I.

INTRODUCTION is only when the event insured against happens that

A. CONCEPT the insurer becomes liable to pay the insured.
- “GUARANTEE AGAINST LOSS” (3) A contract of adhesion: An insurance contract
Vance comes in printed forms prepared by the insurer.
● The primary purpose of every contract of insurance There is hardly any negotiation on the printed terms
is indemnity against some specified loss that is and conditions.
uncertain, either in the happening or in the time ● While it is considered binding as ordinary
when it may occur contracts, when there is doubt or ambiguity, it is
● The peril insured against must naturally be one to construed against the insurer and in favor of the
which a considerable number are equally exposed, insured
and yet one which will not be of such frequent (4) A personal contract: between the insurer and the
occurrence as to make exposure to it wholly fatal to insured so when a person acquires an insured
the business to which it is incident property, he does not ipso facto acquire any right
● Contract contemplates distributing the loss over the insurance contract because it is not the
which, falling upon one, would result in his property which is ensured but the rights of the
entire ruin, among all those who are exposed, insured
equally with the unfortunate one, to the same (5) A contract of uberrimae fides: A contract of
perils. insurance requires the highest degree of good faith
in both the insurer and the insured
Carale (6) A voluntary and consensual contract: The
• Insurance is generally understood to be an parties, as long as they are in good faith, may
arrangement for transferring and distributing risks. incorporate such provisions and conditions as they
• Insurance is essentially a contract by which one choose
party (the insurer), for a consideration that is usually (7) A synallagmatic contract: parties have reciprocal
paid in money, either in a lump sum or at different obligations; the insured is obligated to pay the
times during the continuance of risk, promises to premium and the insurer is obligated to give the
make a certain payment, usually of money, upon coverage or protection from the date of effectivity of
the destruction or injury of “something” in which the the insurance contract
other party (the insured) has an interest.
• A contract of suretyship is deemed to be an
insurance contract only if made by a surety who or B. FUNCTION AND PURPOSE
which is doing an insurance business. - INDEMNITY FOR LOSS
• The fact that no profit is derived from the making of - RISK DISTRIBUTING/RISK BEARING V.
insurance contras, agreements or transactions or RISK SHIFTING
that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show
that the making thereof does not constitute the C. ORIGIN AND GROWTH OF INSURANCE
doing or transacting of an insurance business. 1. EARLY MARITIME OR MARINE
INSURANCE
Elements of an Insurance Contract ● Can be attributed to merchants of Italian cities in the
(1) Insurable interest – the insured possesses an early Middle Ages
interest of some kind which the event insured ● Then, all questions of insurance were determined in
against may cause loss or damage accordance with the customs of merchants and by
(2) Peril insured against merchant courts. It was not until the middle of the
(3) Risk of loss or damage being assured by the insurer 18th century that common-law courts began to try
(4) Consideration – the premium paid by insured; and insurance cases.
(5) Risk-distributing scheme – the assumption of risk by
the insurer is part of a general scheme to distribute Insurance among the Ancients
losses among persons having similar risks ● With exception of references to bottomry and
respondentia bonds, no traces of contract of
Characteristics of an Insurance Contract insurance in Roman treatises.
(1) Aleatory: one of the parties both reciprocally bind
themselves to give or to do something in Earliest traces of insurance.
consideration of what the other shall give or do upon ● Laws of the ancient Rhodians
the happening of an event which is uncertain or ○ Provisions for contribution and general average
which is to occur at an indeterminate time in case of loss by a shipowner, requiring all
● In a contract of insurance, the parties seek to those having an interest in a common venture
distribute possible loss by reason of mischance and subject to a common peril to make
(2) Executory and conditional: After the payment of contribution to that one whose interest had been
the premium, the contract becomes wholly executed sacrificed to protect or save the whole venture
on the part of the insured. It is only executory on the from loss → from this practice developed the law
part of the insurer and conditional in the sense that it of marine insurance
 ○ While any one body of commercial laws was
Insurance as Practiced by the Italian Cities during the binding only upon the courts sitting in the
Middle Ages. country by which these laws were enacted, yet
● 12th-16th centuries, the Italian republics of Venice, the similarity of such regulations throughout
Florence, and Genoa had extensive maritime Europe caused all of these various compilations
commerce and it was among these merchants that to be treated as persuasive authority in
the contract of insurance first received that attention determining the rule of decision to be applied to
which the manifest benefits to be derived from its any cause that might arise, in whatever
use would justify. jurisdiction
● From Italy, the custom of making mutual contracts of
insurance spread rapidly over the whole commercial Examples of famous and important compilations of
Europe and came to be practiced extensively by the commercial laws and usages:
merchants in the towns forming the Hanseatic ● Consolato del Mare - Spanish, published in
League. Barcelona, middle of the 13th century; influential in
the commercial law of continental countries but
Part of the General Law Merchant. contains no distinct reference to insurance law
● 14th-15th centuries: the practice of making ● Laws of Oleron - northwestern France; 1266;
insurance contracts had become common regarded with great weight throughout Europe on all
throughout all the maritime states of Europe questions involving the law merchant
○ Confined to those merchants engaged in more ● Laws of Wisbuy - Southern Sweden; end of the 13th
extensive international commerce, which made it century; maritime rights
necessary to have uniformity in the regulations ● Mercantile codes of Hanse Towns - only binding in
of insurance as practiced in different countries, their jurisdiction but were referenced by other
as well as upon other commercial rules growing European courts
out of the custom of merchants ○ Marine Ordinances of Louis XIV - 1681;
● Law merchant: body of rules intended to govern extended to the British Islands and provided a
commercial transactions that had a certain principal source from which Napoleon compiled
international character the Code de Commerce, which is now one of
● During the Middle Ages, merchants engaged in the most important and extensive repository of
international commerce were naturally unwilling to modern commercial law in Europe
leave the determining of their rights with respect to
their trade to the crude forms of law and rude courts The Introduction of Insurance into England
that administered the local laws of Continental ● Lombards, from Northern Italy, introduced to the
Europe. From this arose the custom among English the custom of insuring against hazards of
merchants to leave all questions arising under trade and the custom of submitting all contests
the law merchant to be settled by conventional involving mercantile rights to courts of merchants,
courts established by themselves, and having established by themselves, and having no relation to
only such powers as were derived from the or sanction under the common law of England
consent of the parties appearing before them. ● First appearance of any question involving insurance
○ But these informal tribunals (who, in effect, in the common law of England occurred during the
served as committees of arbitration) had no reign of Henry VIII in the case of Crane v. Bell,
means of enforcing any order that might be wherein a common-law court issued a writ of
entered and only by the mere force of custom prohibition, forbidding a court of admiralty to take
enabled to settle all causes arising out of the law jurisdiction of an insurance case
merchant during those centuries. ○ But because of the rigid procedure and
○ It was only when people became more principles in common-law courts, and the ill-
educated, bringing law courts to a higher state of suitedness of common-law jurisprudence for
efficiency, that informal mercantile courts were settling such disputes, despite the prohibition,
superseded. merchants went to merchant courts to submit
● The law merchant is said to be part of international such mercantile questions for arbitration.
law but it is only international in the sense that the ● Through the effort of Lord Mansfield as Chief Justice
principles applicable are those that are recognized in of the Court of King’s Bench, the jurisdiction of the
all civilized nations common-law courts over questions regarding the law
○ The rules themselves form part of municipal law merchant became fixed and the volume of litigation
in countries where they are enforced and do not in such cases has increased to an extent as to show
affect international relations the merchants now regarded those courts as
● Sources from which the rules and customs are to be adequate for the administration of justice.
derived are found in the various compilations of
commercial rules and regulations promulgated by 2. DEVELOPMENT OF INSURANCE - FROM
the several maritime nations of Europe, and in the MARINE TO PRESENT DAY VARIETIES
treatises by lawyers and merchants in the nature of Development of Insurance in England
commentaries on these customs and regulations
Marine Insurance as Developed from the Usages at Accident Insurance
Lloyd’s ● Railway Passengers’ Assurance Company in 1849
● Lloyd’s Coffee House was a popular place for ○ First only covered railway accidents then began
seafaring men and merchants engaged in foreign to expand
trade. It became the custom among those gathered ○ Contracts for insuring against accidental injury
at Lloyd’s to make their fathering an occasion for provided for paying certain sums during
arranging their mutual contracts of insurance against disability of the insured on account of accident,
sea perils. or to indemnify him for the accidental loss of any
○ The person desiring insurance would pass limb or member, or to pay a certain sum to a
around a slip of paper that had the description of beneficiary named in case of death by accident.
the vessel and its cargo, the name of the master ○ Directly derived from life insurance and the
and the character of his crew, and the voyage principles that apply in life insurance govern the
contemplated. rights of parties under contracts of accident
○ The persons desiring to become insurers would insurance.
write beneath the description their names or
initials and opposite thereto the amount which The Development of Insurance in the United States
each was willing to be liable for as insurer Marine Insurance in the United States
○ When the total amount of insurance desired by ● Because foreign commerce of the US has always
the owner was gotten, the contract was been of less importance than its domestic trade,
complete marine insurance wasn’t as important in the country
● The conduct of marine insurance continued to be compared to England.
largely informal, with no governing fixed rules or
regulations, until the introduction of Lloyd’s Policy as Fire Insurance in the United States
the standard for marine insurance. ● 1752: Philadelphia Contributionship for Insuring
Houses from Loss by Fire
The Establishment and Development of Fire Insurance. ● Business of insurance was more favored in the
● After the great London Fire of 1666, fire insurance United States because it is regarded as unwise for a
became an important business but it did not attain property owner to allow his property to be uninsured
any considerable proportion until the beginning of ○ Boards of underwriters are established in the
the 19th century. great cities, whose functions are to obtain and
● The application of the principles of insurance to classify all items of information, with reference to
losses by fire on land did not meet with early favor in risks to be assumed, that may be of value to the
England because there might be a tendency of such various constituent companies. They make
insurance to increase the number of cases of arson charts of all the buildings in the city and by mere
and thus make the practice injurious to the best reference to the chart, the underwriter can bring
interests of the public. can determine the quality or character of any
● The business of fire insurance companies, being risk brought before him.
subject of popular disfavor and suspicion, was
deemed a proper subject for taxation and Life Insurance in the United States
accordingly, the British government imposed taxes ● 1769: Mutual benefit association of Presbyterian
until the State realized that the business of fire ministers à Pennsylvania
th th
insurance was not only proper, but highly beneficial ● Increased rise in the 18 -19 centuries but business
to the property interests of the country. was of small volume
● There was a question if the contract of life insurance
The Origin and Rise of Life Insurance was valid under the law of Massachusetts, it being
● First attempt was in 1706, when the “Amicable contended that the common law of England was not
Society for a Perpetual Assurance Office” was in force at that state and the contract was repugnant
founded. to sound morals and contrary to public policy
○ Each member, irrespective of age or condition, ○ Chief Justice Parker said that this contract was
would make a fixed contribution, and from the illegal because it set a price upon the life of a
sum raised, the representatives of dying freeman, which is above all price
members would be paid a proportionate part of ● The contract of insurance was long regarded with
such sum. suspicion, many moralists holding that it was
○ Not successful speculating in life and therefore, immoral
● First society formed for insuring against the loss of ● Growth of life insurance was not rapid until 1850,
life upon the principles underlying modern life when the increasing prosperity of the US enabled
insurance was the Equitable Assurance Society of them to give effect to their desire to make a suitable
London established in 1762. provision after death for the support of those
○ Company recognized the necessity for varying depending upon them.
the amount of premiums paid in accordance with ● After the Civil War, the industry of life insurance
the age and condition of the insurer began to grow rapidly but many of the insurance
companies established did so on very insufficient
 capital and their administration was conducted upon association or similar organization playing some
very reckless and unsound methods. role in the transaction
● Important to the growth of this kind of insurance is ● Kinds of individual insurance:
the inclusion of investment à endowment policies or ○ Whole life plan – you pay for as long as you’re
endowment bonds alive
○ Limited payment plan – obligation to pay
Accident Insurance premium is limited to a specified period, usually
● Modified form of life insurance 10 or 20 years
○ Term plan – insured is covered or insured only
3. THE INSURANCE BUSINESS IN THE for a specific period of time and with the lapse of
PHILIPPINES, BEGINNINGS AND such period the policy expires or lapses
CURRENT STATUS ○ Pure endowment plan – insured pays
premiums for a specified period of coverage; if
Carale the insured survives the period, the insurer pays
Kinds of Insurance Contracts under the Code the insured the face value of the policy. If the
● Broadly classified as either life or non-life insured dies before the period expires, the
● Can also be classified as to whether the coverage is insurer is released from liability
voluntary or compulsory ○ Endowment plan – insurer pays the value of
● First-party insurance v. third-party insurance the policy to the insured in the event he outlives
○ First-party: contract being for the loss which the the period fixed but if the insured dies, his
insured suffers directly beneficiaries get the proceeds of the policy
○ Third party: interest actually being protected is ● Tontine insurance: based upon survivorship among
that of a third party and whose interest suffers a number of individuals; more than a policy of life
damage or loss caused by the insured à liability insurance since it is an agreement to hold all the
insurance premiums collected for the duration of the tontine
period.
Life Insurance
● Sec. 181: “insurance on human lives and insurance Non-life or Property Insurance
appertaining thereto or connected therewith” ● Fire insurance: Sec. 169 – include insurance
● RA 10607: “Every contract or undertaking for the against loss by fire, lightning, windstorm, tornado or
payment of annuities including contracts for the earthquake and other allied risks, when such risks
payment of lump sums under a retirement program are covered by extension to fire insurance policies or
where a life insurance company manages or acts as under separate policies
a trustee for such retirement program shall be ● Marine insurance: Sec. 101 – includes loss or
considered a life insurance contract for the purposes damage to vessels, goods, cargoes, and other
of this Code” properties exposed to risks or perils of navigation, as
● Sec. 182: “an insurance upon life may be made well as marine protection and indemnity insurance
payable on the death of the person, or on his (insurance against, or against legal liability of the
surviving a specified period, or otherwise insured for loss, damage, or expense incident to
contingently on the continuance or cessation of life.” ownership, operation, chartering, maintenance, use,
● Art. 2021 of the Civil Code: “By the aleatory contract repair, or construction of any vessel, craft or
of life annuity, the debtor binds himself to pay an instrumentality in use of ocean or inland waterways,
annual pension or income during the life of one or including liability of the insured for personal injury,
more determinate persons in consideration of a illness or death or for the loss of or damage to the
capital consisting of money or other property, whose property of another person).
ownership is transferred to him at once with the ● Suretyship: Sec. 177 – “an agreement whereby a
burden of the income.” party called the surety guarantees the performance
● There are also group life or industrial life insurance. by another party called the principal or obligor of an
○ The premium for group life insurance is paid by obligation or undertaking in favor of a third party
the policyholder (the employer) and the called the obligee. It includes official recognizances,
insurance is considered as a non-contributory stipulations, bonds or undertakings issued by any
plan. company by virtue of and under the provisions of
○ However, the insured sometimes contributes a Act. No. 536”
certain amount to be applied to the premium, ● Casualty of Liability Insurance: Sec. 174 –
deductable from the wages due the employee “casualty insurance is insurance covering loss or
and the arrangement then becomes a liability arising from accident or mishap, excluding
contributory plan. certain types of loss which by law or custom are
● Individual v. Group Insurance considered as falling exclusively within the scope of
○ Individual: the insured person or entity is the other types of insurance such as fire or marine.”
party purchasing the insurance
○ Group: there is an inherent middleman, usually
an employer, but sometimes a union, business
 D. LAWS GOVERNING INSURANCE
It may also be constituted in favor of the person or
- SOURCES OF PHILIPPINE INSURANCE
persons upon whose life or lives the contract is
LAW
entered into, or in favor of another or other persons.
1. THE NEW INSURANCE CODE (RA 10607);
(1803)
THE INSURANCE CODE (PD 612 & 1460);
ANTECEDENTS (THE INSURANCE ACT
OF 2427 EFFECTIVE JULY 1, 1915; Art. 2023. Life annuity shall be void if constituted upon
SPANISH CODE OF COMMERCE AND the life of a person who was already dead at the time
OLD CIVIL CODE OF 1889, BEFORE the contract was entered into, or who was at that time
1915); AND AMENDMENTS (BP 874) suffering from an illness which caused his death within
2. CIVIL CODE (ARTS. 2011-2012 IN twenty days following said date. (1804)
RELATION TO ART. 739; ARTS. 2021-
2027; 2186; 2207) Art. 2024. The lack of payment of the income due
does not authorize the recipient of the life annuity to
demand the reimbursement of the capital or to retake
CHAPTER 1: INSURANCE
possession of the property alienated, unless there is a
stipulation to the contrary; he shall have only a right
Art. 2011. The contract of insurance is governed by judicially to claim the payment of the income in arrears
special laws. Matters not expressly provided for in and to require a security for the future income, unless
such special laws shall be regulated by this Code. (n)
there is a stipulation to the contrary. (1805a)

Art. 2012. Any person who is forbidden from receiving

Art. 2025. The income corresponding to the year in
any donation under Article 739 cannot be named which the person enjoying it dies shall be paid in
beneficiary of a life insurance policy by the person
proportion to the days during which he lived; if the
who cannot make any donation to him, according to
income should be paid by installments in advance, the
said article. (n) whole amount of the installment which began to run
during his life shall be paid. (1806)
Art. 739. The following donations shall be void:
Art. 2026. He who constitutes an annuity by gratuitous
(1) Those made between persons who were guilty title upon his property, may provide at the time the
of adultery or concubinage at the time of the annuity is established that the same shall not be
donation; subject to execution or attachment on account of the
(2) Those made between persons found guilty of obligations of the recipient of the annuity. If the annuity
the same criminal offense, in consideration was constituted in fraud of creditors, the latter may ask
thereof; for the execution or attachment of the property.
(3) Those made to a public officer or his wife, (1807a)
descendants and ascendants, by reason of his
office. Art. 2027. No annuity shall be claimed without first
proving the existence of the person upon whose life
In the case referred to in No. 1, the action for the annuity is constituted. (1808).
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
Art. 2186. Every owner of a motor vehicle shall file
donee may be proved by preponderance of evidence
with the proper government office a bond executed by
in the same action. (n)
a government-controlled corporation or office, to
answer for damages to third persons. The amount of
the bond and other terms shall be fixed by the
CHAPTER 3: LIFE ANNUITY
competent public official. (n)
Art. 2021. The aleatory contract of life annuity binds
the debtor to pay an annual pension or income during Art. 2207. If the plaintiff's property has been insured,
the life of one or more determinate persons in and he has received indemnity from the insurance
consideration of a capital consisting of money or other company for the injury or loss arising out of the wrong
property, whose ownership is transferred to him at or breach of contract complained of, the insurance
once with the burden of the income. (1802a) company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the
Art. 2022. The annuity may be constituted upon the insurance company does not fully cover the injury or
life of the person who gives the capital, upon that of a
loss, the aggrieved party shall be entitled to recover
third person, or upon the lives of various persons, all
the deficiency from the person causing the loss or
of whom must be living at the time the annuity is
injury.
established.
3. SPECIAL LAWS (GSIS ACT, SS ACT, II. THE CONTRACT OF INSURANCE
PDIC, CROP INSURANCE AND
GOVERNMENT PROPERTY INSURANCE, (Unless specified, all sections referred to in this
AMONG OTHERS) Outline are of the Insurance Code.)

A. Definitions
1. “Contract of Insurance” (Sec. 2-3, par. 1);
and “Contract of Suretyship”, (ibid; see
also Sec. 175 and discussion infra.)

Sec. 2. Whenever used in this Code, the following

terms shall have the respective meanings hereinafter
set forth or indicated, unless the context otherwise
requires:

(1) A "contract of insurance" is an agreement

whereby one undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event.

A contract of suretyship shall be deemed to be an

insurance contract, within the meaning of this Code,
only if made by a surety who or which, as such, is
doing an insurance business as hereinafter provided.

Insurance is essentially a contract by which one party

(insurer), for a consideration that is usually paid in
money, either in a lump sum or at different times during
the continuance of the risk, promises to make a certain
payment, usually of money, upon the destruction or
injury of “something” in which the other party (the
insured) has an interest
● Generally, understood to be an arrangement for
transferring and distributing risks.
● Many authors are hesitant to give a precise definition
of terms

The character of insurance is not to be determined by

the nomenclature used or the manner or mode of
affording insurance. The dominant purpose of the
agreement between the parties, as reflected by the risk
or contingency insured against is usually determinative
of the nature of insurance

Contract of suretyship is whereby one (usually an

insurance company) undertakes to answer, under
specified terms and conditions, for the debt, default or
miscarriage of another (principal or obligor), such a
failure to perform a contract or certain duties, or for
breach of trust, negligence and the like, in favor of a third
party (obligee)

Co-suretyship is when two or more parties become co-

sureties in a single bond

A contract of surety shall be deemed an insurance

contract, only if made by a surety who or which, as such
is doing an insurance business (covered by sections 175 Insurance Contract
- 177 of the Insurance Code vs
Wagering Contract/Contract of Chance
Sec. 175. (Definition) A contract of suretyship is an
agreement whereby a party called the surety
Insurance Contract Wagering
guarantees the performance by another party called
Contract/Contract of
the principal or obligor of an obligation or
Chance
undertaking in favor of a third party called the
obligee. It includes official recognizances,
Parties seek to distribute Parties contemplate gain
stipulations, bonds or undertakings issued by any
possible loss by reason of through mere chance
company by virtue of and under the provisions of
mischance
Act No. 536, as amended by Act No. 2206.
Insured seeks to avoid A gambler seeks fortune
Sec. 176. The liability of the surety or sureties shall
misfortune
be joint and several with the obligor and shall be
limited to the amount of the bond. It is determined Tends to equalize fortune Tends to increase the
strictly by the terms of the contract of suretyship in inequality of fortune
relation to the principal contract between the obligor
and the obligee.(As amended by Presidential What an insured gains is What a person wins from
Decree No. 1455). not at the expense of a wager is lost by the
another insurance other wagering party
Sec. 177. The surety is entitled to payment of the
premium as soon as the contract of suretyship or One part may receive more than he paid or agreed to
bond is perfected and delivered to the obligor. No pay
contract of suretyship or bonding shall be valid and
binding unless and until the premium therefor has
been paid, except where the obligee has accepted
the bond, in which case the bond becomes valid 2. “Doing an insurance business (Sec. 2.2)
and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety:
Provided, That if the contract of suretyship or bond (2) The term "doing an insurance business" or
is not accepted by, or filed with the obligee, the "transacting an insurance business", within the
surety shall collect only reasonable amount, not meaning of this Code, shall include:
exceeding fifty per centum of the premium due
thereon as service fee plus the cost of stamps or (a) making or proposing to make, as insurer,
other taxes imposed for the issuance of the contract any insurance contract;
or bond: Provided, however, That if the non- (b) making or proposing to make, as surety, any
acceptance of the bond be due to the fault or contract of suretyship as a vocation and not
negligence of the surety, no such service fee, as merely incidental to any other legitimate
stamps or taxes shall be collected. In the case of a business or activity of the surety;
continuing bond, the obligor shall pay the (c) doing any kind of business, including a
subsequent annual premium as it falls due until the reinsurance business, specifically
contract of suretyship is cancelled by the obligee or recognized as constituting the doing of an
by the Commissioner or by a court of competent insurance business within the meaning of
jurisdiction, as the case may be. this Code;
(d) doing or proposing to do any business in
substance equivalent to any of the foregoing
in a manner designed to evade the
provisions of this Code.

In the application of the provisions of this Code the fact

that no profit is derived from the making of insurance
contracts, agreements or transactions or that no
separate or direct consideration is received therefor,
shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an
insurance business.
● The name by which a company or association or its considered an insurance business and will
certificates or policies are designated, are not be governed by the Insurance Code
determinative of the question of whether the
organization is an insurance company or association Doing an insurance business - what is the common
● The fact that no profit is derived from the making of thread to this enumeration?
insurance contracts or that no separate of direct ● Entering into insurance contracts must be the
consideration is received is not conclusive to show primary purpose of the business and it is the
that the making thereof does not constitute the doing primary reason for the organization’s existence
or transacting of an insurance business ● Insurance is not an incidental business activity
● “Principal object and purpose test” - If the principal
object and purpose is “indemnity”, the contract Principal, Object, and Purpose Test = insurance’s
constitutes insurance, but if it is “service”, risk function must be an indemnity for loss and not some
transfer and distribution being merely incidental, other service
then the arrangement is not insurance
What kind of contract would be the most confusingly
3. Who may establish an insurance similar with an insurance contract?
business (Sec. 6) ● Pre-need contracts
○ What are the reasons why people get pre-
need contracts? What are they? What is its
Sec. 6. Every person, partnership, association, or
difference with a contract of insurance?
corporation duly authorized to transact insurance
Principal object:
business as elsewhere provided in this code, may be an
● Not based on a contingent event but it is an
insurer.
investment
● It is a service you are paying for in advance. It is
not a contract for indemnity. They will grow your
Foreign or domestic insurance company or corporation – money to satisfy the service you are availing.
must first obtain a certificate of authority for that purpose ● You do not have to pay for the service itself
from the Insurance Commissioner. The Insurance because the pre-need plan would pay for it
Commissioner may refuse if, in his judgment "such Pre-Need Code → governed by Insurance
refusal will best promote the interests of the people of Commission
this country" ● Because of similar mechanisms they operate in
→ as trust funds
Individual, partnership, or association – if such person, ● Insurance Commission’s Actuarial Department
partnership, or association is "possessed of the capital also has to investigate them because of similar
assets required of an insurance corporation doing the actuarial assumptions
same kind of business in the Philippines and invested in
the same manner." Why are the risk distributing schemes different and
why are these business models worse?
Under the law, insurance is not just a product or ● Because of the fact that people would definitely
service but it is a contract. all use these funds eventually so the rates of
● Memorize the definition of a contract of return might not be enough
insurance ● Unlike insurance, the probability that all these
Definition in Code contains the very function of people will suffer this loss is minimal so the
insurance needed rates of return would be more viable and
- indemnity for loss or damage to the prejudice of manageable
the accused
- Loss took place cause a certain event happened Similarities: Premiums paid and return of money
back after certain events happen
Why is the contract of suretyship here?
● It is considered an insurance contract if it falls
under doing an insurance business.

Why is this important? What is a contract of

suretyship?
● Contract to undertake to answer the debt, default
or miscarriage of another
● Any person may enter into it
● Essence: guarantee obligation of another by
being primarily and solidarily liable
○ If it is done as a business and not as an
incident to another business, it will be
 B. Elements (copied almost verbatim from Sec 22 ● Contract is unilateral → imposes legal duties only on
of the California Insurance Code lol) the insurer who promises to indemnify in case of
(distinguishing elements aside from general loss
elements of a contract, namely: consent, ● Contract usually includes other conditions which
object, and cause) must be complied with as precedent to the right of
the insured to claim benefit under it
1. Insurable interest - the insured possesses
interest of some kind which the event 3. Synallagmatic (See dissent of Vitug, J. in
insured against may cause loss or UCPB General Insurance vs. Masagana
damage Telamart, 356 SCRA 307 (2001)
2. Risk of loss or damage being assured by ● Parties have reciprocal obligations; the insured is
the insurer obligated to pay the premium and the insurer is
3. Designated peril as cause = peril insured obligated to give the coverage or protection from the
against date of effectivity of the insurance contract
4. Consideration = premium paid by insured
5. Risk distributing scheme - the primary Dissent in UCPB General Insurance v. Masagana
basic element of insurance; the Telamart
assumption of risk by the insurer is part of a ● Synallagmatic: highly reciprocal contract where the
general scheme to distribute (not merely rights and obligations of the parties correlate and
transfer) losses among persons having mutually correspond
similar risks
MAIN TAKE-AWAY: Any agreement to contrary
notwithstanding, the payment of the premium is a
C. Characteristics/Nature of insurance condition precedent to, and essential for, the
contracts efficaciousness of the insurance contract except (a)
in case of life or industrial life insurance where a grace
(Review relevant provisions of the Civil Code on period applies, or (b) in case of a written
“Obligations and Contracts”) acknowledgment by the insurer of the receipt of
premium, such as by a deposit receipt, the written
1. Aleatory (Art. 2010, Civil Code) acknowledgment being conclusive evidence of the
premium payment so far as to make the policy binding.
Art. 2010. By an aleatory contract, one of the parties or
CONTEXT: Sec. 72 of the Insurance Act was amended
both reciprocally bind themselves to give or to do
by Sec. 77 of the Insurance Code.
something in consideration of what the other shall give
or do upon the happening of an event which is uncertain,
Sec. 72: Whenever the insured was granted credit
or which is to occur at an indeterminate time.
extension of the premium due or given a period of time
to pay the premium of the policy issued, such policy was
binding although the premiums had not been paid.
● Aleatory = depends on some contingent event
● In a contract of insurance, the parties seek to Sec. 77: Insurance contracts are not valid and binding
distribute possible loss by reason of mischance unless and until the premium is paid.
● It is not a contract of chance although the event ● If the insurer wants to favor the insured by making
against the occurrence of which it is intended to the policy binding even if the premium has not been
provide may never occur paid yet, a mere credit agreement would not be
● OBLIGATION OF PARTIES: take a risk sufficient. The insurer must acknowledge in the
○ Insurer: when the contingent event happens, policy that the premiums were paid even if they were
pay entire sum agreed upon not. The policy then becomes binding because the
○ Insured: paying premium without receiving acknowledgment is a conclusive evidence of
anything in case the contingent event does not payment of premium.
happen ● The law does not require any specific amount of
premium payment. A partial payment, if accepted by
2. Executory and conditional the insurer, can perfect the contract and bring the
● Conditional in two senses: (1) because it is parties into an obligatory relation.
aleatory; (2) conditions found in the contract. ○ In case of loss, full recovery less unpaid portion
● After the payment of the premium, the contract of the premium
becomes wholly executed on the part of the ○ If no loss occurs, insurer can demand the
insured. payment of the unpaid balance of the premium
● It is only executory on the part of the insurer and
conditional in the sense that it is only when the
event insured against happens that the insurer
becomes liable to pay the insured.
 4. Consensual and voluntary (art. 1305, contract is made to run with the property to the
1306, and 1308, Civil Code transferee.
● All insurances are generally personal in nature. Life
insurance policies, however, are generally
Art. 1305. A contract is a meeting of minds between two
assignable or transferable as they are in the nature
persons whereby one binds himself, with respect to the
of property and do not represent a personal
other, to give something or to render some service.
agreement between insured and insurer
(1254a)

Art. 1306. The contracting parties may establish such 7. Indemnity (non-life or property) (except
stipulations, clauses, terms and conditions as they may for life insurance, which is more of a form
deem convenient, provided they are not contrary to law, of investment)
morals, good customs, public order, or public policy. ● Promise of the insurer is to make good only the loss
(1255a) of the insured
● If person has no insurable interest, the contract is
Art. 1308. The contract must bind both contracting void and unenforceable as being contrary to public
parties; its validity or compliance cannot be left to the will policy because it affords a temptation to the insured
of one of them. (1256a) to wish or bring about the happening of the loss

D. Contracts for Contingent Services; Pre-need

Plans and Similar Arrangements; warranties
covering goods sold or services rendered
● The parties, as long as they are in good faith, may
incorporate such provisions and conditions as they “Contract for contingent services” - a contract of
choose insurance is an agreement whereby one undertakes for
● Consensual = Perfected by the meeting of the a consideration to indemnify another against loss,
minds of the parties damage, or liability arising from an unknown or
● GENERAL RULE: Voluntary = Not compulsory and unforeseen event.
the parties can incorporate terms and conditions that ● [Another] Example: Health Maintenance
they deem convenient which will be binding provided Organizations where members pay a regular fee and
they do not contravene any provision of law and are are entitled to medical services by its duly-licensed
not opposed to public policy physicians. (Court has ruled before that health
○ Exception: may be required by law in certain agreements are non-life insurance).
instances (ex. Motor vehicles, employees,
condition to grant license to operate business) Pre-need plans (RA 9829 - Pre-need Code)
OR may arise by operation of law (ex. SSS Act)

5. Contract of Adhesion (further discussed Sec. 4

infra) (b) “Pre-need plans” are contracts, agreements,
● An insurance contract comes in printed forms deeds or plans for the benefit of the planholders
prepared by the insurer. There is hardly any which provide for the performance of future
negotiation on the printed terms and conditions. service/s, payment of monetary considerations or
● While it is considered binding as ordinary contracts, delivery of other benefits at the time of actual need
when there is doubt or ambiguity, it is construed or agreed maturity date, as specified therein, in
against the insurer and in favor of the insured exchange for cash or installment amounts with or
without interest or insurance coverage and
6. Personal and of highest degree of good includes life, pension, education, interment and
faith other plans, instruments, contracts or deeds as
● between the insurer and the insured so when a may in the future be determined by the
person acquires an insured property, he does not Commission.
ipso facto acquire any right over the insurance
contract because it is not the property which is (c) “Pre-need company” refers to any corporation
ensured but the rights of the insured registered with the Commission and
● A contract of insurance requires the highest degree authorized/licensed to sell or offer to sell pre-need
of good faith in both the insurer and the insured plans. The term “pre-need company” also refers to
● As a rule, insured cannot assign, before the schools, memorial chapels, banks, nonbank
happening of the loss, his rights under a property financial institutions and other entities which have
policy to others without the consent of the insurer also been authorized/licensed to sell or offer to sell
● Buyer of property sold by insured cannot be the pre-need plans insofar as their pre-need activities
insured’s successor in the contract of insurance or business are concerned.
unless the sale is with the consent of the insurer or
unless by express stipulation of the parties, the Sec. 5. All pre-need companies, as defined under this
Act, shall be under the primary and exclusive
supervision and regulation of the Insurance Commission. be liable in case of suicides only when it is committed
after the policy has been in force for a period of two
Sec. 10. No person shall operate as a pre-need years from the date of its issue or of its last
company or engage in the business of a pre-need reinstatement, unless the policy provides a shorter
company unless licensed by the Commission in period: Provided, however, That suicide committed in the
accordance with this Code. The license shall expire 1 state of insanity shall be compensable regardless of the
year from the time of the registration. date of commission. (As amended by Batasang
Pambansa Blg. 874).

● There is NO express stipulation that pre-need is

insurance, thus it is not governed by the insurance ● Insured person = party purchasing insurance
code. It has its own code (RA 9829).
● Three types of Pre-need plans: Examples
○ Educational Plans - college funds ● Whole life plan: premium at specified regular
○ Memorial Plans - memorial services intervals as long as he is alive
○ Pension plans - retirement ● Limited payment plan = pay for limited specified time
● Payment today for something to be received in the (10-20 yrs). Fully paid when specified number of
future. premium payments have been made. If he survives
the period, he no longer pays, but is still insured
Warranties covering goods sold or services rendered. ● Term plan = covers only specific period of time.
● Warranty refers to the inherent quality of the Lapse = end of insurance, but there are provisions
goods/services : CAN BE FORESEEN → Thus, not for renewal with a corresponding increase of
insurance. premiums
● Insurance has nothing to do with the goods ● Pure endowment plan = insured pays premiums
purchased or its quality. for a specified period. If insured survives period,
insurer pays him the face value of the policy. If
E. General Classification of Insurance under the insured dies, insurer doesn’t pay anything.
Code ● Endowment plan = insurer pays value if he outlives
period fixed. But if insured dies, beneficiaries get
1. Life proceeds.
a. Individual Life (as defined in Secs. 179
and 180), Pure Endowment Distinguish these from tontine insurance: based upon
survivorship among a number of individuals

Sec. 179. Life insurance is insurance on human lives Agreement to hold all the premiums collected for the
and insurance appertaining thereto or connected duration of the tontine period
therewith.
b. Group Life (Secs. 50; 228, last par.
Sec. 180. An insurance upon life may be made payable
on the death of the person, or on his surviving a
specified period, or otherwise contingently on the Sec. 50. The policy shall be in printed form which may
continuance or cessation of life. contain blank spaces; and any word, phrase, clause,
mark, sign, symbol, signature, number, or word
Every contract or pledge for the payment of endowments necessary to complete the contract of insurance shall be
or annuities shall be considered a life insurance contract written on the blank spaces provided therein.
for purpose of this Code.
Any rider, clause, warranty or endorsement purporting to
In the absence of a judicial guardian, the father, or in the be part of the contract of insurance and which is pasted
latter's absence or incapacity, the mother, or any minor, or attached to said policy is not binding on the insured,
who is an insured or a beneficiary under a contract of unless the descriptive title or name of the rider, clause,
life, health or accident insurance, may exercise, in behalf warranty or endorsement is also mentioned and written
of said minor, any right under the policy, without on the blank spaces provided in the policy.
necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act Unless applied for by the insured or owner, any rider,
involved does not exceed twenty thousand pesos. Such clause, warranty or endorsement issued after the original
right may include, but shall not be limited to, obtaining a policy shall be countersigned by the insured or owner,
policy loan, surrendering the policy, receiving the which countersignature shall be taken as his agreement
proceeds of the policy, and giving the minor's consent to to the contents of such rider, clause, warranty or
any transaction on the policy. endorsement.
Sec. 180-A. The insurer in a life insurance contract shall
 Holding: Insular life is liable due to the misconduct of
Group insurance and group annuity policies, however,
the employer. The employer is an agent of the insurer.
may be typewritten and need not be in printed form.
Therefore the insurer, as the principal, is liable for
Nuval’s misappropriation, and should pay the
Sec. 228 (last paragraph): The provisions of paragraphs
beneficiaries. Group insurance is a contracts where a
(f) to (j) shall not apply to policies issued to a creditor to
group of individuals are covered under one master
insure his debtors. If a group life policy is on a plan of
contract between the policy holder/employer and the
insurance other than term, it shall contain a non-
insurer. However, while the employer is the titular
forfeiture provision or provisions which in the opinion of
insured, the real party or beneficiary is the employee.
the Commissioner is or are equitable to the insured or
Thus, the employer acts merely as agent of the insurer.
the policyholder: Provided, That nothing herein
contained shall be so construed as to require group life
c. industrial life (as define in Sec. 29; for
policies to contain the same non-forfeiture provisions as
discussion (infra)
are required of individual life policies.

Sec. 29. An intentional and fraudulent omission, on the

part of one insured, to communicate information of
matters proving or tending to prove the falsity of a
● Insurance = group policy (master contract) + warranty, entitles the insurer to rescind.
policyholder’s application + individual applications, if
any
● Group policy
○ States coverage terms for group insurance ● Definition: form of life insurance under which
○ Issued to a representative of the group of the premiums are payable either monthly or oftener, if
administrator of the insurance program the face amount of insurance provided is not more
● Premium paid by policyholder (employer), with the than 500 x current minimum daily wage in the City of
insurance considered a non-contributory plan Manila
○ Employer is agent of the insurer = acts as a ○ Words “industrial policy” are printed upon the
functionary in the collection and payment of policy as part of the descriptive matter
premiums, disbursement of insurance payments ● This is aimed at protecting lower income group.
to the employees, and in performing related ● The main purpose is to cover the expenses for the
duties last sickness of the insured, and those for his burial.
● Members would usually be a cohesive group. (ex. ● Premiums are payable weekly, bi-weekly, or
employees of a particular company) monthly.
○ But Members would pay a uniform premium
through deductions from their wages 2. Non-life (limited to definitions)
○ The death of a member will give rise to the 3. marine (covered by Secs. 99-166)
liability of the insurer, that is to pay the ● Includes policies covering risks to which property
beneficiaries of the deceased. may be exposed, as well as those which cover the
● Unlike in individual life insurance, no medical risk of liability to third persons.
examination is required for each of the insured. ● This may be open, valued, or running.
● Based on the theory that by law of averages, only a ● These are mostly time policies, such that they have
percentage of members of a group would die within a definite period of coverage.
a specific period.

Pineda v. CA Insular Life, 226 SCRA 7554 (93) Sec. 99. Marine Insurance includes:

Facts: PMSI procured a group policy from Insular Life to (1) Insurance against loss of or damage to:
provide life insurance coverage for its sea-based (a) Vessels, craft, aircraft, vehicles, goods,
employees. While the policy was in effect, 6 employees freights, cargoes, merchandise, effects,
perished at sea when their vessel sank. Beneficiaries disbursements, profits, moneys, securities,
executed special powers of attorney authorizing Capt
choses in action, evidences of debts,
Nuval, PMSI president, to follow up, collect, or receive
the indemnities for their benefit. Unknown to them PMSI, valuable papers, bottomry, and respondentia
as employer and policy holder, filed with Insular Life interests and all other kinds of property and
formal claims for and in behalf the beneficiaries. Insular interests therein, in respect to, appertaining
life drew checks payable to the order of the to or in connection with any and all risks or
beneficiaries, but Capt Nuval endorsed and deposited perils of navigation, transit or transportation,
them in his own bank account.
 personal injury, illness or death or for loss of or
or while being assembled, packed, crated,
damage to the property of another person.
baled, compressed or similarly prepared for
shipment or while awaiting shipment, or
a. Fire (covered by Secs. 167-183)
during any delays, storage, transhipment, or
reshipment incident thereto, including war
Sec. 167. As used in this Code, the term "fire insurance"
risks, marine builder's risks, and all personal
shall include insurance against loss by fire, lightning,
property floater risks; windstorm, tornado or earthquake and other allied risks,
(b) Person or property in connection with or when such risks are covered by extension to fire
appertaining to a marine, inland marine, insurance policies or under separate policies.
transit or transportation insurance, including
liability for loss of or damage arising out of or
in connection with the construction, repair, b. Casualty (Sec. 174) or Liability
operation, maintenance or use of the subject Insurance; Definition
matter of such insurance (but not including
life insurance or surety bonds nor insurance Sec. 174. Casualty insurance is insurance covering loss
against loss by reason of bodily injury to any or liability arising from accident or mishap, excluding
person arising out of ownership, certain types of loss which by law or custom are
maintenance, or use of automobiles); considered as falling exclusively within the scope of
(c) Precious stones, jewels, jewelry, precious other types of insurance such as fire or marine. It
includes, but is not limited to, employer's liability
metals, whether in course of transportation
insurance, motor vehicle liability insurance, plate glass
or otherwise; insurance, burglary and theft insurance, personal
(d) Bridges, tunnels and other instrumentalities accident and health insurance as written by non-life
of transportation and communication insurance companies, and other substantially similar
(excluding buildings, their furniture and kinds of insurance.
furnishings, fixed contents and supplies held
in storage); piers, wharves, docks and slips,
and other aids to navigation and ● Arising from accident or mishap
transportation, including dry docks and ○ Excluding those already specified by law: fire,
marine railways, dams and appurtenant marine
facilities for the control of waterways. ■ Ex: employer’s liability insurance, workmen's
compensation
(2) "Marine protection and indemnity insurance," ■ insurance, public liability insurance, motor
meaning insurance against, or against legal vehicle liability insurance, plate glass
liability of the insured for loss, damage, or insurance, burglary and theft insurance,
expense incident to ownership, operation, personal accident and health insurance as
chartering, maintenance, use, repair, or written by non-life insurance companies
construction of any vessel, craft or instrumentality
in use of ocean or inland waterways, including c. Suretyship (Secs. 175-178); definition
liability of the insured for personal injury, illness or
death or for loss of or damage to the property of Sec. 175. A contract of suretyship is an agreement
another person. 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
● Section 101 = includes loss or damage to vessels,
recognizances, stipulations, bonds or undertakings
goods, cargoes and other properties exposed to issued by any company by virtue of and under the
risks of navigation, as well as marine protection and provisions of Act No. 536, as amended by Act No. 2206.
indemnity insurance
○ insurance against, or against legal liability of the
● Definition: surety guarantees performance of
insured for loss, damage, or expense incident to
principal/obligor of an obligation in favor of obligee
ownership, operation, chartering, maintenance,
(third party)
use, repair, or construction, of any vessel, craft
● Includes official recognizances, stipulations, bonds,
or instrumentality in use of ocean or inland
or undertakings issued by any company by virtue of
waterways, including liability of the insured for
and under Act No. 536
Sec 2a = insurance contract if surety is doing an
positions until the end of their terms or two years from
insurance business
the effectivity of this decree, whichever is shorter.
3. Microinsurance (Sec. 187)
Before issuing such certificate of authority, the
Commissioner must be satisfied that the name of the
company is not that of any other known company
Sec. 187. SEC. 187. Microinsurance is a financial transacting a similar business in the Philippines, or a
product or service that meets the risk protection needs of
name so similar as to be calculated to mislead the
the poor where: public.
(a) The amount of contributions, premiums, fees or
Such certificate of authority shall expire on the last day
charges, computed on a daily basis, does not of June of each year and shall be renewed annually if
exceed seven and a half percent (7.5%) of the the company is continuing to comply with the provisions
current daily minimum wage rate for of this Code or the circulars, instructions, rulings or
nonagricultural workers in Metro Manila; and decisions of the Commissioner. Every company
(b) The maximum sum of guaranteed benefits is not receiving any such certificates of authority shall be
subject to the provisions of this Code and other related
more than one thousand (1,000) times of the
laws and to the jurisdiction and supervision of the
current daily minimum wage rate for Commissioner.
nonagricultural workers in Metro Manila.
No insurance company may be authorized to transact in
the Philippines the business of life and non-life insurance
Sec. 188. No insurance company shall transact any
concurrently unless specifically authorized to do so:
insurance business in the Philippines until after it shall
Provided, That the terms "life" and "non-life" insurance
have obtained a certificate of authority for that purpose
shall be deemed to include health, accident and
from the Commissioner upon application therefor and
disability insurance.
payment by the company concerned of the fees
hereinafter prescribed.
No insurance company shall have equity in an
The Commissioner may refuse to issue a certificate of adjustment company and neither shall an adjustment
company have an equity in an insurance company.
authority to any insurance company if, in his judgment,
such refusal will best promote the interest of the people
Insurance companies and adjustment companies
of this country. No such certificate of authority shall be
presently affected by the above provision shall have two
granted to any such company until the Commissioner
years from the effectivity of this Decree within which to
shall have satisfied himself by such examination as he
may make and such evidence as he may require that divest of their stockholdings.
such company is qualified by the laws of the Philippines
to transact business therein, that the grant of such
authority appears to be justified in the light of economic
requirements, and that the direction and administration, ● Activity providing specific insurance, insurance-
as well as the integrity and responsibility of the like, and other similar products and services that
organizers and administrators, the financial organization meet the needs of the low-income sector for risk
and the amount of capital, notwithstanding the provisions protection and relief against distress, misfortune,
of section one hundred eighty-eight, reasonably assure and other contingent events
the safety of the interests of the policyholders and the
public. Features
● Premiums, contributions are collected/deducted
In order to maintain the quality of the management of the before contingent event
insurance companies and afford better protection to ● Guaranteed benefits provided upon occurrence
policyholders and the public in general, any person of
good moral character, unquestioned integrity and
Requirements
recognized competence may be elected or appointed
● Premiums <= 7.5% of minimum wage daily of non-
director or officer of insurance companies. The
Commissioner shall prescribe the qualifications of the agricultural worker in Metro manila
executive officers and other key officials of insurance ● Max sum of benefits <= 1000x same value
companies for purposes of this section. ● Reason for ceiling on premium: increased number of
insured = spread risk
No person shall concurrently be a director and/or officer ● Can cover 33 months of lost income
of an insurance company and an adjustment company.
Performance standards set on microinsurance
Incumbent directors and/or officers affected by the companies
above provisions are hereby allowed to hold on to their
 F. Construction/interpretation of insurance 1. Basis/rationale (review consensual and
contracts obligatory nature of an insurance
(review Articles 1370 to 1379, Civil Code) contract and also being one of adhesion
supra)
Art. 1370. If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, GENERAL RULE ON INTERPRETATION:
the literal meaning of its stipulations shall control. All provisions of the insurance policy should be
examined and interpreted in consonance with each
If the words appear to be contrary to the evident other. Policy cannot be construed piece-meal. Certain
intention of the parties, the latter shall prevail over the stipulations cannot be segregated and then made to
former. (1281) control; neither do particular words or phrases
necessarily determine its characters.
Art. 1371. In order to judge the intention of the
contracting parties, their contemporaneous and Where terms are clear (Strict implementation of terms):
subsequent acts shall be principally considered. (1282) GENERAL RULE: When intention of the policy is clear
on the language is sufficiently clear to convey the
Art. 1372. However general the terms of a contract may meaning of the parties, although the contract may be
be, they shall not be understood to comprehend things rather onerous, terms of contract are binding.
that are distinct and cases that are different from those ● Court is bound to adhere to the insurance contract
upon which the parties intended to agree. (1283) as the authentic expression of the intention of the
Art. 1373. If some stipulation of any contract should parties, and it must be construed and enforced
admit of several meanings, it shall be understood as according to the sense and meaning of the terms
bearing that import which is most adequate to render it which the parties themselves have used. If such
effectual. (1284) terms are clear and certain, they must be taken in
their plain and ordinary sense.
Art. 1374. The various stipulations of a contract shall be
● Obligations arising from contracts have the force of
interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. law between the contracting parties and should be
(1285) complied with in good faith.
When there is ambiguity or doubt (Liberal Interpretation
Art. 1375. Words which may have different significations of Terms):
shall be understood in that which is most in keeping with GENERAL RULE: contracts of insurance are to be
the nature and object of the contract. (1286) construed or interpreted liberally in favor of the insured
and strictly against the insurer resolving all ambiguities
Art. 1376. The usage or custom of the place shall be against the insurer.
borne in mind in the interpretation of the ambiguities of a ● Insurance contracts should be interpreted to carry
contract, and shall fill the omission of stipulations which out the purpose for which the parties entered into the
are ordinarily established. (1287)
contract, which is to insure against risks of loss,
Art. 1377. The interpretation of obscure words or damage, or liability on the part of the insured.
stipulations in a contract shall not favor the party who ● Limitations of liability must be construed in such a
caused the obscurity. (1288) way as to preclude the insurer from non-compliance
with its obligations.
Art. 1378. When it is absolutely impossible to settle
doubts by the rules established in the preceding articles,
RATIONALE:
and the doubts refer to incidental circumstances of a
[DE LEON AND CARALE] A policy of insurance is a
gratuitous contract, the least transmission of rights and
contract of adhesion
interests shall prevail. If the contract is onerous, the
➔ Most of the terms of the contracts do not result from
doubt shall be settled in favor of the greatest reciprocity
mutual negotiation between the parties as they are
of interests.
prescribed by the insurer in final printed forms which
If the doubts are cast upon the principal object of the the insured may reject or to which he may “adhere” if
contract in such a way that it cannot be known what may he chooses but which he cannot change
have been the intention or will of the parties, the contract ➔ Compare with a bargaining contract:
shall be null and void. (1289) ◊ Both parties participate in drawing up its terms
and conditions or determining its wording.
Art. 1379. The principles of interpretation stated in Rule
123 of the Rules of Court shall likewise be observed in [CARALE] Reasonable expectations of the parties (more
the construction of contracts. (n) so, that of the insured)
● Perceived expectations of the insured considering
the nature of the insurance contract prompt courts to
 be reluctant to enforce exclusions and exceptions; of the vessel while under dry-dock or repair and to
instead, they rule in favor of coverage such extent, it is benefited and effectively constituted
as a co-assured under the policy.
Other “rules”:
● Intention of parties to make each other a co-assured
(1) A policy of insurance which contains exceptions or
conditions tending to work a forfeiture of the policy under the insurance policy is to be gleaned
shall be interpreted most favorably toward those principally from the policy itself, and not from any
against whom they are intended to operate and most other contract or agreement. Policy designates who
strictly against the insurance company or the party the assured and the beneficiary are.
for whose benefit they are inserted. ● There was no manifestation of any intention of
(2) Where restrictive provisions are open to 2 William Lines, Inc. to constitute CSEW as a co-
interpretations, that which is most favorable to the
assured under subject policy.
insured is adopted.
(3) Limitations of liability must be construed in such a ● It is axiomatic that when the terms of a contract
way as to preclude the insurer from non-compliance are clear its stipulations control.
with its obligations. ● Thus, when the insurance policy involved named
only William Lines, Inc. as the assured thereunder,
When contract is silent regarding the matter: the claim of CSEW that it is a co-assured is
● Any doubt arising from the failure of the contract to unfounded.
provide with respect to a particular matter should be
resolved against the insurer RESOLUTION: CSEW pays Prudential PHP 45,000

2. Some cases dealing with construction New Life Enterprises v. CA, 207 SCRA 669 (1992)
and interpretation. Discussion to be
limited to only such issue of ^ STRICT INTERPRETATION.
interpretation (how it arose and how it
HOW AROSE:
was resolved and basis therefore)
● Stocks in trade of a partnership were insured with
three insurance companies.
Cebu Shipyard v. William Line, 306 SCRA 762 (1999)
● Insured properties were gutted by fire. All three
^ STRICT INTERPRETATION. insurance companies denied claims for payment of
the partnership.
HOW AROSE: ● Coverage by other subsequent insurances were not
● William Lines’ luxury passenger-cargo vessel caught stated nor endorsed in the policies of the three
fire and sank while undergoing dry-docking and insurers.
repairs. The vessel was insured and covered for loss
or damage of vessel through negligence of ship PROVISION ASSAILED:
repairmen. “Other Insurance Clause” uniformly contained in all
● William Lines filed a claim with Prudential (PHP three policies requiring the insured to give notice of any
45,000). Prudential paid then filed a complaint for insurance or insurance already effected or will be
subsequently effected covering the insured stocks in
damages against CSEW, having been subrogated to
trade. Failure to give required notice will cause the
the rights of William Lines. forfeiture of all claims under the policy.
● CSEW: no right of subrogation as it was a co-
assured under the insurance policy and that under INTERPRETATION:
the dry-docking repair agreement, owner of vessel ● Terms of contract are clear and unambiguous such
has to maintain insurance on it during the period of that “when the words and language of documents
repair are clear and plain or readily understandable by an
ordinary reader thereof, there is absolutely no room
PROVISION ASSAILED: W/N CSEW is a co-assured on for interpretation or construction anymore”
the basis of clause 20 of the work order between CSEW ● Since coverage by other insurers were not stated
and William Lines which said: nor endorsed, benefits under each policy forfeit.
“20. The insurance on the vessel should be maintained
RESOLUTION:
by the customer and/or owner of the vessel during the
period the contract is in effect.”
First Quezon City Insurance v. CA, 218 SCRA 526
INTERPRETATION:
STRICT INTERPRETATION.
● According to CSEW, under the aforecited clause,
William Lines, Inc., agreed to assume the risk of loss
HOW AROSE: most strongly against the company in order to avoid
● Passenger lost balance and fell from a De Dios forfeiture.
Marikina Transportation Company (DMTC) bus ● If a marine insurance company desires to limit or
when it sped forward at a high speed. Passenger restrict the operation of the general provisions of its
was dragged along an asphalted road until driver contract by special proviso, exception, or exemption,
realized what happened and stopped the bus. it should express such limitation in clear and
Severely injured. unmistakable language.
● Passenger sued DMTC and and its insurer, First
Quezon City Insurance Co. for damages, PHP RESOLUTION:
80,000.
● TC: DTMC pay passenger. First Quezon City Western Guaranty v. CA, 187 SCRA 652
Insurance indemnify DTMC PHP 12,000.
LIBERAL INTERPRETATION.
● CA: First Quezon City Insurance indemnify DMTC
PHP 50,000 HOW AROSE:
● Passenger bus injured a pedestrian.
PROVISION ASSAILED: ● There is a specific amount recoverable found in the
Maximum Liability for damages: Schedule of Indemnities of the Insurance Policy for
PHP 12,000 per passenger
the death or a corresponding bodily injury suffered
PHP 50,000 per accident
by a third person or passenger.
INTERPRETATION: ● Western Guaranty argues that the Schedule of
● Since only one passenger was injured in the Indemnities should be read as excluding liability for
accident, the insurance liability is pegged to the other injuries suffered by a third person if such
amount of PHP 12,000 only. injuries are not enumerated in the Schedule
● PHP 50,000 per accident means insurer’s maximum
liability for any single accident will not exceed PHP PROVISION ASSAILED:
50,000 regardless of the number of passengers Protection against third party liability provision vis a
vis the Schedule of Indemnities
injured therein.
● DMTC may not recover from insurer more than PHP INTERPRETATION:
12,000 per passenger killed/injured OR PHP 12,000 ● “Schedule of indemnities does not purport to limit, or
per accident. to enumerate exhaustively, the species of bodily
injury occurrence of which general liability” for the
RESOLUTION: insurer
Malayan Ins. V. CA, 270 SCRA 242 (1997) ● Allowing the insurer’s reading of the Schedule of
Indemnities would limit the otherwise unlimited
LIBERAL INTERPRETATION. scope of liability assumed by the insurer under the
policy
HOW AROSE: ○ Conflicts with provision that insurer will “pay all
● Insurer issued two marine cargo policies covering sums necessary to discharge liability of the
soya bean meal owned by insurer. insured in respect… of death, bodily injury, or
● While vessel carrying cargo was docked in South damage to property of any third party.”
Africa, it was arrested and detained by civil
authorities. RESOLUTION:
● Insurer denied claim on the ground that arrest of the
vessel by civil authority was not a peril covered by Qua Clee Gan v. Law Union 96 Phil. 85 (1955)
the policies
LIBERAL INTERPRETATION.
PROVISION ASSAILED: “Perils Clause”
HOW AROSE:
INTERPRETATION: ● Insurance covers four bodegas in Albay used in the
● “Perils Clause” did not limit insurer’s assumed risks hemp business of the insured
to arrest caused solely by executive and political ● Fire
acts of the government of the seizing state thereby ● Insurer: several warranties, in the form of riders,
excluding arrests caused by ordinary legal were breached so it justified their refusal to pay the
processes proceeds.
● Exceptions to the general coverage are construed ○ Fire hydrant warranty violation: there were only
 2 hydrants when there should have been 11 whilst “contained and/or stored during the currency of
this Policy in the premises occupied by them forming
PROVISION ASSAILED: part of the buildings situate (sic) within own compound.”
Warranties/riders
(1) Fire hydrant warranty: “not less than one for each INTERPRETATION:
150 feet of external wall, with not less than 100 feet ● Provision is not limited to coverage to what was
of hose piping and nozzles for every two hydrants… stored in the four-span building
the hydrants being supplied with water pressure by a ● Two storey-building is not an annex but an integral
pumping engine… capable of discharging at the rate part of the main building according to Art. 1377 of
of not less than 200 gallons of water per minute into
the Civil Code
the upper story of the highest building protected…”
(2) Hemp warranty provision against storage of “oils
(mineral and/or vegetable and/or mineral and/or their RESOLUTION:
liquid products) having a flash point below 300
degrees Fahrenheit) Perla v. CA, 185 SRCA 741 (1990)

INTERPRETATION: STRICT INTERPRETATION.

● Use of obscure words and phrases is frowned upon
HOW AROSE:
by courts
● Accident involving a Mazda bus owned by Milagros
● Insurer is barred by waiver or estopped for the
Cayas. 4 injured.
reason that the insurer knew fully well that the
○ 3 → entered a settlement with
required number of hydrants never existed from the
○ 1 → filed a complaint for damages
beginning but issued the policy anyway
● Cayas got CA judgment ordering Perla to pay her
PHP 50,000 as indemnity.
RESOLUTION:
● PCSI argued on the basis of two provisions assailed
Sun Insurance v. CA 211 SCRA 554 (1992)
PROVISION ASSAILED:
STRICT INTERPRETATION. (1) Per passenger liability
(2) Clause regarding settlement
HOW AROSE:
INTERPRETATION:
PROVISION ASSAILED: (1) Per passenger liability amount is minimum required
by law so it holds
INTERPRETATION: (2) Policy specifically requires that insurer’s written
consent be first secured before any payment in
RESOLUTION: Denied claim of insured for failure of settlement of the claim against the insured can be
insured to file the claim within one year from the date of made.
first rejection by the insurer. ● Nothing unreasonable or objectionable in this
provision to warrant its nullification
Rizal Surety v. CA 336 SCRA 12 ● Safeguards the insurer’s interest against
collusion between the insured and the claimant
LIBERAL INTERPRETATION. ● Failure to comply with this condition precludes
insured from seeking reimbursement of the
HOW AROSE: payments made
● Fire broke out in insured’s compound, destroying a
two-storey building where machines and spare parts RESOLUTION: CA decision modified. PCSI shall pay
Cayas PHP 12,000
were stored.
● [SEE PROVISION ASSAILED] American Home Assurance v. CA, 366 SRCA 740
● Insurer refused to pay claim. (2001)
○ Argument: policy protected only the contents of
the main building described in the policy, and LIBERAL INTERPRETATION.
not those included in the two-storey annex
HOW AROSE:
building
● Insured: annex is an integral part of the main PROVISION ASSAILED:
building
INTERPRETATION:
PROVISION ASSAILED: Fire insurance policy covering ● The object of the court in construing a contract is to
stocks raw materials, and other properties of the insured ascertain the intent of the parties to the contract and
 to enforce the agreement which the parties have III. INSURABLE INTEREST
entered into. A. Definition & purpose
● In determining what the parties intended, the courts 1. Recall definition of an insurance contract
will read and construe the policy as a whole and if
(Sec. 2-1)
possible, give effect to all the parts of the contract,
keeping in mind always that in the event of doubt,
doubt is to be resolved against the insurer.
● In determining the parties’ intent, court will consider (a) A contract of insurance is an agreement whereby
the purpose and object of contract. one undertakes for a consideration to indemnify
another against loss, damage or liability arising
RESOLUTION:
from an unknown or contingent event.

A contract of suretyship shall be deemed to be an

insurance contract, within the meaning of this Code, only
if made by a surety who or which, as such, is doing an
insurance business as hereinafter provided.

2. May not be waived (Sec. 25)

Sec. 25. Every stipulation in a policy of insurance for the

payment of loss whether the person insured has or has
not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every
policy executed by way of gaming or wagering, is void.

Insurable interest:
Relation between the insured and the risk insured such
that the occurrence of the risk will cause substantial
loss or harm of some kind to the insured

In the broadest sense: that interest which the law

requires a person making a contract of insurance to
have in the thing or person insured so that the contract
1
may escape the charge of a wagering contract

In terms of the event insured against, it is the relation

between the insured and the risk insured such that the
occurrence of the risk will cause substantial loss or harm
of some kind to the insured
● The doctrine of insurable interest requires that there
be some significant relationship between the insured
and the person, the object, or the activity that is the
subject of an insurance transaction

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 by the happening of the
event insured against.

1
two parties or more with contrasting opinions regarding a future
uncertain event that may or may not occur, jointly agree that upon the
outcome of the event, a sum of money, or otherwise, would be given to
the winner (ex. gambling)
● Interest does not necessarily imply a right to the Sec. 25
whole or a part of the thing. 2 stipulations in an insurance policy declared void:
● Property of a thing and the interest devisable from it (1) Stipulation for the payment of loss whether the
may be difference person insured has or has not any interest in the
○ Property: price is generally the measure subject matter of the insurance.
○ Interest: every benefit or advantage arising out (2) Stipulation that the policy shall be received as
of or depending on such thing may be proof of insurable interest
considered as being comprehended ● Whether or not an insurable interest exists does
Exception: in life insurance, the expectation of benefit not depend upon the contract of insurance or the
from the continued life of that person need not stipulations therein. The insurer can always
necessarily be of a pecuniary nature show lack of insurable interest after the issuance
of a policy of insurance.
Existence of insurable interest gives a person the Defense of absence of insurable interest available
legal right to insure the subject of the policy of only to the insurer being the only party to the
insurance. insurance contract who has a legitimate interest in
● Insurance must not be a mere bet upon a future raising the defense. → can only be raised by and for
event. the benefit of the insurer

Insurable interest is necessary to the validity of an

insurance contract whatever the subject matter of B. Insurable interest in life/health
the policy. Sec. 10
● EXCEPTION: industrial life insurance (Secs. 235-
237 of Code)
Sec. 10. Every person has an insurable interest in the
2 purposes of an insurance contract: life and health:
(1) Prevent the contract from being a mere wager or
as a deterrence to the insured (a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in
GENERAL RULE: Insured must have an insurable part for education or support, or in whom he has a
interest at the time of the policy’s inception; otherwise, pecuniary interest;
there can be no insurance if there is nothing to insure (c) Of any person under a legal obligation to him for
● A contract without an insurable interest is in the the payment of money, or respecting property or
nature of a wagering contract, which is void. services, of which death or illness might delay or
prevent the performance; and
A wager policy is contrary to public interest and is
(d) Of any person upon whose life any estate or
demoralizing in that:
● It allows the insured to have an interest in the interest vested in him depends.
destruction of the subject matter rather than its
preservation
● It affords a temptation or an inducement to the
insured, having nothing to lose and everything to 1. Insurable interest of the insured in his own life
gain, to bring to pass the event upon the happening compared to that on the life of other. (cf. Sec. 10
of which the insurance becomes payable. a with Sec. 10b, c & d)
2. Insurable interest in health
(2) Provide a measure of the limits of recovery
2 classes of life insurance policies:
RULE: Principle of Indemnity → insurance contracts (1) Taken out by the insured upon his own life
on property shall confer a benefit no greater in value ● May be for the benefit of the following:
than the loss suffered by an insured ○ Himself
● The law looks at whether the interest of the insured ○ His estate (in case it matures only at his
is grossly proportionate to the amount of insurance death)
because recovery should be limited to the extent of ○ A person designated as his beneficiary
his actual interest. ● An application for insurance on one’s own life
does not usually present an insurable interest
In the early years of insurance, insurable interest was question because of the unlimited insurable
not required. Today, however, if there is no insurable interest in his own life. He also does not suffer
interest, the contract is void.
loss by his own death or benefit from it.
 2
○ A pure endowment , however, is a different ● Both life insurance and a donation are founded upon
situation because the insured benefits from the same consideration: liberality. As a
surviving his endowment period. consequence, the proscription in Art. 739 of the Civil
(2) Insurance taken out by insured on his life for the Code should equally operate in life insurance
benefit of another contracts.
A person who takes out insurance on his own ● Re: Prohibitions for donations between husband and
life has the power to designate any beneficiary wife → A life insurance policy taken by the spouse
(cestui qui vie), subject only to statutory on their life in favor of the other takes effect after
limitations regarding persons disqualified to be
their death.
such.
● Beneficiary need not have an insurable interest
(3) Taken out upon the life of the other
in the life of the insured.
● The assured shall have an interest to preserve
○ Carale: but the lack of this requirement might
the life of the insured in spite of the insurance,
bring about the moral hazard on the part of
rather than to destroy it because of the
the beneficiary to cause harm to the insured
insurance. [PECUNIARY INTEREST = related to
○ Code’s check against this moral hazard:
money]
Beneficiary cannot gain from the
● The circumstances attending the making of the
proceeds of the policy where he acts as a
contract must be as such to prove the existence
principal, accomplice, or accessory in
of a bona fide desire and interest on the part
wilfully bringing about the death of the
of the assured that the life insured (the
insured under circumstances which
cestui que vie) shall continue during its
would amount to a felony. His interest to
natural term.
such proceeds will be forfeited.
○ These circumstances are what constitute
■ Beneficiary’s act must be intentional and
insurable interest
forfeiture not affected in the following
cases: Insurance for benefit of a third party
● Self-defense When the owner of the policy insures the life of another
● Insane (cestui que vie) and designates a third party as a
● Justified or exempt from criminal beneficiary:
liability under RPC ● Both owner and beneficiary must have an insurable
The presence of insurable interest is really required only interest in the life of the cestui que vie
as evidence of the good faith of the parties. The ● If insurable interest requirement is satisfied, a life
selection of the beneficiary by the insured is in ordinary policy is assignable regardless of whether the
cases sufficient guaranty of the existence of such good assignee has an insurable interest in the life of the
faith and confidence between them as will sufficiently
cestui que vie.
protect the insured.

When the insurance regarded a wagering policy A definitive interest in the life of the cestui que vie is
EXCEPTION TO ABOVE: A wagering policy has been required:
taken out by the insured on his life at the behest of a ● Close relationship by blood or marriage between
third person who is named as beneficiary. the insured and cestui que vie sufficient to constitute
● Evidence of a wagering policy (Secs. 18 and 25): insurable interest [Sec. 10, par. A]
○ Original proposal to take out insurance was that ● Relationship by affinity is insufficient by itself to
of the beneficiary constitute an insurable interest. It would help if such
○ Premiums are paid by the beneficiary relation is accompanied by a pecuniary interest.
○ Beneficiary has no interest, economic or ○ Love and affection, gratitude, friendship NOT
emotional, in the continued life of the insured sufficient
= INSURANCE POLICY VOID ○ Regarding support, resort must be made to the
provisions of the FC regarding persons who are
Similarity between a life insurance policy and a civil legally entitled to support
donation ● People engaged to be married = no insurable
● Donation: act of liberality whereby a person disposes
interest
gratuitously a thing or right in favor of another who
● Re: support, if person is legally entitled to support,
accepts it
then sufficient to constitute insurable interest
○ Spouses
2
an insurance contract promising to pay the insured a stated sum if he ○ Legitimate ascendants
survives a specified period with nothing payable in case of prior death
 ○ Parents and their legitimate children and the ○ It follows that the insuring creditor could only
legitimate and illegitimate children of the latter recover the amounts that remain unpaid at the
○ Legitimate brothers and sisters, whether full or time of the death of the debtor. If the whole debt
half blood has been paid, recovery on the policy is not
● Ward has an insurable interest on the life of his allowed.
benefactor ● Where a debtor in good faith insures his life for the
● In the US, it was held that assumption of parental benefit of the creditor, full payment of the debt does
relations although without legal obligation is not invalidate the policy. In this case, the proceeds
sufficient to constitute insurable interest go to the estate of the debtor

A person who is related to another either by A creditor may not insure the life of his debtor
contractual or commercial relation, such that the right unless the debtor has a legal obligation to pay the
held by him might be prejudiced by the death of the money.
other constitutes insurable interest.
○ Company/corporation in relation to its officers One may insure the life of a person where the
● Re: employees → depends on the value of the continuation of the estate or interest vested in him
employee to the business who takes the insurance depends upon the life
insured.
○ BUT a valid insurance may be written when the
● Ex. A has usufruct. B owns property. If B dies before
employee himself applies for the policy and
A, usufruct and ownership transfer to C. Therefore,
designates the employer as beneficiaries
A has an insurable interest over the life of C.
● Partners, the life of co-partner
● Partnership, the life of each partner Is the consent of the person whose life is insured
● Surety, life of principal essential to the validity of the insurance taken by
In all instances mentioned, it must appear that the death another?
or illness of the insured person who is under a legal No, as long as it can be proven that the assured has a
obligation might delay or prevent its performance. legal insurable interest at the inception of the policy, the
policy is valid even without the consent of the other
What is the effect of a termination of the contractual person.
relationship before the death of the cestui que vie?
● Under Sec. 19 of the Code, insurable interest is
necessary only when the policy is issued in C. Insurable Interest in property
order to sustain the validity of a life insurance 1. Definition (Sec. 13)
contract.
● [ruled in the US - NONE YET IN PH JURISDICTION]
Sec. 13. Every interest in property, whether real or
The termination of an insurable interest which personal, or any relation thereto, or liability in respect
existed when the policy was issued will not defeat thereof, of such nature that a contemplated peril might
the beneficiary’s rights. directly damnify the insured, is an insurable interest.

A creditor, when the debt is unsecured, has an

insurable interest over the life of the debtor. A person has an insurable interest in property when
● NOT when the debt is adequately fully secured he sustains such relation with respect to it that he
● Creditor may insure debtor’s life only to the extent of has a reasonable expectation of benefit to be
the amount of the debt and the cost of carrying the derived from its continued existence, or of loss or
insurance on the debtor’s life liability for its destruction.
○ The amount of the policy must not be so ● Immaterial if insured has title or possession of the
disproportionate to the amounts of the debts and property so long as he would sustain loss by its
liens thereon plus the cost of the insurance as to destruction.
justify the conclusion that the policy is merely a ● Occurrence of loss may be uncertain. It is sufficient
wagering or speculative one that there might be loss and that the pecuniary injury
● A creditor who insures the life of his debtor does not would be the natural consequence of such loss.
act as the agent of the debtor (Sec. 53) ● Expectation of benefit to be derived from the
○ Insurance does not insure to the benefit of the continued existence of the property must have a
debtor unless the contrary is expressly basis of legal right, although the person insured has
stipulated no title, either legal or equitable, to the property
● An insurance taken by the creditor on the life of the insured.
debtor is not purely a contract of life insurance
● Expectation of loss not arising from any legal right or the undertaking may exceed the original amount
duty in connection with the property does not of the insurance
constitute an insurable interest. ● Liability insurance contracts: The contract of
○ Factual expectation: Ex. If hotel next to a gas insurance may be to pay, on the happening of the
station burns, the gas station will lose customers event insured against, a certain or ascertainable
[hotel guests] is not an insurable interest for the sum of money, irrespective of whether or not the
gas station owner insured suffered loss or of the amount of the loss if
any. Amount insured is governed by the amount of
a. enforceability where no insurable premium he contracted to pay.
interest (sec. 18) ● Personal accident insurance contracts: Principle of
indemnity not applicable. Amount recoverable is the
Sec. 18. No contract or policy of insurance on property loss sustained by the person who effected the policy.
shall be enforceable except for the benefit of some ● Health insurance contracts: Those that provide a
person having an insurable interest in the property specific periodic income to disabled persons are not
insured. contracts of indemnity but those that cover medical
expenses are. In these contracts, only medical
expenses incurred by insured are paid.
● Cha v. CA: a lease contract prohibited the lessees ● Health care agreement: non-life insurance; contract
from insuring the property without written consent of indemnity; health care provider pays expenses to
and approval of the lessor otherwise the policy the extent agreed upon under the contract. Payment
is deemed assigned and transferred to the lessor made to party who incurred expense.
for its benefit
○ SC: Automatic assignment of the policy as 2. In what it may consist of (Sec. 14);
provided in the lease contract is void for being
contrary to law and/or public policy
Sec. 14. An insurable interest in property may consist in:
Effect of absence of insurable interest in property
(a) An existing interest;
insured
● Principle of indemnity applicable (b) An inchoate interest founded on an existing
○ An insurance taken out by a person on a interest; or
property in which he has no insurable interest is (c) An expectancy, coupled with an existing interest in
void that out of which the expectancy arises.
○ Where an insurance is invalidated on the ground
that no insurable interest exists, the premium is
ordinarily returned to the insured unless he is in What constitutes insurable interest in property?
pari delicto with the insurer (A) Existing interest
● Doctrine of waiver or estoppel not applicable ● Legal title
○ Why? Because public has an interest in the ○ Trustee when the seller of property not yet
matter independent of the consent or delivered
concurrence of the parties ○ Mortgagor
○ Lessor
Measure of indemnity in insurance contracts ○ Lessee and sublessee
● Marine or fire insurance: the amount of insurance ○ Assignee of property for the benefit of
fixed in the policy is not the exact measure of creditors
indemnity to which the insured is entitled but the ○ When a legal title is held in a representative
maximum indemnity which he might obtain. The capacity (executor, administrator, trustee, or
insured cannot recover in excess of his actual loss. receiver), the representative has a sufficient
○ Valued policies (Sec. 61): the valuation of the insurable interest but the proceeds from
thing insured is conclusive between the parties such insurance are to be held for the benefit
thereto in the adjustment of loss although it of the person being represented
might be proved that the actual value of the ● Equitable title
thing is less ○ Purchaser before delivery or before
○ Principle of indemnity cannot be invoked by the performing the conditions of sale
insurer who agreed to repair or replace the thing ○ Mortgagee
insured with a new one even though the cost of
 ○ Mortgagor, after foreclosure but before the Gaisano Cagayan v. Insurance Co. of North America,
expiration of the period of redemption 490 SCRA 286 (2006)
○ Beneficiary under a deed of trust
3. Measure of insurable interest in property
○ Creditor under a deed of assignment
(Secs. 15 to 17)
○ Judgment debtor whose property has been
seized under execution until the right to
redeem or right to have the sale set aside Sec. 15. A carrier or depository of any kind has an
has been lost insurable interest in a thing held by him as such, to the
○ Builders and constructors pending payment extent of his liability but not to exceed the value
of construction price thereof.
More than one insurable interest may exist over the
same property Sec. 16. A mere contingent or expectant interest in
anything, not founded on an actual right to the thing,
(B) Inchoate interest founded on an existing interest nor upon any valid contract for it, is not insurable.
● Stockholder has an inchoate interest in the
Sec. 17. The measure of an insurable interest in
property of the corporation → interest is founded property is the extent to which the insured might be
on the existing interest arising from his damnified by loss or injury thereof.
ownership of shares
● Partner has an insurable interest in the firm
property
A contract of insurance being a contract of indemnity,
(C) Expectancy coupled with an existing interest in the measure of insurable interest must be equal to the
that out of which the expectancy arises value of the loss/injury on the property suffered by the
● Farmer insuring future crops in land owned by insured.
him or in land owned by another but the future ● Why? The purpose of the contract is to place the
crops belong to him insured in the situation in which he was before the
● Owner of business can insure against a event insured against occurred
contingency which may cause loss or profits ● A contract which gives the insured more that
resulting from the cessation or interruption of his indemnity for his actual loss is a wagering contract
business and is void being contrary to law and public policy

b. cf. expectancy (Section 16); 4. When should insurable interest exist ; cf.
life – (Sec. 19)

Sec. 16. A mere contingent or expectant interest in

anything, not founded on an actual right to the thing, Sec. 19. An interest in property insured must exist
nor upon any valid contract for it, is not insurable. when the insurance takes effect, and when the loss
occurs, but not exist in the meantime; and interest in
the life or health of a person insured must exist when
the insurance takes effect, but need not exist
The benefit expected, or the detriment that is feared, thereafter or when the loss occurs.
from the existence or loss of the property insured shall
have a legal basis.
● Examples:
○ Title and possession as in the case of an owner, ONLY APPLICABLE TO INSURANCE ON PROPERTY
AND NOT TO LIFE INSURANCE EXCEPT THAT ON
a trustee, and an executory
THE LIFE OF THE DEBTOR
● The interest may be inchoate or an expectancy but
founded upon an existing interest. Insurable interest in property must exist both at the
○ A mere naken expectation, which may be inception of the contract and at the time of the loss.
frustrated by the happening of some intervening ● Purpose: Prevent the use of insurance for
event, is not an insurable interest. illegitimate purposes.
■ Example: heirs when their parents are still ● The insurance contract procured by a person who
alive has no interest in the property at the time the risk
attached is a wagering contract.
Filipino Merchants Ins. Co. v. Court of Appeals, 179 ● The interest must also exist at the time the loss
SCRA 638 (1989) occurs
 ○ Pursuant to the character of of insurance as a 5. Change of interest in property; instances
contract of indemnity of automatic transfer of interest Secs. 20
○ Where the insured has no insurable interest at to 24; 53; & 57
the time the event insured against occurs, he
can no longer be considered as having incurred
any loss/damage arising from the event Sec. 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
○ Ex. Owner sells house and after the sale, the
insurance, a change of interest in any part of a thing
loss occurs, he won't be able to recover on the insured unaccompanied by a corresponding change in
policy interest in the insurance, suspends the insurance to
● Insurable interest need not exist in the intervening an equivalent extent, until the interest in the thing and
period, between the effective date of the policy and the interest in the insurance are vested in the same
the date loss occurs person.
○ Ex. Owners sells the property after he procures
Sec. 21. A change in interest in a thing insured, after
an insurance contract and reacquires his the occurrence of an injury which results in a loss,
interest before the loss occurs, he may recover does not affect the right of the insured to indemnity for
from the policy the loss.
● Sec. 21, 22, 23 & 24 refer to instances where the → Change of interest AFTER the loss
law considers an automatic transfer of interest and
are considered exceptions to the general rule that Sec. 22. A change of interest in one or more several
distinct things, separately insured by one policy, does
insurable interest in property must exist both at the
not avoid the insurance as to the others.
assumption of risk and the occurrence of the loss → Separately insured property

In liability insurance, questions of insurable interest are Sec. 23. A change on interest, by will or succession,
not particularly important. It necessarily exists when the on the death of the insured, does not avoid an
liability of the insured to a third party attaches. insurance; and his interest in the insurance passes to
the person taking his interest in the thing insured.
Insurable interest in life and property distinguished → Change of interest by will or succession

Life Property Sec. 24. A transfer of interest by one of several

partners, joint owners, or owners in common, who are
Insurable interest Insurable interest limited jointly insured, to the others, does not avoid an
unlimited to the actual value of the insurance even though it has been agreed that the
interest in the property insurance shall cease upon an alienation of the thing
insured.
Insurable interest must Insurable interest must → Co-ownership of property JOINTLY insured
exist at the time the policy exist when the insurance
takes effect; need not takes effect and when the Sec. 53. The insurance proceeds shall be applied
exist at the time of loss loss occurs but need not exclusively to the proper interest of the person in
exist in the meantime whose name or for whose benefit it is made unless
otherwise specified in the policy.
Expectation of benefit to Expectation of benefit to
be derived from the be derived from the Sec. 57. A policy may be so framed that it will inure to
continued existence of life continuous existence of the benefit of whomsoever, during the continuance of
need not have any legal the property will not afford the risk, may become the owner of the interest
basis a sufficient insurable insured.
interest unless the
expectation has a basis of
a legal right. If a legal Sec. 20
basis exists, an expected Effect in general of change of interest
benefit, however remote, ● Mere transfer of a thing insured does not transfer the
constitutes an insurable
policy but suspends it until the same person
interest.
becomes the owner of both the policy and the thing
insured → CONTRACT NOT VOID BUT MERELY
SUSPENDED BY A CHANGE OF INTEREST

Object of rule against alienation/Change of interest

or title
● Object of this provision is to provide against changes policy should be such as are applicable to
which might supply a motive to destroy the property, the joint or common interests”
or might lessen the interest of the insured in ● Under Sec. 57, “a policy may be so framed that it will
protecting and guarding it insure to the benefit of whomsover, during the
continuance of the risk, may become the owner of
Change of interest after loss (Sec. 21) the interest insured.”
Since insurable interest only needs to exist at the time ○ This may be considered an exception to Sec.
the risk attaches and at the time of the loss, and the
20, designed to support advancing business
liability of the insurer attaches at the time of the
occurrence of the risk insured against, Sec. 21 isn’t an usages with “anticipatory insurances” and saved
exception because the change in interest is made after valuable business interest
loss
● Liability of the insurer already attached Other exceptions:
● Insurer has the right to assign his claim against the When there is an express prohibition against
insurer alienation in the policy, in case of alienation, the
contract of insurance is not merely suspended but is
● In some cases where the loss is only partial, the
avoided
insured may transfer/assign whatever may be left, if
any, of the property insured without affecting the
right to the proceeds for the partial loss incurred D. Double insurance and over insurance
Sections 95 & 96
Separately insured properties (Sec. 22)
The effect of change in interest where there are several
things separately insured by one policy depends on Sec. 95. A double insurance exists where the same
whether the contract was intended as a divisible of an person is insured by several insurers separately in
indivisible contract respect to the same subject and interest.
● If divisible: The properties are separately insured so
the violation of any condition with respect to only one Sec. 96. Where the insured in a policy other than life is
overinsured by double insurance:
of the properties will not affect the others
● If indivisible (all things are insured for a gross
(a) The insured, unless the policy otherwise
sum/single premium): the violation of a condition as
provides, may claim payment from the insurers
to some of the properties will also void the others
in such order as he may select, up to the
Change of interest by will or succession (Sec. 23) amount for which the insurers are severally
This decrees the automatic transfer of interest in the liable under their respective contracts;
property, upon the death of the unsred, to the heir, (b) Where the policy under which the insured claims
legatee or devisee who succeeded in his interest on the is a valued policy, any sum received by him
property. The heir, legatee or devisee gets the proceeds under any other policy shall be deducted from
although he didn’t have any insurable interest at the time the value of the policy without regard to the
the insurance was affected.
actual value of the subject matter insured;
Co-ownership of property jointly insured (Sec. 24) (c) Where the policy under which the insured claims
This section makes a distinction between a is an unvalued policy, any sum received by him
transfer/alienation in favor or a partner or co-owner and under any policy shall be deducted against the
a transfer in favor of strangers or third persons. The full insurable value, for any sum received by him
latter will avoid the policy, while the former will not. under any policy;
● Rationale: In the former, there is no effect on the risk (d) Where the insured receives any sum in excess
because no other party was brought into the of the valuation in the case of valued policies, or
contract. of the insurable value in the case of unvalued
● The moral hazard does not increase just because policies, he must hold such sum in trust for the
the purchaser acquires a greater interest in the insurers, according to their right of contribution
property among themselves;
● Under this section, the parties are jointly insured (e) Each insurer is bound, as between himself and
○ Sec 55, on the other hand, deals with how the the other insurers, to contribute ratably to the
insurance was affected. loss in proportion to the amount for which he is
■ “To render an insurance effected by one liable under his contract → PRINCIPLE OF
partner or part-owner applicable to the CONTRIBUTION
interests of his co-partners or other part
owners, it is necessary that the terms of the
Double insurance: there are two or more insurers ● Insured is given the right to choose as to whom
covering the same subject matter and interest, and among the insurers he would go after the first
against the same risk for the same person [insured] ○ But if the policy is an unvalued one, then he can
● Where there is double insurance and loss occurs,
claim the amount of loss from only one insurer
each of the insurers will be liable only up to the face
and let all the other insurers settle their pro rata
value of their respective policies.
contributions among themselves
● The insured has the option of choosing the order by
○ Insured who has been fully indemnified for his
which he would file a claim with the several insurers.
loss by one or more insurers cannot file
○ BUT he can recover his loss only once.
subsequent claims against the others → can
○ The co-insurers stand in relation to one another
only claim up to the full amount of his loss
in the mutual relation of principal and surety.
■ Insurer who paid the loss has a right to CASES WHERE THERE IS OVER-INSURANCE BY
recover proportionately from his co-insurers DOUBLE INSURANCE
Double insurance does not necessarily mean there is ● Application of Sec. 94:
over-insurance. If the policy requires, by way of preliminary proof
● As long as the aggregate value of the policies does of loss, the certificate or testimony of a person
not exceed the value of the insurable interest, there other than the insured, it is sufficient for the
is no over-insurance insured to use reasonable diligence to procure it,
and in the case of the refusal of such person to
Over-insurance: Exists where the value of the give it, then to furnish reasonable evidence to
insurance exceeds the value of the insurable interest the insurer that such refusal was not induced by
● DOES NOT MEAN THERE ARE TWO OR MORE any just grounds of disbelief in the facts
necessary to be certified or testified.
INSURERS INVOLVED
● Not void per se. Recovery is allowed only to the
extent of the loss or damage incurred by the insured. E. Multiple or several interests on same
○ This is so regardless of whether the insurance is property; special provisions on mortgagor &
contained in one or several policies. mortgagee – Section 8 & 9
● However, the policy may contain a provision
expressly prohibiting such recovery should there be
over insurance Sec. 8. Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own
“Other insurance clause”/”escape clause” name providing that the loss shall be payable to the
● The insurance shall be avoided if another policy is mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the
outstanding upon the whole or a portion of the
interest of the mortgagor, who does not cease to be a
property or is to be procured by the insured without party to the original contract, and any act of his, prior
the consent of the insurer to the loss, which would otherwise avoid the
○ Valid and enforceable insurance, will have the same effect, although the
○ Purpose of the prohibition: decrease the moral property is in the hands of the mortgagee, but any act
hazard regarding the risk insured against which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the
When over-insurance results from double insurance, mortgagee therein named, with the same effect as if it
the several policies are not necessarily void. had been performed by the mortgagor.
● However, Sec. 96 delineates the rights and liabilities
Sec. 9. If an insurer assents to the transfer of an
of both insured and insurers. The insured may not
insurance from a mortgagor to a mortgagee, and, at
receive more than his loss. the time of his assent, imposes further obligation on
the assignee, making a new contract with him, the act
“Excess clause” of the mortgagor cannot affect the rights of said
● Several insurers have agreed to be liable assignee.
sequentially, the others being liable, if at all, for the
excess or amount beyond the face value of a
particular policy
● Principle of contribution does not apply when there is Insurable interests over the same property differ
an excess clause. Principle of contribution (Sec. 96) from each other and may pertain to several insured.
requires insurers to contribute ratably to the loss or ● Example: leaseholds are situations of divided
damage in proportion to the amount for which they interest
may be liable under the contract
● Both lessor and lessee have sufficient interest over
the property leased Sec. 9 recognizes the right of mortgagor to assign or
○ The lessor, being the owner, incurs loss to the transfer an insurance policy
● When there is a transfer or assignment of interest,
extent that the liability of the lessee would not
the assignee substitutes in the place of the original
cover the entire loss
insured with respect to the right to claim indemnity in
● Sec. 15: A carrier or depositary of any kind has an
case of loss or destruction or the property.
insurable interest in a thing held by him as such, to
● If the insurer agrees to the transfer of the policy and
the extent of his liability but not to exceed the value
at the time of his assent, imposes new obligations on
thereof.
the assignee, a new contract is created between
The mortgagor and mortgagee each have separate and them.
distinct insurable interests in the property insured. ○ A new consideration passes from the mortgagee
● Mortgagor (owner): extent of the value of the to the insurer.
property [regardless of whether it equals the ○ Acts or mortgagor can no longer affect rights of
mortgage debt or not] mortgagee.
○ Interest is that the loss or destruction of the
property will not extinguish his mortgage debt Geogonia v. Court of Appeals, 241 SCRA 152. (1995)
○ May take out an insurance policy for his own
benefit or for the benefit of mortgagee
■ His own benefit: insuring as owner of
property
■ Benefit of mortgagee: proceeds are payable
to the mortgagee or the policy is assigned to
the mortgagee
→ contract is deemed upon the interest of
the mortgagor and he does not cease to
be a party of the contract
→ act of mortgagor will affect mortgage
■ In case of loss, mortgagee will recover the
extent of the mortgage debt because he has
an equitable lien on the proceeds
● Mortgagee: interest is only to the extent of the debt
secured since the property was offered as a security
for such debt
○ What is insured is not the property but his
interest on the property as a mortgagee, which
subsists until the mortgage debt is extinguished
The insurable interests of a mortgagor and a mortgagee
on the mortgaged property being distinct and separate,
and the policies not covering the same interests, no
double insurance exists and there is no violation of the
other insurance clause.

“Standard/Union mortgage clause”

● Makes a separate and distinct contract of insurance
on the interest of the mortgagee
○ Any act of the mortgagor will not affect of the
mortgagee

“Open mortgage clause”

● Provides for the payment of loss to the mortgagee to
the extent that his interest may appear
○ Mortgagee is only a beneficiary under the
contract and is not a party to it
○ The acts of the mortgagor will affect the
mortgagee
IV. PERFECTION OF THE CONTRACT OF b. Delivery of policy
INSURANCE
General Rule: In order to be binding/effective, the policy
A. Offer and acceptance; consensuality should be delivered to the insured while he is alive and
in good health.
Art. 1319 CC. Consent is manifested by the meeting of
● Good health means that the applicant has no grave,
the offer and the acceptance upon the thing and the important or serious disease and is free from any
cause which are to constitute the contract. The offer ailment that seriously affects the general soundness
must be certain and the acceptance absolute. A qualified
and healthfulness of the system
acceptance constitutes a counter-offer. Acceptance
● Delivery of the policy to the insured while in good
made by letter or telegram does not bind the offerer
health is a requirement to protect insurers from
except from the time it came to his knowledge. The
assuming a risk that arises between the time of
contract, in such a case, is presumed to have been
application and the final act necessary to create a
entered into in the place where the offer was made.
contract of insurance
● Importance of delivery: Delivery of Policy is the act
of putting the insurance policy (the physical
document) into the possession of the insured.
● In an insurance contract, the potential insured is the ○ Process of forming a contract; the delivery of the
one who makes the offer and the insurer is the one policy is important in at least two ways:
who shall signify an acceptance. It is the insurer who ■ as evidence of the making of a contract and
is responsible to assess whether the risk is probable of its term
or improbable to happen. The insurance company ■ as communication of the insurer's
represents the policy holders to which risk is acceptance of the insured's offer
distributed and therefore they should ensure that in
accepting a new insured, the risk they maintain is Modes of delivery of policy
not increased (public policy interest). ● Actual constructive delivery: there can be no
● If an application has not been either accepted or contract of insurance unless the minds of the parties
rejected, there is no contract yet as it is merely an have met in agreement. However, actual manual
offer or proposal. transfer of the policy is not a prerequisite to its
validity unless the parties have so agreed in clear
a. Delay in acceptance; “tort theory” language. Constructive delivery may be sufficient.
i. See Article 2176, Civil Code ○ Delivery may be made to the insured in person
or to his duly constituted agent or some person
for the benefit of the insured
Art. 2176 CC. Whoever by act or omission causes ○ Where no further conditions are to be fulfilled, a
damage to another, there being fault or negligence, is policy of insurance may be constructively
obliged to pay for the damage done. Such fault or delivered when it is deposited in the mail duly
negligence, if there is no pre-existing contractual relation directed to the insured or his agent
between the parties, is called a quasi-delict and is ● Delivery, primarily a matter of intention: Intention of
governed by the provisions of this Chapter. the parties may be shown by their acts or words. It
may depend on the wording of the application for
Insurance. But possession by the insured raises the
Tort Theory: When the insurance company incurs presumption that the policy was delivered to the
unreasonable delay in acting on the application, there insured, while possession by the insurer is prima
being negligence, recovery may be had, not based on facie evidence that no delivery was made.
contract (there being no perfection thereof, such
perfection being made subject to the insured in good Effects of Delivery
health) but on tort Delivery conditional: non-performance of condition
precedent prevents the insurance from taking effect
General Rule: Insured cannot recover when there is no
delivery of the insurance policy Delivery unconditional: delivery consummates the
➔ Exception: In case of delay in the delivery by reason contract of insurance
of the fault or negligence of the insurer in the
processing of the insured’s application, the Insured Premium unpaid after unconditional delivery: the policy
may recover on the basis of a tort. will lapse unless there is an agreement that the Insurer
will extend credit in which case the policy will be valid
Acceptance by the insurer should be made the earliest
time possible so as not to jeopardize the interest of
the insured not getting an indemnity just because the
insurer delayed in assenting to the contract.
 B. Premium Payment Premium distinguished from assessment
a. Sections 77 & 78 [Person B]
Premium Assessment
Section 77. An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the Both are contributions from all members of the insuring
peril insured against. Notwithstanding any agreement to organization to make good the losses of individual
the contrary, no policy or contract of insurance issued by members
an insurance company is valid and binding unless and
until the premium thereof has been paid, except in the Levied and paid to meet Collected to meet actual
case of a life or an industrial life policy whenever the anticipated losses losses
grace period provision applies, or whenever under the
broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is Payment of subsequent Unless otherwise agreed,
given. No credit extension to a duly licensed premiums [after the first] legally enforceable once
intermediary should exceed ninety (90) days from date not enforceable against the levied
of issuance of the policy. insured

Section 78. Employees of the Republic of the Not a debt Unless otherwise
Philippines, including its political subdivisions and expressly agreed and
instrumentalities, and government-owned or -controlled when levied, a debt
corporations, may pay their insurance premiums and
loan obligations through salary deduction: Provided,
That the treasurer, cashier, paymaster or official of the Payment of premium ordinarily not a debt or
entity employing the government employee is obligation
authorized, notwithstanding the provisions of any ● Fire, casualty, marine insurance: Premium payable
existing law, rules and regulations to the contrary, to
becomes a debt as soon as the risk attaches.
make deductions from the salary, wage or income of the
latter pursuant to the agreement between the insurer ● Suretyship: Premium payable becomes a debt as
and the government employee and to remit such soon as the contract or bond is perfected and
deductions to the insurer concerned, and collect such delivered to the obligor.
reasonable fee for its services. ● Life insurance: Premium becomes a debt only when
in the case of the first premium, the contract has
become binding, and in the case of subsequent
Premium: premiums, when the insurer has continued the
● The consideration paid to an insurer by the insured insurance after maturity of the premium, in
for undertaking to indemnify the insured against a consideration of the insured’s express or implied
specific peril
promise to pay.
● Agreed price for assuming and carrying the risk
○ Insured becomes duty bound to pay the
Where only one premium is paid for several things not premium agreed upon lest he runs the risk of
separately valued or insured, making for only one cause having his insurance policy lapse if he fails to
or consideration → insurance contract is indivisible and pay such premiums. But he cannot be
not severable as to the items insured compelled to pay the subsequent premiums
● Immaterial if they are shipped or transported after the first because there is no debtor-creditor
separately relationship between insurer and insured [policy
will just lapse]
Assessment: sum specifically levied by mutual
insurance companies or associations, upon a fixed and
The subsequent section was discussed for non-life
definite plan, to pay losses and expenses
insurance. I consolidated the first section for
● Policy issued on the assessment plan: a policy
organization so some of the sections below may not be
where the payment of the benefit is in any manner or applicable in the case of life insurance.
degree dependent upon the collection of an
assessment upon persons holding similar policies The phrase “the thing insured is exposed to the peril
insured against” assumes that the contract is perfected
● Perfection takes place when the applicant’s offer is
accepted by the insurer

Where there was not only a perfected contract of

insurance but a partially performed one as far as the
payment of the agreed premium was concerned:
● Obligation of insurer to pay insured the amount for vinculum juris by any specific amount of premium
which the policy was issued in case the conditions payment. It should be enough that payment on the
therefor had been complied with, arose and became premium partly or in full is made by the insured
which the insurer accepts. In case of loss, recovery
binding upon it
on the basis of the full contract value, less the
● Obligation of the insured to pay the remainder of the unpaid premium can accordingly be had. If no loss
total amount of the premium due became occurs, insurer can demand the payment of the
demandable unpaid balance of the premium.
○ Nonpayment of the balance of the premium (2) Non-payment of the balance would not result in an
does not produce the cancellation of the contract automatic cancellation of the insurance contract
of the insurance in the sense that it can no otherwise the effect would be to place exclusively in
the hands of one of the contracting parties the right
longer be enforced
to decide whether the contract should stand or not.
■ A contrary rule would place exclusively in the This disregards the mutuality of contracts rule.
hands of the insured the right to decide Instead, parties should be able to demand from each
whether the contract should stand or not other the performance of whatever obligations they
had assumed or sue for rescission. In case of loss,
The continuance of the insurer’s obligation is conditioned the principle of legal compensation due to mutual
upon the payment of the premium. If there is no premium debts can apply so the insurer’s liability to the
paid, no recovery can be had upon a lapsed policy insured would be reduced by the balance of the
because the contractual relation between the parties has premium still due from the latter.
ceased (3) The insured had made and the insurer had accepted
a partial premium payment of the policy before the
(1) Is claim valid and enforceable upon mere partial risk took place. As an insurance contract is an
payment of the premium initially then subsequent aleatory contract, it is at once effective upon its
payment of unpaid balance after the loss occurred? perfection although the occurrence of a condition or
event may later dictate the demandability of certain
(Tibay v. CA)
obligations thereunder.
Generally no. Phoenix and Makati Tuscany cases
are not persuasive [exemptions]: Effect of nonpayment of premium
● Phoenix: Phoenix sued for balance of the General Rule: Time specified for the payment of
premium. They accepted the initial payment then premiums is of the essence of the contract
demanded the remainder of the premium without ● Ability of the insurer to meet its contingent
any other precondition to its enforceability. obligations to the public depends upon the prompt
Insurer showed its intention to continue with the payment of all the premiums due it.
existing contract of insurance as it was enforcing
the right to collect premium. First premium: nonpayment, unless waived, prevents
● Makati Tuscany: Parties mutually agreed that the contract from becoming binding notwithstanding
the premium could be paid in installments acceptance of the application nor issuance of the policy
● These two cass adequately demonstrate the ● Nonpayment of balance does not produce the
waiver, either express or implied, of prepayment cancellation of the contract
in full by the insurer.
(2) Partial payment is in the nature of deposit to be held Subsequent premiums: nonpayment does not affect
in trust by the insurer until the full amount has been the validity of the contracts unless by express stipulation,
paid. It should not be considered as the payment it is provided that the policy shall be suspended or shall
required by the law. lapse.
● Full payment must be made before risk occurs ● Individual life or endowment insurance and group life
for the policy to be considered effective and in insurance: policyholder entitled to a grace period of
force. either 30 days or 1 month to make the payment of
(3) Premium is the elixir vitae of the insurance business the subsequent premium
because by law, the insurer must maintain a legal ● Industrial life insurance: grace period is 4 weeks
reserve fund to meet its contingent obligations to the ● Where premiums are payable monthly: either 30
public, hence the imperative need for its prompt days or 1 month grace period
payment and full satisfaction.
Sec. 78 authorizes the payment of the insurance
Dissenting opinion premiums and loan obligations of government
(1) The payment of the premium, subject to the stated employees through salary deduction.
exceptions, is deemed by Sec. 77 to be an essential
element to establish the juridical relation between Excuses for nonpayment of premiums
the insurer and the insured. However, the law (1) Fortuitous events
neither requires nor measures the strength of the ● Will not prevent forfeiture of policy
 ● If the insured can neglect payment at maturity EXCEPTIONS TO SEC. 77
and yet suffer no loss or forfeiture, premiums will General Rule: Payment of the full premium shall perfect
not be punctually paid. Insurer must have some the the contract of insurance.
efficient means of enforcing punctuality, hence Exception: Upon partial payment of the premium, the
forfeiture of the policy upon default of prompt insurance contract becomes perfectly binding and non-
payment of premiums payment of the balance does not produce the
● Rule is not affected by the fact that nonpayment cancellation of the contract when the case falls under
is due to war or that the insured has not been any of the ff circumstances:
negligent (1) In the case of a life or an insurance policy whenever
● Nonpayment of premiums does not suspend but the grace period provision applies (Sec. 77)
puts an end to an insurance contract (2) Whenever under the broker and agency agreements
with duly licensed intermediaries, a 90-day extension
(2) Condition, conduct, or default of is given (Sec. 77)
insurer (3) When there is an acknowledgment in a policy or
● Nonpayment is excused and policy not forfeited contract of insurance of receipt of premium even if
when nonpayment has in some way been there is a stipulation therein that it shall not be
induced by the condition, conduct or default of binding until the premium is actually paid (Sec. 78)
the insurer (4) When there is an agreement allowing the insured to
● Examples of instances: pay the premium in installments and partial payment
○ Insurer has become insolvent and has has been made at the time of loss (Makati Tuscany
suspended business or has refused without Condominium Corp v. CA)
justification a valid tender of premiums (5) When there is an agreement to grant the insured
○ Failure to pay was due to the wrongful credit extension for the payment of the premium (Art.
conduct of the insurer as when the insurer 1306 CC) and loss occurs before the expiration of
induced the beneficiary under a policy to the credit term
surrender it for cancellation by falsely (6) When estoppel bars the insurer from invoking Sec.
representing that the insurance was illegal 77 to avoid recovery on a policy providing a credit
and void, and returning the premiums paid term for the payment of the premiums, as against
○ Where the insurer has in any wise waived the insured who relied in good faith on such
his right to demand payment extension (UCPB General Insurance Co. Inc. v.
Masagana Telemart, Inc.)
Insurer not deemed to have waived his privilege of
forfeiture by mere inaction or silence if ground be default If credit extension exceeds 90 days from the date of the
in the payment of premiums. insurance of the policy = deemed only for 90 days
● Receipt by insurer of premium even after expiration
While insured has the privilege of continuing the policy in of the credit term but before the loss render
force by making premium payments, the insurer cannot insurance valid and binding
ordinarily force the insured to make these payments.
Once a policy has been issued, presumption lies that
Validity of policy where credit extension granted to
premium has been duly paid
the insured
● In old provision, it was stated that “unless there is a
Where nonpayment of premium is attributable to the fault
clear agreement to grant the insured credit extension
or misrepresentation of insurer, insured entitled to
of the premium due”, which permits an agreement to
recover in case of loss.
extend the period to pay the premium.
● This has been omitted in the new provision, which
b. Sections 64 & 66 [Person C]
states: “Notwithstanding any agreement to the
contrary” → intention is to put a contract of
insurance “except in the case of a life or an industrial Section 64. No policy of insurance other than life shall
life policy whenever the grace provision period be cancelled by the insurer except upon prior notice
applies” on a “cash and carry basis” except as thereof to the insured, and no notice of cancellation shall
provided in Sec. 79 be effective unless it is based on the occurrence, after
○ Premium must be paid in cash as a condition the effective date of the policy, of one or more of the
precedent for a non-life insurance policy to be following:
valid and binding (a) Nonpayment of premium;
○ An agreement to grant the insured credit (b) Conviction of a crime arising out of acts increasing
extension of the premium is void
the hazard insured against;
[IDK if I should put pp. 257-258 of De Leon in this part (c) Discovery of fraud or material misrepresentation;
because IDK if that’s legit or if that’s just De Leon’s (d) Discovery of willful or reckless acts or omissions
opinion.] increasing the hazard insured against;
 (e) Physical changes in the property insured which
Form and sufficiency of notice of cancellation by the
result in the property becoming uninsurable; insurer [conditions for the exercise of the right]
(f) Discovery of other insurance coverage that makes (1) There must be prior notice of cancellation to the
the total insurance in excess of the value of the insured
property insured; or (2) Notice must be based on the occurrence, after the
(g) A determination by the Commissioner that the effective date of the policy, of one or more of the
grounds mentioned in Sec. 64
continuation of the policy would violate or would
(3) It must be in writing, mailed or delivered to the
place the insurer in violation of this Code. named insured at the address shown in the policy, or
to his authorized broker
Section 65. All notices of cancellation mentioned in the (4) It must state which of the grounds set forth is relied
preceding section shall be in writing, mailed or delivered upon (Sec. 65)
to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in Insurer has the duty, upon written request of the name
writing by the policy owner to receive the notice of insured, to furnish the facts on which the cancellation is
cancellation on his behalf, and shall state: based.
(a) Which of the grounds set forth in Section 64 is
relied upon; and Premium referred to in Sec. 64(a) must be a premium
(b) That, upon written request of the named insured, subsequent to the first because it speaks of non-
the insurer will furnish the facts on which the payment “after the effective date of the policy.”
cancellation is based. ● Note: Sec. 77 says that no policy or contract of
insurance is valid and binding unless and until the
Section 66. In case of insurance other than life, unless premium has been paid
the insurer at least forty-five (45) days in advance of the
end of the policy period mails or delivers to the named Prior notice of cancellation to insured
insured at the address shown in the policy notice of its Purpose: prevent the cancellation of the policy without
intention not to renew the policy or to condition its allowing the insured ample opportunity to negotiate for
renewal upon reduction of limits or elimination of other insurance in its stead for his own protection
coverages, the named insured shall be entitled to renew
the policy upon payment of the premium due on the (1) Notice should be given personally to the insured and
effective date of the renewal. Any policy written for a not to and/or through any unauthorized person by
term of less than one (1) year shall be considered as if the policy. Giving the notice to another person
written for a term of one (1) year. Any policy written for a without prior authority of the insured is not effective
term longer than one (1) year or any policy with no fixed notice as to the insured.
expiration date shall be considered as if written for (2) Notice need not be delivered personally to the
successive policy periods or terms of one (1) year. insured. It may be mailed.
● But there is no proof that it was actually mailed
and received by the insured where all the insurer
offers to show was that the cancellation was
Sec. 64-65.
communicated to the insured through an
Cancellation of non-insurance policy
employee testimony saying that the cancellation
● Insurer has a right to cancel a policy of insurance
was sent “by mail through our mailing section”
other than life under these Sections. without more evidence.
○ Insured can cancel an insurance contract at his
election by surrendering the policy. Sec. 66.
■ This surrender entitles him to the return of Renewal of non-life insurance policy
the premiums on the customary short-rate General Rule: Renewal of insurance by the payment of
a new premium and the issuance of a receipt therefor
basis.
where there is no provision in the policy for its renewal is
■ Sec. 393 - cancellation of compulsory motor a new contract on the same terms as the old one
vehicle liability insurance
Exception: Where the renewal is in pursuance of a
Cancellation: provision to that effect, it is not a new contract but an
● right to rescind, abandon, or cancel a contract of extension of the old one.
insurance
● Termination by either insurer or insured of a policy of ● Resolution of the question [if it is a new contract or a
insurance before its expiration renewal of an old contract] depends primarily on the
intention of the parties as ascertained from the
○ Contract of insurance is permitted to lapse when
instrument itself
insured fails to take some action to keep the
contract in force
Rights of parties [applicable to insurance other than
Section 78. Employees of the Republic of the
life insurance]:
Philippines, including its political subdivisions and
instrumentalities, and government-owned or -controlled
Insured: right to renew upon the same terms and
corporations, may pay their insurance premiums and
conditions the original policy upon payment of the
loan obligations through salary deduction: Provided,
premium due on the effective date of the renewal
That the treasurer, cashier, paymaster or official of the
entity employing the government employee is
Exception: If insurer at least 45 days in advance of the
authorized, notwithstanding the provisions of any
end of the period mails or delivers to the insured notice
existing law, rules and regulations to the contrary, to
of its intention:
make deductions from the salary, wage or income of the
● not to renew the policy or
latter pursuant to the agreement between the insurer
● to condition its renewal upon reduction of its amount and the government employee and to remit such
or deductions to the insurer concerned, and collect such
● to condition its renewal upon elimination or reasonable fee for its services.
elimination of some coverages (Sec. 66)

For determining whether or not the insurer has given

such notice within the period prescribed: [For De Leon, see Sec. B]
● A policy written for a term of less than 1 year is
considered as if written for a term of 1 year Sec. 78 authorizes the payment of the insurance
● A policy written for a longer term or with no fixed premiums and loan obligations of government
expiration date is considered as if written for employees through salary deduction.
successive policy periods terms of 1 year.
○ Ex. Policy is for 5 years
C. Non-default options in life insurance (Sec. 233, f
■ Notice must be given at least 45 days before
& h) [Person E] - page 589-561 de leon
the anniversary date of any given policy year
■ If 45 days notice rule not complied with,
insurer may not refuse to renew a policy Section 233. In the case of individual life or endowment
insurance, the policy shall contain in substance the
upon payment of the premium due
following conditions:
Unless insurer complies with requirements of Secs. 56 (f) A provision specifying the options to which the
and 66, he has to renew the policy whether he likes it or policyholder is entitled to in the event of default in
not. a premium payment after three (3) full annual
premiums shall have been paid. Such option shall
c. Section 84 consist of:
i. payment through salary deductions –
new mode allowed under new code (6) A cash surrender value payable upon
surrender of the policy which shall not be
Section 84. An insurer may contract and accept less than the reserve on the policy, the basis
payments, in addition to regular premium, for the of which shall be indicated, for the then
purpose of paying future premiums on the policy or to current policy year and any dividend
increase the benefits thereof. additions thereto, reduced by a surrender
charge which shall not be more than one-
fifth (1/5) of the entire reserve or two and
one-half percent (2½%) of the amount
Payments in addition to regular premiums insured and any dividend additions thereto;
● General Rule: The insured is duty bound to make and
prompt payment of only the insurance premiums due (7) One or more paid-up benefits on a plan or
plans specified in the policy of such value as
under the policy.
may be purchased by the cash surrender
value.
● Exception: Under Section 84, the insurer may
contract with the insured whereby the insured may (g) A table showing in figures cash surrender values
make and the insurer, “accept payments, in addition and paid-up options available under the policy
to regular premiums, for the purpose of paying future each year upon default in premium payments,
premiums on the policy or to increase the benefit during at least twenty (20) years of the policy
beginning with the year in which the values and
thereof”
options first become available, together with a
provision that in the event of the failure of the
 c. Paid Up Insurance
policyholder to elect one of the said options within
● Where insurance is “paid-up,” the insured is given
the time specified in the policy, one of said options
shall automatically take effect and no policyholder the right, upon default, after the payment of at least
shall ever forfeit his right to same by reason of his 3 annual premiums to have the policy continued in
failure to so elect; force from the date of default for the whole period of
the insurance without further payment of premiums.
○ In case of death of the insured, he may recover
only the “paid-up” value of the policy, usually
Sec. 233.
a. Cash Surrender Value less than the “paid-up” premiums under the
● Amount that the insured, in case of default, after the same conditions as the original policy.
payment of at least three full annual premiums, is ○ Policy will be in effect until the death of the
entitled to receive if he surrenders the policy and insured but only for whatever amount the cash
releases his claims upon it. value will cover
● This built-up cash value of the policy is investment ○ Also known as “reduced paid-up insurance”
value based on the premiums paid.
d. Automatic Premium Loan
○ More premiums = more cash surrender value
● Protects against the unintentional lapse of the
○ Value is always a lesser sum than the total
contract by advancing, in the form of a policy loan,
amount of premiums paid
the unpaid amount of a premium due
It arises from the fact that a fixed annual premium is
much in excess of the annual risk during the earlier
D. Reinstatement of a lapsed policy of life
years of the policy.
insurance; Section 227 (j) [sec 233 (j) in RA
● The excess is necessary in order to balance the
10607]
deficiency of the same premium to meet the annual
risk during the latter years of the policy.
Section 233.
Surrender value = excess of premium paid over the In the case of individual life or endowment insurance, the
annual cost of insurance, with accumulations of interest policy shall contain in substance the following conditions:
● It is money of the assured deposited with the
(j) A provision that the policyholder shall be entitled
company in advance to make up the deficiency in
to have the policy reinstated at any time within
later premiums to cover the annual cost of
three (3) years from the date of default of premium
insurance, instead of being retained by the assured
payment unless the cash surrender value has
and paid by him to the company in the shape of
been duly paid, or the extension period has
greatly-increased premiums when the risk is greatest
expired, upon production of evidence of
● It is the net reserve required by law to be kept by the
insurability satisfactory to the company and upon
company for the benefit of the assured and to be
payment of all overdue premiums and any
maintained to the credit of the policy.
indebtedness to the company upon said policy,
● So long as the policy remains in force, the company
with interest rate not exceeding that which would
has practically no beneficial interest in it except as
have been applicable to said premiums and
its custodian, with the obligation to maintain it
indebtedness in the policy years prior to
unimpaired and suitably invested for the benefit of
reinstatement.
the insured

b. Extended Insurance
● Where a term insurance is “extended,” the insured is Note: not found in Carale and Reese’s reviewer. De
given the right, upon default, after the payment of at Leon only has 1 paragraph for this .
least 3 full annual premiums to have the policy
continued in force from the date of default for a time ● Purpose of this provision: clarify requirements for
either stated or equal to the amount as the net value reinstituting a policy that has lapsed
of the policy taken as a single premium, will ● Restore policy to premium-paying status AFTER IT
purchase HAS BEEN PERMITTED TO LAPSE
○ Also known as “temporary insurance” or “term ● WHEN CAN OWNER OF POLICY BE ALLOWED
insurance” TO REINSTATE: anytime within 3 years from date of
default
 ○ Longer period may be stipulated, because it’s premiums corresponding to unexpired time, at a pro
more favorable to the insured rata rate (or a short period rate, if stipulated)
3. Voidable contract annulled due to
fraud/misrepresentation of insurer/his agent
E. Refund of Premiums, Sections 79-82 [sec 80- 4. Voidable because of existence of facts which the
83 in RA 10607] insured was ignorant without his fault
5. Insurer never incurred any liability under the policy
due to the default of the insured other than actual
Section 80. A person insured is entitled to a return of fraud
premium, as follows: 6. Over-insurance = insured gets pro rata return
7. Rescission granted due to insurer’s breach of
(a) To the whole premium if no part of his interest in contract (Filipinas Compania de Seguros v Nava)
the thing insured be exposed to any of the perils
insured against; Risk never attached
(b) Where the insurance is made for a definite period
of time and the insured surrenders his policy, to ● Some premiums are paid in consideration of the
such portion of the premium as corresponds with assumption of specified risks. No premium due
the unexpired time, at a pro rata rate, unless a unless risk attaches
short period rate has been agreed upon and ● So if the risk insured against doesn’t occur, or if no
appears on the face of the policy, after deducting part of the interest is subject to it = insurer can’t
from the whole premium any claim for loss or claim premium
damage under the policy which has previously ○ Exception: insured exercised fraud
accrued: Provided, That no holder of a life ● Reason: contrary to honesty
insurance policy may avail himself of the privileges ● Approval of application/acceptance of policy(if
of this paragraph without sufficient cause as required) needed, else no premium can be
otherwise provided by law. recovered
○ Return premium if previously paid
Section 81. If a peril insured against has existed, and ● No risk attached = no meeting of minds on subject
the insurer has been liable for any period, however matter of insurance
short, the insured is not entitled to return of premiums, ● Loss occurs before effective date: if premium paid in
so far as that particular risk is concerned. advance + insurance to take effect on certain date +
loss before that date = return WHOLE PREMIUM
Section 82. A person insured is entitled to a return of
the premium when the contract is voidable, and ● State of war: insurer and insured are citizens of two
subsequently annulled under the provisions of the Civil warring countries. So premiums paid after
Code; or on account of the fraud or misrepresentation of declaration of war should be returned.
the insurer, or of his agent, or on account of facts, or the ○ War abrogates insurance contracts
existence of which the insured was ignorant of without ○ Insured not entitled to indemnity for loss
his fault; or when by any default of the insured other than
actual fraud, the insurer never incurred any liability under
When insured surrenders policy before termination
the policy.
● Sec 80(b) doesn’t apply if
A person insured is not entitled to a return of premium if
the policy is annulled, rescinded or if a claim is denied by ○ Insurance not for definite period, or
reason of fraud. ○ Short period rate, or
○ Life insurance
Section 83. In case of an over insurance by several ● Effect: recover premiums paid equivalent to the
insurers other than life, the insured is entitled to a ratable unexpired term at a pro rata rate
return of the premium, proportioned to the amount by
○ Retain only earned portion corresponding to
which the aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk. portion expired
○ Deduct any claim for loss or damage
● Ex: insured house for 16K (1 yr). After 3 mos,
When may premiums be refunded (either in part on surrendered policy
in whole): ○ Effect: collect ¾ of premium paid = 12K
○ If house had furniture, which was burned.
1. No part of insured’s interest was exposed to the risk Insured paid amount of 4K for the furniture. 16K-
insured against 4K = 12K. Insured gets ¾ of 12K = 9K.
2. Insurance for definite period. Insured surrendered
policy before expiration = he is entitled to portion of
When short period has been stipulated ● Examples
○ Insured vessel, without knowing it’s already lost
● Insurance policy is often cancelled either by insurer at sea.
or by insured, before its expiration ○ Policy of vessel under repair. Person pays
● If policy on which premiums have been paid for a premium in advance, but repair not completed
year is cancelled by INSURER before expiration = on the day when voyage about to be done
retain premiums for expired time ● Fraud of insured
● If cancelled by INSURED + short period rate ○ Sec 82 impliedly prohibits return of premium
stipulate = you don’t apply pro rata. Insured entitled where the policies are annulled due to insured’s
to return of the premium in proportion stipulated fraud
● Note: you get less here than in pro rata. Reason:
dissuade insured from cancelling Over-insurance
● Ex: make a scale of percentages reacquired per ● Insured not liable for total amount of insurance
month. So if you cancelled a year-long insurance taken.
after 1 mo, you only get 20% of the premiums paid. ● His liability is limited to amount of insurable interest
If after 2 mos., 30%, etc. ● Not entitled to portion corresponding to excess of
insurance
Right to recover premiums as to life insurance ● Returning premiums

● Not divisible contract Ex: 1.5 M value of house.2 insurance policies

● No proper relation between annual premium and the
risk of assurance for the year in which it is paid A = 1.2M. Insured paid 24K as premium
● Each installment = part consideration of the entire
insurance for life B = 600K. Insured paid 12K as premium
● Value of assurance for 1 yr of man’s life when he is
Over-insurance = 300K
young and healthy manifestly not the same when he
is older and more sickly Total insurance amount: 1.8 M
● Insured will be entitled to receive the cash surrender
value of his policy after 3 full annual premiums shall Proportion of 300K to 1.8 M. proportion of over-
have been paid insurance to total amount = ⅙

Where risk has attached So A returns ⅙ of 24K. B returns ⅙ of 12K.

● WHOLE PREMIUM: if risk attached by reason of A returns 4K. B returns 2K

contract’s becoming binding upon insurer
● If no contrary stipulation + peril insured against has Illegal insurance = void
existed + insurer had been liable = NO RETURN
● If parties not in pari delicto, law will allow insured to
● Ex: voyage for 5 days. Insurance covers ship for all
take again his premiums
of 5 days. Insured cancels policy after 2nd day of
● Also when insured ignorant of facts which rendered
voyage = NO RETURN
insurance illegal
● If insurance is divisible = several distinct risks for
which different amounts of premiums have been Basis of right to recover premiums (Short interest,
paid. EFFECT: PAY FOR RISK NOT YET EARNED overinsurance, double insurance)
○ Ex: voyage is in 3 different stage. Contract of
insurance divisible. So if insured cancels after ● Insurer could have been called to pay the whole sum
vessel reaches 1st port, he can recover only insured
PREMIUMS FOR NEXT TWO STAGES ● Insurer could have been called to pay only part of
the sum insured
Voidable contract

● Policy induced by fraud of insurer/agent

○ Insured may rescind contract and demand
returns
● If facts that insured didn’t know (but it’s not his fault
he didn’t know) = CAN RECOVER
V. THE POLICY, PARTIES THERETO, & RIGHTS
he is not the absolute owner thereof;
THEREON
(f) The risks insured against; and
(g) The period during which the insurance is to
Definition of a policy of insurance (Sec. 49)
continue.

SEC. 49. The written instrument in which a contract of

SEC. 226. Every insurance company authorized to do
insurance is set forth, is called a policy of insurance.
business in the Philippines shall report to the
Commissioner on forms prescribed by him the
particulars of reinsurance treaties or any new treaties or
● Written document embodying the terms and changes in existing treaties within three (3) months from
stipulations of the contract of insurance between the their effectivity.
insured and the insurer
SEC. 228. No life insurance company doing business in
● It is a contract of adhesion the Philippines shall reinsure its whole risk on any
● It is different from the contract itself individual life or joint lives, or substantially all of its
insurance in force, without having first obtained the
Form and contents (Secs. 50 & 51 a to g); Sec 226; written permission of the Commissioner.
cf. group insurance (Sec. 228)

SEC. 50. The policy shall be in printed form which may Form:
contain blank spaces; and any word, phrase, clause, ● The Insurance Code does not require a particular
mark, sign, symbol, signature, number, or word form for the validity of the contract. However, the
necessary to complete the contract of insurance shall be policy must contain the enumeration in Sec. 51
written on the blank spaces provided therein.
● The policy must be in printed form and must be
approved by Commissioner. Group insurance and
Any rider, clause, warranty or endorsement purporting to
group annuity policies, however, may be typewritten.
be part of the contract of insurance and which is pasted
or attached to said policy is not binding on the insured, ● Printed policy is the best evidence of contract.
unless the descriptive title or name of the rider, clause,
warranty or endorsement is also mentioned and written Contents: Enumerated in Sec. 51
on the blank spaces provided in the policy. ● Other stipulations not required by law may be
included as long as they are not prohibited or are
Unless applied for by the insured or owner, any rider, inconsistent with the law.
clause, warranty or endorsement issued after the original ● Missing provisions required does not void the while
policy shall be countersigned by the insured or owner, policy. Missing provisions will be read into the policy
which countersignature shall be taken as his agreement and will substitute those which are in conflict with the
to the contents of such rider, clause, warranty or
law
endorsement.
● Stipulations not in the exact terms of the statute, if
more favorable to the insured, will be enforced.
Notwithstanding the foregoing, the policy may be in
electronic form subject to the pertinent provisions of
Republic Act No. 8792, otherwise known as the Riders and endorsements; rules on formalities &
‘Electronic Commerce Act’ and to such rules and effectivity (Section 50, par. 2)
regulations as may be prescribed by the Commissioner.
Any rider, clause, warranty or endorsement purporting to
SEC. 51. A policy of insurance must specify: be part of the contract of insurance and which is pasted
or attached to said policy is not binding on the insured,
(a) The parties between whom the contract is made; unless the descriptive title or name of the rider, clause,
warranty or endorsement is also mentioned and written
(b) The amount to be insured except in the cases of
on the blank spaces provided in the policy.
open or running policies;
(c) The premium, or if the insurance is of a character
where the exact premium is only determinable
upon the termination of the contract, a statement
of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if
Rider: a printed or typed stipulation contained in a slip of
paper attached to the policy and forming an integral part Cover notes (Sec. 52)
thereof.
SEC. 52. Cover notes may be issued to bind insurance
● In order for a rider to be binding, it must conform
temporarily pending the issuance of the policy. Within
with the requirements provided for in sec. 50 sixty (60) days after issue of a cover note, a policy shall
● The signature of the insured is only required when be issued in lieu thereof, including within its terms the
the riders or endorsements are made or issued identical insurance bound under the cover note and the
ONLY AFTER the issuance of the original policy. premium therefor.
● Rider v. Stipulations -> RIDER PREVAILS, as being
a more deliberate expression of the agreement of Cover notes may be extended or renewed beyond such
the contracting parties. sixty (60) days with the written approval of the
● Needs to be attached or pasted to the policy and Commissioner if he determines that such extension is
not contrary to and is not for the purpose of violating any
descriptive title or name of the rider, clause,
provisions of this Code. The Commissioner may
warranty, or endorsement is mentioned and written promulgate rules and regulations governing such
on the blank spaces provided in the policy. extensions for the purpose of preventing such violations
● COUNTERSIGNATURE by the insured – not and may by such rules and regulations dispense with the
needed requirement of written approval by him in the case of
○ UNLESS, it has been added after the policy is extension in compliance with such rules and regulations.
issued

Warranty: inserted or attached to a policy to eliminate

specific potential increases of hazard during the policy Cover Note: written memorandum of the most important
term owing to: terms of a preliminary contract of insurance, intended to
● Actions of the insured or give temporary protection pending the investigation of
● Conditions of the property the risk by the insurer, or until the issue of a formal
● Example: An insured party in health insurance may policy, provided it is later determined that the applicant
have to warrant that he does not suffer from a was insurable at the time it was given.
terminal disease.
● “Binding slip” or “binder”
Clause: an agreement between the insurer and the ● Issued to temporarily bind, and usually after the first
insured on certain matters relating to the liability of the premium has been paid, pending the approval of the
insurer in case of loss contract.

Endorsement: any provision added to an insurance Cover note will not amount to a contract unless there is
contract altering its scope and application. agreement on the material terms (risk, duration of cover,
premium)
● Exclusion: added to exclude coverage for certain
types of claims, such as risks that are uninsurable EFFECTIVITY:
because they are likely to affect a huge number of
policyholders at once, like ware. ● Period not exceeding 60 days from the date of
● Added coverage: Adding family auto coverage to a insurance whether or not the premium has been
commercial auto policy. paid.
● Modification of coverage: those that expand the ● Within the 60 days, a policy shall be issued in lieu
existing coverage, like commercial property policy thereof
increasing the business personal limit to 250,000 ● EXTENSION/RENEWAL: beyond 60 days needs
from 100,000. approval of Commission. Needs to be necessary
● Editorial changes: added to clarify intent of the policy and not for purposes of violating the Code/related
● Administrative changes: changing insurer’s mailing laws.
address or correcting the name of the policyholder ○ Can get certification from officers of insurance
company that the risks, value and or premium
has not been determined and that it does not
violate any provisions of the Insurance Code or
any laws related to it.
Types of non-life insurance policies [Sections 59, 60, B. Valued - one which expresses on its face an
61 & 62 (cf. Sections 156, 161, 171)] agreement that the thing insured will be valued
at a specific sum
● Value of the insured property is predetermined and
SEC. 59. A policy is either open, valued or running.
the value is the amount to be used in case of a total
loss
SEC. 60. An open policy is one in which the value of the
thing insured is not agreed upon, and the amount of the ● Insured and insurer agree in advance on the value of
insurance merely represents the insurer’s maximum the subject matter of the insurance
liability. The value of such thing insured shall be ● 2 values: face value of the policy and the value of
ascertained at the time of the loss. the thing insured
○ Agreed value of thing insured will be paid in
SEC. 61. A valued policy is one which expresses on its case of total loss unless the insurance is for a
face an agreement that the thing insured shall be valued lower amount
at a specific sum.
Comparison with Open policy
SEC. 62. A running policy is one which contemplates
successive insurances, and which provides that the ● Value of property insured is not agreed upon
object of the policy may be from time to time defined, although parties may agree on the maximum amount
especially as to the subjects of insurance, by additional
of recovery or limit the liability of the insurer
statements or indorsements.
● Amount must be considered, by agreement of the
insurer and insured, the actual value of the property
in the absence of evidence of greater or lesser value
SEC. 156. If an insurer refuses to accept a valid
Ex. Ship is insured for only PHP 5M but the policy is still
abandonment, he is liable as upon an actual total loss,
valued as there in an agreed valuation of PHP 10M.
deducting from the amount any proceeds of the thing
Maximum amount of recovery is PHP 5M. Insured value
insured which may have come to the hands of the
is PHP 10M.
insured.
C. Running (floating) - as defined under sec 62,
one which contemplates successive insurances,
SEC. 161. In case of a valued policy of marine insurance
and which provides that the object of the policy
on freightage or cargo, if a part only of the subject is
may be from time to time defined, especially as
exposed to risk, the valuation applies only in proportion
to the subjects of insurance, by additional
to such part.
statements or endorsements.
a. It is intended to provide cover for property
which changes in location and quantity
SEC. 171. An alteration in the use or condition of a thing
b. Also referred to as a floating or blanket
insured from that to which it is limited by the policy,
policy
which does not increase the risk, does not affect a
c. (ex: property moved from warehouse to
contract of fire insurance.
warehouse, products of a manufacturer
delivered to various outlets countrywide)
● Intended to provide indemnity for property which
cannot well be covered by a valued policy because
A. Open - sec 60 of the Insurance code defines of its frequent change of location and quantity, or for
this as “one in which the value of the thing property of such a nature as not to admit of a gross
insured is not agreed upon to be ascertained at
valuation
the time of loss (however there is still a face
value to indicate the limit of the insurer’s liability) ● Denotes insurance which contemplates that the risk
● A certain agreed sum is written on the face of the is shifting, fluctuating, or varying and which covers a
policy not as the value of the property insured but as class of property rather than any particular thing
the maximum limit of the insurer’s liability ● The nature of the property insured or the
● The insurer must establish the fair market value circumstances of granting the insurance are such as
(FMV) of the insured property at the time of the loss to make it impossible to designate the subject matter
○ FMV > maximum limit = maximum limit paid
○ FMV < maximum limit = FMV/loss paid of insurance with certainty or particularity
Advantages: (1) Use or condition of the thing is specifically
limited or stipulated in the policy
(1) Neither underinsured nor overinsured at any time (2) Such use or condition as limited by the policy is
because the premium is based on the monthly altered
values reported (3) Alteration is made without consent of the insurer
(2) Avoids cancellations that would otherwise be (4) Alteration increases the risk
necessary to keep insurance adjusted to value at ● A contract of fire insurance is not affected by any act
each location and for which cancellations he would of the insured subsequent to the execution of the
be charged the expensive short rate policy which does not violate its provisions even
(3) Saved the trouble of watching his insurance and the
though it increases the risk and is the cause of the
danger of being underinsured in spite of his care,
through oversight or mistake loss.
(4) Rate is adjusted to 100% insurance, whereas valued
policies requiring insurance only to, say 80% of the Alterations NOT avoiding policy:
value, give either a small or no reduction for
amounts of insurance above this figure ● Risk of loss not increased by the alteration → use is
not of a dangerous character and does not differ
Sec. 156 materially from the use specified in the policy; BUT
an additional or increased premium may be
● Applicable to a policy of marine insurance demanded
● Insured’s right to abandon is absolute when justified ● Where questioned articles are necessarily or
by the circumstances and no acceptance is ordinarily used in the business conducted in the
necessary to validate the abandonment insured premises
● If insurer declines to accept a proper abandonment, ● Where insured property would be useless if
he is liable as upon an actual total loss less any questioned acts were prohibited even though by
proceeds the insured may have received on account reason of such acts, the property may be exposed to
of the damaged property as when the insured some additional risk (ex. Making repairs, painting, or
succeeds in selling the property as damaged doing other acts of a similar character)
● If abandonment was improper, the insured may
nevertheless recover the extent of the damage Where insured has no control or knowledge of
proved alteration

Sec. 161 ● Insurer’s liability unaffected unless proven that the

alteration was done with the knowledge of the
● Applicable to marine insurance insured
● Where cargo is insured under a valued policy but ● Insured’s knowledge of the acts of his tenants that
only a portion of the cargo is actually carried by the substantially and permanently alter the conditions of
vessel at the time of the loss, the valuation will be the property so as to constitute an increase in risk is
reduced proportionately. presumed
● Insurer is bound to return such portion of the
premium as corresponds with the portion of the Development Insurance v. IAC
cargo which had been exposed to the risk.
● Parties
Sec. 171 ○ Insurer
■ Sections 6, 190, & 299
Sec. 171 does not apply when the insurer inserts terms
and conditions in the policy which if violated would avoid
it. An alteration made in the use of the condition of the SEC. 6. Every corporation, partnership, or association,
thing insured will avoid a policy under Sec. 77 if such duly authorized to transact insurance business as
alteration is expressly prohibited although it does not elsewhere provided in this Code, may be an insurer.
increase the risk. Sec. 171 only applies to policies which
are silent on the subject. SEC. 190. For purposes of this Code, the term insurer or
insurance company shall include all partnerships,
● Applicable to fire insurance associations, cooperatives or corporations, including
government-owned or -controlled corporations or
● In order that the insurer may rescind a contract for
entities, engaged as principals in the insurance
any alteration made in the use or condition of the business, excepting mutual benefit associations. Unless
thing insured, following requisites must be present: the context otherwise requires, the term shall also
include professional reinsurers defined in Section 288.
Domestic company shall include companies formed,
organized or existing under the laws of the Philippines.
Business of insurance affected with public interest.
Foreign company when used without limitation shall
● Business of insurance is one affected w/ public
include companies formed, organized, or existing under
any laws other than those of the Philippines. interest and is thus subject to regulation and control
by the state by virtue of the exercise of its police
SEC. 299. The prior written approval of the power or in the interest of public convenience and
Commissioner shall be required for the following the general good of the people.
transactions between a controlled insurer and any ● An insurance company is effectively an
person in its holding company system: sales, purchases, instrumentality which gathers funds upon the basis
exchanges, loans or extensions of credit, or investments, of equality of risk from a greater number of persons
involving five percent (5%) or more of the insurer’s and holds the amounts as general fund. In this fund,
admitted assets as of the thirty-first day of December
which thus constitutes a guaranty against individual
next preceding.
loss, all are interested in real sense.

Agents and brokers.

Insurer. ● Sec. 299 requires the licensing of agents and
● The party who assumes or accepts the risk of loss
brokers and prohibits them from practicing and
and undertakes for a consideration to indemnify the
receiving commission without said license.
insured or to pay him a certain sum on the
● Insurance agent (sourced from the reviewer):
happening of a specified contingency or event.
○ Needs to procure a license to act as an agent of
● Under the Code, the business of insurance may be
a company or as an insurance broker from the
carried only by corporations, partnerships, and
Insurance Commissioner
associations.
○ License must be renewed annually
● Does not include mutual benefit organizations.
○ Application filed to the Commissioner must be
approved and countersigned by the company.
Who may be an insurer.
● Foreign or domestic insurance company or ■ Individuals no longer allowed to engage
corporation in business of insurance under new code.
○ Must first obtain a certificate of authority to ○ The insured (cf. cestui que in life insurance)
transact insurance business from the Insurance ■ Sections 7, 54, 55, 56 & 57; RA 6809;
Commissioner who may refuse to if, in his Articles 110-111, Family Code;
judgment, such refusal will best promote the
interests of the PH people (Sec. 193). SEC. 7. Anyone except a public enemy may be insured.
● Individual, partnership, or association.
○ Any individual may be an insurer provided he SEC. 54. When an insurance contract is executed with
an agent or trustee as the insured, the fact that his
holds a certificate of authority from the
principal or beneficiary is the real party in interest may
Insurance Commissioner. be indicated by describing the insured as agent or
○ Any person, partnership, or association of trustee, or by other general words in the policy.
persons may be given such certificate if they
possess the capital assets required of an SEC. 55. To render an insurance effected by one partner
insurance corporation doing the same kind of or part-owner, applicable to the interest of his co-
business (Sec. 190-192). partners or other part-owners, it is necessary that the
terms of the policy should be such as are applicable to
the joint or common interest.
Insurance Corporation defined.
● One formed or organized to save any person or
persons or other corporations harmless from loss, SEC. 56. When the description of the insured in a policy
is so general that it may comprehend any person or any
damage, or liability arising from any unknown or
class of persons, only he who can show that it was
future or contingent event, or to indemnify or to intended to include him, can claim the benefit of the
compensate any persons or persons or other policy.
corporations for any such loss, or to guarantee the
performance of contractual obligations. SEC. 57. A policy may be so framed that it will inure to
● The terms “insurer” and “insurance company” the benefit of whomsoever, during the continuance of the
include all individuals, partnerships, associations, or risk, may become the owner of the interest insured.
corporations, inc. GOCCs or entities engaged as
principals in the insurance business.
 Effect of War on Insurance Contracts (Contract =
before declaration of war)
Section 1. Article 234 of Executive Order No. 209, the
Family Code of the Philippines, is hereby amended to - There is a conflict between the rules
read as follows: “Art. 234. Emancipation takes place by
- One rule: contract is merely suspended
the attainment of majority. Unless otherwise provided,
majority commences at the age of eighteen years." - Other rule: contract is abrogated = reason is
premiums were not and could not be paid
- SC follows the second rule = contract of life
Section 3. Article 236 of the same Code is also hereby insurance is abrogated during war
amended to read as follows:
The Insured must have capacity to contract as
Art. 236. Emancipation shall terminate parental authority determined by law.
over the person and property of the child who shall then
be qualified and responsible for all acts of civil life, save
- RA 6809: lowered age of majority to 18
the exceptions established by existing laws in special
cases. - Par. 3, Sec. 3 Insurance Code of 1978 is no longer
found in the current law (allows 18+ to take out
Contracting marriage shall require parental consent until certain policies because 21 dati yung age of
the age of twenty-one. majority)

Nothing in this Code shall be construed to derogate from An insurance policy taken by a married woman on her
the duty or responsibility of parents and guardians for life or that of her children does not require the
children and wards below twenty-one years of age husband’s consent.
mentioned in the second and third paragraphs of Article
2180 of the Civil Code." - Insofar as their separate properties are concerned,
Section 4. Upon the effectivity of this Act, existing wills, the consent of the other is not necessary to enter
bequests, donations, grants, insurance policies and into an insurance contract
similar instruments containing references and provisions
favorable to minors will not retroact to their prejudice. Effect of Lack of Capacity: VOIDABLE under the Civil
Code

■ Article 1390. Civil Code

Art. 110. The husband shall fix the residence of the

family. But the court may exempt the wife from living with Art. 1390. The following contracts are voidable or
the husband if he should live abroad unless in the annullable, even though there may have been no
service of the Republic. (58a) damage to the contracting parties:
(1) Those where one of the parties is incapable of giving
Art. 111. The husband is responsible for the support of consent to a contract;
the wife and the rest of the family. These expenses shall (2) Those where the consent is vitiated by mistake,
be met first from the conjugal property, then from the violence, intimidation, undue influence or fraud.
husband's capital, and lastly from the wife's paraphernal These contracts are binding, unless they are annulled by
property. In case there is a separation of property, by a proper action in court. They are susceptible of
stipulation in the marriage settlements, the husband and ratification.
wife shall contribute proportionately to the family
expenses. (n)

○ Beneficiaries (life insurance)

■ Designation & right to change - Section
Under Sec. 7 of the Insurance Code, anyone who isn’t 11
a public enemy may be insured.
SEC. 11. The insured shall have the right to change the
- Public enemy = no definition beneficiary he designated in the policy, unless he has
- Generally accepted definition = possesses expressly waived this right in said policy.
nationality of the state with which another is AT Notwithstanding the foregoing, in the event the insured
WAR (so bawal si Roey char) does not change the beneficiary during his lifetime, the
- During WW2, Germans couldn’t be insured nor could designation shall be deemed irrevocable.
their property be.
Beneficiary Defined paid to the beneficiary and not to the assignee in
insolvency.
● Beneficiary refers to the person who is named or is
designated in a contract of life, health, or accident Right of insured to change beneficiary in life
insurance as the one who is to receive the benefits insurance
which becomes payable, according to the terms of
the contract, upon the death of the insured. 1. General Rule
● It is also used to indicate only those persons,
whether natural or juridical, who, though not aaties ● Whether or not the policy reserves to the insured
to the contract, are mentioned in it as intended the right to change the beneficiary without the
recipients of the proceeds or benefits of the consent of the latter who acquires no vested
insurance if the insured risk occurs. right but only an expectancy of receiving the
● A broader use of the term would include also those proceeds under the insurance.
who, upon proper basis of insurable interest, secure ● The insured retains the right to receive the cash
insurance for their own benefit upon the lives of value of the policy, to take out loans against the
others. cash value, to assign the policy, or to surrender
it without the consent of the beneficiary.
Kinds of beneficiary ● Former Rule - Unless the policy reserves the
right to the insured the right to change the
The beneficiary in a life insurance policy may be either: beneficiary, no such right exists and the named
beneficiary has vested right in the policy of
● The insured himself which he cannot be divested without his
● His personal representatives consent.
● Someone other than the insured
2. Effect of death of insured
Where the beneficiary designated is a person other than
the insured, such person may occupy one of the three ● The right must be exercised specifically in the
(3) relations to the insured: manner provided in the policy or contract.
● The insured’s power to extinguish the
1. Insured himself - He may himself be the person beneficiary’s interest ceases at his death, and
who procures the contract and pays the premium cannot be exercised by his personal
necessary to maintain it. Such a person is thus an representatives or assignees. The beneficiary’s
immediate party to the contract and is ordinarily designation shall be deemed irrevocable.
called the assured, as where the creditor insures the
life of his debtor 3. Where the right to change is waived - if the right
to change the beneficiary is expressly waived in the
2. Third person who paid a consideration - The third policy, then the insured has no power to make such
person named as beneficiary may have paid a change without the consent of the beneficiary.
valuable consideration for his selection as such; that
is, the insured may have taken the policy for the
● The beneficiary acquires an absolute and vested
benefit of a creditor or to secure some other
interest to all benefits accruing to the policy from
obligation
the date of its issuance and delivery, including
that of obtaining a policy loan to the extent
3. Third person through mere bounty of insured -
stated in the schedules of values attached to the
The beneficiary may be one who gives no
policy.
consideration whatsoever for any right that may be
● The beneficiary has thus a property right in the
acquired in the policy but is designated as recipient
policy of which could not be deprived without his
of the proceeds of the policy through mere bounty of
consent.
the insured. The beneficiary designated may be the
● Neither can a new beneficiary be added to the
estate of the insured or a third party.
irrevocably designated beneficiary for this would
in effect reduce the latter’s vested rights.
In the second and third cases, the beneficiary is not a ● The insured does not even retain the power to
party to the contract. destroy the contract by refusing to pay
premiums for the beneficiary can protect his
In all three (3) cases, the proceeds of the life insurance interest by paying the premiums for the reason
policy becomes the exclusive property of the beneficiary that the fulfillment of an obligation may be made
upon the death of the insured. by a third person even against the will of the
debtor and if he has an interest in the fulfillment
Therefore, where the insured, before dying, was of the obligation, even against the will of the
judicially declared insolvent, the proceeds should be creditor. (Art. 1236 of NCC)
Measurement of vested interest of beneficiary in beneficiary before maturity of the policy
policy terminated all his rights to it. (Vance op)

● The vested right or interest of the beneficiary in a Designation of beneficiary

policy should be measured on its full face value and
not on its cash surrender value for in case of death Words used in designating the beneficiaries of a life
of the insured, said beneficiary is paid on the basis policy will not be given their technical significance but
of its face value. will be construed broadly in order that the benefit of the
● In case the insured should discontinue paying insurance shall be received by those intended by the
premiums, the beneficiary may continue paying it insured as the object of his bounty.
and is entitled to automatic extended term or paid-up
insurance options, etc., and that said vested right The beneficiary designated may be:
under the policy cannot be divisible at any given
time. ● The insured or his estate
● An application of loan under the policy and the ● A specifically designated person or persons
surrender of the policy by the insured constitute acts ● A class or classes of persons
of disposition or alienation of property rights of the
beneficiary and not merely of management or 1. .Children - includes:
administration because they involve the incurring or
termination of contractual obligations. ● An adopted child
● An adult child not forming a part of the
Where the beneficiary dies before insured household of the insured
● After-born children even of a marriage
1. View that beneficiary’s representative is entitled subsequently contracted
to insurance proceeds
The word “children” in an insurance policy means a
● Where the right to change the designated descendant of the first degree and is never intended to
beneficiary was expressly waived in the policy, include grandchildren.
the vested rights of the beneficiary should pass
to his representatives Where the children are named individually, other
● On the death of the insured, the proceeds of the children cannot share in the insurance proceeds unless
policy should belong to the representatives of the insured subsequently amend his designation to
the beneficiary and not to the estate of the include them.
insured
● This result, however logical in form, does great 2. Husband; wife or widow
violence to the purpose of the insured who
intended to provide a fund for the support after The word “wife” in the description of the beneficiary is
his death whom he was accustomed to support generally regarded as descriptio personae, and the fact
during his lifetime. He can scarcely have that one who otherwise answers the description does not
intended to make a provision for the distributees have the legal status of the wife of the insured does not
and legatees of the deceased beneficiary, who prevent her from taking as beneficiary, as when she is
may be persons without claim to his bounty or designated by name, although the words “his wife” are
interest in his life. (Vance op) added.

2. View that estate of the insured is entitled to However, if the beneficiary is not named but is
insurance proceeds designated merely by a status, such as the “husband”,
“wife”, or “widow” of the insured, the legal husband or
● In view of the above considerations (3rd bullet of wife as ascertained at the death of the insured, is
item 1) it is believed that where the beneficiary entitled to the benefits of such insurance.
predeceases the insured, the estate of the
insured should be entitled to the proceeds of the Note that under Art. 2012 and 739 of NCC, any person
insurance especially where the designation is who is forbidden from receiving any donation, such as a
subject to the express condition to pay the common-law spouse, cannot be named beneficiary of a
beneficiary if he survives the insured or “if life insurance by the person who cannot make any
surviving”. donation to him.
● However, most, but not all, courts hold that mere
fact that such a policy is made payable to the 3. Husband and children; wife and children
designated beneficiary, “his executors,
administrators, or assigns,” is sufficient to A policy payable to the wife of the insured and “their
negative the implied condition that death of the children” includes children by another wife, although the
prevailing view state that the beneficiaries are limited to ■ Statutory limitations - Articles 739. 2011
children common to both. & 2012, Civil Code

But if the designation is made to the insured’s “wife and

children” or “my wife and children”, the insurance is
deemed for the benefit of all children of the insured, Art. 739. The following donations shall be void:
whether by the named wife or those of another.
(1) Those made between persons who were guilty of
4. Family adultery or concubinage at the time of the
donation;
The term “family” is sometimes used to indicate the (2) Those made between persons found guilty of the
recipient of the proceeds of an insurance policy. same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
In deciding whether a particular person claiming a share descendants and ascendants, by reason of his
of the fund is of the family of the insured, the court will office.
ascertain whether that person was so regarded by the
insured. If he was so regarded, he will be allowed to
In the case referred to in No. 1, the action for declaration
participate although in no way related to the insured.
of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donor and donee may be
5. Heirs or legal heirs proved by preponderance of evidence in the same
action.
When a life policy is made payable to the insured’s
“heirs” or “legal heirs”, these terms will not ordinarily be Art. 2011. The contract of insurance is governed by
construed as indicating merely the heirs at law but rather special laws. Matters not expressly provided for in such
that class of persons who would take the property of the special laws shall be regulated by this Code. (n)
insured in case he died intestate.
Art. 2012. Any person who is forbidden from receiving
Therefore, it is generally held that the widow of the any donation under Article 739 cannot be named
deceased is entitled to take under a policy payable to his beneficiary of a life insurance policy by the person who
“heirs” or “legal heirs” as well as the children of the cannot make any donation to him, according to said
deceased. article. (n)

6. Estate or legal representatives of deceased

The words “estate”, “representatives” or “legal

representatives” when used in designating beneficiaries, In order that Art. 739 (1) may apply, it is not required
are to be construed in their strict technical sense and that there be a previous conviction for adultery or
the courts will ordinarily assume that they are used to concubinage. This can be inferred from the clause that
mean executors or administrators, unless it appears “the guilt of the donor and donee may be proved by
that the insured intended to use these expressions in the preponderance of evidence.”
sense of heirs or next of kin.’
As already pointed out (under Sec. 10), a life insurance
Policies payable to the insured’s “executors, policy is no different from a civil donation insofar as the
administrators or assigns” are clearly assets of the beneficiary is concerned. Both are founded on the
deceased insured’s estate while those payable to his same consideration: liberality.
“heirs” or “next of kin” are not.
A beneficiary is like a donee because from the premiums
7. No designated beneficiary of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said
If no beneficiary is designated in the life insurance insurance. As a consequence, the proscription in Art.
policy, the proceeds thereof will go to his legal heirs in 739 of NCC should equally operate in life insurance
accordance with law. contracts.

It has been held where two (2) women, innocently and in In the absence of any beneficiary named in the life
good faith, contracted marriage with the same man, the insurance policy or where the designated beneficiary is
insured, and the latter did not designate any beneficiary disqualified, the proceeds of the insurance will go to
who would receive the proceeds of his life insurance, the estate of the deceased insured.
each family shall be entitled to one half of the insurance
benefits. (Consuegra v. GSIS [1971])
 ■ Forfeiture of benefits by the beneficiary - as to amount to a felony, he cannot receive any
Section 12 benefit under the contract of insurance.
● His interest shall be forfeited and the nearest relative
of the insured shall receive the proceeds of said
SEC. 12. The interest of a beneficiary in a life insurance insurance if not otherwise disqualified. (Sec. 12)
policy shall be forfeited when the beneficiary is the ● However, the beneficiary is not deprived of the
principal, accomplice, or accessory in willfully bringing insurance proceeds in every case where the
about the death of the insured. In such a case, the share beneficiary killed the insured.
forfeited shall pass on to the other beneficiaries, unless ● The rights of the beneficiary under the policy are not
otherwise disqualified. In the absence of other affected if the death was caused under
beneficiaries, the proceeds shall be paid in accordance circumstances as do not amount to a felony as when
with the policy contract. If the policy contract is silent, the the killing was:
proceeds shall be paid to the estate of the insured. ○ Accidental
○ In self-defense
○ Where the beneficiary was insane
Forfeiture of the interest of the beneficiary in a life ● It has been held that even though the beneficiary
insurance policy was guilty of a felony, the beneficiary’s interest in the
insurance is not forfeited where the insured’s
death was not intentionally caused. (Vance op)
● The word “interest” mentioned in Sec. 12 means the
right of the beneficiary to receive the proceeds of the ● Rights of Insured over a Life Insurance
life insurance policy. Policy
● It does not mean insurable interest since the
o Right to assign (cf. change of beneficiary)
beneficiary need not have an insurable interest in (see GREPALIFE v. CA, 316 SCTA 677
the life of the insured (1999) - Sections 184 et al

1. Other qualified beneficiaries of the insured

● In case the interest of a beneficiary in a life Section 184. A policy of insurance upon life or health
may pass by transfer, will or succession to any person,
insurance policy is forfeited as provided in Sec.
whether he has an insurable interest or not, and such
12, the nearest relatives, not otherwise person may recover upon it whatever the insured might
disqualified, of the insured shall, inherit the have recovered.
proceeds paid to the estate of the insured in
accordance with the rules on intestate
succession provided in the Civil Code.
2. Nearest relatives of the insured - In the order of Life insurance is an investment
enumeration, they are the ff:
● Right to assign = incidence of ownership
1) The legitimate children ● Objective = right to receive proceeds
2) The father and mother, if living ● Validity not affected by the presence/absence of
3) The grandfather and grandmother, or assignee’s insurable interest
ascendants nearest in degree, if living ● BUT law won’t allow the use of this right for wager
4) The illegitimate children ● Purpose: normally to secure a loan or to enter into
5) The surviving spouse other commercial transactions
6) The collateral relatives, to wit: ● IF BENEFICIARY DESIGNATION IRREVOCABLE =
a) Brothers and sisters of the full blood need beneficiary’s consent. Can’t change without his
b) Brothers and sisters of the half-blood consent
c) Nephews and nieces (see Arts. 978, 979, ○ Right of assignee < right of beneficiary
985-987, 988, 995, 1003-1006, Civil Code) ○ Reason: beneficiary has a vested and absolute
7) In default of the above, the State shall be interest which cannot be divested without his
entitled to receive the insurance proceeds (see consent
Art. 1011) ● IF REVOCABLE = no need for beneficiary’s consent
○ Right of assignee > right of beneficiary
Liability of insurer on death of insured - Death ○ Assignee can exercise the right to change and
caused by beneficiary may modify the terms of the policy
○ Reason: beneficiary only has mere expectancy.
● Public policy prohibits anyone from profiting by his He only gets a vested right when the insured
own wrong, where the beneficiary, as principal, dies.
accomplice, or accessory, intentionally brings about ● Upon assignment of his policy, insured ceases to be
the death of the insured under such circumstances a party to the insurance contract and all his rights
 and obligations under it pass to his assignee who ● Right to have insurance company advance on the
thereby becomes the owner of the policy security of the contract
● If assignee wants to keep policy effective, he must ○ Amount doesn’t exceed CSV
continue paying the premiums as stipulated therein ○ Interest = 5-6%
● Interest rate exceeds rate of return to cover
Assignment v. Change of Beneficiary: administrative expense of handling policy loan
● Due date: maturity of the contract, or anytime prior to
● Upon assignment, assignee becomes the owner of that date, on the option of the policyowner
the policy. What are assigned are the rights ● Amount is limited
available to the insured under the policy as the ○ Distinguished from right to assign policy: that
considered assets of the policy one can be much greater than the cash
● In change of beneficiary, the insured is still the surrender value (CSV)
owner ○ In this case, CSV is usually only part of the
collaterals securing the loan
DE LEON ● At any time after CSV becomes available,
policyholder is given the right or privilege to secure a
● All life insurance policies are declared by law to be loan from the insurance company, on proper
assignable. Provision prohibiting assignment = VOID assignment or pledge of policy and on the sole
security thereof.
● Contract is not of indemnity, so assignee doesn’t
● Every individual life or endowment policy must
need insurable interest contain a provision granting the insured the right to
● To deny this right diminishes the investment value of borrow on the sole security of his policy an amount
the contract to the owner not exceeding it CSV, at a specified rate of interest
● No insurable interest necessary where the policy is ● An unjust refusal of insurer to grant the loan is a
procured by the person whose life is insured on his violation of a material warranty and will give insured
own initiative the right to demand rescission of contract.
● Loan is not really a loan, because there is no
obligation of repayment on part of the insured. It is
§ Right to borrow - Section 233 (g) rather an advancement of the cash value of the
policy, repayment of which will reinstate the depleted
Sec. 227. In the case of individual life or endowment insurance without issuance of new policy.
insurance, the policy shall contain in substance the
following conditions:
§ Right to dividends - Section 233 (e)
(g) A provision that at anytime after a cash surrender
value is available under the policy and while the Sec. 227. In the case of individual life or endowment
policy is in force, the company will advance, on insurance, the policy shall contain in substance the
proper assignment or pledge of the policy and on following conditions:
sole security thereof, a sum equal to, or at the
option of the owner of the policy, less than the I. If the policy is participating, a provision that the
cash surrender value on the policy, at a specified company shall periodically ascertain and apportion
rate of interest, not more than the maximum any divisible surplus accruing on the policy under
allowed by law, to be determined by the company conditions specified therein
from time to time, but not more often than once a
year, subject to the approval of the Commissioner;
and that the company will deduct from such loan
value any existing indebtedness on the policy and ● Life insurance contracts may be participating or non-
any unpaid balance of the premium for the current participating at choice of the policy-holder.
policy year, and may collect interest in advance on ● Participating – the insured have right to share in the
the loan to the end of the current policy year, surplus profits of the insurer under the conditions
which provision may further provide that such loan specified in the policy
may be deferred for not exceeding six months ○ Characterized by higher annual premiums based
after the application therefor is made on relatively conservative mortality, investment
earnings, and expense assumptions
● If actual results are better, there’s a surplus, which is
available for return to policyowners through policy
dividend
○ Means to refund premium redundancy
● Dividends normally given annually on the VI. RESCISSION OF INSURANCE CONTRACTS:
anniversary date of the participating life insurance CONCEALMENT, MISREPRESENTATION, &
contract BREACH OF WARRANTIES
● Depending on the terms of the policy, dividends can
be: A. Basis/Rationale
○ Given in cash 1. Insurance is of utmost good faith
○ Applied to the next premium (uberrimae fidei)
○ Applied to the purchase of a paid-up addition to Because the insurer relies on the information given to
the contract him by the insured to either reject or accept his
application for insurance
○ Or retained with the company to accumulate
interest 2. As risk management devices
○ 5th option: use to buy 1 year term insurance 3. As grounds for rescission
● In the absence of such express provision, the
insured has no right to participate in the dividends.
B. Concealment
1. Definition: Secs. 26, 27 (as amended by
B.P. 874) 28 & 29

Sec. 26. A neglect to communicate that which a party

knows and ought to communicate, is called a
concealment.

Sec. 27. A concealment whether intentional or

unintentional entitles the injured party to rescind a
contract of insurance.

Sec. 28. Each party to a contract of insurance 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. 29. An intentional and fraudulent omission, on the

part of one insured, to communicate information of
matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.

[CARALE] Concealment - the failure to disclose facts

which the applicant at the time of application, knows or
ought to know and are material to the insurance applied
for

Thus the code provides this in the form of section 28.

To constitute concealment, the insured must have

known of the fact at the time of the application for
insurance.

If knowledge of the fact was acquired after the effectivity

of the policy, this will not constitute concealment. WHY?
Because after the policy takes effect, the revealed fact
can no longer influence the insurer to accept or reject
the application for insurance.

[SITUATION NOT COVERED BY CODE]: Where

knowledge of the fact is acquired after the submission of
the application and pending action to either reject or
accept by the insurer. Sec. 32. Each party to a contract of insurance is bound
→ Some courts in the US say that the duty to disclose to know all the general causes which are open to his
still exists (United Savings v. Coulson) inquiry, equally with that of the other, and which may
affect the political or material perils contemplated; and all
2. Matters which need not be disclosed general usages of trade.
Secs. 30, 32, 33, 34 & 35

Sec. 30. Neither party to a contract of insurance is Matters each party bound to know
bound to communicate information of the matters Insured need not communicate public events (nation at
following, except in answer to the inquiries of the other: war, laws and political conditions, allegiances of
nations).
(a) Those which the other knows; - Sources equally open to the insurer
(b) Those which, in the exercise of ordinary care, the
other ought to know, and of which the former has Insurer is charged with knowledge of general trade
no reason to suppose him ignorant; usages and rules of navigation, kinds of seasons, and
risks connected with navigation.
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence
of a risk excluded by a warranty, and which are Sec. 33. The right to information of material facts may be
not otherwise material; and waived, either by the terms of the insurance or by
(e) Those which relate to a risk excepted from the neglect to make inquiry as to such facts, where they are
distinctly implied in other facts of which information is
policy and which are not otherwise material.
communicated.

Matters made the subject of special inquiries Right to Information May Be Waived
material - May be done expressly or impliedly
Matters made the subject of special inquiries must be
deemed material even though otherwise they would not - Neglect to make inquiry to facts already
be regarded as such. communicated
- Insured is required to make full and true - If insured answers all questions in the application, he
disclosure to questions asked. is justified in assuming no further information is
- Failure of an apparently complete answer to make desired.
full and true disclosure will avoid the policy - Waiver is a type of estoppel.
- An answer incomplete on its face will not defeat
the policy in absence of bad faith
Sec. 34. Information of the nature or amount of the
When there is no duty to make disclosure interest of one insured need not be communicated
In the absence of questions requiring it, there is no duty unless in answer to an inquiry, except as prescribed by
to disclose facts that would otherwise be material. (don’t section fifty-one.
ask, don’t tell)

3. Matters known to, or right to be known, or

which he waives disclosure
- Cannot be penalized for not disclosing matters Disclosure of nature and extent of interest insured
already known Sec. 51 states that a policy of insurance must specify the
4. Risks excepted from policy interest of the insured in the property insured, if he
- Cannot complain of non-disclosure of facts is not the absolute owner thereof.
- Mortgagee must disclose his particular interest even
concerning risks excepted from the policy
if no inquiry is made.
(express or by warranty)
- No need disclosure if interest is absolute
- Undisclosed fact must not be material
5. Nature or amount of insured’s interest
- Not needed unless there is an inquiry Sec. 35. Neither party to a contract of insurance is
bound to communicate, even upon inquiry, information of
his own judgment upon the matters in question.
Disclosure of judgement upon the matters in C. Misrepresentation
question 1. The active form of concealment
The duty to disclosed is confined to facts. No duty to 2. Secs. 36 to 47 (Sec 45 as amended by BP 874)
disclose mere opinion, speculation, intention, or
(a) Form and When Made (Secs. 36, 37, 41
expectation.
- No duty to disclose even if asked. & 42)

3. Test of materiality: Sec. 31

Sec. 36. A representation may be oral or written.

Sec. 31. Materiality is to be determined not by the event, Sec. 37. A representation may be made at the time of, or
but solely by the probable and reasonable influence of before, issuance of the policy.
the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the Sec. 41. A representation may be altered or withdrawn
proposed contract, or in making his inquiries. before the insurance is effected, but not afterwards.

Sec. 42. A representation must be presumed to refer to

the date on which the contract goes into effect.
● TEST: The effect which the knowledge of the fact
would have in making the contract.
● The fact need not increase the risk or contribute to
any loss or damage suffered
● It is sufficient that the fact would INFLUENCE the DEFINITIONS.
party in making the contract. - Representation - a statement made by the insured
● Concealment must take place at the time the at the time of, or prior to, the issuance of the policy,
contract is entered into relative to the risk to be insured, as to an existing or
○ The duty of disclosure ends with the completion past fact or state of facts, or concerning a future
or effectivity of the contract (cf reinsurance) happening, to give information to the insurer and
● For life insurance, an applicant should inform the otherwise induce him to enter into the insurance
insurer of changes in his health between the date of contract.
submission and the date of delivery - May also be about the insurer but this rarely
happens.
DE LEON ● Misrepresentation - statement as:
From POV of insurer ○ A fact of something which is untrue
● fact is material if knowledge has probable and ○ Which the insured stated with the knowledge it’s
untrue and with an intent to deceive, or which
reasonable influence upon insurer in assessing risk
he states positively as true without knowing it to
involved and in causing him to either reject risk or be true and which as a tendency to mislead
charge higher premium ○ Where such fact in either case is material to the
● Examples risk.
○ Non-disclosure of health problems in life → Such misrepresentation renders the
insurance insurance contract voidable at the option of the
○ Non-disclosure of existence of other insurance insurer, even if the misrepresentation was w/o
wrongful intent.
contracts against fire upon same property, when
this is a condition specified in the contract Form and Nature of Representation.
1. Information given concerning risk
When fact concealed not material = insured not guilty of a. Duty of person applying to give insurer all info
concealment concerning the risk to be used in estimating its
● Reason: no effect on insurer’s decision (company character and w/n to assume the risk
would have granted the policy anyway) b. May be oral/written in papers not connected with
the contract (e.g. circulars)
Time when information acquired 2. Forms basis of contract
A. After contract has become effective = no duty to a. Info given forms the basis of the contract bc it
disclose defines and describes the risk assumed. If the
1. Exception: reinsurance description proved to be materially untrue, the
B. Before contract becomes effective: there’s a insurer may deny liability
duty to disclose changes in health occurring or 3. Intended as collateral inducements
coming to his knowledge between the date he a. Representations are made to influence the
submitted his application and the date policy is insurer to accept the risk. Being collateral
delivered inducements to the contract, representations
may be communicated in any manner
whatsoever that is intelligible.
 b. Not part of the contract unless expressly made DE LEON
so. Nature of promissory representations
1. Indicate parol/oral promise made related to the
Time when representation may be made. insurance, but not incorporated
● Very nature of representation requires that it a. Proof promise was made with fraudulent intent =
precede the execution of the contract. no insurance
● Representation may be performed after the policy 2. Undertaking by the insured, inserted in the policy,
but not specifically made a warranty
issuance.
a. Merely an executory term = not properly a
representation
Sec. 41 - When representation may be altered or
withdrawn Effect of policy of expressions of opinion/expression
● When? - Before the contract actually takes effect 1. Good faith/bad faith of insured
BUT NOT afterwards a. Will not avoid if
● Why not after? - Since the insurer has already been i. no actual fraud in inducing the acceptance of
led by the representation in assuming the risk risk, or acceptance at lower premium
contemplated in the contract ii. Insurer obligated to make further inquiry
● Why may it be altered or withdrawn before the 2. Liability of insurer
a. To avoid, insurer must prove materiality of
contract takes effect? - A representation is not a
insured’s opinion + latter’s intent to deceive
part of the contract of insurance b. If misrepresentation is of fact, insurer needs to
● Representations found to be untrue may be prove falsity and materiality (intent to deceive
withdrawn prior to the completion of the contract but presumed)
not afterwards
When representation = mere expression of opinion
Sec. 42 - Time to which representation refers ● Oral representation as to future event/condition, over
● If representation was false at the time it was made which insured has no control
although true at the time the contract takes effect = ● Effect: only voids contract if made in bad faith
There is NO false representation
● If representation was true at the time it was made (c) representation as to information (Sec.
although false at the time the contract takes effect = 43)
There is false representation
● Statements promissory of conditions to exist Sec. 43. When a person insured has no personal
subsequent to the completion of the contract knowledge of a fact, he may nevertheless repeat
may be conditions or warranties. They cannot be information which he has upon the subject, and which he
representation. believes to be true, with the explanation that he does so
● To be a representation - Conditions represented as on the information of others; or he may submit the
information, in its whole extent, to the insurer; and in
existing must be so during the making of the
neither case is he responsible for its truth, unless it
contract but not necessarily afterwards. proceeds from an agent of the insured, whose duty it is
to give the information.
(b) Representation as to Future (Sec. 39)

Sec. 39. A representation as to the future is to be ● The insured is allowed to give information of which
deemed a promise, unless it appears that it was merely he has no personal knowledge about if the info
a statement of belief or expectation. turns out to be false, he is not held responsible
therefor
● This situation occurs in the case of agents (either of
Kinds of representation the insured or the insurer)
● Affirmative Representation – existence or non-
existence of a fact when the contract begins DE LEON
● Promissory Representation – any promise to be Effect where information obtained from 3rd persons
fulfilled after the contract has come into existence or ● Insured given discretion to communicate to insurer
any statement concerning the happening of an event what he knows of a matter of which he has no
○ Similar to a warranty or condition personal knowledge
○ It may be incorporated in the policy itself ● General rule: If false = not responsible IF he gives
(although not specifically made a warranty) explanation that he used information from others
● Exception: party orders insurance, and after receives Sec. 45.
information material to the risk, or has knowledge of Effect of falsity of representation
a loss = he SHOULD communicate to his agent as Fraud or intent to misrepresent facts is not essential to
entitle the injured party to rescind a contract of insurance
soon as it can
on the ground of false representation.
● It is immaterial that a false representation of a
Effect where information obtained from agent
1. Agent of insured: his duty is in the ordinary course material fact concerning the risk relied on by the
of business to communicate information to his insurer is made in honest belief that it is true.
principal
a. If possible for him to communicate before To be deemed false, it is sufficient if the
making of contract (if he exercised due representation fails to correspond with the facts in a
diligence): insured is liable for the truth material point.
2. Agent of insurer: same principle applies ● Because these are the foundation of the contract,
the contract would not arise if these representations
(d) effect of misrepresentation (Secs. 44 do not exist.
& 45)
Effect of collusion or fraud of agent of insurer.
(1) Collusion with insured
Sec. 44. A representation is to be deemed false when ● Will vitiate the policy even though agent is
the facts fail to correspond with its assertions or
acting within the apparent scope of his
stipulations.
authority
Sec. 45. If a representation is false in a material point, ○ Why? Because when there is collusion,
whether affirmative or promissory, the injured party is agent ceases to represent his principal and
entitled to rescind the contract from the time when the represents himself so insurer is not estopped
representation becomes false. The right to rescind from avoiding the policy
granted by this Code to the insurer is waived by the
(2) Principal of agent
acceptance of premium payments despite knowledge of
the ground for rescission. ● Where insured merely signed application form
and made the agent of the insurer fill the same
for him, insured made the agent of the insurer
his own agent
When representation deemed false ● Where the insurer required its medical examiner
In order that a policy shall be avoided, a representation to fill out the answers of the insured in his own
relied upon must be false in a substantial and material writing, the medical examiner is not the agent of
respect. the insured.
● Substantially true: true in every particular material to ○ So insurer is liable when its agent writes
the risk or is so far true that the conduct of the a false answer into the application
insured would not have been different if the exact without the knowledge of the insured.
truth had been alleged
● Where a representation partly fails but is true or is (e) misrepresentation as to age (Supra; Sec 227d)
complied with so far as essential to the risk insured
against, policy remains in force
Sec. 227. In the case of individual life or endowment
In marine insurance, substantial truth is not sufficient. insurance, the policy shall contain in substance the
Insured is required to state the exact and whole truth in following conditions:
relation to all matters that he represents or upon inquiry
discloses or assumes to disclose. (f) A provision that if the age of the insured is
considered in determining the premium and the
Construction of representation as affirmative benefits accruing under the policy, and the age of
A representation written in the policy even in such form the insured has been misstated, the amount
as to admit of its being construed as an executory payable under the policy shall be such as the
agreement or promissory representation will rather be
premium would have purchased at the correct
construed, when possible, as an affirmative
representation of a present fact, in order to save the age;
policy from avoidance.

A misrepresentation as to the age of the insured does

not constitute a ground for rescission. If the age of the
insured was considered in determining the premium and
the benefits under the policy, and the age of the insured D. Cases on concealment and
has been misstated, the amount payable under the misrepresentations
policy shall be such as the premium would have
purchased at the correct age. Ng v. Asian Crusader 122 SCRA 461 (1983)

(f) test of materiality (Sec. 46) Canilang v. CA 223 SCRA 443 (1993)

Great Pacific Life v. CA 9 SCRA 643 (1979)

Sec. 46. The materiality of a representation is
determined by the same rules as the materiality of a
Pacific Banking v. CA 168 SCRA 1 (1988)
concealment.
Sunlife v. CA, 245 SCRA 268 (1995)
Materiality of representation
(1) Test of materiality: determined not by the event, Argente v. West Coast Life, 51 Phil. 725 (1928)
but solely by the probable and reasonable influence
of the facts upon the party to whom the Great Pacific Life v. CA, 316 SCRA 677 (1999)
representation is made, in forming his estimates of
Edillon v. Manila Bankers Life, 117 SCRA 187 (1982)
the disadvantages of the proposed contract, or in
making his inquiries. Harding v. Commercial Union, 38 Phil 469 (1918)

Materiality is a judicial question to be determined by

the courts.
● Why? No sound principle of law would permit a
determination solely upon the say so of the
company. No misrepresentation of a mere trifling
matter in the application if he might honestly be
mistaken about it will render the statement false so
as to avoid the policy merely because an insurance
company says that it would not have issued the
policy otherwise.

Concealment and misrepresentation compared

Concealment Misrepresentation

Insured withholds Insured makes erroneous

information of material statements of fact with the
facts from insurer intent of inducing the
insurer to enter into the
insurance contract

Same rules to determine materiality: determined not by

the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the
representation is made, in forming his estimates of the
disadvantages of the proposed contract, or in making his
inquiries.

Both give injured party the right to rescind the contract.

Intention is immaterial in rescission on the ground of

concealment or false representation.

Because of uberrimae fidei, rules also apply to insurer.

VI.B. RESCISSION OF INSURANCE CONTRACTS:
the direct insured or insureds has assumed such
CONCEALMENT, MISREPRESENTATION, &
policy obligations of the ceding insurer as direct
BREACH OF WARRANTIES
obligations of the assuming insurer to the payees
under such policies and in substitution for the
E. The “incontestable clause” in life insurance
obligations of the ceding insurer to such payees.
policies; defenses not barred
Section 48 and 227 (b)

SEC. 48. Whenever a right to rescind a contract of

insurance is given to the insurer by any provision of this Sec. 48.
chapter, such right must be exercised previous to the When an insurer must exercise his right to rescind
commencement of an action on the contract. GENERAL RULE: A contract of insurance may be
rescinded on the ground of concealment, or false
After a policy of life insurance made payable on the representation, or breach of warranty. An action to
death of the insured shall have been in force during the rescind a contract is founded upon and presupposes the
lifetime of the insured for a period of two (2) years from existence of the contract, which is rescinded.
the date of its issue or of its last reinstatement, the ● A defense to an action to recover insurance that the
insurer cannot prove that the policy is void ab initio or is policy was obtained through false representations,
rescindable by reason of the fraudulent concealment or fraud, and deceit is not in the nature of an action to
misrepresentation of the insured or his agent.
rescind and is, therefore, not barred by the provision.
There is no time limit imposed for interposing this
NOTE
defense.

Carale said Sec. 233(b). IN NON-LIFE POLICY: In order that the insurer may
rescind a contract of insurance, it must be exercised
In the case of individual life or endowment insurance, the prior to the commencement of an action on the contract.
policy shall contain in substance the following conditions: Insurer is no longer entitled to rescind a contract of
insurance after the insured has filed an action to collect
(a) A provision that the policy shall be incontestable the amount of insurance.
● However, where any of the material representations
after it shall have been in force during the lifetime
is false, the insurer’s tender of the premiums and
of the insured for a period of two years from its
notice that the policy is cancelled before the
date of issue as shown in the policy, or date of
commencement of the suit operates to rescind a
approval of last reinstatement, except for non-
contract of insurance.
payment of premium and except for violation of the
conditions of the policy relating to military or naval
IN LIFE POLICY: The defenses mentioned in the
service in time of war. second paragraph of Art. 48 are available only during the
first 2 years of a life insurance policy.
But the syllabus said Sec. 227(b). Par. 2. After a policy of life insurance made payable
on the death of the insured shall have been in force
SEC. 227. No credit shall be allowed as an admitted during the lifetime of the insured for a period of two
asset or as a deduction from liability, to any ceding (2) years from the date of its issue or of its last
insurer for reinsurance made, ceded, renewed, or reinstatement, the insurer cannot prove that the
otherwise becoming effective after January 1, 1975, policy is void ab initio or is rescindable by reason of
unless the reinsurance shall be payable by the assuming the fraudulent concealment or misrepresentation of
insurer on the basis of the liability of the ceding insurer the insured or his agent.
under the contract or contracts reinsured without
diminution because of the insolvency of the ceding INCONTESTABILITY OF LIFE POLICIES
insurer nor unless under the contract or contracts of Incontestability: after the requisites are shown to exist,
reinsurance the liability for such reinsurance is assumed the insurer shall be estopped from contesting the policy
by the assuming insurer or insurers as of the same or setting up any defense, except as is allowed, on the
effective date; nor unless the reinsurance agreement ground of public policy.
provides that payments by the assuming insurer shall be
made directly to the ceding insurer or to its liquidator, Incontestable clauses: stipulate that the policy shall be
receiver, or statutory successor except: incontestable after a stated period; now required by
statutes in force in many states
(a) Where the assuming insurer with the consent of ● Create a kind of contractual statute of limitations on
certain defenses that may be raised by the insurer
History (3) Has been in force during the life time of the insured
It has been in use since before the end of the 19th for at least 2 years from its date of issue or of its last
century, generally in life and health insurance policies. reinstatement
There is no other field of business enterprise where it is
customary for the parties to agree that the validity of the 2 year period for contesting a life insurance policy by the
contract shall not be contested. Clause originated due to insurer may be shortened but it cannot be extended by
the desire of life insurance companies to give the stipulation.
greatest possible assurance that the beneficiaries of life
insurance policyholders will receive the proceeds without The phrase “during the lifetime” means that the policy is
contest. no longer considered in force after the insured has died.

Purpose/Object: to create an absolute assurance of the Effect when policy becomes incontestable
benefits as free as may be from dispute of fact except Insurer may not refuse to pay the policy, claiming that:
the fact of death, and as soon as it reasonably can be (1) The policy is void ab initio or
done; designed to protect the policyholder from a lawsuit ● Because the policy is to be in force for 2 years,
contesting the validity of the policy after considerable “void ab initio” should be understood in the
time has passed and evidence of the facts surrounding sense of “voidable” and the fraud contemplated
the purchase may be unavailable. is the fraud in the inducement
(2) It is rescissible by reason of the fraudulent
Incontestability clause is made for the benefit of the concealment of the insured or his agent, no matter
insured, considering that its effect and purpose is to cut how patent or well-founded or
off, after a considerable period, any assertion that the (3) It is rescissible by reason of the fraudulent
policy is invalid. misrepresentations of the insured or his agent.

Original statutory provision on incontestability clause In the case of a reinstated policy, the period of
was limited to then Sec. 184(b) of the Insurance Act: contestability should be counted from the date of
A provision that the policy shall, in the absence of reinstatement and not from the date of the issuance of
fraud, be incontestable after five years from its date the policy.
of issue except for nonpayment of premiums and
except for violation of the conditions of the policy A policy of insurance, after it has lapsed or become
relating to military or naval service in time of war → forfeited, as for nonpayment of premiums or breach of a
this was carried over to the present Sec. 233(b) warranty or condition, may be revived or reinstated
pursuant to a provision contained in the policy or the
Theory and object of the incontestable clause agreement of the parties.

As to the insurer: Insurer should have a reasonable Defenses not barred by incontestable clause
opportunity to investigate the statements which the Incontestability of a policy under the law is not absolute;
applicant makes in procuring his policy and that after a otherwise, a beneficiary would automatically be entitled
definite period, the insurer should not be permitted to to the proceeds. Incontestability only deprives the
question the validity of the policy either by affirmative insurer of those defenses which arise in connection with
action or by defense to a suit brought on the life policy the formation and operation of the policy prior to loss.
by the beneficiary.
Insurer may still contest the policy by way of defense to
a suit brought upon the policy or by action to rescind the
As to the insured: Clause has as its object to give the same on any of the following grounds:
greatest possible assurance to a policyholder that his (1) Person taking the insurance lacked insurable
beneficiaries would receive payment without question as interest as required by law
to the validity of the policy or the existence of the (2) Cause of death of the insured is an excepted risk
coverage once the period of contestability passes. (3) Premiums have not been paid
● Designed to protect the policyholder or beneficiary (4) Conditions of the policy relating to military or naval
from a lawsuit contesting the validity of the policy service have been violated
after a considerable time has passed and evidence (5) Fraud is of a particularly vicious type → ex. Policy
of the facts surrounding the purchase may be was taken out in furtherance of a scheme to murder
unavailable the insured
● Sufficient answer to the various tactics used by (6) Beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy
insurance companies to avoid liability
after the loss has happened
(7) Action was not brought within time specified
Requisites for incontestability:
(1) Policy = life insurance policy Tan v. CA, 174 SCRA 403 (1989)
● Carale: also applies to a health insurance policy
(2) Payable on the death of the insured (cf. Tan Chay v. West Coast Life, 51 Phil 80 (1927)
 F. Warranties: Secs. 67 to 76 1. Kinds
(a) Express (Secs. 67 & 71)
● Definition: a statement or promise by the insured set
forth in the policy, SEC. 67. A warranty is either expressed or implied.
● EFFECT IF UNTRUE/NOT FULFILLED: policy is
voidable at the election of the insurer (regardless if SEC. 71. A statement in a policy, of a matter relating to
statement is material or if insurer was prejudiced by the person or thing insured, or to the risk, as fact, is an
the breach) express warranty thereof.
● Carale: this definition is inadequate; only describes
from the POV of insurer. Warranties may work in
favor of both insured and insurer ● An agreement contained or clearly incorporated
○ statements/promises agreed upon by both in the policy where the insured stipulated that
parties in the insurance contract which are certain facts relating to the risk are or shall be true or
contained in the contract or incorporated by certain acts shall be done or had been done
proper reference = warranties ● Form: if made at/before execution of policy, it must
○ Subject matter of warranties may be material or be contained in the policy itself
trivial ○ If in another instrument: must be signed by the
○ Using this definition, a warranty can also be insured, and referred to in the policy as making
made by the insurer a part of it. Mere reference is not sufficient
● PRESUMPTION: affirmative, unless contrary ○ If rider: not another instrument, but is included in
intention appears the contract. It does not be signed by the
○ Ex: “a two storey structure used as a residence” insured
= this is presumed not to be a promise that the ○ Another instrument could be a mere slip or
insured will keep the building for the same paper akin to the policy itself
purpose ○ Summary: warranty must form part of the
○ Ex: answering YES to “will you maintain the two contract of insurance
storey structure as a place of residence” = ● The warranty must refer to a statement of fact, not
promissory an opinion or belief
● Not necessary that it is explicitly stated to be a
warranty, what is important is the intention ART 71
● This is an example of an express warranty as
● Non-fulfillment of a warranty may be waived if the
described in Art 68
insurer, with knowledge thereof, fails to assert
● The statement must refer to a fact regarding the
forfeiture of policy upon breach
person or thing insured, or to the risk.
○ may be expressed or implied
● If statement is an opinion: it’s not a warranty.
● By estoppel, the insurer is precluded from using
○ At most, it is a limited warranty as to the
breach as a defense
honesty and good faith of the insured = there’s a
warranty that the statement is his honest opinion
Warranty Representation or judgment
○ Ex: “to the best of my knowledge and belief”
Part of the contract Collateral inducements
only
(b) Implied (marine only)
Always written on the face May be written in a ● Implied from the very nature of the policy or from the
of the policy, actually, or by disconnected paper. May general tenor of the words, the warranty can be
reference be oral surmised even if not necessarily embodied in the
policy binds the insured just like in expressed
Must be strictly complied Required: substantial truth
● In marine insurance, there is an IMPLIED warranty
with
that the ship is seaworthy
falsity/non-fulfillment = Falsity = void (ground:
breach fraud) (c) Affirmative (Sec. 68)

Presumed material Insurer must show

materiality to defeat the SEC. 68. A warranty may relate to the past, the present,
action of the insured the future, or to any or all of these.
This provision uses the term “warranty,” but in the case 2. When performance becomes unlawful
of a promissory warranty, this only refers to future → Example: There is an express warranty stating that
events the house insured shall not be rented and all tenants be
relieved of their tenancy within 3 months.
Examples:
Past warranty: stipulation where the insured asseverates A law is soon passed where the ejectment of tenants
that he never when thru any heart illnesses without a fixed lease is unlawful within the span of a year
in view of an emergency.
Present warranty: stipulation that the building insured is
occupied as a dwelling The loss occurs and of course the insured cannot
comply with the warranty because of the law in place.
Future warranty: stipulation where the insured WILL The policy is not void in this case.
employ security guards or install fire hydrants or not
store flammable materials 3. When performance becomes impossible (cc. Art.
1266 NCC: The debtor in obligations to do shall also
(d) Promissory (Sec. 72 & 73)
be released when the prestation becomes legally or
physically impossible without the fault of the obligor.
SEC. 72. A statement in a policy, which imparts that it is (1184a))
intended to do or not to do a thing which materially → Impossibility is not only legal but also physical.
affects the risk, is a warranty that such act or omission
shall take place. Ex: Insured warrant that he will change his party wall
within a period, but within that period with no fault of the
insured, no cement is available.
This section refers to a promissory warranty. Breaches
Loss happens. In this case, the policy is not void and the
of agreements as to future acts do not void the policy
insured may collect on his policy.
unless they are material.
MORE EXCEPTIONS: Breach of warranty exculpates
An act or omission is material if it increases risk, AND
the insurer unless he has waived the warranty or he is
under the law, only a substantial increase in risk voids
barred by estoppel
the policy.
(1) Waiver - an intentional relinquishment of a known
Ex: A stipulation prohibiting an owner from receiving
tenants into his house and a warranty to this effect, or a right which may be express or implied.
stipulation wherein the insured shall not store not
flammable (not flammable talaga) materials of any kind, Failure on the part of the insurer to assert a
and a warranty to this effect. forfeiture upon breach of warranty AFTER
KNOWLEDGE THEREOF is a waiver or estoppel.
Both situations in this case does not void the policy,
since they both do not materially increase risk. If waiver is implied in this case, it must be indicative of
the CLEAR INTENT of the insurer to waive its right
under the policy
SEC. 73. When, before the time arrives for the
performance of a warranty relating to the future, a loss Example:
insured against happens, or performance becomes An insured violated the “other insurance clause,” but the
unlawful at the place of the contract, or impossible, the insurer continued the policy despite knowing. This is a
omission to fulfill the warranty does not avoid the policy. waiver

An extension of time to pay the premium is also a waiver

General Rule: A violation of a warranty avoids a to require that the premium be paid at the due date.
contract of insurance. Sec 73 provides 3 exceptions to
this rule. (2) Estoppel -
NCC Art. 1431. Through estoppel an admission or
1. When loss occurs before time for performance representation is rendered conclusive upon the person
→ Example: Insured warrants that within 5 days he will making it, and cannot be denied or disproved as against
install fire hydrants. If a fire occurs within those 5 days the person relying thereon.
without installation, the policy IS NOT avoided
In this case, the result is the same under waiver.
Because of some action or inaction on part of the
insurer, the insurer is precluded from relying on a valid
defence against the insured who was induced into
entering into an insurance contract by the insurer’s 3. Warranties in fire insurance policies;
representation or conduct. standard clauses: Secs. 168, 169, 170

This is because estoppel is an equitable remedy, in that

is would be against good conduct for an insurer to assert SEC. 168. In the case of a partial loss of ship or its
such a defence. equipment, the old materials are to be applied towards
payment for the new. Unless otherwise stipulated in the
Example: policy, a marine insurer is liable for only two-thirds (2/3)
Fieldmen’s Insurance Co. Inc. v. Vda. de Songco of the remaining cost of repairs after such deduction,
The insurer knew that he was issuing a common except that anchors must be paid in full.
carrier’s accident insurance policy to the insured who
owned a private vehicle.
- storage of hazardous materials
The man (who was of poor education) already made his
- alteration in use or condition
fears known, but twice, agents of the insured assured
- sole ownership clause
him that his car would fall under the policy.
- “other insurance” clause
The insurer is estopped from alleging breach of
warranty. The policy is still in effect. SEC. 169. As used in this Code, the term fire insurance
shall include insurance against loss by fire, lightning,
2. Materiality and fraud: Secs. 74, 75 & 76 windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire
insurance policies or under separate policies
SEC. 74. The violation of a material warranty, or other
material provision of a policy, on the part of either party
thereto, entitles the other to rescind.
Fire insurance - contract of indemnity by which the
insurer agrees to indemnify the insured against loss of,
SEC. 75. A policy may declare that a violation of or damage to, a property caused by a hostile fire
specified provisions thereof shall avoid it, otherwise the located at the place stated in the policy.
breach of an immaterial provision does not avoid the
policy. Fire-and-extended coverage
Includes “allied lines” that protect against loss by
SEC. 76. A breach of warranty without fraud merely lightning, windstorm, etc., but only when such risks are
exonerates an insurer from the time that it occurs, or covered by extension to fire insurance policies OR
where it is broken in its inception, prevents the policy under separate policies subject to payment of additional
from attaching to the risk. premium.
- Coverage may be attached by endorsements
- There is distinction b/w fire insurance and fire-and-
● Sec 74: Warranty must be material to allow the extended coverage.
insurer to rescind.
● Sec 75: As for the immaterial provisions, it is Nature of Fire Insurance
necessary to declare that violations thereof shall - Essentially a contract of indemnity
avoid the policy. - Sole purpose is indemnity
● Sec 76: breach of warranty without fraud exonerates - Any contract that contemplates a possible gain to
the insurer form the time the breach occurs. the insured by the happening of the event upon
○ So, when there was fraud, the insurer is which the liability becomes fixed is contrary to its
exonerated completely, especially where the proper nature and not allowed.
breach was at the inception and which
Concept of Fire
prevented the policy from attaching to the
- Fire is oxidation so rapid as to produce a flame or a
risk.
glow
● Falsehood, not fraud, is the basis of liability on - Always caused by combustion, but combustion does
warranty. not always cause fire
● If without fraud: the policy is avoided at the time of
- Spontaneous combustion is usually a rapid oxidation
the breach (return of premium pro rata is allowed)
- Spontaneous = origin of combustion = without
● If with fraud: policy is avoided ab initio (not entitled to
action of an external agent
return of the premiums paid).
- Heat, steam, or smoke is evidence of fire, but by
itself does not prove its existence
- To be fire: must produce a flame, glow, or Importance of the Distinction
incandescence 1. For marine insurance, rules on constructive total
- No fire until ignition (by R. Kelly) takes place. Heat loss and abandonment apply, not for fire though
that scorches or chars is not fire without ignition. 2. In case of partial loss of a thing insured for less than
its actual value:
- A hole burned into a couch (even if no witnesses)
a. For marine policy: insured is a co-insurer of the
would still probably be covered insured portion
- A small scorch from a cigarette is not fire b. For fire: may only become a co-insurer if
- Fire may not be a natural disaster as it is almost expressly agreed upon
always caused by an act of man.
- Cannot be act of god unless lightning or natural
disaster not attributable to human agency caused it. SEC. 170. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made
Risk or losses covered without the consent of the insurer, by means within the
To determine whether a risk or cause of loss is covered, control of the insured, and increasing the risks, entitles
the scope and coverage of the insurance policy + an insurer to rescind a contract of fire insurance.
intention of the parties as indicated in their contract is
controlling. SEC. 171. An alteration in the use or condition of a thing
1. Fire insurance nowadays frequently contain insured from that to which it is limited by the policy,
extended coverage provisions bringing certain which does not increase the risk, does not affect a
additional risks or all other risks not excluded within contract of fire insurance.
the policy.
- These extra coverages are given the same
meaning (lightning, earthquake, etc) as when
used in exceptions in such respect from the risk
insured against.
When alteration in the thing insured entitles insurer
2. May extend to cover indirect or consequential
to rescind
losses.
Requisites to rescind for any alteration made in the use
or condition of the thing insured:
Indirect loss coverage
1. Use or condition of the thing is specifically limited
Standard fire contract = repay for direct losses.
or stipulated
However, consequences of a direct loss may be
2. Such use or condition as limited by the policy is
greater than the damage itself.
altered
- Ex. Manufacturing plant: fire destroys machinery
3. Alteration is made without consent of insurer
→ also loses profit during period of inactivity 4. Alteration is made by means within the control of
- The attachment of a consequential loss form to the insured
the standard fire policy extends to coverage to 5. Alteration increases risk
such consequential losses.
A contract of fire insurance is not affected by any act of
Kinds of Indirect Loss the insured subsequent to the policy which does not
1. Physical damage caused to other property (not violate its provisions even if it increases risk and
covered) causes the loss.
2. Loss of earnings due to interruption of business by
damage to property Increase of Risk or Hazard in General
3. Extra expense or additional expenditure or charges 1. Implied undertaking of the insured
incurred following damage (cost of making lipat your - In an insurance contract, there is an implied
business elsewhere or making lipat to a temporary promise on the insured that he will not change
haus) the premises or the character of the
business carried there, so as to increase the
Ocean marine and fire policies distinguished risk of loss by fire
Ocean marine: insurance on a vessel engaged in - Most fire insurance policies contain a specific
navigation even if it insures against fire risks only provision against an increase of risk
- If hazard is fire alone and the subject is an 2. Character of the increase of risk
- Occurs when property is put to some new use
unfinished vessel = fire insurance, esp. In
which increases the chance of loss
absence of express agreement that it shall have
incidents of marine policy Mere negligent acts temporarily endangering the
- Same is true if the subject is a vessel that is property will not violate the policy.
moored and in use as a hospital - Nor do temporary acts or conditions which have
ceased prior to the occurrence of the loss
- There must be actual increase in risk. It is not G. Grounds & exercise of rights of rescission:
necessary that it caused or contributed to the loss. Section 48, 63, 64, 65, 179, 227(b), 380
- Only necessary thing is that the increase is of
substantial character
SEC. 48. Whenever a right to rescind a contract of
Alterations avoiding policy insurance is given to the insurer by any provision of this
1. Where risk of loss increased chapter, such right must be exercised previous to the
- Fireworks, dwelling used as a tavern or liquor commencement of an action on the contract.
store
2. Where the increase no longer existing at the time of After a policy of life insurance made payable on the
loss death of the insured shall have been in force during the
- Would still be liable if increase was no longer lifetime of the insured for a period of two (2) years from
existing at the time of loss the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is
Alterations not avoiding policy rescindable by reason of the fraudulent concealment or
1. Where risk of loss not increased misrepresentation of the insured or his agent.
- Even if different use, it’s fine if risk isn’t
increased (can demand additional premium
though) SEC. 63. A condition, stipulation, or agreement in any
2. Where questioned articles required by insured’s policy of insurance, limiting the time for commencing an
business action thereunder to a period of less than one (1) year
- If prohibited items are necessary for the from the time when the cause of action accrues, is void.
business, it’s fine.
3. Where insured’s property would be useless if SEC. 64. No policy of insurance other than life shall be
questioned acts are prohibited cancelled by the insurer except upon prior notice thereof
- Making repairs, painting, and similar acts are not to the insured, and no notice of cancellation shall be
regarded as increasing risk = property is useless effective unless it is based on the occurrence, after the
if bawal (even if this shit increases risk) effective date of the policy, of one or more of the
following:
Where insured has no control or no knowledge of
alteration (a) Nonpayment of premium;
1. Insurer’s liability is unaffected (b) Conviction of a crime arising out of acts increasing
- Not relieved of liability; will not avoid policy
the hazard insured against;
2. Insured’s knowledge is presumed
(c) Discovery of fraud or material misrepresentation;
Application of Sec. 77 and Sec. 171 (d) Discovery of willful or reckless acts or omissions
171 is consistent with 77 which states that the breach of increasing the hazard insured against;
an immaterial provision does not avoid the policy. (e) Physical changes in the property insured which
- However, 77 gives insurer the right to insert terms result in the property becoming uninsurable;
that would avoid the policy if violated. (f) Discovery of other insurance coverage that makes
- Alteration that is expressly prohibited shall avoid the
the total insurance in excess of the value of the
policy even if it does not increase the risk
- Sec. 171 applies to policies which are silent upon property insured; or
the subject. (g) A determination by the Commissioner that the
continuation of the policy would violate or would
4. Cases: place the insurer in violation of this Code.

Pioneer v. Yap SCRA 426 (1974)

SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or delivered
New Life Enterprises v. CA 207 SCRA 609 (1992)
to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in
Qua Chee Gan v. Law Union 98 Phil. 85 (1955)
writing by the policy owner to receive the notice of
cancellation on his behalf, and shall state:
Young v. Midland Textile Insurance 30 Phil. 617
(1915)
(a) Which of the grounds set forth in Section 64 is
relied upon; and
(b) That, upon written request of the named insured,
the insurer will furnish the facts on which the
cancellation is based.
SEC. 179. The surety is entitled to payment of the financial statements approved by the Commissioner.
premium as soon as the contract of suretyship or bond is This proportion applied to the Five million pesos
perfected and delivered to the obligor. No contract of (P5,000,000.00) shall be the contribution of a particular
suretyship or bonding shall be valid and binding unless company to the corresponding Account of the Security
and until the premium therefor has been paid, except Fund.
where the obligee has accepted the bond, in which case
the bond becomes valid and enforceable irrespective of The amount of Five million pesos (P5,000,000.00) in
whether or not the premium has been paid by the obligor each Account shall be in the form of a revolving trust
to the surety: Provided, That if the contract of suretyship fund. The respective contributions of the companies
or bond is not accepted by, or filed with the obligee, the shall remain as admitted assets in their books and any
surety shall collect only a reasonable amount, not disbursement therefrom shall be deducted
exceeding fifty percent (50%) of the premium due proportionately from the contributions of each company
thereon as service fee plus the cost of stamps or other which will be allowed as deductions for income tax
taxes imposed for the issuance of the contract or bond: purposes. Any earnings of the Fund shall be turned over
Provided, however, That if the nonacceptance of the to the contributing companies in proportion to their
bond be due to the fault or negligence of the surety, no contributions.
such service fee, stamps or taxes shall be collected.
In the case of disbursements of funds from the Fund as
In the case of a continuing bond, the obligor shall pay provided in the foregoing paragraph, the life and non-life
the subsequent annual premium as it falls due until the companies, as the case may be, shall replenish the
contract of suretyship is cancelled by the obligee or by amount disbursed in direct proportion to the individual
the Commissioner or by a court of competent company’s net worth and the aggregate net worth of the
jurisdiction, as the case may be. life or non-life companies, as the case may be. However,
in no case shall the Fund exceed the aggregate amount
SEC. 227. No credit shall be allowed as an admitted of Ten million pesos (P10,000,000.00), or Five million
asset or as a deduction from liability, to any ceding pesos (P5,000,000.00) for each Account.
insurer for reinsurance made, ceded, renewed, or
otherwise becoming effective after January 1, 1975, Should the Fund, Life or Non-Life Account, as the case
unless the reinsurance shall be payable by the assuming may be, be inadequate for a disbursement as provided
insurer on the basis of the liability of the ceding insurer for, then the Life or Non-Life companies, as the case
under the contract or contracts reinsured without may be, shall contribute to the Fund their respective
diminution because of the insolvency of the ceding shares in the proportion previously mentioned.
insurer nor unless under the contract or contracts of
reinsurance the liability for such reinsurance is assumed
by the assuming insurer or insurers as of the same
effective date; nor unless the reinsurance agreement
provides that payments by the assuming insurer shall be SEC. 63
made directly to the ceding insurer or to its liquidator, Validity of agreement limiting time for commencing
receiver, or statutory successor except: action.
General Rule: A clause in an insurance policy to the
(a) Where the assuming insurer with the consent of effect that an action upon the policy by the insured
the direct insured or insureds has assumed such must be brought w/in a certain period is valid and will
prevail over the general law on limitations of actions as
policy obligations of the ceding insurer as direct
prescribed by the NCC if not contrary to Sec. 63. (TLDR;
obligations of the assuming insurer to the Parties not bound by the statute of limitations, nor by its
payees under such policies and in substitution exemptions.)
for the obligations of the ceding insurer to such EXCEPT:
payees. ● If the fixed period is less than 1 year from the time
the cause of action accrues, the stipulation is VOID.
● In the case of an industrial life policy, the period
SEC. 380. All insurance companies doing business in
cannot be less than 6 years after the cause of
the Philippines shall contribute to the Security Fund, Life
action accrues.
or Non-Life Account, as the case may be, the aggregate
amount of Five million pesos (P5,000,000.00) for each
Nature of condition limiting period.
Account. The contributions of the life insurance
● The condition is essential to prompt settlement of
companies and of the non-life insurance companies shall
be in direct proportion to the ratio between a particular claims against insurance companies, as it demands
life insurance company or a particular non-life insurance that insurance suits be brought by the insured while
company’s net worth and the aggregate net worth of all the evidence as to the origin and cause of the loss or
life insurance companies or all non-life insurance destruction has not yet disappeared.
companies, as the case may be, as shown in their latest
● It is in the nature of a condition precedent to the
liability of the insurer (a resolutory clause) Form and sufficiency of notice of cancellation by
● Purpose: to terminate all liabilities in case the action insurer.
1. There must be prior notice of cancellation to the
is not filed w/in the fixed period.
insured;
2. The notice must be based on the occurrence, after
Where action brought against insurer’s agent. the effective date of the policy, of one or more of the
● Insured cannot file the action against the agent grounds mentioned in Sec. 64;
absent a condition in the policy requiring him to do 3. It must be in writing, mailed, or delivered to the
so. name of the insured at the address shown in the
● The court cannot extend the scope of the agreement policy, or to his authorized broker; and
beyond what is agreed upon by the parties. The 4. It must state which of the grounds set forth is relied
bringing of such action against the agent cannot upon.
have any legal effect except that of notifying the
Prior notice of cancellation to insured.
agent of the claim. ● Purpose: to prevent the cancellation of the policy w/o
● Beyond such notification, the filing serves no other allowing the insured opportunity to negotiate for
purpose. other insurance in its stead.

When cause of action accrues. Areola v. CA, 236 SCRA 643, supra
● The right of the insured to the payment of his loss
accrues from the happening of the loss. Tan Chay v. West Coast Life, 51 Phil. 80 (1927) supra
● HOWEVER, the cause of action in an insurance
contract does not accrue until the insured’s claim Filipina Compania de Seguros v. Nava, 17 SCRA 210
is finally rejected by the insurer. (Reasons: no (1965)
need to bring suit before final rejection.)
Sec. 179 - Rules in Payment of Premiums
● The cause of action requires not only the legal right
(the benefits) but also the violation of such right 1. The premium becomes a debt as soon as the
(rejection of the claim). contract of suretyship or bond is perfected and
● The period for commencing an action under an delivered to the obligor (see Sec. 78)
insurance policy is to be computed not from the 2. The contract of suretyship or bonding shall not be
time when the loss actually occurs but from the valid and binding unless and until the premium
therefor has been paid
time when the insured has a right to bring an
3. Where the obligee has accepted the bond, it shall be
action against the insurer. valid and enforceable notwithstanding that the
● The stipulated prescriptive period may begin from premium has not been paid
the happening of the loss, from rejection of the 4. If the contract of suretyship or bond is not accepted
claim, or from filing of the claim (provided that the by, or filed with the obligee, the surety shall collect
stipulation does not have any condition that is only a reasonable amount
repugnant to Sec. 63). 5. If the non-acceptance of the bond be due to the fault
or negligence of the surety, no service fee, stamps,
○ Situation: Prescriptive period of 12 mos. +
or taxes imposed shall be collected by the surety;
insured has to comply with all the terms and and
conditions of the policy before filing. → Court 6. In the case of a continuing bond (for a term longer
deemed this repugnant to Sec. 63 because it than one (1) year or with no fixed expiration date),
would effectively shorten the time available to the obligor shall pay the subsequent annual
file the action. premium as it falls due until the contract is cancelled.
(Sec. 179)
SEC. 64 & 65.
Cancellation of non-life insurance policy. The premium is the consideration for furnishing the bond
● Cancellation - the right to rescind, abandon, or or the guaranty and the obligation to pay the same
subsists for as long as the liability of the surety shall
cancel an insurance contract.
exist.
● Termination by either party before its expiration.
● A contract of insurance is permitted to lapse when
the insured fails to take some action (pay premiums)
to keep the contract in force.
● The insured can cancel by surrendering the policy.
Such surrender, however, entitles him to the return
of the premiums on the customary short-rate basis.
VII. RISKS AND COVERAGES Casualty Insurance: Insurance against perils which
may affect the person and/or property of the insured and
A. In general: risks & causation give rise to liability on his part to pay damages to others
1. Insurable risks: Section 3 ● Subject matter: risks involved in the use of the
property or the insured’s risk of loss or liability,
that he may suffer loss or be compelled to indemnify
SEC. 3. Any contingent or unknown event, whether
for the loss suffered by a third person
past or future, which may damnify a person having an
● Casualty insurance includes personal accident and
insurable interest, or create a liability against him, may
health insurance as written by non-life insurance
be insured against, subject to the provisions of this
companies and all insurance against loss or liability
chapter.
not within the scope of other types of insurance
The consent of the spouse is not necessary for the
Event or peril insured against
validity of an insurance policy taken out by a married
The contingency or unknown event must be such that its
person on his or her life or that of his or her children.
happening will:
(1) Damnify or cause loss to a person having an
All rights, title and interest in the policy of insurance
insurable interest
taken out by an original owner on the life or health of
(2) Create a liability against him (the person having an
the person insured shall automatically vest in the latter
insurable interest)
upon the death of the original owner, unless otherwise
● May be past or future
provided for in the policy.
In a contract of insurance, the insurer is liable for a
fortuitous event if it is the event or peril insured
RECALL: elements of a contract of insurance against and is the proximate cause of the loss.
(1) Subject matter in which the insured has an insurable
interest Both the insurer and insured may stipulate in a contract
(2) Event or peril insured against which may be any between the two of them the risk being insured against,
future contingent or unknown event, past or future, that they may limit the scope of such a policy either by
and a duration for the risk thereof enumerating certain risks or events which are expressly
(3) A promise to pay or indemnify in a fixed or covered or by excluding certain events or perils from the
ascertainable amount coverage.
(4) A consideration for the promise, known as the
“premium” 2. “Specified risks: & “all-risks” policies
(5) A meeting of minds of the parties upon all the 3. Exceptions/exclusions
foregoing essentials 4. Causes mentioned in the Code:
● Parties must be competent to enter into the “proximate,” “remote,” & “immediate”
contract
● Sections 84 & 86
Subject matter of contract of insurance
IN GENERAL: Anything that has an appreciable
SEC. 84. Unless otherwise provided by the policy, an
pecuniary value, which is subject to loss or deterioration
insurer is liable for a loss of which a peril insured
or of which one may be deprived so that his pecuniary
against was the proximate cause, although a peril not
interest is or may be prejudiced
contemplated by the contract may have been a remote
● Provided that they are not contrary to law, public
cause of the loss; but he is not liable for a loss which
order, public policy, morals or good customs
the peril insured against was only a remote cause.
(Carale)
● Can cover past events:
SEC. 86. Where a peril is especially excepted in a
○ Ex. marine insurance → in the early days of
contract of insurance, a loss, which would not have
marine insurance, parties are not aware of the
occurred but for such peril, is thereby excepted
loss or destruction of the vessels or cargo
although the immediate cause of the loss was a peril
insured.
which was not excepted.
Property Insurance: It is the property covered by the
policy which is regarded as the subject matter but it is
the risk of loss of such property that is primarily ● Other Terms Used, E.G. “Legal,” “Efficient”,
involved Predominant,” Etc.
Usual example of applying Sec. 86 is when fire
Life, health, and accident Insurance: Person is the insurance policy excludes explosion, which, however,
subject of insurance but the matter is generally viewed was caused by fire which is considered the proximate
as one in reference to the insured as a party to the cause.
contract (I think this means risk specific to the insured)
● Proximate cause: is defined as that cause, which, ○ Not within the contemplation of the contract,
in natural and continuous sequence, unbroken by because 1 of the requisites is that the risk must
any efficient intervening cause, produces the injury, not be subject to the control of the parties
and without which the result would not have
occurred. Ordinary negligence
● Remote cause: It is a speculative rather than a ● insured is still protected => the doctrine of
direct cause of injury, consequently no basis for the contributory negligence does not apply to insurance
recovery of damages. contracts
● Insurer liable when: peril insured against was the ● otherwise, an insurance will be of little value
proximate cause, even if a peril not contemplated because almost every loss will be exempted
was a remote cause ○ Overwhelming percentage of all insurable loss
● Insurer NOT liable when: peril insured against was can be directly traced to some act of negligence
merely a remote cause ○ Hence, law requires insurer to assume the risk
of negligence of the insured and permit recovery
5. Meaning of “proximate cause” by an insured whose negligence proximately
caused the loss
Vda de Bataclan v. Medina, 102 Phil. 181 (1957)
Gross negligence
6. Rescue from covered peril: Section 85 ● if the consequence of such is so manifest to the
insured, the insurer will be relieved from liability
● Examples
SEC. 85. An insurer is liable where the thing insured is
○ Burning coals rolled down on the wooden floor,
rescued from a peril insured against that would
but the insured who saw this doesn’t brush them
otherwise have caused a loss, if, in the course of such
up
rescue, the thing is exposed to a peril not insured
○ He sees a small fire start, and makes no attempt
against, which permanently deprives the insured of its
to put it out
possession, in whole or in part; or where a loss is
caused by efforts to rescue the thing insured from a
The extent of negligence will be evaluated in light of
peril insured against.
circumstances of the case

FGU v. CA, 454 SCRA 337 (2005)

Two situations:
1. The loss took place while being rescued from the
peril insured against
● The loss was caused by a peril not insured
against after it was exposed to such peril
DURING rescue efforts from a peril insured
against
● E.g. during a fire (insured) rescue efforts,
furniture were taken out of the house which were
later stolen (not insured against) insurer liable
2. The loss is caused by the efforts to rescue the thing
from the peril insured against
● The rescue effort itself became the peril
● E.g. an insured machine was being taken out
during a fire thru a small hole causing damage
to it

7. Loss due to negligence; Cf. willful act:

Section 87

SEC. 87. An insurer is not liable for a loss caused by

the willful act or through the connivance of the insured;
but he is not exonerated by the negligence of the
insured, or of the insurance agents or others.

● Insurer is not liable for a loss caused by the

intentional act of the insured or through his
connivance
 B. Life Insurance Nature of a life insurance policy:
1. Death or survival (Sections 179 & 180) NOT REALLY A CONTRACT OF INDEMNITY, is more
accurately characterized as a form of investment.
- Indemnity is intended to restore the person to
SEC. 179. Life insurance is insurance on human lives
his situation before the loss happened, but this
and insurance appertaining thereto or connected
is not possible since human life is incapable of
therewith.
pecuniary estimation.
- The measure of recovery is the face value of the
SEC. 180. An insurance upon life may be made
policy and not the value of the loss.
payable on the death of the person, or on his surviving
- (De Leon) Only upon premature death of the insured
a specified period, or otherwise contingently on the
does the life insurance contract approximate the
continuance or cessation of life.
nature of an insurance contract as an indemnity for
loss
Every contract or pledge for the payment of
endowments or annuities shall be considered a life ● Liability is absolutely certain - The event upon
insurance contract for the purpose of this Code. which the payment is to be made is absolutely
certain to happen at some future, uncertain time and
In the absence of a judicial guardian, the father, or in premiums are calculated according to life
the latter's absence or incapacity, the mother, or any expectancy (compared to fire/marine insurance
minor, who is an insured or a beneficiary under a where the insurer takes a risk that a loss may
contract of life, health or accident insurance, may happen, even though it is generally unlikely). In the
exercise, in behalf of said minor, any right under the ● Amount of insurance generally not limited -
policy, without necessity of court authority or the giving There is difficulty in putting a pecuniary value on life,
of a bond, where the interest of the minor in the so except in cases where the insurable interest is to
particular act involved does not exceed twenty secure the payment of a sum of money, there is
thousand pesos. Such right may include, but shall not generally no limit to the amount of insurance that
be limited to, obtaining a policy loan, surrendering the may legally be placed upon the life of a person
policy, receiving the proceeds of the policy, and giving ● Life policy is a valued policy - A valued policy
the minor's consent to any transaction on the policy. expresses on its face an agreement of the specific
value of the thing insured (unlike open policies
where the proceeds payment value is determined
Life Insurance: An insurance policy where the proceeds after the loss.)
are payable upon: ● Direct pecuniary loss not required - no obligation
1. The death of the person for the beneficiaries to prove that they suffered
2. His surviving of a specific period pecuniary loss due to the death of the person. The
3. Continuance or cessation of life measure of recovery is the face amount of the policy
and not the value of the life of the insured.
Alternate definitions:
● Carale - Essentially, the contract where a beneficiary Note:
shall be paid upon the death (or continuance of ● If the proceeds are payable upon the insured
life) of the insured. surviving a specific peril, the insurance is referred
● De Leon - a mutual agreement by which a party to as pure endowment or an annuity.
agrees to pay a given sum on the happening of a ● Life insurance includes personal accident
particular event contingent on the duration of insurance, health insurance, and contracts providing
human life, in consideration of the payment of a for payment of specific benefits upon the death of
smaller sum immediately or in periodical payments the person whose life is insured.
by the other party.
Kinds of Life Insurance Policies
Parties Involved: 1. WHOLE LIFE INSURANCE - An insurance plan
● The owner of the policy where the benefits are payable upon the death of the
○ With the power to name and change the person whose life is insured. Specific types include:
beneficiary, assign it, cash it in or use the policy a. Ordinary Life Policy - The insured is required
as collateral to pay a certain fixed premium annually or at
○ Obligated to pay the premiums more frequent intervals throughout the lifetime of
● Cestui que vie the person insured until the person reaches a
○ The one on whose life the insurance is obtained specified age where the coverage continues
● Beneficiary without the payment of additional premiums.
○ To whom proceeds may be paid Payable only upon death
b. Also known as whole life, regular life, straight life
or cash-value insurance.
c. Limited Payment Life Policy - Premiums are
paid during a specified number of years or until
 a specified event occurs. When the specified payable either monthly or oftener if the face amount
number of premium payments have been made, of insurance provided in any policy is not more than
insurance is paid for. If the insured dies within five hundred (500) times the current statutory
the specified period, the beneficiary is entitled to minimum daily wage in the City of Manila and if the
all the proceeds of the policy without any liability words “industrial policy” are printed upon the policy
for unpaid premiums. Payable only upon death as part of the descriptive matter.
d. Also known as limited premium insurance policy a. Industrial life insurance provides insurance
e. Single Premium Life Insurance - Coverage is coverage to industrial workers or people who are
acquired by the payment of a single premium. unable to afford insurance for bigger amounts.
f. Joint Life Insurance - Coverage is payable upon b. Intended for blue-collar workers, with small
the first death among two or more insured. The premiums and proceeds
proceeds are then paid to the survivors. Usually c. This insurance shall not lapse after nonpayment
purchased by business partners or spouses. of premiums in three months after the expiration
g. Universal Life Insurance - Coverage emphasizes of the grace period if the nonpayment is due to
the separation of the portion of the premium the failure of the company to send its
used to cover the insurance protection from the representatives to the insured to collect the
portion of the premium allocated to investment. premiums.
(basically a combo between investment and
insurance, but the two are completely separate) 2. Suicide – Section 180 – A; (Cf. Sec. 87,
h. Variable Life Insurance - A portion of the death supra)
benefit is guaranteed by the insurer but the
majority of the benefit depends on the
Sec. 180-A. The insurer in a life insurance contract
performance of the investment portion of the
shall be liable in case of suicides only when it is
premium which is allocated to a separate fund.
committed after the policy has been in force for a
(basically a combo but what you get for your
period of two years from the date of its issue or of its
death benefit depends on how the investment
last reinstatement, unless the policy provides a
performs)
shorter period: Provided, however, That suicide
2. Endowment Policy - The insurer binds himself to
committed in the state of insanity shall be
pay a fixed sum to the insured if he survives a
compensable regardless of the date of commission.
specified period or, if he dies,to some other person
indicated. Considered life insurance under Sec.
SEC. 87. An insurer is not liable for a loss caused by
182. Payable while the insured is alive (after
the willful act or through the connivance of the insured;
surviving a period) or upon death.
but he is not exonerated by the negligence of the
3. Term Insurance Policy - Provides coverage only if
insured, or of the insurance agents or others.
the insured dies within a limited period designated in
the policy. If the insured dies within the period, the
policy is paid to the beneficiary. If he survives, the
contract terminates. Premiums are levied during a Insurer is only liable in the case of suicide:
specified term and increases with every renewal. ● If the policy has been in force for a period of two
However, the premiums are lower than in straight life years from the date of issuance.
insurance. Term insurance has no investment value. ○ Since suicide is a willful and intentional
Payable only upon death. act, the period is to discourage moral
a. Also known as temporary insurance hazard (e.g. when a person will commit
4. Modified Life Insurance - A combination of term suicide so his family would get easy
and whole life insurance in a single policy. The insurance money).
objective is to provide a coverage where the ○ The person will then wait for the maturity
premiums paid during the first few years are less of the insurance in case he wants to die
than the cost of a whole life policy. However, the and that gives him an opportunity to be
premiums increase during the remaining policy term. discouraged from committing suicide.
5. Group Life Insurance - A type of life insurance ● If the policy provides for a shorter period and the
where a single contract covers a whole group of insured commits suicide after that period -
people. The policy owner is typically an employer, or Policy cannot provide for a period longer than two
an entity like a labor organization and the policy years.
covers the members of the group. It is provided as ● Suicide is committed in the state of insanity
part of an employee benefits package and the regardless of the date of commission
master contract (the actual policy) is kept by the ○ Unless the same is an excepted risk
employer. ○ Carale: Suicide while insane cannot be
a. Contributory Plan - A variant of group life excepted since it is no longer a willful or
insurance where the employee has to pay a intentional act
portion of the premium. ● Suicide is similar to willful exposure to needless
6. Industrial Life Insurance - (c.f. Sec. 235) - The peril which increases the risk of the insurer but
form of life insurance under which the premiums are
 in suicide, the exposure is an intentional and
the first, during which grace period the death
positive act.
benefit coverage shall continue in force, unless
the policyholder shall have given the insurer
3. Accidental death; cf. death by accidental
written notice of discontinuance in advance of
means
the date of discontinuance and in accordance
● The terms have not been construed by the courts
with the terms of the policy. The policy may
and must both be taken in their ordinary meaning:
provide that the policyholder shall be liable for
An event that is unforeseen, unexpected and
the payment of a pro rata premium for the time
unusual , happened by chance or fortuitously,
the policy is in force during such grace period;
without intention and design.
(b) A provision that the validity of the policy shall
● If the death is not the natural or probable result of
not be contested, except for non-payment of
a voluntary act or if something unforeseen
premiums after it has been in force for two years
occurs in doing the act which produces the
from its date of issue; and that no statement
injury, it should still be covered
made by any insured under the policy relating to
● An event is not an accident if it is due to the
his insurability shall be used in contesting the
voluntary and deliberate/intentional act of
validity of the insurance with respect to which
anyone, including third parties. (e.g. if a robber
such statement was made after such insurance
shoots a policeman, that is not an accident, but if the
has been in force prior to the contest for a
robber wasn’t aiming and the policeman was hit, that
period of two years during such person's lifetime
is not an accident (Calanoc v. CA, in Carale)
nor unless contained in written instrument
signed by him;
Sun Insurance v. CA, 211 SCRA 554 (1992)
(c) A provision that a copy of the application, if any,
of the policyholder shall be attached to the
4. Group Life Insurance (Sec. 50; 228, last
policy when issued, that all statements made by
par.)
the policyholder or by persons insured shall be
deemed representations and not warranties,
Sec. 50. The policy shall be in printed form which may and that no statement made by any insured
contain blank spaces; and any word, phrase, clause, shall be used in any contest unless a copy of
mark, sign, symbol, signature, number, or word the instrument containing the statement is or
necessary to complete the contract of insurance shall has been furnished to such person or to his
be written on the blank spaces provided therein. beneficiary;
(d) A provision setting forth the conditions, if any,
Any rider, clause, warranty or endorsement purporting under which the insurer reserves the right to
to be part of the contract of insurance and which is require a person eligible for insurance to furnish
pasted or attached to said policy is not binding on the evidence of individual insurability satisfactory to
insured, unless the descriptive title or name of the the insurer as a condition to part or all of his
rider, clause, warranty or endorsement is also coverage;
mentioned and written on the blank spaces provided in (e) A provision specifying an equitable adjustment
the policy. of premiums or of benefits or of both to be made
in the event that the age of a person insured has
Unless applied for by the insured or owner, any rider, been misstated, such provision to contain a
clause, warranty or endorsement issued after the clear statement of the method of adjustment to
original policy shall be countersigned by the insured or be used;
owner, which countersignature shall be taken as his (f) A provision that any sum becoming due by
agreement to the contents of such rider, clause, reason of death of the person insured shall be
warranty or endorsement. payable to the beneficiary designated by the
insured, subject to the provisions of the policy in
Group insurance and group annuity policies, however, the event that there is no designated
may be typewritten and need not be in printed form. beneficiary, as to all or any part of such sum,
living at the death of the insured, and subject to
Sec. 228. No policy of group life insurance shall be any right reserved by the insurer in the policy
issued and delivered in the Philippines unless it and set forth in the certificate to pay at its option
contains in substance the following provisions, or a part of such sum not exceeding five hundred
provisions which in the opinion of the Commissioner pesos to any person appearing to the insurer to
are more favorable to the persons insured, or at least be equitably entitled thereto by reason of having
as favorable to the persons insured and more incurred funeral or other expenses incident to
favorable to the policy-holders: the last illness or death of the person insured;
(g) A provision that the insurer will issue to the
(a) A provision that the policyholder is entitled to a policyholder for delivery to each person insured
grace period of either thirty days or of one an individual certificate setting forth a statement
month for the payment of any premium due after as to the insurance protection to which he is
 entitled, to whom the insurance benefits are the insurer will furnish to the policyholder for
payable, and the rights set forth in paragraphs delivery to each debtor insured under the policy
(h), (i) and (j) following; a form which will contain a statement that the
(h) A provision that if the insurance, or any portion life of the debtor is insured under the policy and
of it, on a person covered under the policy that any death benefit paid thereunder by
ceases because of termination of employment reason of his death shall be applied to reduce or
or of membership in the class or classes eligible extinguish indebtedness.
for coverage under the policy, such person shall
be entitled to have issued to him by the insurer, The provisions of paragraphs (f) to (j) shall not
without evidence of insurability, an individual apply to policies issued to a creditor to insure his
policy of life insurance without disability or other debtors. If a group life policy is on a plan of
supplementary benefits, provided application for insurance other than term, it shall contain a non-
the individual policy and payment of the first forfeiture provision or provisions which in the
premium to the insurer shall be made within opinion of the Commissioner is or are equitable to
thirty days after such termination and provided the insured or the policyholder: Provided, That
further that: nothing herein contained shall be so construed as
(1) the individual policy shall be on any one of to require group life policies to contain the same
the forms, except term insurance, then non-forfeiture provisions as are required of
customarily issued by the insurer at the individual life policies.
age and for an amount not in excess of
the coverage under the group policy; and
(2) the premium on the individual policy shall
Form for Group Life Insurance
be at the insurer's then customary rate
- “Group insurance and group annuity policies [...]
applicable to the form and amount of the
may be typewritten and need not be in printed
individual policy, to the class of risk to
form.”
which such person then belongs, and to
his age attained on the effective date of
Eternal Gardens vs. PHILAMLIFE, 551 SCRA 1
the individual policy.
(i) A provision that if the group policy terminates or
5. Industrial life (Sec. 229)
is amended so as to terminate the insurance of
any class of insured persons, every person
insured thereunder at the date of such Sec. 229. The term "industrial life insurance" as used
termination whose insurance terminates and in this Code shall mean that form of life insurance
who has been so insured for five years prior to under which the premiums are payable either monthly
such termination date shall be entitled to have or oftener, if the face amount of insurance provided in
issued to him by the insurer an individual policy any policy is not more than five hundred times that of
of life insurance subject to the same limitations the current statutory minimum daily wage in the City of
as set forth in paragraph (h), except that the Manila, and if the words "industrial policy" are printed
group policy may provide that the amount of upon the policy as part of the descriptive matter.
such individual policy shall not exceed the
smaller of (a) the amount of the person's life An industrial life policy shall not lapse for non-payment
insurance protection ceasing less the amount of of premium if such non-payment was due to the failure
any life insurance for what he is or becomes of the company to send its representative or agent to
eligible under any group policy issued or the insured at the residence of the insured or at some
reinstated by the same or another reinsurer other place indicated by him for the purpose of
within thirty days after such termination, and (b) collecting such premium: Provided, That the
two thousand pesos; provisions of this paragraph shall not apply when the
(j) A provision that if a person insured under the premium on the policy remains unpaid for a period of
group policy dies during the thirty-day period three months or twelve weeks after the grace period
within which he would have been entitled to an has expired.
individual policy issued to him in accordance
with (h) and (i) above and before such individual
policy shall have become effective, the amount
of life insurance which he would have been
entitled to have issued to him as an individual ● Industrial life insurance - insurance which provides
policy shall be payable as a claim under the coverage to industrial workers or people unable to
group policy whether or not application for the afford insurance for bigger amounts.
individual policy or the payment of the first ● Tailored to meet the needs of the majority of its
premium has been made; purchasers (urban industrial class or blue collar
(k) In the case of a policy issued to a creditor to workers), THUS the premiums are typically small
insure debtors of such creditor, a provision that and the proceeds are generally small as well.
● Unlike ordinary life insurance, the policy shall not C. Fire Insurance
lapse after non-payment of premiums in 3 months 1. What “fire insurance” includes Section
after the expiration of the grace period, if such non- 169
payment is due to the failure of the company to send
its reps to the insured to collect premium. “Hostile” fire and “friendly” fire
● Although an insurance contract is generally
considered a contract of indemnity, life insurance is
Hostile Fire Friendly Fire
not.
○ In a contract of indemnity, insurer is liable to the
A hostile fire is one that A friendly fire is one that
insured for the amount enough to bring the
escapes from the place burns in a place where it
insured back to his situation before the loss
where it was intended to is intended to burn and
happened. Such cannot happen in life insurance
burn and ought to be, or ought to be like fire
bc life is incapable of pecuniary estimation.
one which remains burning in a stove or a
○ Measure of recovery is thus the face value of the
completely within its lamp.
policy and not the value of the loss.
proper place but because
of the unsuitable Friendly fire may become
[Reviewer notes]
materials used to light it, hostile fire by escaping
● The usual rule on insurable interest does not apply
becomes inherently from the place where it
(bc of the small proceeds)
dangerous and ought to be to some place
● Sold through individual solicitation without medical
uncontrollable. This kind in which it ought to be
exam
of fire will make the
insurer liable.
6. Mutual Life Insurance companies (Sec.
262)

The principle underlying this distinction is that the policy

Sec. 262. Any domestic stock life insurance company
shall not be construed to protect the insured from injury
doing business in the Philippines may convert itself
consequent upon his negligent use or management of
into an incorporated mutual life insurer. To that end it
fire, so long as it burns in the place where it ought to be
may provide and carry out a plan for the acquisition of
the outstanding shares of its capital stock for the
benefit of its policyholders, or any class or classes of SEC. 169. As used in this Code, the term fire
its policyholders, by complying with the requirements insurance shall include insurance against loss by fire,
of this chapter. lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension
to fire insurance policies or under separate policies.
● Republic v. Sunlife: A stock life insurance company
that has converted itself into a mutual life insurer is
tax exempted. Fire insurance - contract of indemnity by which the
● Wikipedia: A mutual insurance company is an insurer agrees to indemnify the insured against loss of,
insurance company owned entirely by its or damage to a property caused by a hostile fire
policyholders. Any profits earned by a mutual located at the place stated in the policy.
insurance company are either retained within the
company or rebated to policyholders in the form of Fire-and-extended coverage
dividend distributions or reduced future premiums. Includes “allied lines” that protect against loss by
lightning, windstorm, etc., but only when such risks are
Republic v. Sunlife, 473 SCRA 129 covered by extension to fire insurance policies OR
under separate policies subject to payment of additional
premium.
- Coverage may be attached by endorsements
- There is distinction b/w fire insurance and fire-and-
extended coverage.

Nature of Fire Insurance

● Essentially a contract of indemnity
● Sole purpose is indemnity
● Any contract that contemplates a possible gain to
the insured by the happening of the event upon
which the liability becomes fixed is contrary to its
proper nature and not allowed.
Concept of Fire - If hazard is fire alone and the subject is an
- Fire is oxidation so rapid as to produce a flame or a unfinished vessel = fire insurance, esp. In absence
glow of express agreement that it shall have incidents of
- Always caused by combustion, but combustion does marine policy
not always cause fire - Same is true if the subject is a vessel that is moored
- Spontaneous combustion is usually a rapid oxidation and in use as a hospital
- Spontaneous = origin of combustion = without
action of an external agent Importance of the Distinction
- Heat, steam, or smoke is evidence of fire, but by 1. For marine insurance, rules on constructive total
itself does not prove its existence loss and abandonment apply, not for fire though
- To be fire: must produce a flame, glow, or 2. In case of partial loss of a thing insured for less than
incandescence its actual value:
- No fire until ignition (by R. Kelly) takes place. Heat a. For marine policy: insured is a co-insurer of the
that scorches or chars is not fire without ignition. insured portion
- A hole burned into a couch (even if no witnesses) b. For fire: may only become a co-insurer if
would still probably be covered expressly agreed upon
- A small scorch from a cigarette is not fire
- Fire may not be a natural disaster as it is almost Phil. Home Assurance v. CA, 257 SCRA 468 (1996)
always caused by an act of man.
- Cannot be act of god unless lightning or natural 2. “Increase of risks” and “moral hazard”
disaster not attributable to human agency caused it. clauses
Alteration of insured property (Secs. 170 - 172)
Risk or losses covered
To determine whether a risk or cause of loss is covered,
SEC. 170. An alteration in the use or condition of a
the scope and coverage of the insurance policy +
thing insured from that to which it is limited by the
intention of the parties as indicated in their contract is
policy made without the consent of the insurer, by
controlling.
means within the control of the insured, and increasing
1. Fire insurance nowadays frequently contain
the risks, entitles an insurer to rescind a contract of
extended coverage provisions bringing certain
fire insurance.
additional risks or all other risks not excluded within
the policy.
SEC. 171. An alteration in the use or condition of a
- These extra coverages are given the same
thing insured from that to which it is limited by the
meaning (lightning, earthquake, etc) as when
policy, which does not increase the risk, does not
used in exceptions in such respect from the risk
affect a contract of fire insurance.
insured against.
2. May extend to cover indirect or consequential
losses. SEC. 172. A contract of fire insurance is not affected
by any act of the insured subsequent to the execution
Indirect loss coverage of the policy, which does not violate its provisions,
Standard fire contract = repay for direct losses. even though it increases the risk and is the cause of
However, consequences of a direct loss may be the loss.
greater than the damage itself.
- Ex. Manufacturing plant: fire destroys machinery
→ also loses profit during period of inactivity
- The attachment of a consequential loss form to the When alteration in the thing insured entitles insurer
standard fire policy extends to coverage to such to rescind
consequential losses. Requisites to rescind for any alteration made in the use
or condition of the thing insured:
Kinds of Indirect Loss ● Use or condition of the thing is specifically limited
1. Physical damage caused to other property (not or stipulated
covered) ● Such use or condition as limited by the policy is
2. Loss of earnings due to interruption of business by altered
damage to property ● Alteration is made without consent of insurer
3. Extra expense or additional expenditure or charges ● Alteration is made by means within the control of
incurred following damage (cost of making lipat your the insured
business elsewhere or making lipat to a temporary ● Alteration increases risk
haus)
A contract of fire insurance is not affected by any act of
Ocean marine and fire policies distinguished the insured subsequent to the policy which does not
Ocean marine: insurance on a vessel engaged in violate its provisions even if it increases risk and
navigation even if it insures against fire risks only causes the loss.
Increase of Risk or Hazard in General SEC 172
1. Implied undertaking of the insured Where act of insured not in violation of policy
● In an insurance contract, there is an implied An alteration is not a violation of the policy if there is
promise on the insured that he will not change no prohibition.
the premises or the character of the
business carried there, so as to increase the However, this is practically of no importance as most
risk of loss by fire insurance companies expressly provide that any act
● Most fire insurance policies contain a specific of the insured which increases risk shall avoid the
provision against an increase of risk policy.
2. Character of the increase of risk
- Occurs when property is put to some new use 3. Measure of indemnity (Secs. 173 and 174)
which increases the chance of loss
SEC. 173. If there is no valuation in the policy, the
Mere negligent acts temporarily endangering the
measure of indemnity in an insurance against fire is
property will not violate the policy.
the expense it would be to the insured at the time of
- Nor do temporary acts or conditions which have
the commencement of the fire to replace the thing lost
ceased prior to the occurrence of the loss
or injured in the condition in which it was at the time of
- There must be actual increase in risk. It is not
the injury; but if there is a valuation in a policy of fire
necessary that it caused or contributed to the loss.
insurance, the effect shall be the same as in a policy
- Only necessary thing is that the increase is of
of marine insurance.
substantial character
SEC. 174. Whenever the insured desires to have a
Alterations avoiding policy
valuation named in his policy, insuring any building or
1. Where risk of loss increased
structure against fire, he may require such building or
- Fireworks, dwelling used as a tavern or liquor
structure to be examined by an independent appraiser
store
and the value of the insured’s interest therein may
2. Where the increase no longer existing at the time of
then be fixed as between the insurer and the insured.
loss
The cost of such examination shall be paid for by the
- Would still be liable if increase was no longer
insured. A clause shall be inserted in such policy
existing at the time of loss
stating substantially that the value of the insured’s
interest in such building or structure has been thus
Alterations not avoiding policy
fixed. In the absence of any change increasing the risk
1. Where risk of loss not increased
without the consent of the insurer or of fraud on the
- Even if different use, it’s fine if risk isn’t
part of the insured, then in case of a total loss under
increased (can demand additional premium
such policy, the whole amount so insured upon the
though)
insured’s interest in such building or structure, as
2. Where questioned articles required by insured’s
stated in the policy upon which the insurers have
business
received a premium, shall be paid, and in case of a
- If prohibited items are necessary for the
partial loss the full amount of the partial loss shall be
business, it’s fine.
so paid, and in case there are two (2) or more policies
3. Where insured’s property would be useless if
covering the insured’s interest therein, each policy
questioned acts are prohibited
shall contribute pro rata to the payment of such whole
- Making repairs, painting, and similar acts are not
or partial loss. But in no case shall the insurer be
regarded as increasing risk = property is useless
required to pay more than the amount thus stated in
if bawal (even if this shit increases risk)
such policy. This section shall not prevent the parties
from stipulating in such policies concerning the
Where insured has no control or no knowledge of
repairing, rebuilding or replacing of buildings or
alteration
structures wholly or partially damaged or destroyed.
1. Insurer’s liability is unaffected
- Not relieved of liability; will not avoid policy
2. Insured’s knowledge is presumed
Measure of indemnity under an open policy
Application of Sec. 77 and Sec. 171
171 is consistent with 77 which states that the breach of (1) In the absence of express valuation in a fire policy,
an immaterial provision does not avoid the policy. the insured can only recover the actual loss
- However, 77 gives insurer the right to insert terms sustained and the burden is on the insured to
that would avoid the policy if violated. establish the amount of loss by preponderance of
- Alteration that is expressly prohibited shall avoid the evidence
policy even if it does not increase the risk
- Sec. 171 applies to policies which are silent upon (2) The liability of the insurer will in no event exceed
the subject. what it would cost the insured to repair or replace
the thing insured with the same materials, of course,
 with proper deduction considering the age of the Ex: property is valued at 10K but is insured for 50K. If
thing before loss the property is partially damaged by one half, the insurer
will still be obliged to pay 50K.
(3) If the goods loss has a market value that is readily
determined, then such may be applied in Thus to remedy this situation insurers place a “co-
determining actual loss insurance” clause

Ex: man loses house worth 600,000 under an open To encourage property owners to insure their property
policy which he applied for when the house was just for an amount close to full value, a standard “co-
worth 120,000. He loses 1/5 of his house. insurance clause” in the fire policy is now inserted

1/5 of 600,000 is 120,000. He may only recovere [DEFINITION] Coinsurance clauses are those which
120,000 require policyholders to purchase an amount of
insurance that accurately reflects the value of their
Measure of indemnity under a valued policy insured property.

*the effect of valuation in fire insurance is the same as in If less than a certain percentage of the accurate value is
a policy for marine insurance purchased, policyholders may not be able to fully
recover in the event of a loss.
(1) This valuation (which is adjusted for partial or total
loss) made by the parties is conclusive upon the Why do people only insure for small amounts and
parties, if the insured had an insurable interest and not the proper value of their property?
was not guilty of fraud
There is only a small chance that fire will cause the total
(2) The valuation of a building or structure insured may destruction of the property. This is especially true if the
be fixed as provided by SEC. 174 property is spread apart from each other. SO, property
owners realizing this tend to insure only for a small value
In total loss, the insured recovers the whole amount (usually 25%) and receive the full indemnity for any loss,
thus gaining indemnity at the cost of only 25% of that
In partial loss, the amount stipulated for the partial needed for complete coverage
loss
Option to rebuild clause
The TOTAL LOSS of a building exists when the fire
is such as to render the property WHOLLY unfit for Even if the parties have fixed a valuation for the property
use. does not prevent them for stipulating concerning the
repair of the property destroyed
(3) If the thing is insured under 2/more policies, each
shall contribute pro rata The insurer may be given the option (instead of
indemnifying), to replace the property destroyed or any
In life insurance, the measure of indemnity is fixed part thereof - THIS IS CALLED AN OPTION TO
by the sum in the policy. The principle of indemnity REBUILD CLAUSE
does not apply
REASON FOR CLAUSE: there might be unfairness in
Ex: house is valued at 300,000 under a fire the appraisal rendered by a packed board of arbitrators,
insurance policy. He loses 1/5 of his house. or in the proof of loss.
● Must be exercised at a reasonable time and the
1/5 of 300,000 is 60,000. He may only recover choice produces no effect until communicated to the
60,000 insured (see Art. 1201 NCC)

Insurer loses big time if the property is not insured WARNING: the policy may not have limited the
according to its real value. rebuilding to the amount of the insurance and the insurer
after having elected the option may be compelled to
Even in partial loss, the insurer must pay the whole rebuild/repair even if the cost exceeds the original
value of the policy, if that is what was actually lost. amount of the insurance.

In a case of partial loss, under a usual policy of fire

insurance, the insurer is required to give the full
indemnity for the loss written in the policy, even if the
property is inadequately insured.
 D. Casualty & Liability Insurance (Section 176) Liability insurable
(1) Liability for quasi-delict or non-fulfillment of
contract
SEC. 176. Casualty insurance is insurance covering
● Liability for negligence resulting in failure to do
loss or liability arising from accident or mishap,
terms of an existing contractual agreement or
excluding certain types of loss which by law or custom
resulting in a tort
are considered as falling exclusively within the scope
of other types of insurance such as fire or marine. It
(2) Liability for criminal negligence
includes, but is not limited to, employer’s liability
● Insurable on the ground that such acts are
insurance, motor vehicle liability insurance, plate glass
accidental (ex. Motor insurance policy covering
insurance, burglary and theft insurance, personal
insured’s liability for accidental injury caused by
accident and health insurance as written by non-life
his negligence even though gross and attended
insurance companies, and other substantially similar
by criminal consequences such as homicide
kinds of insurance.
through reckless imprudence)
● Liability consequences of deliberate criminal
acts are not insurable
Casualty insurance: includes all forms of insurance
against loss or liability arising from accident or mishap Insurable interest in liability insurance
excluding certain types of loss or liability within the Questions of insurable interest are not particularly
scope of other types of insurance important though, as a general rule, liability insurance
must be supported by an insurable interest in the
Except with respect to compulsory motor vehicle liability insured.
insurance, the Insurance Code contains no other
provisions applicable to casualty insurance.. Arguments in De Leon:
● Therefore, these contracts are governed by the - Insurable interest in liability insurance does not
general provisions applicable to all types of depend on whether the insured has a legal or
insurance. equitable interest in property but upon whether he
● Outside of these, the rights and obligations of may be charged by law with the liability against
the parties must be determined by the terms of which insurance is taken out
their contract, taking into consideration its - This then is the insurable interest supporting the
purpose and always in accordance with the insurance so even if one is to conclude that an
general purpose of insurance. insurable interest is not required for liability
insurance, the rule would have no significant
Two general divisions of casualty insurance adverse implications
(1) Insurance against specified perils which may affect
the person and/or property of the insured (accident When liability insurance payable
insurance) Coverage or liability of the insurer attaches when the
● Personal accident liability of the insured to the injured third party attaches,
● Robbery or theft regardless of actual loss at that time.
● Damage to or loss of motor vehicle
● Insolvency of debtors In a third party liability insurance contract, the insurer
● Defalcation of employees assumes the obligation of paying the injured third parties
to whom the insured is liable. From the moment the
(2) Insurance against specified perils which may give insured becomes liable to the third person, the
rise to liability on the part of the insured for claims for insured acquires an interest in the insurance
injuries to others or for damage to their property contract.
(liability insurance)
● Workmen’s compensation Rights of injured person to sue insurer of party at
● Motor vehicle liability fault
● Professional liability ● Depends on whether the insurance contract is
● Products liability intended to benefit third persons also or only the
insured
Liability insurance: a contract of indemnity for the
benefit of the insured and those in privity with him, or Tests applied
those to whom the law upon grounds of public policy Indemnity against third party liability: Where the
extends the indemnity against liability contract provides for indemnity against liability to third
● An indemnity is provided to the insured in respect of persons, third persons to whom the insured is liable can
his legal ability to pay damages, usually arising out sue directly the insurer upon the occurrence of the injury
of negligence or nuisance, and occasionally, under or event upon which the liability depends.
contract ● Liability of insurer is direct
● Purpose is to protect the injured person against the
insolvency of the insured who causes such injury
 and to give him a certain beneficial interest in the Meaning of “accident” and “accidental” as used in
proceeds of the policy. accident policy
● Construed by the courts in their ordinary and
Indemnity against actual loss or payment: Where the common acceptation
contract is for indemnity against actual is loss or ● That which happens by chance or fortuitously,
payment, third persons cannot proceed against the without intention or design, and which is
insurer, the contract being solely to reimburse the unexpected, unusual, and unforeseen.
insured for liability actually discharged by him through ○ Presupposes the lack of intention to commit the
payment to third persons. wrong resulting from the event that happens
● Third person’s recourse is limited to the insured ○ If happening through human agency, an event
alone which, under the circumstances, is unusual to
● Prior payment by the insured is necessary for the and not expected by the person to whom it
obligation of the insurer to arise happens.
○ Do not exclude events resulting in damage or
Basis and extent of insurer’s liability loss due to the fault, recklessness, or negligence
● Direct liability of insurer under indemnity contract or third parties.
against third party liability does not mean that insurer
can be held solidarily liable with the insured and/or Rule as to death or injury resulting from “accidental”
other parties found at fault or “accidental means”
● Liability of the insurer to third party is based on ● Terms are considered legally synonymous in the US
contract
● To make the insurer solidarily liable with the GENERAL RULE: Death or injury does not result from
insured’s entire obligation beyond the sum limited in accident or accidental means within the terms of the
the insurance contract would result in evident breach accident policy if it is the natural result of the insured’s
of the concept of solidary obligations. The third-party voluntary act, unaccompanied by anything unforeseen
liability of the insurer is only up to the extent of the except the death or injury
insurance policy and that required by law. Any award
beyond the insurance coverage would already be EXCEPTION: Where the death or injury is not the
the sole liability of the insured and other parties at natural or probable result of the insured’s voluntary act,
fault. or if something unforeseen occurs in the doing of the act
which produces the injury, the resulting death is within
Accident and health insurance the protection of the policies insuring against death or
● Have closely related purposes injury from accident.
● Insured is reimbursed for medical and health
expenses, and in some cases, earnings as a result Suicide and willful exposure to needless peril
of the incapacity ● Both are in pari matere because they both signify a
● Both are often combined in the same policy, thereby disregard for one’s life.
protecting the insured against loss from either kind ● Voluntary exposure to a known danger is generally
of disability. held to negate the accidental character of whatever
followed from the known danger.
Accident insurance: reimburses the insured for
pecuniary loss suffered as a result of injuries sustained Meaning of “intentional” as used in accident policy
in an accident ● Intentional: implies the exercise of the reasoning
● Frequently offered as a supplement to life insurance faculties, consciousness, and volition
● If death is caused by accident, many life policies pay ● Where a provision of the policy excludes intentional
“double indemnity,” meaning proceeds twice the injury, it is the intention of the person inflicting the
amount of the policy’s face value. injury that is controlling.
● Also provided with other coverages, like motor ● If injuries suffered by the insured clearly resulted
vehicle insurance. from the intentional act of a third person, the insurer
● Burden of proof in demonstrating that the cause of is relieved from liability as stipulated.
death is due to the covered peril is with the insured’s
beneficiary. Once this has been established, the Effect of “no action” clause in policy of liability
burden then shifts to the insurer to show any insurance
excepted peril that may have been stipulated by the No action clause in the policy cannot prevail over the
parties. Rules of Court provisions aimed at avoiding multiplicity
● Thus, an accident insurance is not like an ordinary of suits. Sec. 5 of Rule 2 on “joinder of causes of action”
life insurance where the insured’s death, regardless and Sec. 6 of Rule 3 on “permissive joinder of causes of
of the cause, would normally be compensable parties” cannot be superseded, at least with respect to
Health insurance: reimburses the insured for pecuniary third parties not a party to the contract by a “no action”
loss arising out of disease-related illness clause on the insurance contract.

Fortune Insurance v. CA, 244 SCRA 309, supra

 E. Suretyship - Secs. 177 to 180 Suretyship v Property Insurance
1. Definition and extent of liability- Secs.
177 & 178
Suretyship Property
Insurance
SEC. 177. A contract of suretyship is an agreement
whereby a party called the surety guarantees the Nature of Accessory Principal
performance by another party called the principal or Contract contract contract itself
obligor of an obligation or undertaking in favor of a
third party called the obligee. It includes official Number of 3 Parties 2 Parties
recognizances, stipulations, bonds or undertakings Parties
issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. Type of Contract Nature of Contract of
2206. credit indemnity
accomodation
SEC. 178. The liability of the surety or sureties shall
be joint and several with the obligor and shall be Reimbursement Surety is No right of
limited to the amount of the bond. It is determined entitled to recovery (but
strictly by the terms of the contract of suretyship in reimbursement insurer can be
relation to the principal contract between the obligor from the subrogated to
and the obligee. principal or his the rights of
guarantors insured)

Cancellation Only by or with May be

Suretyship – an agreement whereby one (insurance the consent of cancelled
company) undterakes to answer, under specified terms, the obligee or unilaterally by
for the debt, default and miscarriage of another (principal by the the insured or
or obligor) such as failure to perform a contract or certain Commissioner by the insurer
duties, or for breach of trust, negligence and the like, in or by a court on proper
favor of a third party (obligee) grounds
● It may be in the form of recognizance, stipulation
bond or undertaking conditioned upon the faithful Acceptance of Requires Does not need
performance of any duty or contract obligee acceptance of acceptance by
● They are also contracts of adhesion and look like of obligee to third party
insurance contracts, and hence, treated like non-life be valid
insurance contracts o Regulation of bonds falls
under the Office of the Insurance Commissioner Risk Risk-shifting Risk-distributing
(premium as
service fee)
Nature of liability – the contract of surety or “surety
bond” is a promise or guarantee of another’s obligation
● The liability is joint, several or solidary -> Upon
default by the obligor, the surety becomes primarily Suretyship v Guaranty
liable to the oblige
● Limited to the amount of the bond Suretyship Guaranty
● It is merely a collateral or accessory contract, the
principal being the undertaking which it secures Liability Primarily liable; Secondarily
● To indemnify the surety, an indemnity Agreement Surety assumes liable; Liability
may be executed by the obligor liability as a depends upon
regular party to an independent
the undertaking agreement

Exhaustion of Not entitled to Guarantor can

debtor’s assets benefit of exhaust all of
exhaustion of the debtor’s
debtor’s assets property and
if debtor fails to legal remedies
pay before he will be
compelled to
pay if debtor
cannot pay
● As long as surety is liable it can ask for the payment iii. By a court of competent jurisdiction
of premiums even during trial. (Reparations 2. Validity of the surety bond
Commission v Universal Deep Sea a. GR: No contract of suretyship or bond shall be
● Even if there is non-payment of premium, binding unless and until the premiums have
acceptance by the creditor of the surety contract been paid.
already binds the surety. Had it been true that they i. EX: When the obligee has accepted the
issued a surety contract without authority, it is an act bond, it shall be valid and enforceable
done in fraud and a party cannot benefit from its notwithstanding nonpayment of premiums
fraudulent acts. (Philippine Pryce Assurance v CA)
Types of Surety Bonds (De Leon)
Zaragoza v. Fidelino, 163 SCRA 443 (1988) 1. Contract Bonds – these are bonds usually
Eastern Assurance v. IAC, 179 SCRA 561 (1989) connected with construction and supply contracts.
Stronghold Insurance v. CA, 208 SCRA 336 (1992) They function to protect the owner against a possible
Prudential v. Equinox, 533 SCRA 257 (2007) default by the contractor to comply with his contract
Intra-Strata v. Republic, 557 SCRA 363 or to pay materialmen, laborers and subcontractors
i.e. failure of party to perform according to the terms
2. Premium Payment - Sec. 179 of the contract. There are two kinds of contract
bonds:
a. Performance bond – covers the faithful
SEC. 179. The surety is entitled to payment of the
performance of the contract
premium as soon as the contract of suretyship or bond
b. Payment bond – covers the payment of laborers
is perfected and delivered to the obligor. No contract
and materialmen
of suretyship or bonding shall be valid and binding
2. Fidelity Bonds – serves to pay the employer for loss
unless and until the premium therefor has been paid,
caused by a dishonest act of his employee. They
except where the obligee has accepted the bond, in
can be classified further into:
which case the bond becomes valid and enforceable
a. Industrial bond – usually required by private
irrespective of whether or not the premium has been
employers to cover possible loss through
paid by the obligor to the surety: Provided, That if the
dishonesty of employees
contract of suretyship or bond is not accepted by, or
b. Public official bond – usually required of public
filed with the obligee, the surety shall collect only a
officers for the faithful performance of their
reasonable amount, not exceeding fifty percent (50%)
duties and as a condition upon the assumption
of the premium due thereon as service fee plus the
of their offices. It ordinarily includes all officers
cost of stamps or other taxes imposed for the
who have custody of public funds. It functions to
issuance of the contract or bond: Provided, however,
protect such public funds.
That if the nonacceptance of the bond be due to the
3. Judicial Bonds – commonly required in judicial
fault or negligence of the surety, no such service fee,
proceedings. Purpose for the requirement of a
stamps or taxes shall be collected.
judicial bond is to indemnify the adverse party
against damages resulting from the proceedings
In the case of a continuing bond, the obligor shall pay
Examples are replevin bonds, injunction bonds,
the subsequent annual premium as it falls due until the
appeal bonds, and bail bonds, among others.
contract of suretyship is cancelled by the obligee or by
a. The general rule is that the conditions of a bond
the Commissioner or by a court of competent
specified and required in the provisions of the
jurisdiction, as the case may be.
law/regulation requiring the submission of the
bond are deemed incorporated into the bond
even if not expressly written thereon.
Sec. 179 - Relates to two separate but connected
matters: Reparations Commission v. Universal Deep Sea
1. Entitlement of the surety to premium payment Fishing Corp., 83 SCRA 764 (1979)
a. The surety is entitled to the premium payment Philippines Pryce Assurance v. CA, 230 SCRA 164
as soon as the contract or bond is perfected and (1994)
delivered to the obligor
b. If there was a non-acceptance of the obligee, 3. Applicability of the Civil Code - Sec. 180
the surety shall collect only a reasonable
amount
SEC. 180. Pertinent provisions of the Civil Code of the
c. If non-acceptance was due to the surety’s fault,
Philippines shall be applied in a suppletory character
no taxes, service fees or stamps shall be
whenever necessary in interpreting the provisions of a
collected
contract of suretyship.
d. For continuing bonds, the obligor is obliged to
pay annual premiums as they fall until the
suretyship is cancelled
i. By obligee
ii. By the Insurance Commissioner
Art. 2047 Civil Code:
insurance against passenger and third-party
By guaranty, a person called the guarantor binds himself
liability for death or bodily injuries and damage
to the creditor to fulfill the obligation of the principal
to property arising from motor vehicle accidents.
debtor in case the latter should fail to do so.
SEC. 387. It shall be unlawful for any land
If a person binds himself solidarily with the principal
transportation operator or owner of a motor vehicle to
debtor, the provisions of Sec. 4, Chapter 3, Title 1 of this
operate the same in the public highways unless there
Book shall be observed. In such case, the contract is
is in force in relation thereto a policy of insurance or
called a suretyship.
guaranty in cash or surety bond issued in accordance
with the provisions of this chapter to indemnify the
The laws applicable to the contract of suretyship:
death, bodily injury, and/or damage to property of a
● Arts. 1207-1222 NCC (Joint and Solidary
third-party or passenger, as the case may be, arising
Obligations)
from the use thereof.
● Chapter 3 NCC (Different kinds of Obligations)
● Title 1 NCC (Obligations)
SEC. 388. The Commissioner shall furnish the Land
● Whenever applicable, Arts. 2047-2084 NCC
Transportation Office with a list of insurance
(Guaranty)
companies authorized to issue the policy of insurance
or surety bond required by this chapter.
In a solidary obligation, the solidary debtor himself is the
principal debtor.

These provisions shall be applied in a suppletory Meaning of Motor Vehicle

character whenever necessary in interpreting the Any vehicle propelled by any power other than
provisions of a contract of suretyship. muscular power using public highways, but excepting
road rollers, trolley cars, street sweepers, sprinklers,
lawn mowers, bulldozers, graders, forklifts, amphibian
F. Motor Vehicle Insurance (limited discussion) trucks, and cranes if not used in public highways,
1. Compulsory Motor Vehicle Insurance - vehicles which run only on rails and tracks, and tractors,
Section 386, 387 & 388 trailers, and traction engines of all kinds used exclusively
for agricultural purposes.
- Trailers, when propelled or intended to be
SEC. 386. For purposes of this chapter:
propelled by attachment to a motor vehicle, shall be
classified as a separate motor vehicle with no power
(a) Motor Vehicle is any vehicle as defined in
rating.
Section 3, paragraph (a) of Republic Act No.
4136, otherwise known as the ‘Land
Meaning of Motor Vehicle Liability Insurance
Transportation and Traffic Code’.
Protection coverage that will answer for legal liability of
(b) Passenger is any fare paying person being
for loss and damages for bodily injuries or property
transported and conveyed in and by a motor
damage that may be sustained by another arising from
vehicle for transportation of passengers for
the use and operation of a motor vehicle by its owner.
compensation, including persons expressly
authorized by law or by the vehicle’s operator or
How protection is obtained (bili sa 7/11 chz)
his agents to ride without fare.
Usually obtained on a purely voluntary basis by a
(c) Third party is any person other than a
motor vehicle owner to meet his needs (based on
passenger as defined in this section and shall
connection with whatever liability may be incurred).
also exclude a member of the household, or a
- Presently, it has to be taken on a compulsory basis
member of the family within the second degree
to a certain extent.
of consanguinity or affinity, of a motor vehicle
owner or land transportation operator, as
Prerequisite regarding the operation and registration
likewise defined herein, or his employee in
of motor vehicles
respect of death, bodily injury, or damage to
Sec. 387 enjoins an LTO (land transportation operator)
property arising out of and in the course of
or an MVO (motor vehicle owner) not to operate his
employment.
vehicle in public highways unless there is an insurance
(d) Owner or motor vehicle owner means the actual
policy in force or guaranty in cash or surety bond to
legal owner of a motor vehicle, in whose name
indemnify the death or bodily injury of the 3rd party or
such vehicle is duly registered with the Land
passenger.
Transportation Office;
(e) Land transportation operator means the owner
The Land Transportation Office will register or renew
or owners of motor vehicles for transportation of
registration of a motor vehicle unless there is in force in
passengers for compensation, including school
relation thereto such insurance, or guaranty in cash, or
buses.
surety bond.
(f) Insurance policy or Policy refers to a contract of
Spirit behind or need for compulsory third party 2. For operators of land transportation, coverage must
liability insurance be comprehensive against both third party and
To assure victims or their dependants (esp. when poor) passenger liability for death or bodily injuries. May
immediate financial assistance regardless of financial extend additional other risks at its option.
capability of the operator or owner responsible. Sec. 390 prescribes minimum limits of indemnity of the
- Insurer’s liability is primary and accrues comprehensive coverage for different kinds of vehicles.
immediately upon occurrence of injury - In case of excess over minimum limit coverage,
- It does not depend on judgement against the injured. excess deemed to be taken on a voluntary and not
- The injured or his heirs may sue directly the insurer. compulsory basis.

The amount of traffic injuries has reached an alarming Duty of MVO or LTO contemplating cancellation of
proportion with the ever increasing use of motor his cover
vehicles. 1. Give insurance/surety company written notice of
- MVOs inflicting such injuries should be capable in intention to cancel
answering for damages caused. 2. Secure another similar policy to replace before
- Compulsory Motor Vehicle Liability Insurance current policy ceases to be effective
(CMVLI) is the answer to the need to assure 3. Without making a replacement, make a cash deposit
financial assistance and relief to victims. with Ins. Commish and secure a certification
- PD 1814 deleted property damage from compulsory regarding the deposit made for presentation to and
coverage under CMVLI. filing with the Land Transpo Office.
- Compulsory insurance only covers death or
bodily injuries to persons. Effect of Cancellation of Cover
Upon receipt of such notice and cancel from the
Effect of Insured’s violation of policy condition on insurance company, the Office shall order confiscation
insurer’s liability of plates of the motor vehicle, unless it receives any of
Insurer’s liability attaches during effectivity in the the following:
absence of any showing of cancellation. 1. Evidence or proof of new valid CMLVI cover which
- To allow the defense that insured violated the may be a new insurance policy, guaranty in cash, or
contract would be to defeat the very purpose of surety bond
the law. 2. Signed duplicate of an endorsement or addendum
issued by insurance company showing revival or
Persons subject to CMVLI requirement continuance of the cover
1. Motor Vehicle Owner (MVO) - actual legal owner 3. Certification from the Insurance Commissioner to the
under whose name the vehicle is registered with the effect that a cash deposit in the amount required has
LTO. been made with him.
2. Land Transportation Operator (LTO) - owner of
motor vehicle/s used for conveying passengers for No-fault indemnity claim
compensation including school buses. No-fault connotes that the victim of a tort can recover his
loss from his insurer without regard to his own fault or
Substitutes to a CMLVI policy the tortfeasor’s fault. Purpose is to guarantee
1. Post surety bond with Insurance Commissioner compensation
who shall be made the creditor in the bond in such
amount required as limits of indemnity to answer for 1. Claim subject to certain conditions
the same losses sought to be covered by a CMLVI - Sec. 391: insurer shall pay any claim sustained
policy by a passenger or 3rd party w/o necessity of
2. Make a cash deposit with the Insurance proving fault or negligence of any kind subject
Commissioner in such amount required as limits of to certain conditions
indemnity also for the same purpose. - Does not apply to property damage
- If total indemnity claim exceeds 5k (now 15k),
After deposit has been proceeded against by the IC, the there is controversy only as to the excess. First
deposit should be replenished in the right amount 5k (now 15k) must be paid without regard to
required as limit of liability within 60 days after fault.
impairment or expiry. Otherwise, he shall secure the
insurance policy required. 2. Claim against insurer of vehicle which victim is an
occupant
Scope of Coverage Required - Sec. 391 Par. III is very clear that the claim shall
1. For owners of private motor vehicles, must be lie against the insurer of the vehicle in which
comprehensive against third party liability for the occupant is riding, mounting, or
death or bodily injuries. Includes passenger dismounting from.
liability for those transporting passengers for - The claimant is not free to choose which insurer
compensation. he shall claim the no-fault indemnity as the word
 shall makes it mandatory to claim against the Limitations 1 and 2 may be deleted and the risks
insurer of the vehicle. therein covered upon agreement and payment of
- Which vehicle was at fault is of no moment. The additional premium.
party paying may recover from the party at fault.
- Purpose is to provide indemnity at a limited Limitations as to the use of insured vehicle under
amount pending determination of liability. master land transportation operators policy
1. Use for hauling and/or carrying logs, lumber, sand,
3. Claim against insurer of the vehicle responsible for gravel, bottled beverages, gasoline products, and/or
the accident other inflammable articles or materials
- In any other case (victim not occupant of a 2. Use for racing, pacemaking, reliability trial or speed
vehicle), claim shall lie against insurer of the testing, or use for any purpose in connection with
directly offending vehicle motor trade
- Note that occupant includes both passenger and
third party Limitations as to the use of insured vehicle under
the master motorcycle policy
Certificate of Cover 1. Use for hauling and/or carrying logs, lumber, sand,
MVO or LTO procuring a CMLVI cover shall be issued a gravel, bottled beverages, gasoline products, and/or
Certificate of Cover by the insurer in the form approved other inflammable articles or materials
by the Insurance Commissioner. 2. Use for racing, pacemaking, reliability trial, or speed
- This will serve as substantiating documentation filed testing
with the LTC during registration of the vehicle as 3. Use for carriage of passengers or for hire or reward
proof of insurance. OR
- It is also secondary proof of such coverage that may 4. Use for any purposes in connection with motor trade
be presented in the investigation of a traffic accident.
The malus system under CMLVI
Limitations with respect to CMVLI cover solicitation A vehicle owner who suffered an accident during the
1. No gov’t agency or office (with the duty of immediately preceding policy period is required to pay a
implementing the relevant provisions of the surcharge upon renewal equivalent to the basic
Insurance Code) shall act as agent in procuring a premium equivalent of the amount of loss multiplied by
policy or surety bond required the rate of premium for the vehicle.
2. No official or employee of such agency or office may - Shall be no less than 30 pesos
similarly act as agent
3. The commission of an agent shall not exceed 10% Where insured himself or his driver without license
of the amount of premiums or expired license
1. Standard authorized driver clause
Limitations as to use of insured vehicle under the Authorized driver is any of the ff: insured or person
master private vehicle policy driving on his order or with his permission provided that
The policy does not cover: the person is permitted to drive in accordance to
1. Use for hauling and/or carrying logs, lumber, sand, licensing regulations and not disqualified from driving by
gravel, bottled beverages, gasoline products, and/or order of court, or by reason of any enactment or
other inflammable articles or materials regulation.
2. Use for racing, pacemaking, reliability trial or speed
testing, or use for any purpose in connection with 2. Requirement of a license
motor trade - If the person driving is not the insured, he must
3. Use for the carriage of passengers or for hire or have been duly authorized by the insured to
reward drive the vehicle.
- He must be a duly licensed driver with no
Limitations as to use of insured vehicle under the disqualification to drive.
master commercial vehicle policy - Requirement to have a license does not apply
1. Use for hauling and/or carrying logs, lumber, sand, if the person driving is the insured.
gravel, bottled beverages, gasoline products, and/or
other inflammable articles or materials if actual use 3. When theft clause applicable
of the vehicle relating to any of the said objects be - Unlawfully and wrongfully taken without consent
different from that declared in the proposal or or knowledge
declaration in the application of insurance - If theft occurs, theft clause and not authorized
2. Use for racing, pacemaking, reliability trial, or speed driver clause applies.
testing
3. Use for carriage of passengers or for hire or reward Pertinent provisions of CC: 2176, 2177, 2180, 2184,
4. Use for any purposes in connection with motor trade 2185, and 2186

Perla Compania de Seguros v. CA & Lim 208 SCRA

487 (1992)
Shafer v. Judge, 167 SCRA 386 (1988) Section 97
Vda. De Maglana v. Consolacion, 212 SCRA 268 Reinsurance defined
(1992) ● It is a contract whereby one party, the reinsurer,
Peza v. Alikpala, 160 SCRA 31 (1988) agrees to indemnify another, the reinsured (original
Western Guaranty v. CA, 187 SCRA 652 (supra) insurer).
(1990) ● Indemnity may either be in whole or in part, against
loss or liability which the reinsured may sustain or
2. The “no fault” clause - Section 391 incur under a loss or liability under a separate and
original contract of insurance with a 3rd party, the
original insured.
SEC. 391. Any claim for death or injury to any
● It has been referred to as “an insurance of an
passenger or third-party pursuant to the provisions of
insurance”
this chapter shall be paid without the necessity of
● Such contracts are sometimes referred to as
proving fault or negligence of any kind: Provided, That
“treaties”
for purposes of this section:
● Reinsurance is required by law in certain cases (see
Sec. 221, par. 1)
(a) The total indemnity in respect of any person
● The reinsurance of a reinsurance is called
shall not be less than Fifteen thousand pesos
retrocession
(P15,000.00);
(b) The following proofs of loss, when submitted
Reinsurance distinguished from double insurance
under oath, shall be sufficient evidence to
1. In double insurance, the insurer remains as the
substantiate the claim:
insurer of the original insured.
(1) Police report of accident; and
a. In reinsurance, the insurer becomes the insured,
(2) Death certificate and evidence sufficient to
insofar as the reinsurer is concerned.
establish the proper payee; or
2. In double insurance, the subject of the insurance is
(3) Medical report and evidence of medical or
property
hospital disbursement in respect of which
a. In reinsurance, it is the original insurer’s risk
refund is claimed;
(Sec. 97)
(c) Claim may be made against one motor vehicle
3. Double insurance is an insurance of the same
only. In the case of an occupant of a vehicle,
interest
claim, shall lie against the insurer of the vehicle
a. Reinsurance is an insurance of a different
in which the occupant is riding, mounting or
interest
dismounting from. In any other case, claim shall
4. In double insurance, the insured is the party in
lie against the insurer of the directly offending
interest in all the contracts
vehicle. In all cases, the right of the party paying
a. In reinsurance, the original insured has no
the claim to recover against the owner of the
interest in the contract of reinsurance which is
vehicle responsible for the accident shall be
independent of the original contract of insurance
maintained.
5. In double insurance, the insured has to give his
consent
a. In reinsurance, the consent of the original
Perla v. Ancheta, 164 SCRA 144 (1988) insured (who is hardly even aware of the
reinsurance transaction) is not necessary

G. Reinsurance - Sections 97 to 100 Value of Reinsurance

From the standpoint of the insurer
● Every insurance company, in accordance with its
SEC. 97. A contract of reinsurance is one by which an
financial strength, establishes a limit on the
insurer procures a third person to insure him against
maximum claim it wishes to pay out of its own
loss or liability by reason of such original insurance.
resources. This limit is called a “retention”.
● A company wants its salesmen to be able to take an
SEC. 98. Where an insurer obtains reinsurance,
application for any amount the applicant is willing to
except under automatic reinsurance treaties, he must
seek.
communicate all the representations of the original ● When such application are for a sum over the
insured, and also all the knowledge and information he company’s retention, it handles the excess by
possesses, whether previously or subsequently
means of reinsurance.
acquired, which are material to the risk.
● An insurer is able to issue policies for amounts in
excess of its retention limit, rather than
inconvenience a client by referring him to other
insurance companies.
● It spreads the risks among several insurance
companies.
● Underwriters benefit though the placing of additional Automatic reinsurance treaties
insurance in an expanded market. ● Section 98 does not apply
● The insurance industry benefits by reducing the ● In automatic reinsurance treaties, the reinsured
waste arising out of policies which are applied for but (ceding company) is bound to cede (give off by way
not issued. of reinsurance) and the reinsurer is obligated to
● The knowledge of the industry regarding accept a fixed share of the risk which has to be
classification of impaired risks is increased in the reinsured under the contract.
most economical manner. ● Advantage to insurer - The main advantage of this
● Reinsuring companies serve as a focal point for the method to the insurer is avoidance of any delay in
collection of suck risks where statistically significant issuing its policy.
volumes of consistently underwritten substandard
business are accumulated and subjected to Protection to reinsurer
extensive analyses by an experienced staff. ● By agreeing to accept business automatically, the
● The reinsurer benefits through the acquisition of reinsurer is relying on the underwriting judgment of
business which is expected to prove profitable in the the insurer and is bound to accept a case even
long run. though it may not agree with the underwriting
decision.
From the standpoint of the insured ● The reinsurer is protected by the requirement that
● It gives insurance companies that practice in greater the original insurer retains its full retention limit,
financial stability and thus makes the insured’s which assures a measure of self-interest.
individual policy more reliable ● In actual practice, when any question of proper
● If a large amount of insurance is needed, the insured underwriting classification exists, the insurer usually
may obtain it without negotiating with numerous does not use its automatic facility, but instead
companies secures the reinsurer’s underwriting opinion by
● It enables the insured to obtain protection promptly, submitting the case facultatively.
without delay that would be required to divide and
distribute the amount among many companies Facultative insurance
● All the insurance can be written under identical ● It covers liability on individual risk
contract provisions, whereas otherwise these might ● There is no obligation either to cede or to accept
vary with the different companies among whom the participation in the risk insured, each party having a
insurance is divided free choice
● Small companies are encouraged to divide large ● But once the share is accepted, the obligation is
exposures for safety and enabled to accept a wide absolute
variety of applicants ● The liability assumed thereunder can only be
discharged in one way - payment of the share of the
From the standpoint of the insuring public losses. There is no alternative or substitute
● Contracts or “treaties” of reinsurance are plainly prestation.
beneficial to the public inasmuch as they promote ● Advantage to insurer - The main advantage of this
both efficiency and stability in the conduct of the method is that the insurer receives the reinsurer’s
reinsurance business underwriting opinion before the policy is issued.
● On occasion, the reinsurer may have had previous
Section 98 applications or may receive concurrent applications
Duty of reinsured to disclose facts for reinsurance of the same risk from different
● Where an underwriter is seeking to insure his risks, companies
his duty to disclose all material facts is no less than ● For this reason, it may have more complete
the similar duty imposed on a person seeking an underwriting information than any single insurer.
original insurance
● The duty in both cases is one of the strictest good Reinsurance treaty distinguished from reinsurance
faith since the risk insured against in a contract of policy
reinsurance is the probability that the original insurer ● A reinsurance policy is a contract of indemnity one
may be compelled to indemnify for the loss under insurer makes with another to protect the first insurer
the policy issued by him. from a risk it has already assumed
● A policy may be avoided where the reinsured ● A reinsurance treaty is merely an agreement
conceals the fact that a loss has taken place or that between two (2) insurance companies whereby one
the property is over-insured where he has agrees to cede and the other to accept reinsurance
knowledge thereof. business pursuant to provisions specified in the
treaty.
Automatic and facultative methods of ceding ● The practice of issuing policies by insurance
reinsurance - reinsurance may be placed in effect either companies includes the issuance of reinsurance
automatically or facultatively. policies on standard risks and also on substandard
risks under special arrangements.
 ○ The lumping of the different agreements under 3 situations where the original insured may stand in
a contract has resulted in a term known as relation to the reinsurer
“treaties” 1. Contract of reinsurance solely between the insurer
○ Such treaty is an agreement between insurance and reinsurer
companies to cover the different situations a. This situation contemplates an indemnity ONLY
described. to the insurer against losses arising from the
● Reinsurance treaties and reinsurance policies are enforced policy
not synonymous. b. The original insured has no cause of action
○ Treaties are contracts for insurance 2. Contract of reinsurance with stipulation in favor of
○ Reinsurance policies or cessions are contract of original insured
insurance a. This is the exception to the above
● It is only after a reinsurance cession is made that the b. The reinsurer must pay for the losses arising
obligation of the insurer to pay the reinsurance from the suit and IS LIABLE TO the original
premium arises. insured
3. Contract of reinsurance amounting to novation of
original contract
SEC. 99. A reinsurance is presumed to be a contract
a. Another exception
of indemnity against liability, and not merely against
b. When a novation of the original contract of
damage.
insurance occurs operating to discharge the
original insurer from its obligations thereunder
c. This is subjective novation: the reinsurer is
Nature of the Contract of Reinsurance substituted in place of the insurer
d. Thus, the original insured may maintain an
The subject of reinsurance is the primary insurer’s risk action against the reinsurer
3
and not the property insured under the original contract e. See Art. 1293 NCC
1. It is for indemnity against liability
a. the reinsurer agrees to indemnify the insurer for
liabilities incurred NOT actual payment made. PHILAM v. Auditor, 22 SCRA 135 (1968)
b. It is not necessary that the insurer paid for a loss Fieldman v. Asian Surety, 34 SCRA 36 (1970)
as condition for reinsurance Equitable Insurance v. Rural Insurance, 4 SCRA 343
2. It is separate from the original insurance policy (1962)
a. The practice is that the reinsurer pays the Artex Development Co. v. Wellington Ins. Co., 51
insurer even before the insurer pays the insured SCRA 352 (1973)
3. It is based on the original policy
a. The reinsured risk must be the same as that
covered by the original policy
4. There must be insurable interest
a. This is the coverage of the original insurance
contract
b. The insurer is not entitled to anything beyond
the coverage he offered
5. Rule on subrogation applies
a. The same as in the case of the insurer, the
reinsurer gains the rights of the insurer upon
payment of loss

SEC. 100. The original insured has no interest in a

contract of reinsurance.

This is a contract between the reinsurer and the insurer

and thus the original insured has no concern with this
contract unless so provided. Thus the original insured
has no direct action against the reinsurer

However the reinsurer can use every defence the insurer

could have used in an action against the original insured
3
Art. 1293. Novation which consists in substituting a new debtor in the
The insurer must prove that the loss actually happened place of the original one, may be made even without the knowledge or
within the terms of their own coverage. against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles
1236 and 1237. (1205a)