Philippine Legal Guide: Insurance Notes Outline Part Three (Double Insurance and Reinsurance)

VIII. Double Insurance And Reinsurance

A. Double insurance

1. Definition [Sec. 93 IC]

Insurance Code

Sec. 93

Sec. 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.

2. Requisites [Sec. 93 IC] (see above)

Pacific Banking Corp v. CA (1988)
Pioneer Insurance and Surety Corp. v. Yap
New Life Enterprises v. Court of Appeals (1992)
Geagonia v. CA (1995)

a. Same person is insured

b. Two or more insurers that insured the person separately

c. Insurance is over the same subject

d. Same interest is involved

e. Same peril is insured against

3. "Other insurance clause"

a. Alternative forms

b. Rationale

c. Validity

d. Additional insurance

4. Over-insurance by Double Insurance [Sec. 94 IC]

Insurance Code

Sec. 94

Sec. 94. Where the insured is overinsured by double insurance:

(a) 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;

(b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured;

(c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;

(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

(e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

B. Reinsurance

1. Definition [Sec. 95 IC]

Insurance Code

Sec. 95

Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.

Equitable insurance and Casualty Co. Inc v. Rural Insurance and Surety Co., Inc. (1962)
Phil. American Life Ins. Co. v. Auditor General (1968)
Fieldman's Insurance Co., Inc. v. Asian Surety & Insurance Co., Inc. (1970)

2. Distinguish from Double Insurance

3. When Required [Secs. 215-222 and 275 IC]

Insurance Code

Sec. 215

Sec. 215. No insurance company other than life, whether foreign or domestic, shall retain any risk on any one subject of insurance in an amount exceeding twenty per centum of its net worth. For purposes of this section, the term "subject of insurance" shall include all properties or risks insured by the same insurer that customarily are considered by non-life company underwriters to be subject to loss or damage from the same occurrence of any hazard insured against.

Reinsurance ceded as authorized under the succeeding title shall be deducted in determining the risk retained. As to surety risk, deduction shall also be made of the amount assumed by any other company authorized to transact surety business and the value of any security mortgage, pledged, or held subject to the surety's control and for the surety's protection.

Sec. 216

Sec. 216. An insurance company doing business in the Philippines may accept reinsurances only of such risks, and retain risk thereon within such limits, as it is otherwise authorized to insure.

Sec. 217

Sec. 217. No insurance company doing business in the Philippines shall cede all or part of any risks situated in the Philippines by way of reinsurance directly to any foreign insurer not authorized to do business in the Philippines unless such foreign insurer or, if the services of a non-resident broker are utilized, such non-resident broker is represented in the Philippines by a resident agent duly registered with the Commissioner as required in this Code.

The resident agent of such unauthorized foreign insurer or non- resident broker shall immediately upon registration furnish the Commissioner with the annual statement of such insurer, or of such company or companies where such broker may place Philippine business as of the year preceding such registration, and annually thereafter as soon as available.

Sec. 218

Sec. 218. All insurance companies, both life and non-life, authorized to do business in the Philippines shall cede their excess risks to other companies similarly authorized to do business in the Philippines in such amounts and under such arrangements as would be consistent with sound underwriting practices before they enter into reinsurance arrangements with unauthorized foreign insurers.

Sec. 219

Sec. 219. Any insurance company doing business in the Philippines desiring to cede their excess risks to foreign insurance or reinsurance companies not authorized to transact business in the Philippines may do so under the following conditions:

(1) Except in facultative reinsurance and excess of loss covers, the full amount of the reserve fund required by law shall be set up in the books of and held by the ceding company for so long as the risk concerned is in force: Provided, That in case of facultative insurance, the ceding company shall show to the satisfaction of the Commissioner that the Philippine market cannot provide the facilities sought abroad.

(2) The reserve fund withheld shall be invested in bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank, and/or other securities acceptable under section two hundred.

Should any reinsurance agreement be for any reason cancelled or terminated, the ceding company concerned shall inform the Commissioner in writing of such cancellation or termination within thirty days from the date of such cancellation or termination or from the date notice or information of such cancellation or termination is received by such company as the case may be.

Sec. 220

Sec. 220. Every insurance company authorized to do business in the Philippines shall report to the Commissioner on forms prescribed by him the particulars of reinsurance treaties as of the first day of January of the year following the approval of this Code and shall thereafter similarly report to the Commissioner particulars of any new treaties or changes in existing treaties.

Sec. 221

Sec. 221. No credit shall be allowed as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise becoming effective after January first, nineteen hundred seventy-five, unless the reinsurance shall be payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract or contracts reinsured without diminution because of the insolvency of the ceding insurer nor unless under the contract or contracts of reinsurance the liability for such reinsurance is assumed by the assuming insurer or insurers as of the same effective date; nor unless the reinsurance agreement provides that payments by the assuming insurer shall be made directly to the ceding insurer or to its liquidator, receiver, or statutory successor except (a) where the contract specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer and (b) where the assuming insurer with the consent of the direct insured or insureds has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payees.

Sec. 222

Sec. 222. No life insurance company doing business in the Philippines shall reinsure its whole risk on any individual life or joint lives, or substantially all of its insurance in force, without having first obtained the written permission of the Commissioner.

Sec. 275

Sec. 275. Every foreign insurance company desiring to withdraw from the Philippines shall, prior to such withdrawal, discharge its liabilities to policyholders and creditors in this country. In case of its policies insuring residents of the Philippines, it shall cause the primary liabilities under such policies to be reinsured and assumed by another insurance company authorized to transact business in the Philippines. In the case of such policies as are subject to cancellation by the withdrawing company, it may cancel such policies pursuant to the terms thereof in lieu of such reinsurance and assumption of liabilities.

4. Matters to be Comminicated by Reinsured [Sec 96 IC]

Insurance Code

Sec. 96

Sec. 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.

5. Reinsurer's Extent of Liability [Sec. 87 IC]

Insurance Code

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.

6. Original insured No Interest in Reinsurance [Sec. 98 IC]

Insurance Code

Sec. 98

Sec. 98. The original insured has no interest in a contract of reinsurance.

Artex Development Co., Inc v. Wellington Insurance Co., Inc (1973)
Coquia v. Fieldman's Insurance Co., Inc (1968)
Guingon v. Del Monte (1967)
Gibson v. Revilla (1979)

IX. Marine Insurance

A. Definition and coverage

1. Insurance Against Loss or Damage [Sec. 99(1) IC]

Insurance Code

Sec. 99

Sec. 99. Marine Insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks;

(b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles);

(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways.

(2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.

Go Tiaoco y Hermanos v. Union Ins. Society of Canton (1919)
Filipino Merchants Insurance Co. v. CA (1989)

2. Marine Protection and Indemnity Insurance [Sec. 99(2) IC]

White Gold Marine Services Inc. v. Pioneer Insurance Surety Corp. (2005)

B. Insurable Interest

1. Owner of ship [Sec. 100 IC]

Insurance Code

Sec. 100

Sec. 100. The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer.

a. If charterer covenants to pay ship's value in case of loss [Sec. 100 IC]

b. If ship hypothecated by bottomry [Sec. 101 IC; see Art. 719 Code of Commerce (cannot find)]

Insurance Code

Sec. 101

Sec. 101. The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry.

2. Owner of Ship [Sec. 103 IC]: Has insurable interest in freightage [Sec. 102 IC]

Insurance Code

Sec. 102

Sec. 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others.

Sec. 103

Sec. 103. The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage.

a. If charter party [Sec. 104 IC]

Insurance Code

Sec. 104

Sec. 104. The interest mentioned in the last section exists, in case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage.

b. If NO charter party and freightage is to be paid [Sec. 104 IC]

3. One who has insured interest in thing insured [Sec. 105 IC]: Has insurable interest in profits

Insurance Code

Sec. 105

Sec. 105. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits.

4. Charterer of Ship [Sec. 106 IC]: To extent that he is liable to be damnified by its loss

Insurance Code

Sec. 106

Sec. 106. The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss.

C. Ascertaining and controlling risks

1. Concealment

a. What must be communicated (in addition to Sec. 28)

i. Sec. 104 IC: All information material to the risk

ii. Sec. 104 IC: State exact and whole truth with respect to representations and answers to

inquiries

iii. Sec. 105 IC: Information or belief or expectation of third party in relation to material fact

deemed material

iv. Sec. 106 IC: Knowledge of prior loss presumed if info might have reached insured in usual

mode and rate of transmission

Insurance Code

Sec. 110

Sec. 110. A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed:

(a) The national character of the insured;

(b)

(b) The liability of the thing insured to capture and detention;

(d) The want of necessary documents;

(e) The use of false and simulated papers.

b. Concealment as to following [Sec. 110 IC]: Does NOT vitiate entire contract, but exonerate

insurer from loss resulting from risk concealed

i. National character of insured

ii. Liability of things insured to capture and detention

iii. Liability to seizure from breach of foreign laws of trade

iv. Want of necessary documents

v. Use o false and simulated papers

2. Representation

a. [Sec. 111 IC]: Insurer entitled to rescind contract if representation is intentionally false in any material respect (Compare with Sec. 45 where intent NOT essential)

Insurance Code

Sec. 111

Sec. 111. If a representation by a person insured by a contract of marine insurance, is intentionally false in any material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract.

b. [Sec. 112 IC]: Falsity of representation as to expectation in absence of fraud does NOT avoid contract

Insurance Code

Sec. 112

Sec. 112. The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance.

3. Implied Warranties

a. Seaworthiness of ship [Sec. 113 IC]

Insurance Code

Sec. 113

Sec. 113. In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.

Madrigal, Tiangco & Co. v. Hanson, Orth & Stevenson (1958)

i. Definition [Sec. 114 IC; See Sec. 119 IC]

Insurance Code

Sec. 114

Sec. 114. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy.

Sec. 119

Sec. 119. A ship which is seaworthy for the purpose of an insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo.

Philippine American General Insurance Co., Inc. v. CA (1997)

ii. When seaworthiness required [Secs. 115 and 117 IC]

Insurance Code

Sec. 115

Sec. 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of commencement of the risk, except in the following cases:

(a) When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time;

(b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage, or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage.

Sec. 117

Sec. 117. Where different portions of the voyage contemplated by a policy differ in respect to the things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion.

iii. Extent of seaworthiness [Sec. 116 IC]

Insurance Code

Sec. 116

Sec. 116. A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage.

iv. Unseaworthiness during voyage [Sec. 118 IC]

Insurance Code

Sec. 118

Sec. 118. When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom.

Roque v. IAC (1985)

b. Ship will carry requisite documentary proof if nationality or neutrality us expressly warranted, and

will NOT carry documents which cast reasonable suspucion [Sec. 120 IC]

Insurance Code

Sec. 120

Sec. 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.

c. No improper deviation [Sec. 125 IC]

Insurance Code

Sec. 125

Sec. 125. Every deviation not specified in the last section is improper.

i. Definition [Sec. 123 IC]

Insurance Code

Sec. 123

Sec. 123. Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.

ii. When no deviation [Secs. 121-122 IC]

Insurance Code

Sec. 121

Sec. 121. When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the voyage insured in one which conforms to the course of sailing fixed by mercantile usage between those places.

Sec. 122

Sec. 122. If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine insurance policy is that way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural, direct and advantageous.

iii. When deviation is proper [Sec. 124 IC]

Insurance Code

Sec. 124

Sec. 124. A deviation is proper:

(a) When caused by circumstances over which neither the master nor the owner of the ship has any control;

(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;

(d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.

iv. Effect of improper deviation [Sec. 126 IC]

Insurance Code

Sec. 126

Sec. 126. An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.

d. Not an illegal venture

D. Loss

1. Kinds of Loss

a. Total or, if NOT total then partial [Sec. 127 and 128 IC]

Insurance Code

Sec. 127

Sec. 127. A loss may be either total or partial.

Sec. 128

Sec. 128. Every loss which is not total is partial.

b. Total loss may be actual (absolute total loss) or constructive (technical total loss) [Secs. 129 and 137 IC]

Insurance Code

Sec. 129

Sec. 129. A total loss may be either actual or constructive.

Sec. 137

Sec. 137. An insurance confined in terms to an actual loss does not cover a constructive total loss, but covers any loss, which necessarily results in depriving the insured of the possession, at the port of destination, of the entire thing insured.

2. Actual Total Loss

a. Definition [Sec. 130 IC]

Insurance Code

Sec. 130

Sec. 130. An actual total loss is cause by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.

Philippine Mfg. Co. v. Union Insurance Society of Canton (1921)
Malayan Insurance Corp. v. CA (1997)

b. Presumption [Sec. 132 IC]

Insurance Code

Sec. 132

Sec. 132. An actual loss may be presumed from the continued absence of a ship without being heard of. The length of time which is sufficient to raise this presumption depends on the circumstances of the case.

c. Right to payment of insured [Sec. 135 IC]

Insurance Code

Sec. 135

Sec. 135. Upon an actual total loss, a person insured is entitled to payment without notice of abandonment.

Pan Malayan Insurance Corp. v. CA (1991)

3. Constructive Total Loss

a. Definition [Sec. 139 IC]

Insurance Code

Sec. 139

Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or

(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding sub-paragraph. But freightage cannot in any case be abandoned unless the ship is also abandoned.

Oriental Assurance Corp. v. CA (1991)
Pan Malayan Insurance Corp. v. CA (1991)

b. Right to abandon of insured [Secs. 131 and 139 IC (see above)]

Insurance Code

Sec. 139

Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon, under Section one hundred thirty-nine.

i. Definition [Sec. 138 IC]

Insurance Code

Sec. 138

Sec. 138. Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured.

ii. Requisites of abandonment [Secs. 140 to 142 IC]

Insurance Code

Sec. 140

Sec. 140. An abandonment must be neither partial nor conditional.

Sec. 141

Sec. 141. An abandonment must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make inquiry.

Sec. 142

Sec. 142. Where the information upon which an abandonment has been made proves incorrect, or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual.

iii. Notice of abandonement [Secs. 143 to 145 IC]

Insurance Code

Sec. 143

Sec. 143. Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally, a written notice of such abandonment shall be submitted within seven days from such oral notice.

Sec. 144

Sec. 144. A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof of interest or of loss.

Sec. 145

Sec. 145. An abandonment can be sustained only upon the cause specified in the notice thereof.

iv. Acceptance of abandonment [Secs. 150 and 151 IC]

Insurance Code

Sec. 150

Sec. 150. The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance.

Sec. 151

Sec. 151. The acceptance of an abandonment, whether express or implied, is conclusive upon the parties, and admits the loss and the sufficiency of the abandonment.

v. Refusal to accept abandonment [Secs. 149 and 154 IC]

Insurance Code

Sec. 149

Sec. 149. Where notice of abandonment is properly given, the rights of the insured are not prejudiced by the fact that the insurer refuses to accept the abandonment.

Sec. 154

Sec. 154. If an insurer refuses to accept a valid abandonment, he is liable as upon actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured.

vi. Effect of insurer's payment even if NO formal abandonment [Sec. 147 IC]

Insurance Code

Sec. 147

Sec. 147. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal abandonment.

C. Right to recover actual loss if insured omits to abandon [Sec. 155 IC]

Insurance Code

Sec. 155

Sec. 155. If a person insured omits to abandon, he may nevertheless recover his actual loss.

4. Liabililites of Insurer [Secs. 133 and 134 IC]

Insurance Code

Sec. 133

Sec. 133. When a ship is prevented, at an intermediate port, from completing the voyage, by the perils insured against, the liability of a marine insurer on the cargo continues after they are thus reshipped.

Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability.

Sec. 134

Sec. 134. In addition to the liability mentioned in the last section, a marine insurer is bound for damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses incurred in saving cargo reshipped pursuant to the last section, up to the amount insured.

Nothing in this or in the preceding section shall render a marine insurer liable for any amount in excess of the insured value or, if there be none, of the insurable value.

5. Free from Particular Average [Sec. 137 IC; Secs. 164 and 165 IC; Art. 802-812, Code of Commerce (cannot find)]

Insurance Code

Sec. 137

Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability.

Sec. 164

Nothing in this or in the preceding section shall render a marine insurer liable for any amount in excess of the insured value or, if there be none, of the insurable value.

Sec. 165

Sec. 165. When a person insured by a contract of marine insurance has a demand against others for contribution, he may claim the whole loss from the insurer, subrogating him to his own right to contribution. But no such claim can be made upon the insurer after the separation of the interests liable to the contribution, nor when the insured, having the right and opportunity to enforce the contribution from others, has neglected or waived the exercise of that right.

Jarque v. Simth, Bell & Co. (1930)

E. Measure of indemnity [Secs. 156 to 163, and 166 IC]

Insurance Code

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.

Sec. 157

Sec. 157. A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured.

Sec. 158

Sec. 158. Where profits are separately insured in a contract of marine insurance, the insured is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole.

Sec. 159

Sec. 159. In case of a valued policy of marine insurance on freightage or cargo, if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part.

Sec. 160

Sec. 160. When profits are valued and insured by a contract of marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they are expected to arise, and the valuation fixes their amount.

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. 162

Sec. 162. If cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port, of the thing so damaged, bears to the market price it would have brought if sound.

Sec. 163

Sec. 163. A marine insurer is liable for all the expenses attendant upon a loss which forces the ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor for the recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either case, being in addition to a total loss, if that afterwards occurs.

Sec. 166

Sec. 166. In the case of a partial loss of ship or its equipment, the old materials are to be applied towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for only two-thirds of the remaining cost of repairs after such deduction, except that anchors must be paid in full.

X. Fire Insurance

A. Definition and coverage

1. Definition and coverage [Sec. 167 IC]

Insurance Code

Sec. 167

Sec. 167. As used in this Code, the term "fire insurance" shall include 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.

2. Prohibition [Sec. 173 IC; See Sec. 83 IC]

Insurance Code

Sec. 173

Sec. 173. No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured.

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. Matters affecting policy

1. Change in use or condition of thing

a. When change entitles insurer to rescind [Sec. 168 IC]

Insurance Code

Sec. 168

Sec. 168. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

b. When change does NOT affect contract [Sec. 169 IC]

Insurance Code

Sec. 169

Sec. 169. An alteration in the use or condition of a thing insured from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance.

2. Acts of insured [Sec. 170 IC]

Insurance Code

Sec. 170

Sec. 170. A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.

C. Measure of Indemnity

1. Open Policy [Sec. 171 IC]

Insurance Code

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.

Galian v. State Assurance Co. (1915)

2. Valued Policy [Secs. 171 and 172 IC] (see above)

Ong Guan Can and Bank of the P.I. v. Century Ins. Co. (1924)

XI. Life Insurance

A. Definition and Coverage

1. Definition and Coverage [Sec. 179 I.C.]

Insurance Code

Sec. 179

Sec. 179. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.

Sec. 180

Sec. 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code.

In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy.

Gallardo v. Morales (1960)

a. Payable upon death of insured or his surviving a specified period [Sec. 180 par. 1 I.C.]

Insurance Code

Sec. 180

Sec. 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code.

b. Payment of endowments or annuities [Sec. 180 par. 2 and Sec. 2 IC; Secs. 2021-2027 Civil Code]

Civil Code

Sec. 2021

Art. 2021. The aleatory contract of life annuity binds the debtor 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 the income.

Sec. 2022

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third person, or upon the lives of various persons, all of whom must be living at the time the annuity is established.

It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons.

Sec. 2023

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at that time suffering from an illness which caused his death within twenty days following said date.

Sec. 2024

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary.

Sec. 2025

Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be paid in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid.

Sec. 2026

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for the execution or attachment of the property.

Sec. 2027

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted.

2. Who exercise rights of minor insured or beneficiaries [Sec. 180 par. 3 I.C. as ammended by Art. 225 Family Code]

Nario v. Philippine American Life Insurance Co. of Canada (1967)
Pineda v. CA (1993)
Bank of the Philippine Islands v. Posadas (1931)
Del Val v. Del Val (1915)

3. Liability of Insurer for Suicide and Accidental Death [Sec. 180-A IC; See Sec. 87 IC]

Insurance Code

Sec. 180-A

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.

Sec. 87

Calanoc v. CA (1955)
Kanapi v. Insular Life Assurance Co. Ltd. (1954)
Biagtan v. The Insular Life Assurance Co. Ltd. (1972)
De la Cruz v. Capital Ins. & Surety Co, Inc. (1966)

B. Transfer of Policy

1. By transfer, will or succession [Sec. 181 IC]

Insurance Code

Sec. 181

Sec. 181. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

2. Notice to Insurer [Sec. 182 IC]

Insurance Code

Sec. 182

Sec. 182. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health, unless thereby expressly required.

C. Measure of Indemnity [Sec. 183 IC]

Insurance Code

Sec. 183

Sec. 183. Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.

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

XII. Casualty and Compulsory Motor Vehicle Liability Insurance

A. Casualty Insurance

1. Definition and Coverage

Insurance Code

Sec. 174

Sec. 174. Casualty insurance is insurance covering 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 or marine. xxx

a. It includes, but is not limited to:

i. Employer's liability insurance

ii. Motor vehicle liability insurance - "Authoried Driver Clause"

Tanco Jr. v. Philippine Guaranty Co. (1965)
CCC Insurance Corp. v. CA (1970)
Villacorta v. Insurance Commission (1980)
Assoc. of Baptists for World Evangelism, Inc. v. Fieldman's Insurance Co. (1983)
Stokes v. Malayan Insurance Co. Inc. (1984)
Guitierrez v. Capital Insurance & Surety Co., Inc. (1984)

Malayan Insurance Co, Inc. v CA (1986)

Summary: Aurelio Lacson brought his Toyota NP Land Cruiser to the repair shop of Carlos Jamelo for repair. Then, employees Johnny Mahinay, Rogelio Macapagong and Rogelio Francisco took it and met an accident with Bo. Carlos filed a criminal charge of theft wherein Rogelio pleaded guilty and was convicted. Aurelio's claim was disapporved on the ground that it was not driven by a licensed driver. RTC, CA, SC: favored Aurelio as theft was contemplated in the policy.
Doctrines:

The damages therefore were sustained in the course of the unlawful taking

Palermo v. Pyramid Insurance Co., Inc. (1988)

Perla Compania de Seguros, Inc. v. CA (1992)

iii. Plate glass insurance

iv. Burglary and theft insurance

v. Personal accidental and health insurance as written by non-life insurance companies - "Accident"

Pan Malayan Insurance Corp. v. CA (1990)
Sun Insurance Office Ltd. v. CA (1992)
Finman General Assurance Corp. v. CA (1992)
Vda. de Maglana v. Consolacion (1992)
FGU Insurance Corp. v. CA (1998)

b. Others - pollution liability insurance, pharmacist liability insurance, medical malpractice insurance, garage insurance, directors and officer liability insurance

B. Compulsory motor vehicle liability insurance (CMVLI)

1. Definitions [Secs. 373 IC]

Insurance Code

Sec. 373

Sec. 373. For purposes of this chapter:

(a) "Motor Vehicle" is any vehicle as defined in section three, paragraph (a) of Republic Act Numbered Four Thousand One Hundred Thirty-Six, Otherwise known as the "Land Transportation and Traffic Code."

(b) "Passenger" is any fare paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare.

(c) "Third-Party" is any person other than a passenger as defined in this section and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course of employment. (As amended by Presidential Decree No. 1814 and 1981).

(d) "Owner" or "motor vehicle owner" means the actual legal owner of a motor vehicle, in whose name such vehicle is duly registered with the Land Transportation Commission;

(e) "Land transportation operator" means the owner or owners of motor vehicles for transportation of passengers for compensation, including school buses;

(f) "Insurance policy" or "Policy" refers to a contract of insurance against passenger and thirty-party liability for death or bodily injuries and damaged to property arising from motor vehicle accidents.

2. Coverage and requirements [Secs. 374, 376-378, and 383 IC]

Insurance Code

Sec. 373

Sec. 374. It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger, as the case may be, arising from the use thereof.

Sec. 376

Sec. 376. The Land Transportation Commission shall not allow the registration or renewal of registration of any motor vehicle without first requiring from the land transportation operator or motor vehicle owner concerned the presentation and filing of a substantiating documentation in a form approved by the Commissioner evidencing that the policy of insurance or guaranty in cash or surety bond required by this chapter is in effect.

Sec. 377

Sec. 377. Every land transportation operator and every owner of a motor vehicle shall, before applying for the registration or renewal of registration of any motor vehicle, at his option, either secure an insurance policy or surety bond issued by any insurance company authorized by the Commissioner or make a cash deposit in such amount as herein required as limit of liability for purposes specified in section three hundred seventy-four.

(1) In the case of a land transportation operator, the insurance guaranty in cash or surety bond shall cover liability for death or bodily injuries of third-parties and/or passengers arising out of the use of such vehicle in the amount not less than twelve thousand pesos 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:

(a) Motor vehicles with an authorized capacity of twenty-six or more passengers: Fifty thousand pesos;

(b) Motor vehicles with an authorized capacity of from twelve to twenty-five passengers: Forty thousand pesos;

(d) Motor vehicles with an authorized capacity of five or less passengers: Five thousand pesos multiplied by the authorized capacity.

Provided, however, That such cash deposit made to, or surety bond posted with, the Commissioner shall be resorted to by him in cases of accidents the indemnities for which to third-parties and/or passengers are not settled accordingly by the land transportation operator and, in that event, the said cash deposit shall be replenished or such surety bond shall be restored with sixty days after impairment or expiry, as the case may be, by such land transportation operator, otherwise, he shall secure the insurance policy required by this chapter. The aforesaid cash deposit may be invested by the Commissioner in readily marketable government bonds and/or securities.

(2) In the case of an owner of a motor vehicle, the insurance or guaranty in cash or surety bond shall cover liability for death or injury to third parties in an amount not less than that set forth in the following scale in any one accident:

I. Private Cars

(a) Bantam : Twenty thousand pesos;

(b) Light : Twenty thousand pesos;

II. Other Private Vehicles

(a) Tricycles, motorcyles, and scooters : Twelve thousand pesos;

(b) Vehicles with an unladen weight of 2,600 kilos or less : Twenty thousand pesos;

(d) Vehicles with an unladen weight over 3,930 kilos : Fifty thousand pesos.

The Commissioner may, if warranted, set forth schedule of indemnities for the payment of claims for death or bodily injuries with the coverages set forth herein

Sec. 378

Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section:

(i)The total indemnity in respect of any person shall not exceed five thousand pesos;

(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim:

(a)Police report of accident; and

(b) Death certificate and evidence sufficient to establish the proper payee; or

(iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.

Sec. 383

Sec. 383. In the settlement and payment of claims, the indemnity shall not be availed of by any accident victim or claimant as an instrument of enrichment by reason of an accident, but as an assistance or restitution insofar as can fairly be ascertained.

Shafer v. Judge, RTC of Olongapo City, Br. 75 (1988)
Government Service Insurance System v. CA (1999)
Tiu v. Arriesgado (2004)
Perla Compania de Seguros, Inc. v. Ancheta (1988)

3. Rules on insurer [Secs. 375 and 379 IC]

Insurance Code

Sec. 373

Sec. 375. The Commissioner shall furnish the Land Transportation Commissioner with a list of insurance companies authorized to issue the policy of insurance or surety bond required by this chapter

Sec. 379

Sec. 379. No land transportation operator or owner of motor vehicle shall be unreasonably denied the policy of insurance or surety bond required by this chapter by the insurance companies authorized to issue the same, otherwise, the Land Transportation Commission shall require from said land transportation operator or owner of the vehicle, in lieu of a policy of insurance or surety bond, a certificate that a cash deposit has been made with the Commissioner in such amount required as limits of indemnity in section three hundred seventy-seven to answer for the passenger and/or third-party liability of such land transportation operator or owner of the vehicle.

No insurance company may issue the policy of insurance or surety bond required under this chapter unless so authorized under existing laws.

4. Rules on cancellation [Secs. 380 and 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.

5. Effect of change of ownership [Sec. 382 IC]

Insurance Code

Sec. 382

Sec. 382. In case of change of ownership of a motor vehicle, or change of the engine of an insured vehicle, there shall be no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and provided that the insurance company shall agree to continue the policy, such change of ownership or such change of the engine shall be indicated in a corresponding endorsement by the insurance company concerned, and a signed duplicate of such endorsement shall, within a reasonable time, be filed with the Land Transportation Commission.

6. Claims Procedure [Secs. 384 and 385 IC]

Insurance Code

Sec. 384

Sec. 384. Any person having any claim upon the policy issued pursuant to this Chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe.

Sec. 385

Sec. 385. The insurance company concerned shall forthwith ascertain the truth and extent of the claim and make payment within five working days after reaching an agreement. If no agreement is reached, the insurance company shall pay only the "no-fault" indemnity provided in section three hundred seventy-eight without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit claim or document releasing it from liability under the policy of insurance or surety bond issued.

In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter, the adjudication of such dispute shall be within the original and exclusive jurisdiction of the Commissioner, subject to the limitations provided in section four hundred sixteen.

Shafer v. Judge, RTC of Olongapo City, Br. 75 (1988)
Government Service Insurance System v. CA (1999)
Summit Guaranty & Insurance Co. Inc v. Arnaldo (1988)
First Integrated Bonding & Insurance Co., Inc v. Hernando (1991)
Travellers Insurance & Surety Corp. v. CA (1997)
Vda. de Gabirel v. CA (1996)

7. Prohibited Acts and Sanctions [Secs. 386 to 389 IC]

Insurance Code

Sec. 386

Sec. 386. It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums.

Sec. 387

Sec. 387. No government office or agency having the duty of implementing the provisions of this chapter nor any official or employee thereof shall act as agent in procuring the insurance policy or surety bond provided for herein. The commission of an agent procuring the said policy or bond shall in no case exceed ten per centum of the amount of the premiums therefor.

Sec. 388

Sec. 388. Any land transportation operator or owner of motor vehicle or any other person violating any of the provisions of the preceding sections shall be punished by a fine of not less than five hundred pesos but not more than one thousand pesos and/or imprisonment for not more than six months. The violation of section three hundred seventy-seven by a land transportation operator shall be a sufficient cause for the revocation of the certificate of public convenience issued by the Board of Transportation covering the vehicle concerned.

Sec. 389

Sec. 389. Whenever any violation of the provisions of this chapter is committed by a corporation or association, or by a government office or entity, the executive officer or officers of said corporation, association or government office or entity who shall have knowingly permitted, or failed to prevent, said violation shall be held liable as principals.

XIII. Suretyship

A. Definition and coverage

1. Definition and coverage [Sec. 175 IC; Sec. 2 pars. 1 and 2 IC]

Insurance Code

Sec. 175

Sec. 175. A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.

Sec. 2 par. 1 and 2

Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:

(1) A "contract of insurance" is 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 shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

Security Pacific Assurance Corp. v. Tria Infante (2005)

2. Nature of Liability [Sec. 176 IC]

Insurance Code

Sec. 176

Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee

National Shipyards & Steel Corp. v. Torrento (1967)
Leyson v. Rizal Surety and Insurance Co. (1966)
National Power Corp. v. CA (1986)
Intra-Strata Assurance Corp. v. Republic (2008)
Heirs of George Y. Poe v. Malayan Insurance Co. , Inc. (2009)

3. Suppletory Application of Civil Code [Sec. 178 IC; Art. 2047 and Arts. 1207-1222 Civil Code]

Insurance Code

Sec. 178

Sec. 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.

Civil Code

Art. 2047

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

Art. 1207

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

Art. 1208

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.

Art. 1209

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

Art. 1210

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.

Art. 1211

Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions.

Art. 1212

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter.

Art. 1213

Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.

Art. 1214

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.

Art. 1215

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

Art. 1216

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

Art. 1217

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Art. 1218

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.

Art. 1219

Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected.

Art. 1220

Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors.

Art. 1221

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply.

Art. 1222

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.

B. Premium [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)