INSURANCE

CONTRACT
 CONCEPT OF INSURANCE

Contract of Insurance
It is an agreement whereby one undertakes
for a consideration to indemnify another against
loss, damage or liability arising from an unknown
or contingent event.

To be binding from the date of the

application, must have been completed contract.

Note: COC
 CONCEPT OF INSURANCE

Q: In return for the 20 years of faithful

service of X as a house helper to Y, the
latter promised to pay P100,000 to X’s
heirs if he (X) dies in an accident by fire. X
agreed. Is this an insurance contract?
 CONCEPT OF INSURANCE

Parties of Insurance Contract:

1. Insurer – party who assumes or accepts the
risk of loss and undertakes for a consideration
to indemnify the insured on the happening of a
specified contingency or event.
2. Insured – person in whose favor the contract is
operative and who is indemnified against, or is
to receive a certain sum upon the happening of
a specified contingency or event.
 CONCEPT OF INSURANCE

Parties of Insurance Contract:

3. Assured/Beneficiary – a person designated
by the policy terms to receive the insurance
proceeds. He may be the insured or a third
party in the contract for whose benefit the
policy is issued and to whom the loss is
payable.
 CONCEPT OF INSURANCE

Q: May a member of the New People’s Army,

be insured with a company licensed to do
business under the insurance code of the
Philippines? Why or Why not?
 CONCEPT OF INSURANCE

Void stipulations in an insurance contract:

1. For the payment of loss whether the
person insured has or has no interest in the
property insured; or
2. That the policy shall be received as a proof
of such interest; and
3. Every policy executed by way of gaming or
wagering.
 ELEMENTS OF INSURANCE CONTRACT

The following are the elements of the Insurance

Contract: (SPEAR)
1. Scheme to distribute loss – such assumption of
risk is part of a general scheme to distribute actual
losses among a large group or substantial number
of persons bearing a similar risk;
2. Payment of premium – as consideration for the
insurer’s promise, the insured makes a ratable
contribution called “premium” to a general insurance
fund;
 ELEMENTS OF INSURANCE CONTRACT

The following are the elements of the Insurance

Contract: (SPEAR)
3. Existence of Insurable Interest – the insured
possesses an interest of some kind, susceptible of
pecuniary estimation known as “insurable interest”;
4. Assumption of Risk – the insurer assume the risk
of loss for consideration;
 ELEMENTS OF INSURANCE CONTRACT

The following are the elements of the Insurance

Contract: (SPEAR)
5. Risk of Loss – the insured is subject to a risk of
loss through the destruction or impairment of that
interest by the happening of the designated peril.
 ELEMENTS OF INSURANCE CONTRACT

Q: BD has a bank deposit Five million pesos. Since the

limit of the insurance coverage of the PDIC is only 1/10
of BD’s deposit, he would like some protection for the
excess by taking out insurance against all risk or
contingencies of loss arising from any unsound or
unsafe banking practices, including unforeseen
adverse effects of the continuing crisis involving the
banking and financial sector in the Asian region. Does
BD have an insurable interest within the meaning of
the Insurance Code of the Philippines?
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT

The following are the characteristics and nature of an

insurance contract:
1. Consensual – it is perfected by the meeting of the
minds of the parties as to the object, cause, and
consideration of the insurance contract. The
application for insurance should be accepted.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
The following are the characteristics and nature of an insurance
contract:
2. Voluntary
GR: The parties may incorporate such terms and conditions as they
may deem convenient, provided they do not contravene any provision of
law and are not opposed to public policy, law, morals, good customs, or
public order.
Exceptions: Insurance contracts that may be required by law, such as:
a. For motor vehicles;
b. As a condition granting a license to conduct business or calling
affecting public safety or welfare;
c. For employees; or
d. Social insurance for members of the GSIS and for employees of the
private sector covered by the SSS.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
The following are the characteristics and nature of an insurance
contract:
3. Aleatory – the liability of the insurer depends upon some
contingent event, such as the happening of an uncertain
future event. Thus, it is not a contract of chance. In an
insurance contract, each party takes a risk.
a. For the insurer – risk of having to pay the indemnity if the
contingent event happens.
b. For the insured - the risk of paying the premium without
receiving anything if the contingent event does not happen
except protection, which in itself is a valuable consideration.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
The following are the characteristics and nature of an insurance
contract:
4. Unilateral – It imposes legal duties only on the insurer who
promises to indemnify the insured. It is executed as to the
insured after payment of the premium, and executory on the
part of the insurer in the sense that it is not executed until
payment for a loss.
5. Conditional – It is subject to conditions, the principal one,
which is the happening of the event insured.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
The following are the characteristics and nature of an insurance
contract:
6. Contract of Indemnity – recovery is commensurate with the
amount of the loss suffered.
GR: The insurer promises to make good only the loss incurred.
Exception: The principle is not applicable to life and accident
insurance where the result is death because life is not capable of
pecuniary estimation.
Note: The only situation where the principle of indemnity is
applicable to life insurance is when the interest of a person
insured is capable of exact pecuniary measurement.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
The following are the characteristics and nature of an insurance
contract:
7. Personal – it is personal between the insurer and the insured.
Each party has in view the character, credit, and conduct of
the other.
8. It is a Contract of Adhesion.
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT

Q: An employee earns P20,000 a month. Over a

10-year period, he will receive P2,400,000. He
obtains a 10-year life insurance policy for
P5,000,000. When the employee dies, his
beneficiary makes a claim on the policy, but the
insurer refuses to pay the full amount; instead, it
offers to pay the amount that the employee
would have earned had he not died. Is the
insurer correct? Why or why not?
 CHARACTERISTICS AND NATURE OF
INSURANCE CONTRACT
Q: In the fire insurance policy executed by A, the
insured, and XYZ Insurance Inc., the insurer, there is
a warranty that A will not store in the warehouse; the
subject matter of the fire insurance policy is oil
having a flash point of below 300 Fahrenheit. A
stored 10 galloons of gasoline in the warehouse.
Unfortunately, the warehouse was razed by fire.
However, XYZ Insurance Inc. refuses to pay the
insurance proceeds, claiming that A violates the
warranty by storing ten gallons of gasoline in the
warehouse. Is XYZ Insurance Inc. correct? Why
or why not?
 CLASSES OF INSURANCE CONTRACT

The following are the classes of Insurance Contracts:

1. Marine;
2. Fire;
3. Casualty;
4. Suretyship;
5. Life;
6. Microinsurance;
7. Compulsory motor vehicle liability insurance; and
8. Compulsory insurance coverage for agency-hired
workers.
 MARINE INSURANCE
It includes:
1. Loss of or damage to:
a. Vessels, cargo, freightage, profits, and all kinds of
property and interests therein, in connection with
any and all risks or perils of navigation;
b. Person or property appertaining to a marine, inland
marine, transit or transportation insurance;
c. Precious stones, jewels, jewelry, precious metals,
whether in the course of transportation or
otherwise; and
d. Instrumentalities of transportation and
communication, excluding buildings, aids to
navigation and transportation, and appurtenant
facilities for the control of waterways.
 MARINE INSURANCE
It includes:
2. Marine protection and indemnity insurance
against legal liability of the insured for loss,
damage, or expense incident to ownership,
operation, chartering, maintenance, use,
repair, or construction of any vessel, craft,
or instrumentality in use of ocean or inland
waterways, including liability of the insured
for personal injury, illness or death or for
loss of or damage to the property of
another person.
 MARINE INSURANCE
TWO KINDS OF RISKS:
1. Peril of the sea
- It covers casualties due to unusual
violence or extraordinary causes connected
with navigation.
- It covers losses which cannot be
guarded against by prudence and ordinary
exertion of human skill.
 MARINE INSURANCE
TWO KINDS OF RISKS:
2. Peril of the Ship
- It covers losses which, in the ordinary
course of events, result from the natural and
inevitable action of the sea, from the ordinary
wear and tear of the ship.
- It covers losses that result from the
negligent failure of the ship’s owner to provide the
vessel with proper equipment to convey the cargo
under ordinary conditions, and can this be
guarded against by ordinary exertion of human
skill.
 MARINE INSURANCE
TWO KINDS OF RISKS:

Note: The insurer undertakes to insure against

PERILS OF THE SEA and SIMILAR PERILS,
not against the PERILS OF THE SHIP.
 MARINE INSURANCE
Rule on ALL RISKS POLICY:
A marine insurance policy providing that
the insurance was to be “against all risks”
must be construed as creating special
insurance and extending to other risks other
than are usually contemplated, and covers all
losses, except such as may arise from the
fraud of the insured.
 FIRE INSURANCE
Shall include insurance against loss by:
1. Fire, lightning, windstorm, tornado, or
earthquake; and
2. Other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies.
 FIRE INSURANCE
Effect of alteration in use or condition of the
subject property from that to which it is limited
by policy:
1. Entitles an insurer to rescind a contract of fire
insurance if such alteration:
a. Increases the risks;
b. Was made without the consent of the
insurer, and
c. Was made through the means within the
control of the insured.
 FIRE INSURANCE
Effect of alteration in use or condition of the
subject property from that to which it is limited
by policy:
2. Does not affect a contract of fire insurance if
the alteration does not increase the risk.
 CASUALTY INSURANCE
CONCEPT:
It is an insurance covering loss or liability
arising from accident or mishap, EXCLUDING
certain types of loss which by law or custom are
considered as falling exclusively within the scope
of other types of insurance such as fire or
marine.
 CASUALTY INSURANCE
COVERAGE:
1. Personal accident insurance;
2. Public utility insurance;
3. Plate glass insurance;
4. Employer’s liability and workmen’s insurance;
5. Motor vehicle liability insurance;
6. Burglary and theft insurance;
7. Health insurance; and
8. Other substantially similar kinds of insurance.
 CASUALTY INSURANCE
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; and
2. Third-party liability insurance – Insurance
against specified perils that may give rise to
liability on the part of the insured for claims
for injuries or damage to property of others.
 SURETYSHIP
CONCEPT:
It is an agreement 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.”
 SURETYSHIP
NATURE OF LIABILITY OF SURETY:
1. Solidary – joint and several with the obligor;
2. Limited or Fixed – limited to the amount of the
bond;
3. Contractual – It is determined strictly by the
terms of the contract of suretyship in relation
to the principal contract between the obligor
and the obligee.
 SURETYSHIP

Types of Surety Bonds:

1. Contract bonds – These are connected
with construction and supply contracts.
a. Performance bond – covers the
faithful performance of the contract;
and
b. Payment bond – covers the payment
of laborers and material men.
 SURETYSHIP
Types of Surety Bonds:
2. Fidelity bonds – They pay an employer for
loss growing out of a dishonest act of his
employee.
a. Industrial bond – required by private
employers to cover loss through
dishonesty of employees; and
b. Public official bond – required of public
officers for the faithful performance of
their duties and as a condition of
entering upon the duties of their offices.
 SURETYSHIP
Types of Surety Bonds:
3. Judicial bonds – required in connection with
judicial proceedings.
 SURETYSHIP
Rules of payment of premiums in suretyship:
1. The premium becomes debt as soon as the
contract of suretyship or bond is perfected
and delivered to the obligor;
2. The contract of suretyship or bonding shall
not be valid and binding unless and until the
premium therefor has been paid;
3. Where the obligee has accepted the bond, it
shall be valid and enforceable
notwithstanding that the premium has not
been paid;
 SURETYSHIP
Rules of payment of premiums in suretyship:
4. If the contract of suretyship or bond is not
accepted by, or filed with the obligee, the
surety shall collect only a reasonable amount;
5. If the non-acceptance of the bond be due to
the fault or negligence of the surety, no
service fee, stamps, or taxes imposed shall be
collected by the surety; and
6. In the case of a continuing bond, the obligor
shall pay the subsequent annual premium as it
falls due until the contract is canceled.
 LIFE INSURANCE
CONCEPT:
It is insurance on human lives and
insurance pertaining thereto or connected
therewith.
It may be made payable on the death of the
person, or on his surviving a specified period, or
otherwise contingently on the continuance or
cessation of life.
It includes every contract or pledge for the
payment of endowments or annuities.
 LIFE INSURANCE
Kinds of Life Insurance Policies:
1. Group Life – essentially a single insurance
contract that provides coverage for many
individuals.
2. Ordinary life, general life, or old-line policy –
insured is required to pay certain fixed
premium annually or at more frequent
intervals throughout his entire life and the
beneficiary is entitled to receive payment
under the policy only after the death of the
insured.
 LIFE INSURANCE
Kinds of Life Insurance Policies:
3. Limited Payment – The insured pays a
premium for a limited period. If he dies within
the period, his beneficiary is paid; if he
outlives the period, he does not get anything.
4. Industrial life – entitles the insured to pay
premiums weekly, or where premiums are
payable monthly or oftener.
 LIFE INSURANCE
Kinds of Life Insurance Policies:
5. Term insurance – The insured pays the
premium only once, and he is insured for a
specified period. If he dies within the period,
his beneficiaries benefit. If he outlives the
period, no person benefits from the insurance.
6. Endowment – The insured pays a premium for
a specified period. If he outlives the period,
the face value of the policy is paid to him; if
not, his beneficiary receives the benefit.
 LIFE INSURANCE
Kinds of Life Insurance Policies:
7. Contract of Life Annuity – It is a contract to
pay the insured, or a named person, a sum or
sums periodically during life or a certain
period.
 LIFE INSURANCE
Liability of the insurer in case of suicide:
The insurer shall be liable in case of suicide by the
insured if:
1. The suicide is committed after the policy has been in
force for a period of 2 years from the date of its issue
or of its last reinstatement.
2. The suicide is committed within a shorter period as
provided in the policy.
3. The suicide is committed in the state of insanity
regardless of the date of commission.
Note: Any stipulation extending the term 2-year period is
null and void.
 MICROINSURANCE
CONCEPT:
It is a financial product or service that meets the
risk protection needs of the poor where:
1. The amount of contributions, premiums, fees, or
charges, computed on a daily basis, does not exceed
7.5% of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
2. The maximum sum of guaranteed benefits is not more
than 1,000 times the current daily minimum wage rate
for nonagricultural workers in Metro Manila.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
CONCEPT:
It is a protection coverage that will answer for legal
liability for losses and damages for bodily injuries or
property damage that may be sustained by another
arising from the use and operation of a motor vehicle by
its owner.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
PURPOSE:
To give immediate financial assistance to victims
of motor vehicle accidents and/or their dependents,
especially if they are poor regardless of financial
capability of motor vehicle owners or operators
responsible for the accident sustained.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
Persons required to maintain a compulsory motor vehicle
liability insurance policy to operate motor vehicle/s in
public highways:
1. Motor Vehicle Owner (MVO); and
2. Land Transportation Operator (LTO).
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
Scope of coverage required for compulsory motor
vehicle liability insurance:
1. For MVOs, the coverage must be comprehensive
against third-party liability for death or bodily injuries.
If the private motor vehicle is being used to transport
passengers for compensation, the coverage shall
include passenger liability.
2. For LTOs, coverage must be comprehensive against
both passenger and third-party liabilities for death or
bodily injuries.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
Substitutes for CMVLI:
Instead of CMVLI policy, MVOs and LTOs may either:
1. Post a surety bond with the insurance commissioner
who shall be made the obligee or creditor in the bond
in such amount or amounts required as limits of
indemnity to answer for the same losses sought to be
covered by CMLVI policy; or
2. Make a cash deposit with the Insurance commission
in such amount or amounts required as limits of
indemnity for the same purpose.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
NO FAULT INDEMNITY CLAUSE
It is a clause where the insurer is required to pay a
third party injured or killed in an accident without the
necessity of proving the fault or negligence on the part of
the insured. There is a stipulated maximum amount to be
recovered.
 COMPULSORY MOTOR VEHICL LIABILITY
INSURANCE
NO FAULT INDEMNITY CLAUSE
It is a clause where the insurer is required to pay a
third party injured or killed in an accident without the
necessity of proving the fault or negligence on the part of
the insured. There is a stipulated maximum amount to be
recovered.
 COMPULSORY INSURANCE COVERAGE
FOR AGENCY-HIRED WORKERS
CONCEPT:
The agency-hired overseas filipino workers (OFW)
compulsory insurance or the compulsory coverage for
agency-hired migrant workers is an insurance
mechanism made available by the law to provide
insurance protection for the OFWs.
Note: Each migrant worker deployed by a recruitment or
manning agency shall be covered by a compulsory
insurance policy which shall be secured at no cost to the
worker.
 COMPULSORY INSURANCE COVERAGE
FOR AGENCY-HIRED WORKERS
POLICY COVERAGE:
1. Accidental death;
2. Natural death;
3. Permanent total disablement;
4. Repatriation cost;
5. Subsistence allowance;
6. Money claims;
7. Compassionate visit;
8. Medical evacuation; and
9. Medical repatriation.
 COMPULSORY INSURANCE COVERAGE
FOR AGENCY-HIRED WORKERS
OPTIONAL COVERAGE:
For migrant workers classified as rehires, name
hires, or direct hires, they may opt to be covered by the
insurance coverage, requesting their foreign employers
to pay for the cost of the insurance coverage, or they
may pay for the premium themselves.
 CLASSES OF INSURANCE

Q: Lawrence, a boxer, is a holder of an insurance policy

that states that in case of the death of Lawrence caused
by boxing matches, his father will receive insurance
proceeds amounting to Php 10,000,000.00.
Unfortunately, in 2023, right after his boxing match in
Brazil, he died.
1. What kind of insurance contract did Lawrence avail?
2. Can his father successfully claim the insurance
proceeds from the insurer?
 CLASSES OF INSURANCE

Q: While driving his car along Session Road, Cesar

sideswiped Roberto, causing injuries to the latter,
Roberto sued Cesar and the third-party liability insurer
for damages and/or insurance proceeds. The insurer
company moved to dismiss the complaint, contending
that the liability of Cesar has not yet been determined
with finality.
1. What kind/s of Insurance Contract/s did Cesar
availed of?
2. Is the contention of the insurer correct?
 VARIABLE CONTRACTS

CONCEPT:
It is a policy or contract on either a group or on
an individual basis issued by an insurance company
providing:
1. Benefit or other contractual payments or values
thereunder to vary, so as to reflect investment
results of :
a. Any segregated portfolio of investments; or
b. A designated separate account in which
amounts received, in connection with such
contracts shall have been placed and
accounted for separately and apart from other
investments and accounts.
 VARIABLE CONTRACTS

CONCEPT:
It is a policy or contract on either a group or on
an individual basis issued by an insurance company
providing:
2. Benefits or values incidental thereto payable in
fixed or variable amounts, or both.
 VARIABLE CONTRACTS

INSURANCE COMPANY ON VARIABLE

CONTRACTS:
GR: No insurance company authorized to transact
business in the Philippines shall issue, deliver, sell, or
use any variable contract in the Philippines.
Exception: Unless and until such company shall have
satisfied the commissioner that its financial and
general condition and methods of operations,
including the issue and sale of variable contracts are
not and will not be hazardous to the public or to its
policy and contract owners.
 VARIABLE CONTRACTS

DETERMINING QUALIFICATIONS TO ISSUE VARIABLE

CONTRACTS:
In determining the qualifications of a company
requesting authority to issue, deliver, sell, or use variable
contracts, the Commissioner shall always consider the
following:
1. The history, financial and general condition of the
company: Provided, That such company, if a foreign
company, must have deposited with the Commissioner
for the benefit and security of its variable contract
owners in the Philippines, securities satisfactory to the
Commissioner consisting of bonds of the Government
of the Philippines or its instrumentalities with an actual
market value of Two million pesos (P2,000,000.00);
 VARIABLE CONTRACTS

DETERMINING QUALIFICATIONS TO ISSUE

VARIABLE CONTRACTS:
In determining the qualifications of a company
requesting authority to issue, deliver, sell, or use
variable contracts, the Commissioner shall always
consider the following:
2. The character, responsibility and fitness of the
officers and directors of the company; and

3. The law and regulation under which the company is

authorized in the state of domicile to issue such
contracts.
 INSURABLE INTEREST

CONCEPT:
It is that interest which a person is
deemed to have in the subject matter insured,
where he has a relation or connection with or
concern in it, such that the person will derive
pecuniary benefit or advantage from the
preservation of the subject matter insured and
will suffer pecuniary loss or damage from the
destruction, termination, or injury by the
happening of the event insured against.
Note: Mere hope or expectancy is not insurable.
 INSURABLE INTEREST

INSURABLE INTEREST IN LIFE VS.

PROPERTY
LIFE PROPERTY
AS TO EXTENT
GR: Every person has an unlimited Limited to the actual value of the
insurable interest in his own life. property.
XPN: Where life insurance is taken
out by a creditor on the life of the
debtor, insurable interest is limited
to the amount of debt.
 INSURABLE INTEREST
LIFE PROPERTY
WHEN MUST INSURABLE INTEREST EXIST
Must exist at the time the policy takes effect and GR: Must exist twice, both at the time the policy
need not exist thereafter. takes effect and the time of loss, but need not
exist in the period between.
XPN:
1. A change in interest in a thing insured after
the occurrence of an injury that results in a
loss does not affect the right of the insured to
indemnity for the loss.
2. A change of interest in one or more several
distinct things, separately insured by one
policy, does not avoid the insurance as to the
others.
INSURABLE INTEREST
LIFE PROPERTY
WHEN MUST INSURABLE INTEREST EXIST
XPN:
3. A change of interest, by will or succession,
on the death of the insured does not avoid
insurance, and his interest in the insurance
passes to the person taking his interest in
the thing insured.
4. A transfer of interest by one of several
partners, joint owners, or owners in
common, who are jointly insured, to the
others, does not avoid an insurance even
though it has been agreed that the
insurance shall cease upon an alienation of
the thing insured.
INSURABLE INTEREST
LIFE PROPERTY
WHEN MUST INSURABLE INTEREST EXIST
XPN:
5. 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
LIFE PROPERTY
AS TO THE BENEFICIARY’S INTEREST
GR: The beneficiary need not have insurable The beneficiary must have insurable interest
interest over the life of the insured if the insured over the things insured.
himself secured the policy.
Note: Insurable interest is an indispensable
XPN: If the life insurance was obtained by the requirement.
beneficiary, the latter must have insurable
interest over the life of the insured.
1. His/her spouses or children.
2. Any person on whom he/she depends
wholly or part for education or support, or in
whom he/she has pecuniary interest.
3. Of any person under a legal obligation to
him for the payment of money or property
or services.
4. Any person upon whose life any estate or
interest vested in him depends.
 INSURABLE INTEREST

PERSONS PROHIBITED FROM BEING

DESIGNATED AS BENEFICIARIES:
1. Those made between persons who were
guilty of adultery or concubinage at the time
of donation.
2. Those made between persons found guilty
of the same criminal offense, in
consideration thereof.
3. Those made to a public officer or his wife,
descendants or ascendants by reason of his
office.
 INSURABLE INTEREST

PERSONS PROHIBITED FROM BEING

DESIGNATED AS BENEFICIARIES:
Consequences:
The designation shall be VOID but the
policy shall be binding. The estate will get the
proceeds.
 INSURABLE INTEREST
Q: On January 4, 1983, Mr. P joined Alpha Corp. (Alpha)
as President of the company. Alpha took out a life
insurance policy on the life of Mr. P with Mutual
Insurance Co., designating Alpha as the beneficiary.
Alpha also carried fire insurance with Beta Insurance
Co. on a house owned by it, but temporary occupied by
Mr. P again with Alpha as beneficiary.
On September 1, 1983, Mr. P resigned from Alpha and
purchased the company house he had been occupying.
A few days later, a fire occurred resulting in the death
of Mr. P and the destruction of the house.
What are the rights of Alpha against Mutual Life
Insurance on the life insurance policy?
 INSURABLE INTEREST

Q: Blanco took out a P1,000,000 life insurance

policy naming his girlfriend and creditor,
Montenegro, as his beneficiary. When Blanco
died, his outstanding loan obligation to
Montenegro was only P50,000. Blanco’s
executor contended that only P50,000 out of
the insurance proceeds should be paid to
Montenegro and the balance of P950,000
should be paid to Blanco’s estate.
Is the executor correct?
 INSURABLE INTEREST
Q:A owns a house valued at P5,000,000 which he had insured against fire for
P10,000,000. He obtained a loan from B in the amount of P1,000,000, and to
secure payment thereof, he executed a deed of mortgage on the house, but
without assigning the insurance policy to the latter. For A’s failure to pay the loan
upon maturity, B initiated foreclosure proceedings and in the ensuing public sale,
the house was sold by the sheriff to B as highest bidder. Immediately upon
issuance of the sheriff’s certificate of sale in his favor, B insured the house
against fire for P12,000,000 with another insurance company. In order to redeem
the house, A borrowed P1,000,000 from C and, as a security device, he assigned
the insured policy of P10,000,000 to C. However, before A could redeem the
property, the house was accidentally and totally burned.
Does A, B, or C have any insurable interest in the house? May A, B, and C
recover under the policies? If so, how much?
 DOUBLE INSURANCE

It exists where the same person is insured

by several insurers separately in respect to the
same subject and interest.
Requisites:
1. Subject matter is the same;
2. Two or more insurers insuring separately;
3. Risk or peril insured against is the same;
4. Interest insured is the same;
5. Person insured is the same.
 DOUBLE INSURANCE

It is not contrary to law and hence, in case

of double insurance, the insurers may still be
made liable up to the extent of the value of the
thing insured but not to exceed the amount of
the policies issued.
Note: A provision in the policy that prohibits
double insurance is valid. However, in the
absence of such prohibition, double insurance is
allowed.
 DOUBLE INSURANCE

NATURE OF THE LIABILITY OF INSURERS:

In double insurance, the insurers are
considered as co-insurers. Each one is bound
to contribute ratably to the loss in proportion to
the amount for which he is liable under his
contract. This is known as the PRINCIPLE OF
CONTRIBUTION or CONTRIBUTION CLAUSE.
 OVER INSURANCE

CONCEPT:
There is over insurance whenever the
insured obtains a policy in an amount
exceeding the value of his insurable interest.
 OVER INSURANCE BY DOUBLE INSURANCE
RULES:
1. The insured, unless the policy otherwise
provides, may claim payment from the insurers
in such order as he may select, up to the
amount for which the insurers are severally
liable under their respective contracts;

2. Where the policy under which the insured

claims is a valued policy, any sum received by
him under any other policy shall be deducted
from the value of the policy without regard to
the actual value of the subject matter insured;
 OVER INSURANCE BY DOUBLE INSURANCE
RULES:
3. Where the policy under which the insured
claims is an unvalued policy, any sum received
by him under any policy shall be deducted
against the full insurable value, for any sum
received by him under any policy;

4. Where the insured receives any sum in excess

of the valuation in the case of valued policies, or
of the insurable value in the case of unvalued
policies, he must hold such sum in trust for the
insurers, according to their right of contribution
among themselves;
 OVER INSURANCE BY DOUBLE INSURANCE

RULES:

5. Each insurer is bound, as between himself

and the other insurers, to contribute ratably
to the loss in proportion to the amount for
which he is liable under his contract.
 ADDITIONAL OR OTHER INSURANCE
CLAUSE
CONCEPT:
A clause in the policy that provides that
the policy shall be void if the insured procures
additional insurance without the consent of the
insurer.
Note: Lawful clause to prevent the possibility of
perpetration of fraud.
 PERFECTION OF THE INSURANCE
CONTRACT

Policy of Insurance
It is the written instrument in which the
contract of insurance is set forth.
 PERFECTION OF THE INSURANCE
CONTRACT
FORM OF AN INSURANCE CONTRACT:
1. The policy shall be in printed form, which may contain
blank spaces to be filled in.
2. Any rider, clause, warranty, or endorsement purporting
to be part of the contract of insurance and which is
pasted or attached to said policy is not binding on the
insured unless its descriptive name is also mentioned
and written on the blank spaces provided in the policy.
3. Unless applied for by the insured or owner, any rider,
clause, warranty, or endorsement issued after the
original policy shall be countersigned by the insured or
owner.
 PERFECTION OF THE INSURANCE
CONTRACT

TYPES OF POLICY INSURANCE:

1. Open – in which the value of the thing
insured is not agreed upon, and the amount
of the insurance merely represents the
insurer’s maximum liability.
2. Valued – one which expresses on its face
an agreement that the thing insured shall
be valued at a specific sum.
 PERFECTION OF THE INSURANCE
CONTRACT

TYPES OF POLICY INSURANCE:

3. Running – one which contemplates
successive insurance and provides that the
object of the policy may be defined from
time to time, especially as to the subjects of
insurance, by addition statements or
endorsements.
 PERFECTION OF THE INSURANCE
CONTRACT

PERFECTION OF AN INSURANCE
CONTRACT:
The contract of insurance is perfected
when the assent or consent is manifested by
the meeting of the offer and the acceptance of
the thing and the cause which are to
constitute the contract.
 PERFECTION OF THE INSURANCE
CONTRACT

Q: On June 1, 2021, X mailed to Y Insurance

Co. his application for life insurance. On July
21, 2021, the insurance company accepted the
application and mailed, on the same day, its
acceptance plus the cover note. It reached X’s
residence on August 11. On August 4, 2021, X
was involved in a car accident. He died a day
later. May X’s heir recover on the insurance
policy?
 PERFECTION OF THE INSURANCE
CONTRACT

PREMIUM PAYMENT:
Premium is an agreed price for assuming
and carrying the risk – that is, the
consideration paid to an insurer for
undertaking to indemnify the insured against a
specified period.
 PERFECTION OF THE INSURANCE
CONTRACT

“CASH AND CARRY” RULE:

GR: No policy or contract of insurance issued
by an insurance company is valid and binding
unless and until the premium thereof has been
paid. Any agreement to the contrary is void.
 PERFECTION OF THE INSURANCE
CONTRACT
“CASH AND CARRY” RULE:
XPN: A policy is valid and binding even when there is non-
payment of premium:
1. When there is an agreement allowing the insured to pay
the premium in installments and partial payment has
been made at the time of loss.
2. When there is an agreement to grant the insured credit
extension for the payment of the premium and loss
occurs before the expiration of the credit term.
3. When estoppel bars the insurer from invoking non-
recovery on the policy.
4. In the case of life and industrial life policy, whenever
the grace period provision applies.
 PERFECTION OF THE INSURANCE
CONTRACT

“CASH AND CARRY” RULE:

XPN: A policy is valid and binding even when there
is non-payment of premium:
5. When there is acknowledgement in a policy of
a receipt of premium, which the law declares to
be conclusive evidence of payment, even if
there is stipulation therein that it shall not be
binding until the premium is actually paid.
6. When the public interest so requires, as
determined by the Insurance commissioner.
 PERFECTION OF THE INSURANCE
CONTRACT
Q: On September 25, 2023, Dan procured an
insurance on his life with a face value of
P5,000,000.00 from Worst Insurance Co., with his
wife Mary as sole beneficiary. On the same day,
Danny issued a post dated check dating October
15, 2023 for the full amount of the premium. On
October 1, 2023, Worst Insurance Co. issued the
policy covering Dan’s life. Dan received the policy
on the same day. On October 5, 2023, Dan met a
tragic accident and died. Immediately on the day
of the death of Dan, Mary went to claim the
insurance, but Worst Insurance Co. denied the
claim. Is the denial of the insurer correct?
 RESCISSION OF THE INSURANCE
CONTRACT

INSTANCES WHEREIN THE CONTRACT OF

INSURANCE MAY BE RESCINDED:
1. Concealment;
2. Misrepresentation/Omission; or
3. Breach of Warranties.
 RESCISSION OF THE INSURANCE
CONTRACT
CONCEALMENT
Is a neglect to communicate that which a party
knows and ought to communicate.
Requisites:
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 facts 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; and
5. The fact must be material.
 RESCISSION OF THE INSURANCE
CONTRACT

MISREPRESENTATION
It occurs when the facts fail to correspond
with its assertions or stipulations.
Requisites:
1. The insured stated an untrue fact;
2. Such fact was stated with the knowledge that it
is untrue and with intent to deceive or which he
states positively as true without knowing it to be
true and which has a tendency to mislead; and
3. Such a fact in either case is material to the risk.
 RESCISSION OF THE INSURANCE
CONTRACT

BREACH OF WARRANTIES:
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.
 RESCISSION OF THE INSURANCE
CONTRACT

Effect of Breach of Warranty:

1. Material
GR: violation of material warranty or of material
provision of a policy will entitle the other party to
rescind the contract.
XPN:
a. Loss occurs before the time of performance of
the warranty;
b. The performance becomes unlawful at the place
of the contract; or
c. Performance becomes impossible.
 RESCISSION OF THE INSURANCE
CONTRACT

Effect of Breach of Warranty:

2. Immaterial
GR: It will not avoid the policy.
XPN: When the policy expressly provides,
or declares that a violation thereof will
avoid it.
 RESCISSION OF THE INSURANCE
CONTRACT

Q: Joanna applied for non-medical life

insurance. Joanna did not inform the insurer
that one week prior to her application for
insurance, she was examined and confined at
St. Luke’s Hospital, where she was diagnosed
with lung cancer. The insured soon thereafter
died in a plane crash. Is the insurer liable,
considering that the fact concealed had no
bearing on the cause of the death of the
insured?
 CLAIMS SETTLEMENT AND SUBROGATION
NOTICE AND PROOF OF LOSS:
Loss in Insurance
The injury, damage, or liability sustained by
the insured in consequence of the happening of
one or more of the perils against which the insurer,
in consideration of the premium, has undertaken to
indemnify the insured.
 CLAIMS SETTLEMENT AND SUBROGATION
NOTICE AND PROOF OF LOSS:
Condition before the insured may recover on the
policy after the loss:
1. The insured or some person entitled to the
benefit of the insurance, without unnecessary
delay, must give written notice (NOTICE OF
LOSS) to the insurer.
2. When required by the policy, insured must
present a preliminary proof of loss which is the
best evidence he has in his power at the time.
 CLAIMS SETTLEMENT AND SUBROGATION
EFFECT OF FAILURE TO GIVE NOTICE OF
LOSS:
1. FIRE INSURANCE – Failure to give notice
defeats the right of the insured to recover.
2. OTHER TYPES OF INSURANCE – Failure to
give notice will not exonerate the insurer,
unless there is a stipulation in the policy
requiring the insured to do so.
 CLAIMS SETTLEMENT AND SUBROGATION
CLAIM SETTLEMENT:
Claim settlement is the indemnification of
that suffered by the insured. The claimant may be
the:
1. Insured/Beneficiary;
2. Reinsured or the insurer who is entitled to
subrogation; or
3. A third party who has a claim against the
insured.
 CLAIMS SETTLEMENT AND SUBROGATION
RIGHT OF SUBROGATION OF INSURER
A process of legal substitution; wherein the
insurer, after paying the amount covered by the
insurance policy, stepping into the shoes of the
insured, as it were, and availing himself of the
latter’s right that exists against the wrongdoer at
the time of the loss.
Note: This applies only to property insurance.
Q: Justin availed of life insurance for an amount
of Php 10,000,000.00 with Brat Insurance Inc. with
an annual premium of Php 20,000.00. Justin
named her only son, Derick, as his beneficiary
without informing the latter. Unfortunately, on
December 25, 2023, Justin died due to natural
death. On November 15, 2024, when Derick was
fixing the room of his father, he saw the life
insurance policy that he took from Brat Insurance
Inc. Immediately, Derick went to Brat Insurance
Inc. and asked for the insurance proceeds.
However, Brat Insurance Inc. did not give the
insurance proceeds because, according to
them, notice of loss must have been given
without unnecessary delay; otherwise, the
beneficiary cannot recover. Is Brat Insurance Inc.
correct?
Q: Christian applied for life insurance for Php
5,000,000.00. The insurance company approved
his application and issued an insurance policy
effective Nov. 6, 2023. Christian named his
children as his beneficiaries. On April 6, 2024,
Christian died of hepatoma, a liver ailment.
Consequently, the beneficiaries filed a claim.
However, the insurance deny the claim and
rescinded the insurance contract on the ground
that Christian failed to disclose in his application
two previous consultations with his doctors for
diabetes and hypertension, and that he had
been diagnosed to be suffering from hepatoma.
Was the insurance company correct?
Q: Plastic Life Insurance Corp. has been offering only
life insurance throughout its 10 years of operation. On
June 1, 2024, Plastic Life Insurance Corp. offered Cristy
fire insurance to insure her ten buildings from the risk of
fire. However, Plastic Life Insurance Corp. only offered
this fire insurance to Cristy and no one else. They
agreed that Cristy should pay Php 500,000.00
annually, and in case any of the building was lost due
to fire, Plastic Life Insurance Corp. will pay Cristy Php
10,000,000.00. Is the fire insurance between the parties
an insurance contract?