A: The insurer took into consideration the
condition of the property at the time of effectivity of the policy. Q: What are the kinds of warranties? A:
1. Express – an agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done.
2. Implied – It is deemed included in the contract although not expressly mentioned.
Peculiar only to marine insurance, and therefore is deemed included in the contract, although not expressly mentioned:
a. That the ship will not deviate from the agreed voyage unless deviation is proper
b. That the ship will not engage in illegal venture
c. Warranty of neutrality, that the ship will carry the requisite documents of nationality or neutrality where such nationality or neutrality is warranted
d. Presence of insurable interest e. That the ship is seaworthy at the
time of the commencement of the insurance contract.
Q: What are the distinctions between warranty and representation? A: WARRANTY REPRESENTATION Considered parts of the contract. Collateral inducement to the contract. Always written on the face of the policy, actually or by reference. May be written in a totally disconnected paper or may be oral. Must be strictly complied with. Only substantial proof is required. Its falsity or non‐ fulfillment operates as a breach of contract. Its falsity renders the policy void on the ground of fraud. Presumed material. Insurer must show its materiality in order to defeat an action on the policy. Q: What are the effects of breach of warranty? A: 1. Material GR: Violation of material warranty or of material provision of a policy will entitle the other party to rescind the contract. XPN:
a. Loss occurs before the time of performance of the warranty; b. The performance becomes
unlawful at the place of the contract; and c. Performance becomes impossible. 2. Immaterial GR: It will not avoid the policy.
XPN: When the policy expressly
provides or declares that a violation thereof will avoid it.
For instance, an “Other Insurance Clause” which is a condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property. A violation of the clause by the insured will not constitute a breach unless there is an additional provision stating that the violation thereof will avoid the policy.
(Sec. 75)
Q: What is the effect of a breach of warranty without fraud?
A: The policy is avoided only from the time of
breach (Sec. 76) and the insured is entitled:
1. To the return of the premium paid at a
pro rata from the time of breach if it
occurs after the inception of the contract; or
2. To all premiums if it is broken during the inception of the contract.
VIII. CLAIMS SETTLEMENT AND SUBROGATION A. NOTICE AND PROOF OF LOSS Q: What is loss in insurance? A: The injury, damage or liability sustained by the
insured in consequence of the happening of one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. It may be total, partial, or constructive in Marine Insurance. Q: What is notice of loss?
A: It is the more or less formal notice given the
insurer by the insured or claimant under a policy of the occurrence of the loss insured against.
Q: What are the conditions before the insured may recover on the policy after the loss?
A:
1. The insured or some person entitled to the benefit of the insurance, without unnecessary delay, must give notice to the insurer; (Sec. 88)
2. When required by the policy, insured must present a preliminary proof loss which is the best evidence he has in his power at the time. (Sec. 89) Q: What are the purposes of notice of loss? A: 1. To give insurer information by which he may determine the extent of his liability;
2. To afford the insurer a means of detecting any fraud that may have been practiced upon him; and 3. To operate as a check upon extravagant claims. Q: What is the effect of failure to give notice of loss? A: FIRE INSURANCE OTHER TYPES OF INSURANCE Failure to give notice defeats the right of the insured to recover. Failure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so.
Q: What are the instances when the defects in the notice or proof of loss are considered waived?
A: When the insurer: MaJoR‐DeW
1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof of loss would be useless;
2. Recognizes his liability to pay the claim; 3. Denies all liability under the policy 4. Joins in the proceedings for determining
the amount of the loss by arbitration, making no objections on account of notice and preliminary proof; or 5. Makes Objection on any ground other
than the formal defect in the preliminary proof. Q: When is delay in the presentation of notice or proof of loss deemed waived? A: If caused by: 1. Any act of the insurer; and
2. By failure to take objection promptly and specifically upon that ground. (Sec.
91)
Q: What is proof of loss?
A: It is the more or less formal evidence given the
company by the insured or claimant under a policy of the occurrence of the loss, the particulars thereof and the data necessary to enable the company to determine its liability and the amount thereof.
Q: What is the time for payment of claims?
LIFE POLICIES NON‐LIFE POLICIES
1Maturing upon the expiration of the term – the proceeds are immediately payable to the insured, except if proceeds are payable in installments or annuities which shall be paid as they become due
2. Maturing at the death of the insured, occurring prior to the expiration of the term stipulated – the proceeds are payable to the beneficiaries within 60 days after presentation of claim and filing of proof of death (Sec. 242)
The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss, whether or not ascertainment is had or made. (Sec. 243)
B. GUIDELINES ON CLAIMS SETTLEMENT Q. What is Claim Settlement?
A. Claim settlement is the indemnification of the
suffered by the insured. The claimant may be the insured or reinsured, the insurer who is entitled to subrogation, or a third party who has a claim against the insured.
Q. What are the rules in Claim Settlement?
A.
1. No insurance company doing business in the Philippines shall refuse, without justifiable cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim settlement practices.
2. Evidence as to numbers and types of valid and justifiable complaints to the Commissioner against an insurance company, and the Commissioner’s complaint experience with other insurance companies writing similar lines of insurance shall be admissible in evidence in an administrative or judicial proceeding brought under this section
(Sec. 241) Q. What is the purpose of the rule? A. To eliminate unfair claim settlement practices. Q. What are the acts which constitute unfair claim settlement practices? A. 1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue.
2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies.
3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies.
4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of calims submitted in which liability has become reasonably clear; or
5. Compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them. (Sec. 241, Par.1)
Q. What is the sanction for the insurance companies which engaged to unfair settlement practices?
A. Sec. 241 enumerates the grounds which shall
be considered as sufficient as sufficient cause of the suspension or revocation of an insurance company’s certificate of authority.
Q. What is the obligation of the insurer with regard to the insured’s decision to compromise third party claim?
A. Where a policy gives the insurer a control of
the decision to settle claim or to litigate it, the insurer nevertheless is required to observe a certain measure of consideration for the interest of the insured. The rule has come to be generally accepted that while the express terms of the policy do not impose of the insurer the duty to claim settle the claim at all costs, there is an implied duty on his part to give due consideration to the interest of the insured in its exercise of the option to reject a compromise settlement and proceed with litigation. In insurance contracts, the law requires strict observance of the standards of good faith and fair dealing on the part of the insurer. Q: What is the effect of refusal or failure to pay the claim within the time prescribed? A: Secs. 242, 243 and 244 provide that the insurer
shall be liable to pay interest twice the ceiling prescribed by the Monetary Board which means twice 12% per annum (legal rate of interest prescribed in CB No. 416) or 24% per annum interest on the proceeds of the insurance from the date following the time prescribed in Secs. 242 or 243 until the claim is fully satisfied
(Prudential Guarantee and Assurance, Inc. v. Trans‐Asia Shipping Lines, Inc. G. R. No. 151890, June 20, 2006)
Note: Refusal or failure to pay the loss or damage will entitle the assured to collect interest UNLESS such refusal or failure to pay is based on the ground that the claim is fraudulent.
Q: What are the rules on the prescriptive period?
A:
1. The parties to a contract of insurance may validly agree that an action on the policy should be brought within a limited period of time, provided such period is not less than 1 year from the time the cause of action accrues. If the period agreed upon is less than 1 year from the time the cause of action accrues, such agreement is void. (Sec.
63)
a. The stipulated prescriptive period shall begin to run from the date of the insurer’s rejection of the claim filed by the insured or beneficiary and not from the time of loss. b. In case the claim was denied by the
insurer but the insured filed a petition for reconsideration, the prescriptive period should be counted from the date the claim was denied at the first instance and not from the denial of the reconsideration (Sun Life Office,
Ltd. vs. CA, GR. No. 89741, Mar 13, 1991)
2. If there is no stipulation or the stipulation is void, the insured may bring the action within 10 years in case the contract is written.
3. In a comprehensive motor vehicle liability insurance (CMVLI), the written notice of claim must be filed within 6 months from the date of the accident; otherwise, the claim is deemed waived even if the same is brought within 1 year from its rejection. (Vda. De Gabriel
vs. CA, GR No. 103883, Nov 14, 1996)
4. The suit for damages, either with the proper court or with the Insurance Commissioner, should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise, claimant’s right of action shall prescribe. (Sec. 384)
Q: What is the prescriptive period in commencing an action?
A: Within one year from time cause of action
accrues.
Q. From what time shall the period of prescription be computed in case the insured asked for reconsideration of the denial of claim?
A. In case the claim was denied by the insurer but
the insured file a petition for reconsideration, the prescriptive period should be counted from the date the claim was denied at the first instance and not from the denial of the reconsideration. To rule otherwise would give the insured a scheme or devise to waste time until any evidence which may be considered against him is destroyed. (Sun life Office, Ltd. vs. CA, 195 SCRA
193; Asked, V [a}, 1996 Bar Exams.). Q. What is the prescriptive period of prescription in motor vehicle insurance? A. It is one year from denial of the claim and not from the date of the accident. Q. What is the Principle of Subrogation? A. If the plaintiff’s property has been insured, and
he has received indemnity from the insurance company for the injury or loss arising out of wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. (Art. 2207, NCC) Q: Should there be a contract before the insurer be subrogated?
A: The principle of subrogation inures to the
insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, G.R. No. L‐
36413, Sept. 26, 1988)
Note: Incapacity of the insured will not affect the capacity of the subrogee because capacity is personal to the holder (Lorenzo Shipping v. Chub and Sons, Inc., G.R. No. 147724, June 8, 2004). Q: What are the rules on indemnity? A:
1. Applies only to property insurance except when the creditor insures the life of his debtor
2. Insurance contracts are not wagering contracts or gambling contracts.