Reinsurance

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.”[1]

Except as otherwise provided under automatic reinsurance treaties, a reinsurer who obtained reinsurance is required to communicate all the representations of the original insured, as well as all  the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.[2]

A contract of reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.[3] The original insured does not have any interest in a  contract of reinsurance.[4]

 

– – –

[1] Ibid. Section 97.

[2] Ibid. Section 98.

[3] Ibid. Section 99.

[4] Ibid. Section 100.

Double Insurance

A double insurance exists “where the same person is insured by several insurers separately in respect to the same subject and interest.”[1]

New Life Enterprises v. Court of Appeals
G.R. No. 94071, 31 March 1992

Julian Sy failed to disclose the other insurance policies he obtained from three insurance companies covering the same goods, in all his application with the said companies. When he claimed after fire gutted the goods, he was denied of it for violating Condition No. 3 on non-disclosure by all three insurance companies.

HELD: The three insurance companies were not liable. The terms of the contract are clear and unambiguous. Julian Sy’s failure to disclose placed him in violation of Condition No. 3. Consequently, the contract was avoided.

Where the words and language of documents are clear and plain or readily understandable by an ordinary reader thereof, there is absolutely no room for interpretation or construction anymore.

Rules in double insurance except life policy

Except for life insurance, the following rules will be followed for double insurance:[2]

  1. 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;[3]
  2. Where the policy under which the insured claims is a valued policy, any sum received by him under any other policy shall be deducted from the value of the policy without regard to the actual value of the subject matter insured;[4]
  3. Where the policy under which the insured claims is an unvalued policy, any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any policy;[5]
  4. 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;[6]

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.[7]

 

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[1] INSURANCE CODE, as amended. Section 95.

[2] Ibid. Section 96.

[3] Ibid. Section 96 (a).

[4] Ibid. Section 96 (b).

[5] Ibid. Section 96 (c).

[6] Ibid. Section 96 (d).

[7] Ibid. Section 96 (e).

Loss in Insurance and Notice of Loss

Except as otherwise provided in the case of life insurance, a stipulation prohibiting the transfer of the claim of the insured against the insurer after the loss has happened is void if such conveyance was made before the said loss.[1]

Insurer liable for a loss of which a peril insured was proximate cause

Unless otherwise stipulated in the policy, the insurer is liable for a loss which a peril insured against was the proximate cause even if the peril not contemplated by the contract may have been the remote cause of the loss.[2] Conversely, the insurer is not liable for a loss which the peril insured against only a remote cause.[3]

Continue reading here.

Premium in Insurance

The insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.[1]

Payment of premium required for validity of contract of insurance; Exceptions

Notwithstanding any agreement to the contrary, a policy or contract of insurance is valid and binding only if the premium thereof has been paid except:[2]

  1. In the case of a life or an industrial life policy whenever the grace period provision applies;[3] or
  2. Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day credit extension is given.[4]

UCPB General Insurance v. Masagana Telemart, Inc.
G.R. No. 137172, 15 June 1999

Masagana obtained 5 insurance policies over some goods from UCPB. The latter decided not to renew the policies. After the period of coverage expired, the goods were lost to a fire. A month after, Masagana paid the renewal thru checks. A day after, UCPB General Insurance returned the checks. Consequently, Masagana Telemart filed this Complaint to recover at least Php18.6 Million representing the face value of the policies.

HELD: UCPB was not liable since the policy was not renewed. For a non-life insurance policy to be valid, the premium must be paid. In the case at bar, the premium was not paid. Consequently, the policy had lapsed.

UCPB General Insurance v. Masagana Telemart, Inc.
G.R. No. 137172, 04 April 2001 (En Banc)

HELD: On motion for reconsideration, UCPB was held liable. UCPB was estopped since it has been its practice to grant and extend the insurance to Masagana despite failing to pay the renewal.

(Note: Because of this case, there are now five exceptions to the premium requirement in Sec. 77: (1) life and industrial life policy whenever the grace period applies; (2) acknowledgment of receipt; (3) if parties agreed to payment in installments and partial payment has been paid; (4) if a credit extension has been granted; and (5) estoppel.)

DISSENT: (J. Vitug) An essential element of an insurance is its synallagmatic nature, a highly reciprocal contract where rights and obligations correspond. There being no premium paid, no policy is valid and binding.

DISSENT: (J. Pardo) The purported credit was a mere verbal agreement, hence it cannot amend the insurance policy. In the absence of definite agreement of grant of credit and even partial payment of premium, the renewal never acquired the force of law.

Insurance premiums allowed to be paid through salary deductions

Government and GOCC employees are allowed to pay their insurance premiums and loan obligations through salary deduction, so long as the treasurer, cashier, paymaster or official of the entity employing the government employee is authorized, notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make deductions from the salary, wage or income of the latter pursuant to the agreement between the insurer and the government employee and to remit such deductions to the insurer concerned, and collect such reasonable fee for its services.[5]

Acknowledgment in policy of receipt of premium conclusive evidence of its payment

An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment insofar as to make the policy binding despite any contrary stipulation therein.[6]

When insured is entitled to return of premium

Except if the policy is annulled, rescinded or if a claim is denied by reason of fraud,[7] an insured is entitled to a return of premium as follows:[8]

  1. To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;[9]
  2. Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium corresponding 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;[10]
  3. When the contract is voidable, and subsequently annulled under the provisions of the Civil Code;[11]
  4. On account of the fraud or misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the insured was ignorant of without his fault;[12] or
  5. When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.[13]

Insurer not liable for return of premiums if insurer already exposed of risk despite short period

The insurer is not liable for the return of premiums if a peril insured against has existed and the insurer has been liable for such risk regardless if such has been only for a short period of time insofar as that particular risk is concerned.[14]

Insured entitled to ratable return of premium in case of over insurance; Except life insurance

In case of an over insurance by several insurers other than life, 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.[15]

Verendia v. Court of Appeals
G.R. No. 75605, 22 January 1993

Verendia insured his residential building with Fidelity. When fire gutted the building, Fortune refused to pay claiming that Verendia was guilty of over-insurance (property is worth Php40,300 but insured for Php900,000) and malicious misrepresentation pointing to a different person who was not the actual lessee.

HELD: Fidelity was not liable. Verendia used a false lease contract to support his claim under the fire policy. Hence, the terms of he policy should overinsurance be strictly construed against the insured. Verendia reprehensibly disregarded that insurance contracts are uberrimae fidae and demand the most abundant good faith.

Insurers allowed to contract and accept payments in addition to regular premium

For the purpose of paying future premiums on the policy or to increase the benefits thereof, insurers are allowed to contract and accept payments in addition to the regular premium.[16]

 

 

– – –

[1] Ibid. Section 77.

[2] Ibid. Section 77.

[3] Ibid.

[4] Ibid. “No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy” (Ibid.).

[5] INSURANCE CODE, as amended. Section 78.

[6] Ibid. Section 79.

[7] Ibid. Paragraph 2, Section 82.

[8] Ibid. Section 80.

[9] Ibid. Section 80 (a).

[10] Ibid. Section 80 (b).

[11] Ibid. Paragraph 1, Section 82.

[12] Ibid. Paragraph 1, Section 82.

[13] Ibid.

[14] INSURANCE CODE, as amended. Section 81.

[15] Ibid. Section 83.

[16] Ibid. Section 84.

[17] Ibid. Section 85. Conversely, such stipulation is valid if the transfer is made after the loss.

[18] Ibid. Section 86.

[19] Ibid.

[20] INSURANCE CODE, as amended. Section 87.

[21] Ibid. Section 88.

[22] Ibid. Section 89.

Warranties in Insurance

A warranty is either express or implied.[1] It may relate to the past, the present, the future, or to any or all of these.[2] To create a warranty, there is no particular form of words that are necessary to be used.[3]

An express warranty is a statement in a policy “of a matter relating to the person or thing insured, or to the risk, as fact.”[4] For instance, a statement in a policy that imparts what is intended to do or not to do a thing which materially affects the risk is a warranty that such act or omission is to take place.[5]

Without prejudice to those required to be stated in the policy, every express warranty, which was made at/before the execution of a policy, is required to 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.[6]

The omission to fulfill the warranty relating to the future before the time arrives for the performance of such warranty does not avoid the policy in these cases: (a) when loss insured against happens, or (b) performance becomes unlawful at the place of the contract, or impossible.[7]

Rescission in case of material warranty

Either party is entitled to rescission in case the other violates a material warranty or other material provision of a policy.[8]

The insurer may declare in the policy that a violation of specified provisions thereof results in the contract being void; otherwise, the breach of an immaterial provision does not nullify the policy.[9]

Breach of warranty without fraud

The breach of warranty without fraud results in the following:

  1. It merely exonerates an insurer from the time that it occurs; or
  2. Where it is broken in its inception, prevents the policy from attaching to the risk.[10]

 

– – –

[1] Ibid. Section 67.

[2] Ibid. Section 68.

[3] Ibid. Section 69.

[4] Ibid. Section 71.

[5] Ibid. Section 72.

[6] Ibid. Section 70.

[7] Ibid. Section 73.

[8] Ibid. Section 74.

[9] Ibid. Section 75.

[10] Ibid. Section 76.

Requirements of Insurance Policy

A policy of insurance is the “written instrument in which a contract of insurance is set forth.”[1]

Ty v. First National Surety & Assurance Co., Inc.
G.R. No. L-16138, 29 April 1961

Diosdado Ty insured himself in 18 life policies, with his employer as a beneficiary. When a fire broke, Ty’s left hand was injured by a heavy object making it temporarily paralyzed. When he claimed his insurance, he was denied by the insurance companies on the ground that per contract what is compensable by a loss of hand refers to amputation and not paralysis.

HELD: The insurance companies are not liable. The Court cannot go beyond the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand by amputation through the bones of the wrist. There being no amputation, the insured cannot recover. The insurance policies are the law between the parties.

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand ‘by amputation through the bones of the wrist.’ There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was that the physical injuries ‘caused temporary total disability of plaintiff’s left hand.’ Note that the disability of plaintiff’s hand was merely temporary, having been caused by fracture of the index, the middle and the fourth fingers of the left hand.”

Policy required to be in printed form

The policy is required to 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 are to be written on the blank spaces provided therein.[2] Notwithstanding, the policy may be in electronic form subject to the law on Electronic Commerce Act and the rules and regulations that may be prescribed by the Insurance Commissioner.[3]

Rider, clause, warranty or endorsement purporting to be part of contract of insurance

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 required to have its descriptive title or name of the rider, clause, warranty or endorsement be mentioned and written on the blank spaces provided in the policy.[4] Otherwise, the rider, clause, warranty or endorsement is not binding on the insured.[5]

Unless applied for by the insured or owner, the latter is required to countersign the rider, clause, warranty or endorsement issued after the original policy as such countersignature will be taken as his agreement to the contents thereof.[6]

Best Legal Practices:

Riders, clause, warranty, or endorsement counter-signed – Insurance contracts already come in forms. Hence, any rider, clause, warranty, or endorsement added to the policy should be counter-signed by the insurer to be valid.

What must be specified in a policy of insurance

A policy of insurance must specify:[7]

  1. The parties between whom the contract is made;[8]
  2. The amount to be insured except in the cases of open or running policies;[9]
  3. 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;[10]
  4. The property or life insured;[11]
  5. The interest of the insured in property insured, if he is not the absolute owner thereof;[12]
  6. The risks insured against;[13] and
  7. The period during which the insurance is to continue.[14]

Cover notes binds insurance temporarily pending issuance of policy

Pending the issuance of the policy, cover notes may be issued to bind the insurance temporarily.[15] Within 60 days after the issuance of the cover note, the policy is required to be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium thereof.[16] The cover notes may be extended for renewed beyond 60 days only with the written approval of the Insurance Commissioner.[17]

Insurance proceeds applied exclusively to insured or beneficiary

Unless otherwise specified in the policy, the insurance proceeds is to be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made.[18]

Principal’s agent or trustee as insured to be indicated in policy

When an insurance contract is executed with the principal’s 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.[19]

Insurance effected by partners or part-owners requires policy’s terms to be applicable to joint or common interest of them

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.[20]

Construction of policy couched in general terms favors one who can show that it intended to include him

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.[21] Related thereto, a policy may be so framed that it will inure to the benefit of whomsoever may become the owner of the interest insured during the continuance of the risk. [22]

Transfer of thing insured suspends policy until same person owns policy and thing insured

The mere transfer of a thing insured does not transfer the policy; however, the policy is suspended until the same person becomes the owner of both the policy and the thing insured.[23]

What constitutes open, valued, or running policy

A policy may either be open, valued, or running.[24] An open policy is “one in which the value of the thing insured is not agreed upon, and the amount of the insurance merely represents the insurer’s maximum liability.”[25] A valued policy is “one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.”[26] 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.”[27]

Void stipulation limiting commencement of action for a period less than 1 year

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.[28]

Sun Insurance v. Court of Appeals
G.R. No. 89741, 13 March 1991

Emilio Tan insured the electrical supply store of his brother. Four days after, the store burned down. His claim was rejected by the insurance company. He filed for reconsideration. Still, it was rejected. When he filed a case against the insurance company, the latter posits the defense that the cause of action had already prescribed as the 12 months within which to claim under the contract elapsed.

HELD: The insurance company was not liable. It is clear in Condition No. 27 of the policy that there is a one year prescription. Moreover, filing reconsideration with the insurance company does not interrupt the running of the prescription. The condition in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared. Cause of action accrues from the denial of the insured’s right to claim.

Policy written for less than 1 year term considered as a 1 year term

Any policy written for a term of less than one year is considered as if written for a term of one year.[29] Meanwhile, any policy written for a term longer than one year or any policy with no fixed expiration date is considered as if written for successive policy periods or terms of one year. [30]

Grounds for cancellation of insurance policy

Except life insurance, the insurer is obligated to cancel an insurance policy after sending to the insured a prior notice of cancellation, which is effective only if based on the occurrence, and after the effectivity of the policy, of one or more of the following:[31]

  1. Nonpayment of premium;[32]
  2. Conviction of a crime arising out of acts increasing the hazard insured against;[33]
  3. Discovery of fraud or material misrepresentation;[34]
  4. Discovery of willful or reckless acts or omissions increasing the hazard insured against;[35]
  5. Physical changes in the property insured which result in the property becoming uninsurable;[36]
  6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured;[37] or
  7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.[38]

Written notices of cancellation required to be mailed or delivered to named insured at address in policy

All notices of cancellation mentioned above is required to be in writing, mailed, or delivered to the named insured at the address shown in the policy, or to his broker provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf, and it has to state:[39]

  • Which of the grounds for cancellation is relied upon;[40] and
  • That, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.[41]

Insured entitled to renewal unless insurer informs intention not to renew at least 45 days in advance of end of policy period

In case of non-life insurance, the named insured is entitled to renew the policy upon payment of the premium due on the effective date of the renewal.[42] The latter rule does not apply if the insure,r at least 45 days in advance of the end of the policy period, mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverage.[43]

 

– – –

[1] Ibid. Section 49.

[2] Ibid. Paragraph 1, Section 50.

[3] Ibid. Paragraph 4, Section 50.

[4] Ibid. Paragraph 2, Section 50.

[5] Ibid. Paragraph 2, Section 50.

[6] Ibid. Paragraph 3, Section 50.

[7] Ibid. Section 51.

[8] Ibid. Section 51 (a).

[9] Ibid. Section 51 (b).

[10] Ibid. Section 51 (c).

[11] Ibid. Section 51 (d).

[12] Ibid. Section 51 (e).

[13] Ibid.Section 51 (f).

[14] Ibid. Section 51 (g).

[15] Ibid. Section 52.

[16] Ibid. Paragraph 1, Section 52.

[17] Ibid. Paragraph 1, Section 52. “Cover notes may be extended or renewed beyond such sixty (60) 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 [Insurance 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” (Ibid.).

[18] Ibid. Section 53.

[19] Ibid. Section 54.

[20] Ibid. Section 55.

[21] Ibid. Section 56.

[22] Ibid. Section 57.

[23] Ibid. Section 58.

[24] Ibid. Section 59.

[25] Ibid. Section 60. “The value of such thing insured shall be ascertained at the time of the loss” (Ibid.).

[26] Ibid. Section 61.

[27] Ibid. Section 62.

[28] Ibid. Section 63.

[29] Ibid. Section 66.

[30] Ibid.

[31] INSURANCE CODE, as amended. Section 64.

[32] Ibid. Section 64 (a).

[33] Ibid. Section 64 (b).

[34] Ibid. Section 64 (c).

[35] Ibid. Section 64 (d).

[36] Ibid. Section 64 (e).

[37] Ibid. Section 64 (f).

[38] Ibid. Section 64 (g).

[39] Ibid. Section 65.

[40] Ibid. Section 65 (a).

[41] Ibid. Section 65 (b).

[42] Ibid. Section 66.

[43] Ibid. Section 66.

Representation in Insurance

A representation may be oral or written.[1] It may be made at the time of or before the issuance of the policy.[2] In the interpretation of a representation, the same rules as the language of contracts in general will be followed.[3]

A representation as to the future is deemed a promise unless it appears that it was merely a statement of belief or expectation.[4]

A representation cannot qualify an express provision in an insurance contract; however, a representation may qualify an implied warranty.[5]

Before the insurance is effected but not afterwards, a representation may be altered or withdrawn.[6]

A representation is presumed to refer to the date on which the insurance contract goes into effect.[7]

The person insured who has no personal knowledge is not responsible for the truth of the information communicated in these cases: (a) he repeats 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 (b) he submits the information, in its whole extent, to the insurer.[8] This rule on non-liability does not apply if the information comes from an insured’s agent, whose duty it is to give such information.[9]

When representation is false

A representation is deemed false when the facts fail to correspond with its assertions or stipulations.[10]

Rescission if representation is material

The injured party has the right to rescind the contract from the time when the representation becomes false provided such is a material point, whether affirmative or promissory.[11] The materiality of a representation is determined by the same rules as the materiality of a concealment.[12]

2-year incontestability clause

If a policy of life insurance made payable on the death of the insured has been in force during the lifetime of the insured for a period of two years from the date of its issuance or its last reinstatement, the insurer cannot prove that the said policy is void an initio or rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.[13]

 

– – –

[1] Ibid. Section 36.  The rules on representation applies as well to a modification of a contract of insurance as to its original formation (Section 47, Ibid.).

[2] Ibid. Section 37.

[3] Ibid. Section 38.

[4] Ibid. Section 39.

[5] Ibid. Section 40.

[6] Ibid. Section 41.

[7] Ibid. Section 42.

[8] Ibid. Section 43.

[9] Ibid. Section 43.

[10] Ibid. Section 44.

[11] INSURANCE CODE, as amended. Section 45. The right of rescission must be exercised prior to the commencement of an action on the contract (Paragraph 1, Section 48, Ibid.).

[12] Ibid. Section 46.

[13] Ibid. Paragraph 2, Section 48.