INSURANCE LAW
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. (Sec. 2, par. 2, IC)
CHARACTERISTICS OF AN INSURANCE CONTRACT
(The Insurance Code of the Philippines Annotated, Hector
de Leon, 2002 ed.)
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 – imposes legal duties only on the insurer
who promises to indemnify in case of loss.
[Link] – It is subject to conditions the
principal one of which is the happening of
the event insured against.
[Link] 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.
[Link] – each party having in view the
character, credit and conduct of the other.
• REQUISITES OF A CONTRACT OF INSURANCE (The
Insurance Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
• 1. A subject matter which the insured has an insurable
interest.
• 2. Event or peril insured against which may be any future
contingent or unknown event, past or future and a duration
for the risk thereof.
• 3. A promise to pay or indemnify in a fixed or ascertainable
amount.
• 4. A consideration known as “premium”.
• 5. Meeting of the minds of the parties.
•
• 5 CARDINAL PRINCIPLES IN INSURANCE
• 1. Insurable Interest
• 2. Principle of Utmost Good Faith
An insurance contract requires utmost good faith
(uberrimae fidei) between the parties. The applicant is
enjoined to disclose any material fact, which he knows or
ought to know.
Reason: An insurance contract is an aleatory contract.
The insurer relies on the representation of the applicant,
who is in the best position to know the state of his health.
•
• 3. Contract of Indemnity
It is the basis of all property insurance. The insured who has insurable
interest over a property is only entitled to recover the amount of actual loss
sustained and the burden is upon him to establish the amount of such loss
(Reviewer on Commercial Law, Professors Sundiang and Aquino)
Rules:
• Applies only to property insurance except when the creditor insures the life
of his debtor.
• Life insurance is not a contract of indemnity.
• Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
Most of the terms of the contract do not result from mutual negotiations
between the parties as they are prescribed by the insurer in final printed
form to which the insured may “adhere” if he chooses but which he cannot
change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
• 5. Principle of 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.
The principle of subrogation is a normal incident of
indemnity insurance as a legal effect of payment; it
inures to the insurer without any formal assignment or
any express stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow out of any
private contract. Payment to the insured makes the
insurer a subrogee in equity. (Malayan Insurance Co.,
Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
•
Purposes: (The Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
• To make the person who caused the loss legally
responsible for it.
• To prevent the insured from receiving a double recovery
from the wrongdoer and the insurer.
• To prevent tortfeasors from being free from liabilities and
is thus founded on considerations of public policy.
Rules:
• 1. Applicable only to property insurance.
• 2. The insurer can only recover from the third person
what the insured could have recovered.
• 3. There can be no subrogation in cases:
• Where the insured by his own act releases the
wrongdoer or third party liable for the loss or damage;
• Where the insurer pays the insured the value of the loss
without notifying the carrier who has in good faith settled
the insured’s claim for loss;
• Where the insurer pays the insured for a loss or risk not
covered by the policy. (Pan Malayan Insurance
Company v. CA, 184 SCRA 54)
• In life insurance
• For recovery of loss in excess of insurance coverage
•
• CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly
against the insurer, and liberally in favor of the insured.
However, if the terms are clear, there is no room for
interpretation. (Calanoc vs. Court of Appeals, 98 Phil.
79)
• TYPES OF INSURANCE CONTRACTS
• 1. Life insurance
• Individual life (Secs. 179–183, 227)
• Group life (Secs. 50, last par., 228)
• Industrial life (Secs. 229–231)
• 2. Non-life insurance
• Marine (Secs. 99–166)
• Fire (Secs. 167–173)
• Casualty (Sec. 174)
• 3. Contracts of bonding or suretyship (Secs. 175–178)
• POLICY OF INSURANCE
The written instrument in which a contract of insurance is set
forth. (Sec. 49)
Contents: (Sec. 51)
• Parties
• Amount of insurance, except in open or running policies;
• Rate of premium;
• Property or life insured;
• Interest of the insured in the property if he is not the absolute
owner;
• Risk insured against; and
• Duration of the insurance.
Persons entitled to recover on the policy (sec. 53):
The insurance proceeds shall be applied exclusively to
the proper interest of the person in whose name or to
whose benefit it is made, unless otherwise specified in
the policy.
• DOUBLE INSURANCE – exists where same person is
insured by several insurers separately in respect to
same subject and interest. (Sec. 93)
Requisites:
• Person insured is the same;
• Two or more insurers insuring separately;
• Subject matter is the same;
• Interest insured is also the same;
• Risk or peril insured against is likewise the same.
• Effects: Where double insurance is
allowed, but over insurance results: (Sec.
94)
– 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;
– Where the policy under which the insured claims is a
valued policy, the insured must give credit as against the
valuation for any sum received by him under any other
policy without regard to the actual value of the subject
matter insured;
– Where the policy under which the insured claims is an
unvalued policy he must give credit, as against the full
insurable value, for any sum received by him under any
policy;
– 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;
– 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.
•
• REQUISITES FOR RECOVERY UPON INSURANCE
• 1. The insured must have insurable interest in the
subject matter;
• 2. That interest is covered by the policy;
• 3. There must be a loss; and
• 4. The loss must be proximately caused by the peril
insured against.
• NOTICE OF LOSS
In fire insurance In other types of
insurance
Required Not required
Failure to give notice will Failure to give notice will not
defeat the right of the exonerate the insurer,
insured to recover. unless there is a stipulation
in the policy requiring the
insured to do so.
CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS .
NON-LIFE POLICIES
LIFE POLICIES
a. Maturing upon the The proceeds shall be paid
expiration of the term – within 30 days after the receipt
The proceeds are by the insurer of proof of loss,
immediately payable to the and ascertainment of the loss
insured, unless they are or damage by agreement of
made payable in the parties or by arbitration but
installments or as annuity, not later than 90 days from
in which case, the such receipt of proof of loss
installments or annuities whether or not ascertainment
shall be paid as they is had or made.
become due.
b. Maturing at the
death of the insured,
occurring prior to the
expiration of the term
stipulated – The proceeds
are payable to the
beneficiaries within 60
days after presentation
and filing of proof of death.
In case of an unreasonable delay in the payment of
the insured’s claim by the insurer, the insured can
recover: 1) attorney’s fees; 2) expenses incurred by
reason of the unreasonable withholding; 3) interest at
double the legal interest rate fixed by the Monetary
Board; and 4) the amount of the claim. (Zenith Insurance
Corp. vs. CA, 185 SCRA 398)
• PRESCRIPTIVE PERIOD (Secs. 63 & 384)
Rules:
• 1. In the absence of an express stipulation in the policy,
it being based on a written contract, the action
prescribes in 10 years.
• 2. However the parties may validly agree on a shorter
period provided it is not less than one year from the time
the cause of action accrues.
• 3. The cause of action accrues from the rejection of the
claim of the insured and not from the time of loss.
It shall commence from the denial of the claim, not from
the resolution of the motion for reconsideration, otherwise it
can be used by the insured as a scheme or device to waste
time until the evidence which may be used against him is
destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
• 4. the written notice of claim must be filed within 6 months
from the date of the accident otherwise the claim is
deemed waived. The suit for damages either with the
proper court or with the Insurance Commissioner should be
filed within 1 year from the date of the denial of the claim by
the insurer, otherwise claimant’s right of action shall
prescribe. (Sec. 384)
• COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
(CMVLI)
A species of compulsory insurance that provides for
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
motor vehicle by its owner.
Purpose: To give immediate financial assistance to victims
of motor vehicle accidents and/or their dependents, especially
if they are poor regardless of the financial capability of motor
vehicle owners or operators responsible for the accident
sustained (Shafer v. Judge, RTC, 167 SCRA 386).
• INSURANCE COMMISSIONER
Main agency charged with the enforcement of the
Insurance Code and other related laws.
Functions:
• 1. ADJUDICATORY/QUASI-JUDICIAL
• a. Exclusive original jurisdiction – Any dispute in the
enforcement of any policy issued pursuant to Chapter VI
(CMVLI). (Sec. 385, par. 2)
• b. Concurrent original jurisdiction (with the RTC) –
Where the maximum amount involved in any single claim
is P100,000 (Sec. 416), except in case of maritime
insurance which is within the exclusive jurisdiction of the
RTC. (BP 129; admiralty & maritime jurisdiction)
Where the amount exceeds P100,000, the RTC has
jurisdiction.
The Insurance Commissioner has no jurisdiction to
decide the legality of a contract of agency entered into
between an insurance company and its agent. The same
is not covered by the term “doing or transacting
insurance business” under Sec 2, ICP, neither is it
covered by Sec. 416 of the same Code which grants the
Commissioner adjudicatory powers (Philippine American
Life Insurance Co. v. Ansaldo, 234 SCRA 509).
•
• 2. ADMINISTRATIVE/REGULATORY
• a. Enforcement of insurance laws
• b. Issuance, suspension or revocation of certificate
of authority
• c. Power to examine books and records, etc.
• d. Rule-making authority
• e. Punitive
