

Section 143 ............................................................................................... 629

Section 144 ............................................................................................... 629

Section 145 ............................................................................................... 629

Section 146 ............................................................................................... 630

Section 147 ............................................................................................... 630

Section 148 ............................................................................................... 630

Section 149 ............................................................................................... 630

Section 150 ............................................................................................... 630

Section 151 ............................................................................................... 631

Section 152 ............................................................................................... 631

Section 153 ............................................................................................... 631

Section 154 ............................................................................................... 631

Section 155 ............................................................................................... 631

1. Effect of Non-Acceptance ........................................................ 6312. Annulment of Abandonment .................................................. 6323. Election of the Insured ............................................................ 632

Sub-Title 1-IMEASURE OF INDEMNITY

Section 156 ............................................................................................... 632

xx

Section 157 ............................................................................................... 632

Section 158 ............................................................................................... 634

Section 159 ............................................................................................... 634

Section 160 ............................................................................................... 634

Section 161 ............................................................................................... 634

Section 162 ............................................................................................... 634

A. Primage and Demurrage ........................................................ 635B. Partial Loss of the Cargo ........................................................ 635

Section 163 ............................................................................................... 636

Section 164 ............................................................................................... 637

Section 165 ............................................................................................... 637

Section 166 ............................................................................................... 637

Title 2FIRE INSURANCE

Section 167 ............................................................................................... 639

A. Coverage .................................................................................. 639B. Extension or Under Separate Policies ................................... 640C. Fire Following Earthquake ..................................................... 640D. Friendly Fire/Hostile Fire ....................................................... 641E. Direct and Indirect Losses ...................................................... 641F. Lightning ................................................................................. 642G. Double Insurance .................................................................... 642

Section 168 ............................................................................................... 643

Section 169 ............................................................................................... 643

Section 170 ............................................................................................... 643

Section 171 ............................................................................................... 643

Section 172 ............................................................................................... 644

A. Measure of Indemnity ............................................................. 644B. Repair, Rebuild and Replace .................................................. 645

Case: ONG GUA CAN vs. THE CENTURY INSURANCE CO., LTD. ............................................. 645

Section 173 ............................................................................................... 647

Title 3CASUALTY INSURANCE

Section 174 ............................................................................................... 648

A. Direct Result of Accident ........................................................ 648B. Direct Suit Against the Insurer .............................................. 649C. Not Solidarily Liable ............................................................... 649

xxi

D. Accidental Means .................................................................... 650

Title 4SURETYSHIP

Section 175 ............................................................................................... 654

Section 176 ............................................................................................... 654

Section 177 ............................................................................................... 654

Section 178 ............................................................................................... 655

A. Three Party Contract .............................................................. 655B. Guaranty vs. Surety ................................................................ 655C. Credit Accommodation ............................................................ 656

Case: PHILIPPINE PRYCE ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 656

Title 5LIFE INSURANCE

Section 179 ............................................................................................... 664

Section 180 ............................................................................................... 664

A. Concept of Life Insurance ....................................................... 664B. Parties to the Contract ............................................................ 665C. Types of Life Insurance ........................................................... 666

Section 180-A............................................................................................ 669

Section 181 ............................................................................................... 670

Section 182 ............................................................................................... 670

Section 183 ............................................................................................... 671

Chapter IIITHE BUSINESS OF INSURANCE

Title 1INSURANCE COMPANIES, ORGANIZATION,

CAPITALIZATION AND AUTHORIZATION

Section 184 ............................................................................................... 672

Section 185 ............................................................................................... 672

Section 186 ............................................................................................... 672

Section 187 ............................................................................................... 673

Section 188 ............................................................................................... 674

Section 189 ............................................................................................... 675

Section 190 ............................................................................................... 676

Section 191 ............................................................................................... 677

Section 192 ............................................................................................... 678

xxii

Section 193 ............................................................................................... 678

Title 2MARGIN OF INSOLVENCY

Section 194 ............................................................................................... 680

Section 195 ............................................................................................... 681

Title 3ASSETS

Section 196 ............................................................................................... 682

Section 197 ............................................................................................... 683

Title 4INVESTMENTS

Section 198 ............................................................................................... 685

Section 199 ............................................................................................... 686

Section 200 ............................................................................................... 686

Section 201 ............................................................................................... 689

Section 202 ............................................................................................... 689

Section 203 ............................................................................................... 690

Section 204 ............................................................................................... 690

Section 205 ............................................................................................... 691

Section 206 ............................................................................................... 691

Section 207 ............................................................................................... 692

Section 208 ............................................................................................... 692

Section 209 ............................................................................................... 694

Title 5RESERVES

Section 210 ............................................................................................... 695

Section 211 ............................................................................................... 695

Section 212 ............................................................................................... 696

Section 213 ............................................................................................... 696

Section 214 ............................................................................................... 696

Title 6LIMIT OF SINGLE RISK

Section 215 ............................................................................................... 697

xxiii

Title 7REINSURANCE TRANSACTIONS

Section 216 ............................................................................................... 698

Section 217 ............................................................................................... 698

Section 218 ............................................................................................... 698

Section 219 ............................................................................................... 698

Section 220 ............................................................................................... 699

Section 221 ............................................................................................... 699

Section 222 ............................................................................................... 700

Title 8ANNUAL STATEMENT

Section 223 ............................................................................................... 701

Section 224 ............................................................................................... 701

Section 225 ............................................................................................... 701

Title 9POLICY FORMS

Section 226 ............................................................................................... 702

Section 227 ............................................................................................... 702

Section 228 ............................................................................................... 704

Section 229 ............................................................................................... 708

Section 230 ............................................................................................... 708

Section 231 ............................................................................................... 711

Title 10VARIABLE CONTRACTS

Section 232 ............................................................................................... 714

Section 233 ............................................................................................... 715

Section 234 ............................................................................................... 715

Section 235 ............................................................................................... 715

Section 236 ............................................................................................... 715

Section 237 ............................................................................................... 716

Section 238 ............................................................................................... 717

Section 239 ............................................................................................... 717

Section 240 ............................................................................................... 717

xxiv

Title 11CLAIMS SETTLEMENT

Section 241 ............................................................................................... 719

Section 242 ............................................................................................... 720

Section 243 ............................................................................................... 720

Section 244 ............................................................................................... 721

Title 12EXAMINATION OF COMPANIES

Section 245 ............................................................................................... 725

Section 246 ............................................................................................... 725

Title 13SUSPENSION OR REVOCATION OF AUTHORITY

Section 247 ............................................................................................... 726

Title 14APPOINTMENT OF CONSERVATOR

Section 248 ............................................................................................... 727

Title 15PROCEEDINGS UPON INSOLVENCY

Section 249 ............................................................................................... 729

Section 250 ............................................................................................... 731

Section 251 ............................................................................................... 731

Title 16CONSOLIDATION AND MERGER OF INSURANCE COMPANIES

Section 252 ............................................................................................... 732

Section 253 ............................................................................................... 732

Section 254 ............................................................................................... 732

Section 255 ............................................................................................... 733

Section 256 ............................................................................................... 733

Section 257 ............................................................................................... 733

Section 258 ............................................................................................... 734

Section 259 ............................................................................................... 734

Section 260 ............................................................................................... 734

Section 261 ............................................................................................... 734

xxv

Title 17MUTUALIZATION OF STOCK LIFE INSURANCE COMPANIES

Section 262 ............................................................................................... 735

Section 263 ............................................................................................... 735

Section 264 ............................................................................................... 736

Section 265 ............................................................................................... 737

Section 266 ............................................................................................... 738

Section 267 ............................................................................................... 739

Section 268 ............................................................................................... 740

Section 269 ............................................................................................... 740

Section 269-A............................................................................................ 740

Section 270 ............................................................................................... 743

Section 271 ............................................................................................... 743

Section 272 ............................................................................................... 745

Title 18WITHDRAWAL OF FOREIGN INSURANCE COMPANIES

Section 273 ............................................................................................... 747

Section 274 ............................................................................................... 747

Section 275 ............................................................................................... 747

Section 276 ............................................................................................... 747

Section 277 ............................................................................................... 748

Section 278 ............................................................................................... 748

Section 279 ............................................................................................... 748

Title 19PROFESSIONAL REINSURERS

Section 280 ............................................................................................... 749

Section 281 ............................................................................................... 750

Title 20HOLDING COMPANIES

Section 282 ............................................................................................... 751

Section 283 ............................................................................................... 752

Section 284 ............................................................................................... 752

Section 285 ............................................................................................... 752

Section 286 ............................................................................................... 752

Section 287 ............................................................................................... 753

xxvi

Section 288 ............................................................................................... 753

Section 289 ............................................................................................... 753

Section 290 ............................................................................................... 754

Section 291 ............................................................................................... 754

Section 292 ............................................................................................... 754

Section 293 ............................................................................................... 755

Section 294 ............................................................................................... 755

Section 295 ............................................................................................... 757

Section 296 ............................................................................................... 757

Section 297 ............................................................................................... 757

Section 298 ............................................................................................... 757

Chapter IV SALES AGENCIES AND TECHNICAL SERVICES

Title 1INSURANCE AGENTS AND INSURANCE BROKERS

Section 299 ............................................................................................... 759

Section 300 ............................................................................................... 760

Section 301 ............................................................................................... 760

Section 302 ............................................................................................... 760

Section 303 ............................................................................................... 761

Section 304 ............................................................................................... 761

Section 305 ............................................................................................... 761

Section 306 ............................................................................................... 762

Section 307 ............................................................................................... 763

Section 308 ............................................................................................... 763

Section 309 ............................................................................................... 763

Title 2REINSURANCE BROKERS

Section 310 ............................................................................................... 765

Section 311 ............................................................................................... 765

Section 312 ............................................................................................... 766

Title 3RESIDENT AGENTS

Section 313 ............................................................................................... 767

Section 314 ............................................................................................... 767

xxvii

Section 315 ............................................................................................... 767

Section 316 ............................................................................................... 767

Section 317 ............................................................................................... 767

Title 4NON-LIFE COMPANY UNDERWRITER

Section 318 ............................................................................................... 769

Section 319 ............................................................................................... 769

Section 320 ............................................................................................... 769

Section 321 ............................................................................................... 770

Section 322 ............................................................................................... 770

Title 5ADJUSTERS

Section 323 ............................................................................................... 771

Section 324 ............................................................................................... 771

Section 325 ............................................................................................... 771

Section 326 ............................................................................................... 772

Section 327 ............................................................................................... 772

Section 328 ............................................................................................... 772

Section 329 ............................................................................................... 772

Section 330 ............................................................................................... 772

Section 331 ............................................................................................... 773

Section 332 ............................................................................................... 773

Section 333 ............................................................................................... 773

Section 334 ............................................................................................... 773

Title 6ACTUARIES

Section 335 ............................................................................................... 774

Section 336 ............................................................................................... 774

Section 337 ............................................................................................... 774

Section 338 ............................................................................................... 775

Title 7RATING ORGANIZATION AND RATE MAKING

Section 339 ............................................................................................... 776

Section 340 ............................................................................................... 776

xxviii

Section 341 ............................................................................................... 776

Section 342 ............................................................................................... 777

Section 343 ............................................................................................... 777

Section 344 ............................................................................................... 778

Section 345 ............................................................................................... 778

Section 346 ............................................................................................... 778

Section 347 ............................................................................................... 778

Section 348 ............................................................................................... 778

Section 349 ............................................................................................... 779

Section 350 ............................................................................................... 779

Section 351 ............................................................................................... 780

Section 352 ............................................................................................... 780

Section 353 ............................................................................................... 780

Section 354 ............................................................................................... 780

Section 355 ............................................................................................... 781

Section 356 ............................................................................................... 781

Section 357 ............................................................................................... 781

Section 358 ............................................................................................... 781

Section 359 ............................................................................................... 782

Section 360 ............................................................................................... 782

Section 361 ............................................................................................... 782

Section 362 ............................................................................................... 782

Section 363 ............................................................................................... 783

Title 8PROVISION COMMON TO AGENTS, BROKERS,

AND ADJUSTERS

Section 364 .............................................................................................. 784

Chapter VSECURITY FUND

Section 365 ............................................................................................... 785

Section 366 ............................................................................................... 785

Section 367 ............................................................................................... 785

Section 368 ............................................................................................... 786

Section 369 ............................................................................................... 787

Section 370 ............................................................................................... 787

Section 371 ............................................................................................... 787

xxix

Section 372 ............................................................................................... 788

Chapter VICOMPULSORY MOTOR VEHICLE

LIABILITYINSURANCE

Section 373 ............................................................................................... 789

Section 374 ............................................................................................... 790

Section 375 ............................................................................................... 790

Section 376 ............................................................................................... 790

Section 377 ............................................................................................... 790

Section 378 ............................................................................................... 792

Section 379 ............................................................................................... 792

Section 380 ............................................................................................... 793

Section 381 ............................................................................................... 793

Section 382 ............................................................................................... 794

Section 383 ............................................................................................... 794

Section 384 ............................................................................................... 794

Section 385 ............................................................................................... 794

Section 386 ............................................................................................... 795

Section 387 ............................................................................................... 795

Section 388 ............................................................................................... 795

Section 389 ............................................................................................... 795

A. Compulsory Motor Vehicle Liability Insurance .................... 795B. Accrual of Liability .................................................................. 796C. Right to Sue Insurer Directly ................................................ 796D. The No-Fault Clause ............................................................... 797

Cases: PERLA COMPANIA DE SEGUROS, INC. vs. ANCHETA ................................................................... 798 VDA. DE MAGLANA vs. CONSOLACION ............... 801 GOVERNMENT SERVICES INSURANCE SYSTEM vs.COURT OF APPEALS ........................... 806

E. Authorized Driver Clause ....................................................... 813

Cases: VILLACORTA vs. THE INSURANCE OMMISSION ............................................................... 814 PALERMO vs. PYRAMID INSURANCE, CO., INC. ..................................................................... 818 TANCO vs. THE PHILIPPINE GUARANTY COMPANY .................................................................. 821 GUTIERREZ vs. CAPITAL INSURANCE AND SURETY CO. ...................................................... 824

F. Presumption of Regularity in Issuance of License ................ 827

xxx

G. Joy Ride/Theft Clause ............................................................. 827

Case: ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC. vs. FIELDMAN’S INSURANCE CO., INC. ..................... 828

H. Expired License ....................................................................... 830I. Period to File Claim ................................................................ 831

Chapter VIIMUTUAL BENEFIT ASSOCIATIONS AND

TRUSTS FOR CHARITABLE USES

Title 1MUTUAL BENEFIT ASSOCIATIONS

Section 390 ............................................................................................... 832

Section 391 ............................................................................................... 833

Section 392 ............................................................................................... 833

Section 393 ............................................................................................... 834

Section 394 ............................................................................................... 834

Section 395 ............................................................................................... 835

Section 396 ............................................................................................... 835

Section 397 ............................................................................................... 835

Section 398 ............................................................................................... 835

Section 399 ............................................................................................... 836

Section 400 ............................................................................................... 836

Section 401 ............................................................................................... 837

Section 402 ............................................................................................... 837

Section 403 ............................................................................................... 837

Section 404 ............................................................................................... 837

Section 405 ............................................................................................... 837

Section 406 ............................................................................................... 838

Section 407 ............................................................................................... 838

Section 408 ............................................................................................... 839

Section 409 ............................................................................................... 839

Title 2TRUSTS FOR CHARITABLE USES

Section 410 ............................................................................................... 840

Section 411 ............................................................................................... 840

Section 412 ............................................................................................... 840

Section 413 ............................................................................................... 840

xxxi

Chapter VIIITHE INSURANCE COMMISSIONER

Title 1ADMINISTRATIVE AND ADJUDICATORY POWERS

Section 414 ............................................................................................... 841

Section 415 ............................................................................................... 841 Section 416 ............................................................................................... 842

A. Regulatory Powers .................................................................. 844B. Duty to Hold Security Deposits .............................................. 844C. Commissioner’s Interpretation to Great Respect .................. 845D. Contract Between the Insurer and Its Agents ...................... 846E. Quasi-Judicial Powers ............................................................ 847F. Jurisdiction .............................................................................. 848

Title 2FEES AND OTHER SOURCES OF FUNDS

Section 417 ............................................................................................... 849

Section 418 ............................................................................................... 851

MISCELLANEOUS PROVISIONS

Section 419 ............................................................................................... 852

Section 420 ............................................................................................... 852

Section 421 ............................................................................................... 852

Section 422 ............................................................................................... 852

Section 423 ............................................................................................... 852

Section 424 ............................................................................................... 852

Subject Index ............................................................................................ 853

Case Index ................................................................................................ 873