INSURANCE LAW

1. THE fact that no profit is derived from the making of insurance contracts or that no separate or
direct consideration is received shall not preclude the existence of an insurance business.
2. If the primary purpose is rendering of service, it is NOT an insurance contract. HMOs undertake to
provide or arrange for the provision of medical services through participating physicians while
insurance companies simply undertake to indemnify the insured for medical expenses incurred up
to pre-agreed limit.
3. The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of
the occurrence, contingency or circumstances under which the performance becomes requisite. It is
not by what it is called or the nomenclature.
4. Mutual insurance company – the members of cooperative enterprise are both the insured and the
insurer.

5. CASH AND CARRY DOCTRINE. Payment of premium is necessary to give rise to a valid contract of
insurance. Exception: estoppel

6. DOCTRINE OF AMBIGUITY (“BI” in ambiguity means 2, kaya two interpretations)

Decide in favor of insured in cases of ambiguity.

7. WHAT MAY BE INSURED?

a. Contingent or unknown event, past or future, which may damnify a person or create a
liability against him.
b. Past event, as long as the parties thought in good faith that it has not happened yet.
c. In case of predecease of the owner of the policy on an insurance taken on the life of the
insured, the interest shall vest in the insured.

8. PARTIES TO INSURANCE CONTRACT

1. INSURER OR UNDERWRITER
2. INSURED OR ASSURED. Any person may be the insured, except for public enemy who are
citizens of a country of which the PH is at war (there is a legislative declaration of state of
war)
3. BENEFICIARY

*Loss payable clause. Is an insurance taken by a mortgagor which proceeds is to be

given to the mortgagee to satisfy the mortgage debt. For example, I obtained a car
worth P1M by initially paying 200k as downpayment. The balance of P800,000 I seek
services of a financing company. I obtained an insurance with loss payable clause that in
 the event of a risk insured against, the proceeds shall be given to the financing company
as payment of the loan. It is still the mortgagor who has insurable interest here because
the happening or non-happening of the risk insured against will only affect the interest
of the mortgagor as regards the financing contract, particularly his loan obligation of
P800,000.

9. CLASSESS OF INSURANCE CONTRACT

1. Marine insurance
1. Aircrafts are included
2. Aside from the vessel itself as well as the cargoes, all other kinds of property or
interests therein, in respect to, appertaining or in connection with any and all risks
or perils of navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while awaiting
shipment are included.
3. Also includes precious stones, jewels, jewelry, precious metals, whether in course
of transportation or otherwise.
4. Bridges, tunnels and other instrumentalities of transportation and communication
are also included

2. The always barrable Q under marine insurance:

1. Perils of the sea v perils of the ship
Perils of the sea are the extraordinary action of the wind and waves
(uncontrollable);
Examples: barratry (mutiny in sea); rusting of steel cargo pipes; piracy

Perils of the ship are result of the natural action of the sea which can be prevented
by the exercise of ordinary human prudence or from ordinary wear and tear.
(ordinary)
Examples: defective drainpipe

2. ALL risks policy. Covers both perils of the sea and the ship

3. IMPLIED WARRANTIES:
1. Ship is seaworthy. If fit to perform the service and encounter the perils of the
voyage contemplated by the parties to the policy. Seaworthiness required
generally at commencement of risk. If there is transshipment, only at the
beginning of each leg or segment.

2. Vessel shall not make improper deviation.

Proper deviation (no breach of implied warranty)

i. When caused by circumstances over which neither the master
nor the owner of the ship has control
 ii. When necessary to comply with a warranty (example,
magpapagawa ng ship or part thereof - seaworthiness), or to
avoid a peril, whether or not the peril is insured against
iii. When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a period
iv. When made in good faith, for the purpose of saving human life
or relieving another vessel in distress.

3. Ship will carry requisite documents showing nationality or neutrality

4. Ship will not carry contraband

4. LOSSES
1. Total destruction is not needed/ It may be partial as when there is change in the
chemical composition of the thing; or when possession is deprived such as in piracy

5. ABANDONMENT – “The 75% rule”. Relinquishment of interest in cases of constructive total

loss if more than ¾ of its value is lost or reduced or would be spent to salvage or save it;
and claim for a 100% loss. Error in availing abandonment when in fact the 75% rule is not
met will not bar recovery of proceeds; however the recovery will be confined only to the
actual, partial loss (principle of strict indemnity: the actual amount lost is the amount
paid/indemnified by the insurer)

1. Good question. There is one contract of insurance over cargoes which are loaded
In two vessels, A and B. Vessel A sank. When you compute the 75%, would it be
only for vessel A or both A and B? The answer is for both vessels as totality, since
there is only one contract of insurance taken.

2. FIRE INSURANCE
 Fire, lightning, windstorm, tornado, earthquake (allied risk)
 Hostile v friendly fire
 Alterations rules:
o Made without the consent of insurer and increases risk – entitles insurer to
rescission
o If it does not increase the risk, no effect
o Safekeeping of flammable materials necessary to trade has no effect provided
they are in minimal quantities

3. CASUALTY INSURANCE
6. Loss or liability arising from accident or mishap
7. includes employers’ liability, MVLI, plate glass, burglary and theft, personal accident and
health insurance.
 8. CMVLI OR TPL (Third party liability)
1. Covers death, bodily injury and/or damage to property
2. Victims are 3rd parties or passengers
3. Claim directed against motor vehicle owners (registered owner)
4. Injury was result of operation of motor vehicles (same definition of motor vehicle in
RPC)
5. Notice of claim filed within 6 months from accident; suit for recovery of damage br
ought within 1 year from denial or else barred.

 NO FAULT INDEMNITY CLAUSE. Insurer of vehicle in which occupant is riding, mounting or

dismounting from, becomes liable for death or injury, without necessity of proving fault or
negligence.
 Requisites:
1. Total indemnity in respect of any person shall not be less than P15,000.
If your injury is less than 15k, you have no remedy based on no fault
indemnity clause.
2. Police report
3. Death certificate
4. Medical report or hospital expenses

9. AUTHORIZED DRIVER CLAUSE. Standard clause in MV insurances which requires that the
driver must be:
1. The insured, or
2. Any person driving on the insured’s order, or with his permission. Provided
that the person driving is permitted, in accordance with the licensing or
other laws or regulations, to drive the vehicle, or has been permitted and is
not disqualified by order of a court of law or by reason of any enactment or
regulation in that behalf
o Meaning, if the insured is the driver at time of mishap, there is no
need that he is licensed; on the other hand, if other person
permitted by the insured is the driver at time of mishap, the
authorized person must be licensed driver, the license being valid,
not expired, and in his possession.

2. Do not apply authorized driver clause when the driver (if he is not the insured)
drove the car without permission or authorization by the insured.

4. LIFE INSURANCE
3. Rules as to suicide (take a look at the state of mind of the insured, moreso when
the policy is silent as to excepted or non-excepted risk)
1. If committed while insane, compensable regardless of date
 2. If excepted risk, of course no recovery
3. If not excepted risk and insured is sane, generally it is not compensable.
Exceptionally, it is compensable if committed beyond the 2 year period
(incontestability period)

4. Rules on assignment of policy: (Change in beneficiary)

1. Policy may be transferred regardless of absence or presence of insurable
interest (unlike property)
2. Notice to insurer of transfer not necessary unless expressly required.

5. Microinsurance
Is a financial product that meets risk protection needs of the poor where:
1. Amount of premium does not exceed 7.5% (10% in IRR) of the current daily
minimum wage rate for nonagricultural workers in metro manila
2. Maximum sum of guaranteed benefits is not more than 1000 (500 in IRR)
times the current daily minimum wage rate for nonagricultural workers in
metro manila.

INSURABLE INTEREST (EMPHASIS SUPPLIED!!)

** of any person upon whose life any estate or interest vested in him depends refers to
USUFRUCTUARY

** yung inchoate interest founded on existing interest is best depicted in this situation. A
mortgagor has his property foreclosed. Thereafter a foreclosure sale was conducted, hailing Mr.
X as the highest bidder. 6 months from the foreclosure sale, both mortgagor and Mr.X obtained
respective insurance on the foreclosed property. The next month, the property was destroyed.
Both Mortgagor and Mr. X may claim the insurance proceeds from their respective insurance
since their inchoate interest is founded on existing interest. But for mortgagor, his insurable
interest is for being the owner of the foreclosed property.

10. What if the assigned beneficiary is the one who is involved in the killing of the insured? The
proceeds will not be given to him but to other eligible beneficiaries. What if he is the sole
beneficiary? Then the proceeds will go to the estate. Therefore, the insurance company
cannot refuse to pay the proceeds if there are qualified beneficiaries. Meaning, if the
deceased instituted as beneficiary his mistress and their children (thus the deceased’
illegitimate children), the legal wife as well as the legitimate children cannot appropriate
for themselves the proceeds of the insurance. Indeed, the designation of the mistress is
invalid; but that does not mean that the proceeds will go to the legitimate family SINCE
there is still an eligible beneficiary, who are the illegitimate children of the deceased. The
rule on succession does not apply to insurance since the it is the illegitimate children are
the ones stated in the policy.

1. IN LIFE/HEALTH

2. IN PROPERTY
EFFECT OF CHANGE OF INTEREST
GR: a change of interest in any part of a thing insured unaccompanied by a
corresponding change of interest in the insurance, SUSPENDS the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person.
E:
1. Automatic transfer clause
2. Life, accident and health insurance
3. Change of interest after the loss (time of taking effect of insurance +
time of loss)
4. Change of interest in policy insuring several things separately insured
by one policy does not avoid the insurance as to others
5. Change of interest in policy by will or succession on the death of the
insured
6. Transfer of interest by one of several owners to the other does not
avoid the insurance even though it has been agreed that insurance
shall cease upon alienation of the thing.

3. DOUBLE INSURANCE AND OVER INSURANCE (not applicable in life insurance)

2. DOUBLE INSURANCE
Requisites:
1. Person insured is the same
2. Two or more insurers insuring separately
3. Identity of subject matter
4. Identity of interest insured; and
5. Identity of the risk or peril insured against

3. Rule in case of over insurance by double insurance

 1. Insured may claim payment in any order he selects, up to the amount
insurers are severally liable under their respective contracts
2. Each insurer is bound to contribute ratably to the loss in proportion
to the amount for which he is liable under his contract {PRINCIPLE OF
CONTRIBUTION}. One insurer may pay the maximum amount as
indicated in the policy, but it may later on demand from other insurer
their ratable contribution to the total amount indemnified to the
insured.

4. MULTIPLE OR SEVERAL INTERESTS ON SAME PROPERTY

POLICY
4. Cover note. Temporary protection to the insured pending approval of his application for
insurance.
5. Cognition theory is applicable here.

GROUNDS FOR CANCELLATION.

6. Over insurance is a new ground for cancellation of the policy. As regards conviction of
crime, the crime must arise out of acts increasing the hazards insured against (example is
arson)

AUTOMATIC RENEWAL FOR “NON-LIFE POLICY”

1. There is automatic renewal of policy under old terms upon payment of premiums,
UNLESS, the insurer within 45 days before the end of policy period, mails its
intention not to renew or to condition renewal upon reduction of limits or
elimination of coverages.

PREMIUM
7. Elixir vitae or the source of life of the insurance business. The consideration paid by the
insured to the insurer for the latter’s agreement to indemnify the insured in case of the
happening of the peril.
8. What if the payment is made by a stranger? That is still a valid payment and the beneficiary
still gets the proceeds.
 9. CASH AND CARRY DOCTRINE. Payment of premium is necessary for the validity of the
policy. No premium = no insurance.

Exceptions:*** GAIEEE
1. IN LIFE INSURANCE, where grace period applies (grace period is 30days,
BUT THERE MUST BE INITIAL PAYMENT)
2. Acknowledgement in the policy of receipt of premium (conclusive evidence
of payment)
3. Payment in installments (ALSO REQUIRES INITIAL PAYMENT)
4. 90 day credit extension under broker and agency agreements
5. Estoppel
6. Employees of the government, including GOCC may pay premiums through
salary deductions provided the paymaster is authorized to make the
deductions and to remit the same to the insurer.

10. RETURN OF PREMIUMS PAID (SEC. 80 AND 82)

RESCISSION OF INSURANCE CONRACT (good faith is not a defense)

1. CONCEALMENT
Neglect to communicate that which a party knows or ought to communicate
---Matters which must be communicated:
1. Facts within his knowledge; not aware of sickness; effect of knowledge
pending approval
2. Material to the contract; Test of materiality
o State of health
o Insured need not die of the disease he failed to disclose for there to
be concealment which will allow the insurer to avoid the insurance
claim
3. Those which the insured makes no warranty
4. Those to which the insurer has no means of ascertaining

** what if you have applied without sickness, then you are approved to a policy.
Afterwards you got sick or got diagnosed for a serious disease. Are you guilty of
concealment? NO. because you are not sick at time of filing up. BUT what if your
policy was not yet approved, but it is already pending in court when you found
out that you are sick. Is your failure to communicate pending approval of the
policy considered as concealment? YES.

2. MISREPRESNTATIONS/OMISSIONS
 o Elements of incontestability clause (this clause applies only to
concealment and misrepresentation)
o There is still issue brought about by the Sun Life vs SIbya, wherein
the SC ruled that once the insured dies within the 2 year period, the
insurance is already incontestable even if the 2 year period from
effectivity of the insurance contract is not reached. However for
purposes of bar, Judge suggests that the traditional rule be
answered, and merely add the case of Sunlife v SIbya.

EXCEPTIONS TO THE INCONTESTABILITY CLAUSE: (meaning the insurer can still

contest the contract and try to avoid the contract)
1. Lack of insurable interest
2. non-payment of premiums
3. Cause of death is an excepted risk
4. Fraud of vicious type
5. violation of conditions in policy

3. BREACH OF WARRANTIES
Warranties – a statement or promise set forth in the policy itself as against
representation which is a mere collateral inducement.

LOSS
- Before occurrence of loss, parties may stipulate not to transfer the claim of the insured against
the insurer. But once loss has occurred, insurer can transfer his interest. EXCEPT:
1. Prohibition of transfer of fire insurance to agent of insurer and transfer is void as it
may affect creditors of the insured
2. Life insurance where assignment may be made to anyone even before loss occurs
CLAIMS SETTLEMENT

COLLATERAL SOURCE RULE. The tortfeasor is prevented from benefitting from victim’s receipt
of money from other sources. But this is not applicable to cases involving no-fault insurances where
insured is indemnified regardless of who is at fault. The collateral source rule was orignally applied to
tort cases wherein the defendant is prevented from benefitting from the plaintiff’s eceipt of money
from other sources. Under this rule, if an injured person receives compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not be deducted from the damages
which he would otherwise collect from the tortfeasor. (RIPE FOR QUESTIONING IN THE BAR)

SUBROGATION. No subrogation if the insurer pays the insured in life insurance. WHY? E sino
hahabulin ni insurer for the proceeds it paid to an insured who dies, si KAMATAYAN? Unlike in non-life
insurance where the insurer may run against the persons causing the risk insured against.

PRESCRIPTIVE PERIOD FOR FILING CLAIMS

The parties may agree to limit the period to commence an action on the contract, But
the minimum is 1 year from the time the cause of action accrues. RECKONING POINT: 1 year from
rejection or denial by insurer ; not from MR, not from loss, or any period. If the wrong period is in good
faith premised upon by the claiming party, the period to use is 10 years under Article 1144 of the Civil
Code.

*** Under SECTION 203, the security deposit is exempt from levy by a judgement creditor or any other
claimant. Securities are held as a contingency fund to answer for the claims against insurance company
by all its policy holders and their beneficiaries. A single claimant may not lay stake on the securities to
the exclusion of all others.
 PRE-NEED CODE OF THE PHILIPPINES
-Definition. Contracts providing for the performance of future service/s, payment of monetary
considerations, or delivery of other benefits
- Pre-need plans are securities under SRC.

-Section 30 prohibits the utilization of the trust fund for purposes other than for the benefit of the
planholders. The allowed withdrawals refer to payments that the pre-need company had undertaken to
be made based on the contracts. Even assuming that the obligation were incurred by CAP in order to
infuse sufficient money in the trust fund to correct its deficiencies, such obligations should be paid for by
its assets, not by the trust fund. The trust fund could not be used to satisfy the claims of the
respondent’s creditors.