On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire insurance policy from Ilocano Insurance covering its machineries and equipment effective for one (1) yearor until May 14, 1997. The policy expressly stated that the insured properties were located at “Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite.” Before its expiration, the policy was renewed on “as is” basis for another year or until May 13, 1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition 9(c) of the policy provides that “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 company signified by endorsement upon the policy x x x (c) if the property insured is removed to any building or place other than in that which is herein stated to be insured.” PAM claims that it has substantially complied with notifying Ilocano through its sister company, the RBC, which, in fact, referred PAM to Ilocano for the insurance coverage. Is Ilocano liable under the policy? (4%)
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No, Ilocano Insurance is not liable under the policy. Under Philippine insurance law, a policy condition stating that coverage ceases if insured property is removed to another location without the insurer's written sanction endorsed
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Quick check
Is a fire insurer liable for cargo or machinery destroyed by fire at a location different from that specified in the policy without insurer endorsement?
Insurance coverage ceases when property is removed without the required written endorsement of the insurer.
What is the legal status of a fire insurance policy condition that requires written insurer endorsement before moving insured property?
A policy condition requiring written insurer endorsement before property removal is valid and strictly binding.
Does notifying a sister company or referral entity satisfy a policy requirement to obtain written endorsement from the insurer?
Notice to a separate sister company does not bind the insurer or fulfill policy endorsement conditions.
Why is the location of insured property considered a material term in fire insurance contracts under Republic Act Number 10607?
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Which primary statute governs fire insurance policies, policy conditions, and premium coverage requirements in the Philippines?
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1. Property Location Clause
Under Section 51 of the Insurance Code of the Philippines (Republic Act Number 10607) and established insurance jurisprudence, the location of insured personal property is a vital material consideration in fire insurance contracts. Fire insurance rates and risk assessments are directly calculated based on the specific building construction, surrounding hazards, and location specified in the policy. When insured property is moved to a different location without the insurer's express consent, the risk insured against is materially altered, causing the insurance coverage to cease to attach.
2. Policy Alteration Endorsement
Under Philippine insurance law, a policy condition requiring the insurer's written sanction endorsed upon the policy prior to property removal is valid, binding, and strictly enforceable. Verbal notification or informal notice sent to an unaffiliated entity does not satisfy the contractual requirement of securing an express written endorsement from the insurer. In the absence of an official written endorsement issued by the insurance company, the insured cannot claim coverage for loss occurring at the new unapproved location.
3. Separate Corporate Entity
Under Philippine corporate law, a corporation possesses a legal personality distinct and separate from its sister companies or affiliated business entities. Notice given to a sister company or referral entity does not constitute notice to or consent by the insurance company itself, unless an express agency relationship is proven. Consequently, notifying a sister company of property removal fails to bind the insurer or excuse the insured's non-compliance with policy endorsement conditions.