jack transcript insurance

7/29/2019 Jack Transcript Insurance

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December 12, 2001

(Hi guys! This is not a transcript. These are just my notes. You can refer to them just in case wedont get a transcript of his lecture on this date.)

INSURANCE LAW (Philippine Insurance Code, PD 612, as amended)

The question of whether a contract of insurance is perfected is NOT governed by theInsurance Code but by the New Civil Code (re: perfection of contracts). The NCC applies in asuppletory character.

SECTION 2 defines a contract of insurance. Sec. 2 (1) says that a contract of insurance isan agreement whereby one undertakes for a consideration to indemnify another against loss,damage or liability arising from an unknown or contingent event.

Suretyship is different from an insurance contract because there are three parties insuretyship and when the surety pays, he is entitled to reimbursement. In insurance, when theinsurer pays, he is not entitled to reimbursement.

Underlying concept in insurance: it deals with a scheme of distribution of risk/loss.An insurance contract has the following elements:

1. Insurable interest the insured possesses an interest of some kind susceptible of pecuniaryestimation

2. Risk of loss the insured is subject to a risk of loss through the destruction or impairment of the above insurable interest by the happening of designated perils

3. Assumption of risk the insurer assumes the risk of loss mentioned above

4. Scheme to distribute losses the said assumption of risk is a part of a general scheme (plan)to distribute actual losses among a large group of persons bearing somewhat similar risks; and

5. Payment of premiums as consideration for the insurers promise to assume the risk and paythe losses from such risk, the insured makes a ratable contribution, called a premium, to ageneral insurance fund

If you only have insurable interest, risk of loss and assumption of risk of loss, you do nothave a contract of insurance. It is a mere risk-distributing device. But if it has all of the five, it is acontract of insurance whatever its name or form.

What if it involves services? Like Maxicare? ( -- I did not get this part, sorry. )The following are the characteristics of an insurance contract:

1. Aleatory it is an aleatory but not a wagering contract. By an aleatory contract, one of theparties or both reciprocally bind themselves to give or to do something in consideration of whatthe other shall give or do upon the happening of an event which is uncertain, or which is tooccur at an indeterminate time (Art. 2010, NCC)

2. Unilateral a contract of insurance is wholly executed on the party of the insured by thepayment of the premium, and remains executory on the part of the insurer, subject to thecondition of the happening of the event insured against.

3. Personal it is personal in the sense that each party to it, in entering into the insurancecontract, takes into account the character, credit and conduct of the other.

4. Conditional the insurers liability is based on the happening of the event insured against5. Indemnity is the basis

The general scheme/outline of the law on insurance


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1. First it talks of who are the parties to the contract of insurance, the requisites to a validcontract: object, consent, consideration (Sections 1 to 25)

a. Object insurable interestb. Consent what vitiates consent (Sec. 26)c. Consideration premium

2. Then it proceeds to the perfected contract of insurance

3. Then the obligations under the contract of insurance4. It then speaks of other types of insurance contracts

SECTION 4 prohibits insuring ones chance in a wagering contract, in any lottery or ingambling, whether or not gambling is permitted by law. What is prohibited is not only a chance inlottery but all forms of gambling and wagering. See SECTION 25 which declares that every policyexecuted by way of gambling or wagering is void.

SECTION 6 answers the question who may be an insurer?

SECTION 7 answers the question who may be insured? A public enemy is every citizen orsubject of a nation at war with the Philippines. It does not include robbers, thieves, privatedepredators, or riotous mobs. A local criminal can be insured if the insurer is willing to take him as agood risk. The citizen of a country with which we do not have diplomatic relations is not a publicenemy and can be insured.

SECTION 8 speaks of a mortgage clause in an insurance contract. This is common in carinsurance. It may be provided therein that in case of loss, the proceeds will be paid to themortgagee. But it is still the mortgagor who is the insured so he is the only one who can suethereon.

Under the Civil Code, when the insurer pays, he is subrogated to the rights of the insuredagainst the wrongdoer.

SECTION 10 speaks of insurable interest in life and health. The general rule is that a personmay designate anyone to be his beneficiary. The exception is Art. 739 of the Civil Code in relation toArt. 2012 (prohibited donations). See the case of Insular Life v. Ebrado, L-44059, Oct, 28, 1977 which says that the reason for the exception is that a life insurance policy is no different from a civildonation insofar as the beneficiary is concerned coz both are founded upon the same consideration:liberality. Therefore the rule on prohibited donations apply in cases life insurance.

When you insure the life of another, the consent of that person must be obtained and theremust also be insurable interest over the life of that person.

SECTION 11 says that the insured has the right to change beneficiary unless he has waivedthis right in the said policy. Remember that if the designation of the beneficiary is irrevocable,change of beneficiary can only be made with the consent of the said beneficiary.

SECTION 12 says that the interest of a beneficiary who is a principal, accomplice or

accessory to the killing of the insured will go the estate of the insured (intestacy). The beneficiaryshall not benefit from his criminal act.

(Yun lang nasa notes ko - January )

DECEMBER 17, 2001 Peachy Selda

ANSWERS TO THE QUIZ:

Jimenez Transcripts (Insurance Code)Page 2 of 34


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1. (a) The obligation to pay here is conditional - upon completion of the building. He promised topay upon completion of the building; that is conditional , thats not unconditional.

(b) Then it contains the option to do something other than the payment of money for the makeris given the option to pay either in check or cash. Well, check is not cash, not money, sotheres an option to do something. So, thats not negotiable.

(c) Theres an acceleration clause, well thats express provision of the law. That is negotiable.The payees alternative, the law allows that the sum is uncertain because of the 18% interestin case of default Well, if a high penal interest is imposed in case of default the sum isuncertain- thats the penalty.

2. Guzman cannot recover from Estrera because he is not a holder in due course. He was awarethat the power of attorney had been revoked so hes not a holder in due course. Therefore,Estrera can raise the defense that the check was filled up without authority.

3. Sison entrusted to his employee a check in favor of Jalandoni. Ilagan forged theendorsement and encashed the check. The bank state the amount, the bank argue there isan estoppel, because Sison did not represent to the bank that Ilagan was authorized toindorse the check. Theres no representation made; theres no estoppel.

4. Lopez issued a check payable to the order of Martin Martin indorsed in blank to Noble Noble indorsed by special endorsement to Ocampo, Ocampo delivered it to Paz. It turned outthat the bank account of Lopez was closed, so Paz to Lopez as drawer. Lopez argued he isnot liable because Martin failed to deliver the rice which was the consideration of the check.Can Martin invoke this defense? Yes, because the check was originally payable to order itwas endorsed in blank, but then the next endorsement was a special endorsement so it waspayable to order again, it will only be payable to bearer if the last endorsement is anendorsement in blank. But the last endorsement is a special endorsement and therefore tonegotiate it delivery is sufficient because Ocampo merely delivered it.

5. Reyes issued a check payable to Santos Trading, Torres, the cashier, was authorized toendorse check in his behalf. He endorsed the check to Conson to pay for his personal debt.The check was dishonored for lack of funds. When Conson asked Reyes to make for thecheck, Reyes argued that Santos Trading did not deliver the supplies he purchased. Consonargued that he is a holder in due course. Well, hes not a holder in due course because thecheck was payable to Santos trading and then pursued in order to pay for his personal debt.So we should know that the title is defective. The check was payable to the corporation,therefore any endorsement should be for the corporation. However here, he endorsed it to

pay for his personal debt.

BACK TO INSURANCE: (Note: jack did not go by sections in this lecture)

INSURABLE INTEREST IN PROPERTY

Sec. 13 deals with insurable interest in property.Interest in property has the classic example, that is the ownership or any relation there to the

trustee or liability, like the third partys liability insurance for motor vehicle, so theres an insurableinterest.

An insurable interest in property may consist of an existing interest. Again the classicexample is ownership with interest found in an existing interest, like stockholders can insure theproperties of the corporation because they have an existing interest as stockholders, and in quo withinterest because in case of dissolution of the corporation the assets will be distributed among thestockholders by way of liquidating dividends.

This is common. A foreign corporation sets up a domestic subsidiary and usually there is oneinsurance company abroad with which they insure the assets of their subsidiary here. They can dothat, an expectancy coupled with an existing interest in that out of which expectancy arise; in thesame way as farmers can insure their future crops.

So, you have many examples of insurable interest.



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Like the court said, the buyer of undelivered property in that Filipino Merchants case, that theconsignee of the goods that were stolen in the pier can be claimed and the defense of the insurancecompany is the insurable terms of the buyer. He has equitable interest. The seller also has aninsurable interest because he still retains the legal title and unpaid salary with a lien on the property.

A mortgage insurable interest on the property mortgaged, for example: a contractor who hasnot been paid under the Civil Code has a lien on the building he constructed so he can insure thatbuilding. In fact the Civil Code also says, until the construction is finished it is the contractor whobears the risk of loss, so he can insure the building that he is constructing.

A lessor, a lessee can insure the premises he is leasing. Theres an interest in itspreservation. Or even mere possessory rights is sufficient- like the case of a Jewish garmentfactory. They send textiles to garment factories to be converted into finished dresses. Thesefactories also have insurable interest over the garment packed. The court also ruled that if textilesare delivered to be dyed, that fellow who was hired to dye the textile should have insurable intereston that.

The law provides that the carrier and the depository have insurable interest on the propertyentrusted to them because they will be liable in case of loss.

On the other hand, a mere expectancy that is founded on the actual right is not insurable,like the prospective heirs of somebody. Children cannot insure the properties of their parents, forthere is a mere expectancy.

The Court of Appeals has ruled that where you have a simulated deed of sale, the buyer hasno insurable interest because he is not actually the owner.

Heres the case of Chuck. There was this landlord who required his tenant to insure hisstocks in trade. It is still ok to require it to insure. Usually it is the commercial centers part, inaddition to the basic rent. They charge 5% of your gross sales, so they want to make sure youalways have the stocks in trade so that if they get burned, you can replace them. But then thecontract provided that in case of losses, the proceeds should be payable to the lessor. The courtsays that is void because theres no insurable interest in the stocks in trade. So, a review on theloan agreement was required in a case where a bank was found to require the borrower to insure thebuilding, but the building was not mortgaged. Moreover, a provision was placed that in case of loss,the proceeds should be payable to the bank. That is void. You have no insurable interest becauseyou have no lien on the building. The building is insured, but its not mortgaged to you.

The Court of Appeals ruled that smuggled properties couldnt be insured because smuggledproperties are subject to forfeiture under the law. To allow therefore its insurance is against publicpolicy.

Now, no contract of insurance shall be enforceable except for the benefit of the person havingan insurable interest in that property insured. Moreover, in property insurance, the insurableinterest must exist when the policy takes effect and when the loss occurs, but it need not exist in themeanwhile.

If somebody insured his car and then sold it, but then it got lost, he cannot recover becausehe no longer has any insurable interest. But if he redeemed it and the loss occurred after he hasredeemed the car, he can still collect.

This ( inaudible) case was asked in the bar exam. The owner of the building insured the

building. Now, the building was mortgaged and the mortgage was foreclosed, but he failed toredeem that. After the expiration of the period of redemption, the building was burned. The courtsaid he cannot collect. He had no more insurable interest. But if he still has the right of redemption,he will also have insurable interest.

Insurance is a personal contract because it is not attached to the thing. That is why the lawsays change of interest on the thing insured will suspend the insurance until interest in the insuranceis based on same person.



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As a general rule, when a car is insured and it is sold, the insurance policy does notautomatically attach to the buyer unless you get the consent of the insurance company and it issuesan endorsement saying the policy is being assigned to the buyer. There are however exceptions tothat - in case of insurance upon life, accident or health, then a change of interest inaudible the thinginsured after the loss has occurred. Again, somebody insured the building. The building wasburned. He then assigned the proceeds of the policy because at that point in time, the right tocollect the proceeds has already accrued. There is now a chose in action which can be assigned or achange of interest in one or some of several things separately insured by one policy.

Heres a taxi company with a fleet of taxis, 20 units. The taxicabs were insured. The ownersold 3 of them. The policy will remain subsisting. It would remain with respect to the remaining 17units of taxicabs.

A change of interest by succession because of death like, heres a father who insured hishouse. When he died, his children inherited the house. The policy will remain in force.

The transfer of interest by one of several partners or co-owners - like here are brothers whoinherited a building. They insured it. Then one of them bought out the other three, so he becamethe exclusive owner. The policy remains in force so that if it is burned he can collect.

A stipulation for payment of loss whether or not the person insured having insurable interestis void.

The policy or provision that executes by way of gaining or wagering is void.In case the lessor requires the lessee to insure his stocks in trade and to provide that in case

of loss the proceeds be payable to him is of course void because he has no insurable interest instocks in trade.

Wagering, well, I mentioned to you the case of this fellow who got an ordinary manuallaborer earning minimum wage to insure his life with 6 insurance companies for fantastic amountsand he named this person beneficiary and it was the person paying for the premiums. The Court of Appeals disallowed the collection of the proceeds when that person died. This is a poor manuallaborer earning minimum wage. He was asked to insure his life with this well to do person asbeneficiary and this was this fellow paying for the premiums. The court said that this person isactually wagering on the life of that manual laborer. He chose his life but the beneficiary is not hisrelative. This total stranger who asked him to insure his life and was actually paying for thepremiums, he was actually wagering on his life.

After discussing the object of the contract, insurance next deals with consent, in the schemeof the law. The law mentions what will vitiate consent concealment and misrepresentation.

CONCEALMENT

Concealment is the neglect to communicate that which a party knows and ought tocommunicate. It need not be intentional or fraudulent to entitle the insured to rescind the policy.Originally, the law requires that concealment must be intentional. But then Mambabatas PambansaHernando Perez amended that to eliminate that requirement because the Supreme Court says it isvery difficult to prove fraudulent intent. Even if the concealment was not made with fraudulentintent, the fact remains that the insurance company was misled into entering into a contract, whichit would have not entered into had it known the facts, or it would have charged a higher premium.

To constitute concealment, there are four requisites:1. The party making the concealment must have the knowledge of the fact concealed;2. The fact concealed must be material to the policy;3. The party making the concealment makes no warranty as to the fact concealed;4. The other party does not have the means of ascertaining the fact concealed.

Concealment often happens in life insurance. Where the applicant for a life insurance did notdisclose that he was sick because he was not aware of it. Thus, theres no concealment.



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Now, when is the fact concealed material? The law said materiality is determined by theprobable influence of a fact upon the party to whom the communication is due, informing hisestimate of the disadvantages of the proofs. The contract makes inquiries. In other words, if thefact had been disclosed, would the insurance company have issued the policy or would have itwilling, but for a higher premium?

Time and again, the courts have said that the failure to disclose serious ailments in lifeinsurance would constitute concealment. This would usually involve cancer, tuberculosis, asthma,diabetes, high blood pressure, kidney ailments, liver disorders.

There was this Grepalife case where the parents insured the life of their daughter. However,they did not disclose that their daughter was a mongoloid. The court said thats concealment, sothat is a material fact that the baby was a mongoloid. (WARNING: this would be a result of latechildbirth when the mother is in her late thirties or early forties when you have the risk to havemongoloid baby because the quality of the ovum starts deteriorating after age 25. So it is advisableto get pregnant as early as possible!)

But the failure to disclose an ailment which is merely temporary and light is not material.That will not be concealment - like the failure to disclose that the applicant for a life insurance hascough or sore throat, or say when he was in high school he was playing basketball he broke his leg,or the failure to disclose that when he gets drunk he has stomach discomforts. Thats minor andneed not be disclosed. Then the party may conceal and makes no warranty. Why? If he makes awarranty, the defense of the insurance company will be breach of warranty not concealment. Theinsurance company will still escape liability but on the ground of breach of warranty.

Lastly, when the other party has the means of ascertaining it - like if a typical application forlife insurance policy, theres a question there had you been by the way, theres that law on AIDS -theres a provision there that it is prohibited for an insurance company to refuse to insure the life of someone who suffered AIDS, provided that the applicant discloses that the suffered from AIDS. Ithink thats quite questionable on constitutionality.

Now the last requirement - does the other party have the means of ascertaining it? In thetypical application, theres a question there: Have you been hospitalized? And the applicant mentionthere, yes, I was hospitalized, say at the Makati Medical Center, and he gave the date, but then hedid not disclose for what ailment. In this case, theres no concealment because the insurer wasalready informed that he was hospitalized in a particular hospital, and even the date was mentioned.

The application will usually require the waiver of the confidentiality of his hospital records. So withthat lead, the insurance company could have inquired. If they did not do so, they could notcomplain that there was concealment because they could have made inquiries based on that lead.

(Side B) Insurance agents are very aggressive. They always want to close the deal. TheSupreme Court said that if the insurance agent fills up the application for the insured and then theapplicant signs it, he will bound if theres any concealment because by allowing the agent to fill upfor him, he makes the agent of the insurance company his own agent for purposes of filling out theinsurance application. However, the law says, either party is required to disclose that which theother party knows.

Now theres somebody applying for a fire insurance policy. So the insurance company sentits inspectors to the place. They saw that it is located in the slum area while the neighbors housesare made up of flimsy materials. Then they issued a policy. They cannot claim that you did not

disclose to us that your neighbors are squatters that their houses are not made up of hollow blocksor concrete but are made up of plywood and cardboards which when your inspectors went there, youknow; or which in exercise of ordinary care, the other ought to know or has no reason to supposehim ignorant.

Like during the gulf war, an insurance company insured an oil tanker there, which turned intoa loss. You cannot say why did you not tell us that the gulf war was going on, you should know.

There was a case decided by the Court of Appeals, where a nurse was living and residing inPampanga. She obtained a personal accident insurance policy, and the hospital where she was



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assigned was located also in Pampanga. Now the insurance company was denying liability on theground that there was concealment you did not tell us that the peace and order situation inPampanga is poor. The court said (this was in the 60s and 70s) its of public knowledge thatPampanga was the hot bed of the dissident movements and you should know. There was no needfor the insured to disclose that the Huk element were active in Pampanga.

And those in which the other waives communication or those which prove or tend to provethe existence of a risk excluded or a risk excepted. For instance, your fire insurance policy usuallyprovides that it will not answer to loss due to rebellion, sedition, coup de etat, riot. If the insured didnot disclose that there are members of the NPA roaming in the place, exacting revolutionary taxesfrom the establishments there, and burning the properties of those who refuse to comply. Theinsurance cannot claim you did not disclose that to us, because loss was due to insurgency, rebellionwould be excluded anyway in the policy.

Now even if the loss was not due to a fact concealed, the insurance company is not liable -like somebody who applied for a life insurance policy. He did not disclose he had kidney ailment andhe died in a plane crash. The insurance company is not liable although the death was not due tokidney ailment. The fact remains that the insurance company was misled into issuing a policy itwould not otherwise have issued because that risk was not acceptable.

Information as to the nature of interest need not be disclosed except in property insurance, if the insured is not the owner. If somebody is insuring properties of which he is not the owner, hemust disclose why he has insurable interest that would entitle him to insure it.

The party is not bound to communicate information of his own judgment. Do you think yourein good health and you will live long? Even if he does not answer that, it is still not concealment.

MISREPRESENTATION

The other matter that would vitiate consent is misrepresentation. Misrepresentation is astatement by an applicant about the subject matter being insured. In other words, these arestatements made to induce the other party to enter into a contract. They are not part of the termsand conditions of the contract but rather, are statements to induce the party to enter into a contract.

The law says, a representation is presumed to refer to the date on which the policy goes intoeffect. That somebody insure his vessel for a trip say from Manila to Cebu on January 5 and herepresents, my vessel is in Manila, when actually the vessel is in Curimmao. There is no

misrepresentation, provided on the date the policy takes effect, the vessel is actually in Manila. Thisis because the representation should be deemed to refer to the date when the policy takes effect.

The representation cannot qualify an express provision on the policy, but may qualify animplied warranty. You have implied warranties in marine insurance, which will be taken up later on.

Now, representation is false when the facts do not correspond with the assertion. You havethis Ng Gan Zee case where a person applied for a life insurance policy with a question: Have youever applied for a life insurance policy or asked for the reinstatement of a lapse insurance policy andyour application was denied? He said no. It turned out however, that there was one time where hispolicy lapsed and he applied for its reinstatement. Initially, his application was disapproved buteventually it was approved but with a higher premium. The court said that there was nomisrepresentation because although initially the application for reinstatement was disapproved, itwas eventually approved.

The law says that if the insured has no personal knowledge of a fact, he may repeat theinformation, which he has on the subject and which he believes to be true. The explanation is basedon the information of others.

In a typical application for a life insurance policy, theres a question there asking whetheryour parents/brothers have tuberculosis, heart ailments, etc. or if they died, or of what they died of.Like somebody whose parents died of tuberculosis, they died when he was still a small child but thenhis aunts/uncles told him that his father was a soldier, was a hero who died in the line of duty andthat was what he told. So theres no concealment, no misrepresentation.



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You have the Ng Gan Zee case again, where the insured was operated for tumor associatedwith peptic ulcer. He was operated with peptic ulcer but then he said he was operated for tumorassociated with ulcer. The court said hes not guilty of misrepresentation because he relied on whatthe physician told him.

In determining whether representation is material, the test is the same as in the case of concealment: would the insurance company have issued a policy had it known the fact or would ithave issued it and asked for a higher premium. Example, a typical question: Have you everconsulted a physician? Said no, but actually hes a regular patient of a physician, so theresmisrepresentation.

A typical misrepresentation is the failure to disclose the applicant is suffering from a seriousdisease like tuberculosis, asthma, heart disease, kidney disorders, high blood pressure.

Theres a case where the applicant was a drug addict, but in the application is stated therethat he never used morphine, cocaine or any prohibited drugs. There is misrepresentation. Wherethe applicant knows he has tuberculosis and he asked somebody else in good health to take hisplace during the examination. That is misrepresentation. In big banks, they have this bankers blanket policy to insure against loss due to defalcation by the tellers. In the application, theinsurance would be interested to find out about their system of controls whether they have adequatesystems control. In one case, a bank was asked and it stated that all transactions are pre-auditedby an internal auditor. It turned out to be false. That is misrepresentation.

But when somebody was asked Do you take alcoholic drinks? Said No, but he would takesmall quantities of alcoholic drinks occasionally if theres party, well that is not material. That is notmisrepresentation.

Or there was a question: Have you ever consulted a physician? Said No. Actually, heunderwent a test in the hospital, but the test showed that he was in perfect health. There is nomisrepresentation because he was in good health. Thus, it would not have affected the decision of the insurance company to accept the application.

In one case where the policy says it is good only up to age 60. The insured stated there hisdate of birth and obviously, if you compute that, hes over 60, but the insurance company acceptedthe application and accepted the premiums. The Court said that the insurance company is deemed tohave waived the misrepresentation. The law provides that if the insurance company is aware of themisrepresentation and it accepted the policy, it will be deemed to have waived the

misrepresentation.Again, if theres a misrepresentation, even if the loss was not due to the fact misrepresented,

the insurance company will not be liable. Again, in the case where a fellow misrepresented that hesin good health, but died in a plane crash, the insurance company was misled into issuing aninsurance policy it would not have otherwise issued. Thus, it is not liable for the value of theinsurance.

19 December 2001 Pepper(Caveat: this is not a transcription of jacks lecture. We all thought were having a christmas party that day. This is a summary of our insurance reviewer and Agbayani.)

REPRESENTATION

SECTION 36.A representation may be oral or written.SECTION 37.A representation may be made at the time of, or before, issuance of the

policy.

Misrepresentation Statement as a fact of something which is untrue and which the insured states with knowledge

that it is untrue and with an intent to deceive, or which he states positively as true withoutknowing it to be true and which has a tendency to mislead, where such fact in either case is



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material to the risk.

SECTION 38.The language of a representation is to be interpreted by the same rulesas the language of contracts in general.

SECTION 39.A representation as to the future is to be deemed a promise, unless itappears that it was merely a statement of belief or expectation.

SECTION 40.A representation cannot qualify an express provision in a contract of

insurance, but it may qualify an implied warranty.SECTION 41.A representation may be altered or withdrawn before the insurance is

effected, but not afterwards.

SECTION 42.A representation must be presumed to refer to the date on which thecontract goes into effect.

SECTION 43.When a person insured has no personal knowledge of a fact, he maynevertheless repeat information which he has upon the subject, and which he believes tobe true, with the explanation that he does so on the information of others; or he maysubmit the information, in its whole extent, to the insurer; and in neither case is heresponsible for its truth, unless it proceeds from an agent of the insured, whose duty it isto give the information.

Distinction between ordinary and marine insurance as to information from others1. Ordinary Insurance it is within the discretion of the insured to transmit information of a fact of

which he has no personal knowledge. If he chooses to do so, he shall not be responsible for itstruth unless it proceeds from an agent of the insured, whose duty it is to give the information

2. Marine Insurance information of the belief or expectation of a third person in reference to amaterial fact is material. The insured is not given the discretion to transmit or withholdinformation. He is required to give such information whether the third person is his agent or not.

Harding v Commercial Union Assurance Company Harding bought a car worth P2,800. The agent of an insurance company appraised it and declaredits present value to be P3,000. Harding had the car insured. The car was subsequently damagedbecause of fire. The insurer refused to pay saying that the cars value is only P2,800 and not P3,000.

Held: Insurer liable. Where it appears that the proposal form, while signed by the insured was madeout by the agent of the insurer, the facts stated in the proposal even if incorrect will not be regardedas warranted by the insurer, in the absence of willful misstatement. Under such circumstances, theproposal is to be regarded as the act of the insurer.

SECTION 44. A representation is to be deemed false when the facts fail tocorrespond with its assertions or stipulations.

Representations are not required to be literally true unlike warranties. It is sufficient that theyare substantially true.

Insular Life Co. v PinedaIt is not misrepresentation for the insured to state that he did not drink beer or other intoxicants if he drank very seldom.

SECTION 45. If a representation is false in a material point, whether affirmative orpromissory, the injured party is entitled to rescind the contract from the time when therepresentation becomes false. The right to rescind granted by this Code to the insurer iswaived by the acceptance of premium payments despite knowledge of the ground forrescission.



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Egueras v GREPALIFE A sickly person filed an application for life insurance. During the medical examination conducted bythe insurer to determine the fitness of the applicant, a robust and healthy person appearedpretending to be the applicant. Held: The contract is avoided on the ground of fraudulentmisrepresentation.

Musngi v West Coast Life Assurance Inc.Garcia was insured by West Coast twice since 1931. In both policies, he answered in the negativewhen asked if he consulted any doctor. It turned out that he actually consulted a number of physicians for different ailments. When he died, the insurance company refused to pay. Held:Refusal to pay is justified. The concealment and false statements constituted fraud because theinsurance company accepted the risk on the strength of such statements which it would otherwisehave rejected.

Edillon v Manila Bankers Life Insurance Co.In April 1969, Lapuz applied for insurance stating her date of birth to be July 11, 1904 (meaning 65years old na siya). She died in a car accident. The insurance company refused payment saying thatthe certificate of insurance contained a provision excluding liability to pay claims to persons under 16and over 60. Held: Lapuzs age was not concealed. Her application form reveals her true age and thecompany had all the time to process the application form and notice that Lapuz was already 64 yearsold.

Stokes v Malayan Insurance Co.Adolfson had a subsisting insurance policy when his car collided with another vehicle. Stokes, anIrish citizen who had no Philippine drivers license, was the one driving the car. He had a valid Irishlicense but he had been in the Philippines for more than 90 days when the collision occurred.Adolfson claimed on the policy contending that Stokes was an authorized driver. Held: Insurancecompany not liable. When an insurer is called upon to pay in case of loss or damage, it has the rightto demand strict compliance with the contract. In this case, Stokes may not be considered anauthorized driver under the policy because authority must come not only from the insured but alsothe law. Stokes is not authorized under the law to drive because he has no license.

Gonzales La O v Yek Tong Lin Fire Insurance

Gonzales was issued two fire insurance policies with provisions prohibiting Gonzales from enteringinto other insurance contracts. Fire broke out. Yek refused to pay because Gonzales violated theprohibition. Gonzales however was able to prove that Yek knew of the violation long before the firebut did not make any effort to rescind the policies and even collected premiums on the policies.Held: The action of the insurer constituted waiver of the right to annul the insurance policies.

Tan Chay Heng v West Coast Life InsuranceTan Caeng declared in his application that he was single, a merchant, healthy and not a drug userwhen he was actually marries, a laborer , suffering form tuberculosis and addicted to drugs. Uponhis death, the designated beneficiary tried to collect from the insurer but the latter denied liability.The beneficiary contends that the insurer cannot now rescind the contract because an action forcollection has already been filed. Held: Insurers action is not for rescission and therefore not barred.Rescission contemplates the existence of a contract. What is involved in the case at bar is a contractwhich is void ab initio because the defense was fraud in its execution.

*In marine insurance, the misrepresentation must be false.

SECTION 46. The materiality of a representation is determined by the same rulesas the materiality of a concealment.



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Test of materiality Probable and reasonable influence of the facts upon the party of whom the representation is

made in forming his estimate of the disadvantages of the proposed contract or in making hisinquiries

SECTION 47.The provisions of this chapter apply as well to a modification of acontract of insurance as to its original formation.

SECTION 48.Whenever a right to rescind a contract of insurance is given to theinsurer by any provision of this chapter, such right must be exercised previous to thecommencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall havebeen in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void abinitio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

* this provision applies to concealment, misrepresentation and falsity of warranties.

When insurer may exercise his right to rescind:1. Non-life policy prior to the commencement of an action on the contract

2. Life policy a period of two years from the date of issue or last reinstatement of the policy(aka incontestable clause )

Tan v CATan was issued a policy by PHILAMLife in November 1973. He died in April 1975. PHILAMLiferefused payment and in September 1975 notified the beneficiaries that it is rescinding the contracton the ground of misrepresentation. The beneficiaries contend that rescission should be done duringthe lifetime of the insured. Held: PHILAMLife can still rescind. The phrase during the lifetime onlymeans that the policy is no longer in force after the insured died. The key phrase is for a period of two years. Where the insured died less than 2 years after the date of issue or last reinstatement,the policy could never become incontestable.

Paulino v Capital Insurance Co.There is a difference between termination by the insured and by the insurer. Termination by theinsured requires only a request of such termination. Termination by the insurer requires the refundof the portion of the premium proportional to the unexpired term of the policy.

THE POLICY SECTION 49. The written instrument in which a contract of insurance is set forth, is

called a policy of insurance.

The Policy is the measure of insurers liability

Ty v Filipina CompaniaWhere an insurance policy defines partial disability as loss of either hand by amputation through the

bones of the wrist, the insured cannot recover under the same policy for temporary disabilitycaused by fracturing of the hand. (loss of legs includes permanent paralysis of both legs, Panatonv Malayan Co. Inc )

Del Rosario v Equitable Insurance and Casualty Inc.Equitable issued an accident policy on the life of the insured, binding itself to pay P1000 to P3000.The insured died. Held: Liable for P3000. Art 1377, Civil Code: The interpretation of the obscureprovisions of a contract should not favor the party that caused the obscurity.



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Jarque v Union Fire InsuranceTypes rider prevails over printed clause in case of inconsistency.

SECTION 50.The policy shall be in printed form which may contain blank spaces;and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessaryto complete the contract of insurance shall be written on the blank spaces providedtherein.

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 alsomentioned and written on the blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty orendorsement issued after the original policy shall be countersigned by the insured orowner, which countersignature shall be taken as his agreement to the contents of suchrider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and neednot be in printed form.

Rider a printed or typed stipulation contained on a slip of paper attached to the policy and formingan integral part thereof. They usually contain additional stipulations between the parties.

Warranties are inserted or attached to the policy to eliminate specific potential increases of hazard during the policy term owing to actions of the insured or conditions of property.

Clauses agreements between the insurer and the insured on certain matter relating to the liabilityof the insurer in case of loss

Examples of Clauses:1. Three-fourths clause where the insurer is liable only for of the loss or damage2. Loss payable clause where the loss, if any, is payable to the named party or parties, astheir interest may appear3. Change of ownership clause where insurance will inure to the benefit of whomsoever,during the continuance of the risk, may become the owner of the interest insured

Enriquez v Sun Life Assurance of CanadaHerrer applied life annuity with SunLife. He paid the sum of P6,000 and was given a receipt. Hisapplication was approved. A letter notifying him of the approval was made but there was no proof that it was actually mailed or accepted by Herrer. Herrer died. Held: SunLife not liable. The contractof insurance was not perfected absent any showing that acceptance of the application ever came tothe knowledge of the applicant.

Tang v CAIn September 1965, Lee Su Guat, an illiterate who spoke only Chinese, applied for life insurance.The application was in English. Lee Su Guat declared that she was of good health. The applicationwas approved. A second application was filed in November 1965 and subsequently accepted. Lee SuGuat died in April 1966 of lung cancer. The insurer denied liability. The beneficiary claims that sincethe insured was illiterate and the policy was in English, the insurer must show that it had fullyexplained the terms of the policy to the insured, otherwise, the insurer will not be guilty of misrepresentation. Held: Insurer not liable. It was under no obligation to prove that the terms of theinsurance contract was fully explained to the other party.

SECTION 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;



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(c)The premium, or if the insurance is of a character where the exact premium is onlydeterminable upon the termination of the contract, a statement of the basis andrates 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.

SECTION 52.Cover notes may be issued to bind insurance temporarily pending theissuance of the policy. Within sixty days after the issue of the cover note, a policy shall beissued in lieu thereof, including within its terms the identical insurance bound under thecover note and the premium therefor.

Cover notes may be extended or renewed beyond such sixty days with the writtenapproval of the Commissioner if he determines that such extension is not contrary to andis not for the purpose of violating any provisions of this Code. The Commissioner maypromulgate rules and regulations governing such extensions for the purpose of preventingsuch 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 andregulations.

GREPALIFE v CANgo filed an application with GREPALIFE for a policy on the life of his 1-year old daghter. Hesubmitted an application form and gave the premium to the insurers agent for which a bindingdeposit receipt was issued to him. The application was denied but the agent, instead of notifying Ngowrote back the insurer, strongly recommending the acceptance of the application. The chils died inthe meantime. Ngo claimed on the binding deposit receipt saying that it constituted a temporarycontract of life insurance. Held: Insurer not liable. A binding deposit receipt was merely anacknowledgement of receipt of the application for processing by the insurance company. A bindingreceipt is manifestly merely conditional and does not insure outright.

Pacific Timber Corp v CAPacific secured temporary insurance for the exportation of logs. A cover note was issued securing thecargo. Marine policies were subsequently issued on the cargo but prior to such issuance, some of thelogs were lost. Pacific now claims against the insurer. The insurer denies liability contending that theloss may not be considered as covered under the cover note because such became null and void byvirtue of the issuance of the marine policy because of lack of consideration. Held: Insurer liable.Cover note issued for consideration. No separate premiums are required on cover notes. (?)

SECTION 53.The insurance proceeds shall be applied exclusively to the properinterest of the person in whose name or for whose benefit it is made unless otherwisespecified in the policy.

Exceptions:1. Art 739, Civil Code

a. between persons guilty of adultery or concubinage

b. in favor of a public officer, his spouse or child, by reason of his officec. between persons guilty of a crime in consideration thereof 2. Section 12, Insurance Code

When the beneficiary is the principal, accessory or accomplice in willfully bringing about thedeath of the insured

Bonifacio Brothers v MoraMora mortgaged his car to Reyes with thew condition that the former will insure the car with thelatter as beneficiary. Mora complied. The car figured in an accident and was brought for repairs to



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Bonifacio Motors. Materials for the repair were provided by Ayala Auto Parts. The car having beendelivered to Mora without the costs of repair being paid, Bonifacio and Ayala filed a complaintagainst the insurer for collection. Held: Payment must be made to Reyes. Bonifacio and are notnamed beneficiaries. Their recourse is to collect from whoever brought the car to them for repairs.

Coquia v Fieldmans Insurance Co. Inc.Fieldman issued in favor of Manila Yellow Taxicab insurance policies in favor of fare-payingpassengers, drivers and/or conductors. A driver met an accident while driving a cab. His heirs filed aclaim against Fieldman. Fieldman refused to pay on the ground that the heirs have no contractualrelationship with the company. Held: Fieldman liable. Although in general only parties to a contractmay bring an action based thereon, this rule is subject to exceptions. Article 1311, Civil Code(contracts pour atrui ) : If a contract shuold contain a stipulation in favor of a third person, he maydemand its fulfillment provided he communicated his acceptance to the obligor before its revocation.

Lampano v JoseA is a building contractor of the house of B. A insured his interest in the house for P7,800. Hisinterest is actually only P7,000. The house is burned. Held: B is not entitled to the P800 in excess of the interest of A.

SECTION 54. When an insurance contract is executed with an agent or trustee asthe insured, the fact that his principal or beneficiary is the real party in interest may beindicated by describing the insured as agent or trustee, or by other general words in thepolicy.

SECTION 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 theterms of the policy should be such as are applicable to the joint or common interest.

SECTION 56. When the description of the insured in a policy is so general that itmay comprehend any person or any class of persons, only he who can show that it wasintended to include him can claim the benefit of the policy.

SECTION 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interestinsured.

SECTION 58. The mere transfer of a thing insured does not transfer the policy, butsuspends it until the same person becomes the owner of both the policy and the thinginsured.

Quimson says compare this with section 20.

SECTION 59. A policy is either open, valued or running.

SECTION 60. An open policy is one in which the value of the thing insured is notagreed upon, but is left to be ascertained in case of loss.

SECTION 61. A valued policy is one which expresses on its face an agreement thatthe thing insured shall be valued at a specific sum.

SECTION 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.

SECTION 63. A condition, stipulation, or agreement in any policy of insurance,limiting the time for commencing an action thereunder to a period of less than one yearfrom the time when the cause of action accrues, is void.

SECTION 64. No policy of insurance other than life shall be cancelled by the insurerexcept upon prior notice thereof to the insured, and no notice of cancellation shall be



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effective unless it is based on the occurrence, after the effective date of the policy, of oneor 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.

SECTION 65.All notices of cancellation mentioned in the preceding section shall bein 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 sixty-four is relied upon and(b) that, upon written request of the named insured, the insurer will furnish the facts onwhich the cancellation is based.

Saura Import-Export Co. v Philippine International Surety Actual notice of cancellation in a clear and equivocal manner, preferable in writing, should be givenby the insurer to the insured so that the latter may given an opportunity to obtain another insurance

for his protection. Notice should be personal on the insured.

Malayan Insurance Co. v Cruz ArnaldoCancellation of policy requires:

1. prior notice of cancellation to the insured2. cancellation based, on the occurrence after effective date of the policy, of one or more of theground mentioned3. notice must be in writing, mailed or delivered to the insured at the address stated in thepolicy4. notice must state the ground/s for cancellation

SECTION 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insuredat the address shown in the policy notice of its intention not to renew the policy or tocondition its renewal upon reduction of limits or elimination of coverages, the namedinsured shall be entitled to renew the policy upon payment of the premium due on theeffective date of the renewal. Any policy written for a term of less than one year shall beconsidered as if written for a term of one year. Any policy written for a term longer thanone year or any policy with no fixed expiration date shall be considered as if written forsuccessive policy periods or terms of one year.

January 3, 2002 Kelly

WARRANTIES

Warranties may either be express or implied . Express if it is stated in the policy. Implied,where there are implied warranties in a marine insurance for example, that the vessel that itwould not deviate.

Warranties are different from representations because warranties are part of the terms andconditions of the policy while representations are not part of the policy but statements made toinduce someone to enter into a contract.

Warranty may relate to the past, present or the future or to any or all of them.



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PAST: Somebody applying for life insurance warrants that he was never hospitalized for aheart ailment

PRESENT: warrants he is in good healthFUTURE: common in a fire insurance policy there will be a warranty there that the insured will

not store inflammable materials.

The law says that the warranty must be contained in the policy or in another statementsigned by the insured and referred to in the policy (known as a rider). But the SC hassaid that the rider is valid even if it was not signed by the insured if it is attached to the policy,because it is deemed to be contained in the policy because usually the rider, they just pastethem in the policy.

The law says if before the time for the performance of a warranty relating to thefuture, a loss insured against occurs or becomes unlawful or performance becomesunlawful or impossible the omission will not avoid the policy.

a) Loss occurs. For instance, heres somebody applying for a fire insurance policy. Theinsurance company sent their inspectors to the place and said you know this is not a niceneighborhood. There are squatters in the vicinity, the houses are made of plywood. Well okwe can insure your property but we have to take steps to minimize risks so, we will insureprovided you put up a firewall. We will give you 30 days to put up a firewall. Since he was

given 30 days to put up a firewall, if fire occurs during the 30-day period, the insurancecompany will be liable because the period for him to put up the firewall has not yet expired.

b) Performance becomes unlawful . When you insure the property and the insurer says toomany occupants, this is risky. You better reduce the occupants. However, before he could filea case to eject his tenants a house rental law was passed prohibiting the ejectment of tenantsso failure to comply with the condition will be excused.

c) Performance becomes impossible. Like when you were supposed to put up a fire wall butthen cement disappeared from the market, could not buy cement so that will be excused.As you will see, in all these things in the last two, the matters are beyond the control of the

insured.

Breach of Warranty. When there is breach of warranty, the insurance company can invoke that

to avoid liability and the fact that it is there in the policy will exempt insurance company fromliability. You dont discuss or argue anymore whether it is material or not. The fact that it wasthere in the policy means the insurance company considers it material.Example (Double Insurance): Its common in fire insurance policy that there will be arequirement there that if the insured obtain other fire insurance policies he must disclose. If hedoes not disclose the insurance company will not be liable. And that obligation applies not only topolicies already existing when he applied for the policy but even to policies he might obtain in thefuture. When somebody insures his building against fire, lets say with MGU Insurance, then sixmonths later he insures it with Malayan if he does not disclose that then both of them will avoidliability because both parties will invariably contain that provision that you must disclose if youhave other insurance policies.Example (No Double Insurance): In one case where the insured are stocks in trade but thestocks in trade insured with different companies were different. So there is no double insurance.So there is no breach of warranty even if he does not disclose that he has obtained otherinsurance. Or if he insured the building and there is a provision there he must disclose if he hadother insurance but then he obtained other insurance lets say for the stocks in trade so there isno need to disclose.Example (No Double Insurance) For the court has said in the Geagonia case where the ownerof the stock in trade insured them. The policy provided that in case of loss the policy is payableto him but then he mortgaged them and because of that the mortgagee required him to insure



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the stocks in trade and to put in the policy that in case of loss the proceeds will be payable to themortgagee. A fire occurred so the one who insured the stocks first refused to pay. He said heobtained another insurance policy but he did not tell us. The court said, no! there is no violationbecause the interest insured in the policy are different because the first one in case of loss, theproceeds will be payable to the mortgagor. The second one the proceeds will be payable to themortgagee. So since the interest are different there is no need to disclose.

If there is breach of warranty, even if the loss was not due to the breach of thewarranty, the insurance company is not liable because the fact remains that it wasexposed to a risk which it was not willing to assume. Example: In a fire insurance policy there is a provision there you will not store inflammablematerials and this fellow brought fireworks in his house on new years eve then the cook whowas in the kitchen was negligent and a fire started in the kitchen. It has nothing to do with thefireworks. The insurance company will not be liable because the fact remains that it was exposedto a risk it was not willing to assume. That is no longer the risk which it agreed to insure so it willnot be liable.Exception (Merely Incidental to the Business) : However, even if there is a warranty thepresence of the prohibited material is merely incidental to normal course of business it isunderstood that it is not covered by the prohibition. For example, here is somebody who has astore that sells furniture. He insured his property against fire. There was a prohibition againstinflammable materials and he has there some alcohol that is used for retouching the varnish of the furniture so that is incidental. That Qua Chee Gan case where the warehouse that wasinsured there was gasoline there but that was the consumption of motor vehicles of thewarehouseman for two days. That is incidental to the business. Or a drugstore that was insureand among the articles in the drugstore were moth balls which were highly inflammable butbecause it was a drugstore is selling pharmaceutical products so that is incidental to the businessso there is no violation.

Waiver . Now if the insurance company was aware that there was a breach of warranty butdespite that it continued the policy, it accepted the renewal premium, then it waives theviolation.

The law says a breach of warranty without fraud merely exempts the insurer from the time itoccurred or when it is broken it prevents the (?) to attach to the risk. So in other words, here issomebody insures his house against fire January 1 st to December 31st and there is a warrantythat he would not store inflammable materials. September a fire broke out. Then on December31 st another fire broke out at that time there were fireworks stored in his house so the insurancecompany liable for the fire that occurred in December 31 st but it will be liable for the fire thatoccurred in September because at that the time there were no fireworks there was no breach of warranty at that time.

When there is a breach from the very beginning when the policy will not attach. If from thevery beginning there were inflammable materials there.

Section 77 the insurer is entitled to the payment of the premium as soon as the thinginsured is exposed to the peril and says notwithstanding any agreement to the

contrary no policy or contract of insurance is valid and binding unless and until thepremium has been paid except in case of life or industrial life policy where grace periodprovision applies.

So the SC has said in a number of cases if the premium is not paid the policy is not valid andbinding because they said, you know insurance involve this actuarial scheme that everybody chipsin to a common pot and this is important for calculating the risk because if everybody will delay thepayment, the actuarial computations will be the out of (?) because insurance company meanwhileinvest the premiums so thats the rule.



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The trouble is the decisions made many exceptions.

Exceptions

First, under the Section 78 an acknowledgement in the policy that the premium has beenpaid is conclusive evidence of payment to make the policy binding. So, even if the premiumwas not actually paid there is a provision there in the policy that is saying that when paymentis acknowledged, then that is binding for purposes of making it effective but it is only for thatpurpose but for purposes of actually collecting the premium that will not apply so if loss

occurs the insurance company will still be liable but it can still collect the premium. It candeduct the premium from the proceeds of the policy.

Next, in that Makati Tuscany case where this condominium there was insured and thenwhere the insurance company agreed to give the insured time to pay in 12 equal monthlyinstallments. The Makati Tuscany paid a few installments and then it stopped. So theinsurance company sued and the defense of Makati Tuscany is that the policy is void underSection 77 because the premium has not been paid therefore you cannot sue us to recoverthe premium and you should refund the installments we have paid. The courts said no!because you know insurance is becoming very competitive. I met Charlie Uy in a cocktailparty and said you know everybody is complaining that insurance is a cut throat competitionbusiness. What cut throat competition are you talking about? Its not cut throat competition,its killing fields out there! So when you have a client like San Miguel Corporation, Filipinas

Shell, PLDT which pays more than 1 billion in premiums you will allow them to say we will letyou pay in 12 installments. So, the court said it is not void to stipulate that the premiums bepaid in installments and if you have such a stipulation then you can sue to collect installmentswhich were not paid.

Third, Section 77 says also life and industrial life. The law provides and that isincorporated in the policies that in subsequent premiums the insured is given a grace periodof at least 30 days. So, in life insurance policies you at least have 30 days to pay thesubsequent premiums because at times you will announcements in newspapers that becauseof a typhoon in that place the insurance company is giving the insure there 60 days. So atleast now in that Tibay case, Malayan allowed payment of premiums in installment but therewas an express provision that the policy will not be binding until the premiums have beenfully paid. The court said, this is different from Makati Tuscany. Because here there isstipulation that while the premium will be paid in installments the policy will not be bindinguntil the premiums are fully paid. So the insurance company will not liable for the loss thatoccurs before premium has been fully paid.

So based on Section 77, Makati Tuscany, Section 78, the court said that there are 3exceptions to the rule that the policy is not binding until the premiums are fully paid.

First, in life and industrial life where a grace period is given.Secondly, Section 78 when theres an admission in the policy that the premiums have been

paid.Then, Makati Tuscany which says that the parties can stipulate that the premiums be paid in

installments.

Then you have this UCPB General Insurance Corp v. Masagana Dela(?)mart. Masagana Delamarthad been insuring its business with UCPB since 1988 and every year they would give Masagana60 to 90 days credit to pay and that is common. Now, 1992 the problem was that a loss occurredwithin the usual 60-day period. A fire raised the premises. The next day masagana paid thepremium and UCPB accepted the premium. The following day they filed a claim, you should nowreturn the premium. Now they were claiming that the premium was not paid when the lossoccurred therefore they were not liable. In a decisions of the second division penned by JusticePardo reiterated Arce and another case, the premium was not yet paid and therefore theinsurance was not binding, UCPB not liable. A motion for reconsideration was filed and the case



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was elevated to court en banc. In a split decision, Chief Justice Davide reversed the decision. Hesaid that heretofore there were three exceptions when policy should be binding even if thepremiums are not paid: 1) life and industrial life insurance policy where a grace period is given;2) when there is an acknowledgement in the policy that the premiums were paid; 3) MakatiTuscany, where there is an agreement that the premiums will be paid in installments; and now,he said, there are now two additional exceptions :First, if the insurance company agreed to grant credit . The courts said that section 77 doesnot say that the contract will be void and that it is not against the law, good customs, moralspublic policy for the parties to stipulate that credit will be given. He said that is the 4thexception. Thats why Justice Pardo dissented and also Justice Vitug, the commercial law expert,dissent, he believes it is not valid and binding. But that was the majority decision.Then Chief Justice Davide said that theres a fifth exceptionEstoppel . For many yearsthe insurance company had been granting credit to the insured. So it made them believe thatthey will always be given credit and so it is now in estoppel. The court said that is the fifthexception.

Cash Surrender Value. Your book mentions that there are some of the devices which will bemade in order to temper the harshness of forfeiture in the policy because the premium has notbeen paid. This is usually in connection with the life insurance policies. You have the cashsurrender value because if you insured your life from age 21 to age 60 you will be paying the

same premium every year. But in the early years the risk of the insured dying is less compared if he is age 60. So at that point in time he is paying more than what would correspond to the riskthe insurance company is assuming and that excess is the cash surrender value. If you look atthe life insurance policy there is a table there indicating the cash surrender value so you cansurrender the policy and get the cash surrender value or you can even get a policy loan cheapmoney you can borrow money with 6% interest. I used to borrow the cash surrender value of my life insurance policy and pay 6% interest a year and then put the money in time deposit. Iwill get more and then I could claim the interest as a tax deduction but now the insuranceincreased interest of 14% so it doesnt pay anymore.

Paid up insurance . So, the insured defaulted. They can say, ok, the fellow stopped paying howmuch cash surrender value does he have? P6000. How much insurance can that buy up to theend of his policy? P20,000. Ok we will apply that. He is insured up to the end of the policy. Or

extended insurance, they can say, he has cash P60,000 we will apply that as premium. For howlong can you extend the life insurance policy with that P60,000? Good for 1 years. They willstill insure you for 1 years even though he stopped paying the premiums. And then theinsured can also apply for reinstatement of the life insurance policy but they will require that hemust undergo medical examination again to show that he is insurable and then he must pay thepremiums in arrears.

Refund of Premium. Section 79 deals with the refund of the premium. It says the insured isentitled to a return of the premium if no part of his interest was exposed in the peril insureagainst. Like you insured a shipment of rice but the rice was never shipped, so he is entitled to arefund on the premium. Or the insurance made for a definite period and the insured surrendershis policy, he is entitled to a partial refund as corresponds to his unexpired time after deductingany loss previously paid. If you look at your motor vehicle insurance policy there is a provision

there that if you surrender the policy and ask that it be cancelled you will given a refund but itwill not be pro rated. In other words, if you surrender in 6 months, you will not get 50% of thepremium. You might probably get less than 40%. There is a table there. And if there was a lossbefore, they paid, that will be deducted first from your refund. If you are entitled to a refund of 10,000 but then they previously paid 2,000 that will be deducted first and you get only 8000. Inlife insurance that will not apply. In other words, somebody paid a premium in one year, thenafter 3 months he changed his mind, he surrenders the policy, he cannot ask for partial refundbecause insurance on human life is indivisible. The insurance company is already exposed to therisk of loss, it has already earned the premium. The law says if the peril insured against existed



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no mater how short the period, the insured is not entitled to return on the premium. Here issomebody who insured his vessel for a trip from Manila to Cebu then, while the vessel was nearRomblon he decided to have the policy cancelled. He cannot ask for a partial refund. He cannotsay, well let us compute the distance from Manila to Cebubecause the insurance company hasalready been exposed to the risk of loss it has already earned the premium. In case the insuredis entitled to refund, where the contract is voidable due to fraud of the insurer then he will beentitled to the return of the entire premium. But if is it the fault on the part of insured other thanactual fraud, and insurer never incurred liability then the premium will be refunded. For instance,this fellow was insuring his property against fire. The insurers inspector says well yourneighborhood is near the squatters area, we will insure it provided you build a fire wall. They didnot build a firewall and that was a condition precedent so he will entitled to a refund. But if therewas fraud on his part he is not entitled to refund. That is the penalty the law imposes upon theinsured for committing fraud. Like he insured a building and they did not send inspectors, theyrelied good faith and he misrepresented that his building has a fire sprinkler system. So they saidthat is safe! In turned out it was not so, there is fraud and he is not entitled to refund of thepremium.

Over Insurance. That case of over insurance, when insured is to be entitled to a ratable returnof the premium. Example here is building worth P10M. He insured with MGU insurance for 10M,Malayan for 5M and Pioneer for 5M, it is over insured by 10M. Lets say that he paid 10Tpremium to MGU, 5T to Malayan and 5T to Pioneer. So he is entitled to a refund from of P5,000from MGU, of P2,500 from Malayan and P2,500 from Pioneer.

The agreement not to transfer the claim after the (?) is void because at that time his liabilityhas already accrued. That is now a chose in action.

Now, the insurer is liable for loss the proximate cause of which is the peril insuredagainst even in the immediate cause if not the peril insured against. Like fire insurancepolicy, fire broke out in the house of the neighbor of the insured. As a result of that a wallcollapsed from his neighbors house and damages his property. So the proximate cause is the firebut immediate cause is the collapse of the wall. Or loss, the immediate cause of which is theperil insured against although the proximate cause may not be the peril insured against. Likefaulty wiring caused fire. The proximate cause is the faulty wiring, the immediate cause is thefire so the insurance will be liable. The loss caused by the negligence of the insured. Common inmotor vehicle insurance damage coverage. This fellow was driving negligently and he bumpedthe car of another. So the insurance company will be liable.

Proximate cause in insurance has more or less the same meaning as Proximate cause inquasi-delict like in the Vda. de Bataclan case. And the insurer is liable for the thing insured isrescued from the 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 that would deprived the ownerpossession in whole or in part or is caused by the efforts to rescue the insured from the perilsinsured against. Like somebody who insures his house and his appliances against fire. The neighborshouse caught fire. He started bringing out his appliances and valuables to bring them to a saferplace but the proverbial looters came and took them so the insurance company will be liable. So theloss occurred because of efforts to save them from the fire or caused by efforts to rescue the thinginsured from the peril insured against. So again, this fellow insured his house against fire then hisneighbors house caught fire and then the firemen arrived and then they pointed their hoses to hishouse to prevent the fire from spreading there and some of his furniture were soiled living room set,the piano so he can collect because they got soiled due to the efforts to prevent fire from spreadingto his house.

Peril Especially Excepted. The loss which would have occurred on such peril excepted althoughthe immediate cause was a peril which was not excepted. Example, fire insurance policies usuallyprovide it will not cover loss due to riots, insurgency rebellion. In 1989 where there was a coupd etat there was that store in the premises of Insular Life which was hit by shell and it burnedand the people there were claiming that their properties were damaged, xxx advised them to file



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a claim with their insurance companies. It is not covered. So the immediate cause was the firebut the proximate cause was the rebellion which is excepted from policy so the insurancecompany will be not liable. The fire was caused by the rebellion. There was a case that wasreferred to me, the lawyer who handled it, he raised the defense that the NPAs were demandingrevolutionary taxes and they did not pay one day the problem occurred but how do you provethat it was the NPAs who burned the property? The court said that was not sufficiently shown.Because of you talk of rebellion you have to show that it is politically motivated, it is part of thescheme to overthrow the government and its hard to prove that because these people will notadmit that they just arrived there one day and they just burned the place. I said, the lawyershould have invoked instead riot. Riot has a peculiar definition in insurance. In English

jurisprudence, every phrase, every word in insurance is being interpreted by the English courts.For the American and English jurisprudence, riot does not mean labo-labo. It means any act of violence by a group of armed men, thats riot. They should invoked riot. There was a rural bankin Compostela. One day the members of the NPA raided and it forced the safe open. They got themoney. They were trying to claim from the insurance company. They said riot! So it is not liable.

The insurer will not be liable for certain losses.

1) Losses caused by the connivance of insured. Like he asks somebody to steal his car. Thenhe files a claim.

2) Loss caused by the willful act of the insured. Arson. He set his house on fire so he could

file a claim against his insurance policy.3) For negligence if it amounts to bad faith, in other words it is so gross, gross negligence

amounting to bad faith. American Jurisprudence will say negligence is gross if it issomething that would be obvious to a reasonable man. For example, here is somebodywho insured his car for damage and he went to a gasoline station to put gasoline. Therewas a big sign there no smoking and then he lit a cigarette so his car caught fire thatwould be negligence amounting to bad faith because it is so obvious. Lets say he insuredhis house against fire and he watching a movie and smoking a cigarette when he fellasleep (walang ka storya storya naman to pinapanood ko!) the cigarette fell and the rugcaught fire that would be covered. There was a man, somebody imported somematerial/chemical that were quite inflammable. Then he arrived at the premises of thecompany then the was employee was supposed to open the van little by little, let the fusecome out. And then, it was early in the morning and he said ano ba to ang dilim dilimah! so he flicked his lighter and there was an explosion and he died. There was grossnegligence. You should know na highly inflammable, nagsindi ka ng lighter. The loss, theproximate cause of which is the excepted peril even though the immediate cause is a perilinsured against. In the case of the rebellion which caused the fire. The proximate causethere is the rebellion but the immediate cause is the fire and that is not covered under thepolicy.

Case : There was this case of this Fortune insurance company. The insured a pay roll againstrobbery. They asked a security guard agency to transport the payroll. And so the security guardagency provided the armored car, driver and security guard. The payroll policy had a provisionthat insurance company will not be liable if the loss was caused by an employee or authorizedrepresentative of the insured. The one who stole the money was the driver of the armored carand the security guard. The claim was filed. The insurance company rejected the claim there wasa litigation which reached the SC. The insured argued that the guard and driver are not ouremployees. They were the employees of the security guard agency. Neither were the arerepresentatives because the security guards were independent contractors. They were not ouremployees, they were not our authorized representatives therefore were not liable. The courtsaid no! What is the purpose of that provision? What the provision is saying is that the insurancecompany is not willing to assume the risk of loss caused by the person who has immediatecustody and safekeeping of the money because the risk is too high. They had immediate access



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and custody of the money so the should be considered your representative therefore theinsurance company is NOT liable.

Jan 7, 2002 (Monday) Che Bassig

Losses for which the insurance coverage includes :

Losses caused by the connivance of the seller and injury suffered by the negligence that amounts to

bad faith; the loss the proximate insured cause of which is an accepted error; loss for which the risksinsured against is the remote cause of the loss. For instance you have this person who insured hishouse against fire, the neighbors house caught fire, the neighbors flock to his house and causedamage, he cannot recover because the fire is the remote cause of the damage on his house.

Sec. 91

The insured must give notice without unnecessary delay. If proof is required, he must bring withhim the necessary proof whenever a loss is incurred. Usually when you file a claim most people relyon the insurance agent.

If the insurance company has rejected the claim, but he did not invoke delay in filing as aground of objection or any other grounds, then it would be waived as a defense in a case suit. Thisis normal for a claim of motor vehicle insurance. The insurance company will ask police report, a

photograph of the damaged portion, and get estimates from an accredited shop. If the insurancecompany did not tell the insured that he needs, for the example photographs, he cannot latter onsay that the insured failed to substantiate the loss with a photograph.

Delay will also be excused is caused by a misrepresentation by the insurance agent that hewill take care of everything.

Sec.92

He cannot obtain despite reasonable delays suffered to show that the reason why he cannotproduce such certificate because the certificate required by court not available. For example fireinsurance, the insurance company will ask report of investigator.

You have this case where the person insured his premises he was leasing it to a restaurant,by new years eve, he and his cook went out to look at the fire works, he neglected the gas range,and a fire broke out. He went to file a claim, the arson investigator conducted an investigation butnever submitted his report. The investigator immigrated to the US and his whereabouts unknown. Itis enough to show that they cannot submit report of arson, not because the fire was caused by arsonbut that the investigator immigrated.

In case of loss and the insurance company pays, it is subrogated to the rights of the insuredand he can collect from the wrongdoer. But if the insured has done any act which prevents theinsurance company from running after the wrongdoer, then the insurance company will be relievedfrom liability because he will be prejudiced. For example the insured in a motor vehicle insurancesettled with the wrongdoer by accepting P2,500 in settlement. Then he filed a claim with theinsurance company. The insurance company will be subrogated to his rights against the wrongdoer.The wrongdoer can raise the defense against the insurance company that there was a settlement.The insurance company therefore cannot be liable- in fact they can get the money from the insuredon the theory of payment by mistake. Also in one case, where an importer failed to file a claim inthe Arrastre operator on time. The court said that the is barred. The insurance company may beexempt from liability.

Where in the case of a shipping company where the liability in the bill of lading stipulated acertain amount unless the owner declared a higher value, he can recover a higher claim from theinsurance company.



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Double Insurance

This double insurance It exists where the same person is insured by several insuranceseparately with respect to the same subject interest.

So there are 5 requisites of double insurance.1. Insured must be the same so if a lessor insured a building that he owns, and the lessee

insured it also there is no double insurance for the insurers are different.2. There must be several insurers somebody insured his building with FGU insurance and 6

months later on he takes another insurance from FGU, no double insurance.3. When the subject matter must be the same the insured let say insured his building and

then he insured his stocks in trade, there is no double insurance for the subject matter isdifferent.

4. The interest is the same where he insured his property and the proceeds payable to himand because he mortgaged it, he insured it again but the proceeds are payable to themortgagee this time there is no double insurance, the interest covered are different.

5. The risk must be the same if somebody let say insured his building against fire, then lateron he obtained another insurance policy of course due to volcanic eruption then there will beno double insurance.Now double insurance is different from over insurance. The latter insures the property more

than what the property is worth. For example a building is worth P20M and it was insured for P30M.Normally, as I said in insurance policies, they provide that the insured must disclose the existence of other insurance policies otherwise the insurance company will not be liable and that includes evenpolicies he may obtained in the future, that is, it is not limited to policies subsisting when he wasobtained the policy.

And in case of over insurance Sec 94 , relays down the different formulas for collectingindemnity. We see the common theme that the insured cannot collect more than what he lost. Hereis somebody who has a building worth P10M. He insured it with FGU Insurance for P10M withMalayan for P5M and Pioneer for P5M. So he is over insured by P10M. So under the law he maydecide to collect P10M from FGU, P5M from Malayan, P5M from Pioneer. Now if he collected let sayP5M from Malayan and he is filing a claim with FGU he can only collect P5M from FGU.

Now if he collected from everybody, he is overpaid by P10M, so he must return it to themproportionately the over payment. Return P5M to FGU, P2.5M to Malayan and P2.5M to Pioneer.Now if FGU paid him only because he only filed a claim with FGU, FGU will be entitled to collectP2.5M from Malayan and P2.5M from Pioneer.

Like in car insurance polic

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