INSURANCE NOTES

Insurance is essentially a contract by which The “principal object and purpose test”
one party (the insurer), for a consideration that  Determines:
is usually paid in money, either in a lump sum - Whether the assumption of risk and
or at different times during the continuance of indemnification of loss are the principal
the risk, promises to make a certain payment, object and purpose of the organization;
usually of money, upon the destruction or injury or
of “something” in which the other party (the - Whether they are merely incidental to
insured) has an interest [Carale, The Philippine its business.
Insurance Law (2014)].  From such determination, it concludes that:
- If these are the principal objectives, the
On August 15, 2013, RA 10607 was signed into business is that of insurance.
law. It is a restatement of the Insurance Code - But if they are merely incidental and
(PD 612), with amendments. service is the principal purpose, then
the business is not insurance.
The section numbers hereinafter generally in cases where it has happened already but the parties do
pertain to RA 10607, unless otherwise not know about it e.g., prior loss of a
indicated. ship at sea (applicable only to marine
insurance) [de Leon, The Insurance Code of
1. Contract of Insurance the Philippines Annotated (2014)].

A contract of insurance is an agreement The unknown event may be past or future.

whereby one undertakes for a consideration to Even if the proximate cause of the loss is a
indemnify another against loss, damage or fortuitous event, the insurer may still be liable if
liability arising from an unknown or contingent it is the event or peril insured against [de Leon].
event. [Sec. 2(a)]
Form
Definition There is no particular form required for a
Thus, a contract of insurance is: contract of insurance.
1. A contract of indemnity;
2. Wherein one undertakes for a The Insurance Code has no provision requiring
consideration; a particular form for the validity of an insurance
3. To indemnify another against loss, contract. In our jurisdiction, the SupremeCourt
damage, or liability; has not made a categorical ruling against the
4. Arising from an unknown or contingent validity of an oral contract of insurance
event. [Carale].

An insurance policy is different from the

contract of insurance. The policy is the formal
written instrument evidencing the contract of
insurance entered into between the insured
and the insurer. [Sec. 232]

General Rule: A past event cannot be a 2. Doing or Transacting Insurance

designated event in an insurance contract. Business
Exception: It may be a designated event only General
rule: An insurance business consists The term “doing an insurance
in undertaking, for a consideration, to business or transacting an insurance
indemnify another against loss, damage or business” includes:
liability arising from an unknown or contingent
event. 1. Making or proposing to make, as insurer,
Exception: Those not formally designated as any insurance contract;
insurance businesses but are deemed “doing 2. Making or proposing to make, as surety,
or transacting an insurance business” as listed any contract of suretyship as a vocation
in Sec. 2(b). and not as merely incidental to any other
legitimate business or activity of the surety;
INSURANCE NOTES

3. Doing any kind of business, including a d. The Property Insurance Law (RA 656, as
reinsurance business, specifically amended by PD 245)
recognized as constituting the doing of e. The Philippine Deposit Insurance Act of
an insurance business within the 1963 (RA 3591)
meaning of the Insurance Code;
4. Doing or proposing to do any business in 4. Parties to an Insurance Contract
substance equivalent to any of the Two Parties to a Contract of Insurance:
foregoing in a manner designed toevade
the provisions of the Insurance Code. [Sec. a. Insurer or the party who assumes or
2(b)] accepts the risk of loss and undertakes for
consideration to indemnify the insured or to
General rule: An insurance business consists pay a certain lump sum on the happening
in undertaking, for a consideration, to of the event or peril insured against. May
indemnify another against loss, damage or be any person, partnership, association, or
liability arising from an unknown or contingent corporation [Sec. 6]; and
event. b. Insured or the person in whose favor the
Exception: Those not formally designated as contract is operative and whose loss is the
insurance businesses but are deemed “doing occasion for the payment of the insurance
or transacting an insurance business” as listed proceeds by the insurer. [Carale]
in Sec. 2(b). May be any person except a public enemy
[Sec. 7]
The “principal object and purpose test”
 Determines: There is no definition of what a “public enemy”
- Whether the assumption of risk and is, but a definition that is generally accepted
indemnification of loss are the principal and in keeping with the nature of an insurance
object and purpose of the organization; contract is one where a person possesses the
or nationality of the state which another is at war.
- Whether they are merely incidental to [Carale]
its business.
 From such determination, it concludes that: B. ELEMENTS OF AN INSURANCE CONTRACT
- If these are the principal objectives, the
business is that of insurance. C2 R2 I M
- But if they are merely incidental and a) Cause – event or peril insured against;
service is the principal purpose, then b) Consideration – premium payments paid
the business is not insurance. by the insured
c) Risk of loss or damage being assured by
3. Governing Law the Insurer
General Rule: The Insurance Code primarily d) Risk-Distributing Scheme – distribution
governs insurance contracts. and transfer by the insurer of risk of loss,
Exception: When there is a special law which damage or liability among persons having
specifically governs (e.g., insurance contract similar risks;
under R.A. 1161 or the Social Security Act), in e) Insurable interest - the insured possesses
which case, the Insurance Code governs an interest of some kind which the event
subsidiarily. insured against may cause loss or damage
f) A Meeting of Minds of the parties upon
Matters not expressly provided for in the all the foregoing essentials.
Insurance Code and special laws are regulated
by the Civil Code.

Other special laws:

a. National Health Insurance Act of 2013 (RA
10606, amending RA 7875) 1. Cause
b. The Revised Government Service Cause refers to an event or peril insured
Insurance Act of 1997 (RA 8291) against.
c. The Social Security Act (RA 8282) 2. Consideration
INSURANCE NOTES

An insurance premium is the agreed pricefor insured;

assuming and carrying the risk. It is the i. Stipulation that the policy shall be
consideration paid to the insurer for received as proof of such interest;
undertaking to indemnify the insured against a ii. Policy executed by way of gaming or
designated peril. It is based on probability of wagering. [Sec. 25]
loss and extent of liability [43 Am. Jur. 2d326]. Note: Insurable interest is not required in
industrial life insurance [Sec. 235-237].
6. Meeting of the Minds
The two parties to a contract of insurance
whose minds need to meet regarding the
essential elements are:
a. Insurer or the party who assumes or
accepts the risk of loss and undertakes
foonsideration to indemnify the insured or
to pay a certain lump sum on the
happening of the event or peril insured
against; and
b. Insured or the person in whose favor the
3. Risk of Loss or Damage contract is operative and whose loss is the
Peril is the contingent or unknown event which occasion for the payment of the insurance
may cause a loss. Its existence creates a risk proceeds by the insurer [de Leon].
and its occurrence results in loss. The insured is not always the person whom the
The event or peril insured against must be such proceeds are paid. Such person is the
that its happening will: beneficiary [Vance].
a. Damnify or cause loss to a person; or
b. Create liability against him [Sec. 3]

4. Risk-Distributing Scheme
Insurance contracts serve to distribute the risk
of economic loss, damage or liability among as
many as possible of those who are subject to
the same kind of risk.
Scheme:
i. The payment of premiums by all will
inure to a general fund, out of which
payment will be made for anyone who
has suffered an economic loss.
ii. Hence, each member contributes to a
small degree toward compensation for
losses suffered by any member of the
group.

5. Insurable Interest
Insurable interest is the interest which the law
requires the owner of an insurance policy to
have in the person or thing insured [Carale].
In terms of the event insured against, it is the
relation between the insurer and the risk
insured, such that the occurrence of the risk will
cause substantial loss or harm of some kind to
the insured [Carale].
Under the Code, the following are void:
. Stipulation in a policy for the payment of
loss whether the person insured has or
has not any interest in the property