Philippine Legal Guide: Insurance Notes Outline Part Two (Premium)

IV. Premium

A. Payment Required

1. Binding Effect of Payment [Sec. 77 and 306. par. 2 IC]

Insurance Code

Sec. 77

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

Sec. 306 par. 2

Sec. 306. xxx

Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

South Sea Surety and Insurance Co., Inc. v. CA (1995) (see above)

Doctrines:

payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract.

The only two statutorily provided exceptions are

(a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies and

NOTE: Grace period is only applicable for life/health insurance

(b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive evidence of the premium payment

Areola v. CA (1994)

Summary: Areola's policy was cancelled by mistake because Prudential Guarantee And Assurance, Inc. branch manager Malapit failed to remit the premium payment. Although Prudential offered rectification by extend its lifetime to December 17, 1985. The Areola's have already filed for damages before they received the letter. RTC: favored Areola Prudential being in bad Faith CA: reversed since cancellation is not motivated by negligence, malice or bad faith SC: RTC reinstated
Laws: Art. 1910,Article 1191
Doctrines:

Subsequent reinstatement could not possibly absolve Prudential there being an obvious breach of contract (from the time of payment)

2. Effect of Non-Payment [Sec. 64(a) IC]

Insurance Code

Sec. 64 (a)

Sec. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a) non-payment of premium; XXX

National Leather Co. Inc v. U.S. Life Insurance Co. (1950) (cannot find)

Sales de Gonzaga v. Crown Life Insurance Co. (1952)

Summary: Gonzaga was insured with a 20-year endowment with Crown Life based in Toronto company. Being an enemy during the Japanese Occupation, it was forced closed but continued to receive payments as a privilege to its members at the house of its employee. It reopened on May 1, 1945 in Manila. During which the reinstatement clause could have revived the policy but Gozaga did not pay. June 27, 1945: Gonzaga died from an accident and his widow was claiming from Crown Life alleging that they were not notified of the change in office during the war so they were not able to pay. RTC, SC: Against Gonzaga.
Doctrines:

Non-payment at the day involves absolute forfeiture is such be the terms of the contract
failure to notify the postal address during the war is not an excuse
opening of an interim office partook of the nature of the privilege to the policy holders to keep their policies operative rather than a duty to them under the contract

Valenzuela v. CA (1990)

Summary: As a general agent, Valenzuela was able to solicit Delta Motors, Inc. for an insurance worth P4.4M entitling him to a commission of P1.6M. But, Philamgen officers wanted 50% of it but he refused so they reversed his commission, placed agency transactions on a cash and carry basis thus removing the 60-day credit for premiums due, threatened to cancel policies issued by his agency and leaked out the news that he has substantial accounts with Philamgen. RTC: favored him CA: modified to make him solidarily liable for the premiums unpaid SC: reinstated RTC since non-payment rendered the policy invalid
Laws: Art. 19,Art. 20,Art. 21, Art. 2200 of the new Civil Code;Section 77 of the Insurance Code
Doctrines:

If a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for the breach of that duty. The agent may in a proper case maintain an action at law for compensation or damages
unless premium is paid, an insurance contract does not take effect
to sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing

3. Statutory Exceptions

a. Grace Period [Sec. 77 IC]

Insurance Code

Sec. 77

i. For individual life or endownment insurance [Sec. 227(a) IC]

Insurance Code

Sec. 227 (a)

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

(a) A provision that the policyholder is entitled to a grace period either of thirty days or of one month within which the payment of any premium after the first may be made, subject at the option of the insurer to an interest charge not in excess of six per centum per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in full force, but in case the policy becomes a claim during the said period of grace before the overdue premium is paid, the amount of such premium with interest may de deducted from the amount payable under the policy in settlement; xxx

ii. For group life insurance [Sec. 228(a) IC]

Insurance Code

Sec. 228 (a)

Sec. 228. No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policy-holders:

(a) A provision that the policyholder is entitled to a grace period of either thirty days or of one month for the payment of any premium due after the first, during which grace period the death benefit coverage shall continue in force, unless the policyholder shall have given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The policy may provide that the policyholder shall be liable for the payment of a pro rata premium for the time the policy is in force during such grace period; xxx

iii. For industrial life insurance [Sec. 230 (a) IC]

Insurance Code

Sec. 230 (a)

Sec. 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions:

(a) A provision that the insured is entitled to a grace period of four weeks within which the payment of any premium after the first may be made, except that where premiums are payable monthly, the period of grace shall be either one month or thirty days; and that during the period of grace, the policy shall continue in full force, but if during such grace period the policy becomes a claim, then any overdue and unpaid premiums may be deducted from any amount payable under the policy in settlement; xxx

b. Acknowledgement receipt [Sec. 78 IC]

Insurance Code

Sec. 78

Sec. 78. 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.

American Home Assurance Co. v. Chua (1999)

Summary: April 5, 1990: Antonio Chua renewed the fire insurance for its stock-in-trade of his business, Moonlight Enterprises with American Home Assurance Companyby issuing a check of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to him. April 6, 1990: Moonlight Enterprises was completely razed by fire with an est. loss of P4,000,000 to P5,000,000. April 10, 1990: An official receipt was issued and subsequently, a policy was issued covering March 25 1990 to March 25 1991. Chua filed an insurance claim with American Home and 4 other co-insurers. American Home refused alleging the no premium was paid. RTC: favored Antonio Chua for paying by way of check a day before the fire occurred. CA: Affirmed SC: partially granted deleting the awards for profit or loss, moral damages and reducing the attorney's fees.
Laws: Section 29, Section 66,Section 75, Section 77 (see above) , Section 78 (see above), Section 306 of the Insurance Code
Doctrines:

renewal certificate issued contained the acknowledgment that premium had been paid
best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment
Section 78 establishes a legal fiction of payment and should be interpreted as an exception to Section 77

c. Acceptance by obligee by surety bond [Sec. 177 IC]

Insurance Code

Sec. 177

Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected.

In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.

Philippine Pryce Assurance Corp. v. CA (1994)

Summary: Gegroco, Inc filed for a collection of the issued surety bond for P500K and P1M by Interworld Assurance Corporation (now Philippine Pryce Assurance Corporation) in behalf of its principal Sagum General Merchandise. Interworld: checks issued by its principal which were supposed to pay for the premiums bounced and it was not yet authorized by the Insurance Commission to issue surety bonds. RTC, CA, SC: favored Gegroco, Inc
Laws: Sec. 177 of the Insurance Code (see above)
Doctrines:

Interworld's defense that it did not have authority to issue a Surety Bond when it did is an admission of fraud committed against Gegroco. No person can claim benefit from the wrong he himself committed. A representation made is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

d. Rules on cover notes (if premium CANNOT yet be computed) [Sec. 52 IC]

Insurance Code

Sec. 52

Sec. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.

Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.

Pacific Timber v. CA (1982)

Summary: March 19, l963: Pacific Timber secured temporary insurance from Workmen's Insurance Company, Inc. for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Tokyo, Japan. Workmen's issued Cover Note. April 2, 1963: regular marine cargo policies were issued for a total of 1,195.498 bd. ft. Due to the bad weather some of the logs were lost during loading operations. 45 pieces of logs were salvaged, but 30 pieces were lost. Pacific informed Workmen's who refused stating that the logs covered in the 2 marine policies were received in good order at the point of destination and that the cover note was null and void upon the issuance of the Marine Policies CFI: cover note is valid CA: reversed
Laws: Section 84 of the Insurance Code
Doctrines:

it was not necessary to ask for payment of the premium on the Cover Note , for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due on the Cover Note
cover note as a "binder"

supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid

e. Non-lapse of individual life or endowment insurance

i. Automatic policy loan [Sec. 227(g) IC]

Insurance Code

Sec. 227 (g)

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

(g) A provision that at anytime after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefor is made;

ii. Application of dividend [Sec. 227 (e) IC]

Insurance Code

Sec. 227 e)

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

(e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein;

iii. Restatement clause [Sec. 227(j) IC]

Insurance Code

Sec. 227 (j)

(j) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement.

Any of the foregoing provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein; and any such policy may be issued and delivered in the Philippines which in the opinion of the Commissioner contains provisions on any one or more of the foregoing requirements more favorable to the policyholder than hereinbefore required.

This section shall not apply to policies of group life or industrial life insurance.

Lalican v. Insular Life Assurance Company Limited (2009)

Summary: Eulogio applied for an insurance policy with Insular Life through its agent Josephine Malaluan who issued him a 20-Year Endowment Variable Income Package Flexi Plan worth P500,000 with 2 riders at P500,000 each with Violeta as the primary beneficiary. However, he failed to pay and allowed the policy to be void after the lapse of the 31-day grace period. Just when he was to pay the default amount with interest, he died before Malaluan was able to submit his application for reinstatement to Insular life for approval. Violeta filed a case with the RTC and was not able to appeal due to the negligence of her lawyer so he filed a petition for Certiorari. RTC, SC: denied.
Laws: Section. 19 of the Insurance Code
Doctrines:

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of the insured the insurance Company cannot be compelled to entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied.

3. Jurisprudential Exceptions

a. Estoppel and credit extension

Philippine Phoenix Surety & Insurance Co. v. Woodworks Inc (1979)

Summary: Woodworks, Inc. was issued a fire policy for its building machinery and equipment by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21, 1960 to July 21, 1961. Woodworks did not pay the premium totalling to P10,593.36. It was alleged that Woodworks notified Philippine Phoenix the cancellation of the Policy so Philippine Phoenix credited P3,110.25 for the unexpired period of 94 days and demanded in writing the payment of P7,483.11 Woodworks does not want to pay since it contends that by not paying the premium , the insurance policy has lapsed. CFI: favored Philippine Phoenix SC: reversed.
Laws: Section 77 of the Insurance Code
Doctrines:

To constitute an extension of credit there must be a clear and express agreement therefor and there nust be acceptance of the extension
Since the premium had not been paid, the policy must be deemed to have lapsed.
Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery.
The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments.

Capital Insurance & Surety Co. Inc. v. Plastic Era Co. Inc (1975)
Arce v. Capital Insurance & Surety Co. Inc
Malayan Insurance Co. Inc v. Arnaldo (1987)
UCPB General Insurance Co. Inc. v. Masagana Telmart Inc (2001)

b. Installments and partial payment

Philippine Phoenix Surety & Insurance Co. v. Woodworks Inc (1967)
Tibay v. CA (1996)
Makati Tuscany v. CA (1992)

B. Return of Premium

1. Grounds

a. Not exposed to peril insured against [Secs. 79(a) and 80 IC]

Makati Tuscany v. CA (1992)

b. Time policy surrendered before expiration [Sec. 79(b) IC]

Insurance Code

Sec. 79 (b)

Sec. 79. A person insured is entitled to a return of premium, as follows:

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

c. Voidable Policy [Sec. 81 IC]

Insurance Code

Sec. 81

Sec. 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

d. When by default of insured (other than fraud), insurer never incurred

liability under the policy [Sec. 81 IC] (see above)

Great Pacific Life Insurance Corporation v. CA (1990)

e. Over-insurance by several insurers [Sec. 82 IC]

Insurance Code

Sec. 82

Sec. 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

2. Rebate of Premium [Sec. 361 IC]

Insurance Code

Sec. 361

Sec. 361. No insurance company doing business in the Philippines or any agent thereof, no insurance broker, and no employee or other representative of any such insurance company, agent, or broker, shall make, procure or negotiate any contract of insurance or agreement as to policy contract, other than is plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of such insured, either as an inducement to the making of such insurance or after such insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract of insurance; nor shall any such company, or any agent thereof, as to any policy or contract of insurance issued, make any discrimination against any Filipino in the sense that he is given less advantageous rates, dividends or other policy conditions or privileges than are accorded to other nationals because of his race.

V. Policy

A. Policy of Insurance

1. Definition; Coverage of Insurance [Sec. 49 IC]

Insurance Code

Sec. 49

Sec. 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance.

Enriquez v. Sun life Assurance Co. of Canada (1920)
Perez v. CA (2000)
Lucero Vda. de Singayen v. Insular Life Assurance Co. (1935)
Tang v. CA (1979)
Eastern Shipping Lines, Inc. v. Prudential Guarantee and Assurance, Inc. (2009)

2. Form [Sec. 50 IC]

Insurance Code

Sec. 50

Sec. 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.

3. Necessity of Approval of Form [Sec. 226 IC]

Insurance Code

Sec. 226

Sec. 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.

4. Basic Provisions [Sec. 51 IC]

Insurance Code

Sec. 51

Sec. 51. A policy of insurance must specify:

(a)The parties between whom the contract is made;

(b) The amount to be insured except in the cases of open or running policies;

(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;

(d) The property or life insured;

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

(f) The risks insured against; and

(g) The period during which the insurance is to continue.

a. Parties to the contract

b. Amount of insurance (EXCEPT in open or running policies)

c. Premium

d. Property or life insured

e. Interest of insured in property insured if he is NOT the owner

f. Risks insured against; and

g. Period of insurance

5. Additional Matters [Secs. 227, 228, 230 IC]

Insurance Code

Sec. 227

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

(b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war;

(c) A provision that the policy shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so provided a copy of such application shall be indorsed upon or attached to the policy when issued, and in such case the policy shall contain a provision that the policy and the application therefor shall constitute the entire contract between the parties;

(d) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age;

(e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein;

(f) A provision specifying the options to which the policyholder is entitled to in the event of default in a premium payment after three full annual premiums shall have been paid. Such option shall consist of:

(1) A cash surrender value payable upon surrender of the policy which shall not be less than the reserve on the policy, the basis of which shall be indicated, for the then current policy year and any dividend additions thereto, reduced by a surrender charge which shall not be more than one-fifth of the entire reserve or two and one-half per centum of the amount insured and any dividend additions thereto;

(2) One or more paid-up benefits on a plan or plans specified in the policy of such value as may be purchased by the cash surrender value;

(h) A table showing in figures cash surrender values and paid-up options available under the policy each year upon default in premium payments, during at least twenty years of the policy beginning with the year in which the values and options first become available, together with a provision that in the event of the failure of the policyholder to elect one of the said options within the time specified in the policy, one of said options shall automatically take effect and no policyholder shall ever forfeit his right to same by reason of his failure to so elect;

(i) In case the proceeds of a policy are payable in installments or as an annuity, a table showing the minimum amounts of the installments or annuity payments;

This section shall not apply to policies of group life or industrial life insurance.

Sec. 228

(b) A provision that the validity of the policy shall not be contested, except for non-payment of premiums after it has been in force for two years from its date of issue; and that no statement made by any insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person's lifetime nor unless contained in written instrument signed by him;

(c) A provision that a copy of the application, if any, of the policyholder shall be attached to the policy when issued, that all statements made by the policyholder or by persons insured shall be deemed representations and not warranties, and that no statement made by any insured shall be used in any contest unless a copy of the instrument containing the statement is or has been furnished to such person or to his beneficiary;

(d) A provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage;

(e) A provision specifying an equitable adjustment of premiums or of benefits or of both to be made in the event that the age of a person insured has been misstated, such provision to contain a clear statement of the method of adjustment to be used;

(f) A provision that any sum becoming due by reason of death of the person insured shall be payable to the beneficiary designated by the insured, subject to the provisions of the policy in the event that there is no designated beneficiary, as to all or any part of such sum, living at the death of the insured, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of such sum not exceeding five hundred pesos to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred funeral or other expenses incident to the last illness or death of the person insured;

(g) A provision that the insurer will issue to the policyholder for delivery to each person insured an individual certificate setting forth a statement as to the insurance protection to which he is entitled, to whom the insurance benefits are payable, and the rights set forth in paragraphs (h), (i) and (j) following;

(h) A provision that if the insurance, or any portion of it, on a person covered under the policy ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits, provided application for the individual policy and payment of the first premium to the insurer shall be made within thirty days after such termination and provided further that:

(1) the individual policy shall be on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for an amount not in excess of the coverage under the group policy; and

(2) the premium on the individual policy shall be at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which such person then belongs, and to his age attained on the effective date of the individual policy.

(i) A provision that if the group policy terminates or is amended so as to terminate the insurance of any class of insured persons, every person insured thereunder at the date of such termination whose insurance terminates and who has been so insured for five years prior to such termination date shall be entitled to have issued to him by the insurer an individual policy of life insurance subject to the same limitations as set forth in paragraph (h), except that the group policy may provide that the amount of such individual policy shall not exceed the smaller of (a) the amount of the person's life insurance protection ceasing less the amount of any life insurance for what he is or becomes eligible under any group policy issued or reinstated by the same or another reinsurer within thirty days after such termination, and (b) two thousand pesos;

(j) A provision that if a person insured under the group policy dies during the thirty-day period within which he would have been entitled to an individual policy issued to him in accordance with (h) and (i) above and before such individual policy shall have become effective, the amount of life insurance which he would have been entitled to have issued to him as an individual policy shall be payable as a claim under the group policy whether or not application for the individual policy or the payment of the first premium has been made;

(k) In the case of a policy issued to a creditor to insure debtors of such creditor, a provision that the insurer will furnish to the policyholder for delivery to each debtor insured under the policy a form which will contain a statement that the life of the debtor is insured under the policy and that any death benefit paid thereunder by reason of his death shall be applied to reduce or extinguish indebtedness.

The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor to insure his debtors. If a group life policy is on a plan of insurance other than term, it shall contain a non-forfeiture provision or provisions which in the opinion of the Commissioner is or are equitable to the insured or the policyholder: Provided, That nothing herein contained shall be so construed as to require group life policies to contain the same non-forfeiture provisions as are required of individual life policies.

Sec. 230

Sec. 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions:

(b) A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a specified period, not more than two years from its date of issue, except for non-payment of premiums and except for violation of the conditions of the policy relating to naval or military service, or services auxiliary thereto, and except as to provisions relating to benefits in the event of disability as defined in the policy, and those granting additional insurance specifically against death by accident or by accidental means, or to additional insurance against loss of, or loss of use of, specific members of the body;

(c) A provision that the policy shall constitute the entire contract between the parties, or if a copy of the application is endorsed upon and attached to the policy when issued, a provision that the policy and the application therefor shall constitute the entire contract between the parties, and in the latter case, a provision that all statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties;

(d) A provision that if the age of the person insured, or the age of any person, considered in determining the premium, or the benefits accruing under the policy, has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium paid would have purchased at the correct age;

(e) A provision that if the policy is a participating policy, the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under the conditions specified therein;

(f) A provision that in the event of default in premium payments after three full years' premiums have been paid, the policy shall be converted into a stipulated form of insurance, and that in the event of default in premium payments after five full years' premiums have been paid, a specified cash surrender value shall be available, in lieu of the stipulated form of insurance, at the option of the policyholder. The net value of such stipulated form of insurance and the amount of such cash value shall not be less than the reserve on the policy and dividend additions thereto, if any, at the end of the last completed policy year for which premiums shall have been paid (the policy to specify the mortality table, rate of interest and method of valuation adopted to compute such reserve), exclusive of any reserve on disability benefits and accidental death benefits, less an amount not to exceed two and one-half per centum of the maximum amount insured by the policy and dividend additions thereto, if any, at the end of the last completed policy year for which premiums shall have been paid (the policy to specify the mortality table, rate of interest and method of valuation adopted to compute such reserve), exclusive of any reserve on disability benefits and accidental death benefits, less an amount not to exceed two and one-half per centum of the maximum amount insured by the policy and dividend additions thereto, if any, when the issue age is under ten years, and less an amount not to exceed two and one-half per centum of the current amount insured by the policy and dividend additions thereto, if any, if the issue age is ten years or older, and less any existing indebtedness to the company on or secured by the policy;

(g) A provision that the policy may be surrendered to the company at its home office within a period of not less than sixty days after the due date of a premium in default for the specified cash value, provided that the insurer may defer payment for not more than six months after the application therefor is made;

(h) A table that shows in figures the non-forfeiture benefits available under the policy every year upon default in payment of premiums during at least the first twenty years of the policy, such table to begin with the year in which such values become available, and a provision that the company will furnish upon request an extension of such table beyond the year shown in the policy;

(i) A provision that specifies which one of the stipulated forms of insurance provided for under the provision of paragraph (f) of this section shall take effect in the event of the insured's failure, within sixty days from the due date of the premium in default, to notify the insurer in writing as to which one of such forms he has selected;

(j) A provision that the policy may be reinstated at any time within two years from the due date of the premium in default unless the cash surrender value has been paid or the period of extended term insurance expired, upon production of evidence of insurability satisfactory to the company and payment of arrears of premiums with interest at a rate not exceeding six per centum per annum payable annually;

(k) A provision that when a policy shall become a claim by death of the insured, settlement shall be made upon receipt of due proof of death, or not later than two months after receipt of such proof;

(l) A title on the face and on the back of the policy correctly describing its form;

(m) A space on the front or the back of the policy for the name of the beneficiary designated by the insured with a reservation of the insured's right to designate or change the beneficiary after the issuance of the policy. The policy may also provide that no designation or change of beneficiary shall be binding on the insurer until endorsed on the policy by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. Such policy may also contain a provision that if the beneficiary designated in the policy does not surrender the policy with due proof of death within the period stated in the policy, which shall not be less than thirty days after the death of the insured, or if the beneficiary is the estate of the insured, or is a minor, or dies before the insured, or is not legally competent to give valid release, then the insurer may make any payment thereunder to the executor or administrator of the insured, or to any of the insured's relatives by blood or legal adoption or connections by marriage or to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred expense for the maintenance, medical attention or burial of the insured; and

(n) A provision that when an industrial life insurance policy is issued providing for accidental or health benefits, or both, in addition to life insurance, the foregoing provisions shall apply only to the life insurance portion of the policy.

Any of the foregoing provisions or portions thereof not applicable to non-participating or term policies shall to that extent not be incorporated therein. The foregoing provisions shall not apply to policies issued or granted pursuant to the non-forfeiture provisions prescribed in provisions of paragraphs (f) and (i) of this section, nor shall provisions of paragraphs (f), (g), (h), and (i) hereof be required in term insurance of twenty years or less but such term policies shall specify the mortality table, rate of interest, and method of computing reserves.

6. Designation of Beneficiaries [Secs. 54-57 IC]

Insurance Code

Sec. 54

Sec. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.

Sec. 55

Sec. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

Sec. 56

Sec. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.

Sec. 57

Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.

7. Rider, clause, warranty or endorsement [Sec. 50 IC]

Insurance Code

Sec. 50

Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.

Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Co., Inc (2002)

8. Interpretation and Proof (Art. 1377, Civil Code)

9. Application of Rules to Modification of Policy [Sec. 47 IC]

Insurance Code

Sec. 47

Sec. 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.

B. Cover Notes

1. Binding Effect [Sec. 52 IC]

Insurance Code

Sec. 52

De Lim v. Sun Life Assurance Co. of Canada (1920)
Great Pacific Life Assurance Co. v. CA (1979)

2. Separate Premium NOT Required

Pacific Timber v. CA(1982)

C. Kinds of property insurance policy

1. Classification [Sec. 59 IC]

Insurance Code

Sec. 59

Sec. 59. A policy is either open, valued or running.

2. Open Policy [Sec. 60, 161 and 171 IC]

Insurance Code

Sec. 60

Sec. 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss.

Sec. 161

Sec. 161. In estimating a loss under an open policy of marine insurance the following rules are to be observed:

(a) The value of a ship is its value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured;

(b) The value of the cargo is its actual cost to the insured, when laden on board, or where the cost cannot be ascertained, its market value at the time and place of lading, adding the charges incurred in purchasing and placing it on board, but without reference to any loss incurred in raising money for its purchase, or to any drawback on its exportation, or to the fluctuation of the market at the port of destination, or to expenses incurred on the way or on arrival;

(c) The value of freightage is the gross freightage, exclusive of primage, without reference to the cost of earning it; and

(d) The cost of insurance is in each case to be added to the value thus estimated.

Sec. 171

Sec. 171. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which at the time of the injury; but if there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of marine insurance.

Development Insurance Corp. v. IAC (1986)

3. Valued Policy [Sec. 61, 156, 171 IC (see above]

Insurance Code

Sec. 61

Sec. 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.

Sec. 156

Sec. 156. A valuation in a policy of marine insurance in conclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud on his part; except that when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.

4. Running Policy [Sec. 62 IC]

Insurance Code

Sec. 62

Sec. 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.

D. Cancellation, renewal and reformation

1. Cancellation

a. By Insurer [Sec. 64 IC]

Insurance Code

Sec. 64

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(d) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(e) physical changes in the property insured which result in the property becoming uninsurable; or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

Philamcare Health Systems Inc. v. CA (2002)

i. non-payment of premiums

ii. conviction of crime increasing hazards insured against

iii. discovery of fraud or material representation

iv. discovery of acts or omissions increasing hazard insured against

vi. Insurance Commissioner determines policy of insured may violate

b. By insured [Sec. 79(b) IC]

Insurance Code

Sec. 79 (b)

Sec. 79. A person insured is entitled to a return of premium, as follows:

c. For compulsory motor vehicle liability insurance [Secs. 380-381 IC]

Insurance Code

Sec. 380

Sec. 380. No cancellation of the policy shall be valid unless written notice thereof is given to the land transportation operator or owner of the vehicle and to the Land Transportation Commission at least fifteen days prior to the intended effective date thereof.

Upon receipt of such notice, the Land Transportation Commission, unless it receives evidence of a new valid insurance or guaranty in cash or surety bond as prescribed in this chapter, or an endorsement of revival of the cancelled one, shall order the immediate confiscation of the plates of the motor vehicle covered by such cancelled policy. The same may be re-issued only upon presentation of a new insurance policy or that a guaranty in cash or surety band has been made or posted with the Commissioner and which meets the requirements of this chapter, or an endorsement or revival of the cancelled one.

Sec. 381

Sec. 381. If the cancellation of the policy or surety bond is contemplated by the land transportation operator or owner of the vehicle, he shall, before the policy or surety bond ceases to be effective, secure a similar policy of insurance or surety bond to replace the policy or surety bond to be cancelled or make a cash deposit in sufficient amount with the Commissioner and without any gap, file the required documentation with the Land Transportation Commission, and notify the insurance company concerned of the cancellation of its policy or surety bond.

d. Notice - [Sec. 65 IC]

Insurance Code

Sec. 65

Sec. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

Paulino v. Capital Insurance (1959)

Saura Import & Export Co. Inc v. Philippine International Surety Co. Inc (1963)

Malayan Insurance Co. Inc. Arnaldo (1987)

2. Renewal [Sec. 66 IC]

3. Reformation

San Miguel Brewery v. Law Union and Rock Insurance Co. (1920)

VI. Ascertaining and controlling risks

A. Concealment

1. Definition [Sec. 26 IC]

Insurance Code

Sec. 26

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

2. What must be communicated; Requisites [Sec. 28 IC]

Insurance Code

Sec. 28

Sec. 28. Each party to a contract of insurance must communicated to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.

a. Facts within his knowledge

b. Facts material to the contract [Secs. 31 and 107 IC]

Insurance Code

Sec. 31

Sec. 31. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.

Sec. 107

Sec. 107. In marine insurance each party is bound to communicate, in addition to what is required by section twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in Section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose.

Saturnino v. Phil. American Life Ins. Co. (1963)

Sunlife Assurance Company of Canada v. CA (1995)

c. Other party has no means of ascertaining such facts; and

d. He makes no warranty as to such facts; exception [Sec. 29 IC]

Insurance Code

Sec. 29

Sec. 29. An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.

3. What need no be communicated

Insurance Code

Sec. 30

Sec. 30. Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other:

(a) Those which the other knows;

(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant;

(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and

(e) Those which relate to a risk excepted from the policy and which are not otherwise material.

a. Facts other party knows [Sec. 30(a) IC]

Insular Life Assurance v. Feliciano (1941)
Insular Life Assurance Co. v. Feliciano (1943)

b. Facts other party ought to know [Sec. 30(b) and 32 IC]

Insurance Code

Sec. 32

Sec. 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade.

c. Facts of which other party waives communication [Secs. 30(c) and 33 IC]

Insurance Code

Sec. 33

Sec. 33. The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.

Ng Gan Zee v. Asian Crusader Life Assurance Corp. (1983)

d. Facts which prove or tend to prove existence of risk excluded by a warranty, and which

are NOT otherwise material [Sec. 30(d) IC]

e. Facts relating to a risk excepted from the policy and which are otherwise material [Sec.

30 (e) IC]

f. Nature and amount of interest [Secs. 34 and 51(e) IC]

Insurance Code

Sec. 34

Sec. 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section fifty-one.

Sec. 51

Sec. 51. A policy of insurance must specify:

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

g. Opinion or judgment [Secs. 35 and 108 IC]

Insurance Code

Sec. 108

Sec. 108. In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.

4. Effect [Secs. 27 and 29 IC]

Insurance Code

Sec. 27

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance

Sec. 27

Argente v. West Coast Life Insurance Co. (1928)

Yu Pang Cheng v. CA [1959]

Saturnino v. Philippine American Ins. Co. (1963)

Great Pacific Life Assurance Company v. CA (1979)

Gen. Insurance & Surety Corp. v. Ng Hua (1960)

Vda. de Canilang v. CA (1993)

Sunlife Assurance Company of Canada v. CA (1995)

B. Representation

1. Definition and Characteristics

a. Form [Sec. 36 IC]

Insurance Code

Sec. 36

Sec. 36. A representation may be oral or written.

b. When made [Sec. 37 IC]

Insurance Code

Sec. 37

Sec. 37. A representation may be made at the time of, or before, issuance of the policy.

i. at time of issuance of policy

ii. before issuance of policy [Secs. 41 and 42 IC]

Insurance Code

Sec. 41

Sec. 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.

Sec. 42

Sec. 42. A representation must be presumed to refer to the date on which the contract goes into effect.

c. Interpretation [Sec. 38 IC]

Insurance Code

Sec. 38

Sec. 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.

d. Promissory representation; statement of belief or expectation [Sec. 39 IC]

Insurance Code

Sec. 39

Sec. 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.

e. Modification of warranty [Sec. 40 IC]

Insurance Code

Sec. 40

Sec. 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.

2. False [Secs. 43 and 44 IC]

Insurance Code

Sec. 43

Sec. 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.

Sec. 44

Sec. 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.

Harding v. Commercial Union Assurance Co. (1916)

3. Materiality [Sec. 46 in rel. to Sec. 31 IC]

Insurance Code

Sec. 46

Sec. 46. The materiality of a representation is determined by the same rules as the materiality of a concealment.

Sec. 31

4. Effect of False and Material Representation [Sec. 45 IC]

Insurance Code

Sec. 45

Sec. 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission.

Saturnino v. Philippine Armerican Life Ins. Co. (1963)

Musngi v. West Coast Life Insurance Co. (1935)

Edillon v. Manila Bankers Life Insurance Corp. (1982)

Gonzales Lao v. Yek Tong Lin Fire & Marine Insurance Co., Ltd. (1930)

Tan Chay Heng v. West Coast Life Insurance Co. (1927)

Qua Chee Gan v. Law Union and Rock Insurance Co. Ltd. (1955)

C. Warranties

1. Definition and Characteristics

a. Kinds

i. Express or implied [Sec. 67 IC]

ii. Affirmative or Promissory

b. To what warranties relate [Sec. 68 IC]

Insurance Code

Sec. 68

Sec. 68. A warranty may relate to the past, the present, the future, or to any or all of these.

c. Form [Sec. 69 IC]

Insurance Code

Sec. 69

Sec. 69. No particular form of words is necessary to create a warranty.

2. Express Warranties [Sec. 70 IC]

Insurance Code

Sec. 70

Sec. 70. Without prejudice to section fifty-one, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it.

Ang Gloc Chip v. Springfield Fire & Marine Insurance Co. (1931)

3. Affirmative Warranties [Sec. 71 IC]

Insurance Code

Sec. 71

Sec. 71. A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.

4. Promissory Warranties [Secs. 72 and 73 IC]

Insurance Code

Sec. 72

Sec. 72. A statement in a policy which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place.

Sec. 73

Sec. 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.

5. Effect of Breach

a. Breach of material warranty or provision [Sec. 74 IC]

Insurance Code

Sec. 74

Sec. 74. The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.

Young v. Midland Textile Insurance Co. (1915)

Qua Chee Gan v. Law Union and Rock Insurance Co. Ltd. (1955)

b. Breach of immaterial provision [Sec. 75 IC]

Insurance Code

Sec. 75

Sec. 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.

Gen. Insurance & Surety Corp. v. Ng Hua (1960)

c. Breach of warranty without fraud [Sec. 76 IC]

Insurance Code

Sec. 76

Sec. 76. A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.

D. Other Devices

1. Conditions

2. Exceptions, Exclusions, or Exemptions

E. Incontestable clause

1. Rescission of Insurance Contract (for Life and Non-life Insurance) [Sec. 48 par. 1 IC]

Insurance Code

Sec. 48 par. 1

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.

a. Time to rescind

Tan Chay Heng v. West Coast Life Insurance Co. (1927)

b. Effect of failure to rescind before commencement of action

c. Waiver of right to rescind

2. Incontestible Clause (for Life insuance only) [Sec. 48 par. 3 and Secs. 227(b), 228(b) and 230(b) IC]

Insurance Code

Sec. 48 par. 3

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Sec. 227(b)

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: xxx

Sec. 228(b)

Sec. 230(b)

Sec. 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions: xxx

a. Requisites of incontestability

Tan v. CA (1989)

Philamcare Health Systems Inc. v. CA(2002)

b. Effects and purpose of incontestability

c. Defense NOT barred by incontestability

F. Stipulations limiting commencement of action to less than 1 year is void [Sec. 63 IC]

Insurance Code

Sec. 63

Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.

Agric. Credit & Cooperative Financing Administration v. Alpha Ins. & Surety Co. (1968)

Ang v. Fulton Fire Ins. Co. (1961)

Sun Insurance Office Ltd. v. CA (1991)

New Life Enterprises v. CA (1992)

VII. Loss and Notice of Loss

A. Loss

1. Concepts and Definitions

a. Loss

The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured(Bonifacio Bros. v. Mora)

b. Proximate Cause

c. Remote Cause

d. Immediate Cause

e. Peril Insured Against

2 Kinds of Losses

Losses for Which Insurer Liable

Losses of which a peril insured against was the proximate cause [Sec. 84 IC]

Sec. 84

Sec. 84. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause.

Loss caused by a peril not insured against to which the thing insured was exposed in the course of rescuing the same from the peril insured against [Sec. 85 IC]

Loss caused by efforts to rescue the thing insured from a peril insured against [Sec. 85 IC]

Sec. 85

Sec. 85. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.

Loss, the immediate cause of which was the peril insured against, if the proximate cause thereof was NOT excepted in the contract [Sec. 86 IC]

Sec. 86

Sec. 86. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.

Paris-Manila Perfume Co. v. Phoenix Assurance Co.(1926)

Summary: Paris Manila Perfume Co. insured its perfurmery with Phoenix. When the perfumery was burned and destroyed with an unknown cause, Phoenix refused the claim and to appoint an arbitrator contending that it is under the loss by explosion which is exempted in the policy. RTC and CA: ordered to pay the P13,000

Doctrine: Phoenix alleging the complete defense is burdened to prove which it failed to do

Loss caused by negligence of the insured [Sec. 87 IC]

Sec. 87

Sec. 87. 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.

FGU Insurance Corporation v. CA (2005)

Summary: SMC shipped its cases of pale pilsen and Cerveza Negra through ANCO, by a D/B Lucio barge being dragged by M/T ANCO tugboat. When it arrived in San Jose Antique, M/T ANCO left D/B Lucio at the wharf despite the storm, it refused to transfer it to a safer place on the request of SMC’s sale manager. So the remaining cases worth P1,346,197 was sunk along the barge. SMC claimed against ANCO who claimed against FGU insurance. FGU insurance claims that it is through a fortuitous event and through the negligence of ANCO. CA affirmed RTC: ANCO to pay SMC and FGU to pay ANCO 53% of the lost cargoes. SC: modified dismissing FGU since ANCO was grossly negligent in leaving the barge without the tugboat at the mercy of the storm and failure to comply to SMC’s request to transfer to a safer place

Doctrine:

Caso fortuito or force majeure

extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable

To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss.
When evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.

3. Losses for which insurer NOT liable

a. Loss of which a peril against was the proximate cause [Sec. 84 IC]

Sec. 84

b. Loss, the immediate cause of which was the peril insured against, if the proximate cause thereof was excepted in the contract [Sec. 86 IC]

Sec. 86

c. Loss caused by wilful act or through connivance of insured [Sec. 87 IC]

Sec. 87

BUT SEE: Sec. 180-A IC

Sec. 180-A. The insurer in a life insurance contract shall be liable in case of suicides only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission. (As amended by Batasang Pambansa Blg. 874).

East Furniture Inc. v. Globe & Rutgers Fire Ins. Co. (1932)
Prats & Co. v. Phoenix Insurance Co. (1929)

4. Void Agreement [Sec. 83 IC]

Sec. 83

Sec. 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.

B. Notice and proof

1. Requisites for recovery after loss

a. Give notice of loss without unnecessary delay

b. When required by policy, submit a preliminary proof of loss

2. Notice of Loss [Sec. 88 IC]

Insurance Code

Sec. 88

Sec. 88. In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay.

Bachrach v. British American Assurance Co. (1910)

Aboitiz Shipping Corp. v. Insurance Co. of North America (2008)

3. Proof of Loss [Secs. 89 and 92 IC]

Insurance Code

Sec. 89

Sec. 89. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence which he has in his power at the time.

Sec. 92

Sec. 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.

Fernandez v. National Life Insurance Co. (1959)
Insular Life Assurance Co. Ltd. v. Fernandez (1960)
Malayan Insurance Co., Inc. v. Arnaldo (1987)
Pacific Banking Corp v. CA (1988)

4. Defects [Sec. 90 IC]

Insurance Code

Sec. 90

Sec. 90. All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.

5. Delay [Sec. 91 IC]

Insurance Code

Sec. 91

Sec. 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if he omits to take objection promptly and specifically upon that ground.

Pacific Timber v. CA (1982)
Philippine Charter Insurance Corp. v. Chemoil Lighterage Corp. (2005)