Republic of the Philippines

UNIVERSITY OF NORTHERN PHILIPPINES

Vigan City

COLLEGE OF LAW

Q&A
Insurance

By: Atty. Angelito B. Eder

From INSURANCE CODE OF THE PHILIPPINES ANNOTATED, by Hector S. De

Leon, 2002 Edition: Rex Book Store, Inc., unless otherwise indicated)

Q. WHAT ARE THE LAWS THAT GOVERN INSURANCE?

A. The laws that govern insurance in the Philippines are:

1. Insurance Code of 1978 (P.D. No. 1460, as amended)

It primarily governs the different types of insurance contracts and

those engaged in insurance business in the Philippines. It took effect on June
11, 1978.

2. Civil Code provisions particularly:

a. Arts. 739 (void donations)

b. 2011 (applicability of the Civil Code, suppletory application with
respect to matters not covered by P.D. No. 1460, as amended)
c. 2012 (void donations)
d. 2021 2027 (life annuity contracts)
e. 2186 (compulsory motor vehicle liability insurance)
f. 2207 (right of subrogation)

Q. WHAT IS THE RIGHT OF SUBROGATION?

A. It is a process of legal substitution, the insurer, after paying the amount

covered by the insurance policy, stepping into the shoes of the insured, as it
were, and availing himself of the latters rights that exist against wrongdoer at
the time of the loss.

Q. WHAT IS ITS PURPOSE?

A. Its principal purpose is to make the person who caused the loss, legally
responsible for it and at the same time prevent the insured from receiving
double recovery from the wrongdoer and the insurer. Further, it prevent
tortfeasors from being free from liabilities and is thus founded on
considerations of public policy.

It is applicable only in property inmsurance.

Q. WHEN DOES THIS RIGHT ACCRUE?

A. It accrues simply upon payment of the insurance claim by the insurer.

Payment by the insurer to the insured operates an as equitable assignment to
the former of all remedies which the latter may have against the third party
whose negligence or wrongful act caused the loss.

It is not dependent upon privity of contract or upon written assignment

of the claim.

Q. WHAT ARE SOME NOTABLE FEATURES OF THIS RIGHT?

A. Some notable features are:

1. Loss or injury for risk must be covered by the policy

Under Article 2207, the cause of the loss or injury must be a risk
covered by the policy to entitle the insurer to subrogation.

2. Right of insured to recover from both insurer and third party. However,
recovery is only to the extent of the loss suffered by the insured. Double
recovery is prohibited.

3. Right of the insured to recover from the insurer instead of the third party.
The insurer cannot defeat the right of the insured to recover on the ground
that the insured has a right to recover from the third party wrongdoer.

4. Right of insurer against third party is limited to amount recoverable from

the latter by the insured. The insurer can only recover what the insured can
recover from the third party wrongdoer.

5. Exercise of right of subrogation by insurer is discretionary.

6. The right of subrogation may be lost by an act of the insured like releasing
or waiving g liability of the third party wrongdoer. In such case, the insured
has the obligation to return to the insurer the amount paid. The insurer is
entitled to recover the same.

7. Assignment by insured of its rights against the third party wrongdoer to the
insured is still a case between the insured (shipper or consignee) and the
carrier, and not between third party and carrier, because the latter merely
stepped into the shoes of the insured. Thus, the carrier cannot put up a
defense that the insurance contract is defective because it is not a party to
It.

Q. WHAT IS A CONTRACT OF INSURANCE?

A. It is an agreement whereby one undertakes for a consideration to indemnify

another against loss, damage, or liability arising from an unknown or
contingent event.
Q. FROM ECONOMIC VIEWPOINT, HOW IS IT DEFINED?

A. It is a method which reduces risk by transfer and combination (pooling) of

uncertainty in regard to financial loss.

Q. HOW ABOUT FROM BUSINESS VIEWPOINT?

A. It is a plan by which large numbers of people associate themselves and

transfer to the shoulders of all risks that attach to individuals.

Q. FROM MATHEMATICAL VIEWPOINT?

A. It is the application of certain actuarial (insurance mathematics) principles to

calculate the chance of loss.

Q. SOCIAL ASPECT?

A. It is a social device whereby the uncertain risks of individuals may be

combined in a group and thus made more certain, with small periodic
contributions by the individuals providing a fund out of which those who
suffer losses may be reimbursed.

Q. WHAT ARE THE ELEMENTS OF THE CONTRACT OF INSURANCE?

A. An insurance contracts has the following elements:

1. Subject Matter. It refers to the thing insured.

a. Fire and Marine Insurance - property

b. Life/Health/Accident Insurance - life or health
c. Casualty Insurance - insureds risk of loss or
liability

2. Consideration - premiums (amount is based on the probability of loss)

3. Object and Purpose - transfer and distribution of risk of loss, damage,

or liability through payment of premiums

Q. WHAT ARE THE CHARACTERISTICS OF AN INSURANCE CONTRACT?

A. The characteristics are:

1. consensual
2. voluntary
3. aleatory
4. executed as to the insured, executory as to the insurer
5. conditional, subject to the happening of the event insured against, or in
some cases, payment of premiums and other acts which must be complied
with as a precedent to the right of the insured to claim benefit under it
 6. contract of indemnity (except life and accident insurance where the result is
death) because the promise of the insurer is to make good only the loss of
the insured.
7. personal, for each party have to view the character, credit and conduct of
the other
a. as a rule, the insured cannot assign before the contingency insured
against his rights without the consent of the insurer. Sale of the
property insured must be with the consent of the insurer

Q. WHAT DISTINGUISHES INSURANCE FROM OTHER CONTRACTS?

A. The following distinguishes insurance from other contracts:

1. insured has interest susceptible of pecuniary estimation, known as

insurable interest"
2. insured is subject to a risk of loss through the destruction or impairment of
that interest by the happening of designated perils
3. insurer assumes risk of loss
4 such assumption of risk is part of a general scheme to distribute actual
losses among a large group or substantial number of insured bearing
somewhat similar risk;
5. in consideration of the insurers promise, the insured makes a ratable
contribution called premium to a general fund

Q. WHAT ARE THE CLASSIFICATIONS OF CONTRACTS OF INSURANCE?

A. The classifications are:

1. Insurance against loss or impairment of property interests, which may be

either in existence or merely expected (profits yet to accrue)
2. Insurance against loss of earning power due to death, accident, ill health,
sickness, old age or other disability, or even unemployment
a. Property insurance
3. Insurance against contingent liability to make payment to another
a. reinsurance
b. workmens compensation insurance
c. motor vehicle liability insurance
4. Classification by interests protected
a. First party versus, third party
First party, the insurance is designed to indemnify the insured
for loss directly suffered by insured
- Property insurance
- Liability insurance
- All insurance except liability
- Life insurance
- Health insurance
b. All risk, versus, specified risk
All risks insurance reimburses the insured for damages to the
subject matter of the policy from all causes, except those specifically
excepted in the policy.
 5. Classifications under the Code
a. Life insurance
- individual life (Secs. 179 183, 227)
- group life (Secs. 50, last par., 228)
- industrial life (Secs. 229 231)
b. Non life insurance
- marine (Secs. 99 166)
- fire (Secs. 167 173)
- casualty (Sec. 174)
c. Suretyship or bonding (Secs. 175 178)

Q. HOW ARE CONTRACTS OF SURETYHSIP CONSTRUED?

A. Suretyship contract shall be deemed to be an insurance contracts only if made

by a surety who is doing an insurance business within the meaning of the Code

Q. HOW ARE INSURANCE CONTRACTS CONSTRUED?

A. They shall be construed as follows:

1. where there is ambiguity or doubt, liberally in favour of the insured and

strictly against the insurer
2. where the terms are clear, the contact must be understood and enforced
according to the sense and meaning of the terms which the parties
themselves used

Q. WHAT CONSTITUTES DOING OR TRANSACTING AN INSURANCE

BUSINESS?

A. This means:

1. making or proposing to make, as insurer, any insurance contract;

2. making or proposing to make, as surety, any contract of suretyship as a
vocation and not merely incidental to any other legitimate business or
activity of the surety
3. doing any kind of business, including reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of the Code
4. doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designated to evade the provisions of this Code

Q. WHAT ARE THE GUIDES IN DETERMINING THE DOING OF INSURANCE

BUSINESS:

A. The guides are:

1. profit is immaterial
2. consideration is immaterial
3. name or designation by insurer not controlling
 4. Principal object and Purpose Test - if the principal object is indemnity,
the contract constitutes insurance. If it is service, risk transfer and
distribution being merely incidental, the arrangement is not insurance, and
not subject to laws regulating insurance

Q. WHAT ARE THE FUNCTIONS OF INSURANCE?

A. The functions are:

1. Principal function is risk bearing

2. Subsidiary functions
a. Stimulates business enterprises
b. Encourages business efficiency and enterprise
c. Promotes loss prevention
d. Encourages savings
e. Solves social problems
3. Indirect functions
a. Investment of funds
b. Use of reserve funds
c. Effect on prices
d. As a basis of credit (in mortgages)

Q. WHAT ARE THE REQUISITES OF A CONTRACT OF INSURANCE?

A. The requisites are:

1. A subject matter in which the insured has an insurable interest

- property insurance - property
- life/accident/health insurance - persons
2. Event or peril insured against which is future and contingent
3. Insurers promise to pay
4. Consideration for the promise
5. Meeting of minds
6. It must be in a form approved by the Insurance Commissioner
7. The purpose must not be contrary to law or public policy.

Q. WHO MAY BE PARTIES TO A CONTRACT OF INSURANCE?

A. The parties may be:

1. Insurer
a. Every person, partnership, association, or corporation duly
authorized to transact insurance business
2. Insured
a. Anyone except a public enemy
A public enemy is a natio0n with whom the Philippines is at war
and it includes every citizen or subject of such country
Q. WHAT IS THE INSURABLE INTEREST OF THE MORTGAGEE AND
MORTGAGOR?

A. The insurable interest of the:

1. Mortgagee - insurable interest is to the extent of the debt secured

2. Mortgagor insurable interest is to the extent of the value of the property
mortgaged

The extent of recovery is to the extent of their respective interests

Q. WHAT ARE THE EFFECTS WHERE THE MORTGAGOR EFFECTS

INSURANCE IN HIS OWN NAME PROVIDING THAT THE LOSS SHALL BE
PAYABLE TO THE MORTGAGEE; OR

ASSIGNS THE POLICY TO THE MORTGAGEE?

A. The effects are:

1. The insurance is deemed to be upon the interest of the mortgagor;

2. The mortgagor does not cease to be a party to the original contract;
3. Any act of the mortgagor, prior to the loss, which could otherwise avoid the
insurance, will have the same effect (like sale, the mortgagor cannot recover
for lack of insurable interest), although the property is in the hands
of the mortgagee;
4. Any act which, under the contract of insurance, is to be performed by the
mortgagor (like payment of premiums), may be performed by the
mortgagee with the same effect as if it had been performed by the
mortgagor.
5. The mortgagee may be made the beneficial payee in several ways:
a. become assignee of the policy with the consent of the insurer
b. a pledgee without such consent
c. attaching a rider making the policy payable to mortgagee as his
interest may appear
d. attaching a standard mortgage clause containing a collateral
independent contract between the mortgagee and the insurer
e. the policy may have been procured by the mortgagor under a
contract to insure for the mortgagees benefit who shall have an
equitable interests or lien upon the proceeds
6. In case of loss, the mortgagee is entitled to the proceeds to the extent of the
credit
7. Recovery by the mortgagee to the extent of his credit extinguishes the debt
8. The rule on subrogation by the insurer to the right of the mortgagee does
not apply.

Q. MAY THE MORTGAGEE INSURE HIS OWN INTEREST IN THE

MORTGAGED PROPERTY?

A. Yes. If he does so, he is entitled to the proceeds of the policy in case of loss
before payment of the mortgage.
Q. WHAT ARE THE EFFECTS WHEN THE MORTGAGEE INSURES HIS OWN
INTEREST IN THE MORTGAGED PROPERTY?

A. The effects are:

1. the mortgagee is not allowed to retain his claim against the mortgagor but it
passes by subrogation to the insurer to the extent of the insurance money
paid
2. the payment of the insurance to the mortgagee by reason of the loss does
not relieve the mortgagor from his principal obligation but only changes the
creditor. Should the amount paid as value of the insurance is less than the
credit, the mortgagee may recover the difference from the mortgagor

Q. WHAT IS A STANDARD OR UNION MORTGAGE CLAUSE?

A. The clause is a separate and distinct contract of insurance on the interest of

the mortgagee.

Thus, a mortgagee may procure a policy, as a contracting party in

accordance with the terms of an agreement by which the mortgagor is to pay
upon such insurance

Q. WHAT IS AN OPEN OR LOSS PAYABLE MORTGAGE CLAUSE?

A. It is one which provides for the payment of loss, if any, to the mortgagee as his
interest may appeal and under it, the acts of the mortgagor affect the
mortgagee.

INSURABLE INTEREST

Q. WHAT IS INSURABLE INTEREST?

A. It is that interest which the law requires the owner of an insurance policy to
have in the person or thing, insured.

Q. WHAT ARE THE TESTS IN DETERMINING INSURABLE INSTEREST?

A. The tests are:

1. where the insured has a relation or connection with or concern in it that he

will derive pecuniary benefit or advantage from its preservation and will
suffer pecuniary loss or damage from its destruction, termination, or injury
by the happening of the event insured against.
2. having benefit from its existence and loss from its destruction
3. is not pecuniary in life insurance

Life and health

a. life of insured, spouse, children

 b. any person upon whom insured is wholly or in part dependent for
education or support, or in whom he has pecuniary interest (creditor
insuring the life of the debtor)
c. Any person under a legal obligation to insurer for the payment of
money, or respecting property or services, of which death or illness might
delay or prevent the performance
d. of any person upon whose life any estate or interest vested in him
depends

Q. WHO IS A BENEFICIARY?

A. The beneficiary is a person designated in an insurance contract of life, health,

or accident as the one who is to receive the benefits which becomes payable,
according to the terms of the contract, upon the death of the insured

Q. WHERE THE BENEFICIARY PREDECEASE THE INSURED, WHO IS

ENTITLED TO THE PROCEEDS?

A. There are 2 views. They are:

1. the beneficiarys representatives for the reason that the beneficiary has
vested interest in the insurance (where the right to change the beneficiary is
waived in the policy)
2. the proceeds go to the estate of the insured for the reason that it is
presumed that the insured procured insurance solely for the benefit of the
beneficiary when the former dies as the former is accustomed to have been
giving support to the beneficiary when he was still alive.

Q. WHAT ARE THE GRONDS FOR THE FORFEITURE OF THE INTEREST OF

THE BENEFICIARY?

A. The grounds are:

1. when the beneficiary is the:

a. principal
b. accomplice
c. accessory
in wilfully bringing about the death of the insured

Q. WHAT IS THE EFFECT IF SUCH INTEREST IS FORFEITED?

A. The nearest relative of the insured is entitled to the proceeds of the insurance
if not disqualified

Q. WHEN SHALL THERE BE AN INSURABLE INTEREST IN PROPERTY?

A. Insurable interest must be present when the insurance takes effect and at the
time of loss.
Q. WHEN IS THERE INSURABLE INTEREST IN PROPERTY?

A. When there is interest, real or personal, or any relation thereto, or liability in

respect thereof, which is of such nature that a contemplated peril might
directly damnify the insured.

Q. WHAT DOES IT CONSIST OF?

A. It consists of:

1. an existing interest
2. inchoate interest founded on an existing interest (a stockholder has an
inchoate interest to the properties of the corporation)
3. an expectancy, coupled with an existing interest in that of which the
expectancy arises (insuring future crops

Q. WHAT IS THE INSURABLE INTEREST OF A CARRIER OR DEPOSITORY?

A. Their insurable interests are the extent of their liability but not to exceed the
value of the property involved

Q. WHAT THE MEASURE OF INSURABLE INTEREST IN PROPERTY?

A. The measure is the extent to which the insured might be damnified by loss or
injury thereof

Q. WHEN IS AN INSURANCE SUSPENDED?

A. It is suspended when:

1. when there is a change of interest in any part of a thing insured

2. without a corresponding change of interest in the insurance

Q. WHAT ARE THE EXCEPTIONS?

A. The exceptions are:

1. life, accident, and health insurance

2. change of interest in a thing insured, after the injury thereto or loss thereof
3. change of interest in one or more of several things, separately insured by
one policy
4. change of interest by will or succession on the death of the insured
5. transfer of interest by one or several partners, joint owners, or owners in
common, who are jointly insured, to the others
6. the policy is framed that it inures to the benefit of whomsoever may become
the owner of the interest insured
7. when there is an express prohibition against alienation in the policy,
otherwise the policy is voided not merely suspended.
 CONCEALMENT

Q. WHAT IS CONCEALMENT?

A. There is concealment when there is neglect to communicate that which a party

knows and ought to communicate.

Q. WHAT ARE ITS REQUISITES?

A. Its requisites are:

1. a party knows the fact which he neglects to communicate of disclose to the

other
2. such party concealing is duty bound to disclose such fact to the other
3. party concealing makes no warranty of the fact concealed
4. the other party has no means of ascertaining the fact concealed

Note: Fraud is not required

Q. WHAT IS ITS EFFECT?

A. Whether intentional or not, entitled the injured party to rescind the contract

Q. WHAT ARE THE MATTERS TO BE COMMUNICATED EVEN IN ABSENCE

OF AN INQUIRY?

A. They are:

1. those which are material to the contract

Test of Materiality
If the knowledge of that fact would influence the parties in making the
contract. It is to be determined 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
2. those which the other has no means of ascertaining
3. those which the party duty bound to communicate makes no warranty

Q. WHEN IS FRAUD REQUIRED TO RESCIND IN CASES OF

CONCEALMENT?

A. Fraud is required when the party bound to communicate (the insured)

intentionally and fraudulently fails to do so of matters proving or tending to
prove the falsity of a warranty.

Q. WHAT NEED NOT BE COMMUNICATED?

A. They are:

1. those which the other party knows

2. those which the other party ought to know by the exercise of ordinary care
 3. those which the other waives communication
4. those which tend to prove the existence of a risk excluded by a warranty,
and which are not otherwise material
5. those which relate to the risk excepted and which are not material
6. nature or amount of interest of insured; unless in answer to an inquiry,
except if the insured is not the absolute owner of the property insured
7. judgments, opinions, speculations need not be communicated

REPRESENTATION

Q. WHEN IS THERE REPRESENTATION?

A. There is representation when there are factual statements made by the

insured at the time of, or prior to, the issuance of the policy (Sec. 37) to give
information to the insurer and otherwise him to enter into the insurance
contract

Q. WHAT IS MISREPRESENTATION?

A. There is misrepresentation when there is a statement:

1. as a fact of something which is untrue;

2. which the insured stated with knowledge that it is untrue and with an intent
to deceive; or which he states positively as true without knowing it to be
true and which has a tendency to mislead; and
3. where such fact in either case is material to the risk

Q. WHAT IS THE EFFECT OF MISREPRESENTATION BY THE INSURED?

A. The effect is that it renders the insurance contract voidable at the option of the
insurer, although the policy is not thereby rendered ab initio

Q. WHAT IS THE FORM AND NATUTRE OF REPRESENTATION?

A. Representation are statements/information concerning the risk/s as will be of

use to the insurer in estimating its character and in determining whether or
not to assume it

Representation forms as basis of contract. It describes, marks out, and

defines the risk assumed. If the description as relied on by the insurer, proved
to be untrue in any material respect, the insurer may deny liability.

Note: 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. The right to rescind
granted by this Code to the insurer is waived by the acceptance of premium
payments despite knowledge of the ground for rescission

Representations are intended as collateral inducements to influence the

insurer to accept the risk. It may be:
 1. oral
2. written
3. made before issuance of the policy
4. at the time of issuance of the policy
5. affirmative
6. promissory

Q. WHAT IS AFFIRMATIVE REPRESENTATION?

A. An affirmative representation is any allegation as to the existence or non

existence of a fact when the contract begins

Q. WHAT IS PROMISSORY REPRESENTATION?

A. A promissory representation is any pro0mise to be fulfilled after the contract

has come into existence or any statement concerning what is to happen during
the existence of the insurance (unless it appears that it was merely a statement
of belief or expectation)

Q. WHAT IS THE NATURE OF PROMISSORY REPRESENTATIONS?

A. It can be used in two (2) senses:

1. Used to indicate a parol or oral promise made in connection with the

insurance, but not incorporated in the policy. Non performance of such a
promise is not a defense unless there was fraudulent intent
2. Used as an undertaking by the insured, inserted in the policy, but not
specifically made a warranty
3. It is substantially a condition or a warranty

Q. WHAT IS THE EFFECT ON POLICY OF EXPRESSIONS OF OPINION OR

EXPECTATIONS?

A. A false representation of expectation, intention, belief, opinion, or judgment

will not avoid the policy if there is no actual fraud in inducing the acceptance
of the risk

The good faith of the insured furnishes the criterion of truth, for they
can only be false when the intention, opinion, or belief as stated is not
honestly entertained.

Intent to deceive or bad faith is required to avoid liability

Q. IN REPRESENTATION OF FACTS, WHAT ARE REQUIRED FOR THE

INSURER TO AVOID LIABILITY?

A. They are:

1. falsity of the representation

2. materiality of the representation as defined in Sections 44, 45, and 46
 Intent to deceive is presumed

Q. REPRESENTATION CANNOT BE WHAT?

A. They cannot be considered as:

1. express provision in the contract

2. express warranty, but may qualify as an implied warranty.

Reason: Representation is not part of the contract but only collateral

inducement to it

Q. REPRESENTATION REFERS TO WHAT TIME?

A. It refers only to the time the contract goes into effect and not subsequent
thereto

No Misrepresentation : if true at the time the contract takes effect but

false at the time it was made
False/Misrepresentation : if false at the time the contract takes effect but
true at the time the contract is made

Q. INFORMATION FROM THIRD PERSONS, ARE THEY REPRESENTATION?

A. Gen Rule: They are not representations

Exception: When the information comes from an agent of the insured, the
former having the duty to communicate to his principal

Q. WHEN IS A REPRESENTATION FALSE?

A. It is false when the facts fail to correspond with the assertions or stipulations

Q. WHEN IS A REPRESENTATION MATERIAL?

A. Same as in concealment

Q. WHAT ARE THE DIFERRENCES BETWEEN CONCEALMENT AND

REPRESENTATION?

A. In concealment, the insured withholds information of material fact

In misrepresentation, the insured makes erroneous statements of facts with
the intent of inducing the insurer to enter into an insurance contract

Q. WHAT ARE THEIR SIMILARITIES?

A. Their similarities are:

1. The test of materiality applies to both

2. The injured party has the right to rescind, whether intentional or not
3. Unless otherwise specified, they follow the same rules
Q. WHEN CAN THE RIGHT TO RESCIND BE EXERCISED?

A. It can be exercised prior to the commencement of an action on the contract,

except in life insurance where the contract becomes incontestable after two (2)
years from the date of issue or last reinstatement

Q. WHAT ARE THE REQUISITES FOR INCONTEATABILITY?

A. The requisites are:

1. the policy is a life insurance policy

2. payable upon the death of the insured
3. it has been in force during the lifetime of the insured for at least (2) years
from the date of issue or of its last reinstatement

Q. WHAT ARE THE EFFECTS WHEN THE POLICY BECOMES

INCONTESTABLE?

A. Insurer may not refuse paying by claiming:

1. policy is void
2. policy is rescindable

Q. WHAT ARE THE GROUNDS FOR REFUSING TO PAY IF THE POLICY IS

INCONTESTABLE?

A. They are:

1. lack of insurable interest

2. cause of death is an excepted risk
3, premiums have not been paid, unless there is a waiver
4. conditions relating to military or naval service have been violated
5. vicious fraud, policy taken to murder insured
6. no proof of death
7. prescription (1 year)

POLICY

Q. WHAT IS AN INSURANCE POLICY?

A. It is a written document embodying the terms and stipulations of the contract

of insurance between the insured and the insurer.

Q. IN WHAT FORM MAY IT BE MADE?

A. It must be in writing, either formal (carefully drawn and written and may even
be notarized) or informal (binding slip, written application informally
accepted
Q. WHEN IS A CONTRACT OF INSURANCE PERFECTED?

A. It is perfected unless otherwise agreed upon by the parties

Q. WHY IS DELIVERY OF THE POLICY IMPORTANT?

A. Delivery of the policy is important because:

1. it is the evidence of the making of the contract and of its contents

2. it is a communication of the insurers acceptance of the insureds offer
3. it determines the policy period

Q. WHAT ARE THE DIFFERENT MODES OF DELIVERY OF THE POLICY?

A. They are:

1. Actual, to the insured in person or to his duly authorized agent

2. Constructive delivery, like deposit in the post office especially where there
are no conditions to be fulfilled

Q. WHAT IS THE EFFECT OF THE DELIVERY OF THE POLICY?

A. The effects are:

1. Where delivery is conditional. The non performance of the condition

precedent prevents the contract from taking effect
2. Where delivery is unconditional. The unconditional delivery consummates
the contract. The policy delivered becomes the final contract
3. Where premiums are unpaid despite unconditional delivery. Extension of
credit is not presumed. Even if extension of credit is presumed, there must
be a clear and express acceptance by the insured of the insurers offer to
extend credit. Clear and express acceptance by the insured of the insurers
offer to extend credit is required

Q. WHAT ARE RIDERS?

A. Riders are printed or typed stipulations contained on a slip of paper attached

to the policy and forming an integral part thereof. They are considered
binding stipulations between the parties. This saves the trouble and expense
of making an entirely new contract.

Q. WHAT IS THE EFFECT OF RIDERS, SLIPS, OR OTHER DOCUMENTS

ATTACHED TO THE POLICY?

A. They become part of the policy provided:

1. their descriptive title or name is mentioned and written on the blank spaces
provided in the policy
2. if issued after the original policy, they shall be countersigned by the insured
Q. IN CASE OF CONFLICT BETWEEN THE POLICY AND THE RIDER, WHICH
PREVAILS?

A. The rider prevails for being a more deliberate expression of the agreement of
the contracting parties

Q. WHAT IS THE EFFECT OF FAILURE TO READ THE POLICY?

A. Majority Rule. Acceptance without reading is not negligence per se.

Acceptance and retention of the policy unread is not laches as will defeat the
right of reformation

Minority Rule. One who accepts a contractual instrument is conclusively

presumed to have assented to its contents, in the absence of fraud and mutual
mistake. The insured has the duty to read his policy.

Q. WHAT ARE THE EXCEPTIONS TO THE MINORITY RULE

A. They are:

1. the insured could not have discovered the erroneous statement by such
reading
2. insured failure to read is excused where he is induced by the fraud of the
agent of the insurer not to read the policy
3. where the contracts are long, complicated and difficult if the insured is
illiterate or unable to read English

Q. WHAT IS THE DOCTRINE OF REASONABLE EXPECTATIONS?

A. This doctrine operates to impose de facto a duty on the insurer to explain the
policys coverage to the insured. If a court holds than an insureds reasonable
expectations entitle him to coverage despite policy language to the contrary,
the court has said, in effect, that the insurer must pay for the loss because the
insurer failed to explain the limitations on coverage to the insured. In other
words, if the insurer had provided an explanation of the coverage, the
insureds expectations of different coverage would have been rendered
unreasonable.

Q. WHEN IS THERE GROUP INSURANCE?

A. There is a group insurance when a number of individuals by means of a single

or blanket policy. Thereby affecting economies which frequently enable the
insurer to sell its services at lower rates than are ordinarily obtainable for the
same type of insurance protection on life policies sold to individuals

Q. WHAT IS ITS FORM AND NATURE?

A. Its form and nature are:

1. it is a single insurance contract

 2. provides coverage to many individuals
3. covers only life and health insurance
4. usually for the employees of an employer
5. flat premium is charged based upon the average age
6. premiums generally paid by the employer
7. it is not an indemnity insurance
8. it is in addition and distinct from workmens compensation insurance
9. it is a contract between the employer and insurer but for the benefit of the
employees heirs/beneficiaries
10. it affects four parties, namely, the insurer, employer, insured, and
beneficiaries
11. a master policy is issued to the employer and certificates of participation
are issued to individual employees
12. employer acts as agent of insurer
13. employees are the real party in interest
14. premiums paid by the employer are part of the compensation of the
employees

Q. WHAT ARE THE CONTENTS OF A POLICY?

A. The parties are:

1. the parties
2. amount to be insured except in cases of open or running policies

An open policy is one where the value of the thing insured is not agreed
upon, but is left to be determined in case of loss.

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. They are open policies

3. premium or statement of the basis and rates upon which the final premium
is to be determined
4. property of the insured
5. interest of the insured in the property insured
6. risk insured against
7. period during which the insurance is to continue

Q. WHAT ARE THE KINDS OF INSUABLE RISKS?

A. They are:

1. Personal Risks. This risk is chiefly concerned with the time of death or
disability. They are life and health risk
2. Property Risks. It is that which arises from the destruction of property
Direct losses by fire, lightning, flood, etc
Indirect like loss of profits, rents or favourable leases
3. Liability Risks. It involves liability for the injury to the person of property of
others
Q. DIFFERENTIATE RISK, PERIL, AND HAZARD?

A. Risk is the chance of loss. There is no risk if a loss is absolutely certain to

happen; peril, is the contingency that one insures against; and hazard is the
condition or factor, tangible or intangible which may create or increase the
chance of loss from a given peril.

The sum total of the hazards constitute the perils which cause the risk.

Q. WHAT ARE THE TWO KINDS OF HAZARDS?

A. They are:

1. Physical Hazards. These relates to location, structure, occupancy, exposure,

etc
2. Moral Hazards. These are applied to factors that have their inception in
mental attitudes, like dishonesty, insanity, carelessness, indifference, and
other causes psychological in nature

Q. WHAT ARE THE REQUIREMENTS FOR RISKS TO BE INSURABLE?

A. They are:

1. Importance. The loss must be important enough to warrant an insurance.

2. Calculability. There must be a reasonable statistical estimate of the chance
of loss and possible variations from the estimate
3. Definiteness of loss. Loss should be fairly definite as to cause, time, place,
and amount
4. No catastrophic loss for it goes against the principle that losses of the few
are borne by the contributions of the many
5. Accidental in nature. Insurable risks must also normally be accidental in
nature

Q. WHAT ARE THE FORMS OF PRELIMINARY CONTRACTS OF

INSURANCE?

A. They are:

1. preliminary contract of present insurance

The insurer insures the subject matter usually by what is known as the
binding slip, or binder, or cover note, the contract to be effective until
the formal policy is issued or the risk rejected. It is a temporary contract of
insurance and usually issued after the applicant pays the first premium

2. preliminary contract of executory insurance

The insurer makes a contract to insure the subject matter at some

subsequent time which may be definite or indefinite. The right of the insured
is merely to demand delivery of the policy in accordance with the terms agreed
upon and the obligation assumed by the insurer is to deliver the policy
Q. WHAT ARE SOME RULES ON COVER NOTES?

A. They are:

1. no separate premiums are intended or required

2. it may be issued by insurance companies doing business in the Philippines
3. it is a contract of insurance within the meaning of the Code
4. it is valid and binding for sixty days from date of issuance unless cancelled
5. may be extended or renewed beyond 60 days with the written approval of
the Insurance Commissioner

Q. MAY AN INSURANCE BE TAKEN BY AN AGENT FOR HIS PRINCIPAL?

A. Yes. He may. The principal is the real party in interest and this should be
indicated by describing the insured as agent or trustee of by other general
words in the policy

Q. HOW ABOUT A PARTNER OR PART OWNER?

A. Yes. He may likewise. It is necessary that the terms of the policy should be
such as are applicable to the joint or common interest

Q. WHO MAY BE AN INSURED?

A. He may be:

1. described in general that it may comprehend any person or any class of

persons, and only he who can show that it was intended to include him can
claim the benefit of the policy
2. whomsoever, during the continuance of the risk, may become the owner of
the interest insured

Q. WHAT IS CANCELLATION?

A. It is a right to rescind, abandon, or cancel a contract of insurance, a

termination by either party of a policy before its expiration.

Q. WHAT ARE REQUIRED FOR CANCELLATION BY INSURER OF A NON

LIFE INSURANCE POLICY?

A. These are required:

1. there must be a written notice of cancellation

2. given to the insured
3. before the expiration of the policy or the occurrence of the loss
4. it must be based on a ground occurring after the effective date of the policy
5. the ground must be those set by law
6. upon request of the insured, the insurer must furnish the facts on which the
cancellation is based
Q. WHAT ARE THE GROUNDS FOR CANCELLATION?

A. The grounds are:

1. non payment of premiums

2. conviction of a crime increasing the hazard insured against
3. fraud or material misrepresentation
4. willful or reckless acts or omissions increasing the hazards insured against
5. physical changes in the property insured resulting to its becoming
uninsurable
6. continuation of the policy would violate the Insurance Code

Q. WHEN MAY A NON LIFE INSURANCE POLICY BE RENEWED?

A. It may be renewed at least 45 days in advance of the end of the policy by a

written notice to the insured of the insurers intention to renew the policy

Q. WHEN IS THERE A NEW CONTRACT AND WHEN IS THERE AN

EXTENSION OF THE OLD ONE?

A. As a general rule, a renewal of insurance by the payment of a new premium

and the issuance of a receipt therefor where there is no provision in the policy
for its renewal is a new contract on the same terms as the old one.

But where the renewal is in pursuance of a provision to that effect, it is

not a new contract but an extension of the old one.

Q. WHERE THE POLICY HAS NO FIXED EXPIRATION DATE AND LONGER

THAN 1 YEAR, WHEN DO WE RECKON THE START OF THE 45 DAYS?

A. The 45 days shall be reckoned from the end of each year because the policy is
considered as if written for successive policy period terms of one (1) year.

Q. WHAT IS THE EFFECT WHERE THE INSURER DOES NOT COMPLY WITH
THE NOTICE OF CANCELLATION AND NOTICE OF ITS INTENTION NOT
TO RENEW THE POLICY?

A. The effect is that the insurer has the obligation to renew the policy whether he
likes it or not.

WARRANTIES

Q. WHAT IS A WARRANTY?

A. A warranty is a statement or promise by the insured set forth in the policy or

incorporated in it by proper reference, the untruth or non fulfilment of
which in any respect and without reference to whether the insurer was in fact
prejudiced by such untruth or non fulfilment.
 Intention of the parties govern in considering whether a statement in
the policy is a warranty or not

Q. WHAT ARE THE KINDS OF WARRANTIES?

A. They are:

1. Express

It is an agreement contained in the policy or clearly incorporated

therein as part thereof whereby the insured stipulates that certain facts
relating to the risk are or shall be true or certain acts relating to the same
subjects have been or shall be done

It must be contained in the policy itself or another instrument. Another

instrument was construed not to include a rider but something akin to the
policy itself which a contract of insurance is set forth

The statement in the policy relating to the person or thing insured, or

to the risk, must be as a fact and not as an opinion, or belief to constitute an
express warranty thereof

2. Implied

It is a warranty which from the very nature of the contract or from the
general tenor of the words, although no express warranty is mentioned, is
necessarily embodies in the policy as a part thereof and which binds the
insured as though expressed in the contract

In marine insurance, there is an implied warranty that the ship is sea

worthy when the policy attaches

3. Affirmative

It is one which asserts the existence of a fact or condition at the time it

is made.

Unless the contrary is proven or appears, courts will presume that the
warranty is merely affirmative

4. Promissory

It is one where the insured stipulates that certain facts or conditions

pertaining to the risk shall exist or that certain things with reference thereto
shall be done or omitted

It is in the nature of condition subsequent.

An affirmative answer to the question Will you keep your jewelries in

an iron safe or secure in another building? was held as a promissory warranty
 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

Example. Where it is agreed that the house insured shall not be

occupied by tenants is a promissory warranty

Q. AT WHAT TIME SHALL A WARRANTY REFER TO?

A. It may relate to the past, present, future, or to any or all of these

Q. HOW IS A WARRANTY DIFFERENT FROM REPRESENTATION?

A. The differences are:

1. A warranty is considered part of the contract of insurance; while a

representation is but collateral inducement to the contract
2. A warranty is always written on the face of the policy actually, or by
reference; while a representation may be written on a totally disconnected
paper or may be oral
3. A warranty must be strictly complied with; while in representations,
substantial truth only is required
4. The falsity or non fulfilment of a warranty operates as a breach of
contract; while the falsity of a representation renders the policy void on the
ground of fraud
5. Warranties are presumed material; while the insurer must show the
materiality of a representation in order to defeat an action on the policy

Q. MAY A REPRESENTATION BE CONSIDERED A WARRANTY?

A. Yes, provided:

1. it must be expressly included or incorporated by clear reference in the policy

2. the contract must clearly show that the parties intended that the rights of
the insured would depend on the truth of fulfilment of the warranty or a
representation

Q. WHEN IS AN ACT OR OMISSION MATERIAL TO THE RISK?

A. It is material to the risk if it increases the risk and a substantial increase in the
risk forfeits the policy which is voided for increase in hazard

Q. WHAT IS THE RULE ON THE EFFECT OF A VIOLATION OF A

WARRANTY?

A. The rule is that a violation of a warranty avoid a contract of insurance

Exceptions

1. when the loss occurs before time for performance

2. when performance becomes unlawful
 3. where performance becomes impossible

Q. WHAT ARE VALID DEFENSES AGAINST RESCISSSION OF A POLICY ON

THE GROUND OF CONCEALMENT AND BREANCH OF WARRANTY?

A. The grounds are:

1. that the acts complained of do not constitute concealment or breach of

warranty
2. that they are not material to the risks insured against
3. that the insurer waived the ground
4. that the insurer is guilty of laches (insurer must have prior knowledge of the
concealment or facts constituting the breach

Q. WHAT IS THE REMEDY OF THE AGGRIEVED PARTY WHERE THERE IS A

VIOLATION OF A MATERIAL WARRANTY?

A. The remedy is to rescind the contract of insurance

Q. MAY VIOLATION OF IMMATERIAL PROVISIONS AVOID THE POLICY?

A. No. it does not avoid the policy.

Exception. Where the policy declares that a violation of a specified provision

thereof shall avoid it

Q. WHAT ARE THE TWO WAYS OF BREACHING A WARRANTY BY THE

INSURED?

A. The two ways are:

1. Where it is done without fraud

Effect. The policy is avoided only from the time of breach

Rights of Insured

a. Return of premiums paid from the time of breach if it occurs after

the inception of the contract
b. Return of all the premiums if it is broken at the inception of the
contract because the contract is void ab initio and never becomes
binding

2. Where it is done with fraud

Effect. The policy is avoided ab initio

Right of Insured

a. The insured is not entitled to a return of premiums

Q. HOW ARE CONDITIONS INTERPRETED IN AN INSURANCE POLICY?

A. Condition are events signifying, in its broadest sense, either an occurrence or

a non occurrence that alters the previously existing legal relations of the
parties to a contract of insurance.

Q. WHAT DOES THE LAW REQUIRE OF A CONDITION IN AN INSURANCE

CONTRACT?

A. The law requires the conditions be not contrary to law, morals, good customs,
public order, and public policy

Q. WHAT ARE THE KNIDS OF A CONDITION?

A. They are:

1. Condition precedent. It calls for the happening of some event or the

performance of some act after the terms of the contract have been agreed
upon, before the contract shall be binding on the parties

Example. That the contract shall not take effect until delivery and
payment of the first premiums during the good health of the applicant

2. Condition subsequent. It pertains not to the attachment of the risk and the
inception of the policy, but to the contract of insurance after the risk has
attached and during the existence thereof

Example. Condition requiring proof of loss in case of loss upon an

insurance against fire

Q. HOW ARE CONDITIONS DISTINGUISHED FROM WARRANTIES?

A. They are:

1. As to effect

a. Warranty does not suspend or defeat the operation of a contract, but

a breach affords either the remedy expressly provided in the contract
or that furnished by law; while a condition precedent is one without
the performance of which the contract, although in the form
executed by the parties and delivered, does not spring into life
b. A warranty is not a limitation on the attachment of risk; while a
condition is a limitation on the attachment of risk

2. As to nature

a. Falsity of a warranty makes the policy null and void; while

condition may be precedent preventing operation of the policy in
case of non fulfilment
b. Promissory warranties may be regarded as conditions subsequent
the non fulfilment of which gives rise to defeasance
Q. WHAT ARE EXCEPTIONS

A. Exceptions are insertions in a contract of insurance for the purpose of

withholding from the coverage of the policy, as delimited by the general
language describing the risk assumed, some specific risks which the insurer
declares himself unwilling to undertake

Q. HOW ARE EXCEPTIONS, WARRANTIES, AND CONDITIONS

DISTINGUISHED?

A. They are:

1. A warranty

A warranted statement that the building insured is occupied

2. A condition

That this policy shall be void if the insured building be or

becomes vacant or unoccupied and so remained for more than 10 days

3. An exception

That his company shall not be liable for any loss while the
insured building is vacant or unoccupied

Effect. The insurance is suspended as long as the building remains

unoccupied, but as soon as it is occupied, but as soon as it is occupied, the
insurance is revived or reinstated

Q. WHAT IS THE EFFECT ON BREACH OF:

A. 1. Warranty and Condition - contract is defeasible or voidable

2. Exception - contract is suspended

Q. IS WAIVER APPLICABLE?

A. Yes. It is applicable in warranty and condition

No. It is not applicable in breach of an exception for the contract is suspended

PREMIUM

Q. WHAT IS PREMIUM?

A. A premium is the agreed price for assuming and carrying the risk, or the
consideration paid an insurer for undertaking to indemnify the insured

Q. WHAT IS AN ASSESSMENT?

A. An assessment is a sum specifically levied by mutual insurance companies or

associations upon a fixed and definite plan, to pay losses and expenses
Q. HOW ARE THEY DIFFERENT?

A. They are different in that:

1. Premiums are levied and paid to meet anticipated losses; while assessments
are collected to meet accidental losses;
2. Payment of premium after the first is not enforceable against the insured;
while assessments are enforceable once levied, unless otherwise agreed
upon
3. A premium is not a debt; while an assessment, unless otherwise expressly
agreed, is a debt

Exception

a. in fire, casualty, and marine insurance as soon as the risk

attaches
b. in suretyship as soon as the contract or bond is perfected and
delivered to the obligor

In these cases, the premiums not paid are debts and the contract
is not cancelled if the balance of the premium is not paid; otherwise, it
is the insured who exclusively decides whether the contract should
stand or not

Q. WHAT IS THE RULE ON NON PAYMENT OF PREMIUM?

A. The general rule is:

1. First premium. Non payment, unless waived, prevents the contract from
becoming binding, notwithstanding acceptance of the application nor the
issuance of the policy

2. Balance. It does not produce the cancellation of the contract

3. Subsequent. It does not affect the validity of the contract, unless by express
stipulation it is provided that the policy shall in that event be suspended or
shall lapse

In cases of individual life or endowment insurance, the policy

holder is entitled to a grace period of either thirty (30) days or one (1)
month within which the payment of any premium after the first may be
made

In case of industrial life insurance, the grace period is forty (40)

weeks, and where premiums are payable monthly, either thirty (30)
days or one (1) month

THUS, THE GRANT OF A CREDIT EXTENSION TO THE

INSURED IN PAYMENT OF NON LIFE INSURANCE PREMIUM, IS
VOID, FOR BEING CONTRARY TO LAW (SECTION 77, INSURANCE
CODE OF THE PHILIPPINES)
Q. CAN PAYMENT OF PREMIUMS BE EXCUSED?

A. General Rule. No, even in cases of:

1. Fortuitous events
2. Act of God
3. Where payment becomes impossible
4. War
5. Where the insured has not been negligent

Exceptions. The non payment of premium is excused when:

1. the insurer becomes insolvent and has suspended business

2. insurer has refused without justification a valid tender of premiums
3. failure to pay was due to the wrongful conduct of the insurer, as when the
insurer induced the beneficiary under a policy to surrender it for
cancellation by falsely representing that the insurance was illegal and void,
and returning the premiums paid
4. where the insurer has in any way waived his right to demand payment

Q. WHEN IS A POLICY VALID AND BINDING DESPITE NON PAYMENT OF

PREMIUMS?

A. It is valid and binding:

1. in case of life or industrial policy when the grace period applies

2. when there is an acknowledgment in a contract of insurance of receipt of
premiums even if there is a stipulation therein that it shall not be binding
until the premium is actually paid
3. when there is an agreement to grant the insured credit extension for the
payment of premiums
4. when there is an agreement allowing the insured to pay the premium in
instalments and partial payment has been made at the time of loss

THE PRESUMPTION IS, ONCE A POLICY HAS BEEN ISSUED, PREMIUMS

HAVE BEEN PAID

Q. WHAT ARE THE EFFECTS OF ACKNOWLEDGMENT RECEIPT OF

PREMIUM ON POLICY?

A. The effects are:

1. There is a waiver of precondition of prepayment

2. The insurer can recover unpaid premiums.

The acknowledgment does not operate as a waiver of the right to

collect premiums if unpaid. The effect 9conclusive presumption)
extends only to the binding effect of the policy. The acknowledgment
receipt is only a prima facie evidence of the fact of such payment which
the insurer can rebut
Q. WHEN IS THE INSURED ENTITLED TO A RETURN OF PREMIUMS PAID?

A. The insured is entitled to return of premiums paid:

1. To the whole of the premium, if no part of his interest in the thing insured
be exposed to any of the perils insured against
2. 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, or at a pro rata ratio, unless a short period rate has
been agreed upon and appears on the face of the policy

This can be availed of in life insurance policy with the added

requirement that the availment must be sufficient cause provided by
law, otherwise the insured is not entitled to return of premiums paid

There is no right to a return of premium:

a. insurance is not for a definite period

b. where a short period rate has been agreed upon
c. where the policy is a life insurance policy

3. When the contract is voidable on account of:

a. fraud or
b. misrepresentation of the insurer, or of his agent, or on account of
c. facts, the existence of which the insured was ignorant without his
fault
d. when by default of the insured other than actual fraud, the insurer
never incurred any liability under the policy
e. in case of over insurance by several insurer, proportion to the
amount by which the aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk
4. When rescission is granted due to insurers breach of contract

LOSS

Q. WHAT IS LOSS?

A. It is the injury, damage, or liability sustained by the insured in consequence of

the happening of one or more of the perils insured against which the insurer,
in consideration of the premium, has undertaken to indemnify the insured

Q. WHEN MAY CLAIM OF THE INSURED BE TRANSFERRED?

A. The claim may be transferred:

1. after the loss has occurred

2. before the loss
Q. WHAT IS THE EFFECT OF AN AGREEMENT NOT TO TRANSFER CLAIM
OF INSURED MADE BEFORE AND AFTER THE LOSS?

A. Such an agreement is void because it hinders free transmission of property.

Q. IS THERE AN EXCEPTION?

A. Yes. There is an exception and that is:

Transfer of policy of fire insurance to any person or company who acts

as an agent or otherwise represents the issuing company. Such transfer is void
insofar as it affects other creditors of the insured

Q. WHAT IS THE EXTENT OF THE LOSS FOR THE INSURER TO BE LIABLE?

A. The extent is dependent on:

1. whether the insured suffered a loss; and

2. extent of the loss

Q. WHAT SHOULD BE THE CAUSE OF THE LOSS FOR INSURER TO BE

LIABLE?

A. The loss must be proximately or immediately caused by the happening of the

peril insured against, although a peril not insured against may have been the
remote cause of the loss

Q. WHAT IS MEANT BY PROXIMATE CAUSE?

A. Proximate cause is that which, in natural and continuous sequence, unbroken

by any new independent cause, produces an event and without which the
event would not have occurred

It is the efficient cause, the one that sets others in motion. It is

that to which the loss is to be attributed

Q. MAY THE PRINCIPLE ON PROXIMATE CAUSE BE EXTENDED?

A. Yes. It may be extended as follows:

1. when the loss took place while the thing insured against is being rescued
from the peril insured against

2. where the loss is caused by efforts to rescue the thing insured from the peril
insured against

Q. IS THE INSURER LIABLE FOR LOSS BY FIRE, EXCEPT EXPLOSION?

A. 1. Proximate cause is fire

2. Immediate cause is explosion
 The insurer is liable
_____________________

1. Proximate cause is explosion

2. Immediate cause is fire

The insurer is not liable

_____________________

Loss by wilful act of insured

Loss through connivance of insured

The insurer is not liable

_____________________

Loss through ordinary negligence of insured

Insurer is liable
_____________________

Loss through gross negligence of insured

Insurer is not liable

_____________________

Loss through contributory negligence of insured

Insurer is liable

NOTICE AND PROOF OF LOSS

Q. WHAT ARE THE CONDITIONS FOR RECOVERY?

A. They are:

1. Before Loss

a. compliance by the insured of all the terms and conditions of the

policy

Example of a condition

For the insured to give notice to the insurer of all other

insurance taken, if any, upon the same property

b. there has been no waiver by the insurer of the right to deny recovery
by the insured
 2. After Loss

a. Notice of Loss

Form of Notice. It is more or less formal. It may either be oral or

written, unless there is a particular form required by the policy
Who Gives Notice. It is given by:
1. the insured
2. person entitled to the benefit of the insurance
When Should It Be Given. It is given without unnecessary delay
or within a reasonable time
Purpose. To give the insurer information upon which he may act
promptly in protecting the property from further loss for which he may
be liable or to enable him to take other immediate steps that his
interests may require (like notifying a second insurer in case the same
property is reinsured)

b. Proof of Loss

Meaning. It is more or less formal evidence given the insurer by

the insured under a policy of the loss, the particulars thereof and the
data necessary to enable the insurer to determine its liability and the
amount thereof
Form. It is more or less formal. It may either be oral or
written, unless there is a particular form required by the policy
Purposes. They are:
1. it is intended to give the insurer information by which
he may determine the extent of his liability
2. to afford him the means of detecting any fraud that
may have been practiced upon him
3. to check upon extravagant claims

Q. MAY NON COMPLIANCE WITH CONDITIONS BE EXCUSED?

A. General Rule. No.

Exceptions

1. Where strict compliance is impossible like when the beneficiaries do not

know of the existence of the fire policy, as the insured died because of the
fire

Q. WHEN DEFECTS IN NOTICE AND PROOF DEEMED WAIVED BY

INSURER?

A. The defects are deemed waived where the insurer fails or omits to specify the
defects to the insured, thus, there is waiver where the insurer:

1. writes the insured that he considers the policy null and void as the
furnishing of the notice or proof of loss would be in vain and useless
2. recognizes his liability to pay the claim
 3. joins the proceedings for determining the amount of the loss by arbitration,
making no objections on account of notice and preliminary proof
4. makes objections on any ground other than a formal defect in the
preliminary proof

General objection is not allowed. The defects must be specified

Q. WHEN IS DELAY IN PRESENTING THE NOTICE AND PROOF WAIVED?

A. Delay is waived:

1. by an act of the insurer

2. failure to take objection promptly and specifically upon that ground
3. where insurer took steps to determine cause and extent of loss

Q. WHAT IS THE REMEDY OF THE INSURED WHERE HE FAILS TO SECURE

CERTIFICATE OR TESTIMONY OF THIRD PERSON?

A. The remedy is to furnish the insurer reasonable evidence that refusal of third
person was not induced by any just grounds of disbelief of said third person in
the truth of the fact necessary to be certified or testified but, because of other
grounds

DOUBLE INSURANCE

Q. WHAT IS DOUBLE INSURANCE?

A. It is co insurance by two (2) or more insurance

Q. WHAT ARE THE REQUISITES?

A. The requisites are:

1. The person insured is the same

2. Two or more insurers insuring separately
3. The subject matter is the same
4. the interest insured is also the same
5. the risk or peril insured against is also the same

Q. HOW IS IT DISTINGUISHED FROM OVER INSURANCE?

A. It is different from over insurance as:

1. There is over insurance when the amount of the insurance is beyond the
value of the insureds insurable interests; but in double insurance, there
may be no over insurance as when the sum of all the policies do not
exceed the insurable interest of the insured

2. In over insurance there may only be one insurer; but in double insurance,
there are at least two (2) insurers
 3. Both may or may not co exist

Q. WHAT ARE THE PURPOSES OF THE PROHIBITION AGAINST DOUBLE

INSURANCE?

A. The purposes are:

1. prevent over insurance

2. avert the perpetration of fraud

Q. WHAT ARE THE RULES FOR PAYMENT OF CLAIMS WHERE THERE IS

OVER INSURANCE BY DOUBLE INSURANCE WHERE THERE IS NO
PROHIBITION ON DOUBLE INSURANCE?

A. The rules are:

1. The insured may claim payment from the insurers in such order as her may
select, up to the amount for which the insurers are severally liable under
their respective contracts
2. in cases where the insured claims under a valued policy, the insured must
give credit as against the valuation for any sum received by him under any
other policy without regard to the actual value of the subject matter insured

Example. A insured his house with a value of P 180000.00 with:

X Company for P 60,000

Y Company for P 180,000
Z Company for p 240,000

In case A recovers P 60,000 from X Company, he can recover P

120,000 either from Y or from Z or from both as long as the amount
recovered does not exceed P 180,000

3. in cases where the insured claims under an unvalued policy, he must give
credit as against the full insurable value, for any sum received by him,
under any other policy

Under the same example. If the value of the loss is P 150,000, follow
the same trend as in number 2

4. Where the insures receives a sum in excess of the valuation, in case of

valued policy, or of the insurable value in case of unvalued policy, he must
hold such sum in trust for the insurers according to their right of
contribution among themselves
5. each insurer is bound, as between himself and other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under
the contract
Q. WHAT IS REINSURANCE?

A. Reinsurance is a contract whereby one party, the insurer, agrees to indemnify

another the reinsured (original insurer) either in whole or in part, against loos
or liability, which the latter may sustain or incur under a separate and original
contract of insurance with a third party, the original insured. It is sometimes
referred to as treatises

Q. HOW IS REINSURANCE DIFFERENT FROM DOUBLE INSURANCE?

A. It is different in that:

1. In reinsurance, the insurer becomes the insured in so far as the reinsurer is

concerned; while in double insurance, the insurer remains the insurer
2. In reinsurance, the subject is the original insurers risk; while in double
insurance, it is property
3. In reinsurance, it is an insurance of a different interest; while in double
insurance, it is an insurance of the same interest
4. In reinsurance, the original insured has no interest in the reinsurance which
is independent of the original insurance; while in double insurance, the
insured is the party in interest in all insurance contracts
5. In reinsurance, consent of the original insured is not necessary; while in
double insurance, the insured has to give his consent
6. In reinsurance, the original insurer has to communicate all the
representations of the original insured and all knowledge and information
he possesses, whether previously or subsequently acquired, which are
material to the risk; while in double insurance, the original insurer need not
communicate

Q. WHAT IS THE AUTOMATIC AND FACULTATIVE METHOD OF CEDING

REINSURANCE?

A. In automatic ceding of reinsurance, the ceding company (reinsured) is bound

to cede (give off by way of reinsurance) and the reinsurer is obliged to accept a
fixed share of the risk, which has to be reinsured under the contract. This
presupposes a prior contract (reinsurance treaty) between the reinsurer and
reinsured.

In facultative method of reinsurance, there is no obligation either to

cede or accept participation in the risk insured, each party having a free
choice. But once the share is accepted, the obligation is absolute and the
liability assumed thereunder can be discharged by one and only way
payment of the share of the losses. There is no alternative or substitute
prestation

Q. HOW IS REINSURANCE TREATY DISTINGUISHED FROM REINSURANCE

POLICY?

A. A reinsurance treaty is 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. They are contracts for
insurance.

In reinsurance policy it is a contract of indemnity one insurer makes

with another to protect the first insurer from the risk it has already assumed.
It is a contract of insurance

Q. WHAT IS THE NATURE OF REINSURANCE?

A. 1. It is a contract of indemnity against liability.

The reinsurer agrees to indemnify the insurer, not against actual

payment but against liabilities incurred. It is by no means necessary
that the insurer shall have first paid a loss accruing, as a condition
precedent to his demanding payment of the reinsurer

The insolvency of the insurer, which precludes him from

fulfilling in full the obligation incurred to the insured under the original
policy, does not in any wise affect the right of the insurer to demand
payment in full under the policy of reinsurance, even if the original
insured should decide not to enforce his claim against the insurer

2. It is a contract separate from the original insurance policy

The reinsurer pays the insurer even before the latter has
damnified the original insured

3. It is based on the original policy

It is necessarily based upon the original policy, and the rights of

the parties while, of course, fixed by the terms and conditions of the
policy of reinsurance are yet greatly affected by the terms and
conditions of the original policy upon which the reinsurance is based.
The insured risk must be the same as that covered by the original
insurance policy

4. Insurable interest requirement is applicable

The primary insurer is not entitled to contract for reinsurance

exceeding the limits of the policy ceded to the insurer. The reinsurer
cannot provide coverage for risks beyond the scope of the coverage
provided by the primary insurer.

5. Rule of subrogation is applicable

A reinsurer, on payment of a loss, acquires the same rights by

subrogation as are acquired in similar cases where the original insurer
pays a loss
Q. WHAT ARE THE RIGHTS OF THE ORIGINAL INSURED IN A CONTRACT
OF REINSURANCE?

A. The rights are:

1. Generally, the insured has no concern with the contract of reinsurance, and
the reinsurer is not liable to the insured either as surety of otherwise

Exceptions

1. Where the contract of reinsurance contain a provision

whereby the reinsurer binds himself to pay to the policyholder any loss
for which the insurer becomes liable.

In such cases, the remedy of the insured is both against the

insurer and the reinsurer

2. Where the reinsurance amounts to a novation of the original

contract of insurance. The original insurer will be released only when
the insured agrees with the insurer and reinsurer to the novation. This
is not reinsurance but a substitution of the insurer

2. There is no privity of contract between the original reinsured and the

reinsured

3. The liability of the reinsurer is to the reinsured