May 20, 2019
IN the Philippines, pre-owned vehicles are still popular among potential car owners even if dealers of brand-new cars offer good financing options. The number of individuals buying second-hand vehicles is even projected to increase as Filipinos continue to experience rising incomes as a result of the country’s rapid economic growth.
Potential buyers of a pre-owned vehicles consider many factors, such as the price, quality and accumulated mileage. But securing a motor vehicle insurance is another vital thing to consider.
Since the vehicle being traded has been pre-owned, there must already be an existing motor vehicle insurance policy, either a comprehensive insurance or a compulsory third-party liability (CTPL) insurance. But will the existing insurance policy automatically provide coverage for the new owner of the vehicle in case of loss or damage? Will it continue to cover the previous owner after the transfer of ownership has been made? Is the insurance company liable?
Many buyers of pre-owned are not fully aware of a simple but very crucial and often neglected step in buying a motor vehicle with insurance cover, and that is, the preparation of an endorsement document.
In a sale of a pre-owned vehicle, several documents are required to reflect the legal transfer of ownership of the vehicle being sold. One should make sure that if there is an existing insurance policy and if the new owner wants to continue to use it instead of securing a new insurance policy, the new owner must immediately inform the insurance company. Certain changes need to be incorporated in the insurance policy, such as the change in the name of the policyholder/insured (from the name of the previous owner to the name of the new owner) among others. Such changes are reflected as endorsements in the policy document.
In case of a change of ownership of the insured vehicle, knowing the importance of this endorsement could save the new owner from a potentially undesirable situation, such as the denial of claim when a sudden loss or destruction occurs. This is because the sale of the insured vehicle will automatically suspend the effectivity of the insurance policy under the name of the previous owner, and therefore, may no longer cover any loss or damage that may occur thereafter.
The law requires the insurable interest in the vehicle insured and a person’s ownership over the insured must both exist at the time the insurance policy takes effect and at the time the loss occurs. Section 19 of the Insurance Code, as amended (RA 10607), provides that, “An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime”; Section 395 further states that, “In case of change of ownership of a motor vehicle, or change of the engine of an insured vehicle, there shall be no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and: Provided, that the insurance company shall agree to continue the policy, such change of ownership or such change of the engine shall be indicated in a corresponding endorsement by the insurance company concerned, and a signed duplicate of such endorsement shall, within a reasonable time, be filed with the Land Transportation Office (LTO).”
Thus, the claims of the new owner of the pre-owned vehicle in case of loss after the transfer of ownership may be denied if there is no endorsement document agreed upon by the insurance company concerned in relation to the motor vehicle insurance.
If after the sale of the insured vehicle, the previous owner files a claim under the insurance policy, which is still under his or her name and which premium payments were paid by him or her, the claim will also be denied by the insurance company. This is because he or she does not have an insurable interest in the motor vehicle at the time of loss or accident since he or she is no longer the owner of the insured vehicle. However, the previous owner may claim for the refund or return of the premium paid corresponding to the unexpired period from the time the insurance policy was automatically suspended.
For example, a person insured his car for a period of one year or 12 months. To make a simple computation, let’s say he paid P12,000 for one year. Five months thereafter, he sold the car and the policy was not transferred to the buyer through an endorsement. Since the policy is suspended, he can then return the policy and ask for the refund of the premium paid corresponding to the unexpired period of seven months, or P7,000.
An endorsement document, issued by the concerned insurance provider, mainly reflects changes and additions to an existing insurance policy, such as the following: a transfer of ownership, any premium mismatch, details of the new owner, including or increasing the voluntary deductible, change of address, contact details, passengers covered, and other important details. Premiums to be paid by the new owner may also increase or decrease depending on the present circumstances of the insured vehicle and the new owner.
The author is the Deputy Commissioner for Legal Services of the Insurance Commission. He may be contacted at email@example.com
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