ORIGIN OF INSURANCE AND LAWS GOVERNING INSURANCE

Question 1

What are the laws governing Insurance?

Answer 1

First is the Insurance Code of the Philippines. In the absence of applicable provisions in the Insurance Code, the Civil Code applies in suppletory character.

In the absence of applicable provisions from the said laws, the general principles prevailing on the subject, the US laws, particularly in the State of California, applies. This is because the Insurance Code of the Philippines is patterned after the laws of the said state.

Question 2

What are the new concepts introduced by the New Insurance Code?

Answer 2

There are three concepts that were introduced by the New Insurance Code to enhance the business of the business of Insurance. These are the following; microinsurance, bancassurance, trust for charitable uses, trust business of insurance companies, and industrial life insurance.

Question 3

What is microinsurance?

Answer 3

Microinsurance is a financial product or service that meets the risk protection needs of the poor where the amount of contributions, premiums, fees, or charges, computed on a daily basis, does not exceed 7.5% of the current daily minimum wage rate for nonagricultural workers in Metro Manila.

The maximum sum of guaranteed benefits is not more than 1,000 times of the current daily minimum wage rate for nonagricultural workers in Metro Manila.

Question 4

What is Bancassurance?

Answer 4

Bancassurance is the presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of such bank duly licensed by the BSP or any of its branches under such rules and regulations which the Commissioner and the BSP may promulgate.

Question 5

What is industrial life insurance?

Answer 5

Industrial life insurance is a form of life insurance under which the premiums are payable monthly or oftener. It is industrial life insurance if the face amount of insurance provided in any policy is not more than 500 times than that of the current statutory daily minimum wage of the City of Manila, and if the words “industrial policy” are printed upon the policy as part of the descriptive matter.

Question 6

Distinguish between Microinsurane and Industrial Life Insurance

Answer 6

Industrial life insurance and microinsurance have different maximum amount. The maximum amount of Microinsurance is not more than 1,000 times of the current daily minimum wage of Manila while for Industrial Life insurance, it is not more than 500 times than that of the current statutory minimum wage in the City of Manila.

No limitation as to premiums is provided for Industrial life Insurance. On the other hand, the amount of contributions, premiums, charges, or fees for Microinsurance should not exceed 7.5% of the current daily wage rate for non-agricultural workers in Metro Manila.

As to nonpayment of premium, Industrial life insurance policy shall not lapse if such non-payment was due to the failure of the insurer to send a collector unless it covers a period which is longer than a period of 1 month. Microinsurance do not have such a rule and the policy will lapse if the premium is not paid.

In case of Industrial life Insurance the insured has a grace period of 30 days within which to pay the premium, however, Microinsurance does not have such grace period privilege.

As to the scheme of the policies, the premiums of Industrial Life Insurance are payable monthly or oftener, but there is no such scheme in Microinsurance.

Question 7

What is a variable contract?

Answer 7

A variable contract is any policy or contract on either a group or on an individual basis issued by an insurance company providing for benefits or other contractual payments or values there under to vary as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shal have been placed and accounted for separately and apart from other investments and accounts.

Question 8

Should a common law wife [will the legal wife is alive] be qualified as a beneficiary?

Answer 8

No. The common law wife, while the legal wife is alive, cannot be qualified as beneficiary.

There being no provision under the Insurance Code regarding this matter, the Civil Code must be applied. Pursuant to the Art. 739 of the Civil Code, donations, made between persons who are guilty of adultery or concubinage at the time of donation, are deemed void. Further, it states in another provision that any person who are forbidden from receiving any donation under Art. 739 are cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him.

In this case, since the legal wife is still existing, the common law and the husband are committing concubinage. Thus, the common law wife is disqualified by the Civil Code to be a beneficiary of the insurance policy.

Question 9

Will the nonpayment of premiums be excused because of war?

Answer 9

There is neither an applicable provision in the Insurance Code nor in the Civil Code. Thus, what must be applied is the general principles of law prevailing on the subject in the US.

Under the US rule, it is declared that the contract is not merely suspended, but is abrogated by reason of non-payment of premiums, since the time of payment is peculiarly of the essence of the contract.

Question 10

How may a contract of insurance be perfected?

Answer 10

A contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents.

Thus, it is only when the insurer accepts the application and communicates the same to the applicant that the contract of insurance is perfected.

Question 11

Is perfection and effectivity different?

Answer 11

Yes, perfection and effectivity are different. A contract may be perfected and binding but not effective. No policy shall be valid and binding unless and until the premiums are paid.

So while contracts are perfected by mere consent, it shall not be effective until premiums are paid.

Question 12

How should a contract of insurance be construed?

Answer 12

If the terms of a contract are clear and leaves no doubt upon the intention of the contracting parties, the literal meaning of the stipulations must shall control. Hence, in case there is no doubt as to the terms of an insurance contract, the provisions must be construed in their plain, ordinary and popular sense.

However, when the terms of the policy are ambiguous, uncertain or doubtful, they should be interpreted strictly against the insurer and liberally in favor of the insured because the insured has no voice in the selection of the words used, and the language of the contract is selected by legal advisers of the insurance company.

Question 13

Why must an insurance contract be interpreted against the insurer and liberally in favor of the insured?

Answer 13

Insurance contracts are contracts of adhesion or adherence.

This means that they are preapred only by the insurer and imposed upon parties dealing with it which may not be changed, the latter’s participation in the agreement being reduced to the alternative to take it or leave it. In contrast to those entered into by parties bargaining on an equal footing and therefore, any ambiguity thereon must be resolved against the insurer.

Question 14

What is the Contra Proferentem Rule?

Answer 14

This rule is otherwise know as the Ambiguity doctrine. It is the same as an adhesion contract principle. Contra Proferentem Rule provides that in the interpretation of documents, ambiguities are to be construed against the drafter.

By its very nature, the precept assumes the existence of an ambiguity in the contract, which is why it is applicable only when there is doubt.

Question 15

What is a contract of insurance?

Answer 15

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.

Question 16

What are the elements of Insurance?

Answer 16

Aside from the essential requisites of an ordinary contract, an insurance contract must have the following elements

1. The insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable interest.
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils.
3. The insurer assumes the risk of loss.
4. Such assumption is part of a general scheme to distribute actual losses among a l large group of persons bearing somewhat similar risks.
5. As consideration for the insurer’s promise, the insured makes a ratable contribution, called premium to a general insurance fund.

Question 17

Why is an insurance contract considered a contract of indemnity?

Answer 17

The insurance company shall be liable only if the insured suffers a loss. The insured shall recover all the damages he suffered, and no more than that because the insured is not meant to gain profit from the insurance contract.

Question 18

Is life insurance a contract of indemnity?

Answer 18

No, life insurance is not a contract of indemnity. No value can be traced in life. Life insurance is based upon the principle of indemnity, only in so far as it cannot exist unless there is insurable interest in the life of the party insured at the time of the making of the contract. But beyond this, the principle of indemnity does not apply to life insurance.

Thus, life insurance policy, as a rule, is not a contract of indemnity, but a contract to pay a certain sum of money in the event of death beacuse life cannot be the subject of valuation nor the loss adjustable to any principle of indemnity.

Question 19

Why is an insurance contract a personal contract?

Answer 19

This is because the insurer will not be liable to a person who is not insured. Insurance will be applied exclusively to the proper interest of the person in whose name it was issued. It cannot be made payable to a 3rd person as a general rule.

Question 20

What may be insured?

Answer 20

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured.

Question 21

When is the insurer liable for past event or loss that occured before the policy was insured?

Answer 21

Oridinarily, the event covered by the policy is a future contingency. However, a past event may likewise be included within the coverage of a policy. To be so covered, the past event causing the loss must be unknown to both parties and they must expressly stipulate that a prior loss is insured by the policy.

Question 22

Who are the parties to the contract of insurance?

Answer 22

1. The insurer - the person who undertakes to indemnify another by a contract of insurance
2. The insured - a person to be indemnified
3. The beneficiary - he who receives a benefit or advantage or is entitled to the benefit of a contract.

Question 23

Who may be an insurer?

Answer 23

Every corporation, partnership, or association, duly authorized to transact insurance business may be an insurer.

Question 24

Who may be insured?

Answer 24

Anyone except a public enemy may be insured.

Question 25

Who may insure a mortgaged property?

Answer 25

When a property is mortgaged, the mortgagor and the mortgagee may take out separate policies with the same or different insurance companies. The mortgagor may insure the property mortgaged to the full value of such property while the mortgagee can insure the same only to the extent of the amount of his credit.

Question 26

What are the effects of Mortgage Redemption Insurance?

Answer 26

There are instances wherein a person borrows money from the bank and the bank will require the insured/borrower to obtain a mortgage redemption insurance. A mortgage redemption insurance is simply a kind of life insurance procured by the mortgagor with the mortgagee as beneficiary up to the extent of the mortgage indebtedness.

Question 27

What is a Union Mortgage Clause?

Answer 27

A union mortgage clause or its equivalent creates the relation of insured and insurer between the mortgagee and the insurance company independent of the contract with the mortgagor.

Question 28

Generally, when does a person have an insurable interest in the subject-matter insured?

Answer 28

In general, a person has an insurable interest in the subject-matter insured where he has such a relation or connection with, or concern in, such subject matter that he derive pecuniary benefit or advantage from it preservation or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the even insured against.

Question 29

In life insurance, when does a person have insurable | interest?

Answer 29

Whenever he has a reasonable ground founded on the relation of the party either by blood or affinity, expect some benefit or advantage from the person from the continuance of life of the insured. Insurable interest in life however, must be one in favor of the continuance of life and not an interest in its loss or destruction.

Question 30

Raymart and Claudine was married in 2016. Raymart insured the life of Claudine on January 12, 2017 with Raymart as beneficiary. The marriage was subsequently annulled on February 25, 2018. Claudine was killed by Ramon on May 15, 2018. At the time the insured died, the marriage was already dissolved (annulled). Can Raymart, as beneficiary, still recover from the proceeds of the insurance policy?

Answer 30

(YES) Raymart may recover the proceeds of the policy even if his marriage with Claudine was already anulled at the time of the death of Claudine because insurable interest In life need exist only at the time of the effectivity of the policy and need not exist at time of the death of the insured, as life Insurance is not a contact of Indemnity.

Question 31

Who may be BENEFICIARIES?

Answer 31

It is the person for whose benefit the policy is issued and to whom the loss is payable. He is the one cited in the policy as one who will receive the proceed from the policy. Simply put, he is the beneficiary if he gets the benefit.

Question 32

May the BENEFICIARY in life insurance BE CHANGED?

Answer 32

The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this part In said policy. Notwithstanding the foregoing, In the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable.

Question 33

Who may be the beneficiary in Life insurance?

Answer 33

Beneficiary in Life Insurance is not provided for in the Insurance Code. As we have said, we should apply then the Civil Code. Under the Civil Code, a person may be designated as beneficiary even if he is a stranger to the contract except for persons forbidden from receiving donations under Art. 739 thereof.

Question 34

Who are those persons prohibited from giving donations to each other under Art. 739 of the CC, therefore disqualified from designating each other as beneficiary in life insurance?

Answer 34

(a) Those made between persons who are guilty of adultery or concubinage at the time of the donation; (b) Those made between persons found guilty of the same criminal offense, in consideration thereof; (c) Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

Question 35

Is prior conviction for adultery or concubinage necessary to disqualify a beneficiary?

Answer 35

With respect to the disqualification of "persons who are guilty of adultery or concubinage", criminal conviction for the disqualifying offense is not required. The guilt of the insured and beneficiary may be proved by preponderance of evidence in the same action for declaration of nullity of the designation.

Question 36

When can the consent of a minor to change him as a beneficiary be given by the guardian or parents

Answer 36

A. When a minor however, was designated as beneficiary and the interest of the minor in the policy does not exceed five hundred thousand pesos (P500,000), his consent to the change of beneficiary may be given by his judicial guardian or, in the absence of the latter, by his father or in the latter's absence or incapacity, his mother.

Question 37

What is the extent of interest of the beneficiary in | endowment life insurance?

Answer 37

The beneficiary will get the proceed only if the insured dies during the period of endowment. In that case, the interest of the beneficiary is a contingent one. It is subject to a condition, the condition being, the beneficiary die during the period of endowment.

Question 38

May revocation of a beneficiary be done in the last will and testament of the insured?

Answer 38

In the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable. The revocation of the beneficiary therefore, should be done during the lifetime of the insured. Hence, the revocation of the beneficiary cannot be done in the last will and testament of the insured because it takes effect upon the death of the insured.

Question 39

In case the beneficiary did not submit an insurance claim against the insurer because he did not know of the existence of the insurance, is he bound by the prescriptive period stated in the contract?

Answer 39

It was incumbent upon the agent to give proper notice of the existence of the insurance coverage and the stipulation in the insurance contract for filing a claim to the beneficiary upon the death of the insured. The agent and not the beneficiary shall bear the loss. It is unfair to deny the claim of the beneficiary where he was unable to file the claim within the period provided in the policy in case he did not even know the policy existed.

Question 40

What happens when the beneficiary in life insurance is the principal, accomplice, or accessory in willfully bringing about the death of the insured?

Answer 40

The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a case, the share forfeited shall pass on to the other beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the policy contract is silent, the proceeds shall be Paid to the estate of the insured.

Question 41

Under Sec. 89, “an insurer is not liable for a loss caused by the willful act or through the connivance of the insured.” Supposed X who had insurable interest in the life of Y insured the latter and had himself (X) designated as beneficiary. Thereafter, X willfully killed Y. Is the insurer exempted from liability as apparently for in sec. 89 or would the insurer be liable to (a) the other beneficiaries who are not disqualified, or (b) in accordance with the policy contract, or (c) to the estate of the insured as provided for in Sec. 12?

Answer 41

Section 12 should be applicable and hence, the insurer shall be liable (a) to the other beneficiaries who are not disqualified, or (b) in accordance with the policy contract, or (c) to the estate of the insured. Sec. 12 is a new provision whereas section 89 is an old provision, and the rule is if there is a conflict with the old and the new, it is the new provision which shall prevail. When the former made the insurer liable instead of exempting it from liability, the intention against exempting the insurer is evident. Aside therefrom, section 89 is a general provision applicable to all kinds of insurance while section 12 is a special provision applicable only to life insurance and, therefore, the latter should prevail over the former.

Question 42

What is the TEST OF INSURABLE INTEREST IN PROPERTY?

Answer 42

The test of insurable interest in property is whether the insured has such a right, title, or interest therein, or relation thereto that he will be benefited by its preservation and continued existence, or suffer a direct pecuniary loss from its destruction or injury by the peril insured against.

Question 43

What may insurable interest in property consist of?

Answer 43

An insurable interest in property may consist in: a. An existing interest; b. An inchoate interest founded on an existing interest; or c. An expectancy, coupled with an existing interest in that out of which the expectancy arises.

Question 44

What is an inchoate interest?

Answer 44

Inchoate interest is an interest in real estate which is not present interest, but which may ripen into a vested estate, if not barred, extinguished or divested,

Question 45

What is the measure of indemnity in property insurance?

Answer 45

The measure of indemnity in property insurance is the extent to which the insured might be damnified by loss or injury thereof. Property insurance as a rule is a contract of indemnity and, hence, the measure of insurable interest is the extent to which the injured might be damnified by the loss or injury of the property insured. Said principle, however, applies only to property insurance and not to life insurance which is not regarded as a contract of indemnity

Question 46

What are the distinctions between insurable interest in life insurance and insurable interest in property insurance?

Answer 46

Insurable interest in life and insurable interest in property may be distinguished as follows: 1. Insurable interest in property is based on pecuniary interest, while in life, the interest need not necessarily be strictly and exclusively a pecuniary one, as in case of consanguinity or affinity. 2. In property insurance, an insurable interest must exist both at the time of the effectivity of the contract and at the time of the loss, while in life insurance, it is ordinarily sufficient if an insurable interest exist at the inception of the contract except when the life insurance is procured by a creditor on the life of a debtor wherein interest must also exist at the time of the loss. This distinction is based on the fact that property insurance is a contract of indemnity, while life insurance is not. 3. Insurable interest in property is limited to the actual value of the damage the insured may suffer, while in life, there is no limit on the amount of insurable interest unless it is based on creditor-debtor relationship.

Question 47

Derek is the boyfriend of Angelica. Derek obtained a life insurance from X. Insur. Co. and designate Angelica as beneficiary. Derek is also the owner of a house. He insured said house to Y Insur. Co. and likewise designated Angelica as beneficiary. The house of Derek was burned which caused the debt of Derek. May Angelica recover from X ins. Co. and Y. Ins, Co.?

Answer 47

In this case, Angelica CAN recover from X Ins. Co, the insurer of the life of Derek, because in life insurance, the beneficiary need not have insurable interest on the life of the insured. However, Angelica CANNOT recover from Y Ins. Co., the proceeds of the house because Angelica does not have any insurable interest on the house of Derek. As a rule, in property insurance the beneficiary must have insurable interest on the subject matter of the insurance.

Question 48

As of what time must insurable interest in property exist?

Answer 48

In property insurance, an insurable interest must exist both at the time of the effectivity of the contract and at the time of the loss. In life insurance, it is ordinarily sufficient if an insurable interest exist at the inception of the contract except when the life insurance is procured by a creditor on the life of a debtor.

Question 49

What is the consequence of the transfer of interest in the thing insured unaccompanied by transfer of interest in the policy?

Answer 49

A change of interest in any part of the thing insured accompanied by a corresponding change of interest in the policy, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person. And where a loss occurs during the period the policy is under suspension, the insurer is not liable.

Question 50

Ordinarily, transfer of interest in the thing insured unaccompanied by transfer of interest in the policy, suspends the insurance. What are the instances when the policy is not suspended despite the transfer of the thing insured?

Answer 50

The following are the exceptions to the rule that policy is suspended by the transfer of interest in the thing insured without corresponding transfer of the insurance: (a) When there is a prohibition against alienation or change of interest without the consent of the insurer in which case the policy is not merely suspended but avoided. (b) In case of life, accident, and health insurance. (c) A change of interest in a thing insured, after the occurrence of injury which results in a loss. (d) A change of interest in one or more of several distinct things, separately insured by one policy, does not avoid the insurance as to others. (e) A change of interest, by will or succession, on the death of the insured passes the interest in the insurance to the person taking the interest in the things insured. (f) A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others. (g) When the policy is so framed that it will insure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.

Question 51

Ordinarily, transfer of interest in the thing insured unaccompanied by transfer of interest in the policy, suspends the insurance. What are the instances when the transfer of the thing insured carries with it the transfer of the policy thereon?

Answer 51

In the following instances, transfer of interest in the thing insured carries with it the transfer of interest in the policy: (a) A change of interest, by will or succession, on the death of the insured passes the interest in the insurance to the person taking the interest in the things insured. (b) A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others. (c) When the policy is so framed that it will insure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.

Question 52

What are the stipulations in a contract of insurance that are void?

Answer 52

Every stipulation in an insurance contract (a) for the payment of loss whether the person insured has or has no insurable interest in the subject matter of insurance, or (b) that the policy shall be received as proof of such interest, and (c) every policy executed by way of gaming wagering is void.

Question 53

What is CONCEALMENT?

Answer 53

A neglect to communicate that which a party knows and ought to communicate. Using this definition, it can be inferred that the fundamental element of concealment is KNOWLEDGE.

Question 54

To be guilty of concealment, as of what time must the insured have knowledge of the fact concealed?

Answer 54

To be guilty of concealment, a party must have knowledge of the fact concealed at the time of the effectivity of the policy. Even if a party did not know of the existence of a material fact at the time of the application but acquired knowledge thereof AFTER the application, but BEFORE the effectivity of the policy, he is guilty of concealment should he fail to communicate such fact to the other.

Question 55

What is the right of the injured party where the other is guilty of concealment? Must concealment be intentional?

Answer 55

A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. The party injured by concealment does not have to prove intention to conceal by the other party to be able to rescind the contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" discourages any change in doctrine and underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize rescission by the injured party.

Question 56

What is the EFFECT of concealment and what is the BASIS | of such rule?

Answer 56

The EFFECT is that a policy will be vitiated by the suppression of known material facts by a party, and the insurer may rescind a policy on the ground of concealment. The BASIS of the rule vitiating the contract in case of concealment is that it misleads or deceives the insured into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a fake basis that it does not exist.

Question 57

What are the REQUISITES of facts that must be communicated?

Answer 57

Each party is bound to communicate to the other all facts that meet the following requisites: (a) such facts must be within his knowledge; (b) must be material to the contract; (c) the other party has no the means of ascertaining such fact; and (d) he makes no warranty as to such facts.

Question 58

How may information be waived?

Answer 58

Waiver of the information may either be: (a) EXPRESS when made by the terms of the insurance or contained in the policy; or (b) IMPLIED when there was neglect implied in other facts of which information was communicated.

Question 59

Does waiver by the insurer of medical examination mean waiver of information from the insured?

Answer 59

WAIVER OF MEDICAL EXAMINATION of the applicant for life insurance should not be construed as a waiver of material information, since the waiver of medical examination is made where the insured represents himself to be of good health. It is reasonable to assume that had the insured revealed material information concerning his health, the insurer would not have waived the medical examination.

Question 60

Does waiver by the insurer of medical examination mean waiver of information from the insured?

Answer 60

WAIVER OF MEDICAL EXAMINATION of the applicant for life insurance should not be construed as a waiver of material information, since the waiver of medical examination is made where the insured represents himself to be of good health. It is reasonable to assume that had the insured revealed material information concerning his health, the insurer would not have waived the medical examination.

Question 61

How is the MATERIALITY OF CONCEALMENT determined?

Answer 61

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

Question 62

What is the TEST OF the MATERIALITY OF INFORMATION?

Answer 62

The test of materiality is whether knowledge of the true facts would have influenced a prudent insurer in determining whether to accept the risk or in fixing the amount of premiums. That is, if answers to questions propounded by the insurer are such as may influence it in determining whether to accept risk and what premium to change, such answers are material and must be truthful. Thus, every fact is material which increases the risk or which, if disclosed, might have led the company to decline the risk, or to accept the risk only for higher premium.

Question 63

When must expectation or belief be communicated to the insurer?

Answer 63

In marine insurance, "information of belief or expectation of a 3rd person, in reference to a material fact, is material" and must be communicated. The opinion therein referred to is that of a third person and not that of the insured.

Question 64

Distinguish representation and misrepresentation

Answer 64

Representation is an oral or written statement of a fact or condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to assume the risk. Misrepresentation is a statement of something as a fact which is untrue and material to the risk, and which the insured states, knowing it to be untrue in an attempt to deceive, or which he states positively as true without knowing it to be true, and which has a tendency to deceive.

Question 65

As of WHAT TIME MUST REPRESENTATION BE MADE? WHY?

Answer 65

GR: Representation must be made before OR at the same time of the effectivity of the contract because representation is a collateral matter which induces the execution of the contract of insurance. They are preliminary statements of facts or, circumstances relating to the proposed adventure, made for the information of the insurer. It is a collateral inducement for the insurer to enter into a contract of insurance. Since misrepresentation is an inducement to a contract of insurance, it must ordinarily, be made at the time of issuing the policy, or before it. XPN: It is submitted, however, that representation may likewise be made after the issuance of the policy when the purpose thereof is to induce the insurer to modify an existing insurance contract because the provisions on representation are applicable NOT ONLY to the original formation of an insurance but also to its modification.

Question 66

Distinguish Concealment from Misrepresentation

Answer 66

CONCEALMENT is a passive form of the same act of bad faith. MISREPRESENTATION, on the other hand is an active form of the same act of bad faith. It is a statement of something as a fact which is untrue and material to the risk, and which the insured states, knowing it to be untrue in an attempt to deceive, or which he states positively as true without knowing it to be true, and which has a tendency to deceive. It is the information he gives in compliance with his duty to reveal facts is representation.

Question 67

What is representation?

Answer 67

Representation is the c communication required to comply with the prohibition against concealment.

Question 68

What are the kinds of Representation?

Answer 68

Representation may either be: a. AFFIRMATIVE - refers to the present; it is an affirmation of a fact existing when the contract begins, b. PROMISSORY - refers to the future; it is a statement by the insured concerning what is to happen during the term of the insurance.

Question 69

What is the EFFECT OF FALSE STATEMENT OF AGE?

Answer 69

GR: Whenever the Code grants the insurer the right to rescind the policy for any reason, such right is waived by the acceptance of premium only if the INSURER HAS KNOWLEDGE of the ground for rescission otherwise, there is no waiver of the right to rescind. XPN: Aside there from, where the insurer was NOT AWARE of a violation of the policy AT THE TIME OF THE ACCEPTANCE of premium, the insurer is not barred from raising such violation as a defense.

Question 70

Whenever the right to rescind the contract is granted to the insurer, WHEN should RIGHT TO RESCIND be EXERCISED?

Answer 70

A. The insurer’s right to rescind a policy must be exercised before to the COMMENCEMENT OF AN ACTION on the contract. So, in other words, the rescission must be made before the case is filed in court. After the filing of the case in court, rescission CANNOT be made. Therefore, insurer may rescind the insurance contract even after occurrence of the loss and filing of the claim with the insurer provided it is done before the filing of the necessary complaint in court against the insurer.

Question 71

What is the EFFECT of FAILURE TO RESCIND DESPITE KNOWLEDGE OF THE FACTS GIVING THE INSURER THE RIGHT TO RESCIND?

Answer 71

Where an insurance company had knowledge of facts that entitled it to rescind, but failed to cancel the policy and instead preferred to continue the contract, its inaction amounted to a waiver of the right of rescission.

Question 72

What is the EFFECT of the INSURED’S FRAUD ON THE ASSIGNEE OF THE POLICY?

Answer 72

An assignee of an insured merely acquires the rights of the insured. It is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by his fraud, and/or misrepresentation forfeited said right, with more reason the assignee who is merely an indorsee cannot be entitled to such proceeds.

Question 73

What is an Incontestable Clause?

Answer 73

Incontestable Clause is an agreement by which the insurance company limits the period of time within which it will interpose objections to the validity of the policy or set up any defense.

Question 74

What are the REQUISITES OF AN INCONTESTABLE CLAUSE

Answer 74

A policy to become incontestable must have the following requisites: (1) It must be a life insurance policy: (2) It must be payable on the death of the insured; and (3) It must have been in force during the lifetime of the insured for a period of 2 years.

Question 75

What are the EFFECTS and PURPOSE of INCONTESTABLE CLAUSE?

Answer 75

EFFECTS: Whenever all the requisites of incontestability mentioned above are present, the insurer can no longer escape liability under the policy NOR be allowed to prove that the policy is void ab initio or rescindable by reason of concealment or misrepresentation of the insured or his agent. In other words, the insurer is precluded from contesting the policy on any ground. PURPOSE: The incontestable clause was designed to prevent the commission of one of the inequities usually perpetrated by insurance companies as there were cases where after the death of the insured, the insurer starts fishing for evidence to show that the insured made false representations as to the state of his health and thus escape liability on the policy or delay its payment, in order to compel the beneficiary when he is badly in need of money, to accept only part of the amount of the policy.

Question 76

Q. Within WHAT TIME SHOULD the INSURER RESCIND A LIFE INSURANCE CONTRACT on the ground of concealment or misrepresentation or on the ground that it is void ab initio?

Answer 76

The insurer can prove that the policy of life insurance made on the death of the insured is void ab initio or is rescindable by reason of the fraudulent concealment, or misrepresentations of the insured or his agent during the lifetime of the insured for a period of 2 years from the date of its issue or its last reinstatement. Hence, after the lapse of 2 years during the lifetime of the insured or upon the death of the insured, the policy is already incontestable. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation.

Question 77

What DEFENSES are NOT BARRED BY THE INCONTESTABLE CLAUSE?

Answer 77

Notwithstanding the incontestability of the policy, the insurer may still raise the following defenses, as they are not barred by the incontestable clause: 1. The insurer may raise the defense that the premiums were not paid. 2. The insurer may raise the defense that the insured violated the condition in the policy relating to military or naval service in times of war. 3. The insurer may raise the defense that the insured has no insurable interest in the subject-matter of the insurance. 4. The insurer may raise the defense that the cause of death was excepted or not covered by the terms of the policy. 5. The insurer may raise the defense that the fraud committed was of a particularly vicious type such as: a. Where the policy was taken in furtherance of a scheme to murder the insured b. Where the insured substituted another person for the medical examination c. Where the beneficiary feloniously killed the insured 6. The insurer may raise the defense that the necessary notice or proof of insured’s death was not given.

Question 78

What is a policy?

Answer 78

POLICY is the written instrument in which a contract of insurance is set forth.

Question 79

What is a cover note and when does it bind the insurer?

Answer 79

A cover note or a binding slip is merely a written memorandum of the most important terms of a preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer or until the issuance of a formal policy. To give adequate protection to the insured, it must be a preliminary contract of present insurance and not a mere agreement to insure at some future time, as on acceptance of the application or on issuance or delivery of the policy.

Question 80

What is a COVER NOTE or a BINDING SLIP?

Answer 80

COVER NOTE or a BINDING SLIP is merely a written memorandum of the most important terms of a preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer or until the issuance of a formal policy.

Question 81

WHEN DOES A COVER NOTE BIND THE INSURER?

Answer 81

To give adequate protection to the insured, it must be a preliminary contract of present insurance and not a mere agreement to insure at some future time, as on acceptance of the application or on issuance or delivery of the policy.

Question 82

MUST SEPARATE PREMIUMS BE COLLECTED ON THE COVER NOTE?

Answer 82

Separate premiums are intended or required to be paid on a cover note because cover notes do not contain particular of the property insured that would serve as basis for the computation of premiums. Such being the case, no premium could be fixed and paid on the cover note. Cover notes should not be treated as separate policies but should be integrated to the regular policies subsequently issued so that the premiums on the regular policies include the consideration for the cover notes.

Question 83

Then how do you distinguish a preliminary contract of insurance from a mere memorandum of a future insurance?

Answer 83

If the intention of the parties is to insure the thing described in the preliminary contract immediately, then it is a contract of present insurance and binding, BUT if it is a mere memorandum of future insurance, then it will not afford any protection at all.

Question 84

TO WHOM SHOULD THE PROCEEDS OF THE POLICY BE PAID?

Answer 84

It should be paid either to the beneficiary or to the insured. A person who’s neither the beneficiary nor the insured cannot recover as a rule from the insurance company because I have said, the insurance should be applied to the proper interest of the person in whose name it is issued. BUT, there are two exceptions to the rule. XPN: The exceptions are when the insurance contract was intended to benefit third persons, the latter may directly claim form the insurer. Thus, 1. If the insurance contract should contain some stipulation in favor of a third person, the latter although not a party to the contract may enforce the stipulation in his favor before it is revoked by the contracting parties, or 2. Where the insurance contract provides for indemnity against liability to third persons, then third persons, to whom the insured is liable, can sue the insurer.

Question 85

What are the kinds of Policies?

Answer 85

An insurance policy could be: a. open; b. valued; and c. running.

Question 86

What is an open policy?

Answer 86

Open policy is one where the value of the thing insured has not been agreed upon but left to be determined after the occurrence of the loss. In such case, the insured must prove the value of the thing before he can recover.

Question 87

What is a valued policy?

Answer 87

Valued Policy is one where the value of the thing insured has been agreed upon and the agreement shall be conclusive between the parties in the adjustment of the total or partial loss.

Question 88

What is a running policy?

Answer 88

it contemplates successive insurances and which provides that the subject of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or endorsements.

Question 89

MAY THE PARTIES AGREE ON THE PERIOD OF PRESCRIPTION?

Answer 89

The parties can agree on the period of prescription within which the insured should file a case against the insurer provided, that the period agreed upon is not less than 1 year from the time of the denial of the claim. If the period agreed upon by the parties is less than 1 year from the cause of action, then, the agreement is void.

Question 90

HOW SHOULD THE PERIOD OF PRESCRIPTION | AGREED UPON BY THE PARTIES BE COMPUTED?

Answer 90

The period of prescription to bring a suit under the policy begins to run from the date of the insurer’s rejection of the claim filed by the insured, the beneficiary or the person claiming under the insurance contract. Ratio: The reason why prescriptive period should be counted from time of rejection of the claim, it’s because the cause of action does not accrue until the claim is rejected. Until the claim is rejected, there is no reason for the insured to file a case.

Question 91

WHAT TIME SHOULD THE PRESCRIPTIVE PERIOD AGREED UPON BY THE PARTIES BE COMPUTED?

Answer 91

The prescriptive period to bring suit in court under an insurance policy begins to run from the date of the insurer's rejection of the claim filed by the insured, the beneficiary or any person claiming under an insurance contract.

Question 92

What is the PERIOD OF PRESCRIPTION OF ACTION ON THE CONTRACT OF INSURANCE WHEN NO PERIOD HAS BEEN AGREED UPON OR THE STIPULATION IS VOID?

Answer 92

It will be the one provided for in the Civil Code. It will be 10 years if it is a written contract and 6 years in case of an oral contract.

Question 93

What is the PERIOD OF PRESCRIPTION UNDER THE COMPULSORY MOTOR VEHICLE INSURANCE?

Answer 93

Under the present law, the period of prescription in the compulsory motor vehicle insurance is one year from the denial of the claim and not from the date of the accident.

Question 94

``` Sec 3(6) of the Carriage of Goods by the Sea Act: The carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after the delivery of the goods or date when they should be delivered. ``` What is the EFFECT OF SUCH PROVISION ON THE PERIOD OF PRESCRIPTION TO FILE AN ACTION ON THE POLICY?

Answer 94

That provision applied only to the carrier. It does not apply to the insured. Under the aforesaid provision, only the carrier’s liability is extinguished if no suit is brought within 1 year from the delivery of the goods. The liability of the insurer is not extinguished because the insurer’s liability is not based on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligation of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The later case is governed by the Insurance Code.

Question 95

GROUNDS OF CANCELLATION OF NON-LIFE INSURANCE | CONTRACTS

Answer 95

Sec. 64 - No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) Nonpayment of premium; (b) Conviction of a crime arising out of acts increasing the hazard insured against; (c) Discovery of fraud or material misrepresentation; (d) Discovery of willful or reckless acts or omissions increasing the hazard insured against; (e) Physical changes in the property insured which result in the property becoming uninsurable; (f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or (g) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. If the cancellation is not based on any one of these grounds, the cancellation is not valid. Not only that, the notice of cancellation must be received by the insured, otherwise the cancellation is not valid.