BAM200: VARIABLE CONTRACTS, CLAIMS SETTLEMENT & SUBROGATION

VARIABLE CONTRACTS
Section 238(b). The term variable contract shall mean any policy or contract on either a group
or on an individual basis issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary as to reflect investment results of any
segregated portfolio of investment or of a designated separate account in which amounts
received in connection with such contracts shall have been placed and accounted for separately
and apart for other investments and accounts.
 This contract may also provide benefits payable in fixed or variable amounts, or both.
Section 238(c). In determining the qualifications of a company requesting authority to issue,
deliver, sell or use variable contracts, the Commissioner shall always consider the following:
1. The history, financial, and general conditions of the company. Provided that, if a foreign
company, must have deposited securities to the Commissioner consisting of bonds or
instrumentalities with actual market value of 2,000,000.
2. The character, responsibility, and fitness of the officers of the company.
3. The law and regulation under which the company is authorized in the state of domicile to
issue such contracts.
VARIABLE LIFE INSURANCE

 Life insurance in which the premiums are invested in securities and whose death
benefits thus depend on the securities’ performance, though there is a minimum
guaranteed death benefit.
 The death payments are usually guaranteed not to fall below a minimum face value but
could increase if the equity values increased.
Section 243: Every life insurance authorized under the provisions of this Code to issue, deliver,
sell or use variable contracts shall establish one or more separate accounts to be known as
separate variable accounts.
 Assets and liabilities of each separate variable accounts shall be identifiable and
distinguishable.
 Assets in separate variable accounts shall not be charged with liabilities arising out of
any other business.
 In case of insolvency of the company, the assets shall be applied to the contractual claim
of the owners or beneficiaries.
 No sale, exchange or transfer of assets between any of the separate variable accounts,
unless approved by Commissioner.
Valuation of Assets
Section 245. Assets allocated to any separate variable accounts shall be valued at:
1. Market value at the date of valuation
2. Terms of the variable contract applicable to such assets
3. Prescribed by the rules and regulations of the Commissioner.
CLAIM SETTLEMENT

 Claim settlement is the indemnification of the loss suffered by the insured.

The claimant may be the:
 Insured or reinsured.
 The insurer who is entitled to subrogation; or
 A third party who has claim against the insured.
Section 247(a). No insurance company in the Philippines shall refuse, without just cause, to
pay or settle claims arising under coverages provided by the policies nor shall engage in unfair
claim settlement practices.
Unfair Settlement Practices
1. Knowingly misrepresenting to claimants’ pertinent facts or policy provisions relating to
coverage at issue.
2. Failing to acknowledge with reasonable promptness pertinent communications with
respect to claims arising under its policies.
3. Failing to adopt and implement reasonable standards for the prompt investigation of
claims arising under its policies.
4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
5. 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.
Section 247(c). If it is found that an insurance company has violated this section, each instance
of noncompliance with paragraph (a) 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.
Sanctions for the insurance companies which engaged to unfair settlement practices.
 Suspension
 Revocation of Certificate of Authority
Claims Settlement in Life Insurance
 Proceeds shall be paid immediately upon the maturity of the policy if there is such a
maturity date.
 If the policy is payable in installments or as an annuity, then they should be paid as they
become due.
 When the policy matures by the death of the insured, the proceeds shall be paid within
sixty (60) days after the presentation of the claim and filing of the proof of death of the
insured.
Claims Settlement in Property Insurance
 Proceeds shall be paid within thirty (30) days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made either by agreement or by arbitration.
  If no ascertainment is made within sixty (60) days after the receipt o proof of loss, it shall
be paid within ninety (90) days after such receipt.
NOTE
REFUSAL OR FAILURE TO PAY WITHIN THE TIME PRESCRIBED WILL ENTTITLE THE
BENEFICIARY TO COLLECT INTEREST ON THE PROCEEDS OF THE POLICY FOR THE
DURATION OF THE DELAY AT THE RATE OF TWICE THE CEILING PRESCRIBED BY THE
MONETARY BOARD, UNLESS THE GROUND FOR REFUSAL OR FAILURE TO PAY IS
CAUSED BY FRAUDULENT CLAIM.

What happens when the claim is fraudulent?

 A claim is fraudulent when there is a serious difference between the actual loss and what
is being claimed.
FORFEITED, IF THE CLAIM IS FRAUDULENT, ALL BENEFITS UNDER THE POLICY SHALL
BE FORFEITED.

PRINCIPLE OF SUBROGATION

 If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer rights of the insured against the wrongdoer or the person who
has violated the contract. person who has violated the contract (NCC, Art. 2207)
 The insurer, upon happening of the risk insured against and after payment to the insured
is subrogated to the rights and cause of action of the latter. As such, the insurer has the
right to seek reimbursement for all the expenses paid. (Eastern Shipping Lines vs.
Prudential Guarantee and Assurance, Inc., G.R. No. 174116, September 1, 2009)
NOTE
The principle of subrogation 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, G.R. No. L-36413, Sept. 26, 1988)
Purposes of subrogation
 To make the person who caused the loss legally responsible for it.
 To prevent the insured from receiving double recovery from the wrongdoer and the
insurer.
 To prevent the tortfeasors from being free from liability and is thus founded on
consideration of public policy.
Rules on Subrogation
 Applicable only to property insurance.
 The right of the insurer against the third party is limited to the amount recoverable from
the latter by the insured.
What happens when the amount paid by the Insurance Company does not fully recover
the injury or loss?

 The aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
Instances where the right of subrogation does not apply:
 Where the insured by his own act releases the wrongdoer or third party liable for loss or
damage from liability.
 The insurer loses his rights against the wrongdoer since the insurer can only be
subrogated to only such rights as the insured may have.
 Where the insurer pays the insured the value of the loss without notifying the carrier who
has in good faith settled the insured claim for loss.
 Where the insurer pays the insured for a loss or risk not covered by the policy
 Life Insurance
 For recovery of loss in excess of insurance coverage
NOTE:
Since the insurer can be subrogated to only such rights as the insured may have, should the
insured, after receiving payment from the insurer, release the wrongdoer who caused the loss,
the insurer loses his rights against the latter. But in such case, the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless the release was made with the
consent of insurer.