INSURANCE LAW

(PD 612, as amended by RA No. 10607)

TOPIC OUTLINE:

1. Concept of insurance

2. Elements of an insurance contract

3. Characteristics and nature of insurance contracts

4. Classes

5. Variable contracts

6. Insurable interest

7. Perfection of the contract of insurance

8. Rescission of insurance contracts

9. Claims settlement and subrogation

CONCEPT OF INSURANCE

CONTRACT OF INSURANCE – An agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.

CONTRACT OF SURETYSHIP – An agreement whereby a party called

the surety guarantees the performance by another called the principal
or obligor of an obligation or undertaking in favor of a third party called
the oblige. It shall be deemed to be an insurance contract if made by a
surety who or which, as such, is doing an insurance business.

PARTIES TO AN INSURANCE CONTRACT:

1. Insurer – The person who undertakes to indemnify another;

2. Insured – The person with capacity to contract and having an

insurable interest in the life or property of the insured; and

3. Beneficiary – Person designated to receive proceeds of policy when

risk attaches.
RULES IN THE DESIGNATION OF BENEFICIARY:

1. When one insures his own life, he may designate any person as the
beneficiary, whether or not the beneficiary has an insurable interest
in the life of the insured.

Exceptions: Persons specified in Article 739 of the Civil Code cannot be

designated:

a. Those made between persons who were guilty of adultery or

concubinage (conviction not being a condition precedent);

b. Those made between persons found guilty of the same

criminal offense, in consideration thereof;

c. Those made to a public ofÏcer or his wife, descendants or

ascendants by reason of his ofÏce.

Note: The designation of persons mentioned in Article 739 is void but

the policy is binding. The estate will get the proceeds.

2. If a person will insure the life of another payable to himself, he must

have insurable interest on the life of the person whose life he is
insuring.

3. In property insurance, the beneficiary must have insurable interest

on the property.

4. The designation is revocable unless the right to revoke is expressly

waived in the policy.

5. If the insured or beneficiary is a minor, and the amount involved

does not exceed P50,000.00, the father, in the absence or
incapacity, the mother may exercise the minor’s rights under the
policy, without the need of a court authority or a bond.

INSURANCE CORPORATION – Corporations formed or organized to save

any person or persons or other corporations harmless from loss, damage, or liability
from any unknown or future or contingent event, or to indemnify or to compensate
any person or persons or other corporations for any such loss, damage, or liability,
or to guarantee the performance of or compliance with contractual obligations or the
payment of debt of others. It must have (1) sufÏcient capital and assets required
under the Insurance Code and pertinent regulations issued by the Commission, and
(2) a certificate of authority to operate issued by the Insurance Commission which
should be renewed every year.

UBERRIMAE FIDES CONTRACT - The contract of insurance is one of perfect good

faith not for the insured alone, but equally so for the insurer. It requires the parties to
the contract to disclose conditions affecting the risk of which he is aware, or material
fact, which the applicant knows, and those, which he ought to know.

COVER NOTE - A concise and temporary written contract issued by the through its
duly authorized agent embodying the principal terms of an expected policy of
insurance. It is a contract for temporary insurance for a reasonable time until the
policy or policies can be written or issued by the insurer.

RULES GOVERNING COVER NOTES:

1. The cover note shall be issued or renewed only upon proper approval of the
Insurance Commission;

2. The cover note shall be valid and binding not more than sixty (60) days from the
date of its issuance;

3. No separate premium is required for the cover note; The policy should be issued
within sixty (60) days after the issuance of the cover note;

4. The sixty (60) day period may be extended upon written approval or the Insurance
Commission; and

5. The written approval of the Insurance Commission is dispensed with upon the
certification of the president, vice-president or general manager of the insurer that
the risk involved, the values of such risks and premium therefore have not as yet
been determined or established and the extension or renewal is not contrary to or is
not for the purpose of violating the Insurance Code or any rule.

ELEMENTS OF AN INSURANCE CONTRACT:

Aside from the essential requisites of an ordinary contract such as consent,

subject-matter and consideration, an insurance contract must have the following
elements:

1. The insured must possess an interest of some kind susceptible of pecuniary

estimation, known as insurable interest;

2. The insured is for a risk of loss through the destruction or impairment of that
interest by the happening of designated perils;
3. The insurer assumes the risk of loss;

4. Such assumption is part of a general scheme to distribute actual losses among a

large group of persons bearing somewhat similar risks;

5. As consideration for the insurer’s promise, the insured makes a ratable

contribution called premium, to -a general insurance fund.

CHARACTERISTICS AND NATURE OF CONTRACT

1. Consensual it is perfected by the meeting of the minds of the parties.

2. Voluntary the parties may incorporate such terms and conditions as they may
deem convenient.

3. Aleatory it depends upon some contingent event.

4. Unilateral loss. imposes legal duties only on the insurer who promises to
indemnify in case of

5. Conditional It is subject to conditions the principal one of which is the happening of

the event insured against.

6. Contract of indemnity Except life and accident insurance, a contract of insurance

is a contract of indemnity whereby the insurer promises to make good only the loss
of the insured.

7. Personal - Each party having in view the character, credit and conduct of the
other.

8. Property - Since insurance is a contract, it is property in legal contemplation.

9. Risk distributing device – Insurance serves to distribute the risk of economic loss
among asmany as possible of those who are subject to the same kind of loss.

10. Onerous – there is a valuable consideration called the premium

CLASSES OF INSURANCE

TYPES OF INSURANCE CONTRACTS:

1. Life Insurance
a. Individual Life – Insurance on human lives and insurance appertaining thereto or
connected therewith;

b. Group Life – A blanket policy covering a number of individuals.

c. Industrial Life – A form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in any policy is not
more than five hundred times that of the current statutory minimum daily wage in the
City of Manila and if the words “industrial” policy are printed upon the policy as part
of the descriptive matter.

2. Non‐Life Insurance

a. Marine
b. Fire
c. Casualty

3. Contracts of suretyship or bonding. (De Leon, The Insurance Code Annotated,

2006)

Note:

1. Health and accident insurance are either covered under life (Sec. 180) or casualty
insurance. (Sec. 174).

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

MARINE INSURANCE ‐ Insurance against risks connected with navigation, to which

a ship, cargo, freightage, profits or other insurable interest in movable property, may
be exposed during a certain voyage or fixed period of time.

FIRE INSURANCE ‐ It is a contract of indemnity by which the insurer, for a

consideration, agrees to indemnify the insured against loss of or damage by fire,
lightning, windstorm, tornado or earthquake and other allied risks, when such risks
are covered by extension to fire insurance policies or under separate policies.

CASUALTY INSURANCE ‐ It is that which covers loss or liability arising from

accident or mishap, excluding those falling under types of insurance as fire or
marine.

Q: What are the two divisions of casualty insurance?

1. Accident or health insurance – Insurance against specified perils which may
affect the person and/or property of the insured. E.g. personal accident, robbery/theft
insurance.

2. Third party liability insurance – Insurance against specified perils which may
give rise to liability on the part of the insured of claims for injuries or damage to
property of others.

VARIABLE CONTRACTS – Any policy or contract on either a group or individual

basis issued by an insurance company providing for benefits or other contractual
payments or values thereunder to vary so as to reflect investment results of any
segregated portfolio of investment.

INSURABLE INTEREST

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

connected, so situated, so circumstanced, so related, that by the preservation of the
same he shall derive pecuniary benefit, and by its destruction he shall suffer
pecuniary loss, damage or prejudice.

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

a. of himself, of his spouse and of his children;

b. of any person on whom he depends wholly or in part for education or support;

c. of any person under a legal obligation to him to pay money or respecting property
or services, of which death or illness might delay or prevent performance; and

d. of any person upon whose life any estate or interest vested in him depends. (Sec.
10)

When it should exist: When the insurance takes effect; not thereafter or when the
loss occurs.

AMOUNT

GENERAL RULE: There is no limit in the amount the insured can insure his life.

EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of

his debtor, the limit of insurable interest is equal to the amount of the debt.

PERFECTION OF THE CONTRACT OF INSURANCE

 ‐ An insurance contract is a consensual contract and is therefore perfected the
moment there is a meeting of minds with respect to the object and the cause or
consideration.

‐ What is being followed in insurance contracts is what is known as the “cognition

theory”. Thus, “an acceptance made by letter shall not bind the person making the
offer except from the time it came to his knowledge”.

BINDING RECEIPT ‐ A mere acknowledgment on behalf of the company that its

branch office had received from the applicant the insurance premium and had
accepted the application subject to processing by the head office.

COVER NOTE (AD INTERIM) ‐ A concise and temporary written contract issued to
the insurer through its duly authorized agent embodying the principal terms of an
expected policy of insurance.
RIDERS ‐ Printed stipulations usually attached to the policy because they constitute
additional stipulations between the parties.

CLAUSES ‐ An agreement between the insurer and the insured on certain matter
relating to the liability of the insurer in case of loss.

ENDORSEMENTS ‐ Any provision added to the contract altering its scope or

application.

RESCISSION OF INSURANCE CONTRACTS

1. Concealment - a neglect to communicate that which a party knows and ought to

communicate.

What are the requisites in concealment?

1. A party knows a fact which he neglects to communicate or disclose to the
other party 2. Such party concealing is duty bound to disclose such fact to the
other
3. Such party concealing makes no warranty as to the fact concealed
4. The other party has no means of ascertaining the fact concealed
5. The fact must be material

2. Misrepresentation/ omission ‐ An oral or written statement of a fact or condition

affecting the risk made by the insured to the insurance company, tending to induce
the insurer to assume the risk.

What are the kinds of representation?

1. Oral or written; (Sec. 36)
2. Affirmative; (Sec. 39) - Any allegation as to the existence or non- existence of a
fact when the contract begins.
3. Promissory. (Sec. 42) - Any promise to be fulfilled after the contract has come
into existence or any statement concerning what is to happen during the
existence of the insurance

3. Breach of warranties ‐ Statements or promises by the insured set forth in the

policy itself or incorporated in it by proper reference, the untruth or non-fulfillment of
which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment render the policy voidable by the
insurer.

CLAIMS SETTLEMENT

‐ is the indemnification of the suffered by the insured. The claimant may be the
insured or reinsured, the insurer who is entitled to subrogation, or a third party who
has a claim against the insured.
‐ The indemnification of the loss of the insured.

SUBROGATION

‐ It is a process of legal substitution where the insurer steps into the shoes of the
insured and he avails of the latter’s rights against the wrongdoer at the time of loss.

What are the purposes of subrogation?

1. To make the person who caused the loss legally responsible for it

2. To prevent the insured from receiving double recovery from the wrongdoer and the
insurer

3. To prevent the tortfeasors from being free from liability and is thus founded on
consideration of public policy.

What are the rules on subrogation?

1. Applicable only to property insurance – the value of human life is regarded as

unlimited and therefore, no recovery from a third party can be deemed adequate to
compensate the insured’s beneficiary.

2. The right of insurer against a third party is limited to the amount recoverable from
latter by the insured.

What are the instances where the right of subrogation does not apply?
1. Where the insured by his own act releases the wrongdoer or third party liable for
loss or damage from liability

2. The insurer loses his rights against the wrongdoer since the insurer can only be
subrogated to only such rights as the insured may have

3. Where the insurer pays the insured the value of the loss without notifying the
carrier who has in good faith settled the insured claim for loss.

4. Where the insurer pays the insured for a loss or risk not covered by the policy

5. Life insurance

6. For recovery of loss in excess of insurance coverage