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Title XI
Double Insurance
Section 93.
A double insurance exists where the same person is
insured by several insurers separately in respect to the
same subject and interest.
Section 94.
Where the insured is over-insured by double insurance:
(a)The insured, unless the policy otherwise provides,
may claim payment from the insurers in such
order as he may select, up to the amount for the
insurers are severally liable under the respective
contracts;
(b)Where the policy under which the insured claims
is valued policy, the insured must give credit as
against the valuation for any sum received by him
under any other policy without regard to the
actual value of the subject matter insured;
(c) Where the policy under which the insured claims
is an unvalued policy he must give credit, as
against the full insurable value, for any sum
received by him under any other policy;
(d)Where the insured receives any sum in excess of
the valuation in the case of valued policies, or of
the insurable value in case of unvalued policies,
he must hold such sum in trust for the insurers,
according to their right of contribution among
themselves;
(e)Each insurer is bound, as between himself and the
other insurers, to contribute ratable to the loss in
proportion to the amount for which he is liable
under his contract.
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Title XII
Reinsurance
Section 95.
A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or
liability by reason of such* original insurance.
*”Such” should be “an.”
Section 96.
Where an insurer obtains reinsurance, except under
reinsurance treaties, he must communicate all the
representation of the original insured, and also all the
knowledge and information he possesses, whether
previously or subsequently acquired, which are material
to the risk.
Section 97.
A reinsurance is presumed to be a contract of indemnity
against liability, and not merely against damage.
Section 98.
The original insured has no interest in a contract of
reinsurance.
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Title XI
Double Insurance
Section 93.
A double insurance exists where the same person is
insured by several insurers separately in respect to the
same subject and interest.
Section 157.
A marine insurer is liable upon a partial loss, only for such
proportion of the amount insured by him as the loss bears to the
value of the whole interest of the insured in the property insured.
Examples:
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(3) There is not double insurance if the owner and lessee of the
same house insures the same with two insurers.
For instance:
= If Mr. A owns a house which he leased to Mr. B, there will be
no double insurance if Mr. A will insure the house with ABC
Insurance Corp., and Mr. B will insure it to XYZ Insurance Corp.
= Two separate interests are insured by different person.
(6) Mr. X owns a house and he insures it with ABC Insurance Corp.
against fire for P500K and with XYZ Insurance Corp. against
flood for P600K.
= there is no double insurance because although the same
person and subject are involved in both insurance policies,
the peril insured against are different.
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Examples:
(1) If X’s insurable interest in a house is P1M and he insured it
with Y Company for P1.1M, there is over-insurance but there is
no double insurance.
On the other hand, if he insures the same house with Y Co. for
P600K and Z Co. for P400K, there is double insurance but
there is not over-insurance.
If the amount of insurance with Z Co. is P450K, there is not
only double insurance but also over-insurance.
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ALTERNATIVE FORMS.
The other insurance clause may appear in different forms.
These include the following:
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VALIDITY
• The validity of the a clause in a fire insurance policy to
the effect that the procurement of additional insurance
without the consent of the insurer renders ipso facto
the policy void is well-settled.
• The law also authorizes insurance companies to
terminate the contract at any time, at its option, by
giving notice and refunding a ratable proportion of the
premium.
• It was held that an additional insurance, unless
consented to, or unless a waiver was shown, ipso facto
avoided the contract, and the fact that the company
had not, after notice of such insurance, cancelled the
policy, did not justify the legal conclusion that it had
elected to allow it to continue in force.
• The terms of the policy which required the insured to
declare other insurances, the statement in question
must be deemed to be a statement (warranty) binding
on both the insurer and insured, that there were no
other insurance on the property.
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ADDITIONAL INSURANCE
• An interesting case involving the application of “Other
Insurance Clause” is Emilio Gonzales La’O vs. Yek Tong
Lin Fire and Marine Insurance (YTL) denied the claim
for the amount of two insurance policies totaling P100K
upon leaf tobacco belonging to La’O, which was
damaged by fire that destroyed the building, where
said tobacco was stored, on Jan. 11, 1928.
• The claim was denied on the ground that the insured
obtained additional insurance coverage totaling P190K
for the tobacco.
• At the time of the fire, the plaintiff had in the
warehouse, more than 6,200 bales of leaf tobacco
worth P300K or more than the sum total of all the
insurances taken out with all the companies.
• YTL argued that the claim was validly denied because
La’O failed to notify it in writing, of other insurance
policies obtained by him, he has violated Art. 3 of the
conditions of the policies in question, thereby
rendering these policies null and void.
• The SC rejected the argument stating:
=”It may be said that the tobacco insured in the other
companies was different from that insured with YTL,
since the number of bales of tobacco in the warehouse
greatly exceeded that insured with YTL and other
companies put together.
= According to the doctrine enunciated in 26 Corpus
Juris 188, to be insurance of the sort prohibited the
prior policy must have been insurance upon the same
subject matter, and upon the same interest therein.”
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Section 94.
Where the insured is over-insured by double insurance:
(a)The insured, unless the policy otherwise provides,
may claim payment from the insurers in such
order as he may select, up to the amount for the
insurers are severally liable under the respective
contracts;
P a g e | 13
Example:
(1) Several or solidary liability of insurers under their
respective contracts (paragraph a)
= A owns a house valued at P180,000 and he insures
the same with three insurance companies as follows:
X Company 60,000
Y Company 180,000
Z Company 240,000
Total 480,000
= If the house is totally burned, A, unless the policies
otherwise provide, may claim payment from each of
them in such order as he may select, up to the amount
for which each is liable under the contract.
=Thus, A may demand indemnity first from X Co. but
the latter is liable only to the extent of P60,000, the
amount specified in is policy.
= But if A elects to claim payment first from Z Co., A
cannot recover more than P180,000 which is the value
of his insurable interest.
= A may collect P60,000 from each of the insurers, or
P180,000 only from Y Co. and nothing from X and Z Co.
Z Company
Amount Z Co. paid to A P144,000
Less:
e. Ratable share in the total insurance (Sched (90,000)
1) (72,000)
f. Excess to be returned by A (Sched 2)
Amount due to X Co. (P18,000)
P a g e | 18
Title XII
Reinsurance
Section 95.
A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or
liability by reason of such* original insurance.
*”Such” should be “an.”
Reinsurance defined
• Section 95 defines a contract of reinsurance.
= it is a contract whereby one party, the
reinsurer, agrees to indemnify another, the
reinsured (original insurer), either in whole or in
part, against loss or liability which the latter may
sustain or incur under a separate and original
contract of insurance with a third party, the
original insured.
P a g e | 19
Example:
• X insures his house against fire for P!M with Y Co. Here, the
contract is only between X and Y Co.
• If Y Co. to relieve itself of any liability or to reduce its potential
liability under the contract, reinsures the risk or part of it with
P a g e | 20
Example:
• X insurance company issued a fire policy covering a building
owned by Y. Z insurance company accepted reinsurance
coverage under the policy. Thereafter, Y married H, and ex-
convict for arson. All the members of the board of directors of
X were invited as guests at the wedding and knew who H was.
Subsequently, the building was completely destroyed by fire.
• May X recover from Z notwithstanding that X did not disclose
H’s previous conviction for arson?
• No. Generally, when a contract of reinsurance has been
entered into, the insured cannot be charged with fraudulent
concealment by reason of the fact that he fails to disclose
matters material to the risk arising thereafter.
• Section 96, however, covers knowledge or information
possessed by the insurer “whether previously or subsequently
acquired, which are material to the risk.”
1
Footnote
• Facultative reinsurance treaty
= an indemnity reinsurance agreement under which there is
no obligation on the part of the insurer to cede or the
reinsurer to accept individual risks.
= the reinsurer retains the “faculty” to accept or reject each
risk offere by the insurer.
= the reinsurer’s liability commences after definite approval or
acceptance of the risk.
= facultative reinsurance is an optional, case-to-case method
used when the ceding company receives an application for
insurance. The reinsurer is under no obligation to accept the
insurance. Its advantage is flexibility since the reinsurance
contract can be made to fit a particular case. Each risk to be
insured is individually offered to and accepted by or decline by
the reinsurer.
P a g e | 25
(2)Advantage to insurer. –
= the main advantage to the insurer of the
automatic method is avoidance of nay delay in
issuing its policy. The advantage to the insurer of
the facultative method is that is receives the
reinsurer’s underwriting opinion before the policy
is issued.
= on occasion, the reinsurer may have had
previous applications or may receive concurrent
applications for reinsurance on the same risk from
different companies;
= for this reason, it may have more complete
underwriting information than any single insurer.
(3)Protection to reinsurer. –
= by agreeing to accept business automatically,
the reinsurer is relying on the underwriting
judgment of the insurer and is bound to accept a
case even though it may not agree with the
underwriting decision.
= the reinsurer is protected by the requirement
that the original insurer retains its full retention
limit, which assures a measure of self-interest.
= in actual practice, when any question of proper
underwriting classification exists, the insurer
usually does not use its automatic facility but
instead secures the insurer’s underwriting opinion
by submitting the case facultatively.
P a g e | 27
Section 97.
A reinsurance is presumed to be a contract of indemnity
against liability, and not merely against damage.
Section 98.
The original insured has no interest in a contract of
reinsurance.
Rights of original insured in contract of reinsurance
• Reinsurance is a contract between the reinsured
and the reinsurer by which the latter agrees to
protect the former from risks already assumed.
(1)The insured, unless the contract so provides, has
no concern with the contract of reinsurance, and
the reinsurer is not liable to the insured either as
surety or otherwise.
P a g e | 30
Footnote:
(2) Art. 1291
= Obligations may be modified by:
a. Changing their object or principal conditions;
b. Substituting the person of the debtor;
c. Subrogating a third person in the rights of the creditor.
(3) Art. 1293.
= Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
the rights mentioned in Art. 1236 and 1237.