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VIII. DOUBLE INSURANCE AND REINSURANCEA. DOUBLE INSURANCE1. Definition – Sec. 93, I.C.2. Requisites – Sec. 93, I.C.Sec. 93. A double insurance exists where the same person is insured by several insurers separately inrespect to the same subject and interest.a. Same person is insured

b. Two or more insurers that insured the person separatelyc. Insurance is over the same subjectd. Same interest is involvede. Same peril is insured againstPacific Banking Corp. vs. Court of Appeals (1988), supraPioneer Insurance and Surety Corporation vs. YapG.R. No. L-36232 December 19, 1974Yap owned a store in a 2 storey building, where she sold shopping bags and footwear. Her son-in-lawwas in charge of the store. On April 19, 1962 Yap took out Fire Insurance Policy No. 4216 fromPioneerwith a face value of P25,000 covering her stocks, office furniture, fixtures, etc. Among the conditionssetforth in the policy:The Insured shall give notice to the Company of any insurance or insurances already

effected, or which may subsequently be effected, covering any of the property hereby insured,and unless such notice be given and the particulars of such insurance or insurances be stated in,or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited . (emphasis supplied)It is understood that, except as may be stated on the face of this policy there is no otherinsurance on the property hereby covered and no other insurance is allowed except by theconsent of the Company endorsed hereon. Any false declaration or breach or this condition willrender this policy null and void.At the time of insurance of Policy 4219(April 19, 1962), an insurance policy for P20,000 issued by theGreat American Insurance Company covering the same properties was noted on said policy ascoinsurance.On August 29, 1962 parties executed an endorsement on Policy 4219 stating:It is hereby declared and agreed that the co-insurance existing at present under thispolicy is as follows: P20,000.00 Northwest Ins., and not as originally stated . (emphasissupplied)Except as varied by this endorsement, all other terms and conditions remain unchanged.On September 26, 1962 Yap took out another fire insurance policy for P20,000 covering the sameproperties, from Federal Insurance Company. This policy was procured without notice to and thewrittenconsent of Pioneer, and was therefore not noted as a co-insurance in Policy 4219.On December 19, 1962 fire burned Yap’s store. Issue: WON petitioner should be absolved from liability on Fire insurance Policy No. 4219 on accountof any violation by respondent Yap of the co-insurance clause thereinHeld: Yes.There was a violation by Yap of the co-insurance clause contained in Policy No. 4219 which resulted inthe avoidance of the petitioner’s liability. By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required no affirmative act of election on

thepart of the company to make operative the clause avoiding the contract, wherever the specifiedconditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to theadditional insurance.The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thusavert the perpetration of fraud. The public, as well as the insurer, is interested in preventing thesituation in which a fire would be profitable to the insured. According to Justice Story: "The insuredhasno right to complain, for he assents to comply with all the stipulation on his side, in order to entitle



himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the courttodispense with the performance of his own part of the agreement, and yet to bind the other party toobligations, which, but for those stipulation would not have been entered into."New Life Enterprises vs. Court of AppealsG.R. No. 94071 March 31, 1992Julian Sy and Jose Sy Bang are partners engaged in the business of selling construction materials

underthe business name “New Life Enterprises.” Julian Sy insured against fire the stocks in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc., and EquitableInsurance Corporation in the aggregate amount of P1,550,000.00. When the building where New LifeEnterprises was located, along with the stocks in trade therein, were gutted by fire, petitioners filed aninsur ance claim against the three companies. The insurance companies all denied Julian Sy’s claim on the ground of “breach of policy condition,” (i.e., the “other insurance” clause which required New Life Enterprises to inform each of the insurance companies in case the former insures with anothercompanythe same property already insured by each of the insurance companies).By: Elaine Marie G. Laceda 135INSURANCE LAWBecause of the denial of their claims for payment by the 3 insurance companies, petitioners filedseparate civil actions against the former before the Regional Trial Court of Lucena City, which cases

were consolidated for trial. The trial court ruled in favor of petitioner. However, the Court of Appealsreversed the trial court’s decision, found petitioner to have violated Clauses 3 and 27 of the separateinsurance policies issued by the 3 companies, and exonerated the insurance companies from liability.Issue: WON petitioners violated the “Other Insurance Clause” of the insurance policies. Held: Yes.Petitioners admit that the respective insurance policies issued by private respondents did not state orendorse thereon the other insurance coverage obtained or subsequently effected on the same stocksintrade for the loss of which compensation is claimed by petitioners. It is further admitted by petitionersthat Equitable's policy stated "nil" in the space thereon requiring indication of any co-insurancealthoughthere were 3 policies subsisting on the same stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00 and two 2 policies of Reliance in the total amount of P1,000,000.00.

The coverage by other insurance or co-insurance effected or subsequently arranged by petitionerswereneither stated nor endorsed in the policies of the 3 private respondents, warranting forfeiture of allbenefits thereunder if we are to follow the express stipulation in Policy Condition No. 3.The terms of the contract are clear and unambiguous. The insured is specifically required to disclose tothe insurer any other insurance and its particulars which he may have effected on the same subjectmatter. The knowledge of such insurance by the insurer's agents, even assuming the acquisitionthereof by the former, is not the "notice" that would stop the insurers from denying the claim. Besides, thesocalledtheory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, asidefrom being of dubious applicability here has likewise been roundly refuted by respondent court whosefactual findings we find acceptable. The mere fact that Yap Kam Chuan was an agent for both Relianceand Equitable does not justify the allegation that the two are sister companies. Availment of the

servicesof the same agents and adjusters by different companies is a common practice in the insurancebusinessand such facts do not warrant the speculative conclusion of the trial court.Considering the terms of the policy which required the insured to declare other insurances, thestatement in question must be deemed to be a statement (warranty) binding on both insurer andinsured, that there were no other insurance on the property. The annotation then, must be deemed tobe a warranty that the property was not insured by any other policy. Violation thereof entitled theinsurer to rescind.The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus



avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing thesituation in which a fire would be profitable to the insured. The insured has no right to complain, forheassents to comply with all the stipulations on his side, in order to entitle himself to the benefit of thecontract, which, upon reason or principle, he has no right to ask the court to dispense with theperformance of his own part of the agreement, and yet to bind the other party to obligations, which,butfor those stipulations, would not have been entered into.It is not disputed that the insured failed to reveal before the loss three other insurances. By reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clearmisrepresentationand a vital one because where the insured had been asked to reveal but did not, that was deception.Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitatedorplainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud.As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy.Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that thecomplaint for recovery was filed in court by petitioners only on January 31, 1984, or after more thanone(1) year had elapsed from petitioners' receipt of the insurers' letter of denial on November 29, 1982.By: Elaine Marie G. Laceda 136INSURANCE LAWThe condition contained in an insurance policy that claims must be presented within one year afterrejection is not merely a procedural requirement but an important matter essential to a promptsettlement of claims against insurance companies as it demands that insurance suits be brought bytheinsured while the evidence as to the origin and cause of destruction have not yet disappeared.Geagonia vs. Court of AppealsG.R. No. 114427 February 6, 1995Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan delSur.On 22 Dec 1989, he obtained from the private respondent fire insurance policy for P100,000.00. Theperiod of the policy was from 22 Dec 1989 to 22 Dec 1990 and covered the ff: "Stock-in-tradeconsisting

principally of dry goods such as RTW's for men and women wear and other usual to assured'sbusiness.The policy contained the following condition:"3. The insured shall give notice to the Company of any insurance or insurances alreadyeffected, or which may subsequently be effected, covering any of the property or propertiesconsisting of stocks in trade, goods in process and/or inventories only hereby insured, andunless notice be given and the particulars of such insurance or insurances be stated therein orendorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of theCompany before the occurrence of any loss or damage, all benefits under this policy shall bedeemed forfeited, provided however, that this condition shall not apply when the total insuranceor insurances in force at the time of the loss or damage is not more than P200,000.00."On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of SanFrancisco, Agusan del Sur. The petitioner's insured stocks-in-trade were completely destroyedprompting

him to file w/ the private respondent a claim under the policy. On 28 Dec 1990, the privaterespondentdenied the claim because it found that at the time of the loss the petitioner's stocks-in-trade werelikewise covered by two fire insurance policies for P100,000.00 each, issued by the Cebu Branch of thePhilippines First Insurance Co., Inc. (PFIC).The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of thepolicy.Geagonia then filed a complaint against the private respondent w/ the Insurance Commission for therecovery of P100,000.00 under fire insurance policy, for attorney's fees, and costs of litigation. Heclaims that the time he obtained the private respondent's fire insurance policy he knew that the two



policies issued by the PFIC were already in existence; however, he had no knowledge of the provisioninthe private respondent's policy requiring him to inform it of the prior policies; this requirement wasnotmentioned to him by the private respondent's agent; and had it been so mentioned, he would nothavewithheld such information. He further asserted that the total of the amounts claimed under the threepolicies was below the actual value of his stocks at the time of loss, w/c was P1M.The Insurance Commission found that the petitioner did not violate Condition 3 as he had noknowledgeof the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu TesingTextiles w/c procured the PFIC policies w/o informing him or securing his consent; and that CebuTesingTextile, as his creditor, had insurable interest on the stocks. These findings were based on thepetitioner's testimony that he came to know of the PFIC policies only when he filed his claim with theprivate respondent and that Cebu Tesing Textile obtained them and paid for their premiums w/oinforming him. The Insurance Commission then ordered the respondent company to pay complainantthe sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfiedplusthe amount of P10,000.00 as attorney's fees.CA reversed the decision of the Insurance Commission because it found that the petitioner knew of theexistence of the two other policies issued by the PFICBy: Elaine Marie G. Laceda 137INSURANCE LAWIssue: WON the petitioner had prior knowledge of the two insurance policies issued by the PFIC whenheobtained the fire insurance policy from the private respondent, thereby, for not disclosing such fact,violating Condition 3 of the policyHeld: Yes.We agree w/ the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18January 1991 to the private respondent conclusively proves this knowledge. His testimony to thecontrary before the Insurance Commissioner and which the latter relied upon cannot prevail over awritten admission made ante litem motam. It was, indeed, incredible that he did not know about theprior policies since these policies were not new or original.Issue: WON he is precluded from recovering therefrom

Held: NoIt must, however, be underscored that unlike the "other insurance" clauses involved in GeneralInsurance and Surety Corp. vs. Ng Hua or in Pioneer Insurance & Surety Corp. vs. Yap, which read:"The insured shall give notice to the company of any insurance or insurances already effected, orwhichmay subsequently be effected covering any of the property hereby insured, and unless such notice begiven and the particulars of such insurance or insurances be stated in or endorsed on this Policy by oronbehalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shallbe forfeited." or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. which provided"that any outstanding insurance upon the whole or a portion of the objects thereby assured must bedeclared by the insured in writing and he must cause the company to add or insert it in the policy,without which such policy shall be null and void, and the insured will not be entitled to indemnity incase

of loss," Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare voidanyviolation thereof. It expressly provides that the condition "shall not apply when the total insurance orinsurances in force at the time of the loss or damage is not more than P200,000.00."Interpretation: It is a cardinal rule on insurance that a policy or insurance contract is to be interpretedliberally in favor of the insured and strictly against the company, the reason being, undoubtedly, toafford the greatest protection which the insured was endeavoring to secure when he applied forinsurance. It is also a cardinal principle of law that forfeitures are not favored and that anyconstructionwhich would result in the forfeiture of the policy benefits for the person claiming thereunder, will be



avoided, if it is possible to construe the policy in a manner which would permit recovery, as, forexample, by finding a waiver for such forfeiture. Stated differently, provisions , conditions orexceptions in policies which tend to work a forfeiture of insurance policies should be construed moststrictly against those for whose benefits they are inserted, and most favorably toward those againstwhom they are intended to operate. The reason for this is that, except for riders which may later beinserted, the insured sees the contract already in its final form and has had no voice in the selection orarrangement of the words employed therein. On the other hand, the language of the contract wascarefully chosen and deliberated upon by experts and legal advisers who had acted exclusively in theinterest of the insurers and the technical language employed therein is rarely understood by ordinarylaymen.With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totallyfree from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a)theprohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extentexceeding P200,000.00 of the total policies obtained.Furthermore, by stating within Condition 3 itself that such condition shall not apply if the totalinsurancein force at the time of loss does not exceed P200,000.00, the private respondent was amenable toassume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was todiscourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clauseinfire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a propertyowner obtains insurance policies from two or more insurers in a total amount that exceeds theproperty's value, the insured may have an inducement to destroy the property for the purpose of By: Elaine Marie G. Laceda 138INSURANCE LAWcollecting the insurance. The public as well as the insurer is interested in preventing a situation inwhicha fire would be profitable to the insured.3. “Other Insurance Clause” a. Alternative formsb. Rationalec. Validityd. Additional insurance4. Over-Insurance By Double Insurance – Sec. 94, I.C.Sec. 94. Where the insured is overinsured by double insurance:(a) The insured, unless the policy otherwise provides, may claim payment from the insurers insuch order as he may select, up to the amount for which the insurers are severally liableunder their respective contracts;(b) Where the policy under which the insured claims is a valued policy, the insured must givecredit as against the valuation for any sum received by him under any other policy withoutregard to the actual value of the subject matter insured;(c) Where the policy under which the insured claims is an unvalued policy he must give credit,as against the full insurable value, for any sum received by him under any policy;(d) Where the insured receives any sum in excess of the valuation in the case of valuedpolicies, or of the insurable value in the case of unvalued policies, he must hold such sum intrust 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 tothe loss in proportion to the amount for which he is liable under his contract.B. REINSURANCE1. Definition – Sec. 95, I.C.Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure himagainst loss or liability by reason of such original insurance.Equitable Insurance and Casualty Co., Inc. vs. Rural Insurance and Surety Co., Inc.G.R. No. L-17436 January 31, 1962Plaintiff Equitable Insurance file a complaint with the CFI of Manila against defendant Rural Insurancealleging, as first cause of action, that they entered into a reciprocal facultative reinsurance agreement,wherein they agreed to cede to each other. Pursuant to said agreement, plaintiff reinsured for P2kwith



defendant the stock covered by fire insurance Policy No. 5880 issued by plaintiff which was laterburned;the share of the loss of defendant as per insurance agreement was computed at P2,024 for whichplaintiff sent to defendant a statement of account for payment by the latter. Despite repeateddemandsby plaintiff, defendant refused to pay.On the second cause of action, plaintiff reinsured for P2k with defendant stock covered by fireinsurancePolicy No. 6062 which also burned. Again, defendant refused to pay its share of the loss of P1,334hencesaid complaint.Defendant filed a motion to dismiss on the ground that it states no cause of action, as pursuant to ArtVIII of the Reinsurance Agreement between the parties, before a court action can be brought, theparties agreed to submit all disputes to a board of arbitrators. The Court denied the motion andrequireddefendant to answer.Defendant filed its answer, alleging that the nature of the agreement is “self -liquidating between theparties”, the reinsurer becoming the reinsured and vice versa; and that said agreement has not yetbeenabrogated so the liability of either to the other is not yet known. Defendant prayed that the complaintbedismissed and plaintiff filed a motion for judgment on the pleadings which the court denied.By: Elaine Marie G. Laceda 139INSURANCE LAWInstead of going into a formal hearing, the parties submitted their case for decision stipulating the ff facts: defendant admits the allegations of the complaint and that plaintiff admits that the issues of thecomplaint were not submitted to a Board of Arbitrators as provided in par VIII of the complaint, butinstead referred it to the Insurance Commissioner. The CFI rendered judgment in favor of plaintiff.Hence this appeal.Issue: WON Equitable had no cause of action as the matter was not referred to the decision of arbitratorsHeld: NoThe requirement of submission for decision to 2 arbitrators or an umpire the matter of losses by fire orthe liability of the parties thereto under Art VIII of the agreement arises only if the same is disputedby

one of the parties. In the instant case, there is no dispute between the parties; in the stipulation of factsdefendant admitted that plaintiff had paid its liability and defendant likewise admitted that it ignoredplaintiff’s demands for reimbursement for defendant’s failure to pay its share as reinsurer. As held in Maligad v United Assurance Co., if in the course of the settlement of a loss, the action of the companyorits agents amounts to refusal to pay, the company will be deemed to have waived the conditionprecedent with reference to arbitration and a suit upon the policy will lie.Issue: WON in a facultative obligation the right to choose an alternative remedy lies only with thedebtor(here the defendant) under Art 1206Held: NoThere is no connection between Art 1206 NCC and the agreement of this action. The term “facultative” is

used in reinsurance contracts, and it is so used in this particular case, merely to define the right of thereinsurer to accept or not to accept participation in the risk insured. But once the share is accepted, asitwas in the case at bar, the obligation is absolute and the liability assumed thereunder can bedischargedby only one way —the payment of the share of the losses.Phil. American Life Ins. Co. vs. Auditor GeneralG.R. No. L-19255 January 18, 1968Philamlife, a domestic life insurance corp., and American International Reinsurance Company (Airco),a



corporation organized under the laws of the Republic of Panama, entered into a REINSURANCETREATYwherein Philamlife agrees to reinsure with Airco on January 1950. Philamlife agreed to pay premiumsforall reinsurances on an annual premium basis.In July 16, 1959, the Margin Law was approved and became effective, which exempts certain

“obligations from payment of margin fees, particularly contractual obligations calling for payment of foreign exchange issued, approved and outstanding as of the date this Act takes place”. Central Bank of the Philippines collected P268,747.48 as foreign exchange margin on Philamliferemittances to Airco purportedly totalling $610,998.63 and made subsequent to July 16, 1959.Philamlife filed a claim for refund on the ground that the reinsurance premiums remitted were paid inpursuant to the January 1950 reinsurance treaty, and therefore exempted.Monetary Board exempted Philamlife from payment of margin fee. However, Auditor of CB refused topass in audit Philamlife’s claim for refund. Philamlife sought r econsideration but was denied, sayingreinsurance treaty NOT EXEMPTED.Issue: WON the premia remitted were in pursuance of the reinsurance treaty between Philamlife andAirco of January 1959, a contract antedating the Margin Law, and therefore, Philamlife exempted frompaying margin feeHeld: NoBy: Elaine Marie G. Laceda 140INSURANCE LAW

For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurancetreatyprovided, a "reinsurance cession" which may be automatic or facultative.Ratio: A reinsurance policy is thus a contract of indemnity one insurer makes with another to protectthefirst insurer from a risk it has already assumed. . . . In contradistinction, a reinsurance treaty ismerelyan agreement between two insurance companies whereby one agrees to cede and the other to acceptreinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies byinsurance companies includes, among other things, the issuance of reinsurance policies on standardrisks and also on substandard risks under special arrangements. The lumping of the differentagreements under a contract has resulted in the term known to the insurance world as 'treaties.' Suchatreaty is, in fact, an agreement between insurance companies to cover the different situations

described.Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts forinsurance;reinsurance policies or cessions are contracts of insurance.Even if reinsurance treaty preceded the Margin Law by over nine years, nothing in the treaty obligatesPhilamlife to remit to Airco a fixed, certain, and obligatory sum by way of reinsurance premiums. Thereinsurance treaty per se cannot give rise to a contractual obligation for the payment of foreignexchange. Philamlife’s obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. It is only after a reinsurance cession is made that payment of reinsurance premium may be exacted, as it is only after Philamlife seeks to remit that reinsurancepremium that the obligation to pay the margin fee arises.Issue: WON Margin Law impairs the obligation of contractHeld: NoExisting laws form part of the contract "as the measure of the obligation to perform them by the one

party and the right acquired by the other. If the obligation does not inhere and subsist in the contractitself, propio vigore, but in the law applicable to the contract.When petitioner entered into the reinsurance treaty of January 1, 1950 with Airco, it did so with theunderstanding that the municipal laws of the Philippines at the time said treaty was executed, becamean unwritten condition thereof. Such municipal laws constitute part of the obligation of contract.Rationale of Margin Law: to reduce the excessive demand on and prevent further decline of ourinternational reserves; to provide the Central Bank with an additional instrument for effectively copingwith the problem and achieving domestic and international stability of our currency; to reduce theexcessive demand-for foreign exchange.Issue: WON reinsurance contracts abroad would be made impractical by the imposition of the 25%



margin feeHeld: NoFirst, there is no concrete evidence that such imposition of the 25% margin fee is unreasonable,Second,if really continuance of the existing reinsurance treaty becomes unbearable, that contract itself providesthat petitioner may potestatively write finis thereto on ninety days' written notice. Petitioner is notforced to continue its reinsurance treaty indefinitely with Airco.Fieldmen’s Insurance Co., Inc. vs. Asian Surety & Insruance Co. G.R. No. L-23447 July 31, 1970On various dates between April 11, 1960 and Jan. 9, 1961 the Asian Surety & Insurance Company,Inc. and the Fieldmen's Insurance Company, Inc. entered into 7 reinsurance agreements under whichthe former, as the ceding company undertook to cede to the latter, as the reinsuring company, aspecified portion of the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of aproportionate share of the gross rate of the premium applicable with respect to each cession afterdeducting a commission. Said agreements were to take effect from certain specific dates and were tobeBy: Elaine Marie G. Laceda 141INSURANCE LAWin force until cancelled by either party upon previous notice of at least 3 months by registered mail tothe other party, the cancellation to take effect as of Dec. 31 of the year in which the notice was given.

On Sep. 19, 1961 FIELDMEN'S, by means of registered mail, served notice to ASIAN of the former'sdesire to be relieved from all participation in its various agreements with the latter effective Dec. 31,1961. This communication, although admittedly received by ASIAN on Sep. 25, 1961, did not elicit anyreply from ASIAN.On Dec. 7, 1961 FIELDMEN'S sent another letter to ASIAN expressing regrets at alleged violationscommitted by the latter with respect to the various agreements between them and reiterated itspositionthat it would consider itself "no longer at risk for any reinsurance and/or cession" given by ASIANwhichmight be in force on Dec. 31, 1961. Not having received any formal reply from ASIAN, FIELDMEN'Ssenta new a letter on Feb. 17, 1962 reminding ASIAN of the cancellation of all the reinsurance treaties andcessions as of Dec. 31, 1961 and requested ASIAN to submit its final accounting of all cessions madeto

the former for the preceding months when the reinsurance agreements were in force.Meanwhile one of the risks reinsured with FIELDMEN'S issued in favor of the GSIS became a liabilitywhen the insured property was burned on February 16, 1962. Since the policy was issued on July 1,1961, it was supposed to expire on July 1, 1962. 2 The next day, Feb. 17, ASIAN immediately notifiedFIELDMEN'S of said fire loss.FIELDMEN'S, relying on the sufficiency of its notice of termination dated September 19, 1961 andobviously bent on avoiding its liability under the reinsurance agreements with ASIAN, filed a petitionfordeclaratory relief with the CFI of Manila to seek a declaration that all the reinsurance contractsenteredinto between them had terminated as of December 31, 1961 and to obtain an order directing ASIAN torender final accounting of the transactions between them with respect to said reinsurance treaties asof the cut-off date.

In its answer below ASIAN denied having received FIELDMEN'S letter dated Sep 19, 1961, and arguedthat even assuming it did, FIELDMEN'S could not have terminated the reinsurance treaties as of Dec31,1961 because the letter was merely an expression of FIELDMEN'S desire to cancel the treaties and notaformal notice of cancellation as contemplated in their reinsurance agreements. By way of specialdefenseAsian contended that even if the Sep. 19 letter were considered sufficient notice of cancellation — thereby rendering the reinsurance agreements terminated as of December 31, 1961 — the liability of FIELDMEN'S with respect to policies or cessions issued under two of the said agreements prior to their



cancellation continued to have full force and effect until the stated expiry dates of such policies orcessions.On Dec. 4, 1962, the trial court declared 6 of the 7 reinsurance agreements in question cancelled as of Dec 31, 1961. At the same time, it upheld ASIAN'S position that all cessions of reinsurance made by itto FIELDMEN'S prior to the cancellation of the reinsurance treaties continued in full force and effectuntilexpiry dates and ordered FIELDMEN'S to make an accounting of its business transactions with ASIANwithin 30 days.On appeal to the CA, the decision of the trial court was substantially affirmed, with the slightmodification that the order for accounting was eliminated, without prejudice to the filing of a properaction between the parties for that purpose.Issue: WON the cancellation as of Dec. 31, 1961 of the reinsurance treaties had the effect of terminatingalso the liability of FIELDMEN'S as reinsurer with respect to policies or cessions issued prior to thetermination of the principal reinsurance contracts or treatiesHeld: NO to the 2 reinsurance contracts.Of the 6 reinsurance contracts, 2 contain provisions, which clearly and expressly recognize thecontinuing effectivity of policies ceded under them for reinsurance notwithstanding the cancellation of the contracts themselves. The said treaties provide "that in the event of termination of thisAgreement . . ., the liability of the Fieldmen's under current cessions shall continue in full force andBy: Elaine Marie G. Laceda 142

INSURANCE LAWeffect until their natural expiry . . .;" and the 4th paragraph of Article VI of the Personal AccidentReinsurance Treaty states:"4. On the termination of this Agreement from any cause whatever, the liability of theREINSURER (Fieldmen's) under any current cession including any amounts due to be cededunder the terms of this Agreement and which are not cancelled in the ordinary course of business shall continue in full force until their expiry unless the COMPANY (Asian) shall, prior tothe thirty-first December next following such notice, elect to withdraw the existing cessions . . ."Thus, insofar as the two reinsurance agreements are concerned, there is clearly no merit inFIELDMEN'Sclaim that their cancellation carried with it ipso facto the termination of all reinsurance cessionsthereunder. Such cessions continued to be in force until their respective dates of expiration. Since itwasunder one of said agreements that the reinsurance cession corresponding to the GSIS policy had been

made, FIELDMEN'S cannot avoid liability which arose by reason of the burning of the insured property.With respect to the other 4 agreements, it would seem that the petition for declaratory relief is moot,and that no useful purpose would be served by defining the respective rights and obligations of theparties thereunder. The said agreements have been cancelled, and i t does not appear that any claimbyor liability in favor of the insured has actually arisen under any of the reinsurance cessions made priortosuch cancellation. Future conflicts of the same nature as those which have motivated the presentactioncan of course be obviated by using more precise and definite terminology in the reinsuranceagreementswhich the parties may enter into henceforth.2. Distinguish from Double Insurance3. When Required – Secs. 215-222 and 275, I.C.

Sec. 215. No insurance company other than life, whether foreign or domestic, shall retain any risk onany one subject of insurance in an amount exceeding twenty per centum of its net worth. Forpurposesof this section, the term "subject of insurance" shall include all properties or risks insured by the sameinsurer that customarily are considered by non-life company underwriters to be subject to loss ordamage from the same occurrence of any hazard insured against.Reinsurance ceded as authorized under the succeeding title shall be deducted in determining therisk retained. As to surety risk, deduction shall also be made of the amount assumed by any othercompany authorized to transact surety business and the value of any security mortgage, pledged, orheld subject to the surety's control and for the surety's protection.



Sec. 216. An insurance company doing business in the Philippines may accept reinsurances only of suchrisks, and retain risk thereon within such limits, as it is otherwise authorized to insure.Sec. 217. No insurance company doing business in the Philippines shall cede all or part of any riskssituated in the Philippines by way of reinsurance directly to any foreign insurer not authorized to dobusiness in the Philippines unless such foreign insurer or, if the services of a non-resident broker areutilized, such non-resident broker is represented in the Philippines by a resident agent duly registeredwith the Commissioner as required in this Code.The resident agent of such unauthorized foreign insurer or non- resident broker shallimmediately upon registration furnish the Commissioner with the annual statement of such insurer, orof such company or companies where such broker may place Philippine business as of the year precedingsuch registration, and annually thereafter as soon as available.Sec. 218. All insurance companies, both life and non-life, authorized to do business in the Philippinesshall cede their excess risks to other companies similarly authorized to do business in the Philippinesinsuch amounts and under such arrangements as would be consistent with sound underwriting practicesbefore they enter into reinsurance arrangements with unauthorized foreign insurers.Sec. 219. Any insurance company doing business in the Philippines desiring to cede their excess risksto foreign insurance or reinsurance companies not authorized to transact business in the Philippinesmaydo so under the following conditions:By: Elaine Marie G. Laceda 143INSURANCE LAW(1) Except in facultative reinsurance and excess of loss covers, the full amount of the reservefund required by law shall be set up in the books of and held by the ceding company for so long as therisk concerned is in force: Provided , That in case of facultative insurance, the ceding company shallshow to the satisfaction of the Commissioner that the Philippine market cannot provide the facilitiessought abroad.(2) The reserve fund withheld shall be invested in bonds or other evidences of debt of theGovernment of the Philippines or its political subdivisions or instrumentalities, or of government-ownedor controlled corporations and entities, including the Central Bank, and/or other securities acceptableunder section two hundred.Should any reinsurance agreement be for any reason cancelled or terminated, the cedingcompany concerned shall inform the Commissioner in writing of such cancellation or termination within

thirty days from the date of such cancellation or termination or from the date notice or information of such cancellation or termination is received by such company as the case may be.Sec. 220. Every insurance company authorized to do business in the Philippines shall report to theCommissioner on forms prescribed by him the particulars of reinsurance treaties as of the first day of January of the year following the approval of this Code and shall thereafter similarly report to theCommissioner particulars of any new treaties or changes in existing treaties.Sec. 221. No credit shall be allowed as an admitted asset or as a deduction from liability, to any cedinginsurer for reinsurance made, ceded, renewed, or otherwise becoming effective after January first,nineteen hundred seventy-five, unless the reinsurance shall be payable by the assuming insurer onthebasis of the liability of the ceding insurer under the contract or contracts reinsured without diminutionbecause of the insolvency of the ceding insurer nor unless under the contract or contracts of reinsurancethe liability for such reinsurance is assumed by the assuming insurer or insurers as of the same

effectivedate; nor unless the reinsurance agreement provides that payments by the assuming insurer shall bemade directly to the ceding insurer or to its liquidator, receiver, or statutory successor except (a)wherethe contract specifically provides another payee of such reinsurance in the event of the insolvency of theceding insurer and (b) where the assuming insurer with the consent of the direct insured or insuredshasassumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer tothe



payees under such policies and in substitution for the obligations of the ceding insurer to such payees.Sec. 222. No life insurance company doing business in the Philippines shall reinsure its whole risk onany individual life or joint lives, or substantially all of its insurance in force, without having firstobtainedthe written permission of the Commissioner.Sec. 275. Every foreign insurance company desiring to withdraw from the Philippines shall, prior tosuch withdrawal, discharge its liabilities to policyholders and creditors in this country. In case of itspolicies insuring residents of the Philippines, it shall cause the primary liabilities under such policies tobe reinsured and assumed by another insurance company authorized to transact business in thePhilippines. In the case of such policies as are subject to cancellation by the withdrawing company, itmay cancel such policies pursuant to the terms thereof in lieu of such reinsurance and assumption of liabilities.4. Matters to be Communicated by Reinsured – Sec. 96, I.C.Sec. 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he mustcommunicate all the representations of the original insured, and also all the knowledge andinformationhe possesses, whether previously or subsequently acquired, which are material to the risk.5. Reinsurer’s Extent of Liability – Sec. 87, I.C.Sec. 87. An insurer is not liable for a loss caused by the willful act or through the connivance of theinsured; but he is not exonerated by the negligence of the insured, or of the insurance agents orothers.6. Original Insured No Interest in Reinsurance – Sec. 98, I.C.Sec. 98. The original insured has no interest in a contract of reinsurance.By: Elaine Marie G. Laceda 144INSURANCE LAWArtex Development Co., Inc. vs. Wellington Insurance Co., Inc.G.R. No. L-29508 June 27, 1973Wellington Insurance Co. Inc. insured for P24,346,509.00 the buildings, stocks and machinery of plaintiff Artex Development Co. Inc. against loss or damage by fire or lighting upon payment of theplaintiff of the corresponding premiums; that said properties were insured for an additional sum of P883,034.00; that defendant insured plaintiff against business interruption (use and occupancy) forP5,200,000.00; Wellington entered into a contract of reinsurance with Alexander and Alexander, Inc.of New York. USA.The buildings, stocks and machineries of plaintiffs spinning department were burned. Notice of the loss

and damage was given the defendant. As per report of the adjusters, the total property loss of theplaintiff was the sum of P10,106,554.40 and the total business interruption loss was P3,000,000.00.Thedefendant has paid to the plaintiff the sum of P6,481,870.07 of the property loss suffered by plaintiff and P1,864,134.08 on its business interruption loss, leaving a balance of P3,624,683.43 andP1,748,460.00, respectively.The counsel for Artex filed a Manifestation saying that in view of the Deeds of Discharge and CollateralAgreement, the only remaining liability subject of litigation shall be the proportion of the lossreinsuredwith or through Alexander and Alexander, Inc. of New York, USA, namely, P397,813.00.The document recited further that Artex acknowledges receipt of the sum of P3.6M paid by the insurerinfull and final settlement of all or any claims of Artex against its insurer. It discharges its insurer fromall

actions, proceedings, claims, demands, costs and expenses in respect thereof.With regard the balance unpaid, Wellington contends that Artex should have been directed against thereinsurers to cover the liability and not against Wellington.Issue: WON the insured (Artex) has a cause of action against the reinsurerHeld: NoUnless there is a specific grant in, or assignment of, the reinsurance contract in favor of the insured oramanifest intention of the contracting parties to the reinsurance contract to grant such benefit or favorto



the insured, the insured, not being privy to the reinsurance contract, has no cause of action againstthereinsurer. It is expressly provided in Section 91 the Insurance Act 1 that "(T)he original insured has nointerest in a contract of insurance."Coquia vs. Fieldmen's Insurance Co., Inc.G.R. No. L-23276 November 29, 1968On December 1, 1961, appellant Fieldmen's Insurance Company, Inc. issued, in favor of the Manila

Yellow Taxicab Co., Inc. a common carrier accident insurance policy, covering the period fromDecember1, 1961 to December 1, 1962. Under the policy, the Insurer agreed indemnify the Insured in the eventof accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured willbecome legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver , Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accidentor injury.While the policy was in force a taxicab of the Insured, driven by Carlito Coquia, met a vehicularaccidentat Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed therefor a claim forP5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. TheInsured rejected the same and made a counter-offer for P4,000.00, but the Company did not acceptit.Thus, the Insured and Carlito's parents filed a complaint against the Company to collect the proceedsof the aforementioned policy. CFI rendered a decision sentencing the Company to pay to the plaintiffsthesum of P4,000.00 and the costs.Issue: WON the Coquias have a cause of action against the Company.By: Elaine Marie G. Laceda 145INSURANCE LAWHeld: Yes.Although, in general, only parties to a contract may bring an action based thereon, this rule is subjecttoexceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of thePhilippines, reading: If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation . Amere incidental benefit or interest of a person is not sufficient. The contracting parties must have

clearlyand deliberately conferred a favor upon a third person.Pursuant to the contract, the Company "will indemnify any authorized Driver who is driving the MotorVehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise,"indemnifyhis personal representatives." In fact, the Company "may, at its option, make indemnitypayable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to

protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" — inother words, third parties.Guingon vs. Del MonteG.R. No. L-22042 August 17, 1967Julio Aguilar entered into a contract with the Capital Insurance & Surety Co., Inc. insuring theoperationof his jeepneys against accidents with third-party liability. During the effectivity of such insurance

policyIluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, bumped with the jeepneyof Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter diedsome days thereafter. A corresponding information for homicide thru reckless imprudence was filedagainst Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was imposedon him.The heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paidto them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator JulioAguilar, and the Capital Insurance & Surety Co., Inc. Capital Insurance & Surety Co., Inc. answered,alleging that the plaintiff has no cause of action against it. CFI granted prayer.



Issue: WON the plaintiff could sue the Insurer jointly with the Insured.Held: Yes.The policy in the present case is one whereby the insurer agreed to indemnify the insured "against allsums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injuryto any person . . . ." Clearly, therefore, it is one for indemnity against liability; from the fact then thatthe insured is liable to the third person, such third person is entitled to sue the insurer.The right of the person injured to sue the insurer of the party at fault (insured), depends on whetherthecontract of insurance is intended to benefit third persons also or only the insured. And the test appliedhas been this: Where the contract provides for indemnity against liability to third persons, then thirdpersons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity againstactual loss or payment, then third persons cannot proceed against the insurer, the contract beingsolelyto reimburse the insured for liability actually discharged by him thru payment to third persons, saidthirdpersons' recourse being thus limited to the insured alone.The policy requires that suit and final judgment be first obtained against the insured; that only"thereafter" can the person injured recover on the policy; it expressly disallows suing the insurer as aco-defendant of the insured in a suit to determine the latter's liability. However, the "no action" clauseinthe policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicityof suits.Gibson v. Revilla , 92 SCRA 219 (1979)By:

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