FIRE INSURANCE
Define fire insurance.
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. (Section 169, New Insurance Code)
Define fire and the kinds thereof?
Fire within the meaning of the fire insurance policy must have the following elements to be covered, to wit:
There are two (2) kinds of fire:
b. Starts as a friendly fire but becomes hostile if it should escape from the place where it is intended to be and becomes uncontrollable;
c. Is friendly fire which become hostile not be escaping from its proper place but because of unsuitable material used to light it and it becomes inherently dangerous and uncontrollable.
What are the kinds of fire insurance policies?
They are as follows:
Based on measure of indemnity
Based on coverage
What may be insured?
The following items may be insured under Fire Insurance:
The value of the land should be excluded in the computation of the total sum insured, otherwise, it will result to over-insurance.
Who may insure the above-mentioned items?
They are as follows:
Remember that no person can insure another property without insurable interest. Otherwise, the claim will be denied for being void.
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. (Section 169, New Insurance Code)
Define fire and the kinds thereof?
Fire within the meaning of the fire insurance policy must have the following elements to be covered, to wit:
- There must be actual ignition or burning as manifested in light and flame. and
- The fire origin or the loss itself must be accidental or fortuitous in so far as the insured is concerned (Y.H. Uy, An Analysis of the Philippine Standard Fire Policy, 41.)
There are two (2) kinds of fire:
- Friendly - Is one which burns in a place where it is intend to burn and employed for the ordinary purpose of lighting, heating or manufacturing.
- Hostile - Is one which:
b. Starts as a friendly fire but becomes hostile if it should escape from the place where it is intended to be and becomes uncontrollable;
c. Is friendly fire which become hostile not be escaping from its proper place but because of unsuitable material used to light it and it becomes inherently dangerous and uncontrollable.
What are the kinds of fire insurance policies?
They are as follows:
Based on measure of indemnity
- Open - In an open policy, the amount stated in the policy, otherwise known as the total sum insured, is not the value of the policy. It is merely the maximum limit of the insurer’s liability in case of a loss or damage. In case of a claim, the same shall be subject to evaluation and the basis of payment is the actual cash value of the lost property at the time of the loss. Actual cash value's formula is Replacement Cost less Depreciation.
- Replacement Cost - the indemnity shall be based on the cost to replace or reconstruct the insured property. Unlike an open policy, Depreciation is not considered. However, an appraisal and an endorsement is needed for this type of policy to ensure the correct total sum insured is ascertained.
- Valued - the valuation of the subject matter of insurance pre-determined. In case of a loss, there will no longer an evaluation conducted. An example of this is an insurance to cover painting.
Based on coverage
- Named Peril Policy - under this category, we apply the principle of proximate. Simply put, unless the proximate cause of the loss or damage is a covered peril in the policy, the policy will not respond to the loss or damage suffered by the Insured.
- All Risk Policy - under this category, we apply the Latin maxim Expressio Unius est Exclusio Alterius. It means what is not expressly excluded in the policy is deemed covered. In case of the claim, the insured only needs to prove he/she suffered a loss or damage due to a fortuitous event. If the Insurer wants to repudiate the claim, it must establish that the proximate cause of the loss is an excluded peril.
What may be insured?
The following items may be insured under Fire Insurance:
- Building
- Contents including stocks, machinery and equipment
- Furniture, Fixtures, and Fittings
- Personal effects
- Rental Income and Profits via Business Interruption extension
The value of the land should be excluded in the computation of the total sum insured, otherwise, it will result to over-insurance.
Who may insure the above-mentioned items?
They are as follows:
- Absolute owner
- Joint owner up to the extent of his ownership in the insured property
- Mortgagor
- Mortgagee up to the extent of the loan of the owner of the insured property
- Lessor or lessee insofar as the contents only
- Bailee insofar their liability relative to the property owned by a third party but is under their care, custody or control.
Remember that no person can insure another property without insurable interest. Otherwise, the claim will be denied for being void.
What does the Standard Fire Insurance policy cover?
The basic fire insurance policy cover is fire and lightning only.
However, the insured has the option of adding cover for catastrophic perils. They are also known as special allied perils.
The basic fire insurance policy cover is fire and lightning only.
However, the insured has the option of adding cover for catastrophic perils. They are also known as special allied perils.
Define special allied perils.
Special allied perils refer to perils that are excluded under the standard fire policy, particularly Condition No. 6, namely:
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UNDERWRITING
What are the four (4) main underwriting factors in fire insurance? They are as follows:
What are the four (4) classes of occupancy?
What are the classification by location
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CLAIMS
What are the steps in fling a claim?
Filing a claim is very easy. The steps are as follows:
What are key questions to be asked by an Insurer upon receipt of the notice of claim in order to expedite the conclusion of a claim?
What is the basis for the amount of settlement?
They are as follows:
What are the common method in evaluating a property claim?
They are as follows:
What are the possible deductions to the amount of settlement?
They are as follows:
What are the standard supporting documents to substantiate the claim?
They are as follows:
General Requirements
Fire Claim
Juridical entities
For Stock Claims
Others
What are the exclusions under the Standard Fire Policy?
They are as follows:
I. Specifically Excepted Risks (Condition No. 5) -
II. Due to Abnormal Occurrences (Condition No. 6) -
Explain the application of the Average Clause.
The effect of Average Clause can only be felt in case of partial loss. To illustrate, a property valued at Php 1,000,000.00 was insured only for Php 800,000.00.
Assuming the cost of the damage to the property was Php 500,000.00, the insurer’s liability shall only be:
(TSI/Value of the property) x Amount of Loss = Insurer’s Liability
Php 800,000.00/Php 1,000,000.00) x Php 500,000.00 = Php 400,000.00
As a consequence of under-insurance, the insurer will pay only Php 400,000.00,and not the full amount. The insured becomes the forced co-insurer for the un-insured portion of the property which amounts to Php 100,000.00.
What property or risks are excluded under the standard fire policy?
Unless otherwise expressly stated in the Policy this insurance does not cover.
What are the grounds/circumstances that warrant suspension of cover?
The insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the insurer signified by endorsement:
What are the rules regarding alteration?
The rules regarding alteration are as follows:
A material alteration (one which increases the insurer’s exposure) in the use or condition of the thing insured without the consent of the insurer entitles it to rescind the contract.
Notes:
In fire insurance, an example would alteration would the change in the class of occupancy from low risk to high risk.
Robin insured his building against fire with EFG Assurance. The insurance policy contained in the usual stipulation that any action or suit must be filed within one year after the rejection of the claim.
After his building burned down, Robin filed a claim for fire loss with EFG Assurance. One February 28, 2994,EFG Assurance denied Robin’s claim. On April 3, 1994, Robin sought reconsideration of the denial but EFG Insurance reiterated its position. On March 20, 1995, Robin commenced judicial action against EFG Assurance.
Should Robin’s action be given due course? Explain. (1996 Bar Examination)
No. Robin’s action should not be given due course. At the time he commenced an action against EFG Assurance, the one (1) year prescription period had lapsed already. The prescription period should be counted from the date of initial rejection and not from the time EFG Assurance reiterated its earlier position to deny his claim.
Suppose that Fortune owns a house valued at Php 600,000.00 and insured the same against fire with three (3) insurance companies as follows:
X - Php 400,000.00
Y - Php 200,000.00
Z - Php 600,000.00
In the absence of any stipulation in the policies, from which insurance companies may Fortune recover in case of fire should destroy his house completely. (1990 Bar Examination)
Fortune may recover from any, any two, or all of the insurers provided that the total amount that he will recover does not exceed the Php 600,000.00. But first we need to determine the proportionate share of each insurer in the loss.
X/(X+Y+Z) x Amount of Loss = X’s Share or Php 200,000.00
Y/(X+Y+Z) x Amount of Loss = X’s Share or Php 100,000.00
Z/(X+Y+Z) x Amount of Loss = X’s Share or Php 300,000.00
In view of the above, Fortune do any of the following:
If each of the fire insurance policies obtained by Fortune in the preceding problem is a valued policy and the value of his house was fixed in each of the policies at Php 1,000,000.00, how much would Fortune recover from X if he has already obtained full payment on the insurance policies issued by Y and Z.
Fortune may still recover the full amount of insurance from X. Since the policy subject of the claim is a valued policy, it is no longer necessary to determine the actual value of the property since the value thereof was already pre-determined at the inception of the policy. The valuation in a policy is conclusive between the parties in the adjustment of either partial or total loss if the insured had an insurable interest and was not guilty of fraud. (Harding vs. Commercial Union Ins. Co., 38 Phil. 464)
If each of the policies obtained by Fortune in problem (a) is an open policy and it was immediately determined after the fire that the value of Fortune’s house was Php 2,400,000.00, how much may it collect from X, Y, Z?
The insured may recover the full amount of insurance from each insurer.
In problem above, what is the extent of liability of the insurance companies among themselves?
Each insurer must contribute in the payment of the loss based on their pro-rata share in the loss, to wit:
X/(X+Y+Z) x Amount of Loss = X’s Share or Php 200,000.00
Y/(X+Y+Z) x Amount of Loss = X’s Share or Php 100,000.00
Z/(X+Y+Z) x Amount of Loss = X’s Share or Php 300,000.00
Supposing in problem above, Fortune was able to collect from both Y and Z, may he keep the entire amount he was able to collect from the said two insurance companies?
No. Fortune may not keep the amount he collected since the aggregate collected claim against Y and Z will be in excess of his actual loss by Php 200,000.00. Fortune must hold in trust the excess amount for Y and Z.
Queens Insurance Company issued X, a resident of Baguio, “against all direct loss and damage by fire” X lived in a house heated by a furnace. His servant built a fire in the furnace using material that was highly flammable. The furnace fire caused intense heat and great volumes of smoke and soot that damaged the furnishings in the rooms of X. When X tried to collect on the policy, Queens Insurance refused to pay contending that the damage is not covered by the policy, where the fire is confined within the furnace. Decide. (1989 Bar Examination)
I submit that the claim should be denied for the following reasons: (1) The cause of the loss is friendly fire which is defined as one which stays in the place intended and (2) the direct cause of the loss is great volume of smoke and soot and not directly by fire.
What are the important provisions of the Standard Fire Insurance Policy in the Philippines that is relevant to claims handling?
Filing a claim is very easy. The steps are as follows:
- Notify your Insurer and/or your intermediary immediately in writing. Under Condition 13 of the Standard Fire Policy, the deadline to file a claim and its supporting documents is 60 days from the occurrence of loss, unless it is extended by the Insurer.
- Segregate the damaged and undamaged insured properties.
- Take pictures of the damaged portion of the property and/or its contents.
- Create an inventory of the damaged contents and its estimated value. Do not exaggerate the amount of claim as it can be considered a fraud. Section 251 of the Insurance Code imposes a penalty against anyone who will attempt commit fraud. The penalty shall be twice the amount being claimed and/or 2 years of imprisonment.
- Do not dispose of the damaged property without the prior notice and consent of the Insurer. Condition 14 of the Standard Fire Policy provide the rights of the Insurer to take over the damaged property. The Insurer may opt to sell it to their accredited salvage buyers in order to minimize or reduce their loss. Failure to do shall entitle the Insurer to forfeit all benefits under the policy.
- Submit all the documents required by the Insurer to expedite the conclusion of the claim. The insurer may appoint an independent adjuster to assist in the evaluation of the claim.
What are key questions to be asked by an Insurer upon receipt of the notice of claim in order to expedite the conclusion of a claim?
- Check if the Fire Insurance policy is in force or otherwise as of the date of loss.
- Check if the premium paid or otherwise as of the date of loss. If not, please check if a credit term is in place.
- If the cause of loss was provided in the notice of claim, check if the peril is covered. If it is other than Fire and/or Lightning, check if the cause of the loss is covered via an endorsement. Typhoon, Flood and Earthquake are exclusions under the Standard Fire Insurance Policy, unless extended via endorsement and subject to payment of an additional premium.
- Check the subject matter of the claim is insured or otherwise.
- If the estimated claim was provided at the onset, check if the claim is within deductible or otherwise.
What is the basis for the amount of settlement?
They are as follows:
- Actual Cash Value - is also known as the depreciated value. The basis of settlement shall be the value of the insured property at the time of the loss and, it is not necessarily the total sum insured in the policy. This is the standard basis for indemnity.
- Replacement Value - subject to the payment of additional premium and submission of an appraisal report, the insurer may indemnify the insured based on the cost to replace the insured property.
What are the common method in evaluating a property claim?
They are as follows:
- Cost Estimating Method - cost is expressed as a cost per unit of an area. For example, the cost to build a house is Php 30,000 per square meter. The cost to rebuild a damage property be ascertained by deducting the from the actual selling price less the following: a. cost of the land, b. fence and gate, c. driveway, d. landscapping, and e. cost of site improvements.
- Quantity Survey Method - cost is on an item by item basis. This is the most detailed method.
- Unit-In-Place Method - under this, the cost of materials are ascertained. Each cost shall be divided by size of the property. To illustrate, if the cost of painting is Php 200,000 while the size o the property is 100 square meter. The rate per square shall be Php 2,000 per square meter.
What are the possible deductions to the amount of settlement?
They are as follows:
- Depreciation - refers to the decrease in an insured property's value taking into account the useful life of the asset. For example, the useful life of a commercial building is 50 years. For office equipment, it is 5 years while for machinery, it is 10 years.
- Value Added Tax - The rationale why we usually deduct the 12% VAT in the insurance claim is because the 12% input VAT is claimable to BIR as deduction to VAT Payable.
- Mark up - refers the difference between the cost and the price at which is it sold.
- Betterment - is a portion of the cost to be shouldered by the insured if the repair will result to an improvement in the thing insured, such as replacement of an old part with a new one.
- Excessive labor cost - the construction labor's cost percentage should be anywhere from 10 to 20% of the cost of materials.
- Salvage value, if there is any.
- Mall commission, if applicable
- Application of Average Clause, in case of under-insurance and partial loss.
- Deductible
What are the standard supporting documents to substantiate the claim?
They are as follows:
General Requirements
- Claim Form which must have Consent Clause and Anti-Fraud Warning.
- Non-Waiver Agreement
- Interview Sheet
- Pictures of the damaged property
- Floor Plan of the insured building
- Detailed repair quotes or estimate which shall include quantity and cost per unit plus cost of labor
- TCT, CCT, Deed of Sale or Donation, and Declaration of Real Property - to show proof of insurable interest over the insured property
Fire Claim
- Certification from the Bureau of Fire Protection
Juridical entities
- Business Permit
- Registration paper with either the Securities and Exchange Commission or the Department of Trade and Industry
For Stock Claims
- Detailed list of affected contents showing the quantity and value
- Records of sales and deliveries as of the date of loss
- Documents in support of the unit costing such as Purchases and Sales Invoices, Delivery Receipt, etc.
- Inventory Report
- Latest Financial Statement filed with the BIR
Others
- Lease Agreement, if the Insured is a tenant.
- Master Deed, in the case of a condominium
- Any other supporting documents to substantiate the claim
What are the exclusions under the Standard Fire Policy?
They are as follows:
I. Specifically Excepted Risks (Condition No. 5) -
- Loss by theft during or after a fire;
- Loss to property by its own fermentation;
- Loss to property by its own natural heating;
- Loss to property by its own spontaneous combustion;
- Loss to property by its own undergoing heating or drying process;
- Loss due to burning of property ordered by public authority;
- Loss occasioned by subterranean fire.
II. Due to Abnormal Occurrences (Condition No. 6) -
- Earthquake, volcanic eruption or other convulsion of nature
- Typhoon, hurricane, tornado, cyclone or other atmospheric disturbance
- War, invasion, acts of foreign enemy, hostilities or warlike operations (whether war be declared or not), civil war;
- Mutiny, riot, military or popular uprising, insurrection, revolution, military or usurped power.
Explain the application of the Average Clause.
The effect of Average Clause can only be felt in case of partial loss. To illustrate, a property valued at Php 1,000,000.00 was insured only for Php 800,000.00.
Assuming the cost of the damage to the property was Php 500,000.00, the insurer’s liability shall only be:
(TSI/Value of the property) x Amount of Loss = Insurer’s Liability
Php 800,000.00/Php 1,000,000.00) x Php 500,000.00 = Php 400,000.00
As a consequence of under-insurance, the insurer will pay only Php 400,000.00,and not the full amount. The insured becomes the forced co-insurer for the un-insured portion of the property which amounts to Php 100,000.00.
What property or risks are excluded under the standard fire policy?
Unless otherwise expressly stated in the Policy this insurance does not cover.
- Goods held in trust or on commission.
- Bullion or unset precious stones.
- Any curiosity or work of art for an amount exceeding P200.
- Manuscripts, plans, drawings, or designs, patterns, models or moulds.
- Securities, obligations, or documents of any kind, stamps, coined or paper money, cheques, books of account or other business books, computer systems records.
- Coal, against loss or damage occasioned by its own spontaneous combustion.
- Explosives.
- Any loss or damage occasioned by or through or in consequence of explosion; but loss or damage by explosion of gas used for illuminating or domestic purposes in a building in which gas is not generated and which does not form part of any gas works, which will be deemed to be loss by fire within the meaning of the policy.
- Any loss or damage occasioned by or through or in consequence of the burning, whether accidental or otherwise, of forests, bush, prairie, pampas or jungle, and the clearing of lands by fire.
- Loss or damage of any electrical machine or apparatus or to any portion of an electrical installation arising from or occasioned by over-running, excessive pressure, short-circuiting, arcing, self-heating or leakage of electricity from whatever cause (lightning included), unless fire ensues therefrom and, liability shall be limited to actual damage by the ensuing fire. (Standard Fire Insurance Policy, Condition No. 8.)
What are the grounds/circumstances that warrant suspension of cover?
The insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the insurer signified by endorsement:
- If the trade or manufacture carried on be altered, or if the nature of the occupation of or other circumstances affecting the building insured or containing the insured property be changed in such a way as to increase the risk of loss or damage by fire.
- If the building insured or containing the insured property becomes unoccupied and so remains for a period of more than 30 days.
- If property insured be removed to any building or place other than in that which is herein stated to be insured.
What are the rules regarding alteration?
The rules regarding alteration are as follows:
A material alteration (one which increases the insurer’s exposure) in the use or condition of the thing insured without the consent of the insurer entitles it to rescind the contract.
- 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 the alteration is considered not material to the risk but is prohibited by the insurance contract, entitles the insurer to avoid the policy.
Notes:
In fire insurance, an example would alteration would the change in the class of occupancy from low risk to high risk.
Robin insured his building against fire with EFG Assurance. The insurance policy contained in the usual stipulation that any action or suit must be filed within one year after the rejection of the claim.
After his building burned down, Robin filed a claim for fire loss with EFG Assurance. One February 28, 2994,EFG Assurance denied Robin’s claim. On April 3, 1994, Robin sought reconsideration of the denial but EFG Insurance reiterated its position. On March 20, 1995, Robin commenced judicial action against EFG Assurance.
Should Robin’s action be given due course? Explain. (1996 Bar Examination)
No. Robin’s action should not be given due course. At the time he commenced an action against EFG Assurance, the one (1) year prescription period had lapsed already. The prescription period should be counted from the date of initial rejection and not from the time EFG Assurance reiterated its earlier position to deny his claim.
Suppose that Fortune owns a house valued at Php 600,000.00 and insured the same against fire with three (3) insurance companies as follows:
X - Php 400,000.00
Y - Php 200,000.00
Z - Php 600,000.00
In the absence of any stipulation in the policies, from which insurance companies may Fortune recover in case of fire should destroy his house completely. (1990 Bar Examination)
Fortune may recover from any, any two, or all of the insurers provided that the total amount that he will recover does not exceed the Php 600,000.00. But first we need to determine the proportionate share of each insurer in the loss.
X/(X+Y+Z) x Amount of Loss = X’s Share or Php 200,000.00
Y/(X+Y+Z) x Amount of Loss = X’s Share or Php 100,000.00
Z/(X+Y+Z) x Amount of Loss = X’s Share or Php 300,000.00
In view of the above, Fortune do any of the following:
- Fortune may recover from Y alone for Php 600,000.00. Y will just recover from X and Z their respective share in the loss.
- Fortune may recover from X,Y, and Z based on their pro-rata shares in the loss.
If each of the fire insurance policies obtained by Fortune in the preceding problem is a valued policy and the value of his house was fixed in each of the policies at Php 1,000,000.00, how much would Fortune recover from X if he has already obtained full payment on the insurance policies issued by Y and Z.
Fortune may still recover the full amount of insurance from X. Since the policy subject of the claim is a valued policy, it is no longer necessary to determine the actual value of the property since the value thereof was already pre-determined at the inception of the policy. The valuation in a policy is conclusive between the parties in the adjustment of either partial or total loss if the insured had an insurable interest and was not guilty of fraud. (Harding vs. Commercial Union Ins. Co., 38 Phil. 464)
If each of the policies obtained by Fortune in problem (a) is an open policy and it was immediately determined after the fire that the value of Fortune’s house was Php 2,400,000.00, how much may it collect from X, Y, Z?
The insured may recover the full amount of insurance from each insurer.
In problem above, what is the extent of liability of the insurance companies among themselves?
Each insurer must contribute in the payment of the loss based on their pro-rata share in the loss, to wit:
X/(X+Y+Z) x Amount of Loss = X’s Share or Php 200,000.00
Y/(X+Y+Z) x Amount of Loss = X’s Share or Php 100,000.00
Z/(X+Y+Z) x Amount of Loss = X’s Share or Php 300,000.00
Supposing in problem above, Fortune was able to collect from both Y and Z, may he keep the entire amount he was able to collect from the said two insurance companies?
No. Fortune may not keep the amount he collected since the aggregate collected claim against Y and Z will be in excess of his actual loss by Php 200,000.00. Fortune must hold in trust the excess amount for Y and Z.
Queens Insurance Company issued X, a resident of Baguio, “against all direct loss and damage by fire” X lived in a house heated by a furnace. His servant built a fire in the furnace using material that was highly flammable. The furnace fire caused intense heat and great volumes of smoke and soot that damaged the furnishings in the rooms of X. When X tried to collect on the policy, Queens Insurance refused to pay contending that the damage is not covered by the policy, where the fire is confined within the furnace. Decide. (1989 Bar Examination)
I submit that the claim should be denied for the following reasons: (1) The cause of the loss is friendly fire which is defined as one which stays in the place intended and (2) the direct cause of the loss is great volume of smoke and soot and not directly by fire.
What are the important provisions of the Standard Fire Insurance Policy in the Philippines that is relevant to claims handling?
- Open Policy Clause (Condition No. 19). Under this clause, the value of the thing insured is not agreed upon but is left to be determined at the time of the loss. The sum insured under the standard fire policy is neither a commitment to pay such sums every time there is a loss or damage not an admission on the part of the insurance company that they are the agreed valuation of the property insured. The insurer merely commits to indemnify the insured for whatever actual loss or damage he may sustain up to but not exceeding the amount of the sum insured.
- Average Clause (Condition No. 20). Under this clause, the insured shall bear a portion of the loss in proportion to the amount of under-insurance.
- Other Insurance Clause (Condition No 3). The insured shall notify the insurer about the existence of other insurance already effected or to be subsequently effected by the former covering any property or properties consisting of stocks in trade, goods in process and/or inventories amounting to more than Two Hundred Thousand Philippine Pesos (Php 200,000.00). The purpose of this clause is to eliminate the temptation of insuring the property over and above its actual value with intent deriving profit from the insurance cover. Failure on the part of the insured to do shall entitle the insurer to avoid the policy. The non-declaration is a defect which is “legally incurable” and any appeal “is likewise futile.” (Union Manufacturing vs. Philippine Guaranty, 47 SCRA 271 [1972]) The absolute absence of notice about the existence of other insurance renders the policy null and void. (Ulpiano Santa Ana vs. Commercial Union Assurance Company, Ltd. [GR No. 32889]). The Other Insurance Clause will not apply if: a. The subject matter of insurance is other than stocks in trade, goods in process and/or inventories regardless of the amount of insurance. b. The subject matter of insurance involves stocks in trade, goods in process and/or inventories but the amount of insurance is less than Two Hundred Thousand Philippine Pesos (Php 200,000.00).
- Automatic Reduction Clause (Condition No. 24). It simply means in case of a loss, the total sum insured is automatically reduced in the proportion to the amount paid. To restore the original total sum insured, the insured must pay an additional pro-rata premium to the insurer.
- Fraud and Loss By Willful Act Clause (Condition No.15) – The clause provides for the forfeiture of the benefits under the policy due to the commission of fraud by the insured, to wit: a. If the claim fraudulent in any respect, b. If any false declaration be made to support the claim, c. If any fraudulent means or devices are used to obtain policy benefit, d. If the loss is occasioned by the willful act of the insured or with his connivance.
- Contribution Clause (Condition No. 18). If, at the time of the loss, the property insured is covered by more than one insurer, the liability of the insurer shall not exceed its ratable proportion of share in the loss or damage. Under the principle of contribution, where such other insurers cover the same interest and the same peril, they shall proportionately in the payment of loss or damage.
- Action or Suit Clause (Condition No. 27). It provides that prescription period for commencing an action shall be one (1) year from the rejection of the insured’s claim. Under the Civil Code, the prescription period for commencing at action based on a written contract is ten (10) years. However, the Insurance Code provides that it may be shortened to a period not less than one (1) year, otherwise, it shall deemed void. (Insurance Code of the Philippines, Section 63). The running of the prescription period is counted from date of denial of claim, the fact that the insured appealed the denial of the insurer will not change the reckoning period which remains the date of the first denial. (Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193 [March 13, 1991]).
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