Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.
What are two types of preliminary contracts of insurance?
The preliminary contract of present insurance and the preliminary executory contract of insurance.
What is a preliminary contract of present insurance?
By a preliminary contract of insurance, the insurer insures the subject matter usually by what is known as a “binding slip”
or “binder” or “cover note” which is the contract to be effective until the formal policy is issued or the risk is rejected.
What is a cover note?
The cover not is merely a written memorandum of the most important terms of the preliminary contract of insurane, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy, provided that it is later determined that the applicant was insurable at the time it was given.
By its nature, it is subject to all conditions in the policy expected even though that policy may never issue. In life insurance, where an agreement is made between an applicant and the insurers’ agent, no liability shall attach until the insurer approves the risk. Thus, in life insurance, a binding slip or binding receipt DOES NOT insure itself.
Can you explain a preliminary executory contract of insurance?
By a preliminary executory contract of insurance, the insurer makes a contract to insure the subject matter at some subsequent time which may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely to demand the delivery of the policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the said policy.
What are the rules governing cover notes?
1) Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily pending the issuance of the policy
2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of IC.
3) NO cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.
4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its issuance, whether or not the premium therefore has been paid or not, BUT such cover note may be canceled by either party upon at least 7 days notice to the other party.
5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the identical insurance bound under the cover note and the premiums therefore.
6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with the written approval of the Insurance Commissioner, provided that such written approval may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance company concerned, that the risks involved, the values of such risks, and the premiums therefore have not as yet been determined or established and that such extension or renewal is NOT contrary to and is not for the purpose of violating any provision of the IC.
7) The insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.
Cases:
(80) Lim v. Sun Life 41 PHIL 263 Facts:
On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with Sunlife in the amount of 5T.
He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by Lim and company issued a
“provisional policy”
Such policy contained the following provisions “xx the abovementioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in the policy which may be granted by it in this particular case for 4 months only from the date of the application, PROVIDED that the company shall confirm this agreement by issuing a policy on said application xxx. Should the company NOT issue such a policy, then this agreement shall be null and void ab initio and the Company shall be held not to have been on the risk at all, but in such case, the amount herein shall be returned.
Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval of the application by the home office of the insurance company.
The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.
Issue: WON the beneficiary can collect the 5T.
Held: NO.
The contract of insurance was not consummated by the parties. The above quoted agreement clearly stated that the agreement should NOT go into effect until the home office of the Company shall confirm it by issuing a policy. It was nothing but an acknowledgment by the Company that it has received a sum of money agreed upon as the first year’s premium upon a policy to be issued upon the application if it is accepted by the Company.
When an agreement is made between the applicant and the agent whether by signing an application containing such condition or otherwise, that no liability shall attach until the principal approves the risk and a receipt is given by the agent, such acceptance is merely conditional and is subordinated to the company’s act in approving or rejecting; so in life insurance
(81) Grepalife v. CA 89 SCRA 543 Facts:
On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for 50T on the life of his one year old daughter Helen Go.
All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of Grepalife-Cebu. Mondragon then typed the data on the application form which was later signed by Ngo.
Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The binding receipt contained the following provision: “If the applicant shall not have been insurable xxx and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid shall be returned to the applicant upon the surrender of this receipt.”
Mondragon wrote on the bottom of the application form his strong recommendation for the approval of the insurance application.
On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the insurance application of Ngo for the simple reason that the 20yr endowment plan is not available for minors below 7 yrs old.
Mondragon wrote back the main office again strongly recommending the approval of the endowment plan on the life of Helen, adding that Grepalife was the only insurance company NOT selling endowment plans to children.
On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a claim with Gepalife, but the latter denied liability on the ground that there was no contract between the insurer and the insured and a binding receipt is NOT evidence of such contract.
Issue: WON the binding deposit receipt, constituted a temporary contract of life insurance.
Held: NO.
The binding receipt in question was merely an acknowledgement on behalf of the company, that the latter’s branch office had received from the applicant, the insurance premium and had accepted the application subject for processing by the insurance company, and that the latter will either approve or reject the same on the basis of whether or not the applicant is insurable on standard rates.
Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never became on force at any time, pursuant to par. E of the said receipt. A binding receipt is manifestly merely conditional and does NOT insure outright. Where an agreement is made between the applicant and the agent, NO liability shall attach until the principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT insure by itself.
(82) Pacific Timber v. CA 112 SCRA 199 Facts:
On March 13, 1963, Pacific secured temporary insurance from the Workemen’s Insurance Co. for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.
The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033.
After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs intended to be exported were lost due to a typhoon.
Pacific filed its claim with the company, but the latter refused, contending that said loss may not be considered as covered under the cover note because such became null and void by virtue of the issuance of the marine policies.
Issue: WON the cover not was without consideration, thus null and void.
Held: It was with consideration.
SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacific’s contention, for no such premium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not
contain, particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are required to be paid on a cover note.
If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application.
(83) Gloria v. Philamlife Insurance Co.
73 OG 8660 Facts:
In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife Insurance Company. Narito was examined by Dra. Vergel de dios, the insurer’s medical examiner.
She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia, the Associate Medical Director of the insurer.
On Oc. 31, 1966, an agent of the insured prepared an application for the life insurance whose annual premium was P1,178. On the same date, the application was signed by Narito.
Narito paid the first annual premium on the policy applied for. The insurer’s application form contained a so-called
“Binding Receipt” which was detachable.
It is not sure whether or not Narito was given the Binding Receipt upon his payment of the first premium, but what is certain that he was handed a Cashier’s Receipt.
From the time the insured received the application form its agent on Nov. 5, 1966, up to Dec. 6, 1966, it did not take any action with regard to the controverted insurance coverage.
On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim to the insurer. After an underwriting analysis conducted by the insurer, it found out that Narito was unacceptable as an insurance risk. The claim was denied.
Issue: WON the beneficiaries can claim.
Held: YUP
The application for insurance signed by the deceased contained the following stipulation: “The binding receipt must NOT be issued unless a binding deposit is paid which must be at least equal to the first full premium.” The preponderance of evidence is to the effect that the binding receipt was not issued to the deceased when he paid the company’s agent, the first annual premium of P1,178. Hence the rights of the beneficiaries and the obligation of the company have to be determined solely in the application for insurance an in the Cashier’s receipt.
The application for insurance contained the following clause: “There shall be no contract of insurance unless a policy is issued on this application and the full first premium thereon actually paid.” It should be conceded that there shall be a contract of insurance once the first premium is paid and a policy is issued. There is no question that the first premium was paid.
The problem is to resolve whether or not it can be said that the policy has been issued. IN this connection, what may be noted is that, in contrast to the requirement of actual payment of the premium, it was NOT required that the policy be actually issued. An assuming that no policy had indeed been issued, it should still be held that the application for insurance was approved by the company, with the actual issuance of the policy being a mere technicality. When an insurer accepts and retains the first premium for an unreasonable length of time, it should be presumed that the insurer had assumed the risk. It should therefore be liable for loss before the application is subsequently rejected. In the case at bar, the company did NOT act on the application for insurance, one way or the other, from Nov. 2 to Dec. 5, 1966, and no justification for the delay had been proven.
Hence, it should be held that the application for insurance of the deceased had been approved prior to his death, although the policy had not actually been issued, for which reason, the company should be liable to the beneficiaries.
(84) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674
Facts:
On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.
Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt.
Dunn likewise authorized SMB to take out the insurance policy for him.
Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMB’s interest in the property was merely that of a mortgagee.
Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy.
Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.
In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.
Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMB’s name.
SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.
Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only.
SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s mortgage credit.
Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.
Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies.
Held: NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done.
If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured”, it would have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have shown to whom the money, in case of loss, should be paid.
Unfortunately, this was not what was stated in the policies.
If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts.
Aside from the ruling, for what other reason did Atty. Quimson ask us to read the case of Gloria v. Philamlife?
The case defined a binding receipt.
What is a binding receipt according to Glora v. Philamlife?
A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured, which binds the insurance company to pay insurance should a loss occur pending action upon the application and actual issuance of a policy.
The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to the character of the risk and to take the place of the policy until the latter can be issued.
The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance effective from that time
The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance effective from that time