Insurance Contracts in the Philippines

In entering into an insurance contract, one must be able to know

the basics of an insurance contract such as what an insurance
contract is and who may be parties to such contract.
The laws which govern insurance contract in the Philippines are :

1) Republic Act No. 10607, or otherwise known as the Insurance

Code (“Insurance Code”);

2) Republic Act No. 386 or the Civil Code, in the absence of

applicable provisions in the Insurance Code; and

3) the general principles on the subject in the United States, in the

absence of applicable provisions in the Insurance Code and the
Civil Code.
 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
Parties to an Insurance Contract

Every corporation, partnership, or association, duly authorized to

transact insurance business as elsewhere provided in the Insurance
Code, may be an insurer. Anyone except a public enemy may
be insured.
The insurer is the party who agrees to indemnify another upon the
happening of specified contingency. The insured is the party to be
indemnified in case of a loss. The beneficiary is the person who
receives the benefits of an insurance policy upon its maturity.
Basics of Insurance Contracts in the Philippines

Section 3 of the Insurance Code provides what may be insured

against. Any contingent or unknown event, whether past or future,
which may indemnify a person having an insurable interest, or
create a liability against him, may be insured against.
The consent of the spouse is not necessary for the validity of an
insurance policy taken out by a married person on his or her life or
that of his or her children.

All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner,
unless otherwise provided for in the policy.
(c) Of any person under a legal obligation to him for the payment of
money, or respecting property or services, of which death or illness
might delay or prevent the performance; and

(d) Of any person upon whose life any estate or interest vested in him
depends.”
 ELEMENTS OF AN INSURANCE CONTRACT

1. The insured possesses an insurable interest susceptible of

pecuniary estimation;
2. The insured is subject to a risk of loss through the
destruction or impairment of that interest by the happening of
designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute
actual losses among a large group or substantial number of
persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (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 – imposes legal duties only on the insurer who
promises to indemnify in case of loss.
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 as many 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

1. Life insurance – dependent upon human life. a. Individual

life b. Group life c. Industrial life

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
 Laws Governing Insurance

1. New Civil Code

Article 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or
concubinage at the time of the 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 and
ascendants, by reason of his office.
Article 2011. The contract of insurance is governed by special laws. Matters
not expressly provided for in such special laws shall be regulated by this
Code.

Article 2012. Any person who is forbidden from receiving any donation
under article 739 cannot be named beneficiary of a life insurance policy by
the person who cannot make any donation to him, according to said article.
Article 2186. Every owner of a motor vehicle shall file with the proper
government office a bond executed by a government-controlled
corporation or office, to answer for damages to third persons. The amount
of the bond and other terms shall be fixed by the competent public
official.
Article 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
2. Republic Act No. 10607 (amending P.D. No. 612 as amended);
3. Executive Order No. 200 (Family Code)
4. Section 185 Code of Commerce (repealed by Act No. 1459 on Domestic
Insurance Corporations);
5. Republic Act No. 8291 (Revised Government Services Insurance Act),
Republic Act No. 8282 (Social Security Act of 1997);
6. Republic Act No. 5756, extending GSIS benefits to Barangay Secretaries and
Treasurers;
7. Executive order No. 250 (1987), rationalizing insurance benefits of local
government officials
8. Republic Act No. 3591 (PDIC Law)
9. Republic Act No. 9829 (Pre-Need Code)
The Insular Life Assurance Company, Ltd. Vs. Ebrado, G.R. No. L-44059, October 28,
1977. This is a novel question in insurance law: Can a common-law wife named as
beneficiary in the life insurance policy of a legally married man claim the proceeds
thereof in case of death of the latter?
In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality.
A beneficiary is like a donee, because from the premiums of the policy which the
insured pays out of liberality, the beneficiary will receive the proceeds or profits of
said insurance. As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot be
named as beneficiary in the life insurance policy of the person who cannot make
the donation. Under American law, a policy of life insurance is considered as a
testament and in construing it, the courts will, so far as possible treat it as a will and
determine the effect of a clause designating the beneficiary by rules under which
wins are interpreted
C. General Concept of Insurance
1. Concept of Insurance
“SEC. 2. Whenever used in this Code, the following terms shall have the
respective meanings hereinafter set forth or indicated, unless the context
otherwise requires: “
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. “A contract of suretyship shall be
deemed to be an insurance contract, within the meaning of this Code,
only if made by a surety who or which, as such, is doing an insurance
business as hereinafter provided. “
(b) The term doing an insurance business or transacting an insurance
business, within the meaning of this Code, shall include:
“(1) Making or proposing to make, as insurer, any
(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning
of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code. “In the
application of the provisions of this Code, the fact that no profit is derived from
the making of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.

(c) As used in this Code, the term Commissioner means the Insurance
Commissioner.
3. Suretyship

In suretyship, the guarantor binds himself to the creditor to fulfill the

obligation of the principal debtor solidarily. (Art. 2047, NCC) A contract of
suretyship shall be deemed to be an insurance contract, within the
meaning of this Code, only if made by a surety who or which, as such, is
doing an insurance business as hereinafter provided. (Sec.2, ICP)
4. Pre-Need Plans

"Pre-need plans" are contracts which provide for the performance of future
services of or the payment of future monetary considerations at the time
actual need, for which plan holders pay in cash or installment at stated
prices, with or without interest or insurance coverage and includes life,
pension, education, interment, and other plans which the Commissioner
may from time to time approve.”
5. Variable Contracts

“The term variable contract shall mean any policy or contract on either a
group or on an 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 investments or of 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. This contract may also provide
benefits or values incidental thereto payable in fixed or variable amounts, or
both. It shall not be deemed to be a security or securities as defined in The
Securities Act,5 as amended, or in the Investment Company Act,6 as
amended, nor subject to regulations under said Acts.”
6. Doing an Insurance Business

The term doing an insurance business or transacting an insurance business,

within the meaning of this Code, shall include:

(1) Making or proposing to make, as insurer, any insurance contract;

(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.

N.B. In the application of the provisions of the Insurance Code, the fact that
no profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received therefor,
shall not be deemed conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business.
“SEC. 403. Any society, association or corporation, without capital stock,
formed or organized not for profit but mainly for the purpose of paying sick
benefits to members, or of furnishing financial support to members while out
of employment, or of paying to relatives of deceased members of fixed or any
sum of money, irrespective of whether such aim or purpose is carried out by
means of fixed dues or assessments collected regularly from the members, or
of providing, by the issuance of certificates of insurance, payment of its
members of accident or life insurance benefits out of such fixed and regular
dues or assessments, but in no case shall include any society, association, or
corporation with such mutual benefit features and which shall be carried out
purely from voluntary contributions collected not regularly and/or no fixed
amount from whomsoever may contribute, shall be known as a mutual
benefit association within the intent of this Code.
“Any society, association, or corporation principally organized as a labor
union shall be governed by the Labor Code notwithstanding any mutual
benefit feature provisions in its charter as incident to its organization.

“In no case shall a mutual benefit association be organized and authorized

to transact business as a charitable or benevolent organization, and
whenever it has this feature as incident to its existence, the corresponding
charter provision shall be revised to conform with the provision of this
section. Mutual benefit association, already licensed to transact business as
such on the date this Code becomes effective, having charitable or
benevolent feature shall abandon such incidental purpose upon effectivity
of this Code if they desire to continue operating as such mutual benefit
associations.
D. Characteristics

1. Risk Distributing Device

Insurance serves to distribute the risk of economic loss among as
many as possible of those who are subject to the same kind of loss. An
essential characteristic of an insurance is its being synallagmatic, a highly
reciprocal contract where the rights and obligations of the parties correlate
and mutually correspond. The insurer assumes the risk of loss which an
insured might suffer in consideration of premium payments under a risk-
distributing device. Such assumption of risk is a component of general
scheme to distribute actual losses among a group of persons, bearing
similar risks, who make ratable contributions to a fund from which the
losses incurred due to exposures to the peril insured against are assured
and compensated. (UPCB General Insurance Co. Inc. v. Masagana Telemart
Inc., G.R. No. 137172, April 4, 2001)
 2. Contract of Adhesion
Case:
Rizal Surety & Insurance Company v. Court of Appeals, G.R. No. 112360, July
18, 2000 Considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was entered into
on January 12, 1981, having been constructed sometime in 1978, petitioner
should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not,
and instead, went on to provide that such fire insurance policy covers the
products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four-span building
occupied by Transworld, knowing fully well the existence of such building
adjoining and intercommunicating with the right section of the four-span
building. (continue)
After a careful study, the Court does not find any basis for disturbing what
the lower courts found and arrived at. Indeed, the stipulation as to the
coverage of the fire insurance policy under controversy has created a doubt
regarding the portions of the building insured thereby. Article 1377 of the
New Civil Code provides: "The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity"
 3. Aleatory

By an aleatory contract, one of the parties or both reciprocally bind

themselves to give or to do something in consideration of what the other
shall give or do upon the happening of an event which is uncertain, or which
is to occur at an indeterminate time.
 4. Contract of indemnity

"Section 3. Any contingent or unknown event, whether past or future, which

may damnify a person having an insurable interest, or create a liability
against him, may be insured against, subject to the provisions of this chapter.
"The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children. "All rights, title and interest in the policy of insurance taken out by
an original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner, unless
otherwise provided for in the policy. "Section 4. The preceding section does
not authorize an insurance for or against the drawing of any lottery, or for or
against any chance or ticket in a lottery drawing a prize.
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. It is settled that the terms of the policy
constitute the measure of the insurer's liability. In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
(Fortune Insurance and Surety Co. v. Court of Appeals)
(exceptions)
Exceptions:

• Life insurance (because the amount paid by the insurer can never be
equal to the value of life insured)
• Valued Policies (under which the insurer will pay the value fixed in the
policy regardless of actual cash value in case of total loss)
 5. Uberrimae Fides Contract (or uberrimae fidei)

• one of Abundant Good Faith not for the insured alone, but equally so far
the insurer. It requires the parties to the contract to disclose conditions
affecting the risk of which He ought to know.
E. Elements of Insurance (I-R-A-D-P)

I-nsurable Interest
R-isk of Loss
A-ssumption of Risk
D-istribution of Losses
P-remium
 1. Insurable Interest

The insured possesses an interest of some kind susceptible of pecuniary

estimation, known as “insurable interest.” In general (except in life
insurance policies), a person is deemed to have an insurable interest in the
subject matter insured where he has a relation or connection with or
concern in it that he will derive pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss from its destruction or injury by
the happening of the event insured against.
“SEC. 10. 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, or in whom he has a pecuniary interest;
“(c) Of any person under a legal obligation to him for the payment of
money, or respecting property or services, of which death or illness might
delay or prevent the performance; and
“(d) Of any person upon whose life any estate or interest vested in him
depends
“SEC. 11. The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in said
policy. Notwithstanding the foregoing, in the event the insured does not
change the beneficiary during his lifetime, the designation shall be
deemed irrevocable.

“SEC. 12. The interest of a beneficiary in a life insurance policy shall be

forfeited when the beneficiary is the principal, accomplice, or accessory in
willfully bringing about the death of the insured. In such a case, the share
forfeited shall pass on to the other beneficiaries, unless otherwise
disqualified. In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the policy contract is silent,
the proceeds shall be paid to the estate of the insured.
“SEC. 13. Every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured, is an insurable
interest.

“SEC. 14. An insurable interest in property may consist in:

(a) An existing interest; “
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which
the expectancy arises.
What is an insurable interest?

General Rule: A person is deemed to have an insurable interest in the

subject matter insured where he has a relation or connection with or
concern in it that he will derive pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss from its destruction or injury by
the happening of the event insured against.

Exception: The term has a somewhat broader meaning in connection with

life insurance. To have an insurable interest in the life of a person, the
expectation of benefit from the continued life of that person need not
necessarily be of pecuniary nature.
Differentiate insurable interest in life insurance and insurable interest in
property insurance.

Insurable interest in life exists when there is reasonable ground founded on

the relation of the parties, either pecuniary or contractual or by blood or
affinity, to expect some benefit or advantage from the continuance of the
life of the insured.

On the other hand, every interest in property, whether real or personal, or

any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.
What are the reasons for the requirement of an insurable interest?

• As deterrence to the insured – The requirement of an insurable interest to

support a contract of insurance is based upon considerations of public policy
which render wager policies invalid. A wager policy is obviously contrary to
public interest.

• As a measure of limit of recovery – If and to the extent that any particular

insurance contract is a contract to pay indemnity, the insurable interest of
the insured will be the measure of the upper limit of his provable loss under
the contract.
 2. Risk of Loss

Any contingent or unknown event, whether past or future, which may

damnify a person having an insurable interest, or create liability against
him. The insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated peril.

NOTE: Because of the first element, an insurance contract therefore is a

risk-distributing device.
 3. Assumption of Risk

A contract of insurance is an agreement whereby one undertakes for a

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

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.
 5. Premium

"Section 77. An insurer is entitled to payment of the premium as soon as the

thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies, or whenever under the broker and agency
agreements with duly licensed intermediaries, a ninety (90)- day credit
extension is given. No credit extension to a duly licensed intermediary should
exceed ninety (90) days from date of issuance of the policy.”

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

contribution called “premium,” to a general insurance fund.
F. Subject Matter of a Contract of Insurance Subject matter may be persons
or things that have an insurable risk whose requirements are:

(1) There must be a large number of homogenous exposure units;

(2) The loss may be accidental and unintentional;
(3) The loss must be determinable and measurable;
(4) The loss should not be catastrophic;
(5) The chance of loss must be calculable;
(6) The premium must be economically feasible.
 G. Event or peril insured against

"Section 86. Unless otherwise provided by the policy, an insurer is liable for a
loss of which a peril insured against was the proximate cause, although a peril
not contemplated by the contract may have been a remote cause of the loss;
but he is not liable for a loss of which the peril insured against was only a
remote cause.

Event may be past or future. The designated peril in insurance is the specific
cause of loss that is insured against.
 H. Risk defined

Risk is an element of an insurance contract that the insured is subject to a

risk of loss by the happening of a designated peril.

Any contingent or unknown event, whether past or future, which may

damnify a person having an insurable interest, or create liability against
him.
Situation where the possibility is either the person involved will suffer
loss or he will not to suffer loss

Situation that may result in a gain or loss (Ex. Gambling)

Insurance Risk is “Actuarial Risk”

Fortuitous Event

Article 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
Condition

Article 1179. Every obligation whose performance does not depend

upon a future or uncertain event, or upon a past event unknown to
the parties, is demandable at once. Every obligation which contains a
resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event.
Article 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the moment
the time indicated has elapsed, or if it has become evident that the event
cannot occur. If no time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been contemplated, bearing in
mind the nature of the obligation.
Loss

Loss is the end result of the risk insured against. It involves diminution
of value or disappearance of value resulting from a risk.

Peril

Peril is the specific cause of loss that is insured against while risk is the
uncertainty that the property or person insured will be lost or damaged
by reason of the designated or some peril.
Hazard Hazards are circumstances or conditions that create or increase the
risk of loss.

Hazards may either be:

Physical hazard – physical condition of the thing or the person that

increases the chance of loss.

Moral hazard – involves dishonesty or character defects in the individual

that increase the chance of loss.

Morale hazard – includes carelessness or indifference to a loss because of

existence of insurance.
 I. Right of subrogation

If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency from the person causing the loss or
injury.
What are the purposes of subrogation?

• To make the person who caused the loss legally responsible

for it

• To prevent the insured from receiving double recovery from

the wrongdoer and the insurer

• To prevent the tortfeasors from being free from liability and

is thus founded on consideration of public policy
What are the rules on subrogation?

• 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.

• The right of insurer against a third party is limited to the amount

recoverable from latter by the insured.
What if the amount paid by the insurance company does not fully cover the
injury or loss?

The aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. (Art. 2207, NCC)

Exceptions (to right of subrogation)

• Where the insured by his own act releases the wrongdoer or third party
liable for loss or damage from liability;
• The insurer loses his rights against the wrongdoer since the insurer can only
be subrogated to only such rights as the insured may have;
• 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.
 II. CONTRACT OF INSURANCE

A. Requisites
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

B. Perfection
Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.
 Cognition Theory

• The theory being applied under the New Civil Code;

• [Insurance] contract is perfected the moment the offeror learns of the

acceptance of his offer by the other party.
Insurance contract is perfected the moment the offeror learns of the
acceptance of his offer by the other party.

Beneficiary

Insurer, insured,
beneficiary
Insurer Insured
2. Art. 38, 39, NCC

Minority, insanity or imbecility, the state of being a deafmute, prodigality

and civil interdiction are mere restrictions on capacity to act, and do not
exempt the incapacitated person from certain obligations, as when the latter
arise from his acts or from property relations, such as easements.

The following circumstances, among others, modify or limit capacity to act:

age, insanity, imbecility, the state of being a deaf-mute, penalty, prodigality,
family relations, alienage, absence, insolvency and trusteeship. The
consequences of these circumstances are governed in this Code, other
codes, the Rules of Court, and in special laws. Capacity to act is not limited
on account of religious belief or political opinion.
3. Rule on married women

Equality in Capacity to Act. – Women of legal age, regardless of civil status,

shall have the capacity to act and enter into contracts which shall in every
respect be equal to that of men under similar circumstances. The consent
of the spouse is not necessary for the validity of an insurance policy taken
out by a married person on his or her life or that of his or her children.

A married woman, twenty-one years of age or over, is qualified for all acts
of civil life, except in cases specified by law.
General Rule

• Women’s capacity to act is not impaired by marriage;

• Provision on insurance is not limited to common children of the spouses;

Exceptions

• If the beneficiary is a debtor of the spouses, taking of insurance can be

considered as an act of administration where it should be jointly undertaken
under absolute community of property regime. In case of disagreement, it is
the husband that will prevail;
• If the beneficiary is a stranger to any of the spouses, taking of insurance can
be in the nature of donation that should be approved by both of them under
absolute community of property regime;
4. Rule on minors

“Section 182. An insurance upon life 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. ”

Every contract or pledge for the payment of endowments or annuities shall

be considered a life insurance contract for purposes of this Code.
"In the absence of a judicial guardian, the father, or in the latter’s absence or
incapacity, the mother, of any minor, who is an insured or a beneficiary
under a contract of life, health, or accident insurance, may exercise, in
behalf of said minor, any right under the policy, without necessity of court
authority or the giving of a bond, where the interest of the minor in the
particular act involved does not exceed Five hundred thousand pesos
(P500,000.00) or in such reasonable amount as may be determined by the
Commissioner. Such right may include, but shall not be limited to, obtaining
a policy loan, surrendering the policy, receiving the proceeds of the Policy,
and giving the minor’s consent to any transaction on the policy.
"In the absence or in case of the incapacity of the father or mother, the
grandparent, the eldest brother or sister at least eighteen (18) years of
age, or any relative who has actual custody of the minor insured or
beneficiary, shall act as a guardian without need of a court order or
judicial appointment as such guardian, as long as such person is not
otherwise disqualified or incapacitated. Payment made by the insurer
pursuant to this section shall relieve such insurer of any liability under the
contract.

Contracts entered into by minors An insurance contract entered into

between the minor and an insurance company is voidable.
5. Public enemy

Public enemy is a State (and citizens thereof) which is at war with the
Philippines. Effect of war: If there is no war yet at the time of the taking
of policy but war ensues between the Philippines and the country of the
insured, the insurance policy is deemed abrogated.

6. Capacity of party insured (natural, juridical persons)

Article 37. Juridical capacity, which is the fitness to be the subject of

legal relations, is inherent in every natural person and is lost only
through death. Capacity to act, which is the power to do acts with legal
effect, is acquired and may be lost.
Benefeciary

The beneficiary may be a third person. Unless he is the insured himself, the
beneficiary is not one of the contracting parties. However, a third party
beneficiary named in the policy has the right to file an action against the
insurer in case of loss. No other party can recover the proceeds other than
the beneficiary. What if there is no beneficiary? If there is no designated
beneficiary, the laws of succession are applicable and the proceeds shall
form part of the estate of the deceased insured.
Subject matter of insurance

Any contingent or unknown event, whether past or future, which may

damnify a person having an insurable interest, or create a liability
against him, may be insured against. The consent of the spouse is not
necessary for the validity of an insurance policy taken out by a married
person on his or her life or that of his or her children. All rights, title and
interest in the policy of insurance taken out by an original owner on the
life or health of the person insured shall automatically vest in the latter
upon the death of the original owner, unless otherwise provided for in
the policy.
Insurance not wagering a contract

The law does not authorize an insurance for or against the drawing
of any lottery, or for or against any chance or ticket in a lottery
drawing a prize.
III. INSURABLE INTEREST

A. Concept There must be a reasonable ground, founded upon the

relations of the parties to each other, either pecuniary or of blood or
affinity, to expect some benefit or advantage from the continuance of
the life of the insured. Otherwise, the contract is merely a wager, by
which the party taking the policy directly interested in the early death
of the assured. Such policies have the tendency to create a desire for
the event. They are therefore, independently of any statute on the
subject, condemned, as being against public policy.
B. In short: an insurable interest is, in the point of view of the insured,
the raison d’etre of the continued existence of persons or things
subject of insurance.
B. Reasons/ Purposes

• Public policy requires an insurable interest to prevent wagering under the

guise of insurance, and to reduce to a safe level the temptation to destroy
the insured property.

• Lack of insurable interest is a defense created for the benefit of society,

not for the benefit of insurance company.

• The presence of insurable interest reduces moral hazard

• Insurable interest helps in measuring loss of the insured.

If the insured has no insurable interest over the life or property he insures, the
insurance contract is considered unenforceable.

Insurable interest in life and health:

o Himself
o His spouse
o His children
o Any person on whom he depends wholly or in part for education o Any
person on whom he depends wholly or in part for support
o Any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent the performance
o Any person upon whose life any estate vested in him depends
o Any person upon whose life any interest vested in him depends
According to class:

1. Own’s life
2. Life of another person
a. Relationship by blood
b. Business relationship
c. Other pecuniary interest

Mortgage redemption insurance – is a device (group life

insurance) for the protection of both mortgagee and mortgagor.
Separate insurable interest of mortgagor and mortgagee

Each has an insurable interest in the property mortgaged and this

interest is separate and distinct from the other. Therefore, insurance
taken by one in his name only and in his favor alone does not inure to
the benefit of the other. The same is not open to objection that there
is double insurance.
ART. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes into the
hands of a third person.
When should insurable interest in property exist?

“SEC. 19. An interest in property insured must exist when the

insurance takes effect, and when the loss occurs, but need not exist in
the meantime; and interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.
Insurable interest of beneficiary In property

The beneficiary must have insurable interest in the property that is the
object of the insurance. The contract will be considered a wagering
contract if the beneficiary will be allowed to recover even if he has no
insurable interest on the subject property
In life insurance

If the insured takes out an insurance on his own life, he can designate
anybody whether or not the beneficiary ahs insurable interest on the life
of another designating himself or herself as beneficiary, insurable interest
of the part of the insured is necessary. Insurable interest on the part of
beneficiary is likewise necessary if one takes out an insurance on the life of
another and designates a third person as the beneficiary.
Effect of change of interest in the thing insured

Article 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public
order, or public policy.
In life insurance

A life insurance policy can be transferred even without the consent or notice
to the insurer. By express provision of Section 184 of the Insurance Code, it is
not necessary that the transferee has insurable interest.

Since a policy of insurance upon life may pass by transfer, will or succession
to any person whether he has insurance interest or not, the transferee may
recover whatever the insured may have recovered under the policy. (Great
Pacific Life Assurance Corp. v. Court of Appeals, supra)

In property insurance

It is necessary that the transferee has insurable interest over the thing
insured.
DEVICE FOR ASCERTAINING AND CONTROLLING RISK AND LOSS

A. Concealment
1. Concept
2. Duty to communicate
3. Test of Materiality
4. Effect of Concealment
5. Matters which need not be communicated
6. Waiver of information
B. Representation
1. Concept
2. Kinds of representation
3. Test of materiality
4. Effect of alteration or withdrawal
5. Time to which representation refers
6. Effect when representation refers
7. When presumed false; effect of falsity
C. Remedies Available in case of concealment or false representation

1. When rescission by insurer may be exercised

2. When life insurance policy becomes incontestable
a. Requisites for incontestability
b. Theory and object of incontestability
c. Defenses not barred by incontestability
D. Warranties
1. Concept; distinguished from
representation
2. Kinds of warranties
3. Time which warranty refers
4. Effect of breach
V. THE POLICY OF INSURANCE
A. Definition and Form
B. Fine Print Rule
C. Contents of Policy
D. Papers attached to the policy and their binding effect (rider,
warranties, clause, endorsement)
E. Kinds of policy
F. Cover notes
G. Cancellation of policy
H. Time to commence action on policy; effect of stipulation
VI. PREMIUM

A. Concept

Premium is the elixir vitae of the insurance business because by law the
insurer must maintain a legal reserve fund to meet its contingent
obligations to the public, hence, the imperative need for its prompt
payment and full satisfaction. All actuarial calculations and various
tabulations of probabilities of losses under the risks insured against are
based on the sound hypothesis of prompt payment of premiums. Upon
this bedrock insurance firms are enabled to offer the assurance of security
to the public at favorable rates.
Future premiums

An insurer may contract and accept payments, in addition to regular

premium, for the purpose of paying future premiums on the policy or to
increase the benefits thereof.
VII. PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO
RECOVERY

A. Beneficiary The insurance proceeds shall be applied exclusively to the

proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy. Change of Beneficiary The
insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy
Notwithstanding the foregoing, in the event the insured does not change
the beneficiary during his lifetime, the designation shall be deemed
irrevocable.
Disqualified Beneficiary

The interest of a beneficiary in a life insurance policy shall be forfeited when

the beneficiary is the principal, accomplice, or accessory in willfully bringing
about the death of the insured. In such a case, the share forfeited shall pass
on to the other beneficiaries, unless otherwise disqualified. In the absence of
other beneficiaries, the proceeds shall be paid in accordance with the policy
contract. If the policy contract is silent, the proceeds shall be paid to the
estate of the insured.
B. Limitations on appointment of beneficiary

Any person who is forbidden from receiving any donation under Article
739 (of the Civil Code) cannot be named beneficiary of a life insurance
policy by the person who cannot make any donation to him, according to
said article.

The following donations shall be void:

(a) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
(b) Those made between persons found guilty of the same criminal
offense, in consideration thereof;
(c) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
Loss

An agreement not to transfer the claim of the insured against the insurer
after the loss has happened, is void if made before the loss except as
otherwise provided in the case of life insurance.

Unless otherwise provided by the policy, an insurer is liable for a loss of

which a peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been a remote cause of the loss;
but he is not liable for a loss of which the peril insured against was only a
remote cause.
Notice and proof of loss

Notice to an insurer of a transfer or bequest thereof is not necessary to

preserve the validity of a policy of insurance upon life or health, unless
thereby expressly required
VIII. DOUBLE INSURANCE

A. Definition and requisites A double insurance exists where the same

person is insured by several insurers separately in respect to the same
subject and interest.

B. Distinguished from reinsurance

Double Insurance It exists where the same person is insured by several

insurers separately in respect to the same subject and interest while
Reinsurance Insurer procures a third person to insure him against loss or
liability by reason of such original insurance
C. Stipulation against double insurance The implication, double-
insurance is not prohibited.

Taking other insurance coverage is not prohibited provided that the

total insurance is not in excess of the value of the property insured.
IX. REINSURANCE

A. Definition “SEC. 97. A contract of reinsurance is one by which an insurer

procures a third person to insure him against loss or liability by
reason of such original insurance.
B. Nature “SEC. 99. A reinsurance is presumed to be a contract of indemnity
against liability, and not merely against damage. “SEC. 100. The original
insured has no interest in a contract of reinsurance.
C. Distinguished from double insurance (see table, supra)
D. Duty of reinsured to disclose facts “SEC. 98. Where an insurer obtains
reinsurance, except under automatic reinsurance treaties, he must
communicate all the representations of the original insured, and also all the
knowledge and information he possesses, whether previously or
subsequently acquired, which are material to the risk.