insurance reviewer midterms-1

LIFTEDfromtheBookofDeLeonandRodriguez‐notplagiarizedyoufuckers!|2009‐2010|Atty.Villegas 1|P a t i ñ o & J a l i p a

INSURANCE REVIEWER (De Leon & Rodriguez)

General Provisions

SEC 1. This Decree shall be known as the Insurance Code of 1978.

Notes:

‐ Subrogation only applies to property insurance

‐ Privity of contract is not essential in subrogation

‐ Loss or injury must be covered by policy

‐ Insured can only recover once

‐ Right of insurer against 3rd

party is limited only to amount recoverable by

the insured

‐ Insurer can be subrogated only to such rights as the insured may have

‐ Pan Malayan Insurance v. CA: where the insurer pays the insured the

value of the lost goods without notifying the carrier who has in good faith

settled the claim for loss of the insured, the settlement is binding on both

insurer and insured. The right to subrogation can no longer be exercised

‐ Civil code provisions supplement the Insurance Code

‐ Construction in California Courts apply to our Insurance Code

SEC 2. Wherever used in this Code, the following terms shall have the

respective meanings, unless the context otherwise requires:

1) “Contract of insurance”

‐ an agreement where 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 insurance contract

‐ only if made by a surety who is doing an insurance business

2) "Doing an insurance business" or "transacting an insurance

business", 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 business;

(c) doing any kind of business, including a reinsurance business,

specifically recognized as constituting the doing of an insurance business;

(d) doing or proposing to do any business equivalent to any of the

foregoing in a manner designed to evade the provisions of this Code.

The fact that:

‐ no profit is derived from the making of insurance contracts, or that

‐ no separate or direct consideration is received therefore,

shall not be deemed conclusive to show that it does not constitute the doing or

transacting of an insurance business.

3) "Commissioner" means the "Insurance Commissioner"

Notes:

‐ It is a contract of indemnity for non-life insurance

‐ Tebbets v Guarantee Co.: Insurance contract is determined by its nature

and not by designation of the parties

Elements of contract of insurance:

Subject matter = the thing insured

Consideration = premiums

Object and purpose = transfer and distribution of risk of loss, damage

or liability

Elements of a contract of insurance

1. Insurable interest (susceptible of pecuniary estimation)

2. Risk of loss

3. Insurer assumes risk of loss

4. Scheme to distribute actual losses proportionally among a large group or

substantial number of persons bearing a similar risk

5. Consideration in the form of premiums

Nature and characteristics of contract

o Consensual

o Voluntary

With exceptions: motor vehicles, social insurance, those

that result by operation of law

o Aleatory

Liability of the insurer depends on some contingent event

o Executed on the part of the insurer

It is executed as to the insured after his payment of the

premium

o Conditional on the part of the insurer

o Contract of indemnity for non-life insurance.

Only for indemnity, not for profit

o An investment in life insurance.

o Personal contract

Except life insurance policies

o Property in legal contemplation

o It is one of perfect good faith.

o It is a contract of adhesion

JOHN ROBERT SAM JUAN

















‐ All insurance except liability can be fairly thought of as first-party

insurance. (Liability is 3rd

party insurance)

‐ Where inequitable conduct is shown by an insurance firm, it is estopped

from enforcing forfeitures or exemptions in its favor.

‐ Travellers Insurance & Surety Corp v. CA

• The right of a third person to sue the insurer depends on whether the

contract of insurance is intended to benefit the 3rd

person or just the

insurer.

• Insurance contract must be attached to the complaint in order for the

court to ascertain the limits and real nature of the liability.

Classifications of insurance under the code:

o Life

Individual

Group

Industrial

o Non-life

Marine

Fire

Casualty

‐ Interpretation of contracts:

o As a whole

o Construed in favor of the insured (adhesion) - Ambiguities must be

strictly interpreted against the party that caused them.

‐ Principal object and purpose test

o Principal object must be indemnity in order for it to be a contract

of insurance

Title 1. What May Be Insured

SEC 3. Any:

‐ contingent or unknown event,

‐ whether past or future,

‐ which may damnify a person having an insurable interest, or create a

liability against him,

may be insured against.

The consent of the husband is not necessary for the validity of an insurance

policy taken out by a married woman on her life or that of her children.

Any minor of the age of 18 years or more, may, notwithstanding such minority,

contract for life, health and accident insurance, with any insurance company duly

authorized to do business in the Philippines, provided the insurance is taken on his

own life and the beneficiary appointed is the minor's estate or the minor's father,

mother, husband, wife, child, brother or sister (useless now)

The married woman or the minor herein allowed to take out an insurance policy

may exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance:

‐ taken out by an original owner on the life or health of a minor

shall automatically vest in the minor:

‐ upon the death of the original owner,

‐ unless otherwise provided for in the policy.

Notes:

‐ Minor may enter only in life insurance, any other kind is voidable

‐ RA 6809 lowered the age of majority to 18yrs old, therefore a person who

is 18 yrs of age may take insurance on his life or property w/o any

restriction.

SEC 4. The preceding section does not authorize an insurance:

‐ for or against the drawing of any lottery or

‐ for or against any chance or ticket in a lottery drawing a prize

Notes:

‐ A person who purchases a ticket cannot insure himself against the failure

of his ticket to win a prize.

‐ Contract of insurance is a contract of indemnity – failure to win a prize

would not cause him damage.

‐ Lottery: extends to all schemes for the distribution of prizes by chance

o Elements:

Consideration

Prize

Chance

SEC 5. All kinds of insurance are subject to the provisions of this chapter so

far as the provisions can apply.

Note: It applies to marine, fire, casualty, life and other kinds of insurance


















Title 2. Parties To The Contract

SEC 6. Every person, partnership, association, or corporation:

‐ duly authorized to transact insurance business

may be an insurer.

Notes:

‐ Parties to a contract of insurance

o Insurer – agrees to indemnify

o Insured – party to be indemnified

o Beneficiary – person who receives the benefits of the policy

‐ This article enumerates the parties who can be an insurer

‐ An individual, partnership, or association, foreign or domestic insurance

company needs a certificate of authority from the Insurance Commissioner

to engage in the business of insurance

‐ The Certificate of Authority – issued to those who posses the required

capital assets and those who comply with all other requisites prov. by law.

‐ Insurance business are affected with public interest

SEC 7. Anyone except a public enemy may be insured

Notes:

‐ Public enemy: a nation with whom the Philippines is at war

o Also includes every citizen or subject of such nation

o Even a corporation who’s majority SHs are subjects of such nation can

be considered as an enemy corporation and cannot be insured.

SEC 8.

UNLESS the policy otherwise provides, where a mortgagor of property effects

insurance in his own name:

‐ providing that:

o the loss shall be payable to the mortgagee, or

o assigns a policy of insurance to a mortgagee,

the insurance is deemed to be upon the interest of the mortgagor,:

‐ who does not cease to be a party to the original contract, and

o any act of his, prior to the loss, which would otherwise avoid the

insurance, will have the same effect, although the property is in the

hands of the mortgagee,

‐ BUT any act which is to be performed by the mortgagor, may be

performed by the mortgagee therein named, with the same effect as if it

had been performed by the mortgagor.

Notes:

Mortgagor and mortgagee have separate insurable interests

o Mortgagor: to the extent of property to its full value

o Mortgagee: only to the extent of debt secured

Ways for the contract to be for the benefit of mortgagee

o When it is assigned with consent of insurer

o When the mortgagee becomes pledgee

o A rider

o Standard mortgage clause

o Contract duty of mortgagor

Mortgagor may take an insurance payable to:

o To himself

But the mortgagee has a lien on the proceeds by virtue of the

mortgage

o To the Mortgagee

In case of loss, the mortgagee is entitled to the extent of the credit;

the remainder shall accrue to the mortgagor

Upon recovery of the mortgagee, the debt is extinguished

Mortgagee has the obligation to collect the proceeds of the policy

Rizal commercial Banking Corp vs CA

‐ Mortgagee may still collect the proceeds even if the endorsements of the

policy was not signed by the mortgagor – mortgagor is in estoppel since it

was stipulated in the mortgage contract that a policy would be taken in

favor of the mortgagee.

Insurance taken by the Mortgagee for his own interest

‐ If proceeds are more than the amount of the credit – the mortgagor has no

right to collect the balance

‐ If the proceeds are less – then the mortgagee may still collect from the

mortgagor for the deficiency

‐ Upon payment, the insurer is subrogated to the rights of the mortgagee to

the extent of the amount paid.

Fire insurance (De Leon)

o If there is a standard or union mortgage clause, acts of mortgagor

do not affect mortgagee

o If open or loss-payable mortgage clause, acts of mortgagor affect

mortgagee




















SEC 9. If an insurer:

‐ assents to the transfer of an insurance from a mortgagor to a

mortgagee, and,

‐ at the time of his assent, imposes further obligation on the assignee,

making a new contract with him,

the act of the mortgagor cannot affect the rights of said assignee.

Notes:

‐ Fire policy is not subject to assignment (strictly personal)

‐ Marine insurance assignable even w/o consent

‐ Casualty insurance assignable only w/ consent

‐ Life policy freely assignable

Title 3. Insurable Interest

SEC 10.

Every person has an insurable interest in the life and health:

a) Of himself, of his spouse and of his children;

b) Of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;

c) Of any person under a legal obligation to him for the payment of money, or

respecting property or services, of which death or illness might delay or

prevent the performance; and

d) Of any person upon whose life any estate or interest vested in him depends.

Notes:

(De Leon)

Insurable interest: interest which the law requires the owner of an insurance

policy to have in the person or thing insured

o Pecuniary in nature

o Except in life insurance (interest need not be pecuniary)

‐ Life insurance and civil donations are similar - element of liberality

‐ Relationship of brother, sister, father or child is sufficiently close to give

an insurable interest (pecuniary benefit not essential)

‐ Those with an obligation to support another also have insurable interests

‐ Creditor has an insurable interest on life of debtor to the extent of the debt

o Still a contract of indemnity (if there have been partial payments,

insurance will only be to the extent of unpaid installments)

‐ When debtor takes a policy on his life for the benefit of creditor

o Payment of debt does not extinguish policy

o Proceeds go to the estate of debtor

‐ The fact that debt becomes unenforceable does not cut off the insurable

interest of creditor

(Rodriguez)

‐ Insurable Interest (II): A person has an II where he has such a relation or

connection with or concern in it that he will derive pecuniary benefit or

advantage from its preservation and suffer pecuniary loss or damage from

its destruction

II is Necessary to Validity and Enforceability of Insurance Contract

‐ A policy w/o II is a mere wager policy and void on the grounds of public

policy

Life Insurance

‐ II in life insurance NEED NOT be pecuniary in nature

1. A person has an insurable interest upon his own life

o Beneficiary may be:

Himself

His estate

A third person

o If for a 3rd

person

Rodriguez: He may designate a beneficiary even if such

person is w/o insurable interest – PROV: there is no bad

faith or fraud.

Deleon: there are two views (1) VOID since II is needed;

(2) VALID – since it is an act of pure liberality similar to

that of a donation

o It is VOID if:

The policy is taken out at the request of the beneficiary

The premiums are paid by the beneficiary

The original proposal to take out insurance was that of the

beneficiary

2. HOWEVER, taking a policy on the life of another –

o One MUST HAVE an II on the life of the insured

Subsection (B) – ART 195 Family Code: Persons obliged to support each other

(all have an II in each other’s life)

(1) Spouses

(2) Legitimate ascendants and descendants

(3) Parents and their legit/illegit children and the legit/illegit children of

the latter

(4) Legitimate brothers and sisters whether half or full blood





























Pecuniary Interest

‐ mere blood relationship does not create an II in the life of another

‐ relationship by affinity does not constitute an II

‐ There is II when there exists some pecuniary interest

‐ A company has an II in the life of its officers and employees

o But once the employee is separated: the II is lost

Legal Obligation

‐ Exists when there is a commercial or contractual relationship

‐ II of the creditor on the life of the debtor: ONLY to the extent of the

amount of the debt

o Amount of the policy must not be disproportional to the amount of

the debt – otherwise it is a mere wagering policy – VOID

When Must II EXIST:

‐ On life insurance: When the insurance takes effect (need not exist at the

time of loss) since life ins is not a contract of indemnity

‐ If his interest is capable of exact pecuniary measurement – II must exist

not only at the time of policy but also at the time of the of debtor’s death

(policy taken by creditor on life of debtor)

Person upon whose life any estate or interest vested in him depends

‐ Ex. Usufruct

Consent of the person whose life is insured is NOT necessary

‐ PROV: person taking out the policy has II on life of insured

SEC 11. The insured shall have the right:

‐ to change the beneficiary he designated in the policy,

‐ UNLESS he has expressly waived this right in said policy

Notes:

Beneficiary:

‐ person whether natural or juridical designated to receive proceeds

‐ becomes exclusive owner of proceeds at the time of death of insured

Prohibited from becoming beneficiaries: (void donations) ART 739 NCC

a. Between persons who were guilty of adultery/concubinage

Insular v. Ebrado: No need for previous conviction

If the beneficiary is in GF – he can still collect

b. Made between persons found guilty of the same criminal offense,

in consideration thereof

c. Made to a public officer or his wife, descendants and ascendants

by reason of his office

Vda. De Consuegra v. GSIS: In case no beneficiary is designated or where the

designation is void in life insurance - proceeds go to estate of the insured

Exclusive recipient:

‐ GR: The proceeds of a life insurance belong exclusively to the beneficiary

‐ EXC: Policies issued by the GSIS must be first applied to the obligations

of the insured to the government

If right to change beneficiary waived - beneficiary acquires absolute and

vested interest to all benefits. The insured cannot:

‐ Cannot assign new beneficiary

‐ Cannot add new beneficiary

‐ Cannot destroy contract

Note: Vested interest is on full face value not cash surrender value

Where the Beneficiary dies ahead of the Insured

‐ IF NOT waived: beneficiary has no vested right over the interest in the

policy. The heirs of the beneficiaries cannot collect the proceeds

o It goes to the estate of the insured

‐ IF waived: the beneficiary has a vested right on the policy.

o The heirs are entitled BUT UPON the death of the insured.

(De Leon) When beneficiary (irrevocable) dies before insured: 2 views

1. Proceeds go to the estate of the beneficiary

2. Proceeds go to estate of insured

SEC 12. The interest of a beneficiary in a life insurance policy

‐ shall be forfeited when

o the beneficiary is the principal, accomplice, or accessory in

willfully bringing about the death of the insured;

in which event, the nearest relative of the insured:

‐ shall receive the proceeds of said insurance if not otherwise disqualified.

Notes (DeLeon)

‐ Order of relatives: (Who will receive)

a. Legitimate children

b. Parents

c. Grandparents/ascendants nearest in degree

d. Illegitimate children

e. Surviving spouse

f. Collateral relatives

i. Brothers/sisters full blood

ii. Brothers/sisters half blood

iii. Nephews and Nieces



















‐ “Death” in the provision covers death by legal execution

‐ Death by suicide not covered

o Except: death when insane

‐ Section 12 does not apply:

o Self-defense

o Accidental

o Insanity

‐ The mere fact that insured dies while committing a felony does not warrant

denial of liability

SEC. 13. Every:

1. interest in property,:

o whether real or personal, or any relation thereto, or

2. liability in respect thereof,

o of such nature that a contemplated peril might directly damnify the

insured,

is an insurable interest.

Notes:

‐ Art 13 is on the insurable interest in property

‐ Title or right to possession is not essential

‐ Legal expectancy is enough – the expectation of a benefit from the

property must have a basis of legal right even if he has no title

‐ Factual Expectation (not arising from any legal duty or right) – NOT an II

o But sufficient in life insurance

SEC 14. An insurable interest in property may consist in:

a) An existing interest;

b) An inchoate interest founded on an existing interest; or

c) An expectancy, coupled with an existing interest in that out of which the

expectancy arises.

Notes:

‐ Existing interest:

o Legal/equitable title

o As an owner, mortgagee or lessee

‐ Inchoate

o SH in a corporate property

‐ Expectancy coupled w/ existing

o Owner of a vessel has an II in expected freightage

‐ Examples:

o Building contractor has an II in the building before payment of the

construction price

o Right to receive rentals is sufficient II to support a fire policy

o Consignee has insurable interest in said goods

SEC 15. A carrier or depository of any kind:

‐ has an insurable interest in a thing held by him as such,

‐ to the extent of his liability but NOT to exceed the value thereof.

Notes:

‐ Carrier or depositary has an II In the thing held by him

‐ Under the General Bonded Warehouse Act – warehouseman is required to

insure the properties against fire

SEC 16. A mere contingent or expectant interest in anything,:

‐ not founded on an actual right to the thing,

‐ nor upon any valid contract for it,

is not insurable.

Notes:

‐ Mere expectancy uncoupled with any legal right is not insurable - VOID

o Son cannot insure property of dad

o A person designated as a beneficiary in a will has no II in the

designated property.

o Unsecured creditor cannot insure property of debtor. EXCEPT:

Upon death of debtor

• since all personal liability ceases upon the death of

the debtor

Upon judgment obtained against the debtor

• But must show that the debtor has no other

property to satisfy

SEC 17. The measure of an insurable interest in property:

‐ is the extent to which the insured might be damnified by loss or injury

thereof.

Notes:

‐ Insurance Contract is one of indemnity, not wagering

‐ Any policy that gives to the insured more than indemnity against his actual

loss that may be suffered is in a nature of a wagering policy - VOID

‐ Not applicable to life insurance – since it is not a contract of indemnity






SEC 18. No contract or policy of insurance on property shall be enforceable:

‐ EXCEPT for the benefit of some person having an insurable interest in the

property insured

Notes:

‐ No contract of insurance unless there is insurable interest

‐ In case of void contracts, premiums are returned unless he is in pari delicto

with insurer

‐ Doctrine of waiver or estoppel NOT applicable.

o EXC. Where the insurer erroneously issued a fire policy to cover a

building not owned by the insured but the intention is to cover the

merchandise in the building – insurer is liable on the policy.

‐ Marine/fire insurance

o Indemnity

o Amount is maximum recoverable

‐ Liability insurance - Indemnity

‐ Life Insurance - Not actual value (life of person immeasurable)

‐ Personal Accident - Not Indemnity

‐ Health Insurance - Not indemnity

‐ Health Care Agreement- Contract of indemnity

SEC 19. An interest in property insured must exist:

‐ when the insurance takes effect, and

‐ when the loss occurs, but not exist in the meantime;

and interest in the life or health of a person insured must exist:

‐ when the insurance takes effect,

‐ but need not exist thereafter or when the loss occurs.

Notes:

‐ May take out advance insurance to take effect upon purchase of a thing

‐ An expectant heir cannot insure property he expects to inherit

‐ A stockholder may insure property of corporation even though he has no

legal interest in such property

‐ In interest in property, II need not exist during the intervening period

o The recovery will not be defeated even if during the intervening

time it was sold

Life Insurance Property Insurance

‐ II is unlimited

‐ Reasonable probability is

sufficient II

‐ II Must exist only at the time

the policy is procured

‐ II is limited to the actual value

‐ Expectation of benefit as a II is not valid

unless it has a basis of legal right.

‐ II must exist not only on the date of the

execution but also on the date of the

occurrence of the risk

SEC 20. Except in the cases:

‐ specified in the next four sections, and

‐ in the cases of life, accident, and health insurance,

a change of interest in:

‐ any part of a thing insured

‐ unaccompanied by a corresponding change in interest in the insurance,

suspends the insurance to an equivalent extent,

‐ UNTIL the interest in the thing and the interest in the insurance are vested

in the same person.

Notes:

‐ GR: Transfer of thing does not transfer the insurance policy, it merely

suspends it

‐ “Transfer” = must be absolute transfer or conveyance of property

‐ EXCEPTIONS to Sec. 20

Change of interest does not affect the policy

o Life, accident, health insurance

o Sec. 21: A change of interest in the thing insured after the

occurrence of an injury which results in a loss

o Sec. 22: A change of interest in one or more of several things

separately insured by one policy

o Sec. 23: A change of interest by will or succession

o Sec 24: A transfer of interest by one or several partners, joint

owners, or owners in common, who are jointly insured to others

o Sec 57: When a policy is so framed that it will inure to the benefit

of whomsoever during the continuance of the risk, may become

the owner of the interest insured


SEC 21. A change in interest in a thing insured, after the occurrence of an

injury which results in a loss, does not affect the right of the insured to

indemnity for the loss.

Notes:

‐ After loss, liability already becomes fixed

SEC 22. A change of interest in one or more several distinct things, separately

insured by one policy, does not avoid the insurance as to the others.

Notes:

‐ Things must be valued separately although included in a single policy

‐ Effect is dependent on divisibility of contract - divisibility is question of

intention

‐ When the gross sum or the entire premium insures the things in one policy

- the contract is indivisible

SEC 23. A change on interest,:

‐ by will or succession,

‐ on the death of the insured,

does not avoid an insurance;

‐ and his interest in the insurance passes to the person taking his interest

in the thing insured.

Notes:

‐ the insurance on property passes automatically on the death of the insured

to the heirs, legatees, devisees who acquired the interest in the thing

‐ The heirs may continue the policy and receive the proceeds by paying the

premiums

SEC 24. A transfer of interest:

‐ by one of several partners, joint owners, or owners in common,

‐ who are jointly insured, to the others,

does not avoid an insurance:

‐ even though it has been agreed that the insurance shall cease upon an

alienation of the thing insured.

Notes:

‐ Reason for the rule: each partner is interested in the whole property and

the hazard or the risk is not increased because the purchasing partner has

acquired a greater interest in the property

‐ Exception to the rule:

o A policy will be avoided by a sale of an interest by a partner to one

of his co-partner, without the consent of the insurer and before the

loss occurs, where the policy contains such condition.

(De Leon)

o Also, an alienation or transfer made to a 3rd

person will avoid the

policy as to the selling partner but not to the others.

SEC 25.

Every stipulation in a policy of insurance:

‐ for the payment of loss whether the person insured has or has not any

interest in the property insured,

‐ or that the policy shall be received as proof of such interest, and

every policy executed by way of gaming or wagering,

is VOID.

Notes:

‐ Section involves void stipulations and a void policy

‐ Wager Policy – pretended insurance where the insured has no interest in

the thing insured and can sustain no loss by the happening of the

misfortune insured against

o Void because of express provision of law and of public policy

Since it will furnish strong temptation to bring about the

event insured against

Also since the wagers suffers from no loss and yet they

actually profit from it

Title 4: Concealment

SEC 26. A neglect to communicate:

‐ that which a party knows and ought to communicate,

‐ is called a concealment

Notes:

‐ Requisites:

o 1. Party knows the fact

o 2. Bound to disclose such fact

o 3. There is no warranty of the fact concealed

o 4. The Other party has no means of ascertaining such fact


‐ Presence of bad faith – not necessary

‐ Reason for rule: 4 primary concerns of parties in the contract (De Leon)

o Correct estimation of the risk

o Precise limitation of the risk

o Control of the risk

o Determining whether the loss occurred

o Nature of an insurance contract is that it is done in good faith

(Rodriguez)

‐ Fact concealed – MUST be MATERIAL to the risk

SEC 27. A concealment whether intentional or unintentional:

- entitles the injured party to rescind a contract of insurance

Notes:

‐ Insurance Contracts are uberrimaefidae (of utmost good faith)

‐ Duty is on both insured and insurer

‐ Existence of fraud not required. Bad faith is not required.

‐ Rescission is OPTIONAL on the part of the injured party

‐ Reason for the provision: the party is misled or deceived into accepting the

risk

‐ Argente v. West Coast Life: Principal question to determine whether there

is concealment

o “Was the insurer misled or deceived into entering a contract

obligation or in fixing the premium of insurance by a withholding

of material information or facts within the assured’s knowledge or

presumed knowledge?”

‐ Applies to all kinds of insurance

SEC 28. Each party to a contract of insurance:

‐ must communicated to the other, in good faith,

‐ all facts within his knowledge which:

o are material to the contract and

o as to which he makes no warranty, and

o which the other has not the means of ascertaining.

Notes:

‐ Matters must be communicated even in the absence of inquiry:

o All facts within the party’s knowledge

o That are material to the contract

o Which the other has not the means of ascertaining said facts

o Party with the duty to communicate makes no warranty

‐ Knowledge:

o must be proven by the party claiming

o must be at the time the insurance takes effect

‐ Test of Materiality

o It must be a fact of such nature that had the insurer known of it, it

would not have accepted the risk or would have demanded a

higher premium or different terms

‐ “No means of Ascertaining”

o If the other party merely neglects to make inquiries – the right to

information is waived

‐ When there is a warranty such fact is covered by such warranty – it is

superfluous to require disclosure

‐ Insurance company has no obligation to verify facts made in the

application

o It has the right to rely upon the statements

SEC 29. An intentional and fraudulent omission:

‐ on the part of one insured,

‐ to communicate information of matters proving or tending to prove the

falsity,

entitles the insurer to rescind.

Notes:

‐ Facts of matters covered by the warranty does not have to be disclosed

BUT matters proving or tending to prove the FALSITY of the warranty

must be communicated

‐ Ex. Failure to communicate that the ship’s equipment is out of order

entitles the insurer to rescind since it tends to prove the falsity of the

warranty that the ship is seaworthy.

‐ NOTE: Omission is on the part of the insured

SEC 30. Neither party to a contract of insurance is bound:

‐ to communicate information of the matters following,

‐ EXCEPT in answer to the inquiries of the other:

a) Those which the other knows;

b) Those which, in the exercise of ordinary care, the other ought to know, and

of which the former has no reason to suppose him ignorant;

c) Those of which the other waives communication;

d) Those which prove or tend to prove the existence of a risk excluded by a

warranty, and which are not otherwise material; and

e) Those which relate to a risk excepted from the policy and which are not

otherwise material.


Notes:

‐ Direct questions are considered material therefore the insured is required to

make full and true disclosure of questions asked.

‐ Failure of an apparently complete answer to make full disclosure will

avoid the policy

‐ However, an answer incomplete in its face will NOT avoid the policy in

the absence of bad faith

‐ Nature or amount of insured’s interest need not be disclosed unless in

answer to an inquiry

SEC 31. Materiality is to be determined:

‐ not by the event,

‐ but solely by the probable and reasonable influence of the facts

o upon the party to whom the communication is due,

o in forming his estimate of the disadvantages of the proposed

contract, OR in making his inquiries.

Notes:

‐ Test of materiality: the effect which the knowledge of the fact in question

would have on the making of the contract. It is sufficient that it would

influence the parties in making the contract

‐ Effect on insurer: a probable and reasonable influence upon the insurer in

assessing the risk involved and in making or omitting further inquiries, and

cause him to either reject the risk or to accept it only at a higher premium

or on different terms

o It is sufficient that the non-disclosure misled the insurer in forming

his estimates of the risk

o In case of avoided insurance, return premiums

‐ If information acquired AFTER contract becomes binding and effective

o No duty to disclose information even if the policy is yet to issue

o Concealment must take place at the time the contract is entered

‐ If information acquired BEFORE contract becomes effective

o There is a duty to disclose

SEC 32. Each party to a contract of insurance is bound to know:

‐ all the general causes

o which are open to his inquiry, equally with that of the other, and

o which may affect the political or material perils contemplated; and

‐ all general usages of trade

Notes:

‐ insured need not disclosed public events such as that a nation is at war

‐ insurer is also charged with the knowledge of general usages of trade

‐ Such information are equally presumed to be known by both parties.

SEC 33. The right to information of material facts may be waived, either:

‐ by the terms of insurance or

‐ by neglect to make inquiries as to such facts where they are distinctly

implied in other facts of which information is communicated.

Notes:

‐ Right to info may be waived:

o Expressly

o Impliedly

SEC 34. Information of the nature or amount of the interest of one insured:

‐ need not be communicated

‐ UNLESS in answer to an inquiry,

‐ EXCEPT as prescribed by section 51

Notes:

‐ GR: Nature or amount of interest need not be communicated

‐ EXC:

o 1. Sec 51: Policy must specify the interest of the insured in the

property only when he is not the absolute owner thereof.

o 2. When the insurer makes inquiry from the insured

‐ Ex of no. 1: Trustee, mortgagee or building contractor must communicate

EVEN IF no inquiry is made by the insurer

SEC 35. Neither party to a contract of insurance:

‐ is bound to communicate, EVEN upon inquiry,

‐ information of his own judgment upon the matters in question

Notes:

‐ Duty to disclose is confined to facts, opinions not covered

Title 5. Representation

SEC 36. A representation may be oral or written


Notes:

‐ Representations: factual statements made by the insured at the time of, or

prior to, the issuance of the policy to induce the insurer to enter into the

insurance contract

‐ Misrepresentation:

o A fact which is untrue

o Stated:

with knowledge that it is untrue with intent to deceive OR

stated positively as true without knowing it to be true and

which has a tendency to mislead, and

o Where such fact in either case is material to the risk

‐ Renders the contract VOIDABLE:

o at the option of insurer

o regardless of intent

‐ It is the duty of the person applying for insurance to give all the

information necessary regarding the risk

‐ Information given (which can be communicated in any manner) forms the

basis of the contract

‐ Representations are collateral inducements

SEC 37. A representation may be made:

‐ at the time of, OR

‐ before, issuance of policy

Notes:

‐ Very nature of representation is that it precedes the execution of the

contract.

Misrepresentation Concealment

‐ Active form of deceit

‐ Bec there is an oral or written

false statement to induce

‐ Passive form of deceit

‐ Bec there is neglect or failure to

disclose a material fact

‐ Argente vs. West Coast life Ins., Co.

o concealment is equivalent to a false representation that such fact

does not exist

o terms have been used interchangeably

‐ No need to distinguish since the rules applicable to both are similar:

o Both requires the fact to concealed or misrepresented to be

material

o Both entitles the injured party to rescind the contract at his option

o Both may be committed intentionally or unintentionally.

SEC 38. The language of a representation is to be interpreted by the same rules as

the language of contracts

Notes:

‐ Constructed liberally in favor of insured

‐ Representation need ONLY to be substantially true and need not be

literally true and accurate in every aspect

‐ Warranties must be literally true, otherwise, the contract will fail

‐ Examples:

o Use of liquor = habitual drinking

o Free from illness = true despite inflammation of eyes

o Illness = serious ailments

SEC 39. A representation as to the future is to be deemed a promise:

‐ UNLESS it appears that it was merely a statement of belief or expectation.

Notes:

‐ Kinds of Representation

o Oral OR Written

o Made before OR during the issuance of the policy

o Affirmative OR Promissory

‐ Affirmative representation: allegation as to the existence or non-

existence of a fact when the contract begins.

o Ex. He is in good health

‐ Promissory representation: any promise to be fulfilled after the contract

has come into existence or any statement concerning what is to happen

during the existence of the insurance

o Promise made in connection but not incorporated in the policy

o Promise made with fraudulent intent will serve to defeat the

insurance

o Undertaking by insured inserted in policy but not specifically

made in a warranty is also a promissory representation

o Substantially a condition or warranty

‐ IF Representation is one of:

Fact Mere Expression of Opinion

‐ Must prove to be false and

material

‐ Need not be in bad faith (intent

to deceive presumed)

‐ Must prove to be false and

material

‐ Must be made in bad faith

(intention to deceive)

‐ Deemed to be a mere expression of opinion: Representation as to a

future event or condition over which the insured has no control


SEC 40. A representation:

‐ cannot qualify an express provision in a contract of insurance; but it

‐ may qualify an implied warranty.

Notes:

‐ Representation is a mere collateral inducement to a contract – it is not part

of the contract that is why it cannot qualify its express provisions

SEC 41. A representation may be altered or withdrawn:

‐ before the insurance is effected,

‐ but NOT afterwards

Notes:

‐ May be done ONLY before the insurance is effected:

o Since the insurer has not yet been induced

o If done during such time – policy is NOT rescissible anymore

SEC 42. A representation must be presumed to refer to the date on which the

contract goes in effect.

Notes:

‐ There is no false representation if it is true at the time the contract goes

into effect but false at the time it was made

‐ The contract is can be rescinded ONLY when it is false at the time when

the contract is effected

SEC 43. When a person insured has no personal knowledge of a fact,:

‐ he may nevertheless repeat information

o which he has upon the subject, and which he believes to be true,

o with the explanation that he does so on the information of others;

‐ OR he may submit the information, in its whole extent,

to the insurer;

and in NEITHER case:

‐ is he responsible for its truth,

‐ UNLESS it proceeds from an agent of the insured, whose duty it is to give

the information.

Notes:

‐ The insured is given discretion to communicate what he knows of a matter

which he as no personal knowledge

o GR: If it turns out to be FALSE – he is not responsible

o EXC: He is responsible IF the information proceeds from an agent

of the insured, whose duty is to give information to his principal

‐ Rule on agency:

o Knowledge of the agent is knowledge of the principal

o Applies to insured and insurer

o Failure to communicate: contract will be avoided

NOTE: If the insured receives information material to the risk, or has

knowledge of a loss, he ought to communicate

SEC 44. A representation is deemed to be false:

‐ when the facts fail to correspond with its assertions or stipulations

Notes:

‐ Unlike warranties, representation are not required to be literally true, only

be substantially true

‐ Substantial AND material misrepresentation, avoids the contract

o EXC: marine insurance – insurer is required to state the exact and

whole truth

‐ The representation is substantially true and valid - EVEN if there are some

discrepancies which are minor or not material to the risk

‐ A representation written in the policy which could be interpreted as a

promise will be construed as affirmative representation when possible to

save the policy

SEC 45. If a representation is false in a material point, whether affirmative or

promissory:

‐ the injured party is entitled to rescind the contract

‐ from the time when the representation becomes false.

The right to rescind granted by this Code to the insurer is waived:

‐ by the acceptance of premium payments

‐ DESPITE knowledge of the ground for rescission.

Notes:

‐ Fraud not essential for right to rescind

‐ Representation may be intentional or unintentional

‐ Collusion between agent and insured will vitiate the policy

SEC 46. The materiality of a representation is determined by the same rules as

the materiality of concealment


Notes:

‐ Materiality is a judicial question

‐ Concealment and misrepresentation give right to rescind

‐ Rules apply both to the insurer and insured

‐ See discussion in SEC 31 (page 10)

SEC 47. The provisions of this chapter apply as well to a modification of a

contract of insurance as to its original formation

Notes:

‐ The rules on concealment and misrepresentation applies to both the:

o Original execution of the insurance policy

o Any alteration or modification of the contract

SEC 48. Whenever a right to rescind a contract of insurance is given to the

insurer:

‐ such right must be exercised previous to the commencement of an action

on the contract.

After a policy of LIFE insurance made payable on the death of the insured:

‐ shall have been in force during the lifetime of the insured

‐ for a period of 2 years from the date of its issue or of its last reinstatement,

the insurer cannot prove that the policy is void ab initio or is rescindable:

‐ by reason of the fraudulent concealment or misrepresentation of the

insured or his agent.

Notes:

‐ In NON-Life Policy

o Insurer may rescind even after the loss and filing of claim PROV it

is done BEFORE the insured files an action against the insurer

o However, a defense to an action that it was secured through

concealment or misrepresentation

is not in a nature of an action to rescind.

Hence, not barred by the provision

‐ IN life insurance,

o the defenses are available ONLY during the first two years of a life

insurance policy

o Incontestable clause requisites:

It is a life insurance policy

Payable on death of insured

In force during the lifetime of the insured for at least 2

years from its date of issue or of its last reinstatement

(Note: Period may be shortened but cannot be extended)

‐ When it becomes incontestable insurer cannot claim that policy is:

o Void abinito(means voidable) due to fraud in inducement;

o Rescissible due to concealment or misrepresentation

‐ Defenses not barred by incontestability clause:

o Lack of insurable interest

o Cause of death is an excepted risk

o Non-payment of premium

o Conditions relating to military or naval service violated

o Fraud is of a particularly vicious type (scheme to murder, insured

substitutes a person for exam, beneficiary kills insured)

o Beneficiary failed to furnish proof of death or to comply with any

condition imposed by policy after loss happened

o Action not brought within time specified.

Title 6. The Policy

SEC 49. The written instrument in which a contract of insurance is set forth, is

called a policy of insurance

SEC 50. The policy shall be:

‐ in printed form which may contain blank spaces;

o and any word, phrase, clause, mark, sign, symbol, signature,

number, or word necessary to complete the contract of insurance

shall be written on the blank spaces provided therein

Any rider, clause, warranty or endorsement:

‐ purporting to be part of the contract of insurance and

‐ which is pasted or attached to said policy

is not binding on the insured, UNLESS:

‐ the descriptive title or name of the rider, clause, warranty or endorsement

is also mentioned and written on the blank spaces provided in the policy.

UNLESS applied for by the insured or owner, any rider, clause, warranty or

endorsement:

‐ issued after the original policy

‐ shall be countersigned by the insured or owner,

which countersignature shall be taken as his agreement to the contents thereof.

Group insurance and group annuity policies, however,:

‐ may be typewritten and need not be in printed form


Notes: (De Leon)

‐ Signatures of the Parties:

o GR: Policy need ONLY be signed by insurer

o EXC: Express warranties contained in a separate instrument

forming part of the policy – insured must sign (Sec. 70)

‐ Policy must comply with the elements of an insurance contract in Sec 2

‐ Compliance by insured with terms of policy is a condition precedent to the

right of recovery

‐ A policy is a contract of adhesion

o Ambiguity resolved against insurer

Rule applies to suretyship agreements

o Forfeitures are not favored

o Only applies when relationship is one-sided and not when a person

is a businessman of experience who is presumed to have assented

to the provisions with full knowledge

‐ Policy of Insurance ≠ Contract of Insurance

o Policy

Formal written instrument that evidences the contact

Form must be approved by insurance commissioner

o Contract of Insurance

The result of the policy which evinces it

‐ In case of conflict between written and printed, written prevails

‐ Perfection of Contract

o Acceptance of application ≠ perfection

o Must be a perfected contract by the acceptance of the offer

o Insurer may impose pre-conditions for perfection (ex. Delivery of

policy and payment of first premium)

In property and liability insurance:

o It is the applicant who makes the offer to the insurer

In life insurance: (Depends upon the payment of the premium)

o If insured does not pay premium, application is considered an

invitation to insurer to make offer

o If he pays premium, he is the one making the offer to insurer

o Agents cannot accept the application, they can only give binding

receipts (a conditional acceptance)

o A policy issued according to application is implied acceptance

‐ DELIVERY: the act of putting the insurance policy into the possession of

the insured

o EVIDENCE of making a contract

o Communication of insurer’s acceptance

o May also affect term of policy period (ex. When prov that policy

will terminate 1 yr after its delivery)

‐ Modes of delivery

o Actual/constructive

o In person/duly constituted agent

o Or deposited in mail

o Primarily a matter of intention (possession by insured prima facie

evidence of delivery)

‐ Delivery to insurer’s agent as delivery to the insured

o 2 views: beneficiary can recover/beneficiary cannot recover

‐ Effect of conditional/unconditional delivery of policy

o Conditional

Nonperformance of the condition prevents the contract

from taking effect

o Unconditional delivery

Consummates the contract

When premium still unpaid:

• It is not presumed that there was an extension of

credit

• UNLESS there is a clear and express acceptance

by insured of insurer’s offer to extend credit.

• Otherwise, policy will lapse for non-payment of

premium

o Stipulation that contract takes effect upon delivery is valid

‐ RIDER: a printed/typed stipulation contained on a slip of paper attached

to the policy and forming an integral part of the policy

o Additional binding stipulations

o Conflict between rider and policy: rider prevails

o It is binding if properly attached or referred to therein in a manner

as to leave no doubt to the intention

o Any rider attached to said policy is not binding unless the

descriptive title or name is also mentioned and written on the blank

spaces provided. HOWEVER lack of description will not affect the

other provisions except where without such rider the contract

would be incomplete

o Lack of signature immaterial

‐ Warranties: inserted to eliminate specific potential increases of hazard

during the policy owing to actions of insured, or condition of property

‐ Clause: Agreement on certain matter relating to the liability of insurer in

case of loss

‐ Endorsement: provision altering scope or application


‐ Insured’s duty to read; Effect of failure to read policy

o Majority Ruling:

Acceptance policies w/o reading is recognized

Such acceptance is not negligence per se (majority rule)

o Minority Ruling:

One who accepts is conclusively presumed, in the absence

of fraud or mistake, to know and assent to its contents

Insured has the duty to read

EXCEPTIONS TO MINORITY RULE

When the insured could not have discovered the erroneous

statement by such reading (ex. copy of application

containing false statements was not attached to policy)

Insured is induced by fraud of agent of insurer

Insurer illiterate or unable to read English

When contracts are long, complicated, and difficult to

understand contracts

o Modern rule: Duty to read has less significance; insured relies not

upon the text of policies but on the general descriptions of the

coverage provided by insurer

‐ Insurer’s duty to explain the policy

o If terms are clear, no duty to explain

Important caveats:

Reasonable expectations: can operate to impose de facto a

duty in the insurer to explain the policy’s coverage

Options available to insured

Information expected by insured from insurer’s agent -

Agents must explain coverage

Insurer must alert insured of his rights after denial of

coverage

‐ Group Insurance

o Coverage of a number of individuals by means of a single or

blanket policy

o Common form: insurance for all employees of a single employer

o Employer is issued a “master” policy, while the employees are

issued a “certificate of participation”

For purposes of construction: All these instruments are

considered part of the same contract

o Employer becomes agent of insurer

o Employees are real parties in interest

Notes: (Rodriguez)

‐ Any ambiguity is resolved in favor of the insured.

‐ No policy shall be delivered or issued w/in the RP UNLESS:

o In the form approved by the Insurance Commissioner

o Failure to comply with the form:

does NOT invalidate the contract

BUT the insurer who fails to obtain said approval may be

prosecuted

‐ For a rider, clause, warranty or endorsement to be binding it must be

1. Pasted or attached to the policy (form must be approved by the

commissioner also)

2. Its descriptive title must be mentioned and written on the policy’s

blank spaces

‐ Rider, etc must be countersigned:

o GR: to be valid IF executed after the original policy

o EXC: if applied by the insured himself – no need to sign

‐ Jarque vs Smith, Bell

o In case or repugnance bet the written and printed portions – written

will prevail.

SEC 51. A policy of insurance must specify:

a) The parties between whom the contract is made;

b) The amount to be insured EXCEPT in the cases of open or running

policies;

c) The premium, or IF the insurance is of a character where the exact

premium is only determinable upon the termination of the contract, a

statement of the basis and rates upon which the final premium is to be

determined;

d) The property or life insured;

e) The interest of the insured in property insured, IF he is not the

absolute owner thereof;

f) The risks insured against; and

g) The period during which the insurance is to continue.

Notes:

‐ Names of parties

o Incorrect spelling is of no importance, may refer to insured as “the

insured”, “the owner”, “to whom it may concern”

o PROV the identity of the party can be sufficiently established

‐ Amount of insurance

o Need not be specified in open (Sec. 61) or running (Sec. 62)

policies


Fire and Casualty Maximum limit of insurer’s liability

NOT the value of the property

Life, accident, death, injury Fixed sum payable

Workmen’s compensation Law by reference fixes the amount

o “Automatic increase clause” valid

‐ Premium

o Consideration of the contract

o Rate increases as risk of loss increases

o Life: Average lifespan

o Property: Certain factors

‐ Interest of insured in property

o ONLY when insured not absolute owner

‐ Risks insured against

o GR: All foreseeable risks/losses may be insured

o EXC: Those the insurance of which would be repugnant to public

policy or positively prohibited or occasioned by insured’s own

fraud or misconduct

‐ Term or duration of insurance

o Period of time during which the insurer assumes the risk of loss

o Insurer liable only when loss occurred during duration of insurance

o 12 months: annual policies; Less: short period policies

o May be in terms of date or in terms of distance

‐ Risk: the chance of loss

‐ Peril: contingent or unknown event which may cause a loss

‐ Hazard: Condition or factor which may create or increase the chance of

loss from a given peril (physical or moral)

‐ For risk to be insurable:

o Important enough to warrant insurance

o Permit a reasonable statistical estimate of the chance of loss

o Loss should be fairly determinate as to cause, time, place, and

amount

o Not catastrophic

o Accidental in nature

Note: Requirements not absolute, insurability is a relative matter

‐ Kinds of Insurable Interest

o Personal

o Property

o Liability (3rd

party risks)

SEC 52. Cover notes may be issued:

‐ to bind insurance temporarily pending the issuance of the policy.

Within 60 days after the issue of the cover note,:

‐ a policy shall be issued in lieu thereof,

‐ including within its terms the identical insurance bound under the cover

note and the premium therefor.

Cover notes may be extended or renewed beyond such 60 days:

‐ with the written approval of the Commissioner

‐ if he determines that such extension is not contrary to and is not for the

purpose of violating any provisions of this Code.

The Commissioner may:

‐ promulgate rules and regulations governing such extensions for the

purpose of preventing such violations and

‐ may by such rules and regulations dispense with the requirement of written

approval by him in the case of extension in compliance with such rules and

regulations.

Notes:

‐ Cover Note: A written memorandum of the most important terms of a

preliminary contract of insurance intended to give temporary protection

pending the investigation of the risk by the insurer or until the issuance of a

formal policy. (“binding slip”, “binding receipt”, “binder”)

‐ 2 kinds of Preliminary Contracts: (DeLeon)

o Contract of present insurance

Binding slip and binders – temporary contract and is

usually issued after first premium

Subject to all conditions contained in the policy

Does NOT apply to life insurance, life insurance is

effective only upon approval of the risk (IMPT)

o Executory contract of insurance

Insurer makes a contract to insure subject matter at some

subsequent time which may be definite or indefinite

‐ Cover notes are insurance contracts within the definition of Sec 2

o No separate premium necessary

o Not a mere application for insurance (considered part of the

policy)

‐ Rules on cover notes

o Insurance companies doing business in the Philippines may issue

o Deemed a contract of insurance

o Form approved by Insurance Commission

o Binding for 60 days whether premium has been paid

May be cancelled upon at least 7 days notice


If not cancelled, regular policy of insurance shall be issued

o Extended with approval of Insurance Commission

Approval may be dispensed with upon the certification of

the pres, vp or general manager of the insurer that the risks

and the extension do not violate the insurance code

o May impose a deposit premium equivalent to at least 25% of

estimated premium, in no case less then P500

SEC 53. The insurance proceeds shall be:

‐ applied exclusively to the proper interest of the person in whose name or

for whose benefit it is made

‐ UNLESS otherwise specified in the policy.

Notes:

‐ 3rd

persons have no right to the proceeds, unless there is a contract between

insured and 3rd

persons

SEC 54. When an insurance contract is executed with an agent or trustee as the

insured:

‐ the fact that his principal or beneficiary is the real party in interest

‐ may be indicated by describing the insured as agent or trustee, or by other

general words in the policy.

Notes:

‐ The fact of agency must be indicated in the policy

‐ If the agent secures policy w/o such indication – agent is deemed to have

taken the insurance for his own benefit and the principal has no right of

action against the insured

SEC 55. To render an insurance effected by one partner or part-owner,

applicable to the interest of his co-partners or other part-owners,:

‐ it is necessary that the terms of the policy should be such as are applicable

to the joint or common interest.

Notes:

‐ Contract must show that it covers all shares of co-owners, otherwise it is

for the sole benefit of the one named in the contract.

SEC 56. When the description of the insured in a policy is so general:

‐ that it may comprehend any person or any class of persons,

‐ only he who can show that it was intended to include him can claim the

benefit of the policy.

Note:

‐ Ex. “for the partners of Romulo” – he must prove that he is one

SEC 57. A policy may be so framed that:

‐ it will inure to the benefit of whomsoever, during the continuance of the

risk,

o may become the owner of the interest insured.

Notes:

‐ The transfer of the property will NOT suspend the insurance and instead,

the insurance is deemed transferred together with the property

‐ An exception to Sec 20

‐ Example: Insurance is for “the owner” of the property insured

SEC 58. The mere transfer of a thing insured:

‐ does NOT transfer the policy, BUT suspends it

‐ UNTIL the same person becomes the owner of both the policy and the

thing insured.

‐ See discussion in Sec 20 (page 7)

‐ Since a contract of insurance is a personal contract – it does not attach to

the property unless so worded as in the case of sec 57

SEC 59. A policy is either: open, valued, or running

SEC 60. An open policy is one:

‐ in which the value of the thing insured is not agreed upon, but is left to be

ascertained in case of loss.

Notes:

‐ The amount stated in the policy is not the value of the property BUT

merely the maximum limit of the liability in case of total loss

‐ The insurer pays the ACTUAL CASH value of the property as ascertained

at the time of loss

SEC 61. A valued policy is one:

‐ which expresses on its face an agreement that the thing insured shall be

valued at a specific sum.


Notes:

‐ Valuation of the property insured is conclusive between the parties and in

the absence of fraud or mistake – such value shall be paid in case of total

loss

VALUED OPEN

‐ Proof of value of thing is NOT

necessary

‐ Value of the policy is agreed

upon

‐ Must prove value of thing

‐ Value is not agreed upon but left

to be ascertained in case of loss

SEC 62. A running policy is one:

‐ which contemplates successive insurances, and

‐ which provides that the object of the policy may be from time to time

defined, especially as to the subjects of insurance, by additional statements

or indorsements.

Notes:

‐ Running policies: Also known as “floating policy” where the indemnity of

property cannot be covered by specific insurance because of frequent

change of location and quantity

o Risk is shifting, fluctuating, or varying

o In reality open policies

o Example: Store and all the inventory within, stocks in trade

o Use monthly value reports

SEC 63. A condition, stipulation, or agreement in any policy of insurance,:

‐ limiting the time for commencing an action thereunder to a period of

o less than 1 year from the time when the cause of action accrues,

‐ is VOID.

Notes:

‐ GR: Parties may validly fix the period when the action should be brought

o PROV: Period is not less than 1 year

o In case of industrial life insurance: period cannot be less than 6

years

‐ Accrual of action:

o For payment: at the happening of loss

o Action on the contract: from denial of claim by insurer

Rejection in the first instance

‐ Where “action is filed – determination which converts a claim into an

action or suit. If filed in:

o Regular courts of justice

o Office of Insurance Commissioner

For claims NE 100K – concurrent w/ civil courts

o POEA or DOLE

‐ Bringing an action against the agent has no effect – does not interrupt

prescriptive period

o It only notifies the agent of the claim

o EXC: if there is a stipulation/condition in the policy

‐ A condition that suit must be brought w/in 1 year is void and action may be

brought w/in 10 years (written contract under CC) from time cause of

action accrues

‐ Contractual limitations are construed against insurer

SEC 64. No policy of insurance other than life shall be cancelled by the

insurer:

‐ EXCEPT upon prior notice thereof to the insured, and

no notice of cancellation shall be effective:

‐ UNLESS it is based on the occurrence, after the effective date of the

policy, of one or more of the following:

a) non-payment of premium;

b) conviction of a crime arising out of acts increasing the hazard insured

against;

c) discovery of fraud or material misrepresentation;

d) discovery of willful or reckless acts or omissions increasing the hazard

insured against;

e) physical changes in the property insured which result in the property

becoming uninsurable; or

f) a determination by the Commissioner that the continuation of the policy

would violate or would place the insurer in violation of this Code.

SEC 65. All notices of cancellation mentioned in the preceding section shall:

‐ be in writing,

‐ mailed or delivered to the named insured at the address shown in the

policy, and

‐ shall state:

(a) which of the grounds set forth in section 64 is relied upon and

(b) that, upon written request of the named insured, the insurer will

furnish the facts on which the cancellation is based.


Notes:

‐ A cancellation of non-life insurance policy must have the following

requirements:

1. There must be prior notice to the insured

2. Notice is based on the grounds in Sec 64 and shall so state them

3. Notice must be in writing, mailed and delivered

4. If requested in writing by the insured: insurer must furnish the facts on

which the cancellation is based.

‐ Cancellation shall be ineffective:

o If there is no prior notice

o IF cancellation is not based on the grounds provided

‐ Cancellation

o Right to rescind, abandon, or cancel a contract of insurance

o Is the termination of the policy before its expiration

o The ground must occur after the effective date of the policy

SEC 66. In case of insurance other than life,

UNLESS the insurer

‐ at least 45 days in advance of the end of the policy period

‐ mails or delivers to the named insured at the address shown in the policy

notice of its intention:

o not to renew the policy or

o to condition its renewal upon reduction of limits or elimination of

coverages,

the named insured shall be entitled to renew the policy:

‐ UPON payment of the premium due on the effective date of the renewal.

Any policy written for a term of less than one 1 year:

‐ shall be considered as if written for a term of one year.

Any policy written for a term longer than 1 year or any policy with no fixed

expiration date:

‐ shall be considered as if written for successive policy periods or terms of

one year.

Notes:

‐ Renewal may be:

o through extension (By provision) or

o through new contract

‐ Insurance company is bound by the greater coverage in earlier policy

where insurer renews without informing insured of reduced coverage

‐ IF the 45 day rule is not complied w/ - the insurer may refuse to renew

‐ If insurer does not comply with Sec 65 & 66 - he must renew whether he

likes it or not

Title 7. Warranties

SEC 67. A warranty is either express OR implied

Notes:

‐ Warranty: statement or promise by insured set forth in the policy or

incorporated in it by proper reference, the untruth or non-fulfillment

renders the policy voidable by insurer -May ALSO be made by insurer

Kinds:

Express Promise is clearly set forth in the policy or incorporated by

reference

Implied Bec. of the general tenor of the terms of the policy or the

very nature of the contract – warranty is necessarily inferred

Affirmative Insured asserts the existence of the matter at or before the

issuance of the policy

Promissory Promises that certain matters shall exist or will be done or

omitted after the policy takes effect

‐ Unless the contrary appears, courts will presume that warranty is

affirmative

‐ When warranty is waived and estoppel arises:

o When the policy contains a condition which renders it voidable at

its inception and such is known by the insurer – it will be

presumed to waive the conditions and to execute a binding contract

o If there is information which could hardly be overlooked and the

corporation received still the payment of premiums it will be

estopped.

SEC 68. A warranty may relate to the past, the present, the future, or to any or all

of these

SEC 69. No particular form of words is necessary to create a warranty.

Notes:

‐ The use of the word “warranty” is not necessary to establish it

‐ It depends on intention of the parties, the nature of the contract or the

words used thereto.

‐ In case of doubt, a statement will be referred to as a representation rather

than a warranty (esp when the statement is contained in any instrument

other than the policy)


o Gratuitous answers not responsive to any questions asked - are

NOT warranties, even though the policy makes the statements in

the application warranties

Warranty Representation

• Included in the contract • Mere collateral inducements

• Always written in face of

policy, actually or by reference

• May be written in a

disconnected paper or oral

• Strictly complied with • Only substantial truth required

• Falsity equates to breach of

contract

• Falsity equates to fraud

• Presumed material • Must be shown to be so

• Breach is a breach of contract • Ground for rescinding

‐ Warranties are strictly construed against insurer

‐ In order for a representation to become a warranty

o It must be expressly included or incorporated by clear reference in

the policy

o The contract must clearly show that the parties intended that the

rights of the insured would depend on the truth or fulfillment of the

warranty

SEC 70. Without prejudice to section 51, every express warranty:

‐ made at or before the execution of a policy,

must be contained:

‐ in the policy itself, or

‐ in another instrument signed by the insured and referred to in the policy as

making a part of it.

Notes:

‐ If contained in another instrument, must be signed by insured and referred

to in the policy – mere reference is not sufficient

‐ Warranty may ALSO be contained in a RIDER:

o It need not be signed by the insured

o UNLESS, such rider was issued after the original policy took

effect

SEC 71. A statement in a policy,:

‐ of a matter relating to the person or thing insured, or to the risk, as a fact,

‐ is an express warranty thereof.

Notes:

‐ Must refer to a fact, not an opinion

‐ Statements in the application or medical examination are representations

ONLY if it is not incorporated in the policy or made part of it by reference

SEC 72. A statement in a policy which imparts that:

‐ it is intended to do or not to do a thing

‐ which materially affects the risk,

is a warranty that such act or omission shall take place.

Notes:

‐ A promissory warranty

‐ Breach of promise needs to be material to the risk in order to avoid policy

o Material if it increases the risk (substantial increase)

SEC 73. When, before the time arrives for the performance of a warranty relating

to the future,:

‐ a loss insured against happens, or

‐ performance becomes unlawful at the place of the contract, or

‐ impossible,

the omission to fulfill the warranty does not avoid the policy.

Notes:

‐ 3 exceptions to non-performance of warranty

o Loss occurs before time specified

o Performance becomes unlawful before the time specified

o Performance becomes impossible before the time specified

‐ Non-performance may be barred by

o Waiver of insurer - needs a clear intent to waive

o Estoppel – From insurer’s actions (May also apply to insured’s

representations)

SEC 74. The violation of a:

‐ material warranty, or

‐ other material provision of a policy,

on the part of either party thereto, entitles the other to rescind.

Notes:

‐ The rule is true EVEN if the violation did not contribute or was not the

direct cause to the loss

‐ Rescission can be done ONLY if breach is material

o Non-disclosure of other existing insurance policies is material


‐ Keeping of substance which is necessary for the business, or small

quantities needed for daily use is not a violation of the warrant prohibiting

storage of inflammable materials

SEC 75. A policy may declare that:

‐ a violation of specified provisions thereof shall avoid it,

‐ otherwise the breach of an immaterial provision does not avoid the policy.

Notes:

‐ GR: violation of an immaterial provision does not avoid the policy

‐ EXC: By stipulation by the parties

SEC 76. Breach of warranty without fraud:

‐ merely exonerates an insurer from the time that it occurs, or

‐ where it is broken in its inception, prevents the policy from attaching to

the risk.

Notes:

‐ GR: Fraud is not essential for breach of warranty

o mere violation entitles the other party to rescind.

o Falsity, not fraud is the basis of liability on a warranty

W/OUT Fraud With Fraud

‐ Policy avoided only from the time of

the breach

Insured is entitled:

(1) Return premiums at a pro rata rate

from time of breach

(2) When breach occurs during inception

of contract, return all premiums

‐ Policy is VOID ab initio

‐ Insured is NOT entitled to

premiums paid

‐ Conditions on Insurance Policies:

o Insurers may impose any condition so long as it is not contrary to

law, morals, good customs, public order, or public policy

o One w/o the performance of which the contract does not become in

existence.

‐ Exceptions in Insurance Policies:

o Certain risks inserted in a policy which the insurer is unwilling to

assume and used for the purpose of withdrawing from the coverage

of the policy.

Effect of breach on Legal Relation of Parties

‐ Renders the contract voidable

‐ BUT the occurrence of the risk does not affect the validity of the contract

‐ Breach may be waived

o Insurer does not become liable for an excepted loss by waiver

UNLESS such waiver amounts to a new contract on valuable

consideration

o The defense that the loss is excepted is not barred by the

incontestable clause

Title 8. Premium

Sec. 77. An insurer is entitled to payment of the premium:

‐ as soon as the thing insured is exposed to the peril insured against.

Notwithstanding any agreement to the contrary, no policy or contract of insurance

issued by an insurance company is valid and binding:

‐ unless and until the premium thereof has been paid,

‐ EXCEPT in the case of a life or an industrial life policy whenever the

grace period provision applies.

Notes:

‐ Premium: is the agreed price or consideration paid by the insured for

undertaking to indemnify the former against a specified peril.

‐ Payment of premium – one of the essential elements of an ins contract

‐ Non-payment puts an end to the insurance contract and the insurer has no

right to collect the premium

Non-payment of 1st premium Non-payment of subsequent premiums

‐ Prevents the contract from

becoming binding

‐ UNLESS waived

‐ Does not affect the validity of the contract

‐ UNLESS by express provision of law it

suspends the policy Note: in case of life insurance – policyholder is

entitled to a grace period of 30 days to pay the

premium after the first

o GR: If no premium is paid – contract is NOT effective

o Exceptions: UCPB General Insurance Inc v. Masagana (1) Sec 77: “in case of a life or industrial life policy whenever the grace

period provision applies”

(2) Sec 78: “Any acknowledgment in a policy or contract of insurance of

the receipt of premium is conclusive evidence of its payment”

(3) Makati Tuscany vs. CA, “when the parties agree to the payment in

installments and partial payment has been made at the time of loss.”

(4) Makati Tuscany vs. CA, insurer may grant credit extension

(5) Estoppel


‐ No excuse for non-payment

o GR: Non-payment cannot be excused even for a fortuitous event

since the payment of a premium is of essence of a contract

o EXC: When the failure to pay was due to the wrongful act of the

insurer or his agent (he is estopped)

‐ There is a valid payment even if check is encashed after the occurrence of

the risk insured against

‐ On Partial Payments

o GR: Partial payment makes the policy effective during the whole

period of the policy

o EXC: When the parties expressly stipulate that the policy will not

be in force UNTIL the full payment of premium

Partial payment – considered as a deposit held in trust by

the insurer

‐ When there is not only a perfected contract but also a partially performed

one as far as the payment of the premium was concerned – the obligation

of the insurer to pay the amount of the policy became binding upon it.

‐ Payment of the premium to the insurance agent or broker is payment

to the insurance company

o Misappropriation of the premiums paid by the agent is imputable

to the insurance company

‐ Premium vs. Assessment

o Assessment: sum specifically levied upon a fixed and definite plan

to pay losses and expenses

o Premium: paid to meet ANTICIPATED losses; NOT a debt

o Assessment: paid to meet ACTUAL losses; a debt

Sec. 78. An acknowledgment in a policy or contract of insurance OR the receipt

of premium:

‐ is conclusive evidence of its payment, so far as to make the policy binding,

‐ notwithstanding any stipulation therein that it shall not be binding until the

premium is actually paid.

Notes:

‐ This section establishes a legal fiction of payment

‐ There is a waiver of the condition of prepayment – since it is declared by

law to be conclusive evidence of payment

‐ Conclusive Presumption extends ONLY to the question of the binding

effect of the policy

o Insurer may still dispute it but ONLY for the purpose of

recovering the premium due and unpaid

Sec. 79. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed

to any of the perils insured against;

(b) Where the insurance is made for a definite period of time AND the insured

surrenders his policy:

‐ to such portion of the premium as corresponds with the unexpired time, at

a pro rata rate,

‐ UNLESS a short period rate has been agreed upon and appears on the face

of the policy,

‐ after deducting from the whole premium any claim for loss or damage

under the policy which has previously accrued;

‐ Provided, That no holder of a life insurance policy may avail himself of

the privileges of this paragraph without sufficient cause as otherwise

provided by law.

Sec. 80. If a peril insured against has existed,:

‐ and the insurer has been liable for any period, however short,

‐ the insured is not entitled to return of premiums, so far as that

particular risk is concerned.

Sec. 81. A person insured is entitled to return of the premium when:

‐ the contract is voidable, o on account of fraud or misrepresentation of the insurer, or of his

agent, or o on account of facts, the existence of which the insured was

ignorant without his fault; or

‐ when by any default of the insured other than actual fraud, the insurer

never incurred any liability under the policy.

Sec. 82. In case of an over-insurance by several insurers, the insured:

‐ is entitled to a ratable return of the premium,

‐ proportioned to the amount by which the aggregate sum insured in all

the policies exceeds the insurable value of the thing at risk.

Notes:

‐ If insurance is illegal – premiums cannot be recovered

o But if they are not in pari delicto – innocent party may recover


7 Instances when the insured is entitled to recover premiums already made:

1. When no part of the interest in the thing insured has been exposed to any of the

perils insured against

‐ The assumption of risk is one of the essential elements in the insurance

contract – if there is no risk – premium may be recovered

‐ When the risk attaches:

o If risk is entire + contract is indivisible: insured is not entitled to

return of premium if insurer is exposed to the peril however short

o If contract is divisible (involves several distinct risks) – the

premium for the risk which does not attach can be claimed

‐ If the loss occurs before the effective date and an advance of the premium

was made – insured is entitled to the premium

‐ When the insured and insurer becomes public enemies – insured is entitled

since war abrogates insurance contracts

‐ Examples:

o Ship insured for the voyage – voyage did not proceed

o If the policy was in fact inoperative

2. Where the insurance is made for a definite period of time and the insured

surrenders his policy before the expiration of that period

‐ The rule does NOT apply:

o When the insurance is not for a definite period

o A short period has been agreed upon

o The policy is for life insurance policy

‐ In short period rates:

o Usually found in a table of figures stipulating the amount for the

premium

o The amount recoverable will not be the unexpired period BUT

ONLY the balance after deducting the percentage to be retained by

the insurer as stated in the table PERIOD % of Annual

Rate

PERIOD % of Annual

Rate

1 or less 20% 7 mos 75%

2 mos 30% 8 mos 80%

3 mos 40% 9 mos 85%

4 mos 50% 10 mos 90%

5 mos 60% 11 mos 95%

6 mos 70%

‐ In Life Insurance

o It is an indivisible contract so insured cannot recover

o HOWEVER, he is entitled to receive to the “cash surrender

value” AFTER 3 full annual premiums have been paid.

3. Where the contract is voidable on account of fraud or misrepresentation of the

insurer or his agent

‐ If the insured is in fraud – he is NOT entitled to return of the premium

4. When the contract is voidable on account of facts, the existence of which the

insured was ignorant of w/o his fault

5. When by any default of the insured other than actual fraud, the insurer never

incurred any liability under the policy

‐ Example: insured a vessel but it was destroyed before the actual voyage

6. In case of an over-insurance by several insurers

‐ Insurer is not entitled to the portion of the premium corresponding to the

excess of the insurance over the II of the insured

‐ Return is only for the proportion which exceeds the II

Title 9. Loss

Sec. 83. An agreement not to transfer the claim of the insured against the

insurer after the loss has happened,:

‐ is VOID IF made before the loss

‐ EXCEPT as otherwise provided in the case of life insurance.

Notes:

‐ GR: A prohibition against the transfer of the claim after the loss is against

public policy – therefore VOID

o The rights of the parties are already fixed after the loss

o The assignment is merely a transfer of a chose of action

o It involves no moral hazard – does not increase the insurer’s risk

‐ EXC:

o Sec 173. Which prohibits the transfer of a fire insurance policy to

any person who acts as an agent of the issuing company and

declares such transfer void insofar as it affects the creditors of the

insured.

o In the case of Life Insurance


Sec. 84. Unless otherwise provided by the policy, an insurer is liable for a loss:

‐ of which a peril insured against was the proximate cause,

‐ although a peril not contemplated by the contract may have been a

remote cause of the loss;

but he is not liable for a loss:

‐ which the peril insured against was only a remote cause.

Notes:

‐ Loss: Injury, damage, or liability sustained in consequence of the peril

‐ Scope of the Peril:

o Loss of income

o Bodily Injury

o Legal liability to 3rd

party

‐ Insurer is Liable: when the peril insured is the proximate cause

‐ Insurer is NOT liable: when the peril insured is ONLY a remote cause

‐ Burden of proof: Insurer has the burden of proof to show that he is not

liable

‐ Proximate Cause: is that which in a natural and continuous sequence,

unbroken by any efficient intervening cause, produces an injury w/o which

the injury would not have occurred.

Sec. 85. An insurer is liable where the thing insured is rescued from a peril

insured against that would otherwise have caused a loss, IF,

‐ in the course of such rescue, the thing is exposed to a peril not insured

against,

o which permanently deprives the insured of its possession, in whole

or in part; or

‐ where a loss is caused by efforts to rescue the thing insured from a peril

insured against.

Notes:

‐ For as long as the loss occurred in the course of rescuing or by efforts to

rescue from a peril INSURED against and also PROV that the property

would have been lost by the peril insured against- the insurer is liable

‐ However, if it did not take place in the “course of the rescue” nor “caused

by efforts to recue” – insurer is not liable

Sec. 86. Where a peril is especially excepted in a contract of insurance:

‐ a loss, which would not have occurred but for such peril, is thereby

excepted

‐ although the immediate cause of the loss was a peril which was not

excepted.

Notes:

‐ The insurer is NOT liable if the proximate cause is an excepted peril even

if the immediate peril is a peril not excepted

‐ Immediate Cause: cause or condition nearest to the time and place of injury

‐ Insurer has the burden of proof that the risk causing the loss is excepted.

Sec. 87. An insurer is not liable:

‐ for a loss caused by the willful act or through the connivance of the

insured;

but he is not exonerated:

‐ by the negligence of the insured, or of the insurance agents or others.

Notes:

‐ It must be caused by a willful act

‐ GR: negligence of the insured or his agents – insurer is LIABLE

‐ EXC: if the negligence is so gross – insurer is NOT liable

Title 10. Notice of Loss

Sec. 88. In case of loss upon an insurance against fire, an insurer is

exonerated,:

‐ IF notice thereof be not given to him by:

o an insured, or

o some person entitled to the benefit of the insurance,

‐ without unnecessary delay.

Notes:

‐ Notice of loss: necessary for the insurer to be liable to pay the claim.

o Purpose: is to enable the insurer to make the proper investigation

and take such action as may be necessary to protect his interest

‐ No particular form is needed

‐ W/o unreasonable delay – means “w/in reasonable time”

o Depends on the circumstances, construed in favor of insured

o Parties may stipulate the period but must not be unreasonably short

Sec. 89. When a preliminary proof of loss is required by a policy, the insured:

‐ is not bound to give such proof as would be necessary in a court of justice;

‐ but it is sufficient for him to give the best evidence which he has in his

power at the time.


Notes:

‐ Proof of loss: evidence given to the insurer of the occurrence of the loss

and the information necessary to determine its liability and the amount

thereof.

‐ Best evidence which he has in his power at the time is sufficient

‐ No form required

‐ Failure to serve notice or proof may be excused when the circumstances

are such as to make strict compliance with the requirement impossible

o Ex. Insured died before the fire and the heirs did not know about

the policy

‐ Effect of fraudulent claim of loss

o Mere filing of such claim will exonerate the insurer if such clause

is part of the contract

o Good faith however will not exonerate the insurer

o There must be positive proof of fraud – burden is on the insurer

Sec. 90. All defects in a notice of loss, or in preliminary proof thereof,:

‐ which the insured might remedy, and

‐ which the insurer omits to specify to him, without unnecessary delay, as

grounds of objection,

are WAIVED.

Notes:

‐ A general statement that proofs are defective is not sufficient to impose on

the insured the duty to supply the defects not pointed out.

‐ Ex. If the policy required an affidavit of loss and a defective one is

accepted – there is a waiver on such defect.

Sec. 91. Delay in the presentation to an insurer of notice or proof of loss is waived

‐ IF caused by any act of him, or

‐ if he omits to take objection promptly and specifically upon that

ground.

Notes:

‐ By accepting payment of premium with full knowledge that the premises

had been injured

Sec. 92. If the policy requires, by way of preliminary proof of loss, the certificate

or testimony of a person other than the insured,:

‐ it is sufficient for the insured to use reasonable diligence to procure it,

and

‐ in case of the refusal of such person to give it, then to furnish reasonable

evidence to the insurer that such refusal was not induced by any just

grounds of disbelief in the facts necessary to be certified or testified.

Notes:

‐ Liberally construed in favor of the insured

Title 11 Double Insurance

Sec. 93. A double insurance exists where:

‐ the same person is insured

‐ by several insurers separately

‐ in respect to the same subject and interest.

Notes:

‐ Requisites:

1. Same person is insured

2. There are several insurers

3. Same subject insured

4. Same interest insured

5. Same risk or peril insured against

‐ Double insurance is NOT prohibited IF the policy does not contain any

stipulation against such

‐ Prohibition for DI is valid in order to prevent over insurance and thus avert

the perpetration of fraud

‐ IF the insurer knows the existence of other insurances AND continued the

policy – it amounts to a waiver of the annulment for such cause

‐ An additional insurance obtained by a3rd person in good faith and w/o the

knowledge of the prohibition will NOT affect his rights under the policy


Sec. 94. Where the insured is overinsured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment from the

insurers in such order as he may select, up to the amount for which the insurers are

severally liable under their respective contracts;

(b) Where the policy under which the insured claims is a valued policy, the insured

must give credit as against the valuation for any sum received by him under any

other policy without regard to the actual value of the subject matter insured;

(c) Where the policy under which the insured claims is an unvalued policy he must

give credit, as against the full insurable value, for any sum received by him under

any policy;

(d) Where the insured receives any sum in excess of the valuation in the case of

valued policies, or of the insurable value in the case of unvalued policies, he must

hold such sum in trust for the insurers, according to their right of contribution

among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute

ratably to the loss in proportion to the amount for which he is liable under his

contract.

Notes:

‐ The insured can only recover the amount of his II whether in one policy or

several policies

‐ Since a contract of insurance is one of indemnity – the amount of recovery

is limited to the value of the insured’s II

‐ Principle of contribution: requires each insurer to contribute ratably to the

loss

‐ Contribution clause – stipulation that the insurance company shall not be

liable to pay or contribute more than its ratable proportion of the loss or

damage

Double Insurance Over Insurance

‐ There must be several insurers

‐ The total of the sum of the

policies need not exceed the II

‐ One insurer is sufficient

‐ Amount of the insurance is always

beyond the value of the II

Title 12. Reinsurance

Sec. 95. A contract of reinsurance is one by which:

‐ an insurer procures a third person

‐ to insure him against loss or liability by reason of such original insurance.

Notes:

‐ Reinsurance policy: contract of indemnity

‐ Reinsurance treaty: merely an agreement bet 2 insurance companies where

one agrees to cede and the other to accept reinsurance business

Double Insurance Reinsurance

‐ Insurer remains the insurer

‐ Subject matter is property

‐ Same interest and risk are insured

‐ Insurer becomes the insured

‐ Subject is the insurer’s risk or liability

‐ Different risk and interest are insure

Sec. 96. Where an insurer obtains reinsurance, except under automatic

reinsurance treaties, he must communicate:

‐ all the representations of the original insured, and also

‐ all the knowledge and information he possesses,

whether previously or subsequently acquired, which are material to the risk.

Notes:

‐ Policy may be avoided where the reinsured conceals the fact that a loss has

taken place or that the property is over-insured

‐ EXC to Sec 96: in case of an Automatic Reinsurance Treaty since the

contract is self-executing and the obligation attaches automatically

Sec. 97. A reinsurance is presumed to be:

‐ a contract of indemnity against liability, and

‐ not merely against damage.

Notes:

‐ Reinsurance – is a contract of indemnity against the reinsured’s liability

from the original contract BUT not exceeding the amount of the

reinsurance

‐ Reinsured may obtain payment – EVEN before paying the original insured.

Sec. 98. The original insured has no interest in a contract of reinsurance.

Notes:

‐ GR: Contract is solely bet the reinsured and the reinsurer

‐ EXC: if the contract is made for the benefit for reinsured’s policyholders

OR IF Reinsurer agrees to assume the reinsured’s contracts

o PROV: original insured accepts and communicates acceptance

‐ Insurer is entitled to avail itself of every defense the reinsured has against

the original insured

insurance reviewer midterms-1

Documents