Pointers(3rd exam)

Question 1

What are the implied warranties in marine insurance?

Answer 1

The following warranties are implied in marine insurance:
a. That the ship is seaworthy to make the voyage and/or to take in certain cargoes;

b. That the ship shall not deviate from the voyage insured;

c. That the ship shall carry the necessary documents to show nationality or neutrality and that it will not carry document which will cast reasonable suspicion thereon;

d. That the ship shall not carry contraband, especially if it is making voyage through belligerent waters.

Question 2

When is a ship seaworthy?

Answer 2

A ship is seaworthy when it is reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage.

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

Question 3

What are the kinds of loss in marine insurance?

Answer 3

A loss may be either total or partial. Every loss which is not total is partial. A total loss may be either actual or constructive.

Question 4

When may the insured recover for an actual total loss under a marine insurance?

Answer 4

The insured may recover for an actual total loss under a marine insurance in the following cases:
If the actual total loss is caused by:
“(a) Total destruction of the thing insured;
“(b) The irretrievable loss of the thing by sinking, or by being broken up;
“(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.

Question 5

True or False. Upon an actual total loss, a person insured is entitled to payment without notice of abandonment.

Answer 5

True

Question 6

What is abandonment?

Answer 6

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

Question 7

What are the requisites of a valid abandonment?

Answer 7

The requisites of a valid abandonment are as follows:
1. It must be neither partial nor conditional.

2. It must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make inquiry.
3. It is made by giving notice thereof to the insurer, which may be done orally, or in writing: Provided, That if the notice be done orally, a written notice of such abandonment
   shall be submitted within seven (7) days from such oral notice.

An agent who procured the insurance can also give notice of abandonment for his principal

4. A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof
   of interest or of loss.”
5. It can be sustained only upon the cause specified in the notice thereof.
6. It must be accepted by the insurer.
   The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance.”3
7. An abandonment once made and accepted is irrevocable, unless the ground upon which it was made proves to be unfounded.”
   If an insurer refuses to accept a valid abandonment, he is liable as upon an actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured.

Question 8

What is the effect of abandonment?

Answer 8

An abandonment which is made after a constructive total loss entitles the insured to recover for a total loss.

On the part of the insurer, an abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal abandonment.

Question 9

What are the requisites to be considered as a constructive total loss?

Answer 9

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

“(a) If more than three-fourths (3/4) thereof in value is actually lost, or would have to be expended to recover it from the peril;

“(b) If it is injured to such an extent as to reduce its value more than three-fourths (3/4);

“(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths (3/4) the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or

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

Question 10

When is there constructive loss?

Answer 10

Yes, in marine insurance, a constructive total loss occurs under any of the conditions: a) If more than three-fourths thereof in value is actually lost or would have to be expended to recover it from the peril; or b) If it is injured to such an extent as to reduce its value more than three-fourths.

Question 11

What is the effect of the omission of the insured to abandon?

Answer 11

He cannot recover for a total loss but he may nevertheless recover his actual loss.

Question 12

When should the warranty of seaworthiness be complied?

Answer 12

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

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

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

In general, the warranty of seaworthiness must be complied with at the beginning of the voyage. This means that the ship must be seaworthy—capable of safely completing the journey—when it leaves the port for the insured voyage. If the vessel is not seaworthy at the start of the trip, it could void the insurance coverage.

Question 13

when i a deviation proper?

Answer 13

**Section 126. A deviation is proper:

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

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

(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or

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

Question 14

What is the extended coverage of fire insurance?

Answer 14

Section 169. As used in this Code, the term fire insurance shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies.

Question 15

Distinguish friendly fire from hostile fire.

Answer 15

Friendly fire is one which is deliberate and remains within the limits for it. Hostile fire is a fire that goes out of control and beyond the limits intended for it. To be covered by fire insurance, the fire must be hostile.

Friendly fire is fire that burns in a place where it is supposed to burn. Hostile fire is fire that escapes and burns in a place where it is not supposed to be. It may also refer to fire that started out as a friendly fire escapes from original place or becomes too strong as it becomes out of control.

Question 16

What are the kinds of life insurance?

Answer 16

The principal types of life insurance are as follows:
a. Term Insurance — this is the simplest form of life insurance. It pays only if the death occurs the term of the policy.

b. Whole life or permanent insurance - it pays a death benefit whenever the insured dies.

c. Annuity - a contract with the insurer where individuals agree to pay the company a certain amount of money, either in a lump sum or through installments, which entitles them to receive payment annually from the insurer, but which obligation ends upon death of the
annuitant.

d. Endowment is a life insurance that doubles as an investment or a savings account. It pays a lump sum to the insured after a specified number of years but if he dies before the agreed period, the beneficiary gets the proceeds of the policy.

e. Industrial life — The form of life insurance under which premiums are payable weekly or monthly or oftener, if the face amount of the insurance is not more than 500 times that of the current statutory daily wage in manila and if the words “industrial policy are printed on the policy.”

Question 17

What is an annuity?

Answer 17

Annuity - a contract with the insurer where individuals agree to pay the company a certain amount of money, either in a lump sum or through installments, which entitles them to receive payment annually from the insurer, but which obligation ends upon death of the
annuitant.

Question 18

When is suicide compensable?

Answer 18

Section 183. The insurer in a life insurance contract shall be liable in case of suicide only when it is committed after the policy has been in force for a period of two (2) years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission.

Question 19

What alterations increases the risk or invalidates a fire insurance contract?

Answer 19

The following are the requisites of the alteration in the use or condition of the thing insured in order to entitle the insurer to rescind.

1. The use or condition of the thing insured must be stated in the policy.
2. The use or condition of the thing insured was altered.
3. The alteration was made without the consent of the insurer.
4. The alteration in the use or condition of the thing insured increased the risk insured against.

In other words, increase in risk alone will not entitle the insured to rescind a contract of insurance. There must be a corresponding violation of the provision of the policy otherwise there is no right to rescind the policy. Thus, a contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy which does not violate its provisions, even though it increases the risk and is the cause of loss.

Question 20

Negligence vs gross negligence in life insurance and which is compensable?

Answer 20

Yes, mere negligence on the part of the insured will not prevent recovery under the insurance policy. The law merely prevents recovery when the cause of loss is the willful act of the insured, alone, or in connivance with others.

When the proximate cause of the loss was the negligence of the insured himself. The insured can recover because only gross negligence bars recovery but there is no subrogation if there is no wrongdoer or violator of the contract.

Question 21

True or False. No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.

Answer 21

True

Question 22

What governs the insurance industry?

Answer 22

The insurance code. RA 10607

Question 23

What is the capital requirement?

Answer 23

Section 197. No insurance company organized or existing under the government or laws other than those of the Philippines shall engage in business in the Philippines unless possessed of unimpaired capital or assets and reserve of not less than One billion pesos (P1,000,000,000.00), nor until it shall have deposited with the Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines, securities satisfactory to the Commissioner consisting of good securities of the Philippines, including new issues of stock of registered enterprises, as this term is defined in Executive Order No. 226 of 1987, as amended, to the actual market value of not less than the amount herein required: Provided, That at least fifty percent (50%) of such securities shall consist of bonds or other instruments of debt of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or -controlled corporations and entities, including the Bangko Sentral ng Pilipinas: Provided, further, That the total investment of a foreign insurance company in any registered enterprise shall not exceed twenty percent (20%) of the net worth of said foreign insurance company nor twenty percent (20%) of the capital of the registered enterprise, unless previously authorized in writing by the Commissioner.

Section 194. Except as provided in Section 289, no new domestic life or non-life insurance company shall, in a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital equal to at least One billion pesos (P1,000,000,000.00): Provided, That a domestic insurance company already doing business in the Philippines shall have a net worth by June 30, 2013 of Two hundred fifty million pesos (P250,000,000.00). Furthermore, said company must have by December 31, 2016, an additional Three hundred million pesos (P300,000,000.00) in net worth; by December 31, 2019, an additional Three hundred fifty million pesos (P350,000,000.00) in net worth; and by December 31, 2022, an additional Four hundred million pesos (P400,000,000.00) in net worth.

Question 24

What is a variable contract?

Answer 24

The term variable contract shall mean 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 thereunder to vary so 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 shall have been placed and accounted for separately and apart from other investments and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not be deemed to be a security or securities as defined in The Securities Act, as amended, or in the Investment Company Act, as amended, nor subject to regulations under said Acts.

Question 25

Who may engage in the business of insurance?

Answer 25

Section 193. No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.

Question 26

Business of insurance affecting the limit of single risk

Answer 26

Section 221. No insurance company other than life, whether foreign or domestic, shall retain any risk on any one subject of insurance in an amount exceeding twenty percent (20%) of its net worth. For purposes of this section, the term subject of insurance shall include all properties or risks insured by the same insurer that customarily are considered by non-life company underwriters to be subject to loss or damage from the same occurrence of any hazard insured against.

The Commissioner may issue regulations providing for a maximum limit on the overall retained risks of insurers to serve as a catastrophe cover requirement for the same.

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

Question 26

What acts constitute unfair claim settlement practices?

Answer 26

(1) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage 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 claims 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.

Question 27

What is the rule on settlement of claims for life insurance upon maturity and death?

Answer 27

Section 248. The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy, unless such proceeds are made payable in installments or as an annuity, in which case the installments, or annuities shall be paid as they become due.

in the case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty (60) days after presentation of the claim and filing of the proof of death of the insured.

Question 27

What is the rule for settlement of claims for non-life insurance?

Answer 27

Proceeds shall be paid within thirty (30) days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement or by arbitration.

If no ascertainment is made within sixty (60) days after receipt of proof of loss, it shall be paid within ninety (90) days after such receipt.

Question 28

What are the Grounds for Suspension or revocation of certificate of authority?

Answer 28

Section 254. If the Commissioner is of the opinion upon examination of other evidence that any domestic or foreign insurance company:

1. is in an unsound condition, or that
2. it has failed to comply with the provisions of law or regulations obligatory upon it, or that
3. its condition or method of business is such as to render its proceedings hazardous to the public or to its policyholders, or that
4. its net worth requirement, in the case of a domestic stock company, or its available cash assets, in the case of a domestic mutual company, or its security deposits, in the case of a foreign company, is impaired or deficient, or that
5. the margin of solvency required of such company is deficient,

the Commissioner is authorized to suspend or revoke all certificates of authority granted to such insurance company, its officers and agents, and no new business shall thereafter be done by such company or for such company by its agent in the Philippines while such suspension, revocation or disability continues or until its authority to do business is restored by the Commissioner.

Question 29

What are the powers of Insurance Commissioner?

Answer 29

Regulation and Supervision:

The Commissioner supervises and regulates all insurance companies, mutual benefit associations (MBAs), and other insurance-related entities in the country to ensure they comply with the Insurance Code and other laws.
They issue, suspend, or revoke certificates of authority, which are required for insurance companies to operate legally.
Monitoring Financial Health:

The Commissioner ensures that insurance companies maintain solvency by monitoring their financial condition. This includes reviewing their capital, reserves, and liabilities.
The Commissioner may intervene if an insurance company is found to be in financial difficulty, even taking steps such as liquidation if necessary.
Approval of Products and Rates:

The Commissioner approves the terms and conditions of insurance policies, premium rates, and any modifications to ensure fairness and compliance with the law.
Investigation and Enforcement:

The Commissioner has the authority to investigate complaints, conduct inquiries, and ensure that insurance companies are fulfilling their obligations to policyholders.
They can enforce penalties, fines, and sanctions for violations of insurance laws or regulations.
Promotion of Consumer Protection:

The Commissioner ensures that insurance companies treat their policyholders fairly and that claims are settled promptly and justly.
They also provide guidance and information to the public to promote awareness of insurance rights and responsibilities.
Rule-Making Power:

The Commissioner can issue rules and regulations to implement the provisions of the Insurance Code and other relevant laws.

Question 30

Does the Commissioner have the power to adjudicate claims and complaints involving any loss, damage or liability for which the insurer may be answerable under any insurance policy?

Answer 30

Yes, the Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be sued under any contract of reinsurance it may have entered into; or for which a mutual benefit association may be held Hable under the membership
certificates it has issued to its members, where the amount of any such loss, damage or liability, excluding interest, cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in
any single claim Five million pesos (P5,000,000.00).368
The power of the Commissioner does not cover the relationship between the insurance company and its agents/brokers but is limited to adjudicating claims and complaints filed by the insured against the insurance company.369

Question 31

Is an insurance agent an employee of the insurance company?

Answer 31

An insurance agent is an independent contractor and not an employee of the company represented. ‘Insurance agent’ includes an agency leader, agency manager, or their equivalent.

Question 32

What is bank assurance?

Answer 32

Section 375. The term bancassurance shall mean 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 Bangko Sentral ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the Bangko Sentral ng Pilipinas may promulgate. To engage in bancassurance arrangement, a bank is not required to have equity ownership of the insurance company. No insurance company shall enter into a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Commissioner and the Bangko Sentral ng Pilipinas.

Question 33

What will an insurance company do to end his insurance business? What will happen to the existing policies and standing obligations?

Answer 33

Surrender of Certificate of Authority:

The insurance company must notify the Insurance Commission of its intention to stop doing business. It must then surrender its certificate of authority, which is required for an insurance company to legally operate.
Winding Up of Business:

The company must go through a winding-up process, during which it settles all outstanding obligations, including claims, policyholder benefits, and other liabilities.
The company is prohibited from issuing new policies or renewing existing ones once it has decided to cease operations.
Rehabilitation or Liquidation (if necessary):

If the company cannot meet its obligations, it may enter into rehabilitation or be placed in liquidation by the Insurance Commission, depending on its financial condition.
A liquidator or a court-appointed receiver may take over the company’s assets to distribute them fairly among creditors and policyholders.
Handling Existing Policies and Obligations:
Assumption by Another Insurer (Reinsurance):

The insurance company may transfer its existing policies and obligations to another insurance company through reinsurance or an assumption agreement. This means another insurer will take over the liabilities, and the policyholders will continue to be covered.
Settlement of Claims and Benefits:

The company must ensure that all pending claims and benefits under the existing policies are paid in full. This includes the payment of death benefits, maturity values, and other contractual obligations.

Policyholder Protection:

The Insurance Commission ensures that policyholders are protected. If the insurer goes into liquidation, policyholders may be compensated from the assets of the company or through other mechanisms, such as a guaranty fund, if available.

Question 34

What do you understand by the “no fault indemnity” provision in the Insurance Code? What are the rules on claims under said provision?

Answer 34

The “no fault indemnity” in the Insurance Code provides that any claim for death or injury to a passenger or to a third party should be paid without the necessity of proving fault or negligence of any kind, subject to the following rules:

a. The total indemnity in respect of any person shall not be less than P15,000;

b. The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim:
i. Police report of accident; and
ii. Death certificate and evidence sufficient to establish the proper payee; or
iii. Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed.

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

Question 35

What are the non-default or forfeiture options in whole life insurance?

Answer 35

a. Extended term insurance, where the policy’s available cash value will be used as single premium to purchase a term insurance.

b. Reduced paid up cash value, where the policy’s available cash value will be used to purchase a paid up insurance providing a coverage with term equivalent to the original policy but lower amount.

c. Cash surrender value, where the cash value ofthe policy is paid to the insured upon surrender of the policy. However, once policy is surrendered, it can’t be reinstated.

D. Grace period – After the payment of the first premium, the insured is entitled to a grace period of 30 days within which to pay the succeeding premiums.

E. Reinstatement – Provision that the holder of the policy shall be entitled to reinstatement of the contract at any time within 3 years from the date of default in the payment of premium, unless the cash surrender value has been paid, or the extension period expired, upon production of evidence of insurability satisfactory to the company and the payment of all overdue premiums and any indebtedness to the company upon said policy.

Refund of premium is not recoverable in life insurance but the insured has non-default or forfeiture options.

Question 36

What is deviation in the context of marine insurance?

Answer 36

Deviation is a departure from the course of the voyage insured or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.249

Question 37

Instances when the insured entitled to recover premiums already paid or a portion thereof (2000 Bar)

Answer 37

When no part of the thing insured has been exposed to any of the perils insured against. (IC, Sec. 80)
When the contract is voidable because of the fraud or misrepresentations of the insurer of his agent. (IC, Sec. 82)
When the insurance is voidable because of the existence of facts of which the insured was ignorant without his fault. (IC, Sec. 82)
When the insurer never incurred any liability under the policy because of the default of the insured other than actual fraud. (IC, Sec. 82)
When rescission is granted due to insurer’s breach of contract. (IC, Sec. 74)
NOTE: When the contract is voidable, a person insured is entitled to a return of the premium when such contract is subsequently annulled under the provisions of the New Civil Code.

Question 38

“Perils of the sea or perils of navigation” (1998 Bar)

Answer 38

It includes only those casualties due to the (WiN):
Unusual violence or extraordinary action of WInd and wave, or
Other extraordinary causes connected with Navigation. (De Leon, 2010)

Question 39

“Perils of the ship”

Answer 39

It is a loss which, in the ordinary course of events, results from the (NON):
Natural and inevitable action of the sea;
Ordinary wear and tear of the ship;
Negligent failure of the ship’s owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.