INSURANCE

PLM LAW
RECAP

Essential requisites (P-A-R-I-S)

1. PREMIUM
• Effect if premium is not paid:
General Rule: The policy or contract of insurance is not binding
If first premium unpaid: The obligation of the insurer is not valid and binding
If the subsequent premiums are not paid: the policies issued will be deemed
to have lapsed.
Mere delivery of a promissory note or a post-dated is not sufficient for payment
unless under the exceptions
2. ASSUMES THE RISK
3. RISK OF LOSS
-A contingent or unknown event, whether past or future; and
“Past Event” refers to awareness of the event [according to Aquino: this is peculiar to
Marine Insurance Policies – “lost or not lost” clauses] o Must damnify the insured or
create liability against him.

Definition of “damnify”: to cause injury to..

So the risk must cause injury to the insured, if it happens.
4. INSURABLE INTEREST

5. Such assumption of risk is part of a GENERAL SCHEME to distribute actual

losses among a large group of persons bearing a similar risk.

Distribution of losses: Insurance is a “risk-spreading device”

Test to Determine Whether a Contract is a Contract of Insurance: “Whenever the

assumption of risk and the indemnification of loss is the principal object and
purpose of the contract”
INTERPRETATION

General Rule: The terms in a contract of

insurance must be interpreted in its PLAIN,
ORDINARY, AND POPULAR meaning. When
the words are clear, then the policy must be
enforced.
Exception: When the terms used are
ambiguous, then the ambiguity must be
resolved strictly against the insurer and
liberally in favor of the insured.
CASES

Gaisano Cagayan v. Insurance Company of North America (burned garments):

Petitioner claimed ambiguity as to what the insurance policy covered. They
claimed that what was covered are the actual ready made clothes (the jeans that
were lost to fire). The Court denied the claim, and stated that it was the “book
debts” that were insured.

It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction. In this case, the questioned
insurance policies provide coverage for "book debts in connection with ready-
made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines."; and defined book debts
• Malayan Insurance v. Court of Appeals (“arrested” ship): Petitioner claimed that the term “arrest”
should be strictly applied to instances where a ship was seized due to “executive or political acts
of the government, and excludes seizure by legal process”.

The Court held that It has been held that a strained interpretation which is unnatural and
forced, as to lead to an absurd conclusion or to render the policy nonsensical, should, by all
means, be avoided. Likewise, it must be borne in mind that such contracts are invariably
prepared by the companies and must be accepted by the insured in the form in which they are
written. Any construction of a marine policy rendering it void should be avoided. Such policies
will, therefore, be construed strictly against the company in order to avoid a forfeiture, unless
no other result is possible from the language used.
• Gulf Resorts v. Philippine Charter Insurance Corporation (earthquake
shock): The Petitioner was claiming under four insurance policies for risk of
loss due to earthquake shock, which covered two swimming pools only. An
earthquake struck Central and Northern Luzon, and there was damage
caused to petitioner's resort (Agoo Playa Resort), including the two
swimming pools in the policy. Petitioner claimed under the policy for the
whole resort, including the clubhouse. The insurance company denied the
claim, except for the two swimming pools. The Court denied the Petitioner’s
claim, and held that :
• It is basic that all the provisions of the insurance policy should be
examined and interpreted in consonance with each other. All its
parts are reflective of the true intent of the parties.
PARTIES
• There are two parties to a contract of insurance:
1) The insured: The owner of the policy whose property or life is insured or who took out the
insurance over the life of persons in whom he has insurable interest.
In life insurance: If a person insures the life of another, the person whose life is insured is
called the “insured,” and the person who took out the insurance on another’s life is the
“assured.”
2) The insurer: The party who promises to pay in case loss results because the peril insured
against occurred. Who may be an insurer (Sec. 6, Insurance Code): Every person, partnership,
association or corporation duly authorized to transact insurance business may be an insurer.
Capacity to Contract Insurance Policy

1) The incapacitated A contract is voidable if one of the parties is

incapacitated. If the insured is a minor, the insurance policy
would be voidable. Remedy: A capacitated person (i.e. a parent)
takes out an insurance policy for a minor.
2) Spouses Married women can enter into an insurance contract
on his or her life or that of his or her children without the consent
of their husbands (Sec. 3, Insurance Code)
[Aquino: The implication of this is that if the insurance policy is taken out for
the benefit of a stranger; that is, not “his or her life or that of his or her
children,” then a spouse would need marital consent to take out the policy.
Of course, this depends on the property regime of the spouses.
Beneficiaries
• Definition: The beneficiary is the person in whose favor the contract of insurance was taken by the insured and who will
receive the proceeds of the insurance in case of loss.
Q: Is the beneficiary a party to the contract of insurance?
A: It depends. In the strict legal sense, the beneficiary is not a party to the contract.
Exception: If the beneficiary is the insured himself.

Section 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the policy.
Rules

A.
1)If there is a beneficiary who is designated, and the designation is valid, then only the
designated beneficiary is entitled to receive the proceeds.
2) If there is a designated beneficiary, and there is an heir of the deceased (insured), then it
is the designated beneficiary, and not the heir, who may claim the insurance policy.
3) If there is a designated beneficiary, then the insurer has no obligation to turn over the
proceeds of the insurance to third persons, even if the third persons are immediate
relatives of the insured.

B. No Designated Beneficiary 1) If there is no designated beneficiary when the laws of

succession would apply. 2) If the designation is void, then the laws of succession are likewise
applicable.
Disqualification of Designated Beneficiaries The same persons who are
forbidden from receiving a donation are likewise disqualified as
beneficiaries (reason: designating a beneficiary is an act of liberality)
1) Those made between persons who are guilty of adultery or
concubinage at the time of the donation;

2) Those made between persons found guilty of the same criminal

offense, in consideration thereof;

3) Those made to a public officer or his wife, descendants and

ascendants, by reason of his office.