Insurance Code

GOVERNING LAWS
a. Insurance Code of 1978 (P.D. 1460, as amended);
b. Revised Government Service Insurance Act of 1977 (P.D.
1146, as amended);
c. Social Security Act if 1954 (R.A. 1161, as amended);
d. Government Property Insurance Law (R.A. 656, as
amended by PD 245);
e. Philippine Deposit Insurance Corporation Law (R.A. 3591 as
amended);
f. Code of Commerce
g. An Act of Strengthening the Insurance Industry (R.A.
10607); and
h. An Act Amending the National Health Insurance Act of 1995
(R.A. 10606).
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INSURANCE
It 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 happening of a
loss, damage, liability, or disability arising from an unknown or
contingent event
Functions of Insurance
● Principal: Risk bearing

● Subsidiary

● Indirect

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Characteristics of Insurance
● Risk Distributing Device - the insurer’s assumption of risk is part
of a general scheme to distribute the loss among a large
number of persons exposed to similar risks, who contributes to
a common fund from which the losses incurred are
compensated

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Characteristics of Insurance
● Aleatory - the insurer’s obligation is dependent on the
happening of an event, which is uncertain, on which is to occur
at an indeterminate time

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Characteristics of Insurance
● Personal – each party having in view the character, credit and
conduct of the other

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Characteristics of Insurance
● Executory – the contract is executory to the insurer and subject
to conditions, the principal one of which is the happening of the
event insured against

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Characteristics of Insurance
● Contract of Adhesion (Fine Print Rule) – the policy is presented
to the insured already in its printed form, so that the he either
“takes it or leaves it”.

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Characteristics of Insurance
● Conditional – it is subject to conditions, the principal one of
which is the happening of the event insured against

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Characteristics of Insurance
● Uberrimae Fidae – the contract of insurance is one of perfect
good faith which requires both of the insurer and the insured to
disclose conditions affecting the risk of which he is aware, or
material fact, which the applicant knows, and those he ought to
know

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Characteristics of Insurance
● Consensual – it s perfected by the meaning of the minds of the
parties

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Characteristics of Insurance
● Unilateral – imposes legal duties only on the insurer who
promises to indemnify another in case of loss. It is executed as
to the insured after payment of premium and executory on the
part of the insurer until payment for a loss

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Distinguishing Elements of Contract of
Insurance
1. Payment of Premium – the consideration for the insurer’s
promise to undertake the risk of loss;
2. Assumption of Loss – the insurer’s undertakes to assume the risk
of loss;
3. Risk of Loss – the happening of designated events, either
unknown or contingent, past or future, will subject such interest
to some kind if loss, whether in the form of injury, damage or
liability;

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Distinguishing Elements of Contract of
Insurance
4. Insurable Interest – the insured has an insurable interest in the
life or thing insured, i.e. pecuniary interest; and

5. Scheme to distribute the losses – the assumption of risk is part of

a general scheme to distribute the loss among a large number of
persons exposed to similar risks

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Other Elements of a Valid Contract of
Insurance:
1. Consent of the Contracting parties;

2. Object certain which is the subject matter of the contract; and

3. Cause of the obligation which is established; and insurable

interest

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Classes of Insurance Contract:
Fire Insurance- a contract by which the insurer for a consideration
agrees to indemnify the insured against loss of, or damage to,
property by hostile fire, including loss by lightning, windstorm,
tornado or earthquake and other allied risks, which such risks are
covered by extension to fire insurance policies or under separate
policies

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Classes of Insurance Contract:
Casualty Insurance – insurance covering loss or liability
arising from accident or mishap, excluding those falling
under other types of insurance such as fire or marine

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Classes of Insurance Contract:
Suretyship – an agreement where a party called a surety,
guarantees the performance by another called the principal
obligator of an obligation or undertaking in favor of third party
called the oblige

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Classes of Insurance Contract:
● Marine Insurance – an insurance against the risks connected
with navigation, to which a ship, cargo, freightage, profits, or
other insurable interest in movable property, may be exposed
during a certain voyage or a fixed period of time

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Classes of Insurance Contract:
● Life Insurance – insurance on human lives and insurance
appertaining thereto or connected therewith which includes
every contract or pledge for the payment of endowments or
annuities

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Classes of Insurance Contract:
● Compulsory Motor Vehicle Liability Insurance (CMVLI) – a
species of compulsory insurance that provides 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 a
motor vehicle by its owner

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Classes of Insurance Contract:
● Microinsurance – an activity providing specific insurance,
insurance-like and other similar products and services that meet
the needs of the low-income sector for risk protection and relief
against distress, misfortune, and other contingent events

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CONTRACT OF
INSURANCE
Perfection of the Contract of Insurance
● Cognition theory: An insurance contract is perfected the
moment the offeror learns of the acceptance of his offer
by the other party

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Construction of Insurance Contract
● The terms in an insurance policy which are ambiguous ,
equivocal or uncertain are to be construed strictly and most
strongly against the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment
to the insured

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Parties to an Insurance Contract:
1. Insurer

He is the party who assumes or accepts the risk of loss and

undertakes for a consideration to indemnify the insured or to pay
him a certain sum on the happening of a specified contingency or
event

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Insurance Corporation

● Requisites:
a. It must have sufficient capital and assets required (INSURANCE
CODE , Sec. 192); and
b. It must have a certificate of authority to operate issued by the
Insurance Commission which should be renewed every year

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Parties to an Insurance Contract:
2. Insured

He is person in whose favor the contract is operative and who is

indemnified against, or is to receive a certain sum upon the
happening of a specified contingency event. He is the person whose
loss is the occasion for the payment of the insurance proceeds by
the insurer

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Parties to an Insurance Contract:
3. Cestui que vie
He is the person on whose life the insurance is written. It is the
person while life is used to measure the duration of a trust gift or
insurance contract

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Parties to an Insurance Contract:
4. Beneficiary

He is the person designated by the terms of the policy as the one

to receive the proceeds of the insurance

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ELEMENTS OF AN INSURANCE
CONTRACT
1. The insured should possess an interest of some kind,
susceptible of pecuniary estimation – INSURABLE
INTEREST
2. The insured is subject to risk of loss through the
destruction or impairment of that interest by the
happening of the designated risks

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ELEMENTS OF AN INSURANCE
CONTRACT
3. The insurer assumes the risk of loss
4. Such assertion is part of a general scheme to
distribute actual loss among a large group of persons
bearing somewhat similar risks
6. As a consideration for the insurer’s promise, the
insured make a ratable contribution called PREMIUM
to the general insurance fund.

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INSURABLE
INTEREST
Insurable Interest
A person is deemed to have an insurable interest in the subject
matter insured where he has a relation or connection with or
concern in it that he will derive pecuniary or financial benefit or
advantage from its preservation and will suffer pecuniary loss or
damage from its destruction, termination, or injury, by the
happening of the event insured against

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GR: PECUNIARY NATURE
● Exception: Life insurance

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Persons in whose Life and Health the
Insured has an Insurable Interest:
● On himself, his spouse, or his children
● Of any person on whom he depends wholly or in part for
education or support, or in whom he has pecuniary interest
● Of any person under legal obligation to him for the payment of
money, or respecting property or services of which death or
illness might delay or prevent performance.
● Of any person upon whose life or estate vested in him depends

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Two General Classes of Life Policies:
1. Insurance upon one’s life – does not usually present an insurable
interest question
2. Insurance upon life of another – When one applies for insurance
bon the life of another for the former’s benefit, he must have an
insurable interest in the life of that person

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[Link] Upon One’s Life (Insured =
Cestui que vie)
● The insured can make it payable to anyone he chooses except
persons forbidden from receiving any donation
● , regardless of whether or not such beneficiary has an insurable
interest in the insured’s life

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[Link] Interest in the Life of Another
(Insured = Beneficiary)
This exist whenever the relation between the beneficiary and the
insured, whether by blood, marriage, or commercial intercourse, is
such that the beneficiary has a reasonable expectation of deriving
benefit from the continuation of the life insured or suffering
detriment or incurring liability through its termination

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EXISTENCE OF INSURABLE
INTEREST (LIFE)
General Rule: Insurable interest in life or death must exist when
the insurance takes effect, but need not exist thereafter or when
the loss occurs (INSURANCE CODE, Sec. 19).

● Exceptions:
When taken by the creditor on the life of the debtor, the creditor is
required to have an insurable interest not only at the time of the
contract but also at the time of the debtors death because in this
case, it is considered as a contract of indemnity, the insurance
pertaining solely on the unpaid debt of the deceased; and 41
EXCEPTIONS
1. When taken by the creditor on the life of the debtor, the
creditor is required to have an insurable interest not only at
the time of the contract but also at the time of the debtors
death because in this case, it is considered as a contract of
indemnity, the insurance pertaining solely on the unpaid debt
of the deceased; and
2. When the insurance is taken by the employer on the life of
the employee

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Insurable Interest in Property Insurance
1. An existing interest
2. An inchoate interest founded on an existing interest
3. An expectancy, coupled with an existing interest in that
out of which the expectancy arises

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Effect of Absence of Insurable Interest in
Property In Property Insured:
● The insurance is void.

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Time of Existence
● An interest in property insured must exist when the insurance
takes effect and when the loss occurs, but need not exist in the
meantime

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Insurable Interest in Property v. Insurance
Interest in Life
Insurable Interest in Property Insurable Interest in Life
Extent
Insurable interest is limited to the actual value of the Insurable interest in life is unlimited (save in life insurance
interest thereon effected by a creditor on the life of a debtor)

Insurable Interest in Property Insurable Interest in Life

Existence of Insurable Interest
It must exist when the insurance takes effect and when the It is enough that interest exist at the time the policy tales
loss occurs, but need not exist in the meantime. effect and need not exist at the time of the loss.

Basis of Expectation
There must be legal basis. Expectation of the benefit derived need not have legal
basis.
Insurable Interest
The beneficiary must have an insurable interest in the thing If the insured secured the policy, the beneficiary need not
insured. have insurable interest over the life of the insured; if
secured by the beneficiary, the latter must have insurable
interest in the life of the insured.

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Insurable Interest of Mortgagor and
Mortgagee
1. Mortgagor – As owner, he has an insurable interest therein to
the extent of its value, even though the mortgage debt equals such
value

2. Mortgagee – His interest in only up to the extent of the debt.

Such interest continues until the mortgagee debt is extinguished

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Standard or Union Mortgage Clause v. Open
or Loss Payable Mortgage Clause
Standard or Union Mortgage Clause Open or Loss Payable Mortgage Clause
Subsequent acts of the mortgagor cannot Acts of the mortgagor affect the mortgagee.
affect the rights of the assignee.
 
 
Reason: Mortgagor does not cease to be a
Reason: It is as if the insurer made a new and party to the contract (INSURANCE CODE,
independent contract with the mortgagee. Sec. 8 and 9).

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Effects of Loss Payable Clause:
1. The contract is deemed to be upon the Interest of the
mortgagor; hence, he does not cease to be a party of the
contract;
2. Any act of the mortgagor prior to the loss, which would
otherwise Avoid the insurance affects the mortgagee even if the
property is in the hands of the mortgagee;
3. Upon Recovery by the mortgagee to the extent of his credit, the
debt is extinguished;
4. Any Act, which under the contract of insurance is to be
performed by the mortgagor, may be perform by the mortgagee
with the same effect; and
5. In case of Loss, the mortgagee is entitled to the proceeds to the
extent of his credit. 49
Transfer of Interest, Policy, or Claim
1. Change if Interest
● General Rule: A change of interest in any of the thing insured,
unaccompanied by a corresponding change if interest in the
insurance, suspends the insurance to an equivalent extent, until
the interest in the thing and the interest in the insurance are
vested in the same person

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Transfer of Interest, Policy, or Claim
2. Transfer of Policy

3. Transfer of Claim

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