I. Double Insurance and Overinsurance

J. Double Insurance; Overinsurance

R.A. No. 10607, Sections 95-96¹

"DOUBLE INSURANCE

"Section 95.² A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.

"Section 96.³ Where the insured in a policy other than life 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 which the insurers are severally liable under their respective contracts; "(b) Where the policy under which the insured claims is a valued policy, any sum received by him under any other policy shall be deducted from the value of the 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, any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any 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 the 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 ratably to the loss in proportion to the amount for which he is liable under his contract.

Double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest [Sec. 95]⁴.

Requisites of double insurance:

• The same person is insured;
• Two or more insurers insuring separately;
• The same subject matter;
• The same interest insured; and
• The same risk or peril insured against [Malayan Insurance Co., Inc. v. Philippines First Insurance Co., Inc. and Reputable Forwarder Services, Inc., G.R. No. 184300, 11 July 2012]⁵.

Double insurance is not prohibited under the law unless the policy contains a stipulation to the contrary. Usually, insurance policies contain other insurance clause, which requires disclosure of other existing insurance policy. In such case, non-disclosure will avoid the policy. It is intended to prevent over insurance and thus avert the perpetration of fraud.

If there is double insurance and loss occurs:

• Each of the insurers will be liable only up to the face value of their respective policies; and

Over insurance occurs when the value of the insurance exceeds the value of the insurable interest.

Over insurance It is not per se void, however, recovery is allowed only to the extent of the loss or damage incurred by the insured [Carale].

An insurer may cancel a policy of insurance other than life only upon prior notice to the insured and on a ground specified in Section 64. Overinsurance, by itself, is not one of those grounds [Sec. 64]⁶.

The insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk (in case of an over insurance by several insurers other than life) [Sec. 85]⁷.

Where a non-life policy is overinsured by double insurance, the insured may, unless a policy otherwise provides, claim from the insurers in the order selected, subject to each insurer’s contractual liability. As between insurers, each contributes ratably to the loss [Sec. 96(a), (e)].

Rules for Payment

Where the insured in a policy other than life is over insured by double insurance:

• 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 which the insurers are severally liable under their respective contracts;
• Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract [Sec. 96]⁸.

Rules for claiming payment under Valued Policies vs. Unvalued Policies [Sec. 96]

Sec. 96⁹ enunciates the principle of contribution which requires each insurer to contribute ratably to the loss or damage considering that the several insurances cover the same subject matter and interest against the same peril. If the loss is greater than the sum of all the policies issued, each insurer is liable for the amount of his policy.

Double Insurance vs. Over Insurance

Rules when the Insured in a Policy Other than Life is Over Insured by Double Insurance

• The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount which the insurers are severally liable under their respective contracts;
• Where the policy under which the insured claims is a valued policy, any sum received by him under any other policy shall be deducted from the value of the policy without regard to the actual value of the subject matter insured;
• Where the policy under which the insured claims is an unvalued policy, any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any policy;
• Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; and
• Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. (Sec. 96, IC)¹⁵

Additional or Other Insurance Clause (2008 BAR)

A clause in the policy that provides that the policy shall be void if the insured procures additional insurance without the consent of the insurer. (Pioneer Insurance and Surety Corporation v. Yap, G.R. No. L-36232, 19 December 1974)¹⁶

The insurer may insert an “other insurance clause” to prevent the danger that the insured will over insure his property and thus avert the possibility of perpetration of fraud. It is lawful and specifically allowed under Sec. 75 of the Insurance Code¹⁷ which provides that “A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.”

Waiver of Violation

When the insurer, with the knowledge of the existence of other insurances, which the insurer deemed a violation of the contract, preferred to continue the policy, its action amounted to a waiver of annulment of the contract. (Perez, 2006 citing La O v. Yek Tong Lin Fire and Marine Insurance Co., Ltd., G.R. No. 33131, 13 December 1930¹⁸)

Q: Wyeth Philippines, Inc. (Wyeth) procured a marine policy from Philippines First Insurance Co., Inc. (PFIC) to secure its interest over its own products while the same were being transported or shipped in the Philippines. Thereafter, Wyeth executed its annual contract of carriage with Reputable Forwarder Services, Inc. (Reputable).

Under the contract, Reputable undertook to answer for all risks with respect to the goods and shall be liable to Wyeth, for the loss, destruction, or damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers. The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, Reputable signed a Special Risk Insurance Policy (SR Policy) with Malayan Insurance Co., Inc., (Malayan) for the amount of P1,000,000.00.

Is there double insurance (as prohibited under Sec. 5 of the SR Policy between Malayan and Reputable) so as to preclude PFIC from claiming indemnity from Malayan?

A: NO. The interest of Wyeth over the property subject matter of both insurance contracts is different and distinct from that of Reputable’s. The policy issued by PFIC was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s liability in case of loss or damage to the property and falls within the contemplation of Sec. 15 of the IC¹⁹. Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. (Malayan Insurance Co., Inc. v. Philippines First Insurance Co., Inc. and Reputable Forwarder Services, Inc.)²⁰

Q: X Corp. took out a Fire Policy Insurance from Easter Insurance in the amount of P10,000,000.00. The properties insured were the pieces of machinery and equipment, tools, spare parts and accessories stored at Buildings 1 and 2, PTA Compound, No. 26 Isidro Francisco Street, Malinta, Valenzuela, Metro Manila, Manila.

He took another Fire Policy Insurance from Northern Insurance for P7,000,000.00, covering the pieces of machinery and equipment, tools, spare parts, and accessories excluding mould, and stocks of manufactured goods and/or goods still in process, raw materials and supplies found in the PTA Central Warehouse Compound, Building 1, No. 26 Isidro Francisco Street, Brgy. Vicente Reales, Dalandan, Valenzuela, Metro Manila.

He took a third Fire Policy Insurance from Southern Insurance covering the same machinery and equipment located at Building 1, PTA Compound, No. 26 Francisco St., Malinta, Valenzuela, Metro Manila.

A fire broke out in PTA Compound causing damages and loss on property. X Corp tried to claim from the 3 insurance companies but the same were denied on the ground of violation of the policy condition (Policy Condition No. 3) on non-disclosure of insurance policies already acquired or thereafter may be acquired regarding the same properties, which ultimately results in the avoidance of the insurance policy.

Are the insurance policies avoided?

A. YES. Policy Condition No. 3 is clear that it obligates X Corp, as insured, to notify the insurer of any insurance effected to cover the insured items which involve any of its property or stocks in trade, goods in process and/or inventories and that non- disclosure by the insured of other insurance policies obtained covering these items would result in the forfeiture of all the benefits under the policy. To be regarded as a violation of Policy Condition No. 3, the other existing but undisclosed policies must be upon the same matter and with the same interest and risk. The records of this case show that petitioner obtained fire insurance policies from the 3 insurance companies covering the same matter and the same risk, i.e., the policies uniformly cover fire losses of petitioner’s machinery and equipment.

In American Home Assurance Company v. Chua²¹, the Court held that where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the “other insurance clause”. (Multi-Ware Manufacturing v. Cibeles Insurance Corporation, G.R. No. 230528, 1 February 2021)²²

Absence of Notice of Existence of Other Insurance constitutes Fraud

When the insurance policy specifically requires that notice should be given by the insured of the existence of other insurance policies upon the same property, failure to give such notice may forfeit coverage when the policy provides for that consequence, subject to applicable defenses such as waiver. Such failure to give notice of the existence of other insurance on the same property when required to do so does not, by itself, constitute deception or establish fraud. (Perez, 2006)

Cancellation of Policy of Insurance by Reason of Over Insurance

An insurer may cancel a non-life insurance policy only upon prior notice and on a ground enumerated in Section 64 of the Insurance Code, such as discovery of fraud or material misrepresentation. The mere discovery of overinsurance is not an independent ground for cancellation. (Insurance Code, Sec. 64.)