Fire Insurance and Casualty Insurance

INSURANCE

Atty Nelita Jesusa A. Bacaling

(3rd Year Law, University of San Agustin)

Chapter II

“TITLE 2

“FIRE INSURANCE

“SEC. 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.

1.     Take note that in order for the insurer to be liable, the fire insurance resulting from an “allied risk” must be covered by a rider or extension to the fire insurance policy or under separate policies.

In the case of Gulf Resort, Inc.versus Philippines Charter Insurance Corp. (458 SCRA 550), a rider was taken to cover 2 swimming pools against earthquake shock, but it was very clear in the policy that the rider meant only to cover the pools and not all properties found in the resort that were also damaged because of the earthquake. All other properties were covered under a fire insurance policy but the rider for "earthquake shock" covered only the pools. Thus, the Court ruled that no further interpretation is needed, if the terms of the contract are clear. A different ruling would have been arrived at if the rider clearly stated that it was being taken to cover all other properties found in the resort, and the proper premium for such coverage were paid. The insurer would have been liable for damage due to earthquake shock caused on all other properties.

2.     In our jurisprudence, take note that fire is not considered as a natural disaster or calamity. This was the ruling in Philippine Home Assurance Corp. v. CA (257 SCRA 468), however, it may be caused by lighting or some natural disaster and therefore this must be proven first before the claim may be covered and fire which caused damage may be considered as a natural disaster.

“SEC. 170. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

1.     Alteration, in order to be a ground for rescission by the insurer must be one that:

a.     Introduces change in the use or condition from that which is specifically limited in the policy;

b.     increases the risk;

c.     is made within the control of the insured and;

d.     made without the consent of the insurer;

“SEC. 171. An alteration in the use or condition of a thing insured from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance.

>>>>>> Even if there is an alteration in the use or condition of the thing insured but the risk is not increased, such alteration will not have any bearing on the effectivity of the insurance.

  

“SEC. 172. 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 the loss.

1.     In Sec. 172, even if there is alteration, when it does not violate any provision, even if the alteration increases the risk and becomes the cause of the loss, the contract of insurance remains valid. When does this happen? When the alteration does not veer away from that which is specifically limited in the policy.

        An example would be to convert a shoe store into a clothing store and the limitation in the policy is that the premises insured must be used only as a commercial establishment for the sale of dry goods. Here, although there is an alteration, it is one that is does not violate any provision in the policy or one which still complies with the limitation stated in the policy.

2.     Another example is when the articles brought into the premises are usual and necessary to the trade of the insured.

3.     There are of course what we would call “necessary risks” that needs to be undertaken by the insured, which, even if they actually increase the risk, could not be avoided like making repairs, bringing paint into the premises or other similar acts.

4.     In the book on Insurance by De Leon and De Leon Jr.,  (2014 Ed.), the author noted that " in reality all insurance companies now state in their contracts that the policy will be avoided upon any and all acts of the insured that increases the risks."

“SEC. 173. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which it was at the time of the injury; but if there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of marine insurance.

1.     Fire insurance is a contract of indemnity, therefore, the extent of the recovery of the insured is only based on the extent of his loss.

2.     If the policy includes a valuation of the property insured, then such valuation is conclusive between the parties. This is what is mentioned in Section 158 in a policy of marine insurance. From such valuation, the parties will determine the extent of actual or partial loss.

3.     If there is no valuation in the policy, the measure would be the cost of replacement or repair of the property lost.

4.     Co-insurance clause. – Most fire insurance policies include a co-insurance clause which means that the value of the property where the premium on the insurance policy is based, must be close to the actual value of the property. This encourages the insured to declare the correct value of the property or the nearest approximate. Otherwise, if the value declared is substantially less than the actual value of the property, the insured is automatically made a co-insurer.

5.     What is the significance if the insured is considered a co-insurer? 
      In case of partial loss, the insurer will not pay the full value of the loss but only such amount proportionate to the value declared. The rest of the loss shall be shouldered by the insured who undervalued his property.

“SEC. 174. Whenever the insured desires to have a valuation named in his policy, insuring any building or structure against fire, he may require such building or structure to be examined by an independent appraiser and the value of the insured’s interest therein may then be fixed as between the insurer and the insured. The cost of such examination shall be paid for by the insured. A clause shall be inserted in such policy stating substantially that the value of the insured’s interest in such building or structure has been thus fixed. In the absence of any change increasing the risk without the consent of the insurer or of fraud on the part of the insured, then in case of a total loss under such policy, the whole amount so insured upon the insured’s interest in such building or structure, as stated in the policy upon which the insurers have received a premium, shall be paid, and in case of a partial loss the full amount of the partial loss shall be so paid, and in case there are two (2) or more policies covering the insured’s interest therein, each policy shall contribute pro rata to the payment of such whole or partial loss. But in no case shall the insurer be required to pay more than the amount thus stated in such policy. This section shall not prevent the parties from stipulating in such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed.

“SEC. 175. No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured.

“TITLE 3

“CASUALTY INSURANCE

“SEC. 176. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer’s liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.

1.     The more common or familiar non-life insurance policies such as motor-vehicle liability insurance, personal accident and health insurance are not governed by provisions specific to each of them but all fall under the general classification of casualty insurance.

2.     Accident Insurance is one whereby the insurer undertakes to reimburse the insured for pecuniary loss caused by injuries due to accidents.

3.     Health Insurance – the insurer undertakes to indemnify the insured of his pecuniary loss caused by health related issues.

4.     Casualty Insurance is defined in Sec. 176 of the Insurance Code, by naming all kinds of insurance it encompasses. Sec. 176 is the lone provision under title 3 as there are no other provisions stated in the Insurance Code that would expound further on the rights and obligations of the parties in casualty insurance agreements. Thus, the rights and obligations as stated in their individual contracts shall govern the relationship of the parties in a casualty insurance contract.

(End of coverage for Final Exams)

 Thank you and God bless :)