Insurance Law Green Notes.pdf

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TABLE OF CONTENTS

INSURANCE A. Concept of Insurance ........................................ 1 Doing an Insurance Business ................. 1 Requisites ....................................... 1

B. Elements of an Insurance Contract ................... 1

Distinguishing Elements of an Insurance Contract ......................................... 1 Form ............................................. 1

C. Characteristics/Nature of Insurance Contracts . 2

Cardinal Principles in Insurance............. 2 Insurable Interest ............................... 2 Principle of Utmost Good Faith................ 2 Contract of indemnity .......................... 2 Contract of Adhesion ........................... 2

Construction of the Insurance Contract ... 3

D. Classes ............................................................. 3

1. Marine ........................................ 3 Perils of the Sea ................................. 3 Perils of the Ship ................................ 3

2. Fire ........................................... 3 3. Casualty ...................................... 4 4. Suretyship ................................... 4 5. Life ........................................... 4 Individual Life.................................... 4 Group Life ........................................ 4 Industrial Life .................................... 4

6. Compulsory Motor Vehicle Liability Insurance........................................ 4

E. Insurable Interest .............................................. 4

COMMERCIAL LAW

Liability of reinsurer to reinsured............. 8 Liability of reinsurer to original insured ..... 8

F. Perfection of the Contract of Insurance ............. 8

1. Offer and acceptance/Consensual ..... 8 a. Delay in Acceptance ......................... 8 b. Delay of Policy ............................... 9

2. Premium Payment ........................11 Effect of Non-Payment ........................ 11 Entitlement of Insured to Return of Premiums Paid .............................................. 12 Premiums are not Recoverable in the Following Instances ............................ 12

3. Non-default options in life insurance .12 4. Reinstatment of a lapsed policy of Life insurance ......................................12 5. Refund of Premiums ......................12

G. Rescission of Insurance Contracts ................. 12

1. Concealment ...............................12 Requisites: ...................................... 12 Effects: .......................................... 13

2. Misrepresentations/Omissions ..........13 Requisites of misrepresentation ............. 13 Characteristics.................................. 13 Kinds ............................................. 13 Effect of misrepresentation .................. 13

3. Breach of Warranties .....................14 Purpose .......................................... 14 Kinds ............................................. 14 Effects of breach of warranty: ............... 14 Conditions ....................................... 14 Rescission ....................................... 14 Cancellation of Non-Life Insurance Policy .. 15

1. In life/Health ............................... 5 2. In Property .................................. 5

H. Claims Settlement and Subrogation................ 15

Interest in Life and Property Distinguished .. 5 Other Cases ...................................... 6 Insurance by mortgagor of his own interest . 6 Effects of Loss Payable Clause................. 6

a. Unfair Claims Settlement; Sanctions ..... 16

3. Double Insurance and Over Insurance .. 6 Double Insurance ................................ 6 Additional or “Other Insurance” Clause ...... 7 Over Insurance ................................... 7 Double Insurance and Over Insurance Distinguished ..................................... 7

4. Multiple or Several Interests On Same property ......................................... 7 Nature of contract of reinsurance ............ 7 Original Insurance Contract and Reinsurance Contract Distinguished .......................... 8 Double Insurance and Reinsurance Distinguished ..................................... 8 Rights of original insured in contract of reinsurance....................................... 8

1. Notice and Proof of Loss .................15 2. Guidelines on Claims Settlement .......15

Transfer of Policy................................................. 16

Change of Interest in the Thing Insured ..17

Risk ..................................................................... 17 What may be insured against: ..............17 Kinds of Insurable Risks .....................18 Personal risks ................................... 18 Property risks ................................... 18 Liability risks.................................... 18

Requirements for Risks to be Insurable ...18

Particular Kinds of Contracts of Insurance .......... 18 1. Marine Insurance ..........................18 Marine Protection and Indemnity Insurance 18 Major divisions of marine insurance: ........ 19 Insurable Interest .............................. 19

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Special Marine Insurance Contracts and Clauses .......................................... 20 Matters Although Concealed, Will Not Vitiate the Contract Except When They Caused the Loss .............................................. 20 Distinctions on Concealment................. 20 Representation ................................ 20 Implied warranties ............................ 21 Deviation ....................................... 21 Loss .............................................. 21 Average ......................................... 22 Free From Particular Average (FPA) Clause 22 Abandonment .................................. 22 Co-Insurance ................................... 23

COMMERCIAL LAW

Nature of powers of the Insurance Commission ....................................29 1. Regulatory or non-quasi judicial- generally provided in Sec. 414. .......................... 29 2. Adjudicatory or quasi-judicial- generally described in Sec. 416. ......................... 29

2. Fire Insurance ............................. 23 Prerequisites to recovery:.................... 23 Measure of Indemnity ......................... 23 Distinctions of ocean marine and fire policies ................................................... 23 Alteration as a Special Ground for Rescission by Insurer ....................................... 23 Fall-of-building clause ........................ 24

3. Casualty or Accident Insurance ........ 24 Classifications: ................................. 24 Right of a third party injured to sue the insurer .......................................... 24 No Action Clause .............................. 25

4. Compulsory Motor Vehicle Liability INSURANCE (CMVLI) ......................... 25 Method of coverage ........................... Claimants: ...................................... No-Fault Clause ................................ Special Clauses ................................

25 25 25 26

5. Suretyship ................................. 26 Nature of liability of surety .................. 26 Types of surety bonds ........................ 26

6. Life Insurance ............................. 27 Parties in a Life Insurance ................... 27 Kinds: ........................................... 27 Mortgage Redemption Insurance ............ 27 Liability of Insurer in Certain Causes of Death of Insured....................................... 27 Is the Consent of the Beneficiary Necessary to the Assignment of a Life Insurance Policy? ................................................... 28 Cash Surrender Value ......................... 28

Variable Contract................................................. 28 Insurance Commissioner ............................. 29 Functions: .................................... 29 1. Adjudicatory/Quasi-Judicial .............. 29 2. Administrative/Regulatory ................ 29

Insurance Commission ................................. 29

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A. Concept of Insurance Agreement by which one party (insurer) for a consideration (premium) paid by the other party (insured), promises to pay money or its equivalent, or to do some act valuable to the latter, upon the happening of a loss, damage, liability, or disability arising from an unknown or contingent event.

COMMERCIAL LAW

REQUISITES • • • • •

Subject matter which the insured has an insurable interest. Consideration known as premium. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for the risk thereof. Promise to pay or indemnify in a fixed or ascertainable amount. Meeting of the minds of the parties

The term assurance is also used, although seldom employed. But modern writers use assurance to describe the life insurance business. Thus, assurance is used to refer to an event like death, which must happen; while insurance, to a contingent event, which may or may not happen.

B. Elements of an Insurance Contract

The definition of law is subject to criticism for it does not include life insurance (contract upon a condition rather than to indemnify, since a loss of life is beyond pecuniary estimation.

1.

DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT 2.

Contract of Insurance

An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event [Sec. 2(1), Insurance Code] A contract of insurance involves public interest. Thus, the business is regulated by the State through the requirement of license or certificate of authority. [White Gold Marine Services v. Pioneer Insurance, G.R. No. 154514, 2005]

DOING AN INSURANCE BUSINESS (1) Making or proposing to make, as insurer, any insurance contract; (2) Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety; (3) Doing any insurance business, including a reinsurance business; (4) Doing or proposing to do any business in substance equivalent to any of the foregoing. In the application of the provisions of the Insurance Code, the fact that no profits is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received thereof, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. [Sec.2(b), Insurance Code]

3. 4.

5.

The insured possesses an insurable interest susceptible of pecuniary estimation; The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; The insurer assumes that risk of loss; Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and The insured makes a ratable contribution (premium) to a general insurance fund.

A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing device. All the elements must be present; otherwise, it is not an insurance contract. Further, even if all the elements are present, it is not an insurance contract if the same is entered into for the purpose of rendering service and not indemnification for a loss. Insurance serves to distribute the risk of economic loss among as many as possible of those who are subject to the same kind of risk (each member contributes). A member does not need to bear all the loss by himself.

FORM An Insurance Policy is different from the contract of insurance. Unless otherwise stipulated, the policy is not essential to the existence of the contract. The policy is merely the formal written instrument evidencing the contract of insurance entered into between the insured and the insurer. On the other hand, there is no particular form required for a contract of insurance.

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C. Characteristics/Nat ure of Insurance Contracts CONSENSUAL It is perfected by the meeting of the minds of the parties. There must be a concurrence of offer and acceptance.

COMMERCIAL LAW

CARDINAL PRINCIPLES IN INSURANCE INSURABLE INTEREST The insured must have an insurable interest ing the subject matter of the insurance contract or else, it shall be void [Sec. 25, Insurance Code]

PRINCIPLE OF UTMOST GOOD FAITH Uberrimae fidei

An insurance contract requires utmost good faith between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health.

VOLUNTARY The parties may incorporate such terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Reason:

Exception: Insurance contracts are required by law for motor vehicles [Compulsory Motor Vehicle Liability Insurance, Secs. 386-402, Insurance Code]

It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss.1

ALEATORY Depends upon some contingent event.

CONTRACT OF INDEMNITY

Rules:

✓

UNILATERAL Imposes legal duties only on the insurer who promises to indemnify in case of loss.

✓ ✓

Executed as to insured after payment of premium. Executory as to insurer, not executed until payment for a loss. CONDITIONAL It is subject to conditions the principal one of which is the happening of the event insured against. CONTRACT OF INDEMNITY Whereby the insurer promises to make good only the loss of the insured (except life and accident insurance) PERSONAL Each party having in view the character, credit and conduct of the other. RISK DISTRIBUTION DEVICE Insurer’s assumption is a part of a general scheme to distribute the loss among a large numebr of persons exposed to similar risks. CONTRACT OF ADHESION One party only adheres to the printed form the other party presents.

Applies only to property insurance except when the creditor insures the life of his debtor. Life insurance is not a contract of indemnity. Insurance contracts are not wagering contracts. [Sec. 4]

CONTRACT OF ADHESION Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he cannot change.2 A process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latter’s rights against the wrongdoer at the time of loss. The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity.3 Purposes:

(1) To make the person who caused the loss legally responsible for it. 1

Sundiang and Aquino, Reviewer on Commercial Law Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12 3 Malayan Insurance Co., Inc. v. CA, 165 SCRA 536 2

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(2) To prevent the insured from receiving a double recovery from the wrongdoer and the insurer. (3) To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. Rules:

(1) Applicable only to property insurance. (2) The insurer can only recover from the third person what the insured could have recovered. (3) There can be no subrogation in cases: ✓ Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage; ✓ Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured’s claim for loss; ✓ Where the insurer pays the insured for a loss or risk not covered by the policy.4 ✓ Life insurance. ✓ Recovery of loss in excess of insurance coverage.

CONSTRUCTION CONTRACT

OF

THE

INSURANCE

The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation.5 • Where there is ambiguity or doubt, strictly against the insurer and liberally in favor of the insured/beneficiary.6 •

Where terms are clear, although the contract may be rather onerous, it cannot be enlarged or diminished by judicial construction since courts cannot make a new contract for the parties where they themselves have employed express and unambiguous words.

D. Classes 1. MARINE

COMMERCIAL LAW

immovable property, may be exposed during a certain voyage or a fixed period of time. It protects ships at sea and the cargo or freight on such ships from standard “perils of the sea”. In the absence of stipulation, the risks insured against are only perils of the sea. However, in an all risk policy, all risks are covered unless expressly excepted. The burden rests on the insurer to prove that the loss is caused by a risk that is excluded.

PERILS OF THE SEA General Rule: The term perils of the sea extend only to losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only which cannot be guarded against by the ordinary exertion of human skill or prudence, as distinguished from the ordinary wear and tear of the voyage and from injuries suffered by the vessel in consequences of her not being unseaworthy. [Roque v. IAC, G.R. No. L-66935, (1985)] It also includes barratry which refers to the willful and intentional act on the part of the master or the crew, in pursuance of some unlawful or fraudulent purpose, without consent of the owner, and to the prejudice of his interest. Exception: An “all-risk policy”. [Malayan Insurance Corp. v. CA, G.R. No. 119599 (1997)]

PERILS OF THE SHIP Those which cause a loss which in the ordinary course of events, results: (1) From the ordinary, natural, and inevitable action of the sea; (2) From ordinary wear and tear of the ship; and (3) From the negligent failure of the ship’s owner to provide the vessel with the proper equipment to convey the cargo under the ordinary conditions. [De Leon (2014)]

(see Secs. 99–166) Marine insurance is a type of transportation insurance which is concerned with the perils of property in, or incidental to, transit as opposed to property perils at a generally fixed location. Ocean marine insurance insures against risk connected with navigation, to which a ship, cargo, freightage, profits, or other insurable interest 4

Pan Malayan Insurance Company v. CA, 184 SCRA 54 Calanoc vs. Court of Appeals, 98 Phil. 79 6 Serrano v. CA, 130 SCRA 327 5

2. FIRE (see Secs. 167–173) An insurance against loss of, or damage to, property by hostile fire. It includes loss by fire, lightning, windstorm, tornado, or earthquake and other allied risks when such risks are covered by extension to fire insurance policies or under separate policies. These must be the proximate cause of the damage or loss.

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COMMERCIAL LAW

Hostile Fire

One that escapes from the place where it was intended to burn and ought to be, or one which remains completely within its proper place but because of the unsuitable to light it, becomes inherently dangerous and uncontrollable. Friendly Fire

One that burns in a place where it is intended to burn and ought to be like fire burning in a stove or a lamp. The risk assumed by the insurer is the loss and damages caused by hostile fire and not friendly fire.

INDIVIDUAL LIFE (see Secs. 179–183, 227) An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life

GROUP LIFE (see Secs. 50, last par., 228)

(see Sec. 174)

It is a blanket policy covering a number of individuals who are usually a cohesive group and subjected to a common risk.

Insurance covering loss or liability arising from accident or mishap, excluding fire or marine.

INDUSTRIAL LIFE

3. CASUALTY

It may be liability insurance or indemnity insurance. A liability insurance is when the insurer assumes obligation to pay the third party in whose favour liability of the insured arises. The liability of insurer attaches as soon as the liability of insured to the third party is established.

the the the the

An indemnity insurance is when no action will lie against the insurer unless brought by the insured for loss actually sustained and paid by him. Liability of the insurer attached only after the insured has paid his liability.

4. SURETYSHIP (see Secs. 175–178) An agreement whereby a surety, guarantees the performance by the principal obligor of an obligation in favor of the obligee. It shall be deemed as insurance contract if the surety’s main business is that of suretyship, and not where the contract is merely incidental to any other legitimate business or activity of the surety.

5. LIFE Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. [Sec. 181, Insurance Code] Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purposes of the Insurance Code. [Sec. 182, Insurance Code]

(see Secs. 229–231) It provides insurance coverage to industrial workers or people who are unable to afford insurance for bigger amounts.

6. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE Protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. Motor Vehicle Liability Insurance is a requisite for registration or renewal of registration of a motor vehicle by every land transportation operator or owner. The insurer’s liability is direct and primary so the insurer need not wait for the final judgment in the criminal case to be liable. The purpose is to give immediate financial assistance to victims of motor vehicles accidents and/or their dependents, especially if they are poor, regardless of the financial capability of motor vehicles owners or operators responsible for the accident sustained. [Shafer v. Judge, RTC Olangapo, G.R. No. 78848 (1988)]

E. Insurable Interest Insurable interest in general

A person is deemed to have an insurable interest in

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COMMERCIAL LAW

the subject matter where he has a relation or connection with or concern in it that he will derive pecuniary or financial benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.7

interest in the life of the insured when person takes out policy on his own life. But if a person obtains a policy on the life of another and names himself as the beneficiary, he must have insurable interest therein.

•

2. IN PROPERTY

•

•

The existence of insurable interest gives the person the legal right to insure the subject of the policy of insurance. In its absence, the person insuring would in effect be merely gambling since it allows the insured to have an interest in destruction of the subject matter rather than in its preservation. However, it is held not to apply to industrial life insurance.

Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured. [Sec. 13, Insurance Code] It consists of: • an existing interest; •

1. IN LIFE/HEALTH Every person has an insurable interest in the life and health of: (1) himself, his spouse and his children; (2) any person on whom he depends wholly or in part for education or support;

any inchoate interest founded on an existing interest; or

•

an expectancy coupled with an existing interest in that out of which the expectancy arises. [Sec. 14, Insurance Code] When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime. [Sec. 19, Insurance Code] Amount: The measure of insurable interest in

(3) any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance; and

property is the extent to which the insured might be damnified by loss or injury thereof. [Sec. 17, Insurance Code]

(4) any person upon whose life any estate or interest vested in him depends. [Sec. 10, Insurance Code]

INTEREST IN DISTINGUISHED

LIFE

AND

Life

When it should exist: When the insurance takes effect;

not thereafter or when the loss occurs.

Existence Only at the time the policy takes effect and need not exist at the time of loss

Amount: There is no limit in the amount the insured

can insure his life. (Except in a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is equal to the amount of the debt.) •

If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies.

Each person has unlimited interest in his own life, whether the insurance is for the benefit of himself or another. The beneficiary designated need not have any 7

Value Unlimited except in life insurance effected by creditor on life of debtor.

Expectation of benefit derived from the continued existence Need not have any legal basis whatever. A reasonable probability is sufficient without more. Interest of Beneficiary Need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.

Lalican v. Insular Life, 597 SCRA 159

LA SALLIAN COMMISION ON BAR OPERATIONS

PROPERTY Property At the time the policy takes effect and when the loss occurs Limited to actual value of interest in property insured.

Must have a legal basis.

Must have insurable interest over the thing insured.

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COMMERCIAL LAW

✓

OTHER CASES Carrier or depositary

A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof.

Equitable lien- the policy procured by a mortgagor under a contract duty to insure for the mortgagee’s benefit

EFFECTS OF LOSS PAYABLE CLAUSE

Mortgaged property

The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract.

Thus, insurance taken by one in his own name only and in his favour alone, does not inure to the benefit of the other.

Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect.

The mortgagor and mortgagee have each an insurable interest in the property mortgaged and this interest is separate and distinct from the other.

In case both of them take out separate insurance policies on the same property, or one policy covering their respective interest, the same is not open to the objection that there is double insurance. Mortgagor Has an insurable interest therein to the

extent of its value, even if the mortgage debt equals such value since he is the owner. Reason: Loss or destruction of the property insured

will not extinguish the mortgage debt. Mortgagee- Interest is only up to the extent of the

debt and the interest continues until the mortgage debt is extinguished. •

The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy.8

INSURANCE BY MORTGAGOR OF HIS OWN INTEREST •

Own benefit In case of loss, the insurance proceeds do not inure to the benefit of the mortgagee who has no greater right than unsecured creditors

•

Benefit of mortgagee Loss payable to mortgagee made through the following ways: ✓ ✓ ✓ ✓

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Assignee of the policy (with insurer’s consent) Mere pledge (without insurer’s consent) Rider Standard mortgage clause

In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

Standard Or Union Mortgage Clause

Open Or Loss Payable Mortgage Clause

Subsequent acts of the mortgagor cannot affect the rights of the assignee

Acts of the mortgagor affect the mortgagee because the former does not cease to be a party to the contract.

In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the extent of the money paid by such insurer.

3. DOUBLE INSURANCE AND OVER INSURANCE DOUBLE INSURANCE Exists where same person is insured by several insurers separately in respect to same subject and interest. [Sec. 95, Insurance Code] REQUISITES: 1. Person insured is the same; 2. Two or more insurers insuring separately; 3. Subject matter is the same; 4. Interest insured is also the same; 5. Risk or peril insured against is likewise the same. EFFECTS: Where double insurance is allowed, but over insurance results: • The insured, unless the policy otherwise provides, may claim payment from the insurers

Cha vs. Court of Appeals, 227 SCRA 690

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in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; •

Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured;

•

Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;

•

Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

•

Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

ADDITIONAL OR “OTHER INSURANCE” CLAUSE Double insurance is not prohibited under the law, unless the policy contained a stipulation to the contrary. Such clause is intended to prevent over insurance and thus avert the perpetuation of fraud. Usually, insurance policies contain “other insurance clause” which is condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property insured. •

•

It is lawful and specifically allowed under Sec. 75 which provides that “(a) policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it.”

COMMERCIAL LAW

Over-insurance is not per se void but recovery is allowed only to the extent of the loss or damage incurred by the insured.

DOUBLE INSURANCE AND OVER INSURANCE DISTINGUISHED Over Insurance

Double Insurance

Amount of the insurance is beyond the value of the insured’s insurable interest. There may be only one insurer involved.

There may be no over-insurance when the sum total of the amounts of the policies issued does NOT exceed the insurable interest of the insured. ALWAYS several insurers.

4. MULTIPLE OR SEVERAL INTERESTS ON SAME PROPERTY REINSURANCE

Referred to as an “insurance of an insurance”. It is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. [Sec. 97, Insurance Code] A reassurance is presumed to be a contract of indemnity against liability, and not merely against damage. [Sec. 99, Insurance Code] The original insured has no interest in a contract of reinsurance. [Sec. 100, Insurance Code] In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies.

NATURE OF CONTRACT OF REINSURANCE •

Contract of Indemnity against liability reinsurer agrees to indemnify the insurer against liabilities incurred. Not a condition precedent that the insurer first paid a loss before demanding payment from the reinsurer.

•

Contract policy.

•

Contract based on original policy - The reinsured risk must be the same as that covered by the original insurance policy.

•

Insurable interest requirement applicable- The primary insurer is not entitled to contract for reinsurance exceeding the limits of the policy ceded to the reinsurer. The reinsurer also

To constitute a violation of the clause, there should have been double insurance.

OVER INSURANCE Results when the insured insures the same property for an amount greater than the value of the property with the same insurance company. EFFECT IN CASE OF LOSS: • The insurer is bound only to pay to the extent of the real value of the property lost; • The insured is entitled to recover the amount of premium corresponding to the excess in value of the property;

LA SALLIAN COMMISION ON BAR OPERATIONS

separate

from

original

insurance

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•

COMMERCIAL LAW

cannot provide coverage beyond the risks covered by the primary insurer.

RIGHTS OF ORIGINAL INSURED IN CONTRACT OF REINSURANCE

Rule on subrogation is applicable.

The insured has no concern with the contract of reinsurance, and the reinsurer is not liable to the insured either as surety or otherwise. Unless the contract so provides.

ORIGINAL INSURANCE CONTRACT AND REINSURANCE CONTRACT DISTINGUISHED The original insurance contract is separate and distinct from the insurance contract. An original insurance contract covers indemnity against damages, while reinsurance covers indemnity against liability.

DOUBLE INSURANCE DISTINGUISHED Double Insurance Involves the same interest Insurer remains in such capacity Insured is the party in interest in the 2 contracts Subject of insurance is property Insured has to give his consent

AND

•

LIABILITY OF REINSURER TO REINSURED •

The reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured.

•

Reinsurer is not liable to the reinsured for a loss if the latter is not liable to the original insured, or for an amount more than the sum actually paid to the insured.

REINSURANCE Reinsurance

Involves different interest Insurer becomes the insured in relation to reinsurer Original insured has no interest in the reinsurance contract.

No privity of contract between the original reinsured and the reinsurer.

LIABILITY OF REINSURER TO ORIGINAL INSURED •

Contract of reinsurance solely between the insurer and the reinsurer- the original insured absolutely has no interest in the contract. Thus, remedy of the original insured is only against the insurer.

Reinsurance treaty

•

Contract of reinsurance with stipulation in favor of original insured- the reinsurer may bind himself to pay to the policy holder for any loss for which the insurer may become liable. Thus, remedy of the original insured is both against the reinsurer and the insurer.

Automatic reinsurance

•

Contract of reinsurance amounting to novation of original contract- circumstances attending the making of the contract of reinsurance amount to a novation of the original contract, thus discharging the original insurer from all obligations thereunder.

Subject of insurance is the original insurer’s risk Insured’s consent not necessary

Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty.

The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract.

Facultative reinsurance

There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment.9

Retrocession

A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance.

Technically not one of reinsurance since the reinsurer is substituted for the original insurer

F. Perfection of the Contract of Insurance 1. OFFER AND ACCEPTANCE/CONSENSUAL A. DELAY IN ACCEPTANCE

9

Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343

Mere delay by insurer, although unreasonable, in acting upon the application raises no implication of acceptance nor does it estop the insurer to deny the

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COMMERCIAL LAW

existence of the contract Endorsements

B. DELAY OF POLICY An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. •

•

Since it is a consensual contract, it is perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. What is being followed in insurance contracts is what is known as the cognition theory. Thus, an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge.10

Binding Receipt

A mere acknowledgment on behalf of the company that its branch office had received from the applicant the insurance premium and had accepted the application subject to processing by the head office.

Provisions added to the contract altering its scope or application.

Policy of Insurance

The written instrument in which a contract of insurance is set forth. CONTENTS: • Parties • Amount of insurance (except in open or running policies) • Premium or rate/basis of final premium (if exact premium is determinable upon termination) • Property or life insured • Interest of the insured in the property if he is not the absolute owner • Risk insured against; and • Duration of the insurance. KINDS: 1. Open Value of thing insured is not agreed upon, but left to be ascertained in case of loss.

Cover Note

A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application.

The actual loss will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy.12 2.

Definite valuation of the property insured is agreed by both parties, and written on the face of policy.

Period: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner.

In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount.

Clauses

Agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss.

3.

Printed stipulations usually attached to the policy because they constitute additional stipulations between the parties.11

10 11

Persons entitled to recover on the policy: The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made (unless otherwise specified in the policy).

In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties. Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269 Ang Giok Chip vs. Springfield, 56 Phil. 275

Running Contemplates successive insurances and which provides that the object of the policy may from time to time be defined.

Riders

•

Valued

12

Development Insurance Corp. vs. IAC, 143 SCRA 62

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for compensation.13 INCONTESTABILITY CLAUSE Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period.

•

REQUISITES: • Life insurance policy;

Insured The person whose loss is the occasion for the payment of the insurance proceeds by the insurer.

•

Payable on the death of the insured;

Requisites:

•

It has been in force during the lifetime of the insured for a period of at least two years from the date of its issue or of its last reinstatement.

•

•

The period of 2 years may be shortened but it cannot be extended by stipulation.

•

Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss.

Barred Defenses of the Insurer Policy is void ab initio Policy is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent

• •

Capacity to contract; Possess an insurable interest in the subject of the insurance; Must not be a public enemy Enemy nation with which the Philippines is at war (includes every citizen or subject of such nation). Public

The terms insured and assured are generally used interchangeably; but technically, insured refers to the owner or property insured or the person whose life is the subject of the contract of insurance; while assured refers to the person for whose benefit the insurance is granted.

Defenses Not Barred Person taking the insurance lacked insurable interest as required by law Cause of the death of the insured is an excepted risk Premiums have not been paid Conditions of the policy relating to military or naval service have been violated Fraud is of a particularly vicious type

•

RULES: a. Life Insurance • A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limitations under the NCC provisions on void donations. •

Beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened Action was not brought within the time specified.

For a person to be called an insurance agent, it is necessary that he should perform the function

Exception: Any person who is forbidden from receiving any donation under Article 739, Civil Code cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him. •

PARTIES TO CONTRACT OF INSURANCE • Insurer Person who undertakes to indemnify another. The business of insurance may be carried on by individuals just as much as by corporations and associations.

Beneficiary A person designated to receive proceeds of policy when risk attaches.

•

13 14

Reason: A life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality.14

A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life.

Aisporna vs. CA, 113 SCRA 459 Insular Life vs. Ebrado, 80 SCRA 181

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INSURANCE

•

The insured shall have the right to change the beneficiary he designated in the policy (unless he has expressly waived this right in the policy).

•

The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified

b.

Property Insurance • Unlike in life insurance, the beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs.

Insured himself Also called the “assured”.

Kinds of Beneficiaries 3rd person who paid a consideration Ex. Insured taking out a policy on his life for the benefit of the creditor. NOT a party to the contract.

3rd person through mere bounty of the insured May be the (1) estate of the insured; or a (2) third party. NOT a party to the contract.

COMMERCIAL LAW

Premium Assessment All payments are but contributions from all members of the insuring organization to make good the losses of individual members Purpose Levied and paid to meet Collected to meet actual anticipated losses losses Enforceability Payment of premium after the Enforceable against the first is not enforceable against insured, unless otherwise the insured agreed

Not a debt

No policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void.

Exceptions:

• • •

Immediate party to the contract. Proceeds of the insurance become the exclusive property of the beneficiary upon the death of the insured.

EFFECTS OF IRREVOCABLE DESIGNATION OF BENEFICIARY • Insured cannot: Assign the policy; Take the cash surrender value of the policy; Allow his creditors to attach or execute on the policy; Add new beneficiary; or Change the irrevocable designation to revocable, even though the change is just and reasonable. The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation.

Life or industrial life insurance, when the grace periods applies. Insurer makes a written acknowledgment of the receipt premium. Parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss.15

•

Where a credit term has been agreed upon.16

•

Where the parties are barred by estoppel.17

•

Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. 18

•

Acknowledgment of receipt of premium in policy is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

EFFECT OF NON-PAYMENT •

2. PREMIUM PAYMENT It is the agreed price for assuming and carrying the risk. The consideration paid to an insurer for undertaking to indemnify the insured against a specified peril.

Expectation of benefit derived from the continued existence Debt if properly levied, unless otherwise expressly agreed

First premium

Prevents the contract from becoming binding notwithstanding the acceptance of the application nor the issuance of the policy unless waived

15

Makati Tuscany Condominium v. CA, 215 SCRA 462 UCPB vs. Masagana Telemart, 308 SCRA 259 17 UCPB vs. Maagana Telemart, 356 SCRA 307 18 Id note 14 16

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INSURANCE

•

Subsequent premiums

Does not affect the validity of the contract unless by express stipulation, it is provided that the policy shall be suspended or lapse

ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID •

•

Whole • Thing insured was never exposed to the risks insured against. •

Voidable contract due to the fraud or misrepresentation of insurer or his agent.

•

Voidable contract because of the existence of facts of which the insured was ignorant without his fault.

•

Insurer never incurred liability when by any default of the insured other than actual fraud.

•

Rescission due to the insurer’s breach of contract.

Pro rata

•

Insurance is for a definite period and the insured surrenders his policy before the termination thereof.

COMMERCIAL LAW

full annual premiums, in entitled to receive if he surrenders the policy and release his claim upon it.

4. REINSTATMENT OF A LAPSED POLICY OF LIFE INSURANCE The policy holder shall be entitled to have the policy reinstated at any time within three years rom the date of default of premium of payment unless the cash surrender value has been paid, extension have expired

5. REFUND OF PREMIUMS A person insured is entitled to a return of premium; to the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; where the insurance is made for a definite period of time and the insured surrenders his policy to such portion of the premium as corresponds with the unexpired time.

G. Rescission of Insurance Contracts Ascertainment and Control of Risk and Loss

Exceptions:

•

•

Policy not made for a definite period of time;

FOUR PRIMARY CONCERNS OF THE PARTIES • Correct estimation of the risk;

•

Short period rate is agreed upon;

•

Precise delimitation of the risk;

•

Life insurance policy.

•

Control of the risk;

When there is over-insurance

•

Determining whether a loss occurred and if so, the amount of such loss.

PREMIUMS ARE NOT RECOVERABLE IN THE FOLLOWING INSTANCES •

Risk has already attached and the risk is entire and indivisible.

1. CONCEALMENT A neglect to communicate that which a party knows and ought to communicate.

•

Life insurance.

•

Contract is rescindable or rendered void ab initio by the fraud of the insured.

•

Devices used for ascertaining and controlling risk and loss

Parties are in pari delicto and the contract is illegal.

3. NON-DEFAULT OPTIONS IN LIFE INSURANCE

REQUISITES: •

A party knows a fact which he neglects to communicate or disclose to the other.

•

Such party concealing is duty bound to disclose such fact to the other.

(Cash surrender value) The amount that the insured, in

case of default, after the payment of at least three

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INSURANCE

•

Such party concealing makes no warranty as to the fact concealed.

•

The other party has not the ascertaining the fact concealed.

•

Material

means

Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter. Good Faith is not a defense in concealment. Sec. 27 clearly provides that, “the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance.”

Test of Materiality is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries Exception:

• • •

•

•

information to the insurer and induce him to enter into the insurance contract. They are considered an active form of concealment.

of

EFFECTS:

•

COMMERCIAL LAW

REQUISITES OF MISREPRESENTATION •

The insured stated a fact which is untrue.

•

Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead.

•

Such fact in either case is material to the risk.

CHARACTERISTICS •

It is not a part of the contract but merely a collateral inducement to it.

•

It may be oral or written.

•

It is made at the same time of issuing the policy or before but not after.

•

It may be altered or withdrawn before the insurance is effected but not afterwards.

•

It always refers to the date the contract goes into effect.

Incontestability clause Matters under Sec.110 (marine insurance)

The waiver of medical examination in a nonmedical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered19 The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make further inquiry.20

KINDS • •

Affirmative

Affirmation of a fact when the contract begins. Promissory

Promise to be performed after policy was issued.

EFFECT OF MISREPRESENTATION The injured party is entitled to rescind from the time when the representation becomes false. Test of Materiality: Same as that in concealment. •

2. MISREPRESENTATIONS/OMISSIONS Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give

Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for that purpose.21

19

Sunlife v. Sps. Bacani, 246 SCRA 268 Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002 20

21

Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469

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3. BREACH OF WARRANTIES Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.

PURPOSE To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property.

CONDITIONS Events signifying in its broadest sense either an occurrence or a non-occurrence that alters the previously existing legal relations of the parties to the contract. They may be conditions precedent or conditions subsequent. EFFECT OF BREACH: • Condition precedent - prevents the accrual of cause of action •

the insurer to rescind

KINDS •

•

Condition subsequent - avoids the policy or entitles

•

Express

An agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done. Implied

It is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel.

EFFECTS OF BREACH OF WARRANTY: Material - violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract.

The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.

Exceptions: Provisions that may specify excepted

perils. It makes more definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed. EFFECT Limit the coverage of the contract.

Exceptions:

•

Loss occurs before the time of performance of the warranty.

•

The performance becomes unlawful at the place of the contract.

•

Performance becomes impossible.

Immaterial - It will not avoid the policy. Exceptions: When the policy expressly provides or

declares that a violation thereof will avoid it

Warranty Part of the contract Written on the policy, actually or by reference

Representation Mere collateral inducement May be written in the policy or may be oral.

Presumed material

Must be material

Must be strictly complied with

Requires only substantial truth and compliance

proved

to

be

RESCISSION GROUNDS: • Concealment • Misrepresentation • Breach of material warranty • Breach of a condition subsequent WAIVER OF THE RIGHT TO RESCIND: Acceptance of premium payments despite the knowledge of the ground for rescission. LIMITATIONS ON THE RIGHT OF THE INSURER TO RESCIND: • Non-life- such right must be exercised prior to the commencement of an action on the contract; •

Life- such right must be availed of during the first two years from the date of issue of policy or its last reinstatement; prior to “incontestability.”

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•

CANCELLATION POLICY

OF

NON-LIFE

INSURANCE

Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a non-life policy.

•

•

GROUNDS: • Non-payment of premium;

•

•

Conviction of a crime out of acts increasing the hazard insured against;

•

•

Discovery of misrepresentation;

•

Discovery of willful or reckless acts of omissions increasing the hazard insured against;

fraud

or

material

•

Physical changes in property property uninsurable; and

•

Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code.

making

the

REQUIREMENTS: • Prior notice of cancellation to the insured; • •

•

Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy; Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the insurer must furnish facts on which the cancellation is based; Grounds should have existed effectivity date of the policy.

after

the

H. Claims Settlement and Subrogation Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured.22

Loss the proximate cause of which is the peril insured against Loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril Loss through negligence of insured except where there was gross negligence amounting to willful acts Loss caused by efforts to rescue the thing from peril insured agains If during the course of rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part

insurer is not liable • Loss by insured’s willful act • Loss due to connivance of the insured • Loss where the excepted peril is the proximate cause. •

Proximate Cause

An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred. REQUISITES FOR RECOVERY UPON INSURANCE • Insured must have insurable interest in the subject matter; •

Interest is covered by the policy;

•

Loss;

•

Loss must be proximately caused by the peril insured against.

1. NOTICE AND PROOF OF LOSS More or less formal notice given to the insurer by the insurer/claimant in the policy if the loss insured against occurred. •

Purpose: Apprise the insurer for it to gather information while the evidence is still fresh

•

Actual notice is sufficient. Formal notice is not necessary in case there’s actual notice.

Fire insurance Required Failure to give notice will defeat the right of the insured to recover.

Other types of insurance Not required Failure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so.

2. GUIDELINES ON CLAIMS SETTLEMENT Loss for which insurer is liable 22

Loss for which

The indemnification of the loss of the insured.

Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261

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TIME FOR PAYMENT OF CLAIMS Life Maturing upon the expiration of the term – The proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due.

Non-life The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss whether or not ascertainment is had or made.

b. PRESCRIPTION OF ACTION Rules:

•

In the absence of an express stipulation in the policy, it being based on a written contract, the action prescribes in 10 years.

•

However the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues.

Maturing at the death of the insured, occurring prior to the expiration of the term stipulated – The proceeds are payable to the beneficiaries within 60 days after presentation and filing of proof of death.

•

The cause of action accrues from the rejection of the claim of the insured and not from the time of loss.

•

It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be used against him is destroyed.24

•

•

In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident otherwise the claim is deemed waived. The suit for damages either with the proper court or with the Insurance Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise claimant’s right of action shall prescribe.

In case of an unreasonable delay in the payment of the insured’s claim by the insurer, the insured can recover: 1) attorney’s fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim.23

A. UNFAIR CLAIMS SETTLEMENT; SANCTIONS Any of the following acts by the insurance company, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices: (1)

(2)

Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue; Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

(3)

Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies; or

(4)

Compelling policy holders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them.

23

Zenith Insurance Corp. vs. CA, 185 SCRA 398

c. SUBROGATION Subrogation is a process of legal substitution. The insurer, after paying the amount covered by the insurance policy, steps in to the shoes of the insured and avails himself of the latter’s rights that exist against the wrongdoer at the time of loss. The insurer becomes entitled to recover from the wrongdoer the amount of the loss it may have paid to the insured. The Right of Subrogation stems from Art. 2207 of the Civil Code. Subrogation applies only to property insurance and non-life insurance.

Transfer of Policy Life Insurance

Can be transferred even without the consent of the insurer (except when there is a stipulation requiring the consent of the insurer before transfer). 24

Sun Insurance Office, Ltd. v. CA, 195 SCRA

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•

Reason: The policy does not represent a personal

COMMERCIAL LAW

•

Change in interest in one or more of several distinct things separately insured by one policy;

•

Change of interest, by will or succession, on the death of the insured;

•

Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others;

•

When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured;

•

When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.

agreement between the insured and the insurer.

Property insurance

It cannot be transferred without the consent of the insurer. •

Reason: The insurer approved the policy based on

the personal qualification and the insurable interest of the insured.

Casualty insurance

It cannot be transferred without the consent of the insurer. •

Reason: The moral hazards are as great as those

of property insurance.

Fire insurance

Not subject to assignment, being strictly a personal contract. •

Reason: Insurer is concerned with the moral

character of the insured.

Marine insurance

Risk WHAT MAY BE INSURED AGAINST: •

Future contingent event resulting in loss or damage (e.g., possible destruction of cargo)

•

Past unknown event resulting in loss or damage (e.g., fact of past sinking of a vessel unknown to the parties)

•

Contingent liability (e.g., reinsurance)

Not assignable without the consent of the insurer

CHANGE OF INTEREST IN THE THING INSURED •

The mere transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.

Risk

The chance of loss. If loss is certain to happen, no risk is involved.

Reason: Insurance contract is personal. Peril Purpose: To provide against changes which might give

a motive to destroy the property or might lessen the interest of the insured in protecting or guarding it. •

•

Therefore, the purchaser of the insured policy should obtain a transfer of the policy of insurance, if NOT then nobody can recover on the insurance policy in case the thing insured was purchased because the purchaser is not a party to the policy and the seller had no more insurable interest. Here, the insurance policy is not rendered void, it is merely SUSPENDED by a change of interest

A contingent or unknown event which may cause a loss. Its existence creates the risk. It can be covered or excluded by a policy. Ex. fires, floods, accident, etc. Hazard

The condition or factor, tangible or intangible, which may create or increase the chance of loss from a given peril. Physical hazards

Everything relating to location, structure, occupancy, exposure, etc (e.g., pile of papers, stored gasoline in the premises, unsafe brakes in the car).

Exceptions:

•

Life, health and accident insurance;

•

Change in interest in the thing insured after occurrence of an injury which results in a loss;

Moral hazards

Factors that involve mental attitudes in which appraisal of this hazard requires the study of the character of the person under

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INSURANCE

consideration in the light of his reputation (e.g., hazards created by dishonesty, insanity, carelessness) •

In practice, the terms are used interchangeably or may be given more than one meaning.

COMMERCIAL LAW

5. Accidental Nature Insurance is intended to cover fortuitous events. Intentional losses are uninsurable because they are against public policy. Other losses are commonly expected: wear and tear •

KINDS OF INSURABLE RISKS PERSONAL RISKS Involves a person, it is often divided into life and health risks and mainly concerned with the time of death or disability.

PROPERTY RISKS Involves loss or damage to property •

•

The above requirements are not absolute. Insurability is relative. What is insurable varies among insurers and may change over time.

Particular Kinds of Contracts of Insurance 1. MARINE INSURANCE

Direct losses

By fire, lightning, etc. offer a constant threat of loss on the property itself. Indirect losses

Involves loss of profits, rents, or favourable leases.

LIABILITY RISKS Involves liability for the injury to the person or property of others • occasioned by the law on liability (torts). •

also called third party risks because insurance is used to pay a “third party”, as agreed by the insurer and the insured.

•

includes bodily injury and property damage risks

Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. Coverage: Insurance against loss or damage to • Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation;

REQUIREMENTS FOR RISKS TO BE INSURABLE 1. Importance The loss should be important enough. An attempt to cover every small loss would increase the cost of protection.

•

2. Calculability Risk must be calculable, if not, it is impossible to determine the premiums. 3. Definiteness of Loss As to cause, time, place, amount. 4. No catastrophic loss When a large number of people are subject to the same kind of losses, it is an obvious deviation of the principle that losses of a few are borne by the contributions of many. Thus, war and political risks are often excluded. They may sometimes be shouldered by the State.

•

Persons or property in connection with marine insurance;

•

Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise; and

•

Bridges, tunnels, piers, docks and other aids to navigation and transportation.

Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not.25

MARINE PROTECTION INSURANCE

AND

INDEMNITY

Insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, 25

Roque v. IAC, 139 SCRA 596

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INSURANCE

illness or death or for loss of or damage to the property of another person.

COMMERCIAL LAW

charterer for the value of the vessel, in case of loss. Cargo owner

Over the cargo and expected profits

MAJOR DIVISIONS OF MARINE INSURANCE: 1. OCEAN MARINE INSURANCE Provides protection to property frequently exposed to loss while it is transportation form one location to another.

Charterer

Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage Charter Party

A contract by which an entire ship or some principal part thereof is lent by the owner to another person for a specified time or use.

Scope:

•

Ships or hulls;

•

Goods or cargoes;

•

Earnings such as freight, commissions, or profits;

•

Liability incurred by the owner or any party interested in or responsible for the insured property by reason of maritime perils.

passage

money,

TYPES: 1. Bare boat or demise charter The ship-owner turns over full possession and control of his vessel to the charterer, who then undertakes to provide a crew and victuals and supplies and fuel for her during the term of the charter. •

The charterer is treated as owner pro hac vice of the vessel, the charterer assuming in large measure the customary rights and liabilities of the ship-owner in relation to third persons who have dealt with him or with the vessel.

•

“Under the charterer’s direction”- master and crew then become agents and servants or employees of the charterer, and the charterer through the agency of the master, has possession and control of the vessel during the charter period.

2. INLAND MARINE INSURANCE Covers primarily the land or over the land transportation perils of property shipped by railroads, motor trucks, airplanes, and other means of transportation. CLASSES OF INLAND MARINE INSURANCE: a. Property in transit Provides protection to property frequently exposed to loss while it is transportation form one location to another. b. Bailee liability Insurance for those who have temporary custody of the goods. c. Fixed transportation property They are so insured because they are held to be an essential part of the transportation system such as bridges, tunnels, and other instrumentalities of transportation and communication d. Floater Provides insurance to follow the insured property wherever it may be located, subject always to the territorial limits of the contract.

INSURABLE INTEREST A. PARTIES IN THE CONTRACT OF INSURANCE Shipowner

Over the vessel to the extent of its value, except that if chartered, the insurance is only up to the amount not recoverable from the charterer.

2. Contract of affreightment The owner of the vessel leases part or all of its space to haul goods for others. It is a contract of special service to be rendered by the owner of the vessel who retains the possession, command and navigation of the ship, the character or freighter merely having use of the space in the vessel in return for the payment of the charter hire or freight. •

•

Voyage charter or trip charter

A contract for the carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series of voyages. Time charter

A contract for the use of a vessel for a specified period or for the duration of one or more specified voyages. What time charterer acquires is the right to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of the charter. •

The charterer is free from liability to third persons in respect to the ship.

Expected freightage

No insurable interest if he will be compensated by

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INSURANCE

B. IN LOANS ON BOTTOMRY AND RESPONDENTIA The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry since a loan on bottomry partakes of the nature of an insurance coverage to the extent of the loan accommodation • •

Owner/Debtor- difference between the value of vessel or goods and the amount of loan. Creditor/lender- amount of the loan

Loan on Bottomry

One which is payable only if the vessel given as security for the loan completes in safety the contemplated voyage. •

The same rule would apply to the hypothecation of the cargo by respondentia.

SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES •

All Risks Policy – insurance against all causes of conceivable loss or damage

Except:

• •

Otherwise excluded in the policy Due to fraud or intentional misconduct on the part of the insured

The insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage.26 •

•

•

Barratry Clause- provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the prejudice of the owner’s interest. (Roque vs. IAC, 139 SCRA 596) Inchamaree Clause- makes the insurer liable for loss or damage to the hull or machinery arising from the: • Negligence of the captain, engineers, crew • Explosions, breakage of shafts • Latent defect of machinery or hull. Sue and Labor Clause- clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such expenses as he may have incurred in his efforts

COMMERCIAL LAW

to protect the property against a peril for which the insurer would have been liable.

MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS •

National character of the insured;

•

Liability of the thing insured to capture or detention;

•

Liability to seizure from breach of foreign laws;

•

Want of necessary documents; and

•

Use of false or simulated papers.

DISTINCTIONS ON CONCEALMENT Marine Insurance

Other Property Insurance

The information of the belief or expectation of 3rd persons is material and must be communicated

The information or belief of a 3rd party is not material and need not be communicated unless it proceeds form an agent of the insured whose duty it is to give information Concealment of any material fact will vitiate the entire contract, whether or not the loss results for the risk concealed.

The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed

REPRESENTATION An intentionally false representation by a person insured by a contract of marine insurance in: • Any material respect; • •

In respect of any fact on which the character and nature of the risk depends

The general applicable.

rules

on

representation

are

EFFECT OF FALSE REPRESENTATION BY THE INSURED • Intentional – avoids the policy. •

Not intentional but the fact misrepresented is material to the risk – the insurer may rescind the contract from the time the representation becomes false.

26

Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638

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INSURANCE

•

IMPLIED WARRANTIES Seaworthiness of the ship at the inception of the insurance;

•

Against improper deviation;

•

Against illegal venture;

DEVIATION

•

Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted.

Departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.

Presence of insurable interest

While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer’s right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier.27

Seaworthiness

A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship’s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy. •

It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods.28

•

• •

COMMERCIAL LAW

The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage.

Instances:

• •

Departure of vessel from the course of the sailing fixed by mercantile usage. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile usage.

•

Unreasonable delay in pursuing voyage.

•

Commencement of an entirely different voyage.

KINDS: 1. Proper In case of loss, the insurer is still liable – • When caused by circumstances outside the control of the ship captain or ship owner;

2.

•

When necessary to comply with a warranty or to avoid a peril;

•

When made in good faith to avoid a peril;

•

When made in good faith to save human life or to relieve another vessel in distress.

Improper Every deviation not specified. And in case of loss or damage, the insurer is not liable.

Exceptions:

•

•

•

27

In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be seaworthy at the commencement of each particular voyage.

LOSS 1. TOTAL Actual • Total destruction;

In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion.

Delsan Transportation Lines vs. CA, 364 SCRA 24

•

Irretrievable loss by sinking;

•

Damage rendering the thing valueless; or

•

Total deprivation of owner of possession of thing insured. [Sec. 130]

Constructive -

28

Roque v. IAC, 139 SCRA 596

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•

Actual loss of more than ¾ of the value of the object;

•

Damage reducing value by more than ¾ of the value of the vessel and of cargo; and

•

Expense of transshipment exceed ¾ of value of cargo. [Sec. 131, in relation to Sec. 139]

•

In case of constructive total loss, insured may: • Abandon goods or vessel to the insurer and claim for whole insured value OR • Without abandoning vessel, claim for partial actual loss.

2. PARTIAL That which is not total.

COMMERCIAL LAW

destination. Exceptions: • After the separation of interests liable to contribution • When the insured has neglected or waived his right to contribution

FREE FROM PARTICULAR AVERAGE (FPA) CLAUSE A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured.

AVERAGE Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded.

General Has inured to the common benefit and profit of all persons interested in the vessel and cargo To be borne equally by all of the interests concerned in the venture. Requisites for the right to claim contribution: Common danger to the vessel or cargo; Part of the vessel or cargo was sacrificed deliberately; Sacrifice must be for the common safety or for the benefit of all; Sacrifice must be made by the master or upon his authority; It must be not be caused by any fault of the party asking the contribution; It must be successful, i.e. resulted in the saving of the vessel or cargo; and necessary.

Particular Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo. To be borne alone by the owner of the cargo or the vessel, as the case may be.

ABANDONMENT The act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured. REQUISITES FOR VALIDITY: • Actual relinquishment by the person insured of his interest in the thing insured; •

Constructive total loss;

•

Abandonment be neither partial nor conditional;

•

Must be made within a reasonable time after receipt of reliable information of the loss;

•

Factual;

•

Give notice thereof to the insurer which may be done orally or in writing;

•

Notice of abandonment must be explicit and must specify the particular cause of the abandonment.

EFFECTS: •

RIGHTS OF INSURED IN CASE OF GENERAL AVERAGE The insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or demand contribution from the other interested parties as soon as the vessel arrives at her

•

Transfer of Interest

Equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity. Transfer of Agency

Acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit.

If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which

LA SALLIAN COMMISION ON BAR OPERATIONS

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INSURANCE

COMMERCIAL LAW

may have come to the hands of the insured.

CO-INSURANCE •

•

A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. When the property is insured for less than its value, the insured is considered a co-insurer of the difference between the amount of insurance and the value of the property.

may also be waived expressly or impliedly by the insurer

MEASURE OF INDEMNITY

• REQUISITES: • Loss is partial. •

The amount of insurance is less than the value of the property insured. RULES: • Co-insurance applies only to marine insurance. •

There cannot be co-insurance in life insurance.

•

Co-insurance applies in fire insurance when expressly provided for by the parties.

Co-Insurance A percentage in the value of the insured property which the insured himself assumes to act as insurer to the extent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount of the insurance bears to the designated percentage of the full value of the property insured.

Reinsurance Situation where the insurer procures a 3rd party called the reinsurer to insure him against liability by reason of an original insurance. Basically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured.

PREREQUISITES TO RECOVERY: 1.

2.

Notice of loss Must be immediately given, unless delay is waived expressly or impliedly by the insurer Proof of loss According to best evidence obtainable. Delay

Open policy- only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury.

•

Valued policy- the parties are bound by the valuation, in the absence of fraud or mistake.

It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. The determination is important for 2 reasons: • Rules on constructive total loss and abandonment and co-insurance apply only to marine insurance. •

Rule on co-insurance applies to fire insurance only if expressly agreed upon.

DISTINCTIONS OF OCEAN MARINE AND FIRE POLICIES •

When considered as OCEAN marine insurance Policy on a vessel engaged in navigation, although it insures against fire risks only.

•

When considered as FIRE insurance : • When the hazard is fire alone and the subject is an unfinished vessel, which is not afloat for voyage. - In the absence of express agreement that it shall be a marine insurance policy.

2. FIRE INSURANCE A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire (including allied lines- loss by lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies).

•

•

When the policy insured materials in a shipyard for use in constructing vessel.

•

When it is a fire insurance policy, while a vessel is moored and in use as a hospital.

ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER REQUISITES: • Use or condition of the thing is specifically limited or stipulated in the policy. •

Such use or condition as limited by the policy is altered.

•

Made without the consent of the insurer.

•

Made by means within the control of the insured.

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INSURANCE

•

Increases the risk.

•

Violation of a policy provision.

COMMERCIAL LAW

•

In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the injured third party to whom the insured is liable. Prior payment by the insured to the third person is not necessary in order that the obligation may arise. The moment the insured becomes liable to third persons, the insured acquires an interest in the insurance contract which may be garnished like any other credit.29

•

Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisions applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the parties must be determined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law.

•

In burglary, robbery and theft insurance, the opportunity to defraud the insurer – the moral hazard – is so great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the hazard. Persons frequently excluded are those in the insured’s service and employment. The purpose of the exception is to guard against liability should theft be committed by one having unrestricted access to the property.30

FALL-OF-BUILDING CLAUSE A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease.

OPTION TO REBUILD CLAUSE A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any part thereof, instead of paying the amount of the loss or the damage. •

The insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specific performance because this is an obligation to do, not to give.

•

The remedy is Art. 1167. [NCC]

•

Insured not a co-insurer in fire insurance- in a usual contract of fire insurance, the insurer is required to give full indemnity for a partial loss up to the amount written in the policy, even though the property be very inadequately insured. (Unlike in marine insurance where the insured becomes a co-insurer as to the value of the thing not insure.

3. CASUALTY OR ACCIDENT INSURANCE Insurance covering loss or liability arising from accident or mishap, excluding those falling under other types of insurance such as fire or marine.

RIGHT OF A THIRD PARTY INJURED TO SUE THE INSURER 1.

Indemnity against liability A third party injured can directly sue the insurer.

2.

Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no cause of action against the insurer31

•

The insurer is not solidarily liable with the insured. The insurer’s liability is based on contract; that of the insured is based on torts. Furthermore, the insurer’s liability is limited by the amount of the insurance coverage.32

CLASSIFICATIONS: •

Accident or health insurance- insurance against specified perils which may affect the person and/or property of the insured (examples: personal accident, robbery/theft insurance).

•

Third party liability insurance- insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to or damage to property of others (examples: workmen’s compensation, motor vehicle liability).

Intentional

•

Insurable interest is based on the interest of the insured in the safety of persons, and their property, who may maintain an action against him in case of their injury or destruction, respectively.

Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the 29

Perla Comapnia de Seguro, Inc vs. Ramolete, 205 SCRA 487 Fortune Insurance vs. CA, 244 SCRA 208 31 Bonifacio Bros. v. Mora, 20 SCRA 261 32 Supra note 4 30

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COMMERCIAL LAW

policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieve from liability as stipulated.33

conveyed in and by a motor vehicle for transportation of passengers for compensation (including: persons expressly authorized by law or by the vehicle’s operator or his agents to ride without fare).

Accidental

Third Party

That which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen.

NO ACTION CLAUSE A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained against the insured; that only thereafter can the person injured recover on the policy.34

4. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI) Compulsory insurance that provides for protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. •

Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained35

•

It is the only compulsory insurance coverage under the Insurance Code.

•

It applies to all vehicles whether public and private vehicles.

Any person other than the passenger (excluding: member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, or his employee in respect of death or bodily injury arising out of and in the course of employment.

NO-FAULT CLAUSE A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for death or injury without the necessity of proving fault or negligence of any kind. PURPOSE Guarantee compensation or indemnity to injured persons in motor vehicle accidents. ESSENCE Provide victims of vehicular accidents or their heirs immediate compensation although in limited amount, pending final determination of who is responsible for the accident and liable for the victims injuries or death. RULES: • Total indemnity - maximum of P5,000. •

Proofs of loss • Police report of accident; •

Death certificate and evidence sufficient to establish proper payee;

•

Medical report and evidence of medical or hospital disbursement.

METHOD OF COVERAGE • • •

Insurance policy Surety bond Cash deposit

•

Claim may be made against one motor vehicle only.

•

Proper insurer from which to claim • Occupant: Insurer of the vehicle in which the occupant is riding, mounting or dismounting from;

CLAIMANTS: • •

Passenger 3rd party

Passenger

Any 33

fare-paying person

• being transported and

Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972 34 Guingona vs. Del Monte, 20 SCRA 1043 35 Shafer v. Judge, RTC, 167 SCRA 386

•

Other case: Insurer of the directly offending vehicle.

The claimant is not free to choose from which insurer he will claim the “no fault indemnity” as the law makes it mandatory that the claim shall lie against the insurer of the vehicle in which

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INSURANCE

the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying may recover against the owner of the vehicle responsible for the accident.36 •

This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000 and there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the excess. The first P5,000 shall be paid without regard to fault.

SPECIAL CLAUSES A. AUTHORIZED DRIVER CLAUSE • A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use of the insured vehicle to the insured himself or any person who drives on his order or with his permission [Villacorta v. Insurance Commissioner]. •

COMMERCIAL LAW

if it is executed by the surety as a vocation, and not incidentally. •

NATURE OF LIABILITY OF SURETY • • •

1.

The requirement that the person driving the insured vehicle is permitted in accordance with the licensing laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the person driving is other than the insured. 2.

Where the car is unlawfully and wrongfully taken without the owner’s consent or knowledge, such taking constitutes theft, and thus, it is the “theft clause” and not the “authorized driver clause that should apply.37

C. COOPERATION CLAUSE • A clause which provides in essence that the insured shall give all such information and assistance as the insurer may require, usually requiring attendance at trials or hearings.

Solidary Limited to the amount of the bond It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.

TYPES OF SURETY BONDS

B. THEFT CLAUSE • A clause which includes theft as among the risks insured against. •

Suretyship, especially in fidelity bonding, is thus treated like non-life insurance in some respects.

3.

Contract Bonds Bonds connected with construction and supply contracts. They are for the protection of the owner against a possible default by the contractor to comply with his contract or his possible failure to pay material men, laborers and subcontractors. •

Performance bond- covering the faithful performance of the contract

•

Payment bond- covering the payment of laborers and material men

Fidelity bonds Surety pays an employer for loss growing out of a dishonest act of his employee. •

Industrial bond- required by private employers to cover loss through dishonesty of employees.

•

Public official bond- required of public officers for the faithful performance of their duties and as a condition of entering upon the duties of their offices.

Judicial bonds Those which are required in connection with judicial proceedings. The purpose of requiring a litigant to furnish a judicial bond is to indemnify the adverse party against damages resulting from the proceeding.

5. SURETYSHIP An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. •

36 37

It is essentially a credit accommodation. However, it is considered an insurance contract Supra note 29 Palermo v. Pyramids Ins., 161 SCRA 677

Suretyship

Property insurance

Accessory contract 3 parties: surety, obligor and oblige Credit accommodation

Principal contract 2 parties: insurer insured Contract of indemnity

Surety can recover from principal Bond can be cancelled only with consent of obligee,

Insurer has no such right; only right of subrogation May be cancelled unilaterally either by

LA SALLIAN COMMISION ON BAR OPERATIONS

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27

INSURANCE

Commissioner or court Requires acceptance of obligee to be valid Risk-shifting device; premium paid being in the nature of a service fee

Surety Assumes liability as a regular party to the undertaking Primarily liable Not entitled to the benefit of exhaustion of the debtor’s assets Undertakes to pay if the principal does not pay

insured or insurer on grounds provided by law No need of acceptance by any third party Risk-distributing device; premium paid as a ratable contribution to a common fund

Guaranty Liability of the guarantor depends upon an independent agreement to pay if the primary debtor fails to do so Secondarily liable Has this right to have all the property of the debtor and legal remedies against the debtor first exhausted before he can be compelled to pay the creditor Undertakes to pay if the principal cannot pay

COMMERCIAL LAW

•

KINDS: • •

•

•

6. LIFE INSURANCE Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities.

PARTIES IN A LIFE INSURANCE •

Owner of the policy- one who has the power to name or change the beneficiary, to assign the policy (under certain conditions) cash it in for its surrender value, or use it as a collateral in obtaining a loan, and the obligation to pay the premiums.

•

Cestui que vie – person whose life is the subject of the policy.

•

Beneficiary – one to whom the proceeds are paid.

•

Minor as beneficiary in a contract of life, health or accident insurance – the judicial guardian, father, or mother may exercise, in behalf of said minor, any right under the policy, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. •

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

•

No need for court appointment or filing of a bond.

One person might occupy all 3 positions by naming his estate as beneficiary.

•

•

Ordinary Life, General Life or Old Line Policy

Insured pays a fixed premium every year until he dies. Surrender value after 3 years. Group Life

Essentially a single insurance contract that provides coverage for many individuals. Limited Payment Policy

insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. Endowment Policy

Pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. Term Insurance

Insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. Industrial Life

Life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener.

MORTGAGE REDEMPTION INSURANCE A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of the loan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance will be used to pay for his indebtedness to the lender assured and the deceased’s heirs will thereby be relieved from paying the unpaid balance of the loan.38

LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED 1.

Suicide Insurer is liable in the following cases: • If committed after two years from the date of the policy’s issue or its last reinstatement;

38

Great Pacific Life Assurance Corp. vs. Court of Appeals, 316 SCRA 677

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INSURANCE

•

•

If committed in a state of insanity regardless of the date of the commission unless suicide is an excepted peril. If committed after provided in the policy

a

shorter

period

Any stipulation extending the 2-year period is null and void. •

Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates against recovery as being more in consonance with public policy.

COMMERCIAL LAW

CASH SURRENDER VALUE As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of at least 3 full annual premiums, is entitled to receive if he surrenders the policy and releases his claims upon it.

Life Insurance Contract of investment Always a valued policy

2.

At the hands of the law (legal execution) It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy exception.

3.

Killing by the beneficiary The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. Exceptions:

• • •

Accidental killing; Self-defense; Insanity of the beneficiary at the time he killed the insured.

•

If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is other than the insured’s estate, the source of premiums would not be relevant.39

•

The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a creditor insures the life of his debtor.

IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE POLICY? •

If the designation of the beneficiary irrevocable, the beneficiary’s consent essential because of his vested right.

•

If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere expectancy to the proceeds.

39

is is

May be transferred or assigned to any person even if he has no insurable interest Consent of the insurer is not required to the validity of the assignment Insurable interest in the life or health of the person insured need not exist after the insurance takes effect or when the loss occurs (must exist only when the insurance takes effect, EXCEPT: if the insurance was taken by the creditor on the life of the debtor) Insurable interest need not have any legal basis The contingency that is contemplated (death) is a certain event, the only uncertainty being the time when it will take place The liability of the insurer to make payment is certain, the only uncertain element being when such payment must be made Although it may be terminated by the insured, it cannot be cancelled by the insurer. Usually a long term contract The loss to the beneficiary caused by the death of the insured can seldom be measured accurately in terms of cash value The beneficiary is under no obligation to prove actual financial loss as a result of the death of the insured in order to collect the insurance

Fire and Marine Insurance Contract of indemnity May be open or valued Transferee or assignee must have an insurable interest in the thing insured Such consent is essential in the assignment Insurable interest in the property insured must exist not only when the insurance takes effect but also when the loss occurs Insurable interest must have a legal basis The contingency insured may or may not occur Liability is uncertain because the happening of the peril insured against is uncertain May be cancelled by either party. Usually for a term of 1 year Such loss can generally be measured accurately The insured is required to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance

Variable Contract Any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values

Del Val v. Del Val, 29 Phil 534

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thereunder to vary so as to reflect investment results of any segregated portfolio of investment. •

Insurance Commissioner FUNCTIONS: 1. ADJUDICATORY/QUASI-JUDICIAL •

•

•

Exclusive original jurisdiction – Any dispute in the enforcement of any policy issued pursuant to Chapter VI (CMVLI). Concurrent original jurisdiction (with the RTC) – Where the maximum amount involved in any single claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime jurisdiction) OR Where the amount exceeds P100,000, the RTC has jurisdiction.

The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered into between an insurance company and its agent. The same is not covered by the term “doing or transacting insurance business” under Sec 2, ICP, neither is it covered by Sec. 416 of the same Code which grants the Commissioner adjudicatory powers.40

2. ADMINISTRATIVE/REGULATORY • • • • •

Enforcement of insurance laws Issuance, suspension or revocation of certificate of authority Power to examine books and records, etc. Rule-making authority Punitive

2. ADJUDICATORY OR QUASI-JUDICIALGENERALLY DESCRIBED IN SEC. 416. DUTIES AND FUNCTIONS OF THE INSURANCE COMMISSION 1. To insure the solvency of insurance companies; • Issue certificates of authority; • Suspend or revoke the certificates of authority; • Require insurance companies to keep books, records, accounts and vouchers; • Require the setting up of reserves; • Require the filing of annual statements; • Require adequate rates; • Pass upon and approve certain classes of investments; • Cause an examination, into the financial conditions of insurance companies; • Act as depository of securities; • See that no non-life insurance company shall retain any risk on any one subject of insurance in an amount exceeding 20% of its net worth; • Rehabilitate or liquidate insolvent insurance companies; and • Maintain and administer the P10million Security Fund as well as the Guaranty Fund. 2.

To assure fair trade practices of insurance companies and their agents; • Approve policy forms; • Require that rates be equitable and reasonable; • Adjudicate claims and complaints where the amount involved does not exceed P100,000 in any single claim; • Prohibit unfair claims settlement practices; and • Accept legal processes for foreign insurance companies without an agent.

3.

To assure reasonable insurance service; • License agents, brokers, adjusters, resident agents, non-life company underwriters, actuaries and rating organizations.

4.

To promote national interest; • Pass upon and approve investments of insurance companies’ funds to insure that technical reserves are invested locally; • Require insurance companies to increase their retention of local risks and/or reinsure locally before ceding to unauthorized

Insurance Commission Main agency charged with the enforcement of the Insurance Code and other related.

NATURE OF POWERS OF THE INSURANCE COMMISSION 1. REGULATORY OR NON-QUASI JUDICIALGENERALLY PROVIDED IN SEC. 414. •

40

The authority to issue, or refuse issuance of, a certificate of authority to a person or entity

Philippine American Life Insurance Co. v. Ansaldo, 234 SCRA 509

desiring to engage in insurance business in the Philippines; To revoke or suspend such certificate of authority upon a finding of the existence of statutory grounds for such revocation or suspension.

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•

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foreign companies whenever technically feasible; Pass upon and approve reinsurance treaties; and Pass upon remittances of reinsurance premium on risks ceded abroad and of claims for loss payable abroad.

LA SALLIAN COMMISION ON BAR OPERATIONS

COMMERCIAL LAW