INSURANCE

Presidential Decree No. 612, as amended by Republic Act No. 10607

A.​ Concept of Insurance

Definition: A contract of insurance is an agreement whereby:

a. One undertakes for a consideration
b. To indemnify another
c. Against loss, damage or liability
d. Arising from an unknown or contingent event.

What is the obligation of the insurer?

The insurer undertakes to indemnify (or pay) another.

When?

When there is loss, damage or liability arising from unknown or contingent event.

What is the obligation of the insured?

To pay the consideration — which is the premium.

● Unknown or Contingent event

a. CONTINGENT - event that is not certain to take place

b. UNKNOWN - event which is certain to happen, but the time of its
happening is not known. Hence, past events are included, as long as they
are unknown to the parties.

● For regulatory purposes, a contract of suretyship shall be deemed to be an

insurance contract ONLY if made by a surety who is doing an insurance
business.

● Insurance is a contract whereby:​​

a. One party called the insurer undertakes for a consideration​​
b. To pay another party called the insured, or his beneficiary,​​
c. Upon the happening of the peril insured against, d. Whereby the insured or
his beneficiary suffers loss or damage or is exposed to liability. ​

TEST to determine whether a contract is one of insurance is whenever the

assumption of risk and the indemnification of loss is the principal
object and purpose of the contract.
ELEMENTS OF AN INSURANCE CONTRACT:

A. The insured has an insurable interest;

B. The insured is subject to a risk of loss by the happening of the designated
peril;
C. The insurer assumes the risk;
D. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
E. In consideration of the insurer's promise, the insured pays a premium.

Cause
- Existence of Insurable interest - the insured must possess an interest of some
kind susceptible of pecuniary estimation; (Sec. 10- 25, ICP)
- Risk of Loss - the insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated perils; (Sec. 3 (1),
Sec. 51 par 9, ICP)

Consent
- Assumption of risk - the insurer assumes the risk of loss; (Sec. 2, ICP)
- Distribution of losses - such assumption is part of a general scheme to distribute
actual losses among a large group of persons bearing somewhat similar risks;
Object / subject matter
- Premium - in consideration of the insurer's promise, the insured makes a ratable
contribution to a general insurance fund. (Sec. 77, ICP)
● Section 2. Whenever used in this Code, the following terms shall have the
respective meanings hereinafter set forth or indicated, unless the context
otherwise requires:

(a) A contract of insurance is an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.

A contract of suretyship shall be deemed to be an insurance contract, within the

meaning of this Code, only if made by a surety who or which, as such, is doing an
insurance business as hereinafter provided.

(b) The term doing an insurance business or transacting an insurance business,

within the meaning of this Code, shall include:

(1) Making or proposing to make, as insurer, any insurance contract;

(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
 (3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.

As used in this Code, the term Commissioner means the Insurance Commissioner.

WHAT MAY BE INSURED?

● Section 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him,
may be insured against, subject to the provisions of this chapter.

The consent of the spouse is not necessary for the validity of an insurance policy
taken out by a married person on his or her life or that of his or her children.

All rights, title and interest in the policy of insurance taken out by an original owner
on the life or health of the person insured shall automatically vest in the latter upon
the death of the original owner, unless otherwise provided for in the policy.

● Section 4. The preceding section does not authorize an insurance for or against
the drawing of any lottery, or for or against any chance or ticket in a lottery
drawing a prize.

● Section 5. All kinds of insurance are subject to the provisions of this chapter so
far as the provisions can apply.

PARTIES TO THE CONTRACT

1. Insurer
2. Insured - any person as long as not a public enemy; There must be an insurable
interest
3. Beneficiary - designation of the beneficiary may be revocable or irrevocable; no
need for an insurable interest
 ● Section 6. Every corporation, partnership, or association, duly authorized to
transact insurance business as elsewhere provided in this Code, may be an
insurer.

● Section 7. Anyone except a public enemy may be insured.

● Section 8. Unless the policy otherwise provides, where a mortgagor of property

effects insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a
party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property
is in the hands of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by
the mortgagor.

Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to

a mortgagee, and, at the time of his assent, imposes further obligations on the
assignee, making a new contract with him, the acts of the mortgagor cannot
affect the rights of said assignee.

CLASSES OF INSURANCE

1. Life Insurance
- Himself
- Of his spouse
- And of his children
- If a person will insure the life of another payable to himself, he must have an
insurable interest in the life of the person whose life he is insuring
- Any person on whom he depends wholly or in party for education or
support or in whom he has pecuniary interest
- Any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent the performance
- TN: A creditor may insure his debtor's life for the purpose of protecting
his debt, but only to the extent of the amount of the debt and the cost
of carrying the insurance on the debtor's life. (pecuniary interest)
- Any person upon whose life any estate or interest vested in him depends

- CLASSES OF INTEREST in LIFE INSURANCE

1. Insurable interest in the insured’s own life
 2. Insurable interest in the life of another in person
a. The owner of the policy is different from the subject of the
insurance ( the person whose life is insured)
b. TEST: whether the person is interested in the preservation of the
insured’s life despite the insurance
c. It may be based on blood relationship
- Mere blood relationship is sufficient

B.​ Insurable Interest

BASIS OF INTEREST
In property insurance, expectation of benefit must have a legal basis. In life insurance,
the expectation of benefit to be derived from the continued existence of a life need not
have any legal basis.

LIMIT
In property insurance, the actual value of the interest therein is the limit of the insurance
that can validly be placed thereon. In life insurance, there is no limit to the amount of
insurance that may be taken upon life

INSURABLE INTEREST AT THE TIME OF LOSS

In property insurance, an interest insured must exist when the insurance takes effect
and when the loss occurs but need not exist in the meantime. In life insurance, it is
enough that insurable interest exists at the time when the contract is made but it need
not exist at the time of loss.

C.​ Concealment

A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

Each party to a contract of insurance must communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no warranty, and which the other
has not the means of ascertaining.

An intentional and fraudulent omission, on the part of one insured, to communicate information of matters
proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.

Neither party to a contract of insurance is bound to communicate information of the matters following, except in
answer to the inquiries of the other:
 (a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has
no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are
not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise material.

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries.

Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry,
equally with that of the other, and which may affect the political or material perils contemplated; and all
general usages of trade.

The right to information of material facts may be waived, either by the terms of insurance or by neglect to
make inquiry as to such facts, where they are distinctly implied in other facts of which information is
communicated.

Information of the nature or amount of the interest of one insured need not be communicated unless in answer
to an inquiry, except as prescribed by Section 51.

●​ Representative

A representation may be oral or written.

A representation may be made at the time of, or before, issuance of the policy.

The language of a representation is to be interpreted by the same rules as the

language of contracts in general.

A representation as to the future is to be deemed a promise, unless it appears that

it was merely a statement of belief or expectation.

A representation cannot qualify an express provision in a contract of insurance,

but it may qualify an implied warranty.

A representation may be altered or withdrawn before the insurance is effected, but

not afterwards.

A representation must be presumed to refer to the date on which the contract goes
into effect.

When a person insured has no personal knowledge of a fact, he may nevertheless

repeat information which he has upon the subject, and which he believes to be
true, with the explanation that he does so on the information of others; or he
may submit the information, in its whole extent, to the insurer; and in neither
 case is he responsible for its truth, unless it proceeds from an agent of the
insured, whose duty it is to give the information.

A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

If a representation is false in a material point, whether affirmative or promissory,

the injured party is entitled to rescind the contract from the time when the
representation becomes false.

The materiality of a representation is determined by the same rules as the

materiality of a concealment.

The provisions of this chapter apply as well to a modification of a contract of

insurance as to its original formation.

Whenever a right to rescind a contract of insurance is given to the insurer by any

provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.

Policy

The written instrument in which a contract of insurance is set forth, is called a

policy of insurance.

The policy shall be in printed form which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to
complete the contract of insurance shall be written on the blank spaces provided
therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of

insurance and which is pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank spaces provided in the
policy.
 Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the insured
or owner, which countersignature shall be taken as his agreement to the contents
of such rider, clause, warranty or endorsement.

Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act No. 8792, otherwise known as the ‘Electronic
Commerce Act’ and to such rules and regulations as may be prescribed by the
Commissioner.

A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact
premium is only determinable upon the termination of the contract, a
statement of the basis and rates upon which the final premium is to be
determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute
owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

●​ Warranties

Warranty is either expressed or implied.

A warranty may relate to the past, the present, the future, or to any or all of these.

No particular form of words is necessary to create a warranty.

Without prejudice to Section 51, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as making a part of
it.

A statement in a policy, of a matter relating to the person or thing insured, or to the

risk, as fact, is an express warranty thereof.
 A statement in a policy, which imparts that it is intended to do or not to do a thing
which materially affects the risk, is a warranty that such act or omission shall
take place.

When, before the time arrives for the performance of a warranty relating to the
future, a loss insured against happens, or performance becomes unlawful at the
place of the contract, or impossible, the omission to fulfill the warranty does not
avoid the policy.

The violation of a material warranty, or other material provision of a policy, on the

part of either party thereto, entitles the other to rescind.

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.

MA breach of warranty without fraud merely exonerates an insurer from the time
that it occurs, or where it is broken in its inception, prevents the policy from
attaching to the risk.

●​ Premium

Cash and Carry Rule

provides that “notwithstanding any agreement to the contrary, no policy or

contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid.” (Section 77,
Insurance Code)
An insurance premium refers to the agreed price for assuming and carrying the
risk insured against. It is the consideration paid to an insurer for undertaking to
indemnify the insured against a specified peril.

EXCEPTIONS

1.​ In the case of a life or an industrial life policy whenever the grace period
provision applies. (Section 77, Amended Insurance Code of the Philippines)

2. An acknowledgement in a policy or contract of insurance or the receipt of

premium is conclusive evidence of its payment​. (Section 79, Amended
Insurance Code of the Philippines)
 3. ​If the parties have agreed to the payment in installments of the premium
and partial payment has been made at the time of loss. (Makati Tuscany
Condominium vs. Court of Appeals, 215 SCRA 463​)

4. ​If the insurer has granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term, recovery on
the policy should be allowed even though the premium is paid after the
loss but within the credit term. (Makati Tuscany Condominium vs. Court of
Appeals, 215 SCRA 463.​)

5. ​Estoppel. It would be unjust and inequitable if recovery on the policy

would not be permitted against Insurer, which had consistently granted a
60- to 90-day credit term for the payment of premiums despite its full
awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Insured relied in good faith on such practice. (UCPB General
Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])

6. ​Whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No credit
extension to a duly licensed intermediary should exceed ninety (90) days
from date of issuance of the policy. (Insurance Code of the Philippines,
Section 77).

Notice and Proof of Loss

Notice of Loss:

○ When an insured event occurs (such as an accident, damage, or loss), the

policyholder must promptly notify the insurer. This notice should be in writing
and directly sent to the insurer at the specified address.

If the notice is mailed, the date of posting is considered the date of notice. Proof of
posting serves as sufficient evidence of notice.

● Proof of Loss:
○ After notifying the insurer, the policyholder provides proof of the loss. This
documentation substantiates the claim and includes relevant details such as the nature
of the loss, extent of damage, and associated costs.

Common documents for proof of loss include:

■ Official accident reports (e.g., police reports or newspaper clippings).
■ Affidavits from witnesses.
■ Birth and death certificates (if applicable).
■ Autopsy reports (if relevant).
■ Proof of relationship between the beneficiary and the insured

Instances When Defects Are Waived:

○ There are scenarios where defects in the notice or proof of loss are considered
waived by the insurer:
■ The insurer declares the policy null and void, deeming notice or proof of loss
useless.
■ The insurer acknowledges liability to pay the claim.
■ The insurer denies all liability under the policy.
■ The insurer participates in arbitration proceedings to determine the loss amount
without objecting to notice or preliminary proof
■ The insurer raises objections on grounds other than formal defects in preliminary
proof.
●​ Double Insurance; Overinsurance

Double insurance exists when the same person is insured by several insurers
separately in respect to the same subject and interest. (Sec. 95, ICP) ​

Requisites:
(1) The person insured is the same
(2) There are two or more insurers insuring separately
(3) The subject matter is the same; ​
(4) The interest insured is also the same; and
(5) The risk or peril insured against is likewise the same.
(Aquino-Sundiang, Sr., Reviewer on Commercial Law, 2022 Edition, pp. 71-72; Malayan
Insurance Co., Inc. v: Philippine First Insurance Co., G.R. No. 184300, July 14, 2012).​​

Nature of the liability of the several insurers in double insurance

- In double insurance, the insurers are considered as co-insurers. Each one is
bound to contribute ratably to the loss in proportion to the amount for which he is
liable under his contract. (Divina, Divina on Commercial Law A Comprehensive
Guide, Vol. I, 2021, p. 39)​

Double insurance in life insurance

- There can be double insurance in life insurance but there can never be
over-insurance because of the intrinsic value of life.

Effects of Double Insurance and Over- Insurance (Sec. 96, ICP)

 1. 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 the respective contracts;

2. Where the policy under which the the insured claims is a valued policy, any
sum received by him under any policy shall be deducted from the value of
the policy without regard to the actual value of the subject matter insured;
3. 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;
4. 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
contribution among themselves;
5. Principle of Contribution – 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. (Malayan Insurance Co.,
Inc. v. Philippine First Insurance Co., Inc., G.R. No. 184300, July 11, 2012)
6. Discovery of other insurance coverage in excess of the value of property is
a ground for rescission (Sec. 64[f], IPC)

●​ Reinsurance

defined as one by which an insurer procures a third person (reinsurer) to insure

him against loss or liability by reason of such original insurance. A separate and
distinct arrangement from the original contract of insurance, a reinsurance agreement
insures the contracted risk in the original insurance contract. The reinsurer's contractual
relationship is with the direct insurer, not the original insured, and the latter has no
interest in and is generally not privy to the contract of reinsurance. Plainly, reinsurance
is the "insurance of an insurance."

General Rule

The original insured has no interest in a contract of reinsurance (Sec. 100, ICP). There
is no privity between the original insured and the reinsurer. Thus, the original insured
cannot file an action to recover from the reinsurer even if he has difficulty in recovering
from the original insurer.
​​​
Neither can the reinsurer intervene in the case filed by the insured against the original
insurer.

Exception:

The original insured may be allowed to directly sue the reinsurer if the reinsurance
policy contains a stipulation pour autrui in favor of the original insured. Under the same
general principle, the reinsurer is not required to comply with the requirements imposed
under the rules only to the original insurer.