Sec.

99 A reinsurance is presumed to be a contract of indemnity against

liability, and not merely against damage.

Nature of the contract of Reinsurance

- the subject of the contract of reinsurance is primary the insurers risk and not
the property insured under the original policy

one of, a contract of indemnity against liability

- the reinsurer agrees to indemnify the insurer, not against actual payment made
but against liabilities incurred

separate from original insurance policy

- the contract of insurance is independent of and separate from the contract of
reinsurance

based on original policy

- the policy of reinsurance, however, 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 contract is based

insurable interest requirement applicable

rule on subrogation applicable

Example:
A insured his building against fire with One Co, One Co., in turn, reinsured its risk with
Two Co. The building insured by A was burned but One Co.(insurer) could not pay because it
was insolvent.
One Co., may collect from Two Co. (reinsurer) because reinsurance is a contract of
indemnity against liability of the insurer.

Extent of Liability of the Reinsurer

The liability of the reinsurer is measured by the liability of the reinsured to the original
policyholder provided this does not exceed the amount of reinsurance.

Example:
A insured his building against fire with One Co. for P1,000,000.00. One Co. obtained a
reinsurance policy from Two Co. for P1,200,000.00. The house was totally burned.

Since, the liability of One Co. to A was only P1,000,000 in as much as A cannot recover
more than the damage he suffered, it followed that Two Co. was liable to One Co. for only P1M,
because the reinsurers liability is measured by the reinsureds liability to the original insured.
Sec. 100 The original insured has no interest in a contract of reinsurance.

Does the original insured has interest in a contract of reinsurance?

None. The original insured has no interest in a contract of reinsurance. Reinsurance is a

contract solely between the reinsured and the reinsurer and creates no privity of contract
between the reinsurer and the original insured. However, if the contract of reinsurance is made
directly for the benefit of the reinsureds policyholders or if the reinsurer assumes and agrees to
perform the reinsureds contracts, Then, reinsurer becomes directly liable to the policyholders.
It is necessary for the original insured to accept and communicate acceptance of such benefit to
the reinsurer before revocation.

Art. 1311 xxx 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. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. (1257a)

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)