INSURANCE LAW REVIEW 2014

Ateneo de Davao
College of Law
Insurance Code of 2013
REPUBLIC ACT NO. 10607
AN ACT STRENGTHENING THE INSURANCE
INDUSTRY, FURTHER AMENDING
PRESIDENTIAL DECREE NO. 612,
OTHERWISE KNOWN AS "THE INSURANCE
CODE", AS AMENDED BY PRESIDENTIAL
DECREE NOS. 1141, 1280, 1455, 1460, 1814
AND 1981, AND BATAS PAMBANSA BLG. 874,
AND FOR OTHER PURPOSES
Insurance Code
General principles
Life Insurance
Non-Life Insurance
Payment of Proceeds
Rescission of insurance contracts
IMPORTANT CONCEPTS
Differences between life and non-life
insurance
What is insurable interest
No-fault Indemnity Clause
Special rules in Industrial Life
Incontestability Clause
Unfair Settlement Practices Act
Illegal Acts in Collecting Claims
IMPORTANT CONCEPTS
Coverage under PDIC Law
Cash and Carry Rule
Effect of grace period
Cover notes Test of Materiality
Double Insurance
Rule in case of suicide
Ratable return of premiums
PART ONE:
GENERAL PRINCIPLES
Concept
An agreement whereby one
undertakes for a consideration to indemnify
another against loss, damage or liability
arising from an unknown or contingent
event.
A contract of suretyship is deemed an
insurance contract only if made by a surety
who or which is doing an insurance business
as a vocation.

Elements
The insured has insurable interest
or interest of some kind susceptible of
pecuniary estimation
The insured is subject to a risk of
loss caused by the happening of the
designated perils;
The insurer assumes the risk of
loss;
Assumption is part of a general
scheme to distribute actual losses
among a large group of persons
bearing somewhat similar risks;
As consideration for the insurers
promise, the insured pays the
premium
Philippine HealthCare v. CIR
ISSUE: Is a healthcare agreement in the
nature of a contract of insurance?
FACTS: Individuals enrolled in its health care
programs pay an annual membership fee.
They are entitled to various preventive,
diagnostic and curative medical services
provided by its duly licensed physicians,
specialists and other professional technical
staff participating in the group practice
health delivery system at a hospital or clinic
owned, operated or accredited by it.
Philippine HealthCare v. CIR
The DST under Section 185 of the 1997 Tax
Code is imposed on the privilege of making
or renewing any policy of insurance (except
life, marine, inland and fire insurance), bond
or obligation in the nature of indemnity for
loss, damage, or liability.
RULING: The health care agreement is
primarily a contract of indemnity. A health
care agreement is in the nature of a non-life
insurance policy.
Bar 2011
In return for the 20 years of faithful service
of X as a househelper to Y, the latter
promised to pay Php100,000.00 to Xs heirs
if he (X) dies in an accident by fire. X
agreed. Is this an insurance contract?
A. Yes, since all the elements of an insurance
contract are present. B. Yes, since X
services may be regarded as the
consideration.
C. No, since Y actually made a conditional
donation in Xs favor.
D. No, since it is in fact an innominate
contract between X and Y.

Answer
C. No, since Y actually made a conditional
donation in Xs favor.

Of the twelve (12) trucks en routeto

Valenzuela City, only eleven (11) reached the
destination. One (1) truck, loaded with
eleven (11) bundles of copper cathodes,
failed to deliver its cargo.

Principle of Subrogation
Process of legal substitution
The insurer, after paying the amount
covered by the policy, steps into the shoes of
the insured
Insurer avails of the rights of the insured
against the wrongdoer
Insured CANNOT recover from offender what
was paid by insured but can recover any
deficiency.
Applicable only in non-life insurance
(Philamgen v. CA)
Bar 2011
Where the insurer was made to pay the
insured for a loss covered by the insurance
contract, such insurer can run after the third
person who caused the loss through
subrogation. What is the basis for conferring
the right of subrogation to the insurer?
A. Their express stipulation in the contract of
insurance.
B. The equitable assignment that results
from the insurers payment of the insured.
C. The insureds formal assignment of his
right to indemnification to the insurer.
D. The insureds endorsement of its claim to
the insurer.
Answer
B. The equitable assignment that results
from the insurers payment of the insured.
Bar 2014
ELP Insurance, Inc. issued Marine Policy No.
888 in favor of FCL Corp. to insure the
shipment of 132 bundles of electric copper
cathodes against all risks. Subsequently, the
cargoes were shipped on board the vessel
"M/V Menchu" from Leyte to Pier 10, North
Harbor, Manila.
Upon arrival, FCL Corp. engaged the services
of CGM, Inc. for the release and withdrawal
of the cargoes from the pier and the
subsequent delivery to its warehouses/plants
in Valenzuela City. The goods were loaded on
board twelve (12) trucks owned by CGM,
Inc., driven by its employed drivers and
accompanied by its employed truck helpers.

Bar 2014
Because of this incident, FCL Corp. filed with
ELP Insurance, Inc. a claim for insurance
indemnity in the amount of P1,500,000.00.
After the requisite investigation and
adjustment, ELP Insurance, Inc. paid FCL
Corp. the amount of P1,350,000.00 as
insurance indemnity.
ELP Insurance, Inc., thereafter, filed a
complaint for damages against CGM, Inc.
before the Regional Trial Court (RTC),
seeking reimbursement of the amount it had
paid to FCL Corp. for the loss of the subject
cargo. CGM, Inc. denied the claim on the
basis that it is not privy to the contract
entered into by and between FCL Corp. and
ELP Insurance, Inc., and hence, it is not
liable therefor. If you are the judge, how will
you decide the case? (4%)
Suggested Answer
If I were the judge, I will rule in favor of ELP.
While it is true that CGP is not privy to the
contract of ELP and FCL, ELP has the right of
subrogation.
In insurance law, an insurer, after paying the
claim of an insured, by process of legal
substitution, steps into the shoes of the
insured and can proceed against an erring
party or the one who caused the loss.
Nature and Characteristics
Aleatory
Contract of indemnity for non-life and an
investment for life insurance
Personal
Executory and conditional on the part of
the insurer
Uberrimae fides
Adhesion
Bar 2012
An insurance contract is an aleatory contract,
which means:

A. The insurer will pay the insured

equivalent to the amount of premium
paid
B. The obligation of the insurer is to pay
depending upon the happening of an
uncertain future event
C. The insured pays a fixed premium for
the duration of the policy period and the
amount of premiums paid to the insurer is
not necessarily the same amount that the
insured will get upon the happening of an
uncertain future event
D. The obligation of the insurer is to pay
dependent upon the happening of an
event which is certain to happen
Answer
Aleatory- A contract whose performance by
one party depends on the occurrence of an
uncertain contingent event
ANSWER: B. The obligation of the insurer is
to pay depending upon the happening of an
uncertain future event
Rule of Construction
Doubts are resolved in favor of the
insured
Since a contract of insurance is a
contract of adhesion, any obscure word
or stipulation in the insurance policy
shall be resolved against the insurance
company which drafted the terms
thereof (AMERICAN HOME V. TANTUCO,
OCTOBER 8, 2001)
Bar 2012
An insurance contract is a contract of
adhesion, which means in resolving
ambiguities in the provision of the insurance
contract
A. The general rule is that, the insurance
contract is to be interpreted strictly in
accordance with what is written in the
insurance contract
B. Are to be construed liberally in favor
of the insured and strictly against the
insurer who drafted the insurance
policy
C. Are to be construed strictly against the
insured and liberally in favor of the insurer
D. If there is an ambiguity in the
insurance contract, this will invalidate
the contract
Answer: B

Statute of Limitations
General Rule: 10 YEARS from the time the
cause of action accrues.
Exception: Period may be increased or
decreased BUT
In industrial life: cannot be shorter than
SIX YEARS
In all other kinds of insurance: cannot be
shorter than ONE YEAR.
Right of Action Accrues
Period is reckoned from the time of the
denial of the claim by the insurer (Vda de
Gabriel v. CA)
If there was no denial of the claim, right
of action does not accrue
Doing an Insurance Business
making or proposing to make, as
insurer, any insurance contract;
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.
doing any kind of business, including a
reinsurance business, specifically
recognized as doing insurance
business
doing or proposing to do any business
in substance equivalent to any of the
foregoing
An entity can still be deemed engaged even
if he does not derive any profit from the
activity
MICROINSURANCE
Section 187. Microinsurance is a financial
product or service that meets the risk
protection needs of the poor where:
(a) The amount of contributions, premiums,
fees or charges, computed on a daily basis,
does not exceed seven and a half percent
(7.5%) of the current daily minimum wage
rate for nonagricultural workers in Metro
Manila; and
(b) The maximum sum of guaranteed
benefits is not more than one thousand
(1,000) times of the current daily minimum

wage rate for nonagricultural workers in

Metro Manila.
Section 188. No insurance company or
mutual benefit association shall engage in
the business of microinsurance unless it
possesses all the requirements as may be
prescribed by the Commissioner. The
Commissioner shall issue such rules and
regulations governing microinsurance.
Regulation of the Insurance Business
Insurance business is impressed with public
interest.
The public must be protected against
insolvency or unfair treatment by insurers.
Insurance Commission is tasked to regulate
the conduct of insurance business through
licensing, examination, investigation and
revocation
The Commission is authorized to issue a
certificate of authority which shall expire on
the last day of December, 3 years following
its date of issuance,
This shall be renewable every 3 years
thereafter, subject to the companys
continuing compliance with the provisions of
this Code, circulars, instructions, rulings or
decisions of the Commission.
No LGU interference
"No insurance company issued with a valid
certificate of authority to transact insurance
business anywhere in the Philippines by the
Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing
any insurance policy or from transacting any
insurance business within the scope or
coverage of its certificate of authority,
anywhere in the Philippines,
by any local government unit or authority,
for whatever guise or reason whatsoever,
including under any kind of ordinance,
accreditation system, or scheme. Any local
ordinance or local government unit
regulatory issuance imposing such restriction
or disenfranchisement on any insurance
company shall be deemed null and void ab
initio.
FINANCIAL REPORTING FRAMEWORK
All companies regulated by the Commission,
should comply with the financial reporting
frameworks adopted by the Commission for
purposes of creating the statutory financial

reports and the annual statements to be

submitted to the Commission.
Financial reporting framework means a
set of accounting and reporting principles,
standards, interpretations and
pronouncements that must be adopted in the
preparation and submission of the statutory
financial statements and reports required by
the Commission.
Not the same as financial reporting
framework used to prepare the financial
statements of SEC.
Main purpose of the statutory statements: to
present important information about the
level of risk and solvency situation of
insurers.
In prescribing the applicable statutory
financial reporting framework, the
Commissioner shall take into account
international standards concerning solvency
and insurance company reporting as well as
generally accepted actuarial principles
concerning financial reporting promulgated
by the Actuarial Society of the Philippines.
The assets and investments discussed in
Sections 204 to 215 shall be accounted for in
accordance with this section.
"The valuation of reserves shall be accounted
for in accordance with Title 5 of this Code.
Regulation of Bancassurance
Section 375. The term bancassurance shall
mean the presentation and sale to bank
customers by an insurance company of its
insurance products within the premises of
the head office of such bank duly licensed by
the Bangko Sentral ng Pilipinas or any of its
branches under such rules and regulations
which the Commissioner and the Bangko
Sentral ng Pilipinas may promulgate.
To engage in bancassurance arrangement, a
bank is not required to have equity
ownership of the insurance company. No
insurance company shall enter into a
bancassurance arrangement unless it
possesses all the requirements as may be
prescribed by the Commissioner and the
Bangko Sentral ng Pilipinas.
Regulation of Bancinsurer
No insurance product under this section,
whether life or non-life, shall be issued or
delivered unless in the form previously
approved by the Commissioner.

Section 376. Personnel tasked to present

and sell insurance products within the bank
premises shall be duly licensed by the
Commissioner and shall be subject to the
rules and regulations of this Act.
"Section 377. The Commissioner and the
Bangko Sentral ng Pilipinas shall promulgate
rules and regulations to effectively supervise
the business of bancassurance.
Regulation of Insurance-Related Entities
The Commissioner shall have the power to
register as a self-regulatory organization, or
otherwise grant licenses, and to regulate,
supervise, examine, suspend or otherwise
discontinue, as a condition for the operation
of organizations whose operations are
related to or connected with the insurance
market such as, but not limited to,
associations of insurance companies,
whether life or non-life, reinsurers,
actuaries, agents, brokers, dealers, mutual
benefit associations, trusts, rating agencies,
and other persons regulated by the
Commissioner, which are engaged in the
business regulated by this Code.
"The Commissioner may prescribe rules and
regulations which are necessary or
appropriate in the public interest or for the
protection of investors to govern selfregulatory organizations and other
organizations licensed or regulated pursuant
to the authority granted hereunder including,
but not limited to, the requirement of
cooperation within and among all
participants in the insurance market to
ensure transparency and facilitate exchange
of information.
Section 431. An association cannot be
registered as a self-regulatory organization
unless the Commissioner determines that:
(a) The association is so organized and has
the capacity to be able to carry out the
purposes of this Code and to comply with,
and to enforce compliance by its members
and persons associated with its members,
with the provisions of this Code, the rules
and regulations thereunder, and the rules of
the association.
(b) The rules of the association,
notwithstanding anything in the Corporation
Code to the contrary, provide the following:
(1) Qualifications and the disqualifications on
membership of the association;

(2) A fair representation of its members to

serve on the board of directors of the
association and the administration of its
affairs, and that any natural person
associated with a juridical entity that is a
member shall also be deemed to be a
member for this purpose;
(3) Fair procedure for the disciplining of
members and persons associated with
members; and
(4) The prohibition or limitation of access to
services offered by the association or a
member thereof.
(5) The president of the association and at
least two (2) independent directors as
members of the board of directors of the
association;
(6) Equitable allocation of reasonable dues,
fees, and other charges among members
and other persons using any facility or
system which the association operates or
controls;
(7) The prevention of fraudulent and
manipulative acts and practices to protect
the insuring public and the promotion of just
and equitable principles of business;
(8) Members and persons associated with its
members subject to discipline for violation of
any provision of this Code, the rules or
regulations thereunder, or the rules of the
association;
Section 432. A self-regulatory organization
may examine and verify the qualifications of
an applicant to become a member in
accordance with procedures established by
the rules of the association.
A self-regulatory organization shall deny
membership or condition the membership of
an entity, if it does not meet the standards of
financial responsibility, operational capability,
training, experience, or competence that are
prescribed by the rules of the association; or
has engaged, and there is a reasonable
likelihood it will again engage, in acts or
practices inconsistent with just and equitable
principles of fair trade.
A self-regulatory organization may deny
membership to an entity not engaged in a
type of business in which the rules of the
association require members to be engaged.
CAPITALIZATION
SECTION 194

PAID-UP CAPITAL FOR NEW domestic

life or non-life insurance company shall, in
a stock corporation: One billion pesos;
(P1,000,000,000.00): Provided,
Domestic insurance company already doing
business in the Philippines;
net worth by June 30, 2013- P250 Million
by December 31, 2016- an P300 Million
worth
By December 31, 2019- an additional P350
Million worth
By December 31, 2022- an additional P400
Million worth
Pre-licensing requirement of a new insurance
company, in addition to the paid-up capital
stock, require the stockholders to pay in
cash to the company in proportion to their
subscription interests a contributed surplus
fund of not less than P100 Million
May also require such company to submit to
him a business plan showing the companys
estimated receipts and disbursements, as
well as the basis therefor, for the next
succeeding (3) years.

Provided, That (25%) of the paid-up capital

must be invested in securities satisfactory to
the Commissioner, consisting of bonds or
other instruments of debt of the Government
of the Philippines or its political subdivisions
or instrumentalities, or of governmentowned or -controlled corporations
Provided, That aforesaid capital
requirement is without prejudice to other
requirements to be imposed under any riskbased capital method that may be adopted
by the Commissioner: Provided, finally, That
the provisions of this chapter applicable to
insurance companies shall as far as
practicable be likewise applicable to
professional reinsurers.
No mutual benefit association shall be issued
a license to operate as such unless it has
constituted and established a Guaranty Fund
by depositing with the Commissioner an
initial minimum amount of Five million
pesos (P5,000,000.00) in cash, or in
government securities with a total value
equal to such amount, to answer for any
valid benefit claim of any of its members.

SECTION 197 Foreign Corporations

Unimpaired capital or assets and reserve: P1
Billion nor until it shall have deposited with
the Commissioner for the benefit and
security of the policyholders and creditors of
such company in the Philippines, securities
satisfactory to the Commissioner consisting
of good securities of the Philippines,
including new issues of stock of "registered
enterprises as this term is defined in E.O.
226 of 1987, as amended, to the actual
market value of not less than the amount
herein required

Bar 2011
A group of Malaysians wanted to invest in
the Philippines insurance business. After
negotiations, they agreed to organize "FIMA
Insurance Corp." with a group of Filipino
businessmen. FIMA would have a PhP50
Million paid up capital, PhP40 Million of which
would come from the Filipino group. All
corporate officers would be Filipinos and 8
out of its 10-member Board of Directors
would be Filipinos. Can FIMA operate an
insurance business in the Philippines?

Section 289.
Any partnership, association, or corporation
authorized to transact solely reinsurance
business must have a capitalization of at
least Three billion pesos
(P3,000,000,000.00) paid in cash of
which at least fifty percent (50%) is
paid-up and the remaining portion
thereof is contributed surplus, which in
no case shall be less than Four hundred
million pesos, (P400,000,000.00) or
such capitalization as may be
determined by the Secretary of Finance,
upon the recommendation of the
Commissioner:

A. No, since an insurance company must

have at least PhP75 Million paid-up capital.
B. Yes, since there is substantial compliance
with our nationalization laws respecting paidup capital and Filipino dominated Board of
Directors.
C. Yes, since FIMAs paid up capital more
than meets the countrys nationalization
laws.
D. No, since an insurance company should
be 100% owned by Filipinos.
Answer
A. No, since an insurance company must
have at least PhP75 Million paid-up capital
(based on DO 27-06).

What may be insured against

Contingent Event -an event which may or
may not happen
Example: Fire, accident, sinking of a ship,
theft
Unknown event
An event which is certain to happen
Aspect of being unknown is WHEN it will
happen
Example: Death
Damnify v. Create a liability
Damnify - direct loss of a person
Create a liability - expose the person to
liability to third persons. E.g. third party
liability insurance

Bar 2012
X, a minor, contracted an insurance on his
own life. Which statement is most accurate?
The life insurance policy is void ab initio.
The life insurance is valid provided it is with
the consent of the beneficiary.
The life insurance policy is valid provided the
beneficiary is his estate or his parents, or
spouse or child.
The life insurance is valid provided the
disposition of the proceeds will be subject to
the approval of the legal guardian of the
minor.
ANSWER
The life insurance policy is valid provided the
beneficiary is his estate or his parents, or
spouse or child.
Life Insurance

Insurance by a married person

May take out an insurance on his/her life or
that of her children or that of his/her spouse
without the consent of his/her spouse
Insurance by a minor
(Sec. 3)
Any minor may contract for life, health and
accident insurance, with any insurance
company duly authorized to do business in
the Philippines provided the insurance is
taken on his own life and the beneficiary
appointed is the minor's estate or the
minor's father, mother, husband, wife, child,
brother or sister.
Rights of minor under life insurance policies
When there is a contract of life, health, or
accident insurance involving a minor
The minors judicial guardian, father, or in
the latters absence or incapacity, the mother
In the absence of parents and grandparents,
the eldest brother or sister at least eighteen
(18) years of age, or any relative who has
actual custody of the minor insured or
beneficiary
May obtain a policy loan, surrendering the
policy, receiving the proceeds of the policy,
and giving the minor's consent to any
transaction on the policy
If the amount does not exceed P500,000.00
A property insurance taken by a minor is
voidable or valid until annulled (1390)
If contract is not disaffirmed, insurer cannot
invoke minority to escape liability.

Insurance on human lives and insurance

appertaining thereto or connected therewith
Every contract or undertaking for the
payment of annuities including contracts for
the payment of lump sums under a
retirement program where a life insurance
company manages or acts as a trustee for
such retirement program shall be considered
a life insurance contract for purposes of this
Code.
Classes
1. Individual protection is based on
individual
application.
2.
Group unit of selection is the
group rather than the
individual, blanket
policy covering a number of individuals
3.
Industrial premiums are
payable either monthly or oftener if the face
amount of insurance is not more than 500
times the current statutory minimum wage
in Metro Manila.
Non-Life
Property insurance or insurance whose
object is other than a persons life or where
the covered peril is something other than
death
Types: Fire
Includes insurance against loss by fire,
lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are

covered by extension to fire insurance

policies or under separate policies
Types: Casualty
Covers loss or liability arising from accident
or mishap, excluding certain types of loss
which by law or custom are considered as
falling exclusively within the scope of other
types of insurance such as fire, marine.
Includes but is not limited to employers
liability insurance, workmens compensation
insurance, public liability insurance, motor
vehicle liability insurance, plate glass
insurance, burglary and theft insurance,
personal accident and health insurance
written by non-life companies.
Casualty: Compulsory Motor Vehicle
Liability OR Third Party Liability
Insurance against passenger and third party
liability for death or bodily injuries arising
from motor vehicle accidents
Required before an owner or operator can
use his vehicle
Required in registration or renewal of
registration
Bar 2014
As a rule, an insurance contract is
consensual and voluntary. The exception is in
the case of: (1%)
(A) Inland Marine Insurance
(B) Industrial Life Insurance
(C) Motor Vehicle Liability Insurance
(D) Life Insurance
Answer
(C) Motor Vehicle Liability Insurance
Compulsory Motor Vehicle Liability OR
Third Party Liability
Land transportation operator, the insurance
guaranty in cash or surety bond shall cover
liability for death or bodily injuries of thirdparties and/or passengers arising out of the
use of such vehicle in the amount not less
than Twelve thousand pesos (P12,000.00)
per passenger or third -party and an
amount, for each of such categories, in any
one accident of not less than that set forth in
the following scale:
(1) Motor vehicles with an authorized
capacity of twenty-six (26) or more
passengers: Fifty thousand pesos;
(P50,000.00);

(2) Motor vehicles with an authorized

capacity of from twelve (12) to twenty-five
(25) passengers: Forty thousand pesos;
(P40,000.00);
(3) Motor vehicles with an authorized
capacity of from six (6) to eleven (11)
passengers: Thirty thousand pesos;
(P30,000.00);
(4) Motor vehicles with an authorized
capacity of five (5) or less passengers: Five
thousand pesos (P5,000.00) multiplied by
the authorized capacity.
(1) Private Cars
(i) Bantam: Twenty thousand pesos
(P20,000.00);
(ii) Light: Twenty thousand pesos
(P20,000.00); and
(iii) Heavy: Thirty thousand pesos
(P30,000.00).
(2) Other Private Vehicles
(i) Tricycles, motorcycles and
scooters: Twelve thousand pesos
(P12,000.00);
(ii) Vehicles with an unladen weight of
2,600 kilos or less: Twenty thousand pesos
(P20,000.00);
(iii) Vehicles with an unladen weight of
between 2,601 kilos and 3,930 kilos: Thirty
thousand pesos (P30,000.00); and
(iv) Vehicles with an unladen weight
over 3,930 kilos: Fifty thousand pesos
(P50,000.00).
Types: Marine
vessels, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
bottomry, respondentia interests
person or property in connection with or
appertaining to marine, inland marine,
transit or transportation insurance but
excludes life insurance or surety bonds or
insurance against loss by reason of bodily
injury to any person who arising out of
ownership, maintenance or use of
automobiles, precious stones, jewels,
jewelry, precious metals, whether in the
course of transportation OR otherwise
bridges, tunnels and other instrumentalities
of transportation and communication
(excluding buildings, furniture and
furnishings fixed contents and supplies held
in storage), piers, wharves, docks and slips
other aids of navigation, dry docks, marine
railways, dams

Types: Suretyship
An agreement whereby a party called the
surety guarantees the performance of
another party called the principal or obligor
of an obligation or undertaking in favor of a
third party called the obligee.
Includes official recognizances, stipulations,
bonds or undertakings issued by any
company
At a glance
In an insurance contract, a person
indemnifies another person for his loss,
damage or liability
Any contingent or unknown event which may
damnify a person or create a liability against
him may be insured
The two main kinds of insurance are life and
non-life insurance
A person can sue based on an insurance
contract within 10 years from the time the
right of action accrues
10-year period may be longer or shorter but
generally, cannot be shorter than one year
and in industrial life, cannot be shorter than
6 years
Doubts in interpreting insurance contracts
are resolved in favor of the insured
PART TWO:
LIFE INSURANCE
Procedure
Topics in Stages 1 and 2
What may be insured against
Rule in case of death by suicide
Insurable Interest
Parties
Kinds of life insurance
Kinds of life insurance policies
Concept
Life Insurance - insurance on human lives
and insurance appertaining thereto or
connected therewith
Every contract or undertaking for the
payment of annuities including contracts for
the payment of lump sums under a
retirement program where a life insurance
company manages or acts as a trustee for
such retirement program shall be considered
a life insurance contract for purposes of this
Code.

Classes
1.
Individual protection is based on
individual
application.
2.
Group unit of selection is the group
rather than the
individual, blanket policy
covering a number of individuals
3.
Industrial premiums are payable
either monthly or oftener if the face amount
of insurance is not more than 500 times the
current statutory minimum wage in Metro
Manila.
Contingencies
death
survival for a specific period
continuance or cessation of life
What may be insured against?
Actual death
Living death
Retirement death

Actual Death
Cessation of life
Best proof of death: death certificate
Policy matures upon the death of the
insured
Living Death
When the insured suffers from disability due
to disease or accident which prevents him
from engaging in any lawful occupation
Partakes the nature of health and disability
benefits
Living Death:
Accident and Health
Health, accident and disability insurance are
deemed as both life and non-life insurance
and such may be issued by either life or nonlife insurance companies (Sec. 193, 9th par).
Deemed life insurance when death is one of
the risks insured against (Gallardo v.
Morales)
Accident
An event which happens without any
human agency or, if happening
through human agency, an event
which under the circumstances, is
unusual and not expected by the
person to whom it happens by reason

of some violence or casualty to the

insured without his design, consent or
voluntary cooperation (Sun Insurance
v. CA)
Death by suicide: compensable?
General Rule: NO.
BASIS:
Sec. 89 which provides that an insurer is not
liable if loss is caused by willful act or
connivance of the insured; and
the Rules of Court which provides that a
person is presumed to intend the
consequences of his voluntary acts
When is suicide compensable?
Section 183
If insured was not in his right mind/insane
at the time of suicide
If insured committed suicide after the policy
has been effective for at least 2 years from
issuance or last reinstatement
Note: The 2-year period can be shortened
but not lengthened
Bar 2012
X, on January 30, 2009, or two years before
reaching the age of 65, insured his life for
P20 Million. For reasons unknown to his
family, he took his life 2 days after he
reached 65. The policy contains no excepted
risk. Which statement is most accurate?
A.
The insurer will be liable
B.
The insurer will not be liable
C.
The state of sanity of the insured is
relevant in order to hold the insurer liable
D.
The state of sanity of the insured is
irrelevant in order to hold the insurer liable
ANSWER
The insurer will be liable. The suicide was
committed after the two-year period from
the time the policy was obtained. Further,
there is no excepted risk provision in the
policy. Hence, the beneficiaries are entitled
to the proceeds.
Retirement Death
Life Annuity debtor binds himself to pay
annual pension or income during the life of
one or more determinate persons in
consideration of a capital consisting of
money or other property, whose ownership is
transferred to him at once with the burden of
income (Art. 2021, Civil Code)
Dynamics in Life Annuity

Retirement Death
Annuitant gives money or property to
the insurer
Insurer now becomes the debtor, and
has the obligation to give annual
pension or income to either the
annuitant or another person
The obligation of insurer to give
pension stops upon the death of the
annuitant

INSURABLE INTEREST
Insurable Interest in Life
A person cannot insure just anyone he wants
One has to establish that he stands to suffer
some loss because of the death of a person
Insurable interest ensures that a person can
only get a policy on the life of someone
whose death will produce loss
Concept
Relation between the insured and a
particular event such that the happening of
the event will damnify or cause loss to the
person
PURPOSE FOR THE CONCEPT:
To avoid wagering
To avoid temptation of bringing about the
event
On whose life does a person have
insurable interest?
himself, spouse, children
person on whom he depends wholly or
in part for education or support or in
whom he has a pecuniary interest

any person who is under legal

obligation to him for payment of
money or respecting property or
services of which illness or death
might delay or prevent performance
any person upon whose life any estate
or interest vested in him depends

Section 10(a)
Every person has unlimited insurable interest
in his own life
One also had insurable interest in the life of
his spouse and children on the basis of love
and affection
Section 10(b)
Obligation to give support

Article 195, Family Code

Spouses, legitimate ascendants and
descendants
parents and their legitimate children
and legitimate or illegitimate children
of the latter
parents and their illegitimate children
and legitimate or illegitimate children
of the latter
legitimate brothers and sisters
whether of the full or half blood
Article 196, Family Code
Brothers and sisters not legitimately
related,whether of the full or half blood, are
likewise bound to support each other EXCEPT
only when the need for support of the
brother or sister, being of age, is due to a
cause imputable to the claimants fault or
negligence.
Blood relationship, affinity: enough?
In cases not falling under 195 and 196, mere
blood relationship or affinity does not create
insurable interest
Examples: uncle, aunt, nephew, niece,
cousins, son-in-law, brother-in-law,
stepchildren
Section 10(c)
Pecuniary Interest
Debtor-Creditor
Employer-Employee - El Oriente v. Posadas
Business partners
Section 10(d)
Person in whose estate an interest is
dependent
Person is given the right to use a house
Right ceases when the owner dies and
another person becomes the owner
Bar 2011
X has been a long-time household helper of
Z. X's husband, Y, has also been Z's longtime driver. May Z insure the lives of both X
and Y with Z as beneficiary?
A. Yes, since X and Y render services to Z.
B. No, since X and Y have no pecuniary
interest on the life of Z arising from their
employment with him.
C. No, since Z has no pecuniary interest in
the lives of X and Y arising from their
employment with him.
D. Yes, since X and Y are Zs employees.
Answer

C. No, since Z has no pecuniary interest in

the lives of X and Y arising from their
employment with him.
Bar 2011
X, Co., a partnership, is composed of A
(capitalist partner), B (capitalist partner) and
C (industrial partner). If you were partner A,
who between B and C would you have an
insurable interest on, such that you may
then insure him?

Bar 2011
A. No one, as there is merely a partnership
contract among A, B and C.
B. Both B and C, as they are your partners.
C. Only C, as he is an industrial partner.
D. Only B, as he is a capitalist partner.
Answer
B. Both B and C, as they are your partners.
Bar 2014
Carlo and Bianca met in the La
Boracay festivities. Immediately, they fell in
love with each other and got married soon
after. They have been cohabiting blissfully as
husband and wife, but they did not have any
offspring. As the years passed by, Carlo
decided to take out an insurance on Biancas
life for P1,000,000.00 with him (Carlo) as
sole beneficiary, given that he did not have a
steady source of income and he always
depended on Bianca both emotionally and
financially.
During the term of the insurance,
Bianca died of what appeared to be a
mysterious cause so that Carlo immediately
requested for an autopsy to be conducted. It
was established that Bianca died of a natural
cause. More than that, it was also
established that Bianca was a transgender all
along a fact unknown to Carlo. Can Carlo
claim the insurance benefit? (5%)
Suggested Answer
Carlo cannot recover from the
insurance policy. Insurable interest is
necessary before a person can obtain a life
insurance policy on the life of another
person. Without insurable interest, there is
no valid life insurance policy.
Section 10 of the Insurance Code
enumerates the people on whom we have an
insurable interest on, one of which is ones
legitimate spouse.

In the instant case, the marriage

between Bianca and Carlo is void ab initio
since marriage must be between a man and
a woman. Since Bianca was a transgender,
there was never a valid marriage between
Bianca and Carlo. Carlo never had any
insurable interest on the life of Bianca and
hence, cannot recover from the policy.
Bar 2014
On July 3, 1993, Delia Sotero (Sotero) took
out a life insurance policy from Ilocos
Bankers Life Insurance Corporation (Ilocos
Life) designating Crescencia Aban(Aban), her
niece, as her beneficiary. Ilocos Life issued
Policy No. 747, with a face value of
P100,000.00, in Soteros favor on August 30,
1993, after the requisite medical
examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a
claim for the insurance proceeds on July 9,
1996. Ilocos Life conducted an investigation
into the claim and came out with the
following findings:
1. Sotero did not personally apply for
insurance coverage, as she was illiterate.
2. Sotero was sickly since 1990.
3. Sotero did not have the financial capability
to pay the premium on the policy.
4. Sotero did not sign the application for
insurance.
5. Aban was the one who filed the insurance
application and designated herself as the
beneficiary.
For the above reasons and claiming fraud,
Ilocos Life denied Abans claim on April 16,
1997, but refunded the premium paid on the
policy. (6%)
(A) May Sotero validly designate her niece as
beneficiary?
(B) May the incontestability period set in
even in cases of fraud as alleged in this
case?
(C) Is Aban entitled to claim the proceeds
under the policy?
Suggested Answer
(A) May Sotero validly designate her niece as
beneficiary?
Yes, Sotero has insurable interest on her own
life and can validly designate any beneficiary
as long as it is not against the law, public
policy and morals. A beneficiary is not
required to have insurable interest in life
insurance.
Suggested Answer

(C) Is Aban entitled to claim the proceeds

under the policy?
No Aban is not entitled to the proceeds. She
was the one who obtained the policy on the
life of her aunt on whose life she did not
have insurable interest. Since she did not
insurable interest, the policy is void.
Measure of Recovery of Proceeds
GENERAL RULE: Face value of the policy
Except: pecuniary estimation is possible
[10(c)]
Special Rule on Insurable Interest in
Industrial Life
Usual rules regarding insurable interest are
generally not made applicable in industrial
life because:
Proceeds are small, little danger to induce a
person to kill
Investigation of presence of insurable
interest will nullify speedy payment of
proceeds under the facility of payment
clause
The costs to prove insurable interest will
destroy the purpose for this type of
insurance
PARTIES
Insurer: Section 6
Every corporation, partnership, or
association, duly authorized to transact
insurance business as elsewhere provided in
this Code, may be an insurer
Insurer
Insurance corporations- corporations formed
or organized to save any person or persons
or other corporations harmless from any
loss, damage or liability arising from any
unknown or contingent event, or to
indemnify or compensate for such loss,
damage or liability or to guarantee
performance with contractual obligations or
payment of debts
Mutualization and Demutualization
Mutualization A shareholder-owned
company is converted into a mutual
organization, typically through takeover by
an existing mutual organization. A mutual
organization is customer-owned.

Demutualization -customer-owned mutual

organization or cooperative changes form to
a joint, stock company, sometimes called
stocking for privatization.
Section 280. A domestic mutual life
insurance company doing business in the
Philippines may convert itself into an
incorporated stock life insurance company
by demutualization. To that end, it may
provide and carry out a plan for the
conversion by complying with the
requirements of this title.
"The conversion of a domestic mutual life
insurance company to an incorporated stock
life insurance company shall be carried out
pursuant to a conversion plan duly approved
by the Commissioner.
"The Commissioner shall promulgate such
rules and regulations as he or she may deem
necessary to carry out the provisions of this
title, after due consultation with
representatives of the insurance industry.
"All converted insurers under the provisions
of this title shall be subject to all other
applicable provisions of this Code. The
provisions of the Corporation Code shall
apply in a suppletory manner.
Insured: Section 7
Anyone except a public enemy may be
insured.
Public enemy - citizen or national of any
country with which the Philippines is at war
Bar 2000
May a member of the Moro Islamic Liberation
Front or its breakaway group Abu Sayyaf be
insured with a company licensed to do
business under the Insurance Code of the
Philippines? Explain (3%)
ANSWER
Yes, a member of the MILF or the Abu
Sayyaf may be insured. Only a public enemy
cannot be insured. A public enemy is a
citizen or national of a country with which
the Philippines is at war.
Insured
The person who must have insurable
interest
The person who pays the premiums
Commonly referred to as the
policyholder

Not necessarily whose life is used to

constitute the insurance policy
Insured: Rights
Right to borrow on the policy 227(g)
Right to dividends if participating policy
227(e); 230(e)
Right to reinstatement 227(j); 230(j)
3 years from date of default in individual
2 years from date of default in industrial
payment of overdue premiums
evidence of insurability
Right to transfer/bequeath-pass by transfer,
will or succession to any person whether he
has insurable interest or not; notice to
insurer not required
Cestui Que Vie
Person on whose life the insurance contract
is constituted
Can be any of those enumerated under
Section 10
Beneficiary
One who receives benefits
GENERAL RULE: Designation of beneficiary
may be changed by insured
EXCEPTION: insured has expressly waived
his right to change
BUT, if there was no change of
beneficiary, designation is
IRREVOCABLE
Bar 2005
What are the effects of an irrevocable
designation of a beneficiary under the
Insurance Code? Explain (2%)
Jacob obtained a life insurance policy
for P1 M designating irrevocably
Diwata, a friend, as his beneficiary.
Jacob changed his mind and wants to
include two other friends as
beneficiaries. Can Jacob still add the
two friends? (2%)
ANSWER
The irrevocable beneficiary has a
vested interest in the policy, including
its incidents such as the policy loan
and cash surrender value
Jacob cannot include the two friends
as additional beneficiaries as this

would diminish the interest of Diwata

who is irrevocably designated as
beneficiary. Diwata has to consent
first to the inclusion.
Disqualified Beneficiaries
Article 2012 in relation to Article 739 of the
Civil Code
those made between persons who
were guilty of concubinage at the time
of donation
those made between persons found
guilty of the same criminal offense in
consideration thereof
those made to a public officer or his
spouse, descendants and ascendants
by reason of his office
Beneficiary
Insular Life v. Ebrado, 80 SCRA 181 - The
designation of a common law wife is void.
This need only be proved by preponderance
of evidence, no previous conviction is
required
Common-law spouses are, definitely, barred
from receiving donations from each other.
Article 739 of the new Civil Code provides:
The following donations shall be void:
1. Those made between persons who were
guilty of adultery or concubinage at the time
of donation;
2. Those made between persons found guilty
of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife,
descendants or ascendants by reason of his
office.
In the case referred to in No. 1, the action
for declaration of nullity may be brought by
the spouse of the donor or donee; and the
guilt of the donee may be proved by
preponderance of evidence in the same
action.
If the beneficiary is disqualified
The estate of the insured will be entitled to
the proceeds of the life insurance policy.
Bar 1998
A was issued a policy on whole life plan for
P20,000. A is married to B with whom he has
3 legitimate children. However, A designated
his common-law wife C as the beneficiary in
his policy and referred to C as his legal wife.
When A died, both B and C claimed the
proceeds of the insurance. Who is entitled to
the proceeds? (5%)

ANSWER
The estate of A is entitled to the proceeds. C
is a disqualified beneficiary because of the
illicit relation she had with A.

Bar 2012
X is the common law wife of Y. Y loves X so
much that he took out a life insurance on his
own life making X as the sole beneficiary. Y
did this to ensure that X will be financially
comfortable when he is gone. Upon the
death of Y--A. X as the sole beneficiary in the policy
of Y will be entitled to the entire
proceeds
B. Despite the designation of X, the
proceeds will go to the estate of Y
C. The proceeds will go the compulsory
heirs of Y
D. The proceeds will be divided equally
amongst X and the compulsory heirs
of Y
ANSWER
Common law spouses are barred from
donating to each other. Those who are
barred from being donees cannot be
beneficiaries in a life insurance policy.
Hence, X is a disqualified beneficiary and the
proceeds will go to the estate of Y.
If beneficiary willfully causes death of
insured
If beneficiary WILLFULLY causes the death of
the insured/cestui:
The share forfeited shall pass on to
the other beneficiaries, unless
otherwise disqualified.
In the absence of other beneficiaries,
the proceeds shall be paid in
accordance with the policy contract.
If the policy contract is silent, the
proceeds shall be paid to the estate of
the insured.
If beneficiary dies before insured
If beneficiary dies ahead of the
insured/cestui, the estate of the insured will
get the proceeds
If no beneficiary
If beneficiary is not designated, insureds
estate will get the proceeds
NOTE!!!
Only the insured or policyholder in life
insurance is required to have insurable
interest on the life of the cestui.

 The beneficiary may or may not have

insurable interest on the life of the
cestui. What is vital is that the
beneficiary is not disqualified under
the law to get the proceeds.
Bar 2000
A is an elderly bachelor who took out an
individual life insurance policy on his life.
The designated beneficiary is B a
companion-friend. A died in a fire which also
destroyed his home. The insurer refused
payment to B due to absence of insurable
interest on the life of A. Is the insurer
correct?
ANSWER
The insurer is wrong. B as the beneficiary is
entitled to collect the proceeds. As a
beneficiary in a life insurance policy, B is not
required to have insurable interest on the life
of A. A had insurable interest on his own life
and the policy was taken on his life.
LIFE INSURANCE POLICY
Form
GENERAL RULE: printed form
EXCEPTIONS: The policy may be in
electronic form subject to the pertinent
provisions of Republic Act No. 8792,
otherwise known as the Electronic
Commerce Act and to such rules and
regulations as may be prescribed by the
Commissioner.
Contains blanks where word, phrase, clause,
mark, sign necessary to complete the policy
are placed
Contents
Parties
amount to be insured
premium
life insured
risks
period of effectivity
Required Provisions
Grace period provision provision which
gives the insured additional time to pay his
premiums from the due date
Clarifies the right to collect if death happens
within the grace period
Individual life 30 days/1 month
Group life 30 days/1 month
Industrial life 4 weeks or if payable
monthly 30 days/1 month

Entire contract provision The policy

shall constitute the entire contract between
the parties
Misstatement of age provision if the
age of the insured is misstated, the amount
payable shall be as such premium would
have purchased at the correct age
Reinstatement provision clarifies the
requirements for restoring a policy to
premium-paying status after it has lapsed.
Individual life within 3 years from default
Group no reinstatement
Industrial life within 2 years from default
Special Features
Loan privilege based on the cash
surrender value, the insured may obtain a
loan by pledging the policy
Policy dividend options if the policy is
participating?, the policyholder is entitled to
a share of the surplus.
Exemption from claims of creditors
protection against execution
Income tax treatment proceeds of life
insurance policies are generally tax exempt.
However, endowment proceeds and cash
surrender values are treated as income and
are taxable.
Surrender options/NON-DEFAULT
OPTIONS if the policyholder cannot
continue paying the premiums, he has some
options which will not put to waste what he
has paid. However, these options are
available only upon payment of at least 3
annual premiums
Non-Default/Surrender Options
Cash Surrender Value 227(f); 230(f)
and (g)
payment of at least 3 annual premiums
not less than the reserve on the policy
Extended Insurance
At least three annual premiums
limited time, same face value
Paid-Up Insurance
At least three annual premiums
same period, lower proceeds

Automatic Premium Loan

Parties agree that in case of default insurer
advances the premium not subject to
repayment
Kinds of Policies
1. Ordinary Life payment of
premiums is annually or at more frequent
intervals throughout
life and the
beneficiary is entitled to receive payment
only after the death of the insured.
2. Limited Payment Life
premiums are payable only
during a
limited period of years (10,15,20 years).
After the period, the insurance is
deemed fully paid. Proceeds are payable
upon death of insured.
3. Term Insurance provides
coverage only if the insured dies during a
limited period.
If the insured dies within the period,
the beneficiary gets the proceeds. If the
insured survives the period, the contract is
terminated.
4. Endowment Policy insured gets
a sum of money if he survives a specified
period. If insured dies within the period, the
beneficiary gets the proceeds.
5. Life Annuity debtor binds
himself to pay an annual pension or income
during the life of one or more determinate
persons in consideration of a capital
consisting of money or other property, whose
ownership is transferred to him at once
with the burden of income.
6. Accident Insurance may be
classified as life or non-life insurance.
*
If death is one of the risks insured
against, it is classified as life insurance.
When is an insurance contract
perfected?
Procedure
At the time the insured-applicant has
knowledge of the approval of his application.
Even if the application has been approved if
the applicant-insured does not know about
approval, there is NO perfected contract yet
Since the insured is the one making the
offer, the submission of the application
WITHOUT the approval of the policy does not
result in a perfected contract of insurance
(Grepalife v. CA)

De Lim v. Sun Life the applicant paid the

premium upon filing of application but he
dies before the approval
HOLDING: NO perfected contract of
insurance
Bar 2011
On June 1, 2011, X mailed to Y
Insurance, Co. his application for life
insurance, with payment for 5 years of
premium enclosed in it. On July 21, 2011,
the insurance company accepted the
application and mailed, on the same day, its
acceptance plus the cover note. It reached
X's residence on August 11, 2011.
But, as it happened, on August 4,
2011, X figured in a car accident. He died a
day later. May X's heirs recover on the
insurance policy?
A. Yes, since under the Cognition Theory, the
insurance contract was perfected upon
acceptance by the insurer of X's application.
B. No, since there is no privity of contract
between the insurer and Xs heirs.
C. No, since X had no knowledge of the
insurer's acceptance of his application before
he died.
D. Yes, since under the Manifestation Theory,
the insurance contract was perfected upon
acceptance of the insurer of X's application.
Answer
C. No, since X had no knowledge of the
insurer's acceptance of his application
before he died.(no meeting of the
minds of the offer and acceptance)
If insured died during the period of
provisional policy which is conditioned upon
approval of application, beneficiary is NOT
entitled to proceeds.
Even if the insurer has approved the
application via a letter, there is no perfected
contract if there is no evidence that the
applicant knew of the approval (Enriquez v.
SunLife, 41 Phil 629)
The insured is presumed to have understood
the application and the contract of insurance
(Tang v. CA, 90 SCRA 236)
Cover Notes v. Binding Receipt
COVER NOTE: Temporary insurance policies
intended to cover the insured while
application is being evaluated

BINDING RECEIPT: acknowledgment of

receipt of premium and application subject
to evaluation. NOT the same as cover note
(Great Pacific v. CA, 89 SCRA 543)
Cover note is a valid insurance K IF:
Issued and renewed with prior
approval of IC
Valid and binding for not more than 60
days, unless the insurance commission
has approved an extension based on
valid grounds
No separate premium is required for
the cover note (Pacific Timber v. CA)
7-day notice to the other party is
required to cancel the cover note
Policy must be issued within 60 days
from issuance of cover notes
60-day period may be extended upon
written approval of IC
Written approval is dispensed when
president, VP or general manager aver
that the renewal is not to circumvent
the insurance code (Ins. Memo
Circular 3-75)
PREMIUM
Concept of Premium
Agreed price for assuming the risk
The right to premium arises the moment the
property/object is exposed to risk
Cash and carry basis - based on section 77
which provides that the moment the thing
insured is exposed to the peril, the insurer
has the right to payment of premium.
When is non-payment excused?

insolvent insured
insurers negligence or fault
insurer waives the right to
payment

War does not suspend the policy and does

not excuse non-payment of premiums
Constantino vs. Asia Life, 87 Phil 248
Premium
If insured fails to pay 1st premium, insurer
cannot ask for specific performance but can
only rescind the contract since there is no
creditor-debtor relationship
Special Rule in Industrial Life if
premiums are not paid
In industrial life, if insured failed to pay
because the insurance agent did not collect
in the address provided in the policy policy
will NOT lapse

Except: if 12 weeks or 3 months have lapsed

from end of grace period
At a glance
Only the insured must have insurable
interest on the life if the cestui
Suicide is generally not compensable
unless: mentally ill or committed after
the policy has existed for more than two
years from issuance
If the beneficiary is disqualified because he
participated in the death of the cestui, the
other beneficiaries will get his share. If there
are no other beneficiaries or also
disqualified, the terms of the policy will be
followed. Otherwise, the estate will recover.
In all other cases, it is the estate of the
insured which can recover
If the cestui dies during the grace
period, there can be recovery
If the cestui dies during the duration
of the cover notes, there can be
recovery
The measure of recovery in life
insurance is the face value of the
policy. Except when insurable interest
is capable of pecuniary estimation
PART THREE
NON-LIFE INSURANCE
Topics
What may be insured against
Insurable interest
Non-life insurance policy
Topics
Premiums
Parties
Double insurance v reinsurance
Different kinds of non-life insurance
WHAT MAY BE INSURED AGAINST
Requirement for recovery
Peril insured against must be the PROXIMATE
CAUSE of the loss or damage (sec. 86)
NO liability if insured risk is only a remote
cause or if proximate cause is an excepted
peril
Concept of loss - injury, damage, liability,
loss of income or profits sustained by the
insured in consequence of the happening of

one or more perils insured against (Bonifacio

Bros. V. Mora, 20 SCRA 261)

Proximate Cause
That which in the natural and continuous
sequence, unbroken by any NEW
INDEPENDENT cause, produces an event
without which the event would not have
occurred.
Also called the EFFICIENT CAUSE, or one
that sets the others in motion
NOT equivalent to IMMEDIATE CAUSE
Proximate Cause: Examples
Fire causes an explosion which results in
loss. Fire is the proximate cause of the loss.
If fire is a covered peril, the insurer is liable.
A house is insured against fire. The house is
destroyed due to the falling of a wall. The
wall fell due to fire. The insurer is liable
Immediate Cause v. Proximate Cause
Immediate cause cause or peril
which appears closest in time to the
loss
Immediate cause is NOT necessarily
the proximate cause and vice versa
Bar 2007
Alfredo took out a policy to insure his
commercial building against fire. A fire
broke out and destroyed the building. It was
found that the proximate cause of the fire
was explosion but fire was the immediate
cause of the loss. There is no excepted peril
in the policy. Can there be recovery under
the policy.
ANSWER
Alfredo cannot recover from the policy.
Section 84 of the Insurance Code provides
that before there can be recovery under
property insurance, the proximate cause of
the loss must be the covered peril. In the
instant case, the proximate cause of the loss
was not the peril insured against. Hence,
there can be no recovery under the policy.
Hostile v. Friendly Fire
Friendly - fire burns in a place where it is
intended to burn
Hostile - occurs outside the confines or
begins as a friendly fire and becomes hostile
by escaping from the place where it ought to
be

Hostile fire is the one covered by fire

insurance
Section 87:
Loss in the course of rescue
Insurer is liable if the thing is rescued from
peril insured against if in the course of
rescue, the thing is exposed to a peril not
insured against
Illustration
An owner gets fire insurance for his house
and all furniture inside.
In the course of rescuing the furniture from
fire, the furniture is damaged due to water.
The insurer is liable to the owner although
the damage is not due to fire since it was in
the course of rescuing the furniture from fire
that it suffered some damage.
If loss due to willful act or connivance
of insured
Section 89 - insurer is not liable if insured,
through his willful act or connivance caused
the loss
Ex. Arson, owner hiring other people to rob
his property
Section 89 - if loss is through SIMPLE
negligence of insured or his agents, insurer
is STILL LIABLE
Insurer is NOT liable if loss is caused by
GROSS negligence of insured
Bar 2007
If the fire was found to have been caused by
Alfredos own negligence, can he still recover
from the policy?
ANSWER
I qualify. If the negligence was simple in
nature then Alfredo can still recover under
the policy. However, if there was gross
negligence on the part of Alfredo then he is
barred from recovering under the policy.
Bar 2014
On February 21, 2013, Barrack
entered into a contract of insurance with
Matino Insurance Company (Matino)
involving a motor vehicle. The policy
obligates Matino to pay Barrack the amount
of Six Hundred Thousand Pesos
(P600,000.00) in case of loss or damage to
said vehicle during the period covered, which
is from February 26, 2013 to February 26,
2014.

On April 16, 2013, at about 9:00 a.m.,

Barrack instructed his driver, JJ, to bring the
motor vehicle to a near by auto shop for
tune-up. However, JJno longer returned and
despite diligent efforts to locate the said
vehicle, the efforts proved futile. Resultantly,
Barrack promptly notified Matino of the said
loss and demanded payment of the
insurance proceeds of P600,000.00.
In a letter dated July 5, 2013. Matino
denied the claim, reasoning as stated in the
contract that "the company shall not be
liable for any malicious damage caused by
the insured, any member of his family or by
a person in the insureds service. Is Matino
correct in denying the claim? (4%)
Suggested Answer
No, Matino is wrong in denying the
claim.
Under the Insurance Code, an insurance
policy is intended to cover losses due to acts
of simple negligence. It is only when the
insured is guilty of willfull connivance in
bringing about the risk insured against or
gross negligence that an insurer can deny
compensation.
In this case, the act of Barrack of allowing
his driver to bring the car for tune up is
simple negligence, which should be covered
by an insurance policy.
Further, the act of JJ, Barracks driver
in running away with the vehicle, cannot be
considered as malicious damage. It is a
crime, which is an act covered by an
insurance policy. Hence, Matino cannot use
this exlusionary clause to defeat payment of
proceeds.
INSURABLE INTEREST
Concept, Section 13
Every interest in property, whether
real or personal (owner)
Any relation thereto (lessee, agent)
Liability in respect of property (carrier,
depositary)
Which will directly damnify the insured
when a contemplated peril happens
Forms, Sec. 14
Existing interest (owner)
Inchoate interest founded on an
existing interest (shareholder)

Expectancy coupled with an existing

interest (usufructuary, expected
profit)
Factual Expectation
Mere factual expectation of loss not arising
from any legal right or duty in connection
with the SM does NOT constitute an
insurable interest.
NOTE: Factual expectation is enough basis in
life insurance.
Beneficiary is required to have insurable
interest
Insurable interest is required before a person
can benefit from a property insurance (Sec.
18)
Bar 2000
A is an elderly bachelor. He insured his house
against fire. He named his companion-friend
as beneficiary. A died in a fire which also
destroyed his home. The insurer refused
payment to B due to absence of insurable
interest on the life of A. Is the insurer
correct?
ANSWER
The insurer is correct. The beneficiary in
property insurance must have insurable
interest on the property. The companionfriend of A does not have insurable interest
on the house of A. Hence, he cannot recover
from the fire insurance policy.
Bar 2001
JQ, the owner of a condominium insured the
same against fire with XYZ Company and
made the loss payable to his brother MLQ.
In case of loss by fire, who can recover from
the policy. State the reason for your answer
(5%)
ANSWER
JQ can recover since he has insurable
interest over his own condominium unit.
MLQ cannot recover since it is required that
a beneficiary must have insurable interest
over the property.
Bar 2014
A person is said to have an insurable interest
in the subject matter insured where he has a
relation or connection with, or concern in it
that he will derive pecuniary benefit or
advantage from its preservation. Which
among the following subject matters is not
considered insurable? (1%)

(A) A partner in a firm on its future profits

(B) A general creditor on debtors property
(C) A judgment creditor on debtors property
(D) A mortgage creditor on debtors
mortgaged property
Suggested answer
(B) A general creditor on debtors property

Measure of insurable interest is the

extent the insured might be damnified
by loss or injury (Sec. 17)
Section 25: Void stipulations
payment of loss whether insured has
insurable interest or not or that policy
shall be proof of interest

Insurable interest in a mortgaged

property (Sec. 8)
Both the mortgagor and the mortgagee have
insurable interest on the mortgaged property
The II of the mortgagor is to the full value of
the SM
The II of the mortgagee is only up to the
extent of the indebtedness

INSURABLE INTEREST:
jurisprudence
Fire insurance taken on a property belonging
to another is VOID, although the insurer had
full knowledge of fact of ownership and even
if insured subsequently acquired insurable
interest (Cha v. CA, 277 SCRA 690)

Bar 2012
A house and lot is covered by a real estate
mortgage (REM) in favor of ZZZ Bank. The
bank required that the house be insured. The
owner of the policy failed to endorse nor
assign the policy to the bank. However, the
Deed of Real Estate Mortgage has an
express provision which says that the
insurance policy is also endorsed with the
signing of the REM. Will this be sufficient?
A.
No, insurance policy must be
expressly endorsed to the bank so that the
bank will have a right in the proceeds of
such insurance in the event of loss.
B.
The express provision contained in the
Deed of Real Estate Mortgage to the effect
that the policy is also endorsed is sufficient.
C.
Endorsement of Insurance Policy in
any form is not legally allowed.
D.
Endorsement of the Insurance Policy
must be in a formal document to be valid.
Bar 1999
A businessman obtained a fire insurance
policy on his stocks for P5 M. Three months
later, a fire broke out and destroyed the
grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to
another person who also insured the same
stocks for P5 M. May the businessman and
the creditor obtain different insurance
policies on the same stocks?
ANSWER
Yes. The businessman, as the owner and the
creditor, as the mortgagee have insurable
interest over the stocks. Hence, they may
obtain separate policies on the same stocks.
Measure

jurisprudence
Where the real intention of insured was to
insure his goods for P15,000 but insurer
mistakenly insured the building where the
goods were contained and not owned by
insured, in case of loss of goods insured was
allowed to recover (Garcia v. Hongkong,
45 Phil 122)
When insurable interest must exist in
property insurance
Time the insurance takes effect and
when the loss occurs, but NEED NOT exist in
the meantime
Bar 2002
Distinguish insurable interest in property
insurance from insurable interest in life
insurance (5%)
ANSWER
In property insurance, the expectation of
benefit must have a legal basis. In life
insurance, insurable interest can be based on
mere factual expectation.
In property insurance, the actual value of
the interest is the limit of the insurance.
There is no such limit in life insurance
except if insurable interest is capable of
pecuniary estimation.
In property insurance, insurable interest
must exist when the insurance takes effect
and at the time of the loss but not in the
meantime. In life insurance, insurable
interest must exist only at the time the
insurance takes effect.
Bar 2012
For both the Life Insurance and Property
Insurance, the insurable interest is required
to be -

A.
existing at the time of perfection of
the contract and at the time of loss.
B.
existing at the time of perfection and
at the time of loss for property insurance but
only at the time of perfection for life
insurance.
C.
existing at the time of perfection for
property insurance but for life insurance both
at the time of perfection and at the time of
loss.
D.
existing at the time of perfection only.
ANSWER

B. existing at the time of perfection

and at the time of loss for property
insurance but only at the time of
perfection for life insurance.
Change of ownership of property
Section 20 and 58: A change of
interest in any part of a thing
insured unaccompanied by a
corresponding change of
interest suspends the insurance
until the interest in the thing
and interest in the insurance
are vested on the same person
Illustration
A owns a car which is insured against theft
A sells the car to B. The policy was not
included in the sale.
If the car is carnapped, neither A nor B can
recover under the policy.
A cannot recover because he does not own
the car at the time of the theft.
B cannot recover because he does not own
the policy
Transfer of property by succession
When the insured dies, and the subject
matter is transferred by succession, the new
owner of the thing will also own the
insurance. (Sec. 23)
Illustration
A owns a car which has theft insurance
A bequeath the car to B under his will
A dies
B now owns the car, together with the
insurance policy
POLICY
KINDS
Open Value of thing is not agreed
upon but is to be ascertained at time
of loss. The amount of the

insurance merely represents the

insurers maximum liability.
Valued expresses on its face an
agreement that the thing shall be
valued at a specific sum
Running successive insurances

TWO KINDS OF VALUES

Face value maximum amount which may
be recovered under the policy
Valuation- value of the subject matter
agreed on by the parties
Open v. Valued
Open - has a face value but has NO
valuation of the thing. Valuation is done after
the loss
Valued - has both face value and valuation
of the thing
Illustration: Open
Illustration: Valued
Illustration: Running
PREMIUM
Cash and carry basis rule is followed
Section 77 - insurer is entitled to premium
as soon as the thing insured is exposed to
the peril insured against
Premium - is the agreed price for assuming
and carrying the risk
PREMIUM
General Rule: Cash and carry basis
nonpayment of the first premium
prevents the contract from becoming
binding
Premium must be paid in cash as a
condition precedent for non-life
insurance policy to be valid and
binding
In Suretyship, payment of premium is also
necessary for the contract to be binding
EXCEPT: if obligee has accepted the bond,
suretyship is binding even if premium has
not been paid, subject to the right of the
insurer to recover the premium from its
principal (SEC. 177)
Exceptions to Cash and Carry Basis, Sec.
77
Life/industrial life when the grace period
applies

whenever under the broker and agency

agreements with duly licensed
intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a
duly licensed intermediary should exceed
ninety (90) days from date of issuance of the
policy.
An acknowledgment in a policy or contract of
insurance or the receipt of premium is
conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding
any stipulation therein that it shall not be
binding until the premium is actually paid.
When the parties have agreed on installment
payment (Makati Tuscany case)
When the insurer has renewed the insurance
over the years under a clear credit term
arrangement (UCPB case)
In Suretyship where the obligee accepts the
bond even if premium has not been paid
(Sec. 177)

extension will entitle the insured to

proceeds, less the unpaid premiums.
Premium by installment:
Makati Tuscany v. CA
Makati and American Assurance agreed that
premiums will be paid via three installments
Makati paid premiums for 3 consecutive
years in three installments
On the 4th year, Makati paid only the 1st 2
installments.
American collected the 3rd installment
Makatis defense: Section 77 provides that
no policy will be effective unless the
premium has been paid. Since premiums
were paid on installments, there was no valid
policy.
Makati and American Assurance agreed that
premiums will be paid on three installments
After paying premiums for 3 consecutive
years, Makati refused to pay the third
installment on the 4th year
American sought to collect the balance from
Makati

When there is a credit scheme

UCPB v. Masagana April 4, 2001 - insured is
entitled to proceeds even if he has not fully
paid premiums when:
for years, insurer has been issuing fire
insurance policies to insured and the policies
were renewed
insurer has been granting 60-90 day credit
extension
When there is a credit scheme
no valid notice of non-renewal
premium was paid by insured within credit
extension period

SC: 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, at p. 175). So is an
understanding to allow insured to pay
premiums in installments not so proscribed.
At the very least, both parties should be
deemed in estoppel to question the
arrangement they have voluntarily accepted

Bar 2007
Alfredo took out a policy to insure his
commercial building. The broker agreed to
give a 15-day credit to Alfredo within which
to pay the premium. Upon delivery of the
policy on May 15, 2006, Alfredo issued a
postdated check dated May 30, 2006. On
May 28, 2006, fire destroyed the building.
May Alfredo recover from the policy?
ANSWER
Alfredo can recover from the policy. In a
decided case by the Supreme Court, it was
held that parties may agree on a credit
extension in paying the premium. The
happening of the peril during the credit

Bar 2006
A Insurance Company issued an policy on
the new car of B. The premium of P60,000
was to be paid in 6 months. B paid only the
1st two months installments. Despite
demands, B failed to pay the rest of the
installments. Five months after the issuance
of the policy, the vehicle was carnapped. A
denied the claim of B since B did not pay the
premium resulting to cancellation of the
policy. Can B recover from A?
ANSWER
B can recover from A the proceeds of the
policy less the unpaid premiums. In a
decided case by the Supreme Court, it was

held that when the parties agreed on

payment of premiums by installment, the
policy becomes effective upon payment of
first installment. Absent any provision that
non-payment of subsequent installments will
cause cancellation, the policy between A and
B continue to exist.
Bar 2010
Enrique obtained from Seguro
Insurance Company a comprehensive motor
vehicle insurance to cover his top of the line
Aston Martin. The policy was issued on
March 31, 2010 and, on even date, Enrique
paid the premium with a personal check
postdated April 6, 2010.
On April 5, 2010, the car was involved in an
accident that resulted in its total loss.
On April 10, 2010, the drawee bank
returned Enriques check with the notation
"Insufficient Funds." Upon notification,
Enrique immediately deposited additional
funds with the bank and asked the insurer to
redeposit the check.
Enrique thereupon claimed indemnity from
the insurer. Is the insurer liable under the
insurance coverage? Why or why not? (3%)
Suggested Answer
Enrique cannot recover. In a decided
case, the Supreme Court said that an insurer
and the insured may agree on a credit
scheme for payment of premiums, which will
give rise to a perfected contract of insurance.
However, the insurer must make payment
within the period agreed on (UCPB v.
Masagana).
In this case, Enriques check bounced
on April 6. He only funded the check on
April 10 or 4 days late than the date of the
check. Thus, there was no perfected
contract of insurance which can cover the
April 5 accident. Enrique cannot recover
under the policy.
Bar 2014
On September 25, 2013, Danny
Marcial (Danny) procured an insurance on
his life with a face value of P5,000,000.00
from RN Insurance Company (RN), with his
wife Tina Marcial(Tina) as sole beneficiary.
On the same day, Danny issued an undated
check to RN for the full amount of the
premium.
On October 5, 2013, Danny met a
tragic accident and died. Tina claimed the
insurance benefit, but RN was quick to deny

the claim because at the time of Dannys

death, the check was not yet encashed and
therefore the premium remained unpaid.
Is RN correct? Will your answer be the same
if the check is dated October 15, 2013? (4%)
Suggested Answer
RN is correct in denying the claim.
Based on jurisprudence, an insurer can be
held liable for loss if the insurer and the
insured agreed on a credit scheme where is
a definite period when premium should be
fully paid.
In this case, there was no clear credit
extension period or scheme since the check
issue by Danny was undated. Since there
was no payment of premiums or even a
definite time when payment should be made,
there was no valid insurance policy at the
time of Dannys death. Hence, there can be
no recovery of proceeds.
My answer will not be the same if the
check was dated October 15, 2014.
If the check was properly dated, this means
that there was a valid credit extension
scheme or period between the parties.
Hence, there was a valid policy and there
should be payment of proceeds, less the
amount of premiums.
When is insured entitled to return of
premium?
Whole premium if object was never
exposed to peril, unless it is an
indivisible policy
E.g. insured pays in advance the
annual premium, loss occurs before
date of effectivity. Insured is entitled
to reimbursement of whole premium
Pro- rated premium surrender policy
before period is up
E.g. A insures his house for 1 year but
returns the policy after 3 months. A is
entitled to of the premiums.
If the contract is voidable and
subsequently annulled under the
provisions of the Civil Code or on
account of fraud / misrepresentation
of insure/agent, facts insured was
ignorant of, default of insured other
than fraud
E.g. Agent represents that A can be
insured even if his age disqualifies
him. Insured is entitled to return of
premium.

 Over insurance by several insurers,

other than life
ratable return of premium
ADDITIONAL PREMIUMS
Section 84. An insurer may contract and
accept payments, in addition to regular
premium, for the purpose of paying future
premiums on the policy or to increase the
benefits thereof.
NOTE!
A person insured is not entitled to a return of
premium if the policy is annulled, rescinded
or if a claim is denied by reason of fraud.
RATABLE RETURN OF PREMIUM IN CASE
OF OVERINSURANCE
Sec. 82 premiums to be returned when
there is over insurance by several insurers
shall be proportioned to the amount by
which the aggregate sum insured in all
policies exceeds the insurable value of the
thing at risk
Illustration: P1.5M house
How to compute:
STEP 1: Determine amount overinsured
Amount overinsured =
Amount of insurance value of
property
P1.8 P1.5M = P300,000
Get the ratio of overinsurance with the total
amount of insurance
P300,000/P1,800,000.00
= 1/6
Ratable Return
STEP 3: Multiply the ratio to the amount of
premium paid to every insurer
A= 1/6 of P24,000 = P4,000 from A
Company
B= 1/6 of P12,000 = P2,000 from B
Company

Bar 2000
Name at least three instances when an
insured is entitled to a return of the premium
paid.
PARTIES
The beneficiary
Section 18 - no contract or policy on
property shall be enforceable except for the
benefit of some person having an insurable
interest in the property insured

Compare with Life Insurance

Where the beneficiary is not required to have
insurable interest over the cestui que vie
It is only the insured who must have
insurable interest over the cestui que vie
Insurer
Before issuing such certificate of authority,
the Commissioner must be satisfied that the
name of the company is not that of any
other known company transacting a similar
business in the Philippines, or a name so
similar as to be calculated to mislead the
public. The Commissioner may issue rules
and regulations on the use of names of
insurance companies and other supervised
persons or entities.
Insurer- Bancassurance
Section 375. The term bancassurance shall
mean the presentation and sale to bank
customers by an insurance company of its
insurance products within the premises of
the head office of such bank duly licensed by
the Bangko Sentral ng Pilipinas or any of its
branches under such rules and regulations
which the Commissioner and the Bangko
Sentral ng Pilipinas may promulgate.
To engage in bancassurance arrangement, a
bank is not required to have equity
ownership of the insurance company. No
insurance company shall enter into a
bancassurance arrangement unless it
possesses all the requirements as may be
prescribed by the Commissioner and the
Bangko Sentral ng Pilipinas.
No insurance product under this section,
whether life or non-life, shall be issued or
delivered unless in the form previously
approved by the Commissioner.
Section 376. Personnel tasked to present
and sell insurance products within the bank
premises shall be duly licensed by the
Commissioner and shall be subject to the
rules and regulations of this Act.
"Section 377. The Commissioner and the
Bangko Sentral ng Pilipinas shall promulgate
rules and regulations to effectively supervise
the business of bancassurance.
Insurer-Mutual Benefit Association and
Trusts for Charitable Uses
Section 403. Any society, association or
corporation, without capital stock, formed

or organized not for profit but mainly for the

purpose of paying sick benefits to members,
or of furnishing financial support to members
while out of employment, or of paying to
relatives of deceased members of fixed or
any sum of money, irrespective of whether
such aim or purpose is carried out by means
of fixed dues or assessments collected
regularly from the members, or of providing,
by the issuance of certificates of insurance,
payment of its members of accident or life
insurance benefits out of such fixed and
regular dues or assessments, but in no case
shall include any society, association, or
corporation with such mutual benefit
features and which shall be carried out
purely from voluntary contributions collected
not regularly and /or no fixed amount from
whomsoever may contribute, shall be known
as a mutual benefit association within the
intent of this Code.
Mutualization and Demutualization
Mutualization A a shareholder-owned
company is converted into a mutual
organization, typically through takeover by
an existing mutual organization. A mutual
organization is customer-owned.
Demutualization -customer-owned mutual
organization or cooperative changes form to
a joint, stock company, sometimes called
stocking for privatization.
Mutualization
Section 280. A domestic mutual life
insurance company doing business in the
Philippines may convert itself into an
incorporated stock life insurance company by
demutualization. To that end, it may provide
and carry out a plan for the conversion by
complying with the requirements of this title.
"The conversion of a domestic mutual life
insurance company to an incorporated stock
life insurance company shall be carried out
pursuant to a conversion plan duly approved
by the Commissioner.
"The Commissioner shall promulgate such
rules and regulations as he or she may deem
necessary to carry out the provisions of this
title, after due consultation with
representatives of the insurance industry.
"All converted insurers under the provisions
of this title shall be subject to all other
applicable provisions of this Code. The
provisions of the Corporation Code shall
apply in a suppletory manner.
Mutual Benefit Association

Section 408. "A mutual benefit association

shall only maintain free and unassigned
surplus of not more than twenty percent
(20%) of its total liabilities as verified by the
Commissioner. Any amount in excess shall
be returned to the members by way of
dividends, enhancing the equity value or
providing benefits in kind and other relevant
services. In addition, subject to the approval
of the Commissioner, a mutual benefit
association may allocate a portion for
capacity building and research and
development such as developing new
products and services, upgrading and
improving operating systems and equipment
and continuing member education.
Trust Business
TRUST BUSINESS IN GENERAL
"Section 429. An insurance company may
engage in limited trust business, consisting
of managing funds pertaining only to
retirement and pre-need plans, provided it
has secured a license to do so from the
Bangko Sentral ng Pilipinas. This trust
business shall be separate and distinct from
the general business of the insurance
company and shall be subject to rules and
regulations as may be promulgated by the
Bangko Sentral ng Pilipinas in consultation
with the Commissioner.
Self-Regulatory Organizations
CHAPTER IX REGISTRATION,
RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Section 430. The Commissioner shall have
the power to register as a selfregulatory organization, or otherwise
grant licenses, and to regulate,
supervise, examine, suspend or
otherwise discontinue, as a condition for
the operation of organizations whose
operations are related to or connected with
the insurance market such as, but not
limited to, associations of insurance
companies, whether life or non-life,
reinsurers, actuaries, agents, brokers,
dealers, mutual benefit associations, trusts,
rating agencies, and other persons regulated
by the Commissioner, which are engaged in
the business regulated by this Code.
The Commissioner may prescribe rules and
regulations which are necessary or

appropriate in the public interest or for the

protection of investors to govern selfregulatory organizations and other
organizations licensed or regulated pursuant
to the authority granted hereunder including,
but not limited to, the requirement of
cooperation within and among all
participants in the insurance market to
ensure transparency and facilitate exchange
of information.
Double Insurance v. Over-insurance
Double Insurance
Same person is insured by several insurers
in respect of the same subject and interest
(Sec. 95)
Requisites:
1.
2.
3.
4.
5.

insured is the same

two or more insurers insuring separately
same subject matter
interest insured is the same
risk or peril insured against is the same

Bar 2005
When does double insurance exist? (2%)
Bar 1999
A businessman obtained a fire insurance
policy on his stocks for P5 M. Three months
later, a fire broke out and destroyed the
grocery and stocks. The insurer refused to
pay claiming that double insurance is
contrary to law. Is this contention tenable?
ANSWER
The contention of the insurer is untenable.
First, there is no law prohibiting double
insurance. Second, there was no double
insurance here because the insured in the
two policies are different. The two insured
also have different interests on the property.
Bar 2012
X borrowed from CCC Bank. She mortgaged
her house and lot in favor of the bank. X
insured her house. Tt1e bank also got the
house insured.
A.
Is this double insurance? Explain your
answer. (3%)
B.
Is this legally valid? Explain your
answer. (3%)
C.
In case of damage, can X and CCC
Bank separately claim for the insurance
proceeds? (4%)
Answer
1.
No, this is not double insurance.
Double insurance exists when the same

person is insured by several insurers in

respect of the same subject and interest The
insured in the two policies are different and
they have different interests. Xs interest is
as the owner of the house and lot while
CCCs interest is as the mortgagee and is
limited to the amount of the debt.
2.
Yes, this is legally valid. Both the
mortgagee and the owner have insurable
interests over the property. Either party may
obtain a property insurance policy on the
same property because both stand to suffer
loss in case the house and lot is destroyed or
damaged.
3.
Yes, both X and CCC can claim under
their insurance policies. X can claim to the
extent of the value of the property. CCC can
claim to the extent of the unpaid debt in
favor of X, that is secured by the property.
Over-insurance amount of insurance is
beyond the value of insureds insurable
interest
How to collect in case of over-insurance
by double insurance, Sec. 96
The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select, up
to the amount for which the insurers are
severally liable under their respective
contracts;
Valued Policy- any sum received by him
under any other policy shall be deducted
from the value of the policy without regard
to the actual value of the subject matter
insured;
Unvalued Policy- any sum received by him
under any policy shall be deducted against
the full insurable value, for any sum received
by him under any policy;
Policy is unvalued, determine actual
loss and collect from insurance in such
order as he may select
If insured receives amount more than
loss, hold sum in trust according to
the right of contribution
Each insurer must contribute ratably
to the loss in proportion to the amount
for which he is liable
Bar 2005
What is the nature of liability of several
insurers in double insurance (2%)

ANSWER
In double insurance, the insurers are
considered as co-insurers. Each one is
bound to contribute ratably to the loss in
proportion to the amount for which he is
liable under his contract (Sec. 96e)
Bar 2012
X insured the building she owns with two (2)
insurance companies for the same amount.
In case of damage, A.
X can not claim from any of the two
(2) insurers because with the double
insurance, the insurance coverage becomes
automatically void.
B.
the two (2) insurers will be solidarily
liable to the extent of the loss.
C.
the two (2) insurers will be
proportionately liable.
D. X can choose who he wants to claim
against.
ANSWER: D
Reinsurance
Contract by which an insurer procures a third
person to insure him against loss or liability
by reason of an original insurance
Illustration
A gets B to insure his building against fire for
P10 Million.
B (insurer) can get C (reinsurer) to reinsure
him for P5 Million out of the P10 Million
insurance in favor of A. Thus, Bs liability
shall be limited to P5 Million. While C, the
reinsurer has to give the insurer the other P5
M.
Reinsurance
v.
Double
Insurance
Reinsurance
v.
Double
Insurance
Reinsurance
v.
Double Insurance
Kinds of Non-Life Insurance
MARINE
Marine
Sections 99 and 100 concept
Peril covered perils of the sea or perils of
navigation casualties due to unusual
violence or extraordinary action of wind and
wave or other extraordinary causes
connected with navigation must be the
PROXIMATE CAUSE
Peril of the ship is NOT covered
Peril of the Ship v. Peril of the Sea

Roque v. IAC sinking of barge without

extra-ordinary circumstances (SHIP)
Go Tiaco v. Union loss results from natural
and inevitable action of the sea, from the
ordinary wear and tear of the ship or from
negligence of owner to provide with proper
equipment (SHIP)
Cathay v. CA rusting of steel pipes in the
course of the voyage in view of the toll on
cargo of wind, water and salt conditions
(SEA)
Bar 2011
Perils of the ship, under marine insurance
law, refer to loss which in the ordinary
course of events results from
A. natural and inevitable actions of the sea.
B. natural and ordinary actions of the sea.
C. unnatural and inevitable actions of the
sea.
D. unnatural and ordinary actions of the sea.
Answer
A. natural and inevitable actions of the sea.
Is ship owners insurer liable in case of loss
if:
vessel is chartered (Sec. 102)
YES. liable only for part of the loss which
insured cannot recover from charterer
Insurance of owner full value of property
but recovery shall be limited to amount not
paid by charterer
Insurance of charterer extent of his liability
in case of loss
Illustration
A and B enter into a charter agreement.
A's vessel is valued at P1 Million.
Per agreement, Bs insurer shall be liable up
to P500,000 in case of loss. A has an
insurance of P1 M.
In case of loss:
As insurer = P500,000
Bs insurer = P500,000
Can ship owner get insurance for:
Expected freightage (Sec. 105)
Expected freightage which in the ordinary
and probably course of things he would have
earned but for the intervention of the peril
insured against
Important that insured must have an
inchoate right to freightage which cannot be
defeated
Expected profits (Sec. 107) YES.
FIRE
Fire Insurance

insurance against loss by fire,

lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies
Fire must be the proximate cause, and
must be hostile in nature
Measure of Indemnity
If there is a valuation shall be conclusive
as between parties in adjusting partial or
total loss in the absence of FRAUD
If there is NO valuation - the expense it
would be to the insured to REPLACE the
thing lost or injured in the condition in which
it was at the time of injury
Loss and its amount may be determined on
the basis of such proof as may be offered by
insured which need not be of such
persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo)
How valuation is made
Sec. 174 independent appraiser examines
the property and fixes the value
Valuation shall be inserted in the policy
GENERAL RULE: Valuation shall be the basis
for indemnity in case of total loss
EXCEPT: If there is a change increasing the
risk without the consent of insurer or if
there's fraud on the part of insured.
Partial loss full amount of the partial loss
Parties may agree that instead of payment,
insurer may repair, rebuild or replace
property
Illustration
Subject matter is a house
Independent appraiser values it at P10
Million
The valuation is attached to the policy
Illustration
If house is totally destroyed by fire, the
valuation of P10 M will be given
If the house is half-destroyed, the indemnity
will be half of P10 Million or P5 M.
Illustration
If the valuation is based on some fraud on
the part of the insured, e.g. adding fixtures
which are not part of the house OR there is
an alteration increasing the hazard such as
converting in to an ammunition factory, the
valuation is not used.

Illustration
Parties may agree that instead of paying the
amount, insurer will rebuild the house.
When alteration can exonerate insurer
The use or condition of a thing is altered
Policy prohibits or limits the alteration
Made without the consent of the insurer, by
means within the control of the insured
increasing the risks = Insurer can rescind
the K
The use or condition of a thing insured is
altered
Policy prohibits it or limits it
It does not increase the risk
Act which does not violate the policy
any act of the insured subsequent to the
execution of the policy
Act does not violate its provisions, even
though it increases the risk and is the cause
of the loss
No effect on policy
Bar 2014
On May 13, 1996, PAM, Inc. obtained
a P15,000,000.00 fire insurance policy from
Ilocano Insurance covering its machineries
and equipment effective for one (1) yearor
until May 14, 1997. The policy expressly
stated that the insured properties were
located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 and 6, Block 15, PEZA,
Rosario, Cavite." Before its expiration, the
policy was renewed on "as is" basis for
another year or until May 13, 1998. The
subject properties were later transferred to
Pace Factory also in PEZA. On October 12,
1997, during the effectivity of the renewed
policy, a fire broke out at the Pace Factory
which totally burned the insured properties.
The policy forbade the removal of the
insured properties unless sanctioned by
Ilocano. Condition 9(c) of the policy provides
that "the insurance ceases to attach as
regards the property affected unless the
insured, before the occurrence of any loss or
damage, obtains the sanction of the
company signified by endorsement upon the
policy x x x (c) if the property insured is
removed to any building or place other than
in that which is herein stated to be insured."
PAM claims that it has substantially complied
with notifying Ilocano through its sister
company, the RBC, which, in fact, referred

PAM to Ilocano for the insurance coverage. Is

Ilocano liable under the policy? (4%)
Suggested Answer
Ilocano is liable under the policy.
Under the Insurance Code, any
alteration in the use or condition of a thing
insured which is limited by the policy, but
does not increase the risk will not affect the
validity of the policy.
In this case, although the policy forbade the
transfer of the goods without the consent of
the insurer, the transfer of the goods did not
increase the risk of fire. Hence, the transfer
will not exonerate Ilocano.
Further, PAM should be deemed to
have substantially complied with the consent
requirement when it notified the agent of
Ilocano. Hence, Ilocano was wrong in
denying the claim.
CASUALTY INSURANCE
Casualty Insurance - Sec. 176 insurance
covering loss or liability arising from accident
or mishap excluding certain types of loss
which fall exclusively within the scope of
other types of insurance such as fire or
marine
Employers liability
Motor Vehicle Liability
Plate glass insurance
Burglary and theft insurance
Personal accident and health insurance
(when death is NOT one of the risks insured
against)
Motor Vehicle Liability Insurance
Motor vehicle any vehicle propelled by any
power other than muscular power using the
public highways, with certain exceptions
Section 387 unlawful for any land
transportation owner or operator to operate
the same in public highways unless there is a
policy of insurance or guaranty in cash or
bond to indemnify the death or bodily injury
of a third party or passenger
At a glance
Insurable interest is property insurance must
exist at the time of the issuance and at
the time of the loss although it need not
exist in between these times
A beneficiary in property insurance must
have insurable interest over the property

It is possible that two or more persons

may have insurable interest over the
same object. As in the case of owner and
lessee, mortgagor and mortgagee.
In such cases, two or more separate
insurance policies may be obtained. This
is not double insurance since they dont
have the same insured and they have
different interests.
The covered peril must be the proximate
cause before there can be recovery under
the policy.
Instances when there can be return of
premiums.
Payment of premiums must be on cash and
carry basis.
Important exceptions to cash and carry:
credit extension and installment
payment
Marine insurance covers only perils of the
sea and NOT perils of the ship.
In marine, the following persons can get
insurance policies: owner, charterer, for
freightage, for expected profits.
Fire insurance covers hostile fire
Failure to give written notice of loss in fire
with unreasonable delay will exonerate
the insurer.
Indemnity in fire may either be based on
valuation OR payment of cost to restore the
object at the time of loss
PART FOUR:
PAYMENT OF PROCEEDS
AND FILING OF CLAIMS
Basic Rule in Recovery
Sec. 89. An insurer is not liable for a loss
caused by the willful act or through the
connivance of the insured; but he is not
exonerated by the negligence of the insured,
or of the insurance agents or others.
Bar 2010
To secure a loan of P10 million, Mario
mortgaged his building to Armando. In
accordance with the loan arrangements,
Mario had the building insured with First
Insurance Company for P10 million,
designating Armando as the beneficiary.
Armando also took an insurance on the
building upon his own interest with Second
Insurance Company for P5 million.

The building was totally destroyed by

fire, a peril insured against under both
insurance policies. It was subsequently
determined that the fire had been
intentionally started by Mario and that in
violation of the loan agreement, he had been
storing inflammable materials in the
building.
How much, if any, can Armando
recover from either or both insurance
companies? (2%)
What happens to the P10 million debt of
Mario to Armando? Explain. (3%)
Suggested Answer
Armando cannot recover from either policy.
Under Section 89 of the Insurance Code, an
insurer is exonerated when the loss is
caused by the willful act of the insured.
The loan will remain, but it will be considered
as unsecured.
In Life Insurance
WHEN
General Rule: Paid immediately upon
maturity of the policy (death, survival,
cessation or continuance of life)
Exceptions:
proceeds are payable in
installments
annuity
If maturity is due to death
Proceeds are paid within 60
days from presentation of the
claim and proof of death
Delay = interest unless due to
fraudulent claim

Proof of death v. Notice of Death

Notice of death is not enough, there must be
proof of death
Proof of death - death certificate
TO WHOM
General rule: paid to designated
beneficiaries
Exception: Facility of payment clause
in group life and industrial life
Facility of Payment : Group Life
There is no designated beneficiary
pay not exceeding P500.00
to any person equitably entitled for
incurring funeral or other expenses
incident to the last illness or death of
the insured

Facility of Payment: Industrial

If beneficiary:
does not surrender policy with
proof of death during period
stated in the policy OR
is the estate of insured OR

is a minor OR

dies before the insured OR

is legally incompetent to give

valid release
proceeds may be given to:

the executor or administrator of

insured OR
any of insureds relative by
blood as legal adoption or by
marriage OR
any person who incurred
expenses for maintenance,
medical attention or burial
NON-LIFE INSURANCE
WHEN
within 30 days after proof of loss is received
by insurer and ascertainment of loss is made
Ascertainment of loss
made either by agreement between parties
or by arbitration
If no ascertainment is made or can be had
within 60 days from receipt of proof of loss,
insurer must pay within 90 days after receipt
of proof
Refusal to pay within period unless
due to a fraudulent claim = interest
ILLUSTRATION
A presents proof of loss of car by theft and
insurer ascertains amount of loss on January
1, 2000
Proceeds must be paid 30 days after January
1, 2000. Otherwise, interest must be paid.
ILLUSTRATION
A presents proof of theft on January 1, 2000
but parties cannot agree on amount of loss
by March 1, 2000 (within 60 days from
Jan.1).
Proceeds must be paid within 90 days from
January 1, 2000. Otherwise, interest will
accrue.
MOTOR VEHICLE LIABILITY
Procedure for filing claims

No fault Indemnity Clause:

Section 391
death or injury of 3rd party
without necessity of proving fault or
negligence of any kind
if total indemnity of one person shall
not exceed P15,000.
Proofs of loss are submitted under
oath.
police report of accident ; and
Death certificate and evidence to
establish payee OR medical report and
evidence of medical and hospital
disbursement.
Claim against one motor vehicle only
if occupant of a vehicle, claim
against insurance of vehicle
otherwise, claim against
offending vehicle
Bar 2012
X is a passenger of a jeepney for hire being
driven by Y. The jeepney collided with
another passenger jeepney being driven by Z
who was driving recklessly. As a result of the
collision, X suffered injuries. Both passenger
jeepneys are covered by Comprehensive
Motor Vehicular Insurance Coverage. If X
wants to claim under the "no fault indemnity
clause", his claim will lie A.
against the insurer of the jeepney
being driven by Z who was the one at fault.
B.
the claim shall lie against the insurer
of the passenger jeepney driven by Y
because X was his passenger.
C.
X has a choice against whom he wants
to make his claim.
D.
None of the above.
On May 26, 2014, Jess insured with
Jack Insurance (Jack) his 2014 Toyota
Corolla sedan under a comprehensive motor
vehicle insurance policy for one year. On July
1, 2014, Jess car was unlawfully taken.
Hence, he immediately reported the theft to
the Traffic Management Command (TMC) of
the Philippine National Police (PNP), which
made Jess accomplish a complaint sheet as
part of its procedure. In the complaint sheet,
Jess alleged that a certain Ric Silat(Silat)
took possession of the subject vehicle to add
accessories and improvements thereon.
Bar 2014

However, Silat failed to return the subject

vehicle within the agreed 3-day period. As a
result, Jess notified Jack of his claim for
reimbursement of the value of the lost
vehicle under the insurance policy. Jack
refused to pay claiming that there is no theft
as Jess gave Silat lawful possession of the
car. Is Jack correct? (4%)
Suggested answer
Jack is wrong.
Jeff obtained a comprehensive motor vehicle
insurance policy, which should cover all kinds
of losses for whatever reason, except gross
negligence.
The policy should cover the loss of the car,
although it was not really unlawfully taken
by Silat. The fact remains that there was loss
of vehicle and the proceeds for the loss
should be paid to Jeff.
Delay, Proof, Subrogation

Reasonable Delay
in Payment
delay due to investigation to ascertain
the truth of information it received
that insured was not insurable at time
of application (Chuy v. Philamlife)
delay caused by determination of
actual beneficiary and claims of
creditors (RCBC v. CA)
Preliminary Proof of Loss
best evidence which insured has
not evidence in ordinary courts

purpose : Apprise insurer of

loss and
make proper
investigation while evidence is
still fresh and to prevent further
loss

NOTICE OF LOSS IN FIRE

Must be written
Must be given without unnecessary delay
Otherwise, the insurer is exonerated
NOTICE IN OTHER NON-LIFE POLICIES
The Commissioner may specify the period for
the submission of the notice of loss.
Subrogation
when insurer pays for the loss

payment to insured operates as an equitable

assignment to the insurer of all remedies
which insured may have for the recovery
subrogation is limited to the amount
recoverable by the insured
Marine
What may be insured against
Only covers loss due to perils of the sea and
not perils of the ship
In case there is a bottomry, insurable
interest of the ship owner is limited to excess
of its value over the amount secured by
bottomry.
Bar 2010
Paolo, the owner of an ocean-going vessel,
offered to transport the logs of Constantino
from Manila to Nagoya. Constantino
accepted the offer, not knowing that the
vessel was manned by an irresponsible crew
with deep-seated resentments against Paolo,
their employer.
Constantino insured the cargo of logs against
both perils of the sea and barratry. The logs
were improperly loaded on one side, thereby
causing the vessel to tilt on one side. On the
way to Nagoya, the crew unbolted the sea
valves of the vessel causing water to flood
the ship hold. The vessel sank.
Constantino tried to collect from the
insurance company which denied liability,
given the unworthiness of both the vessel
and its crew.
Constantino countered that he was not the
owner of the vessel and he could therefore
not be responsible for conditions about which
he was innocent.
Is the insurance company liable? Why or why
not? (3%)
What is "barratry" in marine insurance? (2%)
Suggested Answer
The insurer is not liable because the vessel
violated the implied warranty of
seaworthiness. The loss was also caused by
a peril of the ship and not peril of the sea.
Barratry includes every wrongful act
committed by a vessel master or crew, to
the prejudice of the owner or the charterer.
Bar 2011
T Shipping, Co. insured all of its vessels with
R Insurance, Co. The insurance policies
stated that the insurer shall answer for all

damages due to perils of the sea. One of the

insured's ship, the MV Dona Priscilla, ran
aground in the Panama Canal when its
engine pipes leaked and the oil seeped into
the cargo compartment. The leakage was
caused by the extensive mileage that the
ship had accumulated. May the insurer be
made to answer for the damage to the cargo
and the ship?
A. Yes, because the insurance policy covered
any or all damage arising from perils of the
sea.
B. Yes, since there appears to have been no
fault on the part of the shipowner and
shipcaptain.
C. No, since the proximate cause of the
damage was the breach of warranty of
seaworthiness of the ship.
D. No, since the proximate cause of the
damage was due to ordinary usage of the
ship, and thus not due to a peril of the sea.
Answer

C. No, since the proximate cause of

the damage was due to ordinary
usage of the ship, and thus not due
to a peril of the sea.
Who can insure?
Freightage all benefits derived by the
owner either from chartering the ship or its
employment for the carriage of his own
goods or those of others (102)
Charterer of the ship has insurable interest
on the ship to the extent that he is damnified
by the loss (106)
Average
General insurer is liable for proportion of
the loss assessed (136)
Particular insurer is liable unless there is
a stipulation exempting the insurer (136)
General Average
Goods of A valued at 1 M are disposed
Disposition saves the goods of B (1 M) and C
(1 M)
The 1 M loss of A will be shared by B and C
in proportion to the value of the goods
belonging to them which are saved. The 1 M
loss will be divided by three
Particular Average
If the goods of A are disposed
But disposition did not inure to the common
benefit of other owners of goods
Only A and his insurer will suffer the loss

Other owners and their insurers will not

contribute in As loss
Reshipment
Insured peril prevents a ship from
completing voyage at an intermediate port,
liability of the marine insurer continues after
reshipment without prejudice to insurer's
right to collect more premiums (133)
In case of reshipment, the insurer of goods
is liable for damages, expenses of
discharging, storage, reshipment and other
expenses (134)
Kinds of loss in marine
Total v Partial Loss
Every loss which is not total is partial
(128)
Total loss may either be actual or
constructive
Actual loss may be presumed from the
continued absence of a ship without being
heard of (132)

If the thing is cargo or freightage, voyage

cannot be performed, nor another ship be
procured within a reasonable time and with
reasonable diligence to forward the cargo,
without incurring like expenses or risk >3/4
of the value of the vessel.
Abandonment
Neither partial nor conditional (140)
Must be made within a reasonable time after
receipt of reliable information of loss (141)
If information on loss is incorrect or thing is
restored and there is no total loss,
abandonment is ineffectual (141)
Bar 2011
For a constructive total loss to exist in
marine insurance, it is required that the
person insured relinquish his interest in the
thing insured. This relinquishment must be
A. actual.
B. constructive first and if it fails, then
actual.
C. either actual or constructive.
D. constructive.
Answer

A. actual.
Actual Loss, 130
total destruction of the thing
irretrievable loss of thing by sinking or being
broken up
damage which renders thing valueless for
the purpose it is held
other event which effectively deprives owner
of possession of the thing at the port of
destination
Constructive Total Loss, 133
Also called technical total loss
Loss which gives the person the right to
abandon under Section 141
When there can be abandonment - SECTION
141
>3/4 of the value is actually lost or would
have to be spent to recover it from peril
If the vessel is injured to such an extent as
to reduce its value to >3/4
When there can be abandonment - SECTION
141
If the thing is a ship, and the voyage cannot
be performed without incurring either
expense to the insured of >3/4 the value of
the thing abandoned or a risk which a
prudent man would not take under the
circumstances

It is made orally or in writing. If orally,

written notice shall be submitted within 7
days from oral notice (143)
Has the effect of transferring by the insured
of his interest, to the insurer with all chances
of recovery and indemnity (146)
Bar 2011
X Shipping, Co., insured its vessel MV Don
Teodoro for Php100 Million with ABC
Insurance, Co. through T, an agent of X
Shipping. During a voyage, the vessel
accidentally caught fire and suffered
damages estimated at Php80 Million. T
personally informed ABC Insurance that X
Shipping was abandoning the ship.
Later, ABC insurance denied X Shippings
claim for loss on the ground that a notice of
abandonment through its agent was
improper. Is ABC Insurance right?
A. Yes, since X Shipping should have ratified
its agents action.
B. No, since T, as agent of X Shipping who
procured the insurance, can also give notice
of abandonment for his principal.
C. Yes, since only the agent of X Shipping
relayed the fact of abandonment.

D. No, since in the first place, the damage

was more than 34 of the ship's value.
Answer
B. No, since T, as agent of X Shipping who
procured the insurance, can also give notice
of abandonment for his principal.
If insurer pays for loss as if there was actual
total loss, BUT there was no formal
abandonment,Insurer is entitled to whatever
may remain of the thing insured or its
proceeds of salvage (147)
Who is entitled to freightage in case of
abandonment?
freightage earned before the loss belongs to
the insurer of the freightage
Freightage earned after the loss belongs to
the insurer of the ship
Insurer refuses valid abandonment
the rights of the insured are not prejudiced
by refusal of insurer to accept abandonment
Insurer is still liable for actual total loss
deducting any amount given to the insured
Acceptance of abandonment may be express
or implied. Mere silence is acceptance
Insured refuses to abandon
If insured fails to abandon, he can recover
actual loss
Illustration
A insures a vessel with B for P1 Million
The vessel's value is reduced to P200,000
due to a peril of the SEA
TWO CHOICES OF A: Abandon or claim
actual loss
If A abandons
A must immediately give a written notice of
abandonment to B
If B accepts the abandonment, it must give A
P1 Million
If A abandons
B now has all the right with respect to the
vessel
HOWEVER, freightage earned before loss
will belong to the insurer of the goods
Freightage earned after the loss will belong
to the insurer of the vessel
If A does not abandon BUT
B still gives A P1 Million
B will now have the right over the vessel,
what remains of it and proceeds of salvage
If A does not abandon

A can recover ACTUAL loss or P800,000 since

the vessel is reduced to 20% of its former
value of P1 Million
Measure of Indemnity
Valuation is conclusive between parties in
determining total or partial loss EXCEPT if
there is fraud
Marine insurer is liable for partial loss only
for such proportion of the amount insured by
him as the loss bears to the value of the
whole interest.
How to estimate loss in open policy (161)
Value of the ship value at the beginning
of risk including articles which adds to its
value or to prepare it for the voyage
How to estimate loss in open policy(161)
Value of the cargo actual cost to insured
when laden on board OR market value at the
time and place of lading
How to estimate loss in case of open policy
(161)
Value of the freightage is the gross
freightage, exclusive of primage
Cost of insurance shall be added to the
estimated value
Effect of an Other Insurance Policy Clause
Generally allowed
Only subject to possible stipulation that
insurer must be informed or must consent to
additional insurance policies on the same
property
Bar 2011
If an insurance policy prohibits additional
insurance on the property insured without
the insurer's consent, such provision being
valid and reasonable, a violation by the
insured
A. reduces the value of the policy.
B. avoids the policy.
C. offsets the value of the policy with the
additional insurancess value.
D. forfeits premiums already paid.
Answer
B. avoids the policy.
Litigation of Claims
Powers of the Commissioner
Insurance Commissioner
Section 437. The Insurance Commissioner
shall be appointed by the President of the
Republic of the Philippines for a term of six

(6) years without reappointment and who

shall serve as such until the successor shall
have been appointed and qualified. If the
Insurance Commissioner is removed before
the expiration of his term of office, the
reason for the removal must be published.
Adjudicatory Powers
Single claims of P5 Million or below
(excluding cost, attorneys fees and interest)
This jurisdiction is concurrent with the
regular courts
does not cover the relationship between the
insurance company and its agents/brokers
but is limited to adjudicating claims and
complaints filed by the insured against the
insurance company.
Administrative Powers
To see that all laws relating to insurance,
insurance companies and other insurance
matters, mutual benefit associations, and
trusts for charitable uses are faithfully
executed and to perform the duties imposed
upon him by this Code
has sole and exclusive authority to regulate
the issuance and sale of variable contracts as
defined in Section 238 hereof and to provide
for the licensing of persons selling such
contracts, and to issue such reasonable rules
and regulations governing the same.
Issue such rulings, instructions, circulars,
orders and decisions as may be deemed
necessary to secure the enforcement of the
provisions of this Code to ensure the efficient
regulation of the insurance industry in
accordance with global best practices and to
protect the insuring public. Except as
otherwise specified, decisions made by the
Commissioner shall be appealable to the
Secretary of Finance.
(a) Formulate policies and recommendations
on issues concerning the insurance industry,
advise Congress and other government
agencies on all aspects of the insurance
industry and propose legislation and
amendments thereto;
(b) Approve, reject, suspend or revoke
licenses or certificates of registration
provided for by this Code;

(c) Impose sanctions for the violation of laws

and the rules, regulations and orders issued
pursuant thereto;
(d) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions
and provide guidance on and supervise
compliance with such rules, regulations and
orders;
(e) Enlist the aid and support of, and/or
deputize any and all enforcement agencies of
the government in the implementation of its
powers and functions under this Code;
Administrative Powers
(f) Issue cease and desist orders to prevent
fraud or injury to the insuring public;
(g) Punish for contempt of the
Commissioner, both direct and indirect, in
accordance with the pertinent provisions of
and penalties prescribed by the Rules of
Court;
(h) Compel the officers of any registered
insurance corporation or association to call
meetings of stockholders or members
thereof under its supervision;
Administrative Powers
(i) Issue subpoena duces tecum and
summon witnesses to appear in any
proceeding of the Commission and, in
appropriate cases, order the examination,
search and seizure of all documents, papers,
files and records, tax returns, and books of
accounts of any entity or person under
investigation as may be necessary for the
proper disposition of the cases before it,
subject to the provisions of existing laws;
(j) Suspend or revoke, after proper notice
and hearing, the license or certificate of
authority of any entity or person under its
regulation, upon any of the grounds provided
by law;
Administrative Powers
(k) Conduct an examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by
appropriate rules and regulations;
(l) Investigate not oftener than once a year
from the last date of examination to
determine whether an institution is
conducting its business on a safe and sound
basis: Provided, That, the
deficiencies/irregularities found by or
discovered by an audit shall be immediately
addressed;
Administrative Powers

(m) Inquire into the solvency and liquidity of

the institutions under its supervision and
enforce prompt corrective action;
(n) To retain and utilize, in addition to its
annual budget, all fees, charges and other
income derived from the regulation of
insurance companies and other supervised
persons or entities;
(o) To fix and assess fees, charges and
penalties as the Commissioner may find
reasonable in the exercise of regulation; and
(p) Exercise such other powers as may be
provided by law as well as those which may
be implied from, or which are necessary or
incidental to the express powers granted the
Commission to achieve the objectives and
purposes of this Code.
To impose penalties on insurers:
Fines not less than Five thousand pesos a
(P5,000.00) and not more than Two hundred
thousand pesos (P200,000.00); and
Suspension, or after due hearing, removal of
directors and/or officers and/or agents.
At least once a year to examine the
affairs, financial condition and method
of business of insurers
To issue licenses/registrations/authority to
the ff:
Domestic or foreign insurer (247)
Reinsurance Broker (license) (Sec. 310)
Insurance Agent and Broker (license) (Sec.
299)
To issue licenses/registrations/authority to
the ff:
Resident agent of a foreign insurer
(certificate of registration)
Non-life company underwriter (certificate of
registration)
Adjusters Actuary
Grounds to revoke agents license
Has willfully violated any provision of this
Code; or
Has intentionally made a material
misstatement in the application to qualify for
such license; or
Has obtained or attempted to obtain a
license by fraud or misrepresentation; or
Has been guilty of fraudulent or dishonest
practices; or
Grounds to revoke agents license
Has misappropriated or converted to his own
use or illegally withheld moneys required to
be held in a fiduciary capacity; or

Has not demonstrated trustworthiness and

competence to transact business as an
insurance agent or insurance broker in such
manner as to safeguard the public; or
Has materially misrepresented the terms and
conditions of policies or contracts of
insurance which he seeks to sell or has sold;
or
Grounds to revoke agents license
Has failed to pass the written examination
prescribed, if not otherwise exempt from
taking the same.
"In addition to the foregoing causes, no
license to act as insurance agent or
insurance broker shall be renewed if the
holder thereof has not been actively engaged
as such agent or broker in accordance with
such rules as the Commissioner may
prescribe.
Suspension or Revocation of certificate of
authority on the ff grounds:
Insurer is in an unsound condition
Insurer failed to comply with the provisions
of law or regulations obligatory upon it
Insurer's condition or method of business is
hazardous to the public or its policyholders
Insurer's paid up capital or available assets
or security deposits is impaired or is deficient
Margin of solvency is deficient
Commission of any of unfair settlement
practices
Unfair Claims Settlement Practices
Knowingly misrepresenting to
claimants pertinent facts or policy
provisions relating to coverage at
issue
Failing to acknowledge with reasonable
promptness pertinent communications
with respect to claims arising under its
policies
Failing to adopt and implement
reasonable standards for the prompt
investigation of claims arising under its
policies
Not attempting in good faith to
effectuate prompt, fair and equitable
settlement of claims submitted in which
liability has become reasonably clean; or
Compelling policyholders to
institute
suit to recover
amounts due under its
policies by offering

without justifiable reason

substantially less than the
amounts ultimately recovered in
suits brought by them
Unlawful Claims
SECTION 251. It is unlawful to:
(a) Present or cause to be presented any
fraudulent claim for the payment of a loss
under a contract of insurance; and
(b) Fraudulently prepare, make or subscribe
any writing with intent to present or use the
same, or to allow it to be presented in
support of any such claim. Any person who
violates this section shall be punished by a
fine not exceeding twice the amount claimed
or imprisonment of two (2) years, or both, at
the discretion of the court.
Appeal of Insurance Commission cases
If Administrative functions- File a
Memorandum of Appeal within 15 days to
the Secretary of Finance (Rule IX, Section 1
of Insurance Memorandum Circular 1-93)
If Adjudicatory functions- Court of Appeals
(depending on mode of appeal)
Period to pay claims in life and non-life (60
days; 30-60-90 rule)
Facility of payment clause
Notice of loss in fire insurance
Actual loss
Constructive loss- > rule on abandonment
At a glance
Jurisdiction of the insurance
commissioner
Jurisdiction of regular courts
Unfair claims settlement practices
PART FIVE
GROUNDS FOR RESCISSION
PDIC LAW
GROUNDS
Concealment
Misrepresentation
Breach of warranty, express or implied
Other grounds - Section 64-65
CONCEALMENT
neglect to communicate that
which a party knows and ought
to communicate.

May be intentional or
unintentional
Requisites of Concealment
(a) party knows the fact which he
neglects to communicate or
disclose
(b) party concealing is duty bound
to disclose such fact to the other
Requisites of Concealment
a) party concealing makes no warranty
as to concealed fact
b) other party has no means of
ascertaining the fact concealed
WHAT MUST BE COMMUNICATED
All facts within his knowledge
Material to the contract
Other party has no means of
ascertaining
He makes no warranty
Information which prove or tend to
prove falsity of warranty
WHAT NEED NOT BE COMMUNICATED
Those which the other knows
Those which, in the exercise of
ordinary case, the other ought to
know and which the other has no
reason to suppose him ignorant
Those of which the other waives
communication
Those which prove or tend to prove
the existence of a risk excluded by a
warranty, and which are not otherwise
material; and
Those which relate to a risk excepted
from the policy, and which are not
otherwise material
General causes open to his inquiry
which may affect the political or
material perils contemplated (32)
General usages of trade (32)
Nature or amount of interest, except
in answer to an inquiry (34)
Information of his own judgment (35)
TEST OF MATERIALITY
Determined not by event
Probable and reasonable influence of
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

concealment entitles the

unguilty party to rescind

Assessment of risk, in making/omitting

further inquiries, cause him to reject the risk
or accept it at higher premium rate/different
terms

CONCEALMENT In Marine Insurance

in addition to Section 28
all information he possesses material to the
risk except those in Section 30

Materiality
Sunlife v. CA, 245 SCRA 268 - where the
applicant concealed prior medical history and
he died in a plane crash, there was still
concealment notwithstanding the apparent
lack of relation between the fact concealed
and the cause of death

state exact and whole truth in relation to all

matters that he represents
information of belief or expectation of a third
person as to a material fact is MATERIAL
insured is presumed to know prior loss at
time of insuring

Bar 2001
A applied for non-medical life insurance. He
did not inform the insurer that he was
examined and confined at St. Lukes Hospital
where he was diagnosed for lung cancer. A
died in a plane crash. Is the insurer liable
considering that the fact concealed had no
bearing with the cause of death of A?
Answer
The insurer is not liable. The concealed fact
is material to the approval and issuance of
the policy. According to a decided case, the
insured need not die of the disease he failed
to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in
forming his estimate of the risks of the
proposed insurance policy or in making
further inquiries.
Bar 2011
An insured, who gains knowledge of a
material fact already after the effectivity of
the insurance policy, is not obliged to divulge
it. The reason for this is that the test of
concealment of material fact is determined
A. at the time of the issuance of the policy.
B. at any time before the payment of
premium.
C. at the time of the payment of the
premium.
D. at any time before the policy becomes
effective.
Answer

C. at any time before the policy

becomes effective.
WAIVER OF RIGHT TO INFORMATION
By terms of insurance OR
Neglect to make inquiries

General Rule: Concealment entitles the

innocent party to rescind
Exception: Section 110
Section 110
Concealment as to following does NOT
vitiate the entire contract but exonerates the
insurer from loss resulting from risk
concealed.
(a) national character of insured
(b) liability of thing insured to capture
and detention
(c) liability to seizure from breach of
foreign laws of trade
(d) the want of necessary document
(e) the use of false and simulated
papers
INCONTESTABILITY CLAUSE IN
LIFE INSURANCE
Section 48, 2nd par if life insurance
has been in force during the lifetime of the
insured for a period of 2 years from DATE OF
ISSUE or LAST REINSTATEMENT
the insurer cannot prove that the policy is
void ab initio or is rescindible
by reason of fraudulent concealment or
misrepresentation of the insured or his
agent.
Illustration
A is issued a life insurance policy on April 2,
2000
He conceals the fact that he has tuberculosis
A dies on April 3, 2002.
Insurance company must pay. Although
there was concealment, the policy has been
in force during the lifetime of A for 2 years
from April 2, 2000.
When Incontestability Clause DOES NOT
apply

Person has no insurable interest

Cause of death is an excepted peril
Premiums have not been paid
Conditions of the policy relating to
military or naval service have been
violated
Fraud of a vicious type is present
when policy was taken out
Beneficiary failed to furnish proof of
death or to comply with any condition
imposed by the policy after the loss
has happened
That the action was not brought within
time specified

Bar 2012
The "incontestability clause" in a Life
Insurance Policy means --A.
that life insurance proceeds cannot be
claimed two (2) years after the death of the
insured.
B.
that two (2) years after date of
issuance or reinstatement of the life
insurance policy, the insurer cannot anymore
prove that the policy is void ab initio or
rescindable by reason of fraudulent
concealment or misrepresentation of the
insured.
C.
that the insured can still claim from
the insurance policy after two (2) years even
though premium is not paid.
D.
that the insured can only claim
proceeds in a life insurance policy two (2)
years after death.
Bar 2014
On July 3, 1993, Delia Sotero (Sotero) took
out a life insurance policy from Ilocos
Bankers Life Insurance Corporation (Ilocos
Life) designating Creencia Aban(Aban), her
niece, as her beneficiary. Ilocos Life issued
Policy No. 747, with a face value of
P100,000.00, in Soteros favor on August 30,
1993, after the requisite medical
examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a
claim for the insurance proceeds on July 9,
1996. Ilocos Life conducted an investigation
into the claim and came out withthe
following findings:
1. Sotero did not personally apply for
insurance coverage, as she was illiterate.
2. Sotero was sickly since 1990.
3. Soterodid not have the financial capability
to pay the premium on the policy.
4. Sotero did not sign the application for
insurance.

5. Aban was the one who filed the insurance

application and designated herself as the
beneficiary.
For the above reasons and claiming fraud,
Ilocos Life denied Abans claim on April 16,
1997, but refunded the premium paid on the
policy. (6%)
(A) May Sotero validly designate her niece as
beneficiary?
(B) May the incontestability period set in
even in cases of fraud as alleged in this
case?
(C) Is Aban entitled to claim the proceeds
under the policy?
Suggested Answer
(B) May the incontestability period set in
even in cases of fraud as alleged in this
case?
The incontestability clause shall not apply
because the niece did not have insurable
interest on the life of her aunt. Hence, she
cannot use the clause to recover.
Suggested Answer
(c) Is Aban entitled to claim the proceeds
under the policy?
No Aban is not entitled to the proceeds
because she was the one who obtained the
policy on the life of her aunt and she does
not have insurable interest. Hence, the policy
is void.
MISREPRESENTATION
Representations factual statements
made by the insured at the time of, or prior
to the issuance of the policy
Statement
(a) as a fact of something which is
untrue
(b) 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
(c) where such fact in either case is
material to the
risk
Test of Falsity & Materiality
Sec. 44 when the facts fail to correspond
with its assertion or stipulations
Sec. 45 materiality is determined using
the same test in concealment (Sec. 31)

Misrepresentation as a ground to
rescind
entitled to rescind from the time the
representation becomes false
right to rescind by insurer is waived by
acceptance of premiums despite knowledge
of ground to rescind
Misrepresentations as to Age
in Life Insurance
no rescission
proceeds shall be such as the premium
would have purchased at the correct age
Misrepresentation
in Marine Insurance
entitles the insurer to rescind
eventual falsity of a representation as to
expectation without fraud, does NOT avoid a
marine insurance contract
Bar 2011
Shipowner X, in applying for a marine
insurance policy from ABC, Co., stated that
his vessel usually sails middle of August and
with normally 100 tons of cargo. It turned
out later that the vessel departed on the first
week of September and with only 10 tons of
cargo. Will this avoid the policy that was
issued?
A. Yes, because there was breach of implied
warranty.
B. No, because there was no intent to breach
an implied warranty. C. Yes, because it
relates to a material representation.
D. No, because there was only
representation of intention.
Answer

D. No, because there was only

representation of intention.
Breach of Warranty
Warranty Either express or implied
May relate to the past, present or future
Implied Warranties in Marine Insurance
Seaworthiness - 113
Nationality or neutrality 120
Improper deviation -121
Illegal ventures
Bar 2000
What warranties are implied in marine
insurance? (2%)
Seaworthiness

Section 114 - a ship is seaworthy if

reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage
contemplated by the parties to the policy
Section 116 - extends not only to the
seaworthiness of the ship itself but requires
that it be properly laden, provided with
competent master, sufficient number of
competent officers and seamen, requisite
appurtenances and equipment and other
implements for the voyage
Improper Deviation
Section 123 - deviation is a departure from
the course of the voyage insured or
unreasonable delay in pursuing the voyage
or the commencement of an entirely
different voyage
Proper Deviation, 124
caused by circumstances outside the control
of the master or owner
when necessary to comply with a warranty
or to avoid peril
when made in good faith upon reasonable
grounds to avoid a peril
in good faith to save human life or to relieve
another vessel
Bar 2011
T, the captain of MV Don Alan, while asleep
in his cabin, dreamt of an Intensity 8
earthquake along the path of his ship. On
waking up, he immediately ordered the ship
to return to port. True enough, the
earthquake and tsunami struck three days
later and his ship was saved. Was the
deviation proper?
A. Yes, because the deviation was made in
good faith and on a reasonable ground for
believing that it was necessary to avoid a
peril.
B. No, because no reasonable ground for
avoiding a peril existed at the time of the
deviation.
C. No, because T relied merely on his
supposed gift of prophecy.
D. Yes, because the deviation took place
based on a reasonable belief of the captain.
Answer
B. No, because no reasonable ground for
avoiding a peril existed at the time of the
deviation.
Nationality

Section 120 - where the nationality or

neutrality of the ship is expressly warranted,
it is impliedly warrantied that the ship will
carry the requisite documents to show such
nationality or neutrality and it will not carry
any document which will cast suspicion
thereon.
Other Ground for Rescission in non life
insurance
non- payment of premium
conviction of a crime arising out of
acts increasing the hazard insured against
discovery of fraud / material
misrepresentation
Other Ground for Rescission in non life
insurance
discovery of willful or reckless acts or
omissions increasing the hazard insured
against
physical changes in the property
becoming uninsurable
Discovery of other insurance coverage
that makes the total insurance in excess of
the value of the property insured
determination by Insurance
Commissioner that continuation of the policy
would violate or would place the insurer in
violation of the Insurance Code
Notice of Cancellation
In writing
Mailed or delivered to named insured at
address shown in the policy OR
or to his broker provided the broker is
authorized in writing by the policy owner to
receive the notice of cancellation on his
behalf
Shall state
grounds relied on

upon written request, insurer

will furnish fact on which
cancellation is based

Rescission must be exercised

Before the commencement of any action on
the contract
In which motor vehicle liability insurance
notice of cancellation must be sent to the
land transportation owner/operator and the
LTO at least 15 days before date of
effectivity
REPUBLIC ACT NO. 9576
April 29, 2009

An Act increasing the maximum deposit

insurance coverage, Amending RA 3591,
Insured Deposit, Concept
deposit" means the unpaid balance of
money or its equivalent received by a bank
in the usual course of business and for which
it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift
account, or issued in accordance with
Bangko Sentral rules and regulations and
other applicable laws
EXCLUDED IN THE CONCEPT
any obligation of a bank which is payable at
the office of the bank located outside of the
Philippines shall not be a deposit for any of
the purposes of this Act or included as part
of the total deposits or of insured deposits:
Subject to the approval of the Board of
Directors, any insured bank which is
incorporated under the laws of the
Philippines which maintains a branch
outside the Philippines may elect to
include for insurance its deposit
obligations payable only at such branch.
EXCLUDED IN THE CONCEPT
The corporation shall not pay deposit
insurance for the following accounts or
transactions, whether denominated,
documented, recorded or booked as
deposit by the bank:
(1) Investment products such as bonds and
securities, trust accounts, and other similar
instruments;
(2) Deposit accounts or transactions which
are unfunded, or that are fictitious or
fraudulent;
EXCLUDED IN THE CONCEPT
(3) Deposits accounts or transactions
constituting, and/or emanating from, unsafe
and unsound banking practice/s, as
determined by the Corporation, in
consultation with the BSP, after due notice
and hearing, and publication of a cease and
desist order issued by the Corporation
against such deposit accounts or
transactions; and
EXCLUDED IN THE CONCEPT
(4) Deposits that are determined to be the
proceeds of an unlawful activity as defined
under RA 9160, as amended.
RA 9160- Anti Money Laundering Act
What to do with PDIC Exclusions?
Exclusions of transactions from coverage is
final and executory
may not be restrained or set aside by the
court

except on appropriate petition for certiorari

What to do with PDIC Exclusions?
Grounds for Petition for Certiorari: excess of
jurisdiction or with such grave abuse of
discretion as to amount to a lack or excess
of jurisdiction.
petition for certiorari may only be filed within
thirty (30) days from notice of denial of
claim for deposit insurance.
INSURED DEPOSITS
amount due to any bona fide depositor for
legitimate deposits in an insured bank net
of any obligation of the depositor to the
insured bank as of date of closure, but not
to exceed Five hundred thousand pesos
(P500,000.00).
INSURED DEPOSIT
add together all deposits in the bank
maintained in the same right and capacity
for his benefits either in his own name or in
the name of others.
INSURED DEPOSIT
A joint account regardless of whether
the conjunction 'and,' 'or,' 'and/or' is
used, shall be insured separately from
any individually-owned deposit account:
Provided, That (1) If the account is held
jointly by two or more natural persons, or by
two or more juridical persons or entities, the
maximum insured deposit shall be divided
into as many equal shares as there are
individuals, juridical persons or entities,
unless a different sharing is stipulated in the
document of deposit, and
Joint Account
Joint Account
INSURED DEPOSIT
If the account is held by a juridical person or
entity jointly with one or more natural
persons, the maximum insured deposits shall
be presumed to belong entirely to such
juridical person or entity
Institutional Account
Institutional Account
Joint accounts held by a juridical person with
natural person will be presumed to belong to
the juridical person. Thus, Accounts #1 and
#2 will be consolidated in the name of ABC
Co. Total amount of insured deposits will be
P500,000.
Who will pay P500,000
1st 3 years of RA 9576, P250,000 shall be
paid by PDIC, P250,000 by the national
government
Congress shall annually appropriate the
necessary funding to reimburse the

Corporation for any payment to insured

depositors paid in excess of P250,000.00.
After 3 years, solely by PDIC
Right to examine PDIC members
PDIC may examine banks with prior approval
of the Monetary Board
No examination can be conducted within
twelve months from the last examination
date
In case of threatened or impending
closure of bank
PDIC, in coordination with the Bangko
Sentral, may conduct a special examination
as the Board of Directors, by an affirmative
vote of a majority of all of its members
In case of unsafe or unsound banking
practice
PDIC and/or Bangko Sentral may inquire into
or examine deposit accounts and all
information related thereto
Sanctions against unsafe and unsound
bank practices
Sanctions against unsafe and unsound
bank practices
Role of PDIC in closed banks
Shall act as receiver
Shall control, manage and administer the
affairs of the closed bank.
Role of PDIC in closed banks
Effective immediately upon takeover as
receiver of such bank, the powers, functions
and duties, as well as all allowances,
remunerations and perquisites of the
directors, officers, and stockholders of such
bank are suspended, and the relevant
provisions of the Articles of Incorporation
and By-laws of the closed bank are likewise
deemed suspended
Role of PDIC in closed banks
The assets of the closed bank under
receivership shall be deemed in custodia
legis in the hands of the receiver.
Assets shall not be subject to attachment,
garnishment, execution, levy or any other
court processes
Role of PDIC in closed banks
A judge, officer of the court or any person
who shall issue, order, process or cause the
issuance or implementation of the writ of
garnishment, levy, attachment or execution
shall be liable under Section 21 hereof.
PDIC directors and officers have NO
liability
PDIC, its directors, officers, employees and
agents are held free and harmless to the

fullest extent permitted by law from any

liability
They shall be indemnified for any and all
liabilities, losses, claims, demands,
damages, deficiencies, costs and expenses of
whatsoever kind and nature that may arise
in connection with the performance of their
functions, without prejudice to any criminal
liability under existing laws.
PDIC directors and officers have NO
liability
EXCEPTION: If the actions of PDIC or any of
its officers and employees are found to be in
willful violation of this Act, performed in bad
faith, with malice and/or gross negligence,
Tax obligations of PDIC
All tax obligations of PDIC for a period of five
(5) years reckoned from the date of
effectivity of this Act shall be chargeable to
the Tax Expenditure Fund (TEF) in the annual
General Appropriation Act
On the 6th year and thereafter - exempted
from income tax, final withholding tax,
value-added tax on assessments collected
from member banks and local taxes
Splitting of Deposits
A deposit account with an outstanding
balance of more that the statutory maximum
amount of insured deposit maintained under
the name of natural or juridical persons is
broken down and transferred into two (2) or
more accounts in the name/s of natural or
juridical persons or entities who have no
beneficial ownership on transferred deposits
in their names
Splitting of Deposits
Transfer is made within 120 days
immediately preceding or during a bankdeclared bank holiday, or immediately

preceding a closure order issued by the

Monetary Board of the Bangko Sentral ng
Pilipinas for the purpose of availing of the
maximum deposit insurance coverage.
Bar 2000
BD has a bank deposit of half a million
pesos. Since the PDIC limit is P250,000, BD
would like some protection for the excess by
taking out an insurance against all risks
arising from unsound bank practices. Does
BD have insurable interest under the
Insurance Code?
ANSWER
Yes, BD has insurable interest in his bank
deposit. In case of loss to the extent of the
amount not covered by PDIC, BD will be
damnified. He will suffer pecuniary loss of
P250,000 since PDIC Law only covers
accounts up to P250,000.
Bar 2010
When OCCIDENTAL Bank folded up due to
insolvency, Manuel had the following
separate deposits in his name: P200,000 in
savings deposit; P250,000 in time deposit;
P50,000 in a current account; P1 million in a
trust account; and P3 million in money
market placement. Under the Philippine
Deposit Insurance Corporation Act, how
much could Manuel recover? Explain. (2%)
Suggested Answer
Manuel can only recover up to a total of
P500,000 for his savings deposit, time
deposit and current account. Under the PDIC
Law, a single depositor can only recover a
maximum of P500,000 for these kinds of
accounts. The trust account and money
market placement are excluded from the
coverage of the PDIC Law.