Insurance Law Outline.2012 (2) (1)

University of San Jose Recoletos – School of LawINSURANCE LAW OUTLINE

First Semester, SY 2012-2013● Judge Christine Muga-Abad ([email protected])

Part IApplicable LawsImplementing OfficeNature of Insurance

A. Concepts Defined1. Contract of Insurance (Sec.2) – Case: Mayer

Steel Pipe vs Court of Appeals (1997);

An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An “all risks” insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the “all risks” policies to Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.

2. Doing or Transacting an Insurance Business (Sec.2, no.2) – Phil Health Care Providers vs Commissioner of Internal Revenue, GR. No. 167330 (9/18/09)

On the first issue, the SC held that Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The

insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designed peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk and5. In consideration of the insurers promise, the insured pays a premium. The SC said that the agreements between petitioner and its members possess do not possess all these elements; hence the agreements between them can not be considered insurance contracts.On the second issue, the SC said that Section 2 (2) of PD2[20] 1460 (otherwise known as the Insurance Code) enumerates what constitutes doing an insurance business or transacting an insurance business: a) making or proposing to make, as insurer, any insurance contract; b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. It said the principal object and purpose

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test, is meant to determine whether the assumption of risk and indemnification of loss are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance. Hence, a corporation whose main object is to provide the members of a group with health services is not engaged in the insurance business.

3. Contract of Adhesion or Fine Print Rule – Eternal Garden Memorial vs. Phil American Life Insurance GR No. 166245 (4/9/08);

ISSUE:Whether or not Philamlife assumed the risk of loss without approving the application? HELD:Yes. An insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a

termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract. WHEREFORE, we GRANT the petition.

Western Guaranty Corporation vs CA 187SCRA652

ISSUE:Whether or not the Schedule of indemnities as stated in the insurance policy should be construed strictly to exclude all others not explicitly stated therein? HELD:

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No. An insurance policy being in the nature of an adhesion contract is to be strictly construed against the insurer and liberally in favor of the insured.

4. Parties in Insurance Contract - Insurer and Insured (Sec.6), beneficiary (Arts. 739 & 2012 of the NCC). Case: Great Pacific Life vs CA, 316 SCRA 677;

ISSUE:Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negates the claim that the insurance contract was perfected?

HELD:Yes. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid

shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application.

Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself.

5. Interpretation of Insurance Contracts – Case: Rizal Surety vs CA, 336 SCRA 12 (2000);

ISSUE:

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Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy sued upon covered only the contents of the four-span building? HELD:Both the trial court and the CA found that the so-called “annex” as not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute. So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on Jan. 12, 1981, having been constructed some time in 1978, petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building.

Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose layer or managers drafted the fire insurance policy contract under scrutiny.

American Home Assurance vs Tantuco GR. NO. 138941, 8 October 2001;

ISSUE:Whether or not the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of the policy? HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the parties really intended to protect the first oil

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mill, then there is no need to specify it as new. In determining what the parties intended, the courts will read and construe the policy as a whole and if possible, give effect to all the parts of the contract, keeping in mind always, however, the prime rule that in the event of doubt, this doubt is to be resolved against the insurer. In determining the intent of the parties to the contract, the courts will consider the purpose and object of the contract.

Pan Malayan Insurance vs CA, GR No. 81026 (4/3/90)

ISSUE:Whether or not, the petitioner is allowed to recover the amount of insurance it had paid to the insured from private respondent. HELD: According to the Supreme Court, Art. 2207 of the Civil Code states that If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. This was founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the

assured, the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an 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. WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private respondents is reinstated. So the case was remanded to the Trial Court for the trial of the merit.

B. Characteristics of Insurance Contract1. Aleatory Insurance- Malayan Insurance vs

Arnaldo & Pinca, GR. No. L-67835 (10/12/87)

ISSUE:Whether or not MICO should be liable because its agent Adora was authorized to receive it? HELD:YES. petition is DENIED SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case

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of a life or an industrial life policy whenever the grace period provision applies.SEC. 306. Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal.SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. As for the method of cancellation, Section 65 provides as follows: SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.A valid cancellation must, therefore, require concurrence of the following conditions: (1) There must be prior notice of cancellation to the insured;

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(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned; (3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. All MICO's offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section." without moreIt stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period.Incidentally, Adora had not been informed of the cancellation either and saw no reason not to accept the said payment Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO

sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982 make the motives of MICO highly suspicious

2. Contract is considered a risk-distributing device – Tibay vs CA GR No. 119655 (5/24/95)

ISSUE:Whether or not the partial payment of the premium rendered the insurance policy ineffective? HELD:YES. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The consideration is the premium, which must be paid at the time, way and manner as stated in the policy, and if not so paid as in this case, the policy is therefore forfeited by its own terms. In this case, the policy taken out by the petitioner provides for payment of premium in full. Since the petitioner only made partial payment with the remaining balance paid only after the fire or peril insured against has occurred, the insurance contract therefore did not take effect barring the insured from claiming or collecting from the loss of her building.

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Under Section 77 of the Insurance Code (Philippine), it provides therein that "An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies." Herein case, the controversy is on the payment of the premium. It cannot be disputed that premium is the elixir vitae of the insurance business because the insurer is required by law to maintain a reserve fund to meet its contingent obligations to the public. Due to this, it is imperative that the premium is paid fully and promptly. To allow the possibility of paying the premium even after the peril has ensued will surely undermine the foundation of the insurance business.

3. Uberrima Fides (perfect good faith) - Fieldman’s Insurance vs CA GR No. L-24833 (9/23/68)

4. ISSUE:

5. Whether or not the

insurance company is liable?

6.

7. HELD:

8. YES. Where

inequitable conduct is shown by an insurance firm, it is “ estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.”After petitioner Fieldmen’s Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply itin this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned,

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petitioner being adamant in its far-from-reasonable plea that estoppels could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. It would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract.

9. WHEREFORE, the

decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen’s Insurance Co., Inc

10. Contract of Indemnity- White Gold Marine vs Pioneer Insurance GR. 154514 (7/28/05)

ISSUE:Whether or not Steamship mutual needs a license to operate in the Philippines? HELD:Yes. The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act

required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called. If it is a contract of indemnity, it must be a contract of insurance. In fact, a protection and indemnity club is a form of insurance where the members are both the insurers and the insured. It is a mutual insurance company. The club indemnifies the member for whatever risks it may incur against a third party where the third party is other than the club and the members. Hence, Steamship Mutual needs to procure a license from the Insurance Commission in order to continue operating here.Pioneer Insurance also needs to secure another license as an insurance broker/agent of Steamship Mutual pursuant to Section 299 of the Insurance Code.

11. Personal Contract – Insular Life vs Ebrado G.R> No. L-44059 (10/28/77)

ISSUE:Whether or not a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim the proceeds thereof in case of death of the latter? HELD:N O . W h e n n o t o t h e r w i s e s p e c i f i c a l l y p r o v i d e d f o r b y t h e Insurance Law,

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the contract of life insurance is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code, “any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. Common-law spouses are, definitely,barred from receiving donations from each other. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive theproceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. Under American law, a policy of life insurance is considered as a testament and in construing it, the

courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado

C. Classes of insurancea. Marineb. Firec. Casualtyd. Suretyshipe. Lifef. Compulsory Motor Vehicle Liability Insurance

D. What may be insured against1. A future contingent event resulting in loss or

damage2. A past unknown event resulting in loss or

damage3. Contingent liability

E. Parties to an insurance contract1. The insurer2. The Insured3. The Beneficiary – Sec.11

a. Beneficiary of one who insures his own life

b. Beneficiary of life insurance on the life of another person

c. Beneficiary of property insurance

F. Insurable Interest – Sec. 101. Insurable interest defined- Gaisano Cagayan

vs Insurance Company of North America GR. No. 147839 (6/08/06)

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2. ISSUE:3.

4. Whether or not Insurance Company of North America can claim against Gaisano Cagayan for the debt that was insured?

RULING:5.

6. YES. Petition is partly GRANTED. Order to pay P535, 613 is Deleted. Insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and delivered to the customers and dealers of the insured. ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk

of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property. Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the

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insured against the wrongdoer or the person who has violated the contract. As to LSPI, no subrogation receipt was offered in evidence. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535, 613. An insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured.

7. Insurable interest in life/Health – Hilario Gercio vs Sunlife GR No. 23703 (48 Phil 53)

ISSUE:

Whether or not the insured husband has the power to change the former wife’s designation as beneficiary where the insured and the beneficiary have been divorced and the policy of insurance does not expressly reserve to the insured the right to change the beneficiary?

RULING:

NO. As a primary consideration, the Court dealt with which law to be applied among the Code of Commerce and the Civil Code which were both in force when the policy

was taken out in 1910 or the Insurance Act No. 2427, which became effective in 1914, considering that the effort to change the beneficiary was made in 1922. Both the Code of Commerce and the Insurance Act were held to have no provision either permitting or prohibition the insured to change the beneficiary. Meanwhile, the application of Civil Code provisions was deemed problematic in light of characterizing an insurance policy as a donation, which by virtue of Article 1344, is prohibited between spouses. Therefore, the deficiencies in the law will have to be supplemented by the general principles prevailing on the subject. In light of this, the Court cited a handful of US cases.Generally, these cases ruled along the line that the beneficiary acquires a vested interest in the policy from the moment of its inception, and such property right cannot be impaired by any action of the insured unless such right has been expressly reserved him/her in the stipulations of the insurance policy.In the instant case, the wife had an insurable interest in the life of her husband upon the issuance of the policy and has acquired an absolute vested interest therein. Since the policy contained no provision authorizing a change of beneficiary without the beneficiary’s consent, the insured cannot make such a change. The Court accordingly held that the life insurance policy of the husband made payable to his former wife as beneficiary is the separate property of the beneficiary and beyond the control of the husband. As the divorce merely dissolved the community property, and in the absence of a statute to the contrary, the subsequent divorce does not destroy the wife’s rights under the policy.

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8. Insurable Interest in Property (Sec. 13 & 14) – Filipino Merchants Co. vs CA 179 SCRA 638

ISSUE: Whether or not Choa Tiek Seng has insurable interest over the goods which entitle him to recover the insurance proceeds from Filipino Merchants Insurance Co., Inc?

RULING: Petition DENIED. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale.The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be performed the

conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them.

G. Perfection of the Contract of Insurancea. Offer and Acceptance/Consensuality

(1) Delay in acceptance - Virginia Perez vs BF Lifeman Insurance GR No. 112329 (1/28/2000)

ISSUE: Whether or not there was a consummated contract of Insurance between Perez and BF?

RULING:

NO there was none. An essential requisite of a valid contract is consent. Consent must be manifested by the meeting of the

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offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Perez filed the application, it was subject to the acceptance of BF. The perfection was also further conditioned upon (1) the issuance of the policy, (2) the payment of the premium, and (3) the delivery to and acceptance by the applicant in good health. The delivery and acceptance by the applicant was a suspensive condition which was not fulfilled inasmuch as the applicant was already dead at the time the policy was issued. The non-fulfillment of the condition resulted in the non-perfection of the contract.A contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date of application, must have been a completed contract. The insurance company wasn’t negligent because delay in acting on the application does not constitute acceptance even after payment. The corporation may not be penalized for the delay in the processing of the application papers due to the fact that process in a week wasn’t the usual timeframe in fixing the

application. Delay could not be deemed unreasonable so as to constitute gross negligence.

(2) Delivery of Policyb. Premium Paymentc. Non-Default Options in Life Insuranced. Reinstatement of a Lapsed Policy of Life

Insurance –Rufino Andres vs The Crown Life Insurance G.R. No. L-l0874 January 28, 1958

ISSUE: Whether or not the lapsed policy has been validly and completely reinstated after said date?

RULING: No. Petition dismissed. The subsequent reinstatement of the policy was provided for in the contract itself in the following terms:If this policy lapses, it may be reinstated upon application made within three years from the date of lapse, and upon production of evidence of the good health of the injured, and such other evidence of insurability at the date of application for reinstatement as would then satisfy the Company to issue a new Policy on the same terms as this Policy, and upon payment of all overdue premiums and other indebtedness in respect of this Policy, together with interest at six per cent, compounded annually, and provided also that no change has taken place in such good health and insurability subsequent to the date of such application and before this Policy is reinstated.As stated by the lower court, the conditions set forth in the policy for reinstatement are the following: (a) application shall be made within three years from the date of lapse;

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(b) there should be a production of evidence of the good health of the insured: (c) if the rate of premium depends upon the age of the Beneficiary, there should likewise be a production of evidence of his or her good health; (d) there should be presented such other evidence of insurability at the date of application for reinstatement; (e) there should be no change which has taken place in such good health and insurability subsequent to the date of such application and before the policy is reinstated; and (f) all overdue premiums and other indebtedness in respect of the policy, together with interest at six per cent, compounded annually, should first be paid.The plaintiff-appellant did not comply with the last condition; for he only paid P100 before his wife’s death; and, despite the Company’s reminders, he only remitted the balance 2 days after his wife died. The company had the right to treat the contract as lapsed and refuse payment of the policy. Appellant, however, contends that the condition regarding payment of the premium was waived by the insurance Company by its letters to appellant:If you cannot pay the full amount immediately, send as large an amount as possible and advise us how soon you expect to be able to pay the balance. Every consideration will be given to your request consistent with the company’s regulations if you are unable to cover this amount in full, send us as big an amount as you are able and we will work out an adjustment most beneficial to you.Nothing in these expressions indicates an intention on the insurer’s part to waive the full payment of the overdue premium. A waiver must be clear and positive, and intent to waive shown clearly and convincingly. The statements to the insured

were as vague and indefinite as to require further negotiations between the parties, for their criteria might differ as to what would be the most beneficial arrangement. Upon the other hand, the subsequent letters of the insurance Company indicated that the Company insisted on the full payment of the premium before the policy was reinstated.“We may now reinstate your policy if you will kindly remit to us the balance of P65.15 due on your semi-annual premium for November, 1950. Please send us this amount by return mail and upon its receipt we will in turn send the Certificate of Reinstatement of your policy, thus rendering it once again in full force and effect.”The company did not consider the partial payment as sufficient consideration for the reinstatement. Appellant’s failure to remit the balance before the death of his wife operated to deprive him of any right to waive the policy and recover the face value. In the case of James McGuire vs. The Manufacturer’s Life Insurance Co - The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the insured absolute right to such reinstatement by the mere filing of an application. The Company has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does no pay all overdue premium and all other indebtedness to the Company. After the death of the insured the insurance Company cannot be compelled to entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied.

e. Refund of Premiums

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Part II DEVICES TO DELIMIT SUBJECT MATTER OF INSURANCE

a. Concealment – case: Sunlife Assurance vs CA, 245 SCRA 268;

ISSUE:Whether or not the concealment made by Bacani warranted the rejection of the insurance claim? RULING:The Supreme Court reversed the decision of the CA and ruled that rescission of the insurance contract was proper. Disclosure of Material Facts required:Under sec. 26 of the Insurance Code, a party to a contract of insurance is required to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. (The Insurance Code, sec. 31) The information which the insured failed to disclose was material and relevant to the approval and issuance of the insurance policy. The matters concealed would have definitely affected petitioner’s action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by the petitioner in order for it to reasonably assess the risk involved in accepting the application. Good Faith not a defense:

Materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue.Thus, “good faith” is no defense in concealment.Waiver of Medical Examination not a defenseThe waiver of the medical examination of the insured does not mean that material facts need not be disclosed. In fact, it renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Cause of Death:It is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.

Philamcare Health Systems vs CA and Julita Trinos, GR no. 125678, March 18, 2002;

ISSUE:Whether or not the petitioner is liable? RULING:YES. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the healthcare provider must pay for the same to the extent agreed upon under the contract. Petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously

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married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December14, 1995 is AFFIRMED.

b. Representation (sec.36) –Kinds (Sec.39); Test of Materiality (Sec.31)

c. Warranties – Effect of Breach of warranty (sec.74-76). Case: Perla Cia De Seguros Inc vs CA, 208 SCRA 487

ISSUE:Whether or not Perla is liable despite the alleged violation of the authorized driver clause in the insurance contract? RULING:The Supreme Court held that Perla is liable to pay the insurance claim. The comprehensive motor car insurance policy issued by Perla covered loss or damage to the car: (a) xxx; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; (c) xxx. Where a car is admittedly unlawfully and wrongfully taken without the owner’s consent or knowledge, such taking constitutes theft, and therefore, it is the “THEFT” clause, and not the “AUTHORIZED DRIVER” clause that should apply.

The Court of Appeals was correct in holding that: “…Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer’s will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier’s Law Dictionary). Clearly, the risk against accident is distinct from the risk against theft. The “authorized driver clause” in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction – often seized upon by insurance companies in resisting claims from their assureds – between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellant’s claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case, the loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent.” There is no causal connection between the possession of a valid driver’s license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not

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applicable or germane to the claim, thereby reducing indemnity to a shadow.

Part IIITHE POLICY OF INSURANCEA. Policy defined (sec. 49)

1. Form2. Cover notes – case: Pacific Timber Export vs

CA, 112 SCRA 199

Issue:Whether or not the cover was without consideration, thus null and void? Ruling:It was with consideration. SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacific’s contention, for no such premium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are required to be paid on a cover note.If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application.The cover note is merely a written memorandum of the most important terms of the preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy, provided that it is later determined that the applicant was insurable at the time it was given.

B. Contents of the policy (Sec. 51)

C. Specific Code Provisions relating to policies – Incontestability clause (sec.48); Rider (sec.50)

D. Unilateral Cancellation of Policy (sec. 64 65 and 79)1. By the INSURER – case: Malayan Insurance

CO. Inc. vs Cruz Arnaldo, 154 SCRA 672

Issue:Whether or not there is a valid unilateral cancellation by the insurer? Ruling:NO. SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; (d) discovery of willful, or reckless acts or commissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. As for the method of cancellation, Section 65 provides as follows:

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SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. A valid cancellation must, therefore, require concurrence of the following conditions: (1) There must be prior notice of cancellation to the insured; (2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned; (3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. MICO claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its employees, who testified that “the original of the endorsement and credit memo”—presumably meaning the alleged cancellation—”were sent the assured by mail through our mailing section.” However, there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO

offers to show that the cancellation was communicated to the insured is its employee’s testimony that the said cancellation was sent “by mail through our mailing section,” without more. The petitioner then says that its “stand is enervated by the legal presumption of regularity and due performance of duty,” (not realizing perhaps that “enervated” means “debilitated,” not “strengthened”). For the notice need not be delivered personally to the insured. It may be mailed.

2. Only grounds for cancellation3. Cancellation by the INSURED (sec.79)4. Kinds of Policies – Open Policy (sec.60),

Valued Policy (sec.61) Running Policy (sec.62)

E. The Premium (Sec.77 and 78 ) – Cash and Carry Provision 1. Effect of non-payment of premium – Case:

Areola vs CA, 236 SCRA 643

Issue:Whether or not Prudential is liable for damages for failure to remit the due premiums?Whether or not reinstatement of the policy absolved it from damages? Ruling:Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non‐accrual of said premiums to its account, does not free the same from its obligation to petitioner Areola.Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating

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the insurance policy cannot obliterate the injury inflicted on petitioner‐insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner‐insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, the injured party, petitioner‐insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner‐insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts.

2. Effect of partial payment of premium – Case: Tibay vs CA, 257 SCRA 126

Issue:

Whether or not partial payment of premiums makes the insurance contract effective? Ruling:NO. Where the insurer and the insured expressly stipulated that the policy is not in force until the premium has been fully paid the payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. As expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the policy. Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is

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ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.

3. Payment of premium by check – case: American Home Assurance vs Chua, 309 SCRA 250

Issue:Whether or not there was a valid payment of premium, considering that Chua’s check was cashed after the occurrence of the fire? Ruling:YES. The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by Chua to AHAC. Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case. The Supreme Court sees no reason to depart from this ruling. According to the trial court the renewal certificate issued to Chua contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by Chua in favor of AHAC and delivered to its agent was honored when presented and AHAC forthwith issued its official receipt to Chua on 10 April 1990.

Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. Herein, the best evidence of such authority is the fact that AHAC accepted the check and issued the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides that "An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid." This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.

4. Payment of premium by installments – Case: Mercantile Insurance vs Felipe Ysmael Jr; 169 SCRA 66;

Issue:Whether or not surety can be allowed indemnification from the defendants-appellants, upon the latter's default even before the former has paid to the creditor. Ruling: The overdraft line of Php1M and the credit line of Php1M applied for by the defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as Bond No. G(16) 0007 and Bond No. G(16) 0030.

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As security and in consideration of the execution of the surety bonds, the defendants executed with the plaintiff identical indemnity agreements which provide that payment of indemnity or compensation may be claimed whether or not plaintiff company has actually paid the same as provided in paragraph 3 of contract. The cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof. By virtue of the provisions of the Indemnity Agreement, defendants-appellants have undertaken to hold plaintiff-appellee free and harmless from any suit, damage or liability which may be incurred by reason of non-performance by the defendants-appellants of their obligation with the Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. There is no dispute as to meaning of the terms of the Indemnity Agreement. Having voluntarily entered into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force and effect of law. The principal debtors, defendants-appellants herein, are the same persons who executed the Indemnity Agreement. Thus, the position occupied by them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not apply. There is no more need for the plaintiff-

appellee to exhaust all the properties of the principal debtor before it may proceed against defendants-appellants.

UCPB General Insurance vs Masagana Telamart 308 SCRA 259;

Issue:Whether the fire insurance policies issued by UCPB Gen to the Masagana covering the period 22 May1991 to 22 May 1992, had expired on the latter date or had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date after the occurrence of the risk insured against? Ruling:The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before actual payment. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo is not applicable. In that case, payment of the premium was in fact actually made on 24 December 1981, and the fire occurred on 18 January 1982. Here, the payment of the premium for renewal of the policies was tendered on 13 July 1992, a month after the fire occurred on 13 June 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire. Hence, the Supreme Court reversed and set aside the decision of the Court of Appeals in CA-GR CV 42321. In lieu thereof, the Court rendered judgment dismissing Masagana's complaint and UCPB Gen's counterclaims thereto filed with the Regional

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Trial Court, Branch 58, Makati City, in Civil Case 92-2023, without costs.

UCPB Genera Insurance vs Masagana Telamart, GR no. 137172, 4 April 2001

Issue:Whether or not there are exceptions to Section 77, to allow Masagana to recover from UCPB Gen.? Ruling:YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid." A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein the Court ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision that "While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment.

Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted." By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPB Gen, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77.Estoppel bars it

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from taking refuge under said Section, since Masagana relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

5. Effect of payments of premium through agent – case: South Sea Surety vs CA 244 SCRA 744 (1995)

Issues:Whether or not the insurance contract was already in effect when the vessel sank? Ruling:YES. It is already in effect because Hardwood has already paid the insurance premium. It delivered the check to Victorio Chua before the vessel sank, but Victorio Chua was only to deliver the check to South Sea five days after the vessel sank. When South Sea Surety delivered to Mr. Chua the marine cargo insurance policy for the plaintiff’s logs, he is deemed to have been authorized by the South Sea to receive the premium, which is due on its behalf.

6. Exceptions to section 77 Rule that premium must be paid – case: south sea surety vs CA, 244 SCRA 744 (1995);

Issues:Whether or not the insurance contract was effective? Ruling:Payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. Payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The only two statutorily provided

exceptions are: a. insurance coverage relates to life or industrial (health) insurance when a grace period applies, and b. when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive evidence of the premium payment. (sec. 77-78)

Tibay vs CA, 257 SCRA 126

Issue:Whether or not a fire insurance policy is valid, binding and enforceable upon mere partial payment of premium? Ruling:Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The consideration is the premium which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms. Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Section 77, the payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the policy. Courts have no other function by to enforce the same.

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The rule that the contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others.Exceptio firmat regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Section 77 and 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

F. Period of Prescription (Sec.63, 384) -caseS: Travellers Insurance vs CA, 272 SCRA 536;

Issue: Whether or not the claimant's action has already prescribed? Ruling:YES. Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone. But in the

case at bar, there was no contract shown. What then was the basis of the RTC and the CA to say that the insurance contract was a third-party liability insurance policy? Consequently, the trial court was confused as it did not distinguish between the private respondent's cause of action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-delicts while the latter is based on contract. Even assuming arguendo that there was such a contract, private respondent's cause of action cannot prevail because he failed to file the written claim mandated by the Insurance Code [before it was amended-action must be brought within six months from date of the accident (this is what’s applicable here); after amendment-"action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimant's right of action shall prescribe" ]. He is deemed, under this legal provision, to have waived his rights as against petitioner-insurer. Petition granted.

Jacqueline Jimenez Vda. De Gabriel vs CA, GR no. 103883, Nov. 4, 1996

Issue:Whether or not Jacqueline Jimenez vda. de Gabriel’s claim against Fortune Insurance should be denied on the ground of prescription? Ruling: Yes. Section 384 of the Insurance Code provides: Sec. 384. Any person having any claim upon the policy issued pursuant to this

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chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimants right of action shall prescribe. The notice of death was given to Fortune Insurance, concededly, more than a year after the death of vda. de Gabriel’s husband. Fortune Insurance, in invoking prescription, was not referring to the one-year period from the denial of the claim within which to file an action against an insurer but obviously to the written notice of claim that had to be submitted within six months from the time of the accident. Vda. de Gabriel argues that Fortune Insurance must be deemed to have waived its right to show that the cause of death is an excepted peril, by failing to have its answers duly verified. It is true that a matter of which a written request for admission is made shall be deemed impliedly admitted unless, within a period designated in the request, which shall not be less than 10 days after service thereof, or within such further time as the court may allow on motion and notice, the party to whom the request is directed serves upon the party requesting the admission a sworn statement either denying specifically the matters of which an admission is requested or setting forth in detail the reasons why he cannot truthfully either admit or deny those matters; however, the verification, like in most cases required by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly

intended to secure an assurance that matters which are alleged are done in good faith or are true and correct and not of mere speculation. When circumstances warrant, the court may simply order the correction of unverified pleadings or act on it and waive strict compliance with the rules in order that the ends of justice may thereby be served. In the case of answers to written requests for admission particularly, the court can allow the party making the admission, whether made expressly or deemed to have been made impliedly, to withdraw or amend it upon such terms as may be just. The insurance policy expressly provided that to be compensable, the injury or death should be caused by violent accidental external and visible means. In attempting to prove the cause of her husband’s death, all that vda. de Gabriel could submit were a letter sent to her by her husband’s co-worker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor was still functioning, and vda. de Gabriel’s sworn affidavit. The said affidavit, however, suffers from procedural infirmity as it was not even testified to or identified by vda. de Gabriel herself. This affidavit therefore is a mere hearsay under the law. In like manner, the letter allegedly written by the deceased’s co-worker which was never identified to in court by the supposed author, suffers from the same defect as the affidavit of vda. de Gabriel. Not one of the other documents submitted, to wit, the POEA decision, the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report, could give any probative value to vda. de Gabriel’s claim. The POEA decision did not make any categorical holding on the specific cause of Gabriel’s death. In summary, evidence is utterly wanting to establish that the insured suffered from an

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accidental death, the risk covered by the policy

Part IVDOUBLE INSURANCE (Sec.93) REINSURANCE (Sec. 95)– effects of double insurance

(Sec.94) case:Geagoniavs CA, 241 SCRA 152 (1995)OVER INSURANCE

PART VLOSS

a. Terms defined – loss, approximate causeb. Loss for which insurer liablec. Loss for which insurer not liable

Claims Settlement and Subrogationa. Notice and Proof of Lossb. Guidelines on Claims Settlement

1) Unfair Claims Settlement; Sanctions2) Prescription of Action3) Subrogation

PART VIParticular Insurance

A. MARINE insurance (Sec.99-166)1. Coverage of marine insurance 2. Special marine insurance contracts

a. Insurance against all risksb. Inchamaree clause

3. Insurable interest in marine insurance4. Concealment5. Warranties – Philamgen vs CA, 273 SCRA 262

(1997)6. Loss

B. Fire Insurance (Sec. 167-173,ICP)1. Definition 2. Alteration in use or in condition3. Measure of indemnity4. Other insurances

C. Casualty Insurance (Sec.174)1. Definition2. Examples3. Compulsory Motor Vehicle Liability

a. Method of coverageb. Vehicles coveredc. Non-fault clause

1. Period of filing claim and action to recover damages

2. Applicability3. Expired driver’s license as affecting

recovery4. Effect of insurance paid to injured

passenger

D. Life insurance1. Definition2. Kinds3. Amount of Insurance4. The Beneficiary5. Effect of Death of Insured Through:

a. Suicideb. Killing of insured by beneficiary

E. Group Insurance

Reference:1. Codal, Commercial Laws of the Philippines vol.

I2. De Leon, The Insurance code of the

Philippines, annotated, 2009 edition3. Martin, Insurance law and other special laws,

vol. 11

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Insurance Law Outline.2012 (2) (1)

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