Commercial Law Review 2 under Atty. Salao

BOJY NOTESCommercial Law Review 2 under Atty. Salao

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I. The Insurance Code (P.D. 612)

1. History of Insurance Law in the Philippines2. Contract of Insurance (Sec. 3 5)

a. Travellers Insurance & Surety Corporation v. Hon. Court of Appeals, G.R. No. 82036, May 22, 1997

2.1 Rules on construing Insurance Code2.2 Rules on construing Insurance Policy

3. Elements of an Insurance Contract

a. Gulf Resorts, Inc. v. Philippine Charter Insurance Corp.. G.R. No. 156167, May 16, 2005

4. Characteristics of Insurance Contracts

a. New World International Dev. (Phils), Inc. v. NYK-FilJapan Shipping Corp., G.R. No. 171468, August 24, 2011

5. Doing an Insurance Business

a. White Gold Marine Services, Inc. v. Pioneer Insurance and Surety Corp., G.R. No. 154514, July 28, 2005

5.1 Principle of subrogation

6. Public interest in the Insurance Business

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

7. Insurance versus Health Maintenance Organizations (HMOs)

a. Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009

8. Parties to the contract of insurance (Sec. 6-9)

a. Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009

II. The Contract of Insurance

1. What may be insured (Sec. 3 - 5)

a. Philamcare Health Systems Inc. v. Court of Appeals, G.R. No. 125678, March 18, 2002 1.1 Insurance distinguished from gambling

2. Parties to the Contract (Sec. 6 9)

2.1. Sec. 54 General Banking Law 2.2. Control Test on Corporations 2.3 Proper party to file action 2.4 Types of Mortgage Clauses

Cases:

a. Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Company, G.R. NO. 166245, April 9, 2008

b. Filipinas Compaa De Seguros vs. Christern, Huenefeld And Co.,Inc., G.R.No. L-2294, May 25, 1951

c. Constantino v. Asia Life Insurance Company, G.R. No. 1669, August 31, 1950 d. Great Pacific Life Assurance v. Court of Appeals, G.R. No. 113899, October 13, 1999

3. Insurable Interest (Sec. 10 - 25)

3.1 Types of beneficiaries 3.2 Rights of beneficiaries 3.3 Persons disqualified to be beneficiaries

Cases:

a. Heirs of Loreto C. Maramag represented by surviving spouse Vicente Pangilinan Maramag v. Eva Verna De Guzman Maramag, et al, G.R. No. 181132, June 5, 2009

b. Violeta Lalican v. The Insular Life Assurance Company, Limited, G.R. No. 183526, August 25, 2009

c. Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8, 2006

d. The Insular Life Assurance Company, Ltd. vs. Ebrado, G.R. No. L-44059, October 28, 1977

e. Sing vs. Feb Leasing & Finance Corporation G.R. No. 168115, June 8, 2007

DEVICES FOR ASCERTANING AND CONTROLLING RIK AND LOSS4 primary concerns of the Insurer (EDCA)1. Correct estimation of risk which enables insurer to determine if he will approve the policy application and if so at what premium rate (Concealment and Representation)2. Precise Delimitation of the risk which determines the extent of the contingent duty to pay undertaken by the insurer (Exception)3. Control of risk to guard against increase of risk (Warranties and Conditions)4. Determine if loss occurs, and if so, the amount thereof. (Condition) Devices Used for Ascertaining and controlling risks and loss: (CREW-C)1. CONCEALMENT (Sec. 26 35)SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment. SEC. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. Effect of concealment. Remedy of insurer is rescission.Important Notes:a. The party claiming the existence of concealment must prove that there was knowledge of the fact concealed on the part of the party charged with concealment.b. Good faith is not a defense in concealment (sec27)c. The matter concealed need not be the cause of loss.d. To be guilty of concealment, a party must have knowledge of the fact concealed at the time of the effectivity of the policy.e. Failure to communicate information acquired AFTER the effectivity of the policy will NOT be a ground to rescind the contract.Reason: Information is no longer material as it will no longer influence the other party to enter into such contract.SEC. 28. Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining. - DutiesSEC. 29. An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. When can an insurer rescind.Matters that need not be disclosed: (KOWEE)SEC. 30. Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other:(a) Those which the other knows;(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant;(c) Those of which the other waives communication;(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and(e) Those which relate to a risk excepted from the policy and which are not otherwise material.Note: Neither party is bound to communicate, even upon inquiry, information of his own judgment.The parties are bound to know all the general causes which are open to his inquiry, equally with the other, and all general usages of trade.The right to information of material facts may be waived:a. By the terms of the contract;b. By failure to make an inquiry as to such facts, where they are distinctly implied in other facts from which information is communicated.Matters that must be disclosed even in the absence of inquiry: (M-No means-No war)a. Those material to the contract. (sec. 31, 24, 25)b. Those which the other has no means of ascertaining (Sec.30, 32, 33)c. Those as to which the party with the duty to communicate makes no warranty. (secs. 67-76)Test of MaterialitySEC. 31. Materiality is to be 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 disadvantages of the proposed contract, or in making his inquiries.Distinguished from Materiality in Marine Insurance:Rules on concealment are stricter, due to the difference in the character of the property, and the greater facility the insurer possesses in obtaining information as to its conditions and surrounding circumstances which are often insured when absent or afloat.Thus, in addition to material facts, each party must disclose ALL the information he possesses which are material to the information of the belief or expectation of a third person, in reference to a material fact.As a general rule, the fact of concealment on the part of the insured gives the insurer the right to rescind the contract of insurance. BUT a concealment in a marine insurance in any of the following matters enumerated under SEC.110, does not vitiate the entire contract, the insurer is exonerated only if the facts concealed is the cause of the loss. If the cause is something else, the insurer will still be liable. SEC. 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade.SEC. 33. The right to information of material facts may be waived, either by the terms of insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.SEC. 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by Section 51.SEC. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.Requisites:1. A party knows a fact (a material fact which he neglects to communicate or disclose to the other party;2. Such party concealing is duty bound to disclose such fact to the other party;3. Such party concealing makes no warranty as to the fact concealed; and4. The other party has no means of ascertaining the fact concealed. Cases: a. Vda. De Canilang vs. Court of Appeals, G.R. No. 92492, June 17, 1993Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the face value of P19,700.On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured had concealed material information from it.Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as far as she knows her husband was not suffering from any disorder and that he died of kidney disorder.Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no intentional concealment on the Part of Canilang and that Grepalife had waived its right to inquire into the health condition of the applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance application. CA reversed.

Issue:Whether or not Grepalife is liable.Held:SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the relevant provisions of the Insurance Code, the information concealed must be information which the concealing party knew and "ought to [have] communicate[d]," that is to say, information which was "material to the contract.

The information which Canilang failed to disclose was material to the ability of Grepalife to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Grepalife would have made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage.

The materiality of the information withheld by Canilang from Grepalife did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom the communication should have been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance; that "probable and reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978.

b. Sunlife Assurance Company of Canada vs. Court of Appeals, G.R. No. 105135, June 22, 1995Facts: Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed was not the cause of death of the insured and that matters relating to the medical history of the insured is deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy. Issue: Whether or not the concealment of such material fact, despite it not being the cause of death of the insured, is sufficient to render the insurance contract voidable Held: YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining. Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. The SC, therefore, ruled that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code. WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

c. Ng Gan Zee v. Asian Crusader Life Assurance Corp., G.R. No. 30685, May 30, 1983Facts: In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee as the beneficiary. He stated in his application that he was operated on for tumor of the stomach associated with ulcer. In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of alse information. It was found that prior to his application, Kwong was diagnosed to have peptic ulcers, and that during the operation what was removed from Kwongs body was actually a portion of the stomach and not tumor.

Issue: Whether or not the contract may be rescinded on the ground of the imperfection in the application form.

Held: NO. Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His statement therefore was made in good faith. Asian should have made an inquiry as to the illness and operation of Kwong when it appeared on the face of the application that a question appeared to be imperfectly answered. Asians failure to inquire constituted a waiver of the imperfection in the answer.

d. Saturnino v. The Philippine American Life Insurance Company, G.R. No. 16163, February 28, 1963Representation Concealment Misrepresentation FraudFacts: In September 1957, Estefania Saturnino was operated for cancer in which her right breast was removed. She was advised by her surgeon that shes not totally cured because her cancer was malignant. In November 1957, she applied for an insurance policy under Philamlife (Philippine American Life Insurance Company). She did not disclose the fact that she was operated nor did she disclose any medical histories. Philamlife, upon seeing the clean bill of health from Estefania waived its right to have Estefania undergo a medical checkup. In September 1958, Estefania died of pneumoniasecondaryto influenza. Her heirs now seek to enforce the insurance claim.Issue:Whether or not Saturnino is entitled to the insurance claim.Held:No. The concealment of the fact of the operation is fraudulent. Even if, as argued by the heirs, Estefania never knew she was operated for cancer, there is still fraud in the concealment no matter what the ailment she was operated for. Note also that in order to avoid a policy, it is not necessary that actual fraud be established otherwise insurance companies will be at the mercy of any one seeking insurance.In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as negligence to communicate that which a party knows and ought to communicate.Also, the fact that Philamlife waived its right to have Estefania undergo a medical examination is not negligence. Because of Estefanias concealment, Philamlife considered medical checkup to be no longer necessary. Had Philamlife been informed of her operation, she would have been made to undergo medical checkup to determine her insurability.

e. Edillon v. Manila Bankers Life Insurance Corp., G.R. No. 34200, September 30, 1982Facts: In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The policy was thereafter issued. Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary claimed the proceeds of the insurance. Manila Bankers refused to pay because the certificate of insurance contained a provision excluding its liability to pay claims to persons under 16 or over 60.

Issue: Whether or not the policy is void considering that the insured was over 60 when she applied.

Held: NO. The age of Carmen was not concealed to the insurance company. Her application form indicated her true age. Despite such information, Manila Bankers accepted the premium and issued the policy. It had all the time to process the application and notice the applicants age. If it failed to act, it was because Manila Bankers was willing to waive such disqualifications or it simply overlooked such fact. It is therefore estopped from disclaiming any liability.

f. Philamcare Health Systems, Inc. v. Court of Appeals, G.R. No. 125678, March 18, 2002Facts: Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the question Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?, Ernani answered No. Under the agreement, Ernani is entitled to avail of hospitalization benefits and out-patient benefits. The coverage was approved for a period of one year from March 1, 1988 to March 1, 1989. The agreement was however extended yearly until June 1, 1990 which increased the amount of coverage to a maximum sum of P75,000 per disability.During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month. While in the hospital, his wife Julita tried to claim the benefits under the health care agreement. However, the Philamcare denied her claim alleging that the agreement was void because Ernani concealed his medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, Julita paid for all the hospitalization expenses.After Ernani was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.Julita filed an action for damages and reimbursement of her expenses plus moral damages attorneys fees against Philamcare and its president, Dr. Benito Reverente. The Regional Trial court or Manila rendered judgment in favor of Julita. On appeal, the decision of the trial court was affirmed but deleted all awards for damages and absolved petitioner Reverente. Hence, this petition for review raising the primary argument that a health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code does not apply.

Issue: Whether or not there is concealment of material fact made by Ernani

Held: NO. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment are called for answers made I good faith and without intent to deceive will not avoid a policy even though they are untrue.The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or wherever he avails of the covered benefits which he has prepaid.Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements.

g. Ma. Lourdes S. Florendo v. Philam Plans, Inc., Perla Abcede and Ma. Celeste Abcede, G.R. No. 186983, February 22, 2012Facts: Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) Manuel signed the application and left to Perla the task of supplying the information needed in the application. Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales counselor. Philam Plans issued Pension Plan Agreementto Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums. Eleven months later, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her husbands plan but Philam Plans declined her claim prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC) of Quezon City and ruled in favor of Ma. Lourdes. However, the Court of Appeals then reversed the RTC decision. Hence this appeal.

Issue: Whether or not Ma. Lourdes could claim benefits as the beneficiary of her husband under the insurance plan despite consideration that her husband Manuel concealed the true condition of his health.

Held: The Supreme Court answers this to the negative and the AFFIRMED in its entirety the decision of the Court of Appeals.The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:

VIII. INCONTESTABILITYAfter this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request for reinstatement. The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance.Since Manuel died on the eleventh month following the issuance of his plan,the one year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes entitlement to the benefits of her husbands pension plan.

5. REPRESENTATION (Sec. 36 - 48) SEC. 36. A representation may be oral or written.SEC. 37. A representation may be made at the time of, or before, issuance of the policy.SEC. 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.SEC. 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.SEC. 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.SEC. 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.SEC. 42. A representation must be presumed to refer to the date on which the contract goes into effect.SEC. 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.SEC. 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.SEC. 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false.SEC. 46. The materiality of a representation is determined by the same rules as the materiality of a concealment.SEC. 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.SEC. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is voidab initioor is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.Kinds:1. Affirmative an affirmation of fact existing when the contract begins2. Promissory statement by the insured concerning what is to happen during the term of the insurance.Requisites of a False Representation:1. The insured stated a fact which is untrue;2. 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.3. Such fact in either case is material to the risk

Although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry.

Test of materiality same as concealment. (Sec. 31)

Effects of Misrepresentation:1. The injured party entitled to rescind from the time when the representation becomes false. (Sec. 45)2. When the insurer accepted the payment of premium with the knowledge of the ground for rescission, there is a waiver of such right. 3. There is no waiver of the right of rescission if the insurer had no knowledge of the ground therefor at the time of acceptance of premium payment. Characteristics of misrepresentation:1. Not a part of the contract but merely a collateral inducement of it;2. Oral or written; 3. Made at the time of, or before issuing the policy and not after;Exception: The insured wants the insurer to make a modification of the policy. 4. Altered or withdrawn before the insurance is effected but not afterwards;5. Refers to the date the contract goes into effect.ConcealmentMisrepresentation

Act Involved

The insured withholds information of material facts from the insurer.The insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract

Materiality

Same rules apply to determine materiality

Effect

Same effect and gives the insurer the right to rescind the contract, whether the concealment or misrepresentation be intentional or not.

Note: where the insurer merely signed the application form and made the agent of the insured file the same for her, it was held by doing so, the insured made the agent of the insurer her own agent. Promissory representation - is a representation about what will be done in the future. For example, a representation made by an insured about what will happen during the time of coverage, stated as a matter of expectation and amounting to an enforceable promise.Statement of belief or expectation if it is outside the matters which the policyholder could be expected to know about.

THE POLICY (Sec. 49 66)SEC. 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance.Note: An insurance contract may be verbal or in writing, or partly in writing and partly verbal. However, the law provides that no policy of insurance shall be issued or delivered unless in the form previously approved by the insurance commission. (226)

Contents of Policy:1. Parties2. Amount of insurance, except in open or running policies;3. Rate of premium4. Property of the life insured;5. Interest of the insured in the property if he is NOT the absolute owner;But he is the absolute owner, information of the nature or amount of his interest need not be communicated unless in answer to an inquiry. (Sec. 34)6. Risk Insured against7. Duration of the insuranceSEC. 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent provisions of Republic Act No. 8792, otherwise known as the Electronic Commerce Act and to such rules and regulations as may be prescribed by the Commissioner.SEC. 51. A policy of insurance must specify:(a) The parties between whom the contract is made;(b) The amount to be insured except in the cases of open or running policies;(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;(d) The property or life insured;(e) The interest of the insured in property insured, if he is not the absolute owner thereof;(f) The risks insured against; and(g) The period during which the insurance is to continue.SEC. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.Cover notes may be extended or renewed beyond such sixty (60) days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.SEC. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.SEC. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.SEC. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him, can claim the benefit of the policy.SEC. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.SEC. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.SEC. 59. A policy is either open, valued or running.SEC. 60. An open policy is one in which the value of the thing insured is not agreed upon, and the amount of the insurance merely represents the insurers maximum liability. The value of such thing insured shall be ascertained at the time of the loss. (as amended an open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss.)SEC. 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.SEC. 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.SEC. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one (1) year from the time when the cause of action accrues, is void.SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:(a) Nonpayment of premium;(b) Conviction of a crime arising out of acts increasing the hazard insured against;(c) Discovery of fraud or material misrepresentation;(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;(e) Physical changes in the property insured which result in the property becoming uninsurable;(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or (Added in the amendment)(g) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, or to his broker provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf, (added in the amendment) and shall state:(a) Which of the grounds set forth in Section 64 is relied upon; and(b) That, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.SEC. 66. In case of insurance other than life, unless the insurer at least forty-five (45) days in advance of the end of the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one (1) year shall be considered as if written for a term of one (1) year. Any policy written for a term longer than one (1) year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one (1) year.

Rider, clause, warranty or endorsement An attachment to an insurance policy that modifies the conditions of the policy expanding or restricting its benefits or excluding certain conditions from the coverage.Requisites:1. The rider clause, warranty or endorsement is attached in the policy.2. The descriptive title or name of the RCWE is mentioned and written on the blank spaces provided in the original printed policy form; and3. If not applied for by the insured or owner, the RCWE shall be countersigned by the insured.Counter-signature of the insured on a RCWEIf the RCWE was issued SIMULTANEOUSLY with the policy, the counter-signature of the insured is NOT necessary. However, the descriptive title or name of the rider must be written on the blank spaces provided in the policy.The RCWE was issued AFTER the issuance of the policy;If the insured applied for the RCWE, his counter-signature is NOT necessary;If the same is not applied for by the insured, RCWE shall be countersigned by the insured or owner.Note: When the requirements for a rider are complied with, it is considered as part of the policy.

Xxx any RCWE pasted or attached to the policy is considered part of such policy or contract of insurance.

Rule in case of conflict between rider and printed stipulation in the policyWhen there is an inconsistency 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. This principle applies to the interpretation of clauses, warranties, or indorsements which are attached to policies to vary their terms.

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

Cover Note (Ad Interim)A concise and temporary written contract issued by 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.

Rules on Cover Notes:1. The cover note is valid for 60 days after which the policy must be issued.2. The period may be extended or renewed beyond 60 days with the written approval of the Commissioner if he determines that such extension is not contrary t and is not for the purpose of violating any provisions of the Code. The approval of the Insurance Commissioner may be dispensed with upon the certification of the president, vice-president, or general manager of the insurance company concerned that the risk involved, the values of such risks and/or the premiums therefor has not yet been determined or established, or such extension or renewal is not contrary to and is not for the purpose of violating any provisions of the insurance code, or of any rulings, instructions, or circulars of the insurance commissioner. 3. No separate premiums are intended or required to be paid on a cover note because cover notes do not contain particulars of the property insured that would serve as basis for the computation of premiums. Thus, no premium could be fixed and paid on the cover note.4. Cover notes could not be treated as separate policies but should be integrated to the regular policies subsequently issued so that the premiums on the regular policies include the consideration for the cover note. Kinds of Insurance Policies:1. Open Policy one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. (sec60)2. Valued Policy one which expresses on its face agreement that the thing insured shall be valued at a specified sum. (sec61)3. Running Policy One which contemplates successive Insurances and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or endorsements. (Sec62)GR: The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made. A third person may not sue the insurer directly. Exc: If the insurance contract was intended to benefit third persons, the latter may directly claim from the insurer. Thus:1. If the insurance contract contain some stipulation in favor of a third person (Stipulation Pour Autrui), the latter although not a party to the contract may enforce the stipulation in his favor before it is revoked by the contracting parties.2. A Third person has no right in law or equity to the proceeds of an insurance unless there is a contract or trust, express or implied, between the insured and third person. 3. Were the contract insurance provides for indemnity against liability to third persons, then third persons, to whom the insured is liable, cans sue the insurer. Insurance Procured by an AgentThe insurance inured o the benefit of the principal.Requisites:1. Agent must be authorized;2. Must act within the scope of his authority3. Must disclose his principal4. Indicate by appropriate words that he is acting in a representative capacity.Test to determine whether a third person may directly sue the insurer of the WrongdoerWhere the contract provides for INDEMNITY AGAINST LIABILITY to third persons, then the latter to whom the insured is liable, can directly sue the insurer. On the other hand, where the insurance is for INDEMNITY AGAINST ACTUAL LOSS OR PAYMENT, then third persons cannot proceed against the insurer the contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons, said third persons recourse being, thus limited to the insured alone. (Guingon vs del monte)Cancellation of Non-life PolicyThe right of the insurer to cancellation of a policy of insurance other than life is covered by sec.64 and 65 of the insurance code.Requisites (WANG):1. Prior notice of cancellation to the insured;2. Notice must be based on the occurrence after the effective date of the policy of one or more of the grounds mentioned;3. Notice must be in writing, mailed or delivered to the insured at the address shown in the policy.4. Notice must sate the grounds relied upon provided in sec. 64 of the insurance code and upon request tof the insured to furnish facts on which cancellation is made.Grounds:1. Non-payment of premiums2. Conviction of a crime out of acts increasing the hazard insured against3. Fraud or material misrepresentation4. Willful or reckless acts or omissions increasing the risk insured against;5. Physical changes in the property insured making it uninsurable6. Determination by the Insurance Commissioner that the policy would violate the Insurance Code.Group insurance - aninsurancethat covers a defined group of people, for example the members of a society or professional association, or the employees of a particular employer. Group coverage can help reduce the problem ofadverse selectionby creating a pool of people eligible to purchase insurance who belong to the group for reasons other than the wish to buy insurance, which might be because they are a worse than average risk.Group insurance may offer life insurance, health insurance, and/or some other types of personal insurance.

Group annuity - A groupannuitycontract is issued by a life insurance company to a tax-qualified retirement plan.In group annuities, employees do not own shares of specific funds, but own "units" in the underlying pooled investment. Because of their structure, group annuity investments are not considered to be "securities" and are therefore not subject to the uniform disclosure rules ofFINRA(formerly the NASD).There are two primary fees that group annuities charge: the "contract charge" (or "administrative fee") and "separate account fee." The contract charge is the cost of operating the group annuity, and includes the insurance agent's commissions. The separate account fee goes to the management of the underlying investment. This fee is on top of the expenses of the underlying investment.All group annuity contracts also offer the right for plan participants to purchase annuities.

BREACH OF..1. WARRANTIES:SEC. 67. A warranty is either expressed or implied.SEC. 68. A warranty may relate to the past, the present, the future, or to any or all of these.SEC. 69. No particular form of words is necessary to create a warranty.SEC. 70. Without prejudice to Section 51, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it.SEC. 71. A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as fact, is an express warranty thereof.SEC. 72. A statement in a policy, which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place.SEC. 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.SEC. 74. The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.SEC. 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.SEC. 76. A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.

Purpose: to eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change of the condition of the property,Basis: the insurer took into consideration the condition of the property at the time of effectivity of the policy.Kinds: 1. 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. 2. Implied it is deemed included in the contract although not expressly mentioned.Example: in marine insurance, seaworthiness of the vessel, non-deviation from the agreed voyage or non-indulgence in illegal ventures.Effects of breach of warranty:1. Material GR: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (sec. 74)Exc: a. Loss occurs before the time arrives for the performance of the warranty;b. the performance becomes unlawful at the place of the contract; andc. performance becomes impossible (Sec.73)2. Immaterial (e.g.) Other insurance clauseGR: it will not avoid the policyExc: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)WarrantyRepresentation

Nature

Part of the contractMere collateral inducement

Form

Written on the policy, actually or by referenceMay be written in the policy or may be oral

Materiality

Presumed materialMust be proved to be material

Compliance

Must be strictly complied withRequires only substantial truth and compliance

Effect of falsity/non-fulfillment

Falsity or non-fulfillment operates as a breach of contractFalsity renders he policy void on the ground of fraud

2. CONDITIONSEffect of Breach: 1. Condition precedent Prevents the accrual of cause of action2. Condition Subsequent Avoids the policy or entitles the insurer to rescind.The insurer may also protect himself against fraudulent claims of loss by inserting 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.ConditionWarranty

Effects

Limitation to the attachment of the riskDoes not have that effect

Non-performance of which, although in form executed by the parties and delivered, doe not spring into life.Does not suspend or defeat the operation of the contract.

The occurrence of breach temporarily renders the entire contract voidable

Exceptions: Provisions that may specify excepted perils. It makes more definite coverage indicated by the general description of the risk by excluding certain specified risks that otherwise would be included under the general language describing the risk assumed.An Insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. Note: Breach of warranty or condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.Grounds: 1. Concealment2. False Representation3. Breach of material warranty4. Breach of a condition subsequent5. Alteration of the thing insuredRescission in non-life policyThe insurer must exercise the right to rescind the contract BEFORE the insured has filed an action to collect the amount of insurance.A defense to an action to recover insurance that the policy was obtained through false representation, fraud and deceit is NOT in the nature of an action to rescind and therefore not barred by the provision. (Sec. 45)There is no limit for interposing this defense. Rescission in life policyThe defenses mentioned are available only during the first two years of a life insurance policy, provided that after a policy of insurance made payable on the death of the insured shall gave been in force during the lifetime of the insured for a period of 2 years from the date of its issue or its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by the reason of fraudulent concealment or misrepresentation of the insured or his agent. (Incontestability clause) (sec.48)

Purpose of Incontestability clause:To assure that after the specified period, the policy owner may rely upon the insurance company to carry out the terms of the contract, regardless of irregularities in connection with the application which may later be discovered.Requisites:1. It must be a life insurance policy;2. It must be payable on the death of the insured and3. It must be in force during the lifetime of the insured for atleast 2 years from its date of issue or its last reinstatement.The period of two years may be shortened but it cannot be extended by stipulation.The Incontestability clause precludes the insurer from raising the defense of false representations or concealment of material facts insofar as health and previous diseases are concerned. If the insurance has been in force for at least two years during the insureds lifetime.

Defenses not barred by Incontestability clause:1. That the person taking the insurance lacked insurable interest as required by law;2. That the cause of the death of the insured is an excepted risk;3. That the premiums have not been paid;4. That the conditions of the policy relating to military or naval service have been violated.5. That the fraud is of a particular vicious type;6. That the beneficiary failed to furnish proof of death or to comply with any conditions imposed by the policy after the loss has happened.7. That the action was not brought within the time specified.

Cases:

a. The Insular Life Assurance Company, Ltd. v. Feliciano, G.R. No. 47593, December 29, 1943Facts: Evaristo Feliciano was issued aninsurancepolicy by Insular Life. In September 1935, he died. His heirs (Serafin Feliciano et al) filed aninsuranceclaim but Insular Life denied the application as it averred that Felicianos application was attended by fraud. It was later found in court that theinsuranceagent and the medical examiner of Insular Life who assisted Feliciano in signing the application knew that Feliciano was already suffering from tuberculosis; that they were aware of the true medical condition of Feliciano yet they still made it appear that he was healthy in theinsuranceapplication form;that Feliciano signed the application in blank and the agent filled the information for him.

Issue:Whether or not Insular Life can avoid theinsurancepolicy by reason of the fact that its agent knowingly and intentionally wrote down the answers in the application differing from those made by Feliciano hence instead of serving the interests of his principal, acts in his own or anothers interest and adversely to that of his principal.

Held:No. Insular Life must pay theinsurancepolicy. The weight of authority is that if an agent of the insurer, after obtaining from an applicant forinsurancea correct and truthful answer to interrogatories contained in the application forinsurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on the policy, and this is true generally without regard to the subject matter of the answers or the nature of the agents duties or limitations on his authority, at least if not brought to the attention of the applicant.The fact that the insured did not read the application which he signed, is not indicative of bad faith. It has been held that it is not negligence for the insured to sign an application without first reading it if the insurer by its conduct in appointing the agent influenced the insured to place trust and confidence in the agent.

b. Saturnino v. The Philippine American Life Insurance Company, G.R. No. 16163, February 28, 1963 Representation Concealment Misrepresentation FraudFacts: In September 1957, Estefania Saturnino was operated for cancer in which her right breast was removed. She was advised by her surgeon that shes not totally cured because her cancer was malignant. In November 1957, she applied for an insurance policy under Philamlife (Philippine American Life Insurance Company). She did not disclose the fact that she was operated nor did she disclose any medical histories. Philamlife, upon seeing the clean bill of health from Estefania waived its right to have Estefania undergo a medical checkup. In September 1958, Estefania died of pneumoniasecondaryto influenza. Her heirs now seek to enforce the insurance claim.

Issue:Whether or not Saturnino is entitled to the insurance claim.

Held:No. The concealment of the fact of the operation is fraudulent. Even if, as argued by the heirs, Estefania never knew she was operated for cancer, there is still fraud in the concealment no matter what the ailment she was operated for. Note also that in order to avoid a policy, it is not necessary that actual fraud be established otherwise insurance companies will be at the mercy of any one seeking insurance.In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as negligence to communicate that which a party knows and ought to communicate.Also, the fact that Philamlife waived its right to have Estefania undergo a medical examination is not negligence. Because of Estefanias concealment, Philamlife considered medical checkup to be no longer necessary. Had Philamlife been informed of her operation, she would have been made to undergo medical checkup to determine her insurability.

c. Edillon v. Manila Bankers Life Insurance Corporation, G.R. No. 34200, September 30, 1982Facts: In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The policy was thereafter issued. Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary claimed the proceeds of the insurance.Manila Bankers refused to pay because the certificate of insurance contained a provision excluding its liability to pay claims to persons under 16 or over 60.

Issue: Whether or not the policy is void considering that the insured was over 60 when she applied.

Held: NO. The age of Carmen was not concealed to the insurance company. Her application form indicated her true age. Despite such information, Manila Bankers accepted the premium and issued the policy. It had all the time to process the application and notice the applicants age. If it failed to act, it was because Manila Bankers was willing to waive such disqualifications or it simply overlooked such fact. It is therefore estopped from disclaiming any liability.

PREMIUM (Sec. 77 84)SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy.(added)

SEC. 78. Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities, and government-owned or -controlled corporations, may pay their insurance premiums and loan obligations through salary deduction:Provided, That the treasurer, cashier, paymaster or official of the entity employing the government employee is authorized, notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make deductions from the salary, wage or income of the latter pursuant to the agreement between the insurer and the government employee and to remit such deductions to the insurer concerned, and collect such reasonable fee for its services.- (Added provision)

SEC. 79. An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

SEC. 80. A person insured is entitled to a return of premium, as follows:(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued:Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

SEC. 81. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.

SEC. 82. A person insured is entitled to a return of the premium when the contract is voidable, and subsequently annulled under the provisions of the Civil Code(added); or on account of the fraud or misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the insured was ignorant of without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a claim is denied by reason of fraud.

SEC. 83. In case of an over insurance by several insurers other than life, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

SEC. 84. An insurer may contract and accept payments, in addition to regular premium, for the purpose of paying future premiums on the policy or to increase the benefits thereof. (Added provision)

GR: Cash and Carry Rule no insurance policy issued or renewal is valid and binding until actual payment of the premium. Any agreement ot the contrary is void. (Sec77)Reason: the insurer upon issuance of the policy, is immediately exposed to liability for the risks insured against, hence it is entitled to be paid premium for extending protection to the insured immediately upon such exposure.Exceptions:1. In case of life and industrial life whenever the grace period provision applies (sec77)2. Where there is an acknowledgment in the contract or policy of insurance that the premium had already been paid. (sec78)3. If the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of te loss4. Where a credit term was agreed upon.

a. UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.Facts:Plaintiff obtained from defendant fireinsurance policieson its property effective from May 1991 - 1992. On June 1992, plaintiff's properties were raged by fire. On the same date plaintiff tendered, and defendant accepted fivechecksasrenewalpremium payments for which a receipt was issued. Masagana made a claim which was denied. thecheckswere then returned to plaintiff. According to defendant, the claim cannot be entertained for properties were burned before the tender of premium.

Issue:Whether or not section 77 of the insurance code must be strictly applied to petitionersadvantagedespite its practice of granting 60 to 70 day credit term for the payment of its premium

Held:The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SECTION 78 (now 79). Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusiveevidenceof its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss.

Tuscany case has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs,public orderor public policy. The agreement binds the parties. Article 1306 of the Civil Code provides:

ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since respondentrelied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

Note: Sec77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid.Effect of acknowledgment of receipt of premium In policy:Conclusive evidence of its payment, in so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec78) (now 79)Reason: When the policy contains such written acknowledgment, it is presumed that the insurer has waived the condition of prepayment. It hereby creates a legal fiction of payment.Note: the conclusive presumption extends only to the question on the binding effect of the policy. As far as the payment of the premium itself is concerned, the acknowledgment is only a prima facie evidence of the fact of such payment. The insurer may still dispute its acknowledgment but only for the purpose of receiving the premium due and unpaid.

Effect of acceptance of premiumAcceptance of premium within the stipulated period for payment thereof, including the agreed grace period, merely assures continued effectivity of the insurance policy in accordance with its terms. Where the insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized said agent to receive the premium in its behalf. The insurer is bound by its agents acknowledgment of the receipt of payment of premium. The acceptance by the insurer of premium payments after he has knowledge of a ground for rescission will bar him from rescinding the policy. Payment of the Premium by post-dated checkDelivery of a promissory note or a check will not be sufficient to make the policy binding until the said note or check has been converted into cash. This is consistent with art. 1249 of the NCC.Note: payment means of a check or note, accepted by the insurer, bearing a a date PRIOR to the loss, assuming availability of the funds thereof, would be sufficient even if it remains unencashed at the time of the loss. The subsequent effects of encashment would retroact to the date of the instrument and its acceptance by the creditor. Entitlement of insured to return of premiums paid:1. Wholea. If the thing insured was never exposed to the risks insured against (sec79) (now 80)b. If contract is voidable because of the existence of facts of which the insured was ignorant without is fault. (Sec81) (now 82)c. When by any default of the insured other than actual fraud, the insurer never incurred liability. (sec81) (now 82)d. When rescission is granted due to the insurer breach of contract (Sec74)2. Pro rataa. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof;Exceptions:1. Policy not made for a definite period of time;2. Short period rate is agreed upon;3. Life insurance policy

b. When there is over-insuranceb.1. in case of over-insurance by double insurance, the insurer I not liable for the total amount of the insurance taken, his liability being limited to the property insured.

b.2. In case of over-insurance by several insurers, the insured is entitled to a ratable return of the premium proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. (sec82) (now 83)Devices Used to Prevent the Forfeiture of a Life Insurance after the Payment of the First Premium:1. Grace period after the payment of the first premium, the insured is entitled to a grace period of 30 days within which to pay the succeeding premiums.2. Cash Surrender Value the amount the insurer agrees to pay to the holder of the policy if he surrenders it and releases his claim upon it.3. Extended Insurance Where the insurance originally contracted for is continued for such period as the amount available therefor will pay when it will terminate. In such case, the insurance will be for the same amount as the original policy but for a period shorter than the period in the original contract. 4. Paid-Up Insurance No more payments are required, and consist of insurance for life in such an amount as the sum available therefore, considered as a single and final premium, will purchase. It results to a reduction of the original amount of insurance, but for the same period originally stipulated.5. Automatic Loan Clause A stipulation in the policy providing that upon default in payment of premium, the same shall be paid from the loan value of the policy until that value is consumed. In such a case, the policy is continued in force as fully and effectively as though the premiums had been paid by the insured from funds derived from other sources. 6. Reinsurance provision that the holder of the policy shall be entitled to reinstatement of the contact at any time within three years from the date of default I the payment of premium, unless the cash surrender value has been paid, or the extension period expired, upon production of evidence of insurability satisfactory to the company and the payment of all overdue premiums and any indebtedness to the company upon said policy.7. Estoppel bars insurer from taking refuge under sec77, since respondent relied in good faith on such practice.

LOSS (Sec. 85 89)SEC. 85. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.SEC. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.SEC. 87. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.SEC. 88. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.SEC. 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.Loss in InsuranceThe injury, damage or liability sustained by the insured in consequence of the happening of one or more of the perils against the happening of one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. It may be total, partial, or constructive in Marine Insurance. [secs. 127 (now 129) and 131 (now 133)]Loss is Satisfied:1. Payment of loss;2. Reinstatement (repair or restoration) of the property lost or damaged;3. Replacement (substitution) with another or similar property.When Insurer is Liable for Loss:1. Loss the proximate cause of which is the peril insured against. (Sec84) (now 86)2. Loss the immediate cause of which is the peril insured against except where the proximate cause in an excepted peril (sec86) (now 88)3. Loss through the negligence of the insured except where there was gross negligence amounting to willful act (sec87) (now 88)4. Loss caused by efforts to rescue the thing insured from a peril insured against (sec85) (now 87)5. Loss caused by a peril NOT insured against to which the thing insured was exposed in the course of rescuing the same from the peril insured against (sec85) (now 87)When the insurer is not liable:1. loss by the insureds willful act or gross negligence;2. loss due to the connivance of the insured (sec87) (now 89)3. loss where the excepted peril is the proximate cause.Proximate cause that which in a natural and continuous sequence, unbroken by any new independent cause, produces an event and which the event would not have occurred.

a. United Merchants Corp. v. Country Bankers Insurance Corp., G.R. No. 198588, July 11, 2012 While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company,contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used.If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made.Insurance; limitation in liability. An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation.If loss is proved apparently within a contract ofinsurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy.

NOTICE OF LOSS (Sec. 90 94)SEC. 90. In case of loss upon an insurance against fire, an insurer is exonerated, if written notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay. For other non-life insurance, the Commissioner may specify the period for the submission of the notice of loss.SEC. 91. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence which he has in his power at the time.SEC. 92. All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.SEC. 93. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if he omits to take objection promptly and specifically upon that ground.SEC. 94. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.Purposes:1. To give the insurer information by which he may determine the extent of his liability.2. To afford the insurer a means of detecting any fraud that may have been practiced upon him;3. To operate as a check upon extravagant claims.In fire Insurance/CMVLIIn other types of Insurance

RequiredNot required

Effect of failure to furnish

Failure to give notice will defeat the right of the insured to recoverFailure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so.

Defects in the notice or proof of loss are waived when the insurer:1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof of loss would be useless;2. Recognizes his liability to pay the claims;3. Denies all liability under the policy;4. Joins in the proceedings for determining the amount of the loss by arbitration, making no objections on account of notice and preliminary proof; or5. Makes objection on any ground other than formal defect in the preliminary proof.Claim SettlementThe indemnification of the loss od the insuredIn case of an unreasonable delay/denial in the payment of the insureds claim by the insurer, the insured can recover:1. attorneys fees2. expenses incurred by reason of the unreasonable withholding;3. Interest at double the legal interest rate fixed by the monetary board; and4. Amount of the claim

Time of Payment of ClaimsLife PoliciesNon-Life Policies

Maturing upon the expiration of the termthe proceeds are immediately payable to the insured, except if proceeds are payable in installments or annuities, which shall be paid as they become due.

Maturing at the death of the insured, occurring prior to the expiration of the term stipulatedthe proceeds are payable to the beneficiaries within 60 days after: presentation of claim and filing of proof of death. (sec242) (now 249)

The proceeds shall be paid within 30 days after 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. (Sec. 243) (now 249)

Effect off Refusal or Failure to Pay the Claim within the Time PrescribedGR: Sec. 242-244 (now 248-250) provide that the insurer shall be liable to pay interest twice the ceiling prescribed by the Monetary Board which means twice 12% per annum (legal rate of interest) or 24% per annum interest on the proceeds of the insurance from the date following the time prescribed in secs. 242-243, until the claim is fully satisfied. Exc: Refusal or failure to pay the loss or damage will entitle the assured to collect interest UNLESS such refusal or failure to pay is based on the ground that the claim is fraudulent.

DOUBLE INSURANCE (Sec. 95 96)Definition:SEC. 95. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.Requisites:1. Same insured person;2. Same subject matter;3. Same interest insured;4. Same risk or peril insured against; and5. Two or more insurers insuring separatelyOver-insurance exists when the insured insures the same property for an amount greater than the value of that property.Effect in case of loss:1. The insurer is bound only to pay the extent of the real value of the property lost;2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property.Effects of over insurance by double insurance:SEC. 96. Where the insured in a policy other than life is over insured by double insurance:(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;

(b) Where the policy under which the insured claims is a valued policy, any sum received by him under any other policy shall be deducted from the value of the policy without regard to the actual value of the subject matter insured;

(c) Where the policy under which the insured claims is an unvalued policy, any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any policy;

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

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

Principle of Contribution or Contribution ClauseIt is required that each insurer contribute ratably to the loss or damage considering that the several insurance cover the same subject matter and interest against the same peril.Additional or other insurance clauseA 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 avid it, otherwise the breach of an immaterial provision does not avoid it.Purpose:Double insurance is not prohibited by law. The reasons why it may be required that its existence be disclosed are:1. To prevent an increase in the moral hazard; and2. To prevent over-insurance and fraud.Xxx the prohibition applies only in case of double insurance, the court ruled that in order to constitute a violation of the clause, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same subject matter and covering the same risk it was ruled that there was no violation of the other insurance clause since there was not double insurance. (Malayan Insurance Co. inc vs Phil first insurance co)

Over-InsuranceDouble Insurance

Amount of insurance

When the amount of the insurance is beyond the value of the insureds insurable interestThere may be no over-insurance as when the sum total of the amounts of the policies issued does not exceed the insurable interest of the insured.

Number of Insurers

There may only be one insurer involvedThere are always several insurers.

The ratable contribution of each insurer will be determined based on the following formula:

Amount of Policy----------------------------- X loss = liability of insurerTotal insurance taken

REINSURANCE (Sec.97-100)Definition:SEC. 97. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. a.k.a. Reinsurance Cession

In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies.Limit of single RiskNo insurance company other than life, shall retain any risk on any one subject of insurance in an amount exceeding 20% of its net worth. (sec. 221)

Double InsuranceReinsurance

Interest

Involves the same interestInvolves different interest

Subject

PropertyOriginal insurers risk

Insurer

Insurer remains in such capacityInsurer becomes the insured in relation to insurer

Insured

Insured is the party in interest in the 2 contractsOriginal insured has no interest in the reinsurance contract (Sec. 100)

Insureds consent

Insured has to give his consentInsureds consent not necessary

Other Terms:1. Reinsurancce Treaty 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.2. Automatic reinsurance he 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 contact.3. 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. 4. 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.SEC. 98. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.SEC. 99. A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.SEC. 100. The original insured has no interest in a contract of reinsurance.

III. Classes of Insurance

1. Marine (Sec. 99 166)

2. Fire (Sec. 167 173)

3. Casualty (Sec. 174)

4. Suretyship (Sec. 175 178)

5. Life Insurance (Sec. 179 183)

6. Compulsory Motor Vehicle Liability Insurance (Sec. 373 389)

IV. The Business of Insurance

Case:

1. Republic of the Philippines, Represented by Eduardo Malinis in His Capacity as Insurance Commissioner v. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006

V. The Insurance Commissioner

1. Administrative and adjudicatory powers