fire, casualty, surety and life.doc

7/29/2019 Fire, Casualty, Surety and Life.doc

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FIRE INSURANCE

#167Fire Insurance DefinedA fire insurance is defined is a contract of indemnity by whichthe insurer for a stipulated premium, agrees to indemnify theinsured against loss of, or damage to, a property caused by ahostile fire.

Fire & Extended CoverageIt includes insurance not only loss by fire, but also by alliedlines (lightning, windstorm, tornado or earthquake, etc.), BUT

only when such risks are covered by extension to fire insurancepolicies OR under separate policies, subject to the payment ofadditional premiums.The coverage may be attached by endorsements.

Nature of Fire InsuranceFire insurance is essentially a contract of indemnity. This is itssole purpose and any contract that contemplates a possiblegain to the insured by the happening of the event upon whichthe liability becomes fixed is contrary to its proper nature and isnot allowed.

Concept of FireFire is oxidation which is so rapid as to produce either a flameor a glow. Fire is always caused by combustion BUT combustiondoes not always cause a fire.

The presence of heat, steam, or even smoke is evidence of fire,but taken but itself will not prove the existence of fire.UNLESS accompanied by ignition, heat sufficient to causecharring or scorching does not constitute fore. To constitutefire, combustion must proceed at a rate sufficiently fast toproduce a flame.Fire may NOT be considered a natural disaster since it almostalways arises from some act of man. It cannot be an act of Godunless it is caused by a casualty not attributable to humanagency.

Risks or Losses CoveredIn determining whether a risk is written, the scope of a fireinsurance policy & the intention of the parties, as indicated bytheir contract controls. They may also extend the coverage toindirect losses.

Indirect Loss CoverageThe standard fire contract is an agreement to repay the insuredfor direct loss. Nearly all other property insurance contracts aresimilarly restricted.The consequences of a direct loss may be greaterthan the damage itself (ex. 394)

Kinds of Indirect Losses1. Physical damage- Caused to other property (which is not usually covered by the

policy)2. Loss of earnings- Due to the interruption of business by damage to insureds

property3. Extra expense- Additional expenditure or charges incurred by the insured

following damage or destruction of buildings or contents byan insured peril

Ocean Marine & Fire Policies Distinguished1. A policy of insurance on a vessel engaged in navigation- The contract is of ocean marine insurance although it insures

against fire risks only.2. Where the hazard is fire alone & the subject is an unfinished

vessel, never afloat for a voyage- The contract to insure is a fire risk, especially in the absence

of an express agreement that it shall have the incidents ofmarine policy OR where it insures materials in a shipyard forconstructing vessels.

Importance of the Distinction1. Rules on constructive total loss & abandonment- Applies only to marine insurance

2. Rules on co-insurance- Applies primarily to marine insurance- Applies to Fire Insurance ONLY if expressly agreed on by the

parties

#168- 169When alteration in thing insured entitles insurer torescind1. The use or condition of the thing is specifically limited

or stipulated in the policy2. Such use or condition as limited by the policy is altered3. The alteration is made without the consent of the insurer4. The alteration is made by means within the control of the

insured; and

5. The alteration increases the risk- But the contract of fire insurance is not affected by any act of

the insured subsequent to the execution to the execution ofthe policy,WHICH DOES NOT VIOLATE ITS PROVISIONS

Increase of risk or hazard in general1. Implied undertaking of insured- That he will not change the premises/character of the

business carried there so as to increase the risk of loss byfire.

- Every contract of insurance is made withreference to theconditions surrounding the subject matter of the risk & thepremium is fixed

2. Character of the increase in risk- An increase of hazard takes place when the insured property

is PUT TO SOME NEW USE & THE NEW USE INCREASES THECHANCE OF LOSS.

- Mere negligent acts which temporarily endangers propertywill not violate the policy NOR the temporary acts whichwhave ceased prior to the occurence of the loss.

- There must be actual increase of the risk and while it is notnecessary that the increased risk should have contributed tothe loss, still necessary that the increase be of substantialcharacter.

Alterations avoiding policy1. Where risk of loss increased

- The policy is avoided by any alteration in the use or conditionof the property insured (ex. 397)

2. Where the increase no longer existing at time of loss- The insurer would still liable UNLESS there is a breach of

warranty that no hazardous goods should be stored or kept inthe property insured.

Alterations Not avoiding policy1. Where risk of loss not increased- Where a different use is made of the insured premises, which

use is not of a dangerous character and does not differmaterially from the use specified in the policy, even thoughan additional premium may be demanded

2. Where questioned articles required by insureds business- If the articles are necessary in the business conducted in the

insured premises, even though the policy contains certainprovisions prohibiting specified articles

3. Where insured property would be useless ifquestioned acts were prohibited

- Such acts are not to be regarded as increasing the risk sincethe property would be useless to the insured if such actswere prohibited EVEN THOUGH BY REASON THEREOF, THEPROPERTY MAY BE EXPOSED TO SOME ADDITIONAL RISK

Where insured has NO control or knowledge of alteration1. Insurers liability unaffected

- Policy will not be avoided UNLESS ACTUALLY KNOWN TO THEINSURED

2. Insureds knowledge presumed- Every act of insureds tenant permanently affecting the

conditions of the property so as to increase the riskWOULD BE PRESUMPTIVELY KNOWN TO INSURED

Application of Section 75 & 169- In 169, AN ALTERATION in the risk or condition of the thing

insured WHICH DOES NOT INCREASE THE RISK WILL NOTAFFECT a contract of fire insurance. This applies to policiesin which Sec. 75 is silent on the subject.

- In 75, The breach of an immaterial provision does not avoidthe policy

- However in 75, the insurer is Given the right to insert terms& conditions in the policy which if violated would avoid it...Analteration made in the use or condition of the thing insuredwill avoid the policy IF SUCH ALTERATION IS EXPRESSLYPROHIBITED ALTHOUGH IT DOES NOT INCREASE THR RISK.

#170Where act of insured NOT in violation of policyThis is the exception to #168.

The contract is not affected by such alteration EVEN THOUGH ITINCREASES THE RISK & IS THE CAUSE OF THE LOSS.

#171- 172Measure of indemnity under an open policy1. Amount of actual loss sustained- In the absence of express valuation, the insured is only

entitled to recover the amount of actual loss sustained andthe burden is upon him to establish the amount of such lossby a preponderance of evidence.

- The insured is entitled to receive the amount necessary toindemnify him OR to have the thing in the same condition inwhich it was at time of loss

2. Limit to amount


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- Liability of insured shall in no event exceed what it wouldcost the insured to repair or replace the thing with materialsof like kind & quality(with proper deduction for depreciation considering the ageor condition of the thing before the loss)

3. Market value in case of personal property- If this can readily be determined. This maybe applied in

determining the actual loss sustained.

Measure of indemnity under a valued policyThe effect of valuation in a policy of fire insuranceIS THE SAME AS IN A POLICY OF MARINE INSURANCE.

1. Valuation conclusive between the parties- In the adjustment of total/partial loss if the

(1) Insured had an insurable interest AND (2) was not guiltyof fraud

2. Amount stated in policy/amount of partial loss- The valuation may be fixed as provided in #172.- In case of a TOTAL LOSS, insured can recover the whole

amount so insured and in PARTIAL LOSS, the full amount ofthe partial loss.

- The TOTAL LOSS exists when the result of the fire is to renderthe property WHOLLY UNFIT FOR USE however valuable itmay be as mere material

3. Pro-rata contribution to payment of loss, if insured under 2 ormore policies

Insured Not a co-insured under fire policiesIn the Absence of Stipulation1. UNDER USUAL CONTRACT OF FIRE INSURANCE,- In case of partial loss, insurer is required to give full

indemnity for such loss up to the amount written in the policyeven though the property be very inadequately insured.

2. UNDER MARINE INSURANCE, rule is otherwise (Rule 157

- In case of partial loss, insurer is liable only for suchproportion of the amount insured by him as the loss bears tothe value of the whole interest of the insured in the propertyinsured.

- When the property is insured for less than its value, theinsured is considered a co-insurer of the difference betweenthe amount of insurance and the value of the property.

Reason for co-insurance clause in fire policies- The co-insurance clause requires the insured to maintain

insurance to an amount equal to the value of the insuredproperty UNDER PENALTY OF BECOMING CO-INSURER TOTHE EXTENT OF SUCH DEFICIENCY.

- It divides the potential risk between the insured and theinsurer in case of partial loss or destruction of the insuredproperty.

- To prevent property owners from taking out small amount ofinsurance, thereby reducing the premium payments, theinsurers often insert a co-insurance clause. This reducesthe recovery in case of partial loss to but a portion of thesum named in the policy though in case of total loss, theinsurer is liable for the amount named in the policy.

Option to rebuild clause- THE MERE FACT THAT THE PARTIES HAVE FIXED A

VALUATION in the policy does NOT PREVENT THEM fromstipulating in the policy concerning the repairing, rebuilding,or replacing of structures wholly or partially damaged.

- THUS, the insurer may be given the option to reinstate orreplace the property damaged or any part thereof, instreadof paying the amount of loss or damage.

- Insurer may excercise this option WITHIN the time stipulatedin the policy or in the absence of stipulation within areasonable time.

- THE CHOICE BY THE INSURER SHALL PRODUCE NO EFFECTEXCEPT FROM THE TIME IT HAS BEEN COMMUNICATED TOTHE INSURED.

- Unless the policy has limited the cost of rebuilding to theamount of the insurance, THE INSURER, AFTER ELECTING TOREBUILD CAN BE COMPELLED TO PERFORM HISUNDERTAKING, EVEN THOUGH THE COST MAY EXCEED THEORIGINAL AMOUNT OF INSURANCE

#173

Pledge, etc. of fire insurance policy AFTER A LOSS1. Consent of/Notice to insurer NOT REQUIRED- The insured may pledge, hypothecate or transfer a fire

insurance policy or rights thereunder. It is not the personalcontract which is being assigned, but a right of action on thepolicy against the insurer.

- As a general rule, the assignee acquires no greater rightsagainst the insurer than had the one towhom the policy wasissued.

2. Limitation- Transfer of a policy to any person/company who acts as

agent or otherwise represents the insurer.- Any such pledge shall be VOID and of no effect insofar as it

may affect other creditors of the insured.

CASUALTY INSURANCE

#174Casualty insurance definedCasualty insurance includes all forms of insurance against lossor liability arising from accident or mishap excluding certaintypes of loss or liabilty which are not within the scope of othertypes of insurance (Marince, Fire, Suretyship & Life)

1. Employers Liability Insurance2. Workmens Compensation3. Public Liability4. Motor Vehicle Liability

5. Plate Glass6. Burglary & Theft7. Personal Accident & Health

Risk or losses coveredSection 174 defines casualty insurance by a process ofelimination. Without the exclusion of the other types ofinsurance, casualty insurance would apply to almost any kind ofinsurance.1. Accepting casualty to mean accident- Or a violent mishap which arises from an unexpected cause.

So casualty insurance might be presumed to inslude any lossor damage when an accident is the cause of the loss.

2. In burglary, robbery & theft insurance

- The opportunity to defraud the insurer is so great that theinsurers fill their policies with restrictions to reduce the

hazard. Persons frequently excluded under such provisionsare those in the insureds service & employment. PURPOSE:to guard against liability should the theft be committed byone having unrestricted access to the property.

Two general divisions of casualty insuranceInsurance against specified perils1. Which may affect the person and/or property of the insured2. Which may give rise to liability on the part of the insured

for claims to injuries to others or for damage to theirproperty

Liability insurance definedLiability insurance has been said to be a contract of indemnityfor the benefit of the insured and those in privity with him ORthose to whom the law upon the grounds of public policyextends the indemnity against liability- Indemnity is provided to the insured in respect of his legal

liability to pay damages, usually arising out of negligence ornuisanceand occassionally under contract.

Liability insurable1. Liability for quasi-delict or non-fulfillment of contract

- This refers to financial responsibility that one party has to doto another party as a consequence of doing or failing to dosomething.

- May involve Negligence OR Terms of of an existingcontractual agreement.

- Liability involving commission of a quasi-delict ( civil injury)

and not a felony (public injury)2. Liability for criminal negligence- That arising out of acts of negligence which are also criminal

are also insurable on the ground that such acts areaccidental.

- Liability consequences of deliberate criminal acts are notinsurable

Insurable interest in liability insuranceAs a general rule, Liability Insurance MUST BE SUPPORTED BYAN INSURABLE INTEREST IN THE INSURED, although there issome authority to the contrary.

When liability insurance in policy payable (GeneralDistinction Between)1. Insurance against liability- The coverage attaches when the liability of the insured to the

injured third party attaches, regardless of actual loss at thetime

- The insurer assumes the obli of paying the injured thirdparties to whom the insured is liable. From the moment thatthe insured becomes liable to the third person, the insuredacquires an interest in the insurance contract which may begarnished like any other credit.

2. Insurance against actual loss- An action against the insurer does not lie until an actual loss

is sustained by the insured.

Right of injured person to sue insurer of part at fault(depends WON contract of insurance is intended tobenefit third persons also OR only the the insured)


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1. Indemnity against third party liability- Third persons to whom the insured is liable can sue directly

the insurer upon the occurence of the injury or event uponwhich the liability depends.

- It becomes operative as soon as the liability of the personindemnified arises irrespective of WON he has sufferedactual loss

- PURPOSE: To protect injured person against the insolvency ofthe insured who causes such injury

2. Indemnity against actual loss or payment- Third persons cannot sue insurer, the contract being solely to

reimburse the insured for liability actually discharged by him

through payment of third persons. PRIOR PAYMENT BY THEINSURED IS NECESSARY so that the obli of the insurer mayarise.

Basis and extent of insurers liability1. Contract of insurance- Insurers direct liability DOES NOT MEAN that the insurer can

be held solidarily liable with the insured. The liability ofinsurer to the third party is based on contract; that of theinsured is based on tort.

2. Sum limited in the contract- While in a solidary obli, the creditor may enforce the entire

obli against one of the solidary debtors...in an insurancecontract, the insurer undertakes to indemnify the insuredagainst loss, damage or liability arising from an unkownevent. TO MAKE THE INSURER SOLIDARILY LIABLE W/ THELATTERS ENTIRE OBLI BEYOND THE SUM LIMITED IN THEINSURANCE would result in breach of the concept of solidaryobli

- The third-party liability of the insurer is only up to the extentof the policy and that required by law. Any award beyond theinsurance coverage will already be the sole liability of theinsured / the other parties, if any, at fault

Accident & Health InsuranceBurden of proof- The insureds beneficiary has the burden ofproof in demonstrating that the cause of death is due to thecovered peril. Once that fact is established, the burden thenshifts to the insurer to show any excepted peril that may havebeen stipulated by the parties.

Meaning of Accident & Accidental as used inaccident policy

They are construed by the courts in their ordinary and commonacceptation. Thus, the terms have been taken to mean thatwhich happens by chance or fortuitously, without intention ordesign, and which is unexpected, unusual and unforseen

- It is an event which happens without any huam agency or ifhappening through human agency, an event which is unusual& not expected by the person to whom it happens. Theconcept accident is not synonymous with the concept ofno fault. It may be due to fault or negligence of parties

Rule as to Death or Injury resulting from Accidental orAccidental MeansGeneral Rule:- Death or injury does not result from accident or accidentalmeans within the terms of an accidental policy if it is the naturalresult of the insureds voluntary act, unaccompanied byanything unforeseen except the death or injury.

Exception:Where the death or injury is not the natural or probable result ofthe insureds voluntary act, or if something unforeseen occursin the doing of the act which produces the injury, the resultingdeath is within

Suicide & Willful Exposure to needless peril

- Both are in pari matere because they both signify a disregardfor ones life. The only difference is in degree, as suicideimports a positive act of ending such life whereas in the 2nd

act indicates a reckless risking of it that it is almost suicidalin intent.

- Voluntary exposure to a known danger is generally held tonegate the accidental character of whatever followed fromthe known danger.

Meaning of Intentional as used in Accident PolicyIntentional implies the excercise of the reasoning faculties.Where a provision of the policy excludes intentional injury, it isthe intention of the person inflicting the injury that iscontrolling. If the injuries suffered by the insured clearlyresulted from the intentional act of a third person, the insurer isrelieved from liability as stipulated.

Effect of no action clause in policy of liabilityinsuranceThe policy requires that suit and final judgement be firstobtained against the insured; that only thereafter can theperson injured recover on the policy; it expressly disallowssuing the insurer as a co-defendant of the insured in a suit todetermine the layyers liability to the third person.

SURETYSHIP

#175Suretyship definedIt is an agreement where one undertakes to answer, underspecified terms & conditions, for the debt, default ormiscarriage of another (obligor) ,SUCH as failure to perform a contract or certain duties or forbreach of trust, negligence and the like, in favor of a third party(obligee)

Undertakings within the scope of suretyshipA contract of suretyship includes official recognizances,stipulations, bonds or undertakings issued by any companyunder the provisions of RA 536, as amended by RA 2206, AnAct relative to recognizances, stipulations, bonds &undertakings & allow certain corporations to be accepted assurety thereon- Under RA 536, whenever any RSB&U conditioned for the

faithful performance of any duty or of any contract made w/public authority OR for doing or refraining from doinganything in such RSB&U specified is required by law to begiven with one surety or w/two or more sureties, theexecution of the same or the guaranteeing of theperformance of the condition thereof shall be sufficient whenexecuted or guranteed by any corporation organized underPhil laws authorized to become a surety upon official RSBU

- The Act requires that such RSBU be approved by the head ofDept, court, judge, officer, board or body, executive,legislative, or judicial, required to approve the same

#176Nature of liability of surety- The contract of surety is evidenced by writing called surety

bond which is essentially a promise to guarantee the debt orobli of the obligor.

1. Solidary

- The liability of the surety under a bond is joint & several orsolidary. This means that upon default by the obligor incomplying with his obli as secured by the bond, the suretybecomes primarily liable to the obligee who has right todemand payment under the terms & conditions of the bond

2. Limited or fixed- It is limited to the amount of the bond3. Contractual- It is determined strictly by the terms of the contract of

suretyship in relation to the principal contract between theobligor & obligee. A surety is merely a collateral contract. Itsbasis is the principal contract which it secures.

Distinctions between Suretyship & Property Insurance

Suretyship Property InsuranceClassification

Accessory contract,because it is dependent forits existence on a principalcontract

A principal contract in itself

Number of partiesThere are always 3: Surety,Principal Debtor & theCreditor

There are only 2:Insurer & Insured

Nature

A credit accomodation w/the surety assumingprimary liability

Generally a contract of indemnity

RecoverySurety is entitled toreimbursement from theprincipal & his guarantorsfor the loss it may sufferunder the contract

There is no right of recovery forthe loss the insurer may sustainexcept when the insurer isentitled to subrogation.In case of subrogation, however,the third party against whom theinsurer may proceed is not aparty to a contract

CancellationGenerally, a bond may be

cancelled by or with theconsent of the obligee orby the Commissioner or bya court of competentjurisdiction

A contract of insurance may be

cancelled unilaterally either bythe insured or by the insurer ongrounds provided by law

AcceptanceRequires the acceptance ofthe obligee before itbecomes valid &enforceable

Does not need the acceptance ofany third party

SchemeIs a risk-shifting device,the premium paid being inthe nature of a service fee

Is a risk-distributing device,the premium paid beingconsidered a ratable contribution


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to a common fund

#177Rule for the Payment of Premiums- The premium is the consideration for furnishing the bond or

the guaranty and the obli to pay the same subsists for aslong as the liability of the surety shall exist

1. The premium becomes a debt as soon as the contract ofsuretyship or bond is perfected and delivered to the obligor.

2. The contract of suretyship shall not be valid & bindingUNLESS and UNTIL the premium has been paid.

3. Where the obligee has accepted the bond, it shall be valid

and enforceable notwithstanding that the premium has notbeen paid.

4. If the contract of suretyship or bond is not accepted by, orfiled with the obligee, the surety shall collect only areasonable amount.

5. If the non-acceptance of the bond due to the fault ornegligence of the surety, no service fee, stamps or taxesimposed shall be collected by the surety

6. In case of a continuing bond (for a term longer than one yearor with no fixed expiration date), the obligor shall pay thesubsequent annual premium as it falls due until the contractis cancelled.

Types of surety bonds1. Contract bonds- The bonds are connected with construction & supply

contracts. They are for the protection of the owner against apossible default by the contractor to comply with his contractor his possible failure to pay materials, and laborers. Theposition of surety is to answer for a failure of the principal toperform in accordance w/ the term & specifications of thecontract.

a.Performance bond- One covering the faithful performance of the contractb. Payment bond- One covering the payment of laborers & material men

2.Fidelity bonds- In case of a fidelity bond, the obli of the employee to be

honest with his employer is implied rather than contractual.The ordinary surety bond, obligates the surety to holdhimself responsible for the performance of an express

obligation of the principal- They pay an employer for loss growing out of a dishonest act

of his employee. For the purposes of underwriting, they areclassified as:

a. Industrial bond- One required by private employers to cover loss through

dishonesty of employees; andb. Public official bond- One required of public officers for the faithful performances

of their duties and as a condition of entering upon the dutiesof their offices and as a condition of entering upon the dutiesof their offices.

c. Judicial bonds

- They are those which are required in connection with judicialproceedings. Some of the most common kinds are injunctionbonds, attachment bonds, replevin bonds, bail bonds, and

appeal bonds. The purpose of requiring a litigant to furnish ajudicial bond is to indemnify the adverse party againstdamages resulting from the proceeding

#178Pertinent Civil Code provisions applicable in a suppletorycharacter

LIFE INSURANCE

#179- 180Life Insurance defined1. Life insurance is an insurance on human lives and insurance

appertaining thereto or connected therewith2. It is an insurance payable on the death of a person or his

surviving a specified period, or otherwise contingently on thecontinuance or cessation of life. It is a contract to makespecific payments to pay to a certain person, the beneficiary,upon the death of a person whose life has been insured.

Parties involved in a policy of life insurance- One person might occupy all three positions by naming his

estate as beneficiary; or each of the three positions may beheld by a separate party

1. The owner of the policy, who has the power to name orchange the beneficiary to assign the policy, cash it in for itssurrender value, or use it as collateral in obtaining a loan;and the obli to pay the premiums

2. The person whose life is the subject of the policy (cestui quevie)

3. The beneficiary to whom the proceeds are paid

Nature of Life Insurance1. Liability absolutely certain- The ordinary life insurance contemplates the certain

payment of a SPECIFIED SUM AT AN UNCERTAIN TIME; andthe premiums are so calculated that in accordance with theinsureds expectancy of life under a specified mortality table,there will be paid to the insurer in premiums and interestthereon, a sum equal to an amount to become due on thedeath of the insured plus the expense of administration

2. Amount of insurance generally without limit- There is no limit as to the amount of insurance which may be

legally be placed upon the life of any person even thoughthat person might be one whose life was rather a burdenupon the party in interest than a benefit possessing apecuniary value. When the insured dies, the insurer must payface the amount of the policy to the named beneficiary.

3. Life policy is a valued policy- They are valued by the purchaser when the policy is

purchased and the value placed on the insured is basicallydecided by the amount the purchaser is willing to pay inpremiums. The amount is determined by the factors affectingthe life of the insured such as his age, health & occupation

4. Direct pecuniary loss not required- When settlement is made, the beneficiaries are under no

obligation to demonstrate as a condition precedent torecovery, a direct pecuniary loss as a result of the death ofthe insured.

-Life Insurance distinguished from Fire & MarineInsurance

Life Insurance Fire & Marine InsuranceNot a contract of indemnity

(except that effected by a creditoron life of debtor) but a contract ofinvestment

Contracts of indemnity

Valued policy May be Open or Valued

May be transferred or assigned toany person even if he has noinsurable interest

The transferee or assigneemust have an insurableinterest in the thing insured

The consent of the insurer is notessential to the validity of theassignment of a life policy

In the absence of waiver bythe insurer is essential in theassignment

Insurable interest need not existafter the insurance takes effect orwhen the loss occurs

Insurable interest must existonly when the insurancetakes effect but also when theloss occurs

Insurable interestneed not have any legal basis

Must have a legal basis

The contingency that is

contemplated is a certain event,the only uncertainty being the timewhen it will take place

The contingency insured

against may or may not occur

The liability of the insurer to makepayment is certain, the onlyuncertain element being whensuch payment must be made...So the amount insured will have tobe paid sooner or later

Liability is uncertain becausethe happening of the perilinsured against is uncertain...

The amount insured may nothave to be paid

Although it may be terminated bythe insured, cannot be cancelledby the insurer, and therefore, isusually a long-term contract

May be cancelled by eitherparty and is usually for a termof one year

The loss to the beneficiary isunder no obli to prove actualfinancial loss as a result of thedeath of the insured in order to

collect the insurance

The reverse is generally trueof the loss of property

The beneficiary is under no obli toprove actual financial loss as aresult of th death of the insured inorder to collect the insurance

The insured is required tosubmit proof of his actualpecuniary loss as a conditionprecedent to collecting theinsurance

Any person who is forbidden from receiving any donation underArticle 739 cannot be named beneficiary of a life insurancepolicy by the person who cannot make any donation to him

Exemption of Life Insurance policies from ExecutionUnder the Rules of Court, all moneys, benefits, privileges orannuities accruing or in any manner growing out of any lifeinsurance are exempt.


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Application of exemption to Accident Insurance1. When accident insurance regarded as life insurance- A life insurance is distinct and different from an accident

insurance. However, when one of the risks insured in thelatter is the death of the insured by accident, then suchaccident I may also be regarded as life I.

2. Burden of proof- The insureds beneficiary has the burden of proving that the

cause of death is due to the covered peril. Once that fact isestablished, the burden then shifts to the insurer to show anyexcepted peril that may have been stipulated by the parties.An accident insurance is not thus likened to an ordinary life

insurance where the insureds death, regardless of the causethereof would normally be compensable.

Kinds of Life Insurance Policies1. Ordinary life policy- Is one under the terms of which the insured is required to

pay a certain fixed premium annually throughout his entirelife and the beneficiary is entitled to receive payment underthe policy only after the death of the insured. Many insurancecompanies consider this policy paid-up when the insuredreaches the age of 100. Thus the ultimate payment of theinsurance proceeds is as certain as death itself.

- An alternative form of payment can come through paymentof the cash surrender value of the policy in case it iscancelled by the owner or it lapses through nonpayment ofpremiums.

2. Limited payment life policy- Is one under the terms of which the premiums are payable

only during a limited period of years. When the specifiednumber of premium payments have been made, theinsurance is fully paid for. It is like ordinary life policies inthat it is payable only at the death of the insured.

- The insured can take advantage of the investment aspect ofthe policy. If the insured should die within the specifiedperiod, his beneficiary is entitled to all the proceeds of thepolicy w/out any liability for the unpaid premiums.

3. Term insurance policy- One which provides coverage only if the insured dies during

a limited perid. It is an insurance for a fixed or a specificterm. If the insured dies within the period specified, thepolicy is paid to the beneficiary. If he survives the period, thecontract expires at the end of the time period.

4. Endowment policy

- One under the terms of which the insurer binds himself topay a fixed sum to the insured if he survives for a specifiedperiod, or if he dies within such period, to some other personindicated.

Scope of Life InsuranceLife insurance undertakes to protect the insureds family,creditors or others against pecuniary loss which may be theoutgrowth of the death of the insured. The loss occasioned bydeath against which life insurance attempts to provideprotection is the cessation of the current earning power of theinsured. The permanent loss of current earning capacityamounts to an economic death which may be:

a. Actual death- casket deathb. Living death- permanent disability

c. Retirement death- living beyond the earning capacityContract of Life Annuity definedThe debtor binds himself to pay an annual pension or incomeduring the life of one or more determinate persons inconsideration of a capital consisting of money or other property,whose ownership is transferred to him at once with burden ofthe income.

The Annuity Concept Upside-Down Application of LifeInsurance PrincipleThis concept is based on the notion that the purpose of lifeinsurance is the creation of an estate, whereas the purpose ofthe annuity is the scientific liquidation of an estate.

Annuity contracts Distinguished from ordinary lifepoliciesBoth provide protection from a substantial risk. A person maytake life insurance and at the same time enter into a contract ofannuity to provide security both against the risk of prematuredeath & against tthe risk of long life

Annuity contracts Ordinary Life PoliciesInsures against economicproblems resulting from a longlife rather than an early death

Form an insurers viewpoint,annuity looks to transciency

To longevity

The lump sum is paid to theinsurer immediately and theannuitant receives the annuity

The insured pays to theinsurer an annuity and hisbeneficiary receives at the

payments as long as he lives insureds death the lump sumpayment

Appears more like aninvestment instead of aninsurance, which may or maynot turn out to be profitable

Has a characteristic likeindemnity, the insurer willreimburse the insuredsbeneficiaries a large sum uponthe insureds death

#180-ALiability of insurer in case of suicideWhen Liable:The policy cannot provide a period longer than 2 years. Thus ifthe policy provides for a 3-year period AND the suicide iscommitted within said period BUT after 2 years, the insurer isliable.1. The suicide is comitted after the policy has been in force

for a period of 2 years from the date of its issue or of itslast reinstatement;

2. The suicide is committed after a shorter period provided inthe policy although within the 2-year period; and

3. The suicide is committed in the state of insanity regardlessof the date of commission, UNLESS suicide is an exeptedrisk.

When NOT Liable:1. The suicide is not by reason of insanity and is committedwithin the 2-year period

2. The suicide is by reason of insanity but is not among therisks assumed by the insurer regardless of the date of thecommission AND

3. The insurer can show that the policy was obtained with theintention to commit suicide even in the absence of anysuicide exclusion in the policy.

#181Right of insured to assign life insurance policy1. Insurable interest of assignee in life insurance not required- All life insurance policies are declared by law to be

assignable regardless of whether the assignee has aninsurable interest in the life of the insured or not. A provisionin a contract of life insurance denying the insured his right to

assign without the consent of the insurer will be void.2. Where assignment used as a cloak to hide an illegal

scheme- Not allowed. The usual evidence of this scheme is the fact

that the assignment occured almost immediately after thepolicy is issued.

Necessity of consent of beneficiary to assignment1. With waiver of right to change beneficiary- In accordance with the rule that a beneficiary of an ordinary

life insurance policy which contains an express waiver of therigh to change the beneficiary acquires a vested & absoluteinterest which cannot be divested without his consent, it isconsequently true that the insured cannot assign such apolicy without the consent of the beneficiary

2. Without such waiver

- The insured may assign the policy without the consent of thebeneficiary. The beneficiary has a mere expectancy and hecannot make an assignment of the policy until his interest inthe proceeds thereof becomes absolutely fixed by the deathof the insured.

#182Notice to insurer of transfer1. Notice not required by policy- If the policy does not expressly require the insured to give

notice of an assignment or transfer of the policy to theinsurer, such notice is not essential to the validity of theassignment

2. Notice required by policy- Without such notice, in the absence of waiver, shall have no

effect so far as the insurer is concerned. This means that theinsurer without notice is relieved of any responsibility in casepayment is made to the beneficiary before receipt by theinsurer of the notice. Even without notice to the insurer, theassignment is binding upon the assignor and the assignee.

3. Assignment with consent of insurer- WON the policy expressly requires that notice of an

assignment or transfer must be given to the insurer, theassignment with the consent of the insurer creates in effect,a novation.

- The assignee takes the newly formed contract free ofdefenses available to the insurer against the insurer underthe old contract

#183Measure of indemnity under life policy


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- There could be no exact pecuniary measurement of apersons interest in his life or the life of another. Hence, aperson can purshase life insurance for any amount as long ashe can pay the premium.

- The exception is when a person insures the life of another, aswhere a creditor insures the life of his debtor. In this case,the interest of the creditor in the life of the debtor issusceptible of exact pecuniary measurement or estimation.

Title 2 - FIRE INSURANCE

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

Sec. 168. An alteration in the use or condition of a thing insuredfrom that to which it is limited by the policy made without theconsent of the insurer, by means within the control of theinsured, and increasing the risks, entitles an insurer to rescind acontract of fire insurance.

Sec. 169. An alteration in the use or condition of a thing insuredfrom that to which it is limited by the policy, which does notincrease the risk, does not affect a contract of fire insurance.

Sec. 170. A contract of fire insurance is not affected by any actof the insured subsequent to the execution of the policy, whichdoes not violate its provisions, even though it increases the riskand is the cause of the loss.

Sec. 171. If there is no valuation in the policy, the measure ofindemnity in an insurance against fire is the expense it wouldbe to the insured at the time of the commencement of the fire

to replace the thing lost or injured in the condition in which atthe time of the injury; but if there is a valuation in a policy offire insurance, the effect shall be the same as in a policy ofmarine insurance.

Sec. 172. Whenever the insured desires to have a valuationnamed in his policy, insuring any building or structure againstfire, he may require such building or structure to be examinedby an independent appraiser and the value of the insured'sinterest therein may then be fixed as between the insurer andthe insured. The cost of such examination shall be paid for bythe insured.

A clause shall be inserted in such policy stating substantiallythat the value of the insured's interest in such building orstructure has been thus fixed.

In the absence of any change increasing the risk without theconsent of the insurer or of fraud on the part of the insured,thenin case of a total loss under such policy, the whole amount soinsured upon the insured's interest in such building or structure,as stated in the policy upon which the insurers have received apremium, shall be paid,and in case of a partial loss the full amount of the partial lossshall be so paid, and in case there are two or more policiescovering the insured's interest therein, each policy shallcontribute pro rata to the payment of such whole or partial loss.

But in no case shall the insurer be required to pay more thanthe amount thus stated in such policy. This section shall notprevent the parties from stipulating in such policies concerningthe repairing, rebuilding or replacing of buildings or structures

wholly or partially damaged or destroyed.

Sec. 173. No policy of fire insurance shall be pledged,hypothecated, or transferred to any person, firm or companywho acts as agent for or otherwise represents the issuingcompany, and any such pledge, hypothecation, or transferhereafter made shall be void and of no effect insofar as it mayaffect other creditors of the insured.

Title 3 - CASUALTY INSURANCE

Sec. 174. Casualty insurance is insurance covering loss orliability arising from accident or mishap, excluding certain typesof loss which by law or custom are considered as falling


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exclusively within the scope of other types of insurance such asfire or marine. It includes, but is not limited to, employer'sliability insurance, motor vehicle liability insurance,plate glassinsurance, burglary and theft insurance, personalaccident and health insurance as written by non-life insurancecompanies, and other substantially similar kinds of insurance.

Title 4 - SURETYSHIP

Sec. 175. A contract of suretyship is an agreement whereby aparty called the surety guarantees the performance by anotherparty called the principal or obligor of an obligation orundertaking in favor of a third party called the obligee. Itincludes official recognizances, stipulations, bonds orundertakings issued by any company by virtue of and under theprovisions of Act No. 536, as amended by Act No. 2206.

Sec. 176. The liability of the surety or sureties shall be joint andseveral with the obligor and shall be limited to the amount ofthe bond. It is determined strictly by the terms of the contractof suretyship in relation to the principal contract between theobligor and the obligee. (As amended by PD No. 1455).

Sec. 177. The surety is entitled to payment of the premium assoon as the contract ofsuretyship or bond is perfected anddelivered to the obligor. No contract ofsuretyship or bondingshall be valid and binding unless and until thepremiumtherefor has been paid, except where the obligee hasaccepted the bond, in which case the bond becomes valid andenforceable irrespective of whether or not the premium hasbeen paid by the obligor to the surety:

Provided, That if the contract ofsuretyship or bond is notaccepted by, or filed with the obligee, the surety shall collectonly reasonable amount, not exceeding fifty per centum of thepremium due thereon as service fee plus the cost of stamps orother taxes imposed for the issuance of the contract or bond:

Provided, however, That if the non-acceptance of the bond be

due to the fault or negligence of the surety, no such service fee,stamps or taxes shall be collected.

In the case of a continuing bond, the obligor shall pay thesubsequent annual premium as it falls due until the contractof suretyship is cancelled by the obligeeor by the Commissioneror by a court of competent jurisdiction, as the case may be.

Sec. 178. Pertinent provisions of the Civil Code ofthe Philippines shall be applied in a suppletory characterwhenever necessary in interpreting the provisions of a contractof suretyship.

Title 5 - LIFE INSURANCE

Sec. 179. Life insurance is insurance on human lives andinsurance appertaining thereto or connected therewith.

Sec. 180. An insurance upon life may be made payable on thedeath of the person, or on his surviving a specified period, orotherwise contingently on the continuance or cessation of life.

Every contract or pledge for the payment of endowments orannuities shall be considered a life insurance contract forpurpose of this Code.

In the absence of a judicial guardian, the father, or in thelatter's absence or incapacity, the mother, or any minor, who isan insured or a beneficiary under a contract of life, health oraccident insurance, may exercise, in behalf of said minor, anyright under the policy, without necessity of court authority or

the giving of a bond, where the interest of the minor in theparticular act involved does not exceed twenty thousand pesos.

Such right may include, but shall not be limited to, obtaining apolicy loan, surrendering the policy, receiving the proceeds ofthe policy, and giving the minor's consent to any transaction onthe policy.

Sec. 180-A. The insurer in a life insurance contract shall beliable in case of suicides only when it is committed after thepolicy has been in force for a period of two years from the dateof its issue or of its last reinstatement, unless the policy

provides a shorter period:

Provided, however, That suicide committed in the state ofinsanity shall be compensable regardless of the date ofcommission. (As amended byBatasang Pambansa Blg. 874).

Sec. 181. A policy of insurance upon life or health may pass bytransfer, will or succession to any person, whether he has aninsurable interest or not, and such person may recover upon itwhatever the insured might have recovered.

Sec. 182. Notice to an insurer of a transfer or bequest thereof isnot necessary to preserve the validity of a policy of insuranceupon life or health, unless thereby expressly required.

Sec. 183. Unless the interest of a person insured is susceptibleof exact pecuniary measurement, the measure of indemnityunder a policy of insurance upon life or health is the sum fixedin the policy.

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