Insurance Code of the

Philippines
Presidential Decree 1460
Definition

CONTRACT OF INSURANCE
An agreement whereby one undertakes
for a consideration to indemnify
another against loss, damage or
liability arising from an unknown or
contingent event. (Sec. 2, par. 2, IC)
Definition of terms
Binding Receipt - A mere acknowledgment on behalf of the company that its branch
office had received from the applicant the insurance premium and had accepted the
application subject to processing by the head office.
Cover Note (Ad Interim) - A concise and temporary written contract issued to the
insurer through its duly authorized agent embodying the principal terms of an
expected policy of insurance.
Riders - Printed stipulations usually attached to the policy because they constitute
additional stipulations between the parties.
Clauses - An agreement between the insurer and the insured on certain matter relating
to the liability of the insurer in case of loss. (Prof. De Leon, p.188)
Endorsements - Any provision added to the contract altering its scope or application.
Premium Payments- Consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
Definition of terms
 INCONTESTABILITY CLAUSE - Clause in life insurance policy that stipulates that the
policy shall be incontestable after a stated period. The period of 2 years may be shortened but
it cannot be extended by stipulation.

 OVER-INSURANCE – results when the insured insures the same property for an amount
greater than the value of the property with the same insurance company.

 DOUBLE INSURANCE – exists where same person is insured by several insurers

separately in respect to same subject and interest.

 REINSURANCE – a contract by which the insurer procures a third person to insure him
against loss or liability by reason of an original insurance (also known as “Reinsurance
Cession”).

 Proximate Cause – An event that sets all other events in motion without any intervening or
independent case, without which the injury or loss would not have occurred.
POLICY OF INSURANCE

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

 OPEN POLICY – value of thing insured is not agreed upon, but left

to be ascertained in case of loss.

 The actual loss, as determined, will represent the total indemnity due the
insured from the insurer except only that the total indemnity shall not
exceed the face value of the policy.
 VALUED POLICY – definite valuation of the property insured is
agreed by both parties, and written on the face of policy.
 In the absence of fraud or mistake, the agreed valuation will be paid in case
of total loss of the property, unless the insurance is for a lower amount.
 RUNNING POLICY – contemplates successive insurances and
which provides that the object of the policy
PARTIES TO INSURANCE CONTRACT

 Insurer - Person who undertakes to indemnify another.

 Insured - The party to be indemnified upon the occurrence

of the loss. He must have capacity to contract, must
possess an insurable interest in the subject of the insurance
and must not be a public enemy.
A public enemy- a nation with whom the Philippines is at war and it includes
every citizen or subject of such nation.

 Beneficiary - A person designated to receive proceeds of

policy when risk attaches.
Devices used for ascertaining and controlling risk and loss:

 Concealment – A neglect to communicate that which a party knows and ought to communicate

 Representations – Factual statements made by the insured at the time of, or prior to, the issuance of the
policy to give information to the insurer and induce him to enter into the insurance contract. They are
considered an active form of concealment.

 Warranties – Statement or promise by the insured set forth in the policy or by reference incorporated
therein, the
untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.

 Conditions – Events signifying in its broadest sense either an occurrence or a non-occurrence that alters
the previously existing legal relations of the parties to the contract. They may be conditions precedent or
conditions subsequent.
 
 Exceptions – Provisions that may specify excepted perils. It makes more definite the coverage indicated
by the general description of the risk by excluding certain specified risk that otherwise would be
included under the general language describing the risks assumed.
REQUISITES OF A CONTRACT OF
INSURANCE

 A subject matter which the insured has an insurable

interest.
 Event or peril insured against which may be any
future contingent or unknown event, past or future
and a duration for the risk thereof.
 A promise to pay or indemnify in a fixed or
ascertainable amount.
 A consideration known as “premium”.
 Meeting of the minds of the parties.
CHARACTERISTICS OF AN INSURANCE
CONTRACT

 Consensual
 Voluntary
 Aleatory
 Unilateral
 Conditional
 Contract of indemnity
 Personal
CARDINAL PRINCIPLES IN INSURANCE

 Insurable Interest
 Principle of Utmost Good Faith

 Contract of Indemnity

 Contract of Adhesion (Fine Print

Rule)
 Principle of Subrogation
ELEMENTS OF AN INSURANCE CONTRACT

 The insured possesses an insurable interest susceptible of pecuniary estimation;

 The insured is subject to a risk of loss through the destruction or impairment of
that interest by the happening of designated perils;
 The insurer assumes that risk of loss;
 Such assumption is part of a general scheme to distribute actual losses among a
large group or substantial number of persons bearing somewhat similar risks;
and
 The insured makes a ratable contribution (premium) to a general insurance fund.

A contract possessing only the first 3 elements above is a

risk-shifting device. If all the elements, it is a risk-
distributing device.
TYPES OF INSURANCE CONTRACTS

• Life insurance
 Individual life
 Group life
 Industrial life
• Non-life insurance
 Marine
 Fire
 Casualty

• Contracts of bonding or suretyship

• Compulsory Motor Vehicle liability insurance

Note:
 Health and accident insurance are either covered under life or casualty insurance.

 Marine, fire, and the property aspect of casualty insurance are also referred to as property

insurance.
INSURABLE INTEREST

In General
 A person has an insurable interest in the subject matter if he is so

connected, so situated, so circumstanced, so related, that by the

preservation of the same he shall derive pecuniary benefit, and by its
destruction he shall suffer pecuniary loss, damage or prejudice.

Life
 Every person has an insurable interest in the life and health:

 of himself, of his spouse and of his children;

 of any person on whom he depends wholly or in part for education or support;
 of any person under a legal obligation to him to pay money or respecting property
or services, of which death or illness might delay or prevent performance; and
 of any person upon whose life any estate or interest vested in him depends.
INSURABLE INTEREST
Property
 Every interest in property whether real or personal, or

any relation thereto, or liability in respect thereof, of

such nature that the contemplated peril might directly
damnify the insured, which may consist in:
 an existing interest;
 any inchoate interest founded on an existing interest; or
 an expectancy coupled with an existing interest in that out
of which the expectancy arises.
 VARIABLE CONTRACT

Any policy or contract on either a

group or individual basis issued by an
insurance company providing for
benefits or other contractual payments
or values thereunder to vary so as to
reflect investment results of any
segregated portfolio of investment.
 PERFECTION OF AN INSURANCE CONTRACT

 An insurance contract is a consensual contract and

is therefore perfected the moment there is a
meeting of minds with respect to the object and the
cause or consideration.
 What is being followed in insurance contracts is
what is known as the “cognition theory”. Thus, “an
acceptance made by letter shall not bind the person
making the offer except from the time it came to
his knowledge”.
 PREMIUM PAYMENTS

Consideration paid an insurer for undertaking to indemnify the insured

against a specified peril.

Basis of the right of the insurer to collect premiums: Assumption of risk.

 

 GENERAL RULE: No policy issued by an insurance company is valid and binding until actual
payment of premium. Any agreement to the contrary is void. (Sec. 77)

 EXCEPTIONS:
 In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
 When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
 Section 77 may not apply if the parties have agreed to the payment of the premium in installments
and partial payment has been made at the time of the loss.
 EXCEPTIONS

 Where a credit term has been agreed upon.

 Where the parties are barred by estoppel.

 Section 77 merely precludes the parties from stipulating that the

policy is valid even if the premiums are not paid.

 Effect of Acknowledgment of Receipt of Premium in Policy:

Conclusive evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid. (Sec. 78)
RESCISSION
Grounds:
 Concealment
 Misrepresentation

 Breach of material warranty

 Breach of a condition subsequent

Waiver of the right to rescind: Acceptance of premium payments despite the knowledge
of the ground for rescission.

Limitations on the right of the insurer to rescind:

Non-life – such right must be exercised prior to the commencement of an action on the

contract;
Life – such right must be availed of during the first two years from the date of issue of

policy or its last reinstatement; prior to “incontestability.”

CANCELLATION OF NON-LIFE INSURANCE
POLICY

Right of the insurer to abandon the contract on the occurrence of certain

grounds after the effectivity date of a non-life policy.

Grounds:
 Non-payment of premium;

 Conviction of a crime out of acts increasing the hazard insured against;

 Discovery of fraud or material misrepresentation;

 Discovery of willful or reckless acts of omissions increasing the hazard

insured against;
 Physical changes in property making the property uninsurable; and

 Determination by the Insurance Commissioner that the continuation of

the policy would violate the Insurance Code.

 ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID

 
 Whole:
 If the thing insured was never exposed to the risks insured against;
 If contract is voidable due to the fraud or misrepresentation of insurer or his agents;
 If contract is voidable because of the existence of facts of which the insured was ignorant
without his fault;
 When by any default of the insured other than actual fraud, the insurer never incurred liability;
 When rescission is granted due to the insurer’s breach of contract.
 Pro rata:
 When the insurance is for a definite period and the insured surrenders his policy before the
termination thereof;
 Exceptions:
 policy not made for a definite period of time
 short period rate is agreed upon
 life insurance policy

 When there is over-insurance (Sec. 82);

 Instances when premiums are not recoverable:

 When the risk has already attached and the risk is

entire and indivisible.
 In life insurance.
 When the contract is rescindable or rendered void
ab initio by the fraud of the insured.
 When the contract is illegal and the parties are in
pari delicto.
 LOSS, IN INSURANCE

Injury or damage sustained by the

insured in consequence of the
happening of one or more of the
accidents or misfortune against which
the insurer, in consideration of the
premium, has undertaken to indemnify
the insured.
 Loss for which insurer is liable

 Loss the proximate cause of which is the peril insured

against
 Loss the immediate cause of which is the peril insured

against except where proximate cause is an excepted peril;

 Loss through negligence of insured except where there was

gross negligence amounting to willful acts; and

 Loss caused by efforts to rescue the thing from peril insured

against;
 If during the course of rescue, the thing is exposed to a peril

not insured against, which permanently deprives the insured

of its possession, in whole or in part
 Loss for which insurer is not liable

 Loss by insured’s willful act;

 Loss due to connivance of the

insured; and
 Loss where the excepted peril is

the proximate cause.

 NOTICE OF LOSS
 In fire insurance – Required
 Failure to give notice will defeat the right of the
insured to recover.

 In other types of insurance – Not required

 Failure to give notice will not exonerate the insurer,
unless there is a stipulation in the policy requiring
the insured to do so.
REQUISITES FOR RECOVERYUPON INSURANCE

 The insured must have insurable

interest in the subject matter;
 That interest is covered by the

policy;
 There must be a loss; and

 The loss must be proximately caused

by the peril insured against.

CLAIMS SETTLEMENT

 The indemnification of the loss of the insured.

Life
 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.
 
 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.

Non-life
 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.
 PRESCRIPTIVE PERIOD

 Rules:
• In the absence of an express stipulation in the policy, it being based on a
written contract, the action prescribes in 10 years.
• However the parties may validly agree on a shorter period provided it is not
less than one year from the time the cause of action accrues.
• The cause of action accrues from the rejection of the claim of the insured
and not from the time of loss.
 It shall commence from the denial of the claim, not from the resolution of the motion for
reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the
evidence which may be used against him is destroyed.
• In CMVLI, the written notice of claim must be filed within 6 months from
the date of the accident otherwise the claim is deemed waived. The suit for
damages either with the proper court or with the Insurance Commissioner
should be filed within 1 year from the date of the denial of the claim by the
insurer, otherwise claimant’s right of action shall prescribe.
 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.
 LIABILITY OF INSURER IN CERTAIN
CAUSES OF DEATH OF INSURED
 Suicide
 At the hands of the law
 Killing by the beneficiary
 LIFE INSURANCE
 IS THE CONSENT OF THE BENEFICIARY
NECESSARY TO THE ASSIGNMENT OF A
LIFE INSURANCE POLICY?

 CASH SURRENDER VALUE

MORTGAGE REDEMPTION INSURANCE

A life insurance taken pursuant to a group mortgage

redemption scheme by the lender of money on the life
of a mortgagor who, to secure the loan, mortgages the
house constructed from the use of the proceeds of the
loan, to the extent of the mortgage indebtedness such
that if the mortgagor dies, the proceeds of his life
insurance will be used to pay for his indebtedness to
the lender assured and the deceased’s heirs will
thereby be relieved from paying the unpaid balance of
the loan.
 MARINE INSURANCE

 Insurance against 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.
 Insurable Interest
 Shipowner
 Cargo-owner
 Charterer

Perils of the Sea vs Perils of the Ship

 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, when such risks are covered by
extension to fire insurance policies or under
separate policies.
 Prerequisites to recovery:

 Notice of loss – must be immediately given, unless

delay is waived expressly or impliedly by the
insurer
 Proof of loss – according to best evidence
obtainable. Delay may also be waived expressly or
impliedly by the insurer
CASUALTY OR ACCIDENT INSURANCE

 Insurance covering loss or liability

arising from accident or mishap,
excluding those falling under other
types of insurance such as fire or
marine.
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.

 Claimants/victims may be a “passenger” or a “3rd party”

 It applies to all vehicles whether public and private vehicles.
 Note: It is the only compulsory insurance coverage under the Insurance
Code.
INSURANCE COMMISIONER
 Main agency charged with the enforcement of the Insurance
Code and other related laws.
 ADJUDICATORY/QUASI-JUDICIAL Functions
 ADMINISTRATIVE/REGULATORY Functions
 The Insurance Commissioner has no jurisdiction to decide
the legality of a contract of agency entered into between an
insurance company and its agent. The same is not covered
by the term “doing or transacting insurance business” under
Sec 2, ICP, neither is it covered by Sec. 416 of the same
Code which grants the Commissioner adjudicatory powers
THANK YOU…