1.

EXPLAIN THE CONCEPT OF INSURANCE

Insurance is a type of contract. A contract of insurance is an agreement by which one party
(insurer) for a consideration (premium) paid by the other party (insured), promises to pay
money or its equivalent or to do some act valuable to the latter (or his nominee), upon the
happening of a loss, damage, liability, or disability arising from unknown or contingent
event.
In general, an insurance contract is a promise by one person to pay another, money or any
other thing of value upon the happening of a fortuitous event beyond the effective control
of either party in which the promise has an interest apart from the contract.
In insurance, the insurer, for a stipulated consideration, undertakes to compensate the
insured for a future loss, damage or liability on a specified subject caused by a specified
event or peril. A written insurance contract is called a policy.
2. WHAT ARE THE ELEMENTS OF AN INSURANCE CONTRACT AND EXPLAIN EACH
An insurance contract has the following elements:
1. Insurable interest the insured possesses an interest of some kind susceptible of
pecuniary estimation
2. Risk of loss the insured is subject to a risk of loss through the destruction or
impairment of the above insurable interest by the happening of designated perils
3. Assumption of risk the insurer assumes the risk of loss mentioned above
4. Scheme to distribute losses the said assumption of risk is a part of a general scheme
(plan) to distribute actual losses among a large group of persons bearing somewhat similar
risks; and
5. Payment of premiums as consideration for the insurers promise to assume the risk and
pay the losses from such risk, the insured makes a ratable contribution, called a premium,
to a general insurance fund
If you only have insurable interest, risk of loss and assumption of risk of loss, you do not
have a contract of insurance. It is a mere risk-distributing device. But if it has all of the five,
it is a contract of insurance whatever its name or form.
3. EXPLAIN THE CHARACTERISTICS/NATURE OF INSURANCE CONTRACT
4. CLASSES OF INSURANCE CONTRACTS AND EXPLAIN EACH
a. Marine
Section 101. Marine Insurance includes:
"(a) Insurance against loss of or damage to:
"(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, securities, choses in action,
instruments of debts, valuable papers, bottomry, and respondentia interests
and all other kinds of property and interests therein, in respect to, appertaining
to or in connection with any and all risks or perils of navigation, transit or
transportation, or while being assembled, packed, crated, baled, compressed or
similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment incident thereto, including war
risks, marine builders risks, and all personal property floater risks;
"(2) Person or property in connection with or appertaining to a marine, inland
marine, transit or transportation insurance, including liability for loss of or
damage arising out of or in connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance (but not including
life insurance or surety bonds nor insurance against loss by reason of bodily
injury to any person arising out of ownership, maintenance, or use of
automobiles);
"(3) Precious stones, jewels, jewelry, precious metals, whether in course of
transportation or otherwise; and

"(4) Bridges, tunnels and other instrumentalities of transportation and

communication (excluding buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves, docks and slips, and
other aids to navigation and transportation, including dry docks and marine
railways, dams and appurtenant facilities for the control of waterways.
"(b) Marine protection and indemnity insurance, meaning insurance against, or
against legal liability of the insured for loss, damage, or expense incident to
ownership, operation, chartering, maintenance, use, repair, or construction of
any vessel, craft or instrumentality in use of ocean or inland waterways,
including liability of the insured for personal injury, illness or death or for loss of
or damage to the property of another person.
b. Fire
Section 169.
As used in this Code, the term fire insurance shall include insurance against
loss by fire, lightning, windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire insurance policies or under
separate policies.
c.

Casualty
Section 176.
Casualty insurance is insurance covering loss or liability arising from accident
or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of other types of insurance
such as fire or marine. It includes, but is not limited to, employers liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and
theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance.

d. Suretyship
Section 177.
A contract of suretyship is an agreement whereby a party called the surety
guarantees the performance by another party called the principal or obligor of
an obligation or undertaking in favor of a third party called the obligee. It
includes official recognizances, stipulations, bonds or undertakings issued by
any company by virtue of and under the provisions of Act No. 536, as amended
by Act No. 2206.
e. Life
Section 181.
Life insurance is insurance on human lives and insurance appertaining thereto
or connected therewith.
"Every contract or undertaking for the payment of annuities including contracts
for the payment of lump sums under a retirement program where a life
insurance company manages or acts as a trustee for such retirement program
shall be considered a life insurance contract for purposes of this Code.

f.

Compulsory Motor Vehicle Liability Insurance

A species of compulsory insurance that provides for protection coverage that
will answer for legal liability for losses and damages for bodily injuries or
property damage that may be sustained by another arising from the use and
operation of motor vehicle by its owner
Purpose: To give immediate financial assistance to victims of motor vehicle
accidents and/or their dependents, especially if they are poor regardless of the
financial capability of motor vehicle owners or operators responsible for the
accident sustained (Shafer v. Judge, RTC, 167 SCRA 386).
It applies to all vehicles whether public and private vehicles.
It is the only compulsory insurance coverage under the Insurance Code.

5. INSURABLE INTEREST

1. Insurable Interest in Life/Health may consist in what?

(Sec 10) Every person has an insurable interest in the life and health:
i. Of himself, of his spouse and of his children
ii. Of any person on whom he depends wholly or in part for education or
support, in whom he has a pecuniary interest;
iii. Of 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;
iv. Of any person upon whose life any estate or interest vested in him
depends.
2. Insurable Interest in Property Insurance may consist in what?
(Sec 14) Insurable interest in property may consist in
i. An existing interest which may be a legal title or equitable title
ii. An inchoate interest founded on an existing interest
iii. An expectancy, coupled with an existing interest in that out of which the
expectancy arises
3. Explain Double Insurance and Over Insurance
(Sec 95) Double Insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. Double insurance is
not contrary to law; the insurers may thus be held liable up to the extent of the
value of the thing insured but not to exceed the amount of the policies issued.
The requisites of Double Insurance are:
1. The person insured is the same
2. Two or more insurers insuring separately
3. There is identity of subject matter
4. There is identity of interest insured
5. There is identity of risk or peril insured against.
Over Insurance exists where the insured obtains a policy in an amount exceeding
the value of his insurable interest. Since property insurance is a contract of
indemnity, in the event of loss, the recovery will be limited to the value of the
insureds insurable interest. Moreover, there is no over insurance n life insurance
because no value could be placed on human life except when the insurable interest
of the insured is susceptible of pecuniary estimation.
1.
2.

In double insurance, there must be two or more insurers while in over

insurance, one insurer is sufficient.
In double insurance, the total amount of the policies taken need not exceed the
value of insurable interest while in over insurance, the insurance taken must
always be more than the amount of insurable.

4. Explain Multiple or Several Interest on Same Property

When there are multiple owners, or mortgagor and mortgagee, life tenant, or lessor
and lessee, each party may purchase insurance on the property to protect their
interests in the event of a loss.
In the event of a loss and multiple insurance policies held by different parties, each
insured may only recover up to the value of its interest in the property, even if the
amount of the insurance exceeds the insureds interest.
For example, In case of a mortgaged property
The mortgagor and mortgagee each have an insurable interest in the property
mortgaged and this interest is separate and distinct from the other.
Mortgagor As owner, has an insurable interest therein to the extent of its value,
even though the mortgage debt equals such value. The reason is that the loss or
destruction of the property insured will not extinguish the mortgage debt.
Mortgagee As creditor, has an insurable interest in the mortgaged property to the
extent of the debt secured, since the property is relied upon as security thereof,
and in insuring, he is not insuring the property itself but his interest or lien thereon.
Such interest continues until the mortgage debt is extinguished.
6. PERFECTION OF THE CONTRACT OF INSURANCE. Explain the following:
1. Offer and Acceptance/Consensual

2.
3.
4.
5.

A contract of insurance, like other contracts, must

a.
Delay in Acceptance
b.
Delivery of Policy
Premium payment
Non-default Options in Life Insurance
Reinstatement of a Lapse Policy of Life Insurance
Refund of Premium when can it be invoked?

7. RESCISSION OF INSURANCE CONTRACTS. Explain the following:

1. Concealment
p. 45
(Sec 26) Concealment is a neglect to communicate that which a party knows and ought to
communicate. It is the intentional withholding by the insured of any fact material to the
risk.
(Sec 27) Concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.
(Sec 28) Each party of an insurance contract 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.
(Sec 31) 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 f the proposed contract, or in making his
inquiries.
To be guilty of concealment, the party must have knowledge of the fact concealed at the
time of the effectivity of the policy. Even is a party did not know of the existence of a
material fact at the time of its application, but acquired knowledge thereof after the
application but before the effectivity of the policy, he is guilty of concealment should he fail
to communicate such fact to the other.
2. Misrepresentation/Omissions
p. 56
Misrepresentation in insurance is a statement (1) as a fact of something which is untrue,
(2) which the insured stated with knowledge that it is untrue and with an intent to deceive,
or which he states positively as true without knowing it to be true and which has a
tendency to mislead, and (3) where such fact in either case is material to the risk.
Such a misrepresentation by the insured renders the insurance contract voidable at the
option of the insurer, even though innocently made and without wrongful intent.
3. Breach of Warranties
Warranty is a statement or promise by the insured contained in the policy itself or
incorporated in r attached to it by proper reference, the falsity or nonfulfillment of which
and regardless of whether or not the insurer has suffered loss or prejudice as a result of
falsity or nonfulfillment, renders the policy voidable at the election of the insurer.
[In other words, the contract of insurance is rendered voidable by the insurer without
reference to the materiality of the statement or promise, and to whether the insurer was in
fact, prejudiced by such breach.
8. CLAIMS OF SETTLEMENT AND SUBROGATION. Explain the following:
1. Notice and Proof of Loss
Life Insurance Losses (page 597)
Proof of Death:
The life insurance policy does not provide for payment upon death but
rather for payment upon submission of proof of death to the insurer.
This notice may be given by a beneficiary or the legal representative of the
insured.
Fire Insurance Losses (page 599)
Obligations of the Insured:
The fire insurance contract imposes definite obligations upon the insured
immediately upon the occurrence of a loss:

1.
2.

The requirement of the notice of loss and obligation to file a proof

of loss, are conditions with which the insured must comply before
there is any liability on the part of the insurer.
After the fire, the insured is required to do everything reasonable to
prevent further damage to the property insured. An insured who
fails to protect his property adequately from further loss after the
fire, cannot collect for the additional loss thus occasioned.

Sufficiency of Proof of Loss:

While the insurer, and the Insurance Commissioner for that matter,
have the right to reject proofs of loss if they are unsatisfactory, they
may not set for themselves an arbitrary standard of satisfaction.
Substantial compliance with the requirements will always be deemed
sufficient.
Thus, when the insureds proof of loss is based on the report of
insurers adjuster which the insurer itself introduced in evidence, the
report should be given weight and credence as it could very well be
considered as an admission of its liability up to the amount
recommended.
SUMMARY NOTICE OF LOSS
In fire insurance

In other types of insurance

Required

Not required

Failure to give notice will

defeat the right of the
insured to recover.

Failure to give notice will not

exonerate the insurer, unless
there is a stipulation in the
policy requiring the insured to
do so.

2. Guidelines on Claims Settlement

1.

Unfair Claims Settlement; Sanction

Section 247.
No insurance company doing business in the Philippines shall refuse,
without just cause, to pay or settle claims arising under coverages provided
by its policies, nor shall any such company engage in unfair claim
settlement practices.
Any of the following acts by an insurance company, if committed without
just cause and performed with such frequency as to indicate a general
business practice, shall constitute unfair claim settlement practices:
(a) knowingly misrepresenting to claimants pertinent facts or policy
provisions relating to coverage at issue;
(b) failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its policies;
(c) failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
(d) not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become reasonably
clear; or
(e) compelling policyholders to institute suits to recover amounts due
under its policies by offering without justifiable reason substantially less
than the amounts ultimately recovered in suits brought by them.

Evidence as to numbers and types of valid and justifiable complaints to

the Commissioner against an insurance company, and the
Commissioner's complaint experience with other insurance companies
writing similar lines of insurance shall be admissible in evidence in an
administrative or judicial proceeding brought under this section.
If it is found, after notice and an opportunity to be heard, that an
insurance company has violated this section, each instance of noncompliance with paragraph (1) may be treated as a separate violation of
this section and shall be considered sufficient cause for the suspension or
revocation of the company's certificate of authority.
2.

Prescription of Action
LIFE POLICIES

NON-LIFE POLICIES

a. Maturing upon the expiration of

the term The proceeds are
immediately payable to the insured,
unless they are made payable in
installments or as annuity, in which
case, the installments or annuities shall
be paid as they become due.

The proceeds shall be paid within 30

days after the receipt by the insurer
of proof of loss, and ascertainment
of the loss or damage by agreement
of the parties or by arbitration but
not later than 90 days from such
receipt of proof of loss whether or
not ascertainment is had or made.

b. Maturing at the death of the

insured,
occurring
prior
to
the
expiration of the term stipulated The
proceeds
are
payable
to
the
beneficiaries within 60 days after
presentation and filing of proof of
death.
3.

Subrogation

It is a process of legal substitution where the insurer steps into the shoes of
the insured and he avails of the latters rights against the wrongdoer at the
time of loss.
The principle of subrogation is a normal incident of indemnity insurance as
a legal effect of payment; it inures to the insurer without any formal
assignment or any express stipulation to that effect in the policy. Said right
is not dependent upon nor does it grow out of any private contract.
Payment to the insured makes the insurer a subrogee in equity. (Malayan
Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
Purposes: (The Insurance Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
1. To make the person who caused the loss legally responsible for it.
2. To prevent the insured from receiving a double recovery from the
wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is thus
founded on considerations of public policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured
could have recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or
third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss
without notifying the carrier who has in good faith settled the
insureds claim for loss;

c.

d.
e.

Where the insurer pays the insured for a loss or risk not
covered by the policy. (Pan Malayan Insurance Company v. CA,
184 SCRA 54)
In life insurance
For recovery of loss in excess of insurance coverage