Insurance Notes For Midterms

INSURANCE LAW | Atty.
Ibarra
Insurance Notes for Midterms

I. INTRODUCTION
PART ONE: INSURANCE IN RELATION TO OTHER LAWS
any kind whatsoever of the person who effected the insurance in favor
of the formers."
xxx
II. INSURANCE AS SPECIAL CONTRACTS

A.
Insurance in relation to civil law

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 739
x x x The contract of life insurance is a special contract and the destination

of the proceeds thereof is determined by special laws which deal
exclusively with that subject. The Civil Code has no provisions which relate
directly and specifically to life-insurance contract or to the destination of
life-insurance proceeds. That subject is regulate exclusively by the Code of
Commerce which provides for the terms of the contract, the relations of the
parties and the destination of the proceeds of the policy.
Separate Opinions
REYES, J.B.L., J., concurring:
I concur in the result for the reason that the contract here involved
was perfected before the new Civil Code took effect, and hence its
provisions cannot be made to apply retroactively.
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.
In the cases referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee; and
the guilt of the donor and donee may be proved by preponderance
of evidence in the same action.
SOUTHERN LUZON EMPLOYEES ASSOCIATION v. GOLPEO

G.R. No. L-6114, 30 October 1954
With the finding of the trial court that the proceeds of the life-insurance
policy belongs exclusively to the defendant as his individual and separate
property, we agree. That the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine
obtains in these Islands by virtue of section 428 of the Code of Commerce,
which reads:
"The amounts which the underwriter must deliver to the person
insured, in fulfillment of the contract, shall be the property creditors of
THE INSULAR LIFE ASSURANCE COMPANY, LTD v. EBRADO

G.R. No. L-44059, 28 October 1977
Issue
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?
Held/Ruling
No!
x x x Article 2011 of the New Civil Code states: "The contract of
insurance is governed by special laws. Matters not expressly provided
for in such special laws shall be regulated by this Code." When not
otherwise specifically provided for by the Insurance Law, the contract
of life insurance is governed by the general rules of the civil law
regulating contracts. And under Article 2012 of the same Code, "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 a donation to him. Common-law spouses are,
definitely, barred from receiving donations from each other. Article 739
of the new Civil Code provides:
Co, Anne Lorraine Pongos |
INSURANCE LAW | Atty. Ibarra

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.

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.
Article 1320 An acceptance may be express or implied.
In the case referred to in No. 1, the action for declaration of nullity

may be brought by the spouse of the donor or donee; and the guilt
of the donee may be proved by preponderance of evidence in the
same action.
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.
B.
Article 1321 The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied
with.
Article 1322 An offer made through an agent is accepted from the
time acceptance is communicated to him.
Article 1323 An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
Article 1324 When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as
something paid or promised.
Article 1325 Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations
to make an offer.
Article 1326 Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears.
As a contract
(a) Requisites of a valid contract (Article 1318, NCC)
Article 1318 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.
a.1 Consent (Articles 1319 1326, NCC)

Article 1319 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.
a.1.1 Persons who cannot give consent to a contract of insurance

(Article 1327 and Article 1328, NCC)
Article 1327 The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deafmutes who do not know how to write.
Article 1328 Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable.
a.1.2 Mistake, Fraud, Violence, Intimidation, Undue Influence (Articles

1330 1339, NCC)
Article 1330 A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is
voidable
Article 1331 In order that mistake may invalidate consent, it
should refer to the substance of the thing which is
the object of the contract, or to those conditions
which have principally moved one or both parties to
enter into the contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such
identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its
correction.
Article 1332 When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former.
Article 1333 There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract.
Article 1334 Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated,
may vitiate consent.
A threat to enforce one's claim through competent

authority, if the claim is just or legal, does not vitiate
consent.
Article 1336 Violence or intimidation shall annul the obligation,
although it may have been employed by a third
person who did not take part in the contract.
Article 1337 There is undue influence when a person takes
improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom
of choice. The following circumstances shall be
considered: the confidential, family, spiritual and
other relations between the parties, or the fact that
the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant
or in financial distress.
Article 1338 There is fraud when, through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed to.
Article 1339 Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
a.2 Object (Articles 1347 1349, NCC) In relation to insurable interest
Article 1347 All things which are not outside the commerce of men,
including future things, may be the object of a contract.
All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
Article 1335 There is violence when in order to wrest consent,

serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and wellgrounded fear of an imminent and grave evil upon
his person or property, or upon the person or
property of his spouse, descendants or ascendants,
to give his consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
All services which are not contrary to law, morals, good

customs, public order or public policy may likewise be the
object of a contract.
Article 1348
contracts.
Impossible things or services cannot be the object of
Article 1349 The object of every contract must be determinate as to

its kind. The fact that the quantity is not determinate
shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the
need of a new contract between the parties.

intermediary should exceed ninety (90) days from date
of issuance of the policy.
Insurable Interest
Concept
It may be stated generally, however, to be such an interest,
arising from the relation of the party obtaining the insurance,
either as creditor of or surety for the assured, or from ties of
blood or marriage to him, as will justify a reasonable
expectation of advantage or benefit from the continuance of
his life. It is not necessary that the expectation of advantage
or benefit should always be capable of pecuniary estimation;
for a parent has an insurable interest in the life of his child,
and a child in the life of his parent, a husband in the life of his
wife, and a wife in the life of her husband. The natural
affection in cases of this kind is considered as powerful as
operating more efficaciously to protect the life of the insured
than any other consideration.
a.3 Cause/Consideration (Article 1350, NCC) Payment of insurance

premium
Article 1350 In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor.
Insurance is a risk-spreading device. The insurer pools the premiums
paid by all its client. In theory, the pool of premiums answers for the
losses of each insured. Indeed, it is no exaggeration to say that
premium is the elixir vitae of insurance business.
Premium required for policy to be binding. At the heart of the statutory
rules on premium is Section 77 of the Insurance Code which provides:
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
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(b) Defective Contracts and Insurance Law

b.1 Voidable Contracts and Voidable Contracts of Insurance
Article 1390 The following contracts are voidable or annullable, even
though there may have been no damage to the contracting
parties:
(1)
Those where one of the parties is incapable of

giving consent to a contract;
(2) Those where the consent is vitiated by mistake,

violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a
proper action in court. They are susceptible of ratification.
Article 1391 The action for annulment shall be brought within four
years.
This period shall begin: In cases of intimidation, violence or
undue influence, from the time the defect of the consent
ceases.
In case of mistake or fraud, from the time of the discovery
of the same.
And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time the
guardianship ceases.
Article 1392 Ratification extinguishes the action to annul a voidable
contract.
b.2 Unenforceable Contracts and Unenforceable Contracts of Insurance

Article 1403 The following contracts are unenforceable, unless they
are ratified:
(1)
Those entered into in the name of another

person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as

set forth in this number. In the following cases an

agreement hereafter made shall be unenforceable by
action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore,
of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a)
An agreement that by its terms is not to be

performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive
part of such goods and chattels, or the evidences,
or some of them, of such things in action or pay at
the time some part of the purchase money; but
when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of
the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or of
an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract.
b.3 Void Contracts and Void Contracts of Insurance

Article 1409 The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of
the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
5
These contracts cannot be ratified. Neither can the right to

set up the defense of illegality be waived.
Article 1410 The action or defense for the declaration
inexistence of a contract does not prescribe.
of the
b.4 Rescissible Contracts of Insurance

Article 1380 Contracts validly agreed upon may be rescinded in the
cases established by law.
Article 1381 The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission.
Article 1382 Payments made in a state of insolvency for obligations to
whose fulfillment the debtor could not be compelled at the
time they were effected, are also rescissible.
Article 1383 The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
Article 1384 Rescission shall be only to the extent necessary to cover
the damages caused.
III. CHARACTERISTICS
(a) Aleatory Contract
Element of risk. An aleatory contract is one which is dependent on the
occurrence of an uncertain event or one which is certain to happen but the time
is unknown.
An aleatory contract contains elements of both a conditional obligation and an

obligation subject to a period.
Article 2010 of the New Civil Code provides that a contract is aleatory when 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. Insurance is
one of the contracts enumerated in the New Civil Code as falling under this
classification of special contracts. It is not a contract of chance but a contract
where some of the rights of the parties of the contract are contingent upon
chance events.
(b) Onerous
This is valuable consideration.

Section 181 of the Insurance Code defines life insurance as an insurance on
human lives and insurance appertaining thereto or connected therewith.
Life insurance is not a contract indemnity. Consistently, the interest of the
person insured in his or another persons life is generally not susceptible of
exact pecuniary measurement. Hence, the measure of indemnity is
whatever is fixed in the policy.
Section 186 Unless the interest of a person insured is susceptible of
exact pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the sum
fixed in the policy.
i.
Individual Life
ii.
Group Life
iii.
Industrial Life
You have to give something.
It is that form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of the current
statutory minimum daily wage in the City of Manila, and if the words
industrial policy are printed upon the policy as part of the descriptive
matter.
Onerous describes a contract or lease that has more obligations than

advantages. Onerous derives from Middle English, from Old French onereus,
from Latin onersus, from onus "burden." In English, an onus is a task or duty
that is onerous, or very difficult.
(b) Non-Life Insurance
(c) Bilateral
A bilateral contract is a reciprocal arrangement between two parties where each
promises to perform an act in exchange for the other party's act. Each party is
an obligor (a person who is bound to another) to its own promise, and an
obligee (a person to whom another is obligated or bound) on the other party's
promise.
There are two or more contracting parties.
IV. CONCEPTS AND TERM USED
The term marine insurance cannot be given a simple definition; it has

no unified conception. One might suppose that this type of insurance is
limited to insurance that secures vessels and its cargoes against the
perils of navigation. However, the present law does not limit marine
insurance to the risks of navigation. It is well to quote Section 101 of
the Insurance Code which defines Marine Insurance by enumeration:
(a) Insurance against loss of or damage to:
It is a formal Contract.
(a) Life Insurance
Marine
Section 101 Marine Insurance includes:
(d) Form
Type of Insurance
i.
(1) Vessels, craft, aircraft, vehicles, goods, freights,

cargoes, merchandise, effects, disbursements,
profits, moneys, securities, choses in action,
instruments of debts, valuable papers, bottomry,
and respondentia interests and all other kinds of
property and interests therein, in respect to,
appertaining to or in connection with any and all
risks
or perils of navigation,
transit or

transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment
incident thereto, including war risks, marine
builders risks, and all personal property floater
risks;
interest in movable property, may be exposed during a certain

voyage or a fixed period of time.
The different kinds of Ocean Marine Insurance may be
grouped into four
(1) Insurance over the vessel, craft and other
conveyances;
(2) Insurance for the protection of the carrier against
liability to others for loss or damage to the property
of another;
(3) Insurance over cargoes that are being transported;
and
(4) Insurance over freight and income.
(2) Person or property in connection with or

appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss
of or damage arising out of or in connection with
the construction, repair, operation, maintenance or
use of the subject matter of such insurance (but
not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to
any person arising out of ownership, maintenance,
or use of automobiles);
(2) Inland Marine Insurance

Marine insurance may likewise cover risks that do not relate
to navigation itself or transit of goods and passengers. The
growth of transportation facilities and the expansion of inland
business and commerce saw the need for a new type of
insurance that cannot be covered by ocean marine insurance
and ordinary property or life insurance. Inland marine
insurance include insurance over cargoes, infrastructure and
floaters.
(3) Precious stones, jewels, jewelry, precious metals,

whether in course of transportation or otherwise;
and
(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding
buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to
navigation and transportation, including dry docks
and marine railways, dams and appurtenant
facilities for the control of waterways.
(b) Marine protection and indemnity insurance, meaning
insurance against, or 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.
Two Basic Types of Marine Insurance
(1) Ocean Marine Insurance
An insurance against risks connected with navigation, to
which a ship, cargo, freightage, profits, or other insurable
7
(3) Aviation Insurance

Section 101 includes insurance over an aircraft as part of
Marine Insurance. This includes different Aircraft Hull Policies
which may take different forms depending on the type of
aircraft.
An Aircraft Hull Policy may cover all risks ground and flight
which means that all damages both on the ground and in
flight are included. It may also cover insurance over the
aircraft while the same is not in motion.
ii.
Fire
As used in the Insurance Code, the term fire insurance shall include
insurance against loss by: (1) fire, (2) lightning, (3) windstorm, (4)
tornado, (5) earthquake, and (6) other allied risks, when such risks are
covered by extension to fire insurance policies or under separate
policies. Thus, fire insurance covers not only damage or loss by fire but
also allied risks if they are covered by extensions and separate
policies.
iii.
Casualty
Section 176 Casualty insurance is 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. It includes, but is not limited to,
employers liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as
written by non-life insurance companies, and other
substantially similar kinds of insurance.
Thus, casualty insurance includes the following
(1) Burglary and theft insurance.
(2) Personal accident and health insurance as written by non-life
insurance companies.
(3) Plate glass insurance.
(4) Employers liability insurance.
(5) Motor vehicle liability insurance.
(6) Other substantially similar kinds of insurance.

contract of suretyship in relation to the principal contract
between the obligor and the obligee.
Distinguished from Insurance Contract
SURETYSHIP
There are three parties.
principal, obligee and surety.
The
The surety, in theory, expects no

loss to occur.
The surety has the right of
reimbursement
against
the
defaulting principal.
The surety guarantees qualities
that are within the control of the
insured, that is, the insureds
character, honesty, and integrity
to perform the obligation.
INSURANCE
There are two parties, the insurer
and the insured.
The insurer expects loss to occur
and in some cases, like life
insurance, the loss is a certainty.
The insurer does not have the
right of reimbursement from the
insured.
Insurance covers losses that are
beyond the control of the insured.
V. APPLICABLE LAW
(a) New Insurance Code (Republic Act No. 10607)
(c) Suretyship
For regulatory purposes, a contract of suretyship shall be deemed to be an
insurance contract within the meaning of the Insurance Code when made
by a surety who or which, as such, is doing an insurance business.
The contract of suretyship under the New Civil Code is simply defined as an
agreement whereby one binds himself solidarily with the principal debtor.
By suretyship, a person known as surety binds himself solidarily to the
creditor to fulfill the obligation of the principal debtor. On the other hand,
Sections 177 and 178 of the Insurance Code provides:
Section 177 A contract of suretyship 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. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.
Section 178 The liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount
of the bond. It is determined strictly by the terms of the
The primary law that governs insurance contracts is the Insurance Code of the
Philippines that was originally enacted as Presidential Decree (PD) No. 602. PD
No. 602 was previously amended by PD Nos. 1141, 1280, 1455, 1460, 1814 and
1918, and BP Blg. 874. The previous edition of this work was based on PD No.
1460 as amended, otherwise known as Insurance Code of 1978
The most recent amendment is RA No. 10607 dated August 15, 2013. RA 10607
was published in a newspaper of general circulation on September 5, 2013. This
law re-enacted PD No. 602 as amended and introduced new concepts and
provisions. For example, the law now includes a provision on microinsurance,
bancassurance, trust operations of insurance companies, and self-regulatory
organizations. The new law strengthened the regulatory provisions of the Code.
These include but are not limited to: (1) increase of the paid-up capital and net
worth requirements for insurers, (2) new requirements for unimpaired capital or
assets and reserved, (3) new provisions on financing report framework, (4)
adoption of corporate governance rules, (5) changes in the provisions on margin
of solvency, (6) changes in the provisions on investments, (7) fixing the term of
the Insurance Commissioner to six years, and (8) changes in the jurisdiction of
the Insurance Commission over insurance claims. Other changes merely
expressly adopted prevailing jurisprudence.
(b) Civil Code Provisions on contracts and Article 2011 and other related articles
The New Civil Code provisions govern suppletorily. For instance, the rules on
perfection of contracts under the Title IV of the New Civil Code on obligations
and contracts can be applied in the absence of provisions of the Insurance
Code. Article 2011 of the New Civil Code provides that the contract of insurance
is governed by special laws and matters not expressly provided for in such
special laws shall be regulated by the said Code. The New Civil Code likewise
provides for grounds for disqualification of beneficiaries under Article 2012
thereof.
Right of Subrogation. The New Civil Code specifically deals with the right of the
insurer to subrogation. Article 2207 of the New Civil Code provides that if the
plaintiffs 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.
(c) Family Code
(d) Other special laws
PART TWO: THE INSURANCE CODE OF THE PHILIPPINES

VI. INSURANCE DEFINED (Section 2, Insurance Code)
Section 2
Whenever used in this Code, the following terms shall have the
respective meanings hereinafter set forth or indicated, unless the
context otherwise requires:
VII. WHAT MAY BE INSURED IN A CONTRACT OF INSURANCE

(a) Future, Contingent or Past Event May Be Insured (Section 3, Insurance Code)
(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.
Section 3
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.
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.
(b) The term doing an insurance business or transacting an insurance

business, within the meaning of this Code, shall include:
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.
(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;
(b) Insurance on Lottery (Section 4, Insurance Code)

Section 4
(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.
10
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 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.
VIII. PARTIES TO A CONTRACT OF INSURANCE

(a) Who can be an insurer? (Section 6, Insurance Code, in relation to Section 190,
Insurance Code)
Section 6
Every corporation, partnership, or association, duly authorized to

transact insurance business as elsewhere provided in this Code,
may be an insurer.
Section 190 For purposes of this Code, the term insurer or insurance
company shall include all partnerships, associations, cooperatives
or corporations, including government-owned or -controlled
corporations or entities, engaged as principals in the insurance
business, excepting mutual benefit associations. Unless the
context otherwise requires, the term shall also include professional
reinsurers defined in Section 288. Domestic company shall include
companies formed, organized or existing under the laws of the
Philippines. Foreign company when used without limitation shall

include companies formed, organized, or existing under any laws
other than those of the Philippines.
Section 288 Except as otherwise provided in this Code, no partnership,
association or corporation shall transact any business in the
Philippines as a professional reinsurer until it shall have
obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by such
entity of the fees hereinafter prescribed. As used in this Code,
the term professional reinsurer shall mean any entity that
transacts solely and exclusively reinsurance business in the
Philippines.
The Commissioner may refuse to issue a certificate of
authority to any such entity when such refusal will best
promote public interest. No such certificate of authority shall
be granted to any such entity unless and until the
Commissioner is satisfied by such examination and such
evidence as may be required that such entity is qualified by
the laws of the Philippines to transact business therein as a
professional reinsurer.
Before issuing such certificate of authority, the Commissioner
must be satisfied that the name of the applicant is not that of
any other known company transacting insurance or
reinsurance business in the Philippines, or a name so similar
as to be calculated to mislead the public.
Such certificate of authority shall expire on the last day of
December the third year following its issuance unless it is
renewed.
Every such partnership, association, or corporation receiving
such certificate of authority shall be subject to the provisions
of this Code and other related laws, and to the jurisdiction and
supervision of the Commissioner.
However, individuals are no longer identified as persons who can be an insurer
under the present law.
i.
Basic Qualifications (Sections 192 and 193, Insurance Code)

Section 192 No corporation, partnership, or association of persons shall
transact any insurance business in the Philippines except as
agent of a corporation, partnership or association authorized
to do the business of insurance in the Philippines, unless
possessed of the capital and assets required of an insurance
11

corporation doing the same kind of business in the Philippines
and invested in the same manner; unless the Commissioner
shall have granted it a certificate to the effect that it has
complied with all the provisions of this Code.
Every entity receiving any such certificate of authority shall
be subject to the insurance and other applicable laws of the
Philippines and to the jurisdiction and supervision of the
Commissioner.
Section 193 No insurance company shall transact any insurance business
in the Philippines until after it shall have obtained a certificate
of authority for that purpose from the Commissioner upon
application therefor and payment by the company concerned
of the fees hereinafter prescribed.
authority to any insurance company if, in his judgment, such
refusal will best promote the interest of the people of this
country. No such certificate of authority shall be granted to
any such company until the Commissioner shall have satisfied
himself by such examination as he may make and such
evidence as he may require that such company is qualified by
the laws of the Philippines to transact business therein, that
the grant of such authority appears to be justified in the light
of local economic requirements, and that the direction and
administration, as well as the integrity and responsibility of
the organizers and administrators, the financial organization
and the amount of capital, reasonably assure the safety of the
interests of the policyholders and the public.
In order to maintain the quality of the management of the
insurance companies and afford better protection to
policyholders and the public in general, any person of good
moral character, unquestioned integrity and recognized
competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent
provisions contained in the corporate governance circulars
prescribed by the Commissioner. In addition hereto, the
Commissioner shall prescribe the qualifications of directors,
executive officers and other key officials of insurance
companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an
insurance company and an adjustment company.
must be satisfied that the name of the company is not that of

any other known company transacting a similar business in
the Philippines, or a name so similar as to be calculated to
mislead the public. The Commissioner may issue rules and
regulations on the use of names of insurance companies and
other supervised persons or entities.
The certificate of authority issued by the Commissioner shall
expire on the last day of December, three (3) years following
its date of issuance, and shall be renewable every three (3)
years thereafter, subject to the companys continuing
compliance with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
Every company receiving any such certificates of authority
shall be subject to the provisions of this Code and other
related laws and to the jurisdiction and supervision of the
Commissioner.
No insurance company may be authorized to transact in the
Philippines the business of life and non-life insurance
concurrently, unless specifically authorized to do so by the
Commissioner: Provided,
That
the
terms life and nonlife insurance shall be deemed to include health, accident and
disability insurance.
No insurance company shall have equity in an adjustment
company and neither shall an adjustment company have
equity in an insurance company.
No insurance company issued with a valid certificate of
authority to transact insurance business anywhere in the
Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance
policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in
the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any
kind of ordinance, accreditation system, or scheme. Any local
ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any
insurance company shall be deemed null and void ab initio.
ii.
Prohibited acts for an insurer (Section 193, IC, in relation to Section

370 and Section 371, IC)
Section 193 No insurance company shall transact any insurance business
in the Philippines until after it shall have obtained a certificate
12

of authority for that purpose from the Commissioner upon
application therefor and payment by the company concerned
of the fees hereinafter prescribed.
authority to any insurance company if, in his judgment, such
refusal will best promote the interest of the people of this
country. No such certificate of authority shall be granted to
any such company until the Commissioner shall have satisfied
himself by such examination as he may make and such
evidence as he may require that such company is qualified by
the laws of the Philippines to transact business therein, that
the grant of such authority appears to be justified in the light
of local economic requirements, and that the direction and
administration, as well as the integrity and responsibility of
the organizers and administrators, the financial organization
and the amount of capital, reasonably assure the safety of the
interests of the policyholders and the public.
In order to maintain the quality of the management of the
insurance companies and afford better protection to
policyholders and the public in general, any person of good
moral character, unquestioned integrity and recognized
competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent
provisions contained in the corporate governance circulars
prescribed by the Commissioner. In addition hereto, the
Commissioner shall prescribe the qualifications of directors,
executive officers and other key officials of insurance
companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an
insurance company and an adjustment company.
must be satisfied that the name of the company is not that of
any other known company transacting a similar business in
the Philippines, or a name so similar as to be calculated to
mislead the public. The Commissioner may issue rules and
regulations on the use of names of insurance companies and
other supervised persons or entities.
The certificate of authority issued by the Commissioner shall
expire on the last day of December, three (3) years following
its date of issuance, and shall be renewable every three (3)
years thereafter, subject to the companys continuing
compliance with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
Every company receiving any such certificates of authority

shall be subject to the provisions of this Code and other
related laws and to the jurisdiction and supervision of the
Commissioner.
No insurance company may be authorized to transact in the
Philippines the business of life and non-life insurance
concurrently, unless specifically authorized to do so by the
Commissioner: Provided,
That
the
terms life and nonlife insurance shall be deemed to include health, accident and
disability insurance.
No insurance company shall have equity in an adjustment
company and neither shall an adjustment company have
equity in an insurance company.
No insurance company issued with a valid certificate of
authority to transact insurance business anywhere in the
Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance
policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in
the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any
kind of ordinance, accreditation system, or scheme. Any local
ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any
insurance company shall be deemed null and void ab initio.
Section 370 No insurance company doing business in the Philippines or

any agent thereof, no insurance broker, and no employee or
other representative of any such insurance company, agent,
or broker, shall make, procure or negotiate any contract of
insurance or agreement as to policy contract, other than is
plainly expressed in the policy or other written contract issued
or to be issued as evidence thereof, or shall directly or
indirectly, by giving or sharing a commission or in any manner
whatsoever, pay or allow or offer to pay or allow to the
insured or to any employee of such insured, either as an
inducement to the making of such insurance or after such
insurance has been effected, any rebate from the premium
which is specified in the policy, or any special favor or
advantage in the dividends or other benefits to accrue
thereon, or shall give or offer to give any valuable
consideration or inducement of any kind, directly or indirectly,
which is not specified in such policy or contract of insurance;
13

nor shall any such company, or any agent thereof, as to any
policy or contract of insurance issued, make any
discrimination against any Filipino in the sense that he is
given less advantageous rates, dividends or other policy
conditions or privileges than are accorded to other nationals
because of his race.
Section 371 No insurance company doing business in the Philippines, and
no officer, director, or agent thereof, and no insurance broker
or any other person, partnership or corporation shall issue or
circulate or cause or permit to be issued or circulated any
literature, illustration, circular or statement of any sort
misrepresenting the terms of any policy issued by any
insurance company of the benefits or advantages promised
thereby, or any misleading estimate of the dividends or share
of surplus to be received thereon, or shall use any name or
title of any policy or class of policies misrepresenting the true
nature thereof; nor shall any such company or agent thereof,
or any other person, partnership or corporation make any
misleading representation or incomplete comparison of
policies to any person insured in such company for the
purpose of inducing or tending to induce such person to lapse,
forfeit, or surrender his said insurance.
Mutual benefits association is not an insurer but requires authorization from
the insurance commission (Section 184, Insurance Code)
Section 184
A policy of insurance upon life or health may pass

by transfer, will or succession to any person,
whether he has an insurable interest or not, and
such person may recover upon it whatever the
insured might have recovered.
Section 188
No insurance company or mutual benefit

association shall engage in the business of
microinsurance unless it possesses all the
requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such
rules and regulations governing microinsurance.
Section 190
For
purposes
of
this
Code,
the
term insurer or insurance company shall include all
partnerships,
associations,
cooperatives
or
corporations, including government-owned or
-controlled corporations or entities, engaged as
principals in the insurance business, excepting
mutual benefit associations. Unless the context
otherwise requires, the term shall also include
professional
reinsurers
defined
in
Section
288. Domestic company shall include companies
formed, organized or existing under the laws of the
Philippines. Foreign company when used without
limitation
shall
include
companies
formed,
organized, or existing under any laws other than
those of the Philippines.
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.
iii.
Mutual Benefit Association. Although excluded from the term insurer
under Section 184 of the Insurance Code, likewise within the regulatory
powers of the Insurance Commission are mutual benefit associations.
They must first secure a license from the Insurance Commission before
they can transact business.
Section 184
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
14
Cooperatives as Insurance Companies (Section 190, Insurance Code)

Section 190 For purposes of this Code, the term insurer or insurance
company shall
include
all
partnerships,
associations,
cooperatives or corporations, including government-owned or
-controlled corporations or entities, engaged as principals in
the
insurance
business,
excepting
mutual
benefit
associations. Unless the context otherwise requires, the term
shall also include professional reinsurers defined in Section
288. Domestic company shall include companies formed,
organized
or
existing
under
the
laws
of
the
Philippines. Foreign company when used without limitation
shall include companies formed, organized, or existing under
any laws other than those of the Philippines.
(b) Who may be insured?

Under the Insurance Code, the insured is the person who applied for and to
whom an insurance policy is issued to cover his life, property or the life of or
property of other person/s in whose life or property he has insurable interest or
liability to other persons. The insured is the one who enters into a contract with
the insurer.
General Rule: Anyone except a public enemy may be insured. (Section 7,
Insurance Code)
A public enemy is a State (and citizens thereof) which is at war with the
Philippines
i.
Spouses as insured individuals Spouses can enter into contracts of

insurance covering her life or the life of her children and the consent of the
other spouse is not required for its validity.
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. (Section 3, par. 2, IC)
Article 73, Family Code
Either spouse may exercise any legitimate
profession, occupation, business or activity without
the consent of the other. The latter may object only

on valid, serious and moral grounds.
Article 92
In case of disagreement, the court shall decide

whether or not:
(1) Property acquired during the marriage by gratuitous

title by either spouse, and the fruits as well as the
income thereof, if any, unless it is expressly provided
by the donor, testator or grantor that they shall form
part of the community property;
(1) The objection is proper, and

(2) Benefit has accrued to the family prior to
the objection or thereafter. If the benefit
accrued prior to the objection, the resulting
obligation shall be enforced against the
separate property of the spouse who has
not obtained consent.
(2) Property from personal and exclusive use of either

spouse. However, jewelry shall form part of the
community property;
(3) Property acquired before the marriage by either
spouse who has legitimate descendants by a former
marriage, and the fruits as well as the income, if any,
of such property.
The foregoing provisions shall not prejudice the

rights of creditors who acted in good faith.
Article 93
Property acquired during the marriage is presumed to

belong to the community, unless it is proved that it is one
of those excluded therefrom.
Article 109
The following shall be the exclusive property of each

spouse:
Common Law Spouses, Unions Without Marriage Can common-lawspouses and partners be insured by the other partner? (Article 1409, NCC)
Article 1409 The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of
the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
(1) That which is brought to the marriage as his or her

own;
(2) That which each acquires during the marriage by
gratuitous title;
(3) That which is acquired by right of redemption, by
barter or by exchange with property belonging to
only one of the spouses; and
(4) That which is purchased with exclusive money of the
wife or of the husband.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Who owns the insurance policy taken by one spouse? (Arts. 91, 92, 96 &
109, Family Code)
Article 91
15
Unless otherwise provided in this Chapter or in the

marriage settlements, the community property shall
consist of all the property owned by the spouses at the
time of the celebration of the marriage or acquired
therefore
The following shall be excluded from the community

property:
ii.
Minors as procurer of insurance See changes in Section 3 as per RA

10607. Relate to 1327, NCC
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.
Article 1327 The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do
not know how to write.
iii.
Effect of the death of owner (Section 3, paragraph 3, Insurance Code)

Section 3
Section 53
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
When a beneficiary is designated. In life insurance, if there is a named

beneficiary and the designation is not invalid, it is the designated beneficiary
who is entitled to receive the proceeds and not the heirs of the insured. If
another person is named the beneficiary, the proceeds of an insurance policy
belong exclusively to the beneficiary and not to the estate of the person whose
life was insured. In other words, the proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life was
insured. At any rate, the heir may also be the beneficiary and the proceeds of
the life-insurance policy payable to said heir belongs to him exclusively and
does not form part of the deceaseds estate.
Third Parties. The insurer has no obligation to turn over the proceeds of the
insurance to third persons even if the third persons are immediate relatives if
there is a designated beneficiary.
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.
When there is no beneficiary. It is only when there is no designated beneficiary

or when the designation is void, that the laws of succession are applicable. In
other words, if there is no designated beneficiary, the proceeds shall form part
of the estate of the deceased insured.
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.
Effect of use of conjugal funds. If the funds of the conjugal partnership of gains
are used to pay for the premium, the proceeds of the policy constitute
community property if the policy was made payable to the deceaseds estate.
One-half of said proceeds belongs to the estate and the other half to the
surviving spouse.
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.
i.
Designation of beneficiary generally revocable. However, it may stipulate

that the beneficiary is irrevocable. (Section 11, Insurance Code). However,
relate to the provision of Article 64, Family Code of the Philippines.
(c) Beneficiary
Beneficiary is a party to whom the insurance proceeds will inure when the
contingency covered by the insurance happens. It may be the insured himself or
a third party.
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.
Section 53, Insurance Code
16
As a rule, the designation of the beneficiary is revocable. If the insured

wants the designation to be irrevocable, the irrevocable nature should be
provided for in the policy.
Section 11, IC
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.
Article 64, FCP
After the finality of the decree of legal separation, the
innocent spouse may revoke the donations made by him or by
her in favor of the offending spouse, as well as the

designation of the latter as beneficiary in any insurance
policy, even if such designation be stipulated as irrevocable.
The revocation of the donations shall be recorded in the
registries of property in the places where the properties are
located. Alienations, liens and encumbrances registered in
good faith before the recording of the complaint for revocation
in the registries of property shall be respected. The revocation
of or change in the designation of the insurance beneficiary
shall take effect upon written notification thereof to the
insured.
disqualified after the contracts perfection. The underlying principle is that

the beneficiary should not profit from his misdeed. The disqualification
under Section 12 of the Insurance Code arises due to a willful act of the
beneficiary.
RA No. 10607 changed the default rules on beneficiary under Section 12.
The Life Insurance, if a beneficiary is disqualified under Section 12, the
proceeds of the insurance shall be paid in accordance with the following
rules:
(1) The forfeited share of the disqualified beneficiary shall pass on to
the other beneficiaries;
The action to revoke the donation under this Article must be

brought within five years from the time the decree of legal
separation become final.
Effect if Irrevocable. As the term implies, an irrevocable beneficiary cannot

be replaced. The irrevocable beneficiary has vested rights over the policy.
For example, the rights of the irrevocable cannot be affected by the
subsequent assignment of the insurance policy. In case there is cash
surrender value, it is the irrevocable beneficiary who can take a policy loan
thereon.
Exception. By way of exception, the Family Code provides for revocation of
an irrevocable designation of beneficiary. Article 64 of the Family Code
provides that after the finality of the decree of legal separation, the
innocent spouse may revoke the designation as a beneficiary in any
insurance policy, even if such designation is stipulated to be irrevocable.
The revocation of or change in the designation of the insurance beneficiary
shall take effect upon written notification thereof to the insured.
ii.
Forfeiture of rights of a beneficiary Section 12, Insurance Code

Section 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.
Section 12 of the Insurance Code talks about a disqualification that arises

after the perfection of the contract of insurance. The beneficiary does not
suffer any disqualification at the inception of the contract but he becomes
17
(2) If there are no other beneficiaries, the proceeds shall be paid in

accordance with the policy contract;
(3) If there are no other beneficiaries and there is no provision in the
policy contract, the proceeds shall be paid to the estate of the
insured.
iii.
Disqualification of beneficiary Article 2012, NCC in relation to Art. 739,

NCC
Article 2012 Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life
insurance policy and by the person who cannot make any
donation to him, according to said article.
Article 739

(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.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee;
and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action.
Grounds for disqualification. See Article 739, NCC. Thus in the cases
mentioned in Article 739, NCC, although the insurance contract itself is
valid, the designation of beneficiary is void because they are disqualified as
beneficiaries.
While a concubine is disqualified, the illegitimate children of the insured are

not disqualified. No legal prescription exists in naming as beneficiaries the
children of illicit relationships by the insured. If the concubine was
disqualified, her shares in the insurance proceeds must be awarded to the
illegitimate children who are also designated as beneficiaries.
iv.
Spouse may be a designated beneficiary of the other spouse

The spouses can designate the other as a beneficiary. While a spouse is
prohibited from making a donation to the other spouse under the New Civil
Code and the Family Code, this prohibition does not apply to insurance
contracts. The proceeds of the insurance policy cannot be considered a
donation or gift. The contract of life insurance is a special contract and the
destination of the proceeds thereof is determined by special laws which
deal exclusively with that subject. The Civil Code (and the Family Code) has
no provision which relate directly and specifically to life-insurance contracts
or to the destination of life insurance proceeds.
v.
The amount of the policy represents the premium to be paid, and the
right to it arises the moment the contract is perfected, for at the
moment the power of disposing of it may be exercised, and if death
occurs payment may be demanded. It is therefore something acquired
for a valuable consideration during the marriage, though the period of
its fulfillment, depend upon the death of one of the spouses, which
terminates the partnership. So considered, the question may be said to
be decided by Articles 1396 and 1401: if the premiums are paid with
the exclusive property of husband or wife, the policy belongs to the
owner; if with conjugal property, or if the money cannot be proved as
coming from one or the other of the spouses, the policy is community
property.
When there is no beneficiary
vi.
General and vague designation of beneficiary Sections 53 and 54,

Insurance Code
Section 53
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.
Section 54
When an insurance contract is executed with an agent or

trustee as the insured, the fact that his principal or beneficiary
is the real party in interest may be indicated by describing the
insured as agent or trustee, or by other general words in the
policy.
When there is no beneficiary. It is only when there is no designated

beneficiary or when the designation is void, that the laws of succession are
applicable. In other words, if there is no designated beneficiary, the
proceeds shall form part of the estate of the deceased insured.
In case the insurance was funded by the absolute community and in the
absence of a beneficiary the proceeds become part of the absolute
community.
(d) Insurance Agent Section 54, Insurance Code in relation to Section 309,
Insurance Code. See also the general provisions of Agency in the Civil Code.
The insurance policy may be obtained by a person through his agent or trustee.
If funds came from the conjugal partnership of gain:

Section 54
Effect of use of conjugal funds. If the funds of the conjugal partnership
of gains are used to pay for the premium, the proceeds of the policy
constitute community property if the policy was made payable to the
deceaseds estate. One-half of said proceeds belongs to the estate and
the other half to the surviving spouse.
If funded from the separate property of one of the spouses, the policy
belongs to the owner.
In a case decided when the New Civil Code provisions on the property
regime of the spouses was still in force, the Supreme Court adopted the
following comments of Manresa in his Commentaries on the Civil Code (Vol.
9, page 589 cited in the Bank of the Philippine Islands v. Juan Posadas, Jr.):
18
When an insurance contract is executed with an agent or trustee

as the insured, the fact that his principal or beneficiary is the real
party in interest may be indicated by describing the insured as
agent or trustee, or by other general words in the policy.
Section 309 Any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transmits for a person other
than himself an application for a policy or contract of insurance to
or from such company or offers or assumes to act in the
negotiating of such insurance shall be an insurance agent within
the intent of this section and shall thereby become liable to all the
duties, requirements, liabilities and penalties to which an
insurance agent is subject.
An insurance agent is an independent contractor and not an

employee of the company represented. Insurance agent includes
an agency leader, agency manager, or their equivalent.
Article 1868 By the contract of agency a person binds himself to render

some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
Since the insurance industry is imbued with public interest, the

insurance companies upon approval of the Commissioner may
exercise wide latitude in supervising the activities of their
insurance agents to ensure the protection of the insuring public.
Article 1869 Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting
on his behalf without authority.
Section 307 No insurance company doing business in the Philippines, nor any
agent thereof, shall pay any commission or other compensation to
any person for services in obtaining insurance, unless such person
shall have first procured from the Commissioner a license to act as
an insurance agent of such company or as an insurance broker as
hereinafter provided.
No person shall act as an insurance agent or as an insurance
broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company
doing business in the Philippines, or any agent thereof, without
first procuring a license so to act from the Commissioner, which
must be renewed every three (3) years thereafter. Such license
shall be issued by the Commissioner only upon the written
application of the person desiring it, such application if for a
license to act as insurance agent, being approved or endorsed by
the company such person desires to represent, and shall be upon
a form prescribed by the Commissioner giving such information as
he may require, and upon payment of the corresponding fee
hereinafter prescribed. The Commissioner shall satisfy himself as
to the competence and trustworthiness of the applicant and shall
have the right to refuse to issue or renew and to suspend or
revoke any such license in his discretion. The license shall expire
after the thirty-first day of December of the third year following
the date of issuance unless it is renewed.
Licenses may be renewed in the case of the company represented
by such agents, and in the case of insurance brokers, upon the
application of the said brokers, themselves.
Section 308 The provisions of Sections 307 and 309 shall apply to an employee
who shall be engaged to sell insurance products by an insurance
company.
General Provisions of Agency in the Civil Code
Agency may be oral, unless the law requires a specific form.

Article 1870 Acceptance by the agent may also be express, or implied from
his acts which carry out the agency, or from his silence or
inaction according to the circumstances.
Article 1871 Between persons who are present, the acceptance of the
agency may also be implied if the principal delivers his power
of attorney to the agent and the latter receives it without any
objection.
Article 1872 Between persons who are absent, the acceptance of the
agency cannot be implied from the silence of the agent,
except:
(1) When the principal transmits his power of attorney to the
agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which
he is habitually engaged as an agent, and he did not
reply to the letter or telegram.
Article 1873 If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third
person, the latter thereby becomes a duly authorized agent,
in the former case with respect to the person who received
the special information, and in the latter case with regard to
any person.
The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given.
Article 1874 When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.
Article 1875 Agency is presumed to be for a compensation, unless there is
proof to the contrary.
19
Article 187
An agency is either general or special.

The former comprises all the business of the principal. The
latter, one or more specific transactions.
Article 1877 An agency couched in general terms comprises only acts of

administration, even if the principal should state that he
withholds no power or that the agent may execute such acts
as he may consider appropriate, or even though the agency
should authorize a general and unlimited management.
Article 1878 Special powers of attorney are necessary in the following
cases:
(1) To make such payments as are not usually considered as
acts of administration;
(2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously
or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those
made to employees in the business managed by the
agent;
(7) To loan or borrow money, unless the latter act be urgent
and indispensable for the preservation of the things which
are under administration;
(8) To lease any real property to another person for more
than one year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the
agency;
(15) Any other act of strict dominion.
Article 1879 A special power to sell excludes the power to mortgage; and a
special power to mortgage does not include the power to sell.
20
Article 1880 A special power to compromise does not authorize submission

to arbitration.
Article 1881 The agent must act within the scope of his authority. He may
do such acts as may be conducive to the accomplishment of
the purpose of the agency.
Article 1882 The limits of the agent's authority shall not be considered
exceeded should it have been performed in a manner more
advantageous to the principal than that specified by him.
Article 1883 If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction
were his own, except when the contract involves things
belonging to the principal.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent.
(e) Insurance for a partner Section 55, Insurance Code. See Civil Code provisions.
Section 55
To render an insurance effected by one partner or part-owner,

applicable to the interest of his co-partners or other part-owners, it
is necessary that the terms of the policy should be such as are
applicable to the joint or common interest.
If the policy is secured for the benefit of a partnership, a change in the name of
the partnership does not avoid the policy. For example, the Supreme Court ruled
in one case that when the partners of a general partnership doing business
under the firm name of Sharruf & Co. obtained insurance policies and the
latter afterwards changed its name to Sharruf & Eskenazi (which are the
names of the same and only partners of said firm Sharruf & Co.), but
continuing the same business, the new firm acquires the rights of the former
under the same policies.
Civil Code provisions
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 1767 By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the
exercise of a profession.
Article 1768 The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772, first
paragraph.
Article 1769 In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by article 1825, persons who are not
partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself establish
a partnership, whether such-co-owners or co-possessors
do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.

Article 1770 A partnership must have a lawful object or purpose, and must
be established for the common benefit or interest of the
partners.
When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the State,
without prejudice to the provisions of the Penal Code
governing the confiscation of the instruments and effects of a
crime.
Article 1771 A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Article 1772 Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in
a public instrument, which must be recorded in the Office of
the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and
the members thereof to third persons.
Article 1773 A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to
the public instrument.
Article 1774 Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name.
Article 1775 Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members
may contract in his own name with third persons, shall have
no juridical personality, and shall be governed by the
provisions relating to co-ownership.
Article 1776 As to its object, a partnership is either universal or particular.
As regards the liability of the partners, a partnership may be
general or limited.
Article 1777 A universal partnership may refer to all the present property
or to all the profits.
Article 1778 A partnership of all present property is that in which the
partners contribute all the property which actually belongs to
21

them to a common fund, with the intention of dividing the
same among themselves, as well as all the profits which they
may acquire therewith.
Article 1779 In a universal partnership of all present property, the property
which belonged to each of the partners at the time of the
constitution of the partnership, becomes the common
property of all the partners, as well as all the profits which
they may acquire therewith.
A stipulation for the common enjoyment of any other profits
may also be made; but the property which the partners may
acquire subsequently by inheritance, legacy, or donation
cannot be included in such stipulation, except the fruits
thereof.
Article 1780 A universal partnership of profits comprises all that the
partners may acquire by their industry or work during the
existence of the partnership.
Movable or immovable property which each of the partners
may possess at the time of the celebration of the contract
shall continue to pertain exclusively to each, only the usufruct
passing to the partnership.
Article 1781 Articles of universal partnership, entered into without
specification of its nature, only constitute a universal
partnership of profits.

How to transfer. No formalities are required for the assignment of life or health
insurance policies. Hence, the provisions of the New Civil Code on assignment of
rights should be applied. For example, the New Civil Code provides as one of the
modes of transferring ownership the delivery of the proof or evidence of the
right. Accordingly, delivery of the policy may transfer ownership of the policy of
insurance.
Notice not necessary. Since the right to transfer is conferred by law, notice to
the insurer is not even necessary to validate the transfer. The assignee acquires
the right thereon even without the knowledge of the insurer. Nevertheless, while
notice to the insurer is not required, it is more advantageous to the assignee to
give notice to the insurer of such transfer. (Section 185, Insurance Code)
Section 185 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.
Double Assignment. There are views in determining who has a better right in
case the insured assigns the life or health insurance policy to two or more
persons. One is the English Rule according to which the assignee who first
gives notice is the one entitled to the proceeds if he has no notice of any prior
assignment. The other view is known as the American Rule which provides
that the assignee under the first assignment has the preferable claim. The
American Rule applies in this jurisdiction because in the absence of any
specific provision on double sale or assignment of rights, the applicable
principle is prius tempore portior jure first in time, stronger in right.
(g) Assignee / Transferee of Property Insurance

Article 1782 Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal
partnership.
Article 1783 A particular partnership has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of
a profession or vocation.
(f)
Mere transfer of the thing insured does not transfer the policy, but suspends the
same till the new owner becomes the owner of both the property and the policy.
Section 58, Insurance Code
The mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy
and the thing insured.
Assignee / Transferee of a Life Insurance Section 184, Insurance Code

A life or health insurance policy can be transferred even without the consent of
the insurer.
Section 184 A policy of insurance upon life or health may pass by transfer, will
or succession to any person, whether he has an insurable interest
or not, and such person may recover upon it whatever the insured
might have recovered.
22
Implicit from this provision is the rule that the policy cannot be transferred so
long as the transferee has insurable interest in the thing insured. Nevertheless,
the insurers assent is necessary for the transfer.
Exceptions. There are exceptional cases when the insurers consent is not
necessary even if successors-in-interest of the insured substitute the latter.
These include cases involving transfer through will or succession and other
instances of transfer by operation of law and in cases where there is transfer
among partners. (Sections 23 and 24, Insurance Code)
23
Section 23
A change of interest, by will or succession, on the death of the

insured, does not avoid an insurance; and his interest in the
insurance passes to the person taking his interest in the thing
insured.
Section 24
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.

(h) Insurance Agents Who are insurance agents? See Section 309, Insurance
Code (Relate to Labor Code / Statutory Control Test in Labor Law.

The usual test used to determine the existence of employer-employer
relationship is the so-called four-fold test. In applying this test, the
following elements are generally considered:
Section 309 Any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transmits for a person other
than himself an application for a policy or contract of insurance to
or from such company or offers or assumes to act in the
negotiating of such insurance shall be an insurance agent within
the intent of this section and shall thereby become liable to all the
duties, requirements, liabilities and penalties to which an
insurance agent is subject.
An insurance agent is an independent contractor and not an
employee of the company represented. Insurance agent includes
an agency leader, agency manager, or their equivalent.
Since the insurance industry is imbued with public interest, the
insurance companies upon approval of the Commissioner may
exercise wide latitude in supervising the activities of their
insurance agents to ensure the protection of the insuring public.
1.
2.
3.
4.
Right to hire or to the selection and engagement of the

employee.
Payment of wages and salaries for services.
Power of dismissal or the power to impose disciplinary actions.
Power to control the employee with respect to the means and
methods by which the work is to be accomplished. This is
known as the right-of-control test.
Right of control test is considered as the most important element in

determining the existence of employment relation.
Of the above-mentioned elements, the right of control test is considered as
the most important element in determining the existence of employment
relation. The control test initially found application in the case of Viaa vs.
Al-Lagadan and Piga, where the court held that there is an employeremployee relationship when the person for whom the services are
performed reserves the right to control not only the end achieved but also
the manner and means used to achieve that end.
Control Test in Labor Law

The determination of whether employer-employee relation exists between
the parties is very important. For one, entitlement to labor standards
benefits such as minimum wages, hours of work, overtime pay, etc., or to
social benefits under laws such as social security law, workmens
compensation law, etc., or to termination pay, or to unionism and other
labor relations provisions under the Labor Code, are largely dependent on
the existence of employer-employee relationship between the parties.
Another thing is that the existence of employer-employee relationship
between the parties will determine whether the controversy should fall
within the exclusive jurisdiction of labor agencies or not. If for example the
parties are not employer-employee of each other, respectively, but perhaps
partners or associates, then any dispute between them will be not be
covered by the jurisdiction of labor agencies but by regular courts.
There are three test commonly used to determine the existence of
employer-employee relationship:
1.
2.
3.
Four-fold test
Economic reality test
Two-tiered test (or Multi-factor test)
Four-fold test elements
24
Control test thus refers to the employers power to control the employees
conduct not only as to the result of the work to be done but also with
respect to the means and methods by which the work is to be
accomplished.
In applying this test, it is the existence of the right, and not the actual
exercise thereof, that is important.
The Supreme Court has laid down in a formidable line of decisions the
elements to be generally considered in determining the existence of an
employer-employee relationship, as follows:
(a)
(b)
(c)
(d)
selection and engagement of the employee;

the payment of wages;
the power of dismissal; and
the employers power to control the employee with respect to the
means and method by-which the work is to be accomplished (the
power to control the employees conduct). This, the control test, is
the most important element.
The control testmeaning whether or not the employer controls or has

reserved the right to control the employee not only as to the result of the
work to be done but also the means and methods employed in reaching
that endconstitutes the most important index of the existence of an

employer-employee relationship.
(2) Insurable interest likewise helps in measuring the loss of the insured.
Applying the control test, that is, whether the employer controls or has
reserved the right to control the employee not only as to the result of the
work to be done but also as to the means and method by which the same is
to be accomplished, the question of whether or not there is an employeremployee relationship for purposes of the Social Security Act has been
settled in this jurisdiction in the case of Investment Planning Corp. vs. SSS,
21 SCRA 924 (1967). In other words, where the element of control is
absent; where a person who works for another does so more or less at his
own pleasure and is not subject to definite hours or conditions of work, and
in turn is compensated according to the result of his effort, the relationship
of employer-employee does not exist. (SSS vs. Court of Appeals, 30 SCRA
210 [1969]).
If the insured has no insurable interest over the life or property he insures, the
insurance contract is considered unenforceable. If it can be established that the
contract is really a wager, the same can be considered void for being against
public policy. Thus, Section 25 of the Insurance Code provides:
Section 25
a.1 In Life Insurance That circumstances which will allow a person to take on
insurance over the life of another person for reasons that the death,
disability or injury of that person will cause damage to the emotional or
economic well being of the one who obtained the insurance.
IX. INSURABLE INTEREST

A.
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.
Concept
a.2 In Property Insurance See Section 13, Insurance Code
Insurable Interest
Section 13
Concept
It may be stated generally, however, to be such an interest, arising
from the relation of the party obtaining the insurance, either as
creditor of or surety for the assured, or from ties of blood or marriage
to him, as will justify a reasonable expectation of advantage or benefit
from the continuance of his life. It is not necessary that the expectation
of advantage or benefit should always be capable of pecuniary
estimation; for a parent has an insurable interest in the life of his child,
and a child in the life of his parent, a husband in the life of his wife, and
a wife in the life of her husband. The natural affection in cases of this
kind is considered as powerful as operating more efficaciously to
protect the life of the insured than any other consideration. But in all
cases 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 assured. Otherwise, the contract is a mere wager, by which the
party taking the policy directly interested in the early death of the
assured. Such policies shall have the tendency to create a desire for
the event. They are, therefore, independently of any statue on the
subject, condemned, as being against public policy.
The presence of insurable interest has the following purposes:
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.
a.3 Effect of lack of insurable interest Generally unenforceable (Section 18,

IC) and will be considered as a contract of wager.
If the insured has no insurable interest over the life or property he insures,
the insurance contract is considered unenforceable. If it can be established
that the contract is really a wager, the same can be considered void for
being against public policy. Thus, Section 25 of the Insurance Code
provides:
Section 25
B.
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 in Life Insurance
(1) The presence of insurable interest reduces moral hazards; and

25
b.1 Insurable interest over the life of another person. The persons in whose life
one may have insurable interest are enumerated in Section 10 of the
Insurance Code.
Section 10
out an insurance policy with the continued preservation of the life of

the partner or employee. In the case of a partner, it is reasonable to
conclude that the continuance of partnership and the life of a partner
furnished a reasonable expectation of advantage to the other partners.
Similarly, the loss of the life of the employee will result in economic
loss on the part of the employer because he will be deprived of the
service of the employee.
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;
Creditor. One can insure the life 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.
(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
Mortgage Redemption Insurance. Debtors may be insured into a group

life insurance known as mortgage redemption insurance. A
mortgage redemption insurance is a device for the protection of both
the mortgagee and the mortgagor. On the part of the mortgagee, it has
to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will e applied to
the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. In a similar vein, ample
protection is given to the mortgagor under such a concept so that in
the event of death; the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage indebtedness.
(d) Of any person upon whose life any estate or interest

vested in him depends.
Classes of Insurable Interest in Life Insurance. Insurance interest may be
(1) insurable interest in the insureds own life, or
(2) insurable interest in the life of another person
With respect to insurable interest in the life of another person, the
same may be based on
(1) relationship by blood,
(2) business relationship, or
(3) other pecuniary interest,
Blood Relationship. Blood relationship is limited to insurable interest
over the life of a spouse or of ones children. Blood relationship alone
would not suffice in other cases. Thus, one has no insurable interest
over the life of his parents or his brothers and sisters by the mere fact
that they are related to him by blood alone. The basis of insurable
interest is not blood relationship but pecuniary interest.
b.2 Insurable interest over blood relationship Limited to Spouse and Children.
Parents are not included unless they all due under Section 10 (b), IC.
C.
Insurable Interest in Property Insurance

The basic rule in property insurance. Section 18, Insurance Code
Section 18
No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an
insurable interest in the property insured.
Other relation provisions. Section 13, 14, 16 and 17 of the Insurance Code
Education or support. One has insurable interest on the life of any
person on whom he depends wholly or in part for education or support.
The law does not require that the person on whom one depends wholly
or in part for education or support is legally obligated to do so.
Pecuniary Interest. Every person has insurable interest in the life or
health of any person in whom he has a pecuniary interest. Accordingly,
one has insurable interest over the life of his partner or his employee.
In both cases, pecuniary benefit is derived by the person who will take
26
Section 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.
Section 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
Section 16
Section 17
A mere contingent or expectant interest in anything, not

founded on an actual right to the thing, nor upon any valid
contract for it, is not insurable.
The measure of an insurable interest in property is the extent
to which the insured might be damnified by loss or injury
thereof.
c.1 In general, test of insurable interest in property Section 13, IC and Section
17, IC
Section 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.
c.2.1 Existing Interest. Existing interest includes the interest of an owner.

However, title or ownership is not essential. Thus the following persons
have insurable interest over the property even if they are not the
owners thereof: (1) lessee, (2) depositary, (3) usufructuary, and (4)
borrower in commodatum.
Insurable interest in property exists in any of the following cases
because the person is so situated that he will suffer because of the loss
due to a peril insured against:
(1) When the insured possesses a legal title to the property
insured, whether vested or contingent, defeasible or
undefeasible;
(2) When he has equitable title of whatever character and in
whatever manner acquired;
(3) When he possesses a qualified property or possessory right in
the subject of the insurance;
(4) When he has mere possession or right of possession; and
Section 17
The measure of an insurable interest in property is the

extent to which the insured might be damnified by loss or
injury thereof.
Test. Based on Section 13 of the Insurance Code, the presence of

insurable interest in property can be determined by asking if the
insured has 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 said insured.
The test in determining insurable interest in property is whether one
will derive pecuniary benefit or advantage from its preservation, or will
suffer pecuniary loss or damage from its destruction, termination,
injury by the happening of the event insured against.
c.2 Kinds of Insurable Interest in Property Section 14, IC

Section 14
c.2.2
Inchoate Interest. Inchoate interest must be founded on an
existing interest, otherwise, the loss of the property will not directly
damnify the insured.
c.2.3
Expectancy. Expectancy must likewise be coupled with an existing
interest. For instance, the interest of an heir over the properties of his
successor who is still alive is a mere expectancy that is not coupled
with an existing interest. Hence, the heir does not have insurable
interest over the properties of his successor-in-interest.
An insurable interest in property may consist in:

(1) An existing interest;
(2) An inchoate interest founded on an existing interest;
or
(3) An expectancy, coupled with an existing interest in
that out of which the expectancy arises
27
(5) When he has neither possession of the property nor any other
legal interest in it but stands in such relation with respect to it
that he may suffer from its destruction, loss of a legal right
dependent upon its continued existence.
Distinctions Between Insurable Interest in Property Insurance and

Life Insurance
Insurable Interest in
Insurable Interest in
Property
Life
Limited up to the value Unlimited
except
if
As to extent
of the property.
secured by the creditor.
Time when it must At
the
time
of At the time of the

perfection
of
contract and at
time of the loss.
exist
the
the
Need for legal basis
Expectation of benefit
must have legal basis.
Beneficiarys
interest
Beneficiary must have

insurable interest.
perfection
contract.
of
the
Expectation of benefit
need not have legal
basis or need not be
based
on
legally
enforceable obligation.
Insurable interest is not
necessary
if
the
insured took out the
policy on his own life
and
designated
another.
Beneficiary
must have insurable
interest if one took out
an insurance on the life
of another.
c.3 Insurable Interest of Bailee Section 15, IC

In a contract of carriage, the carrier may be damnified by the loss of the
goods because he may be obligated to pay the shipper any damage to the
property. Similarly, a depositary is obligated to take care of the thing
deposited and he can be made liable if the thing deposited is damaged.
Thus, both the carrier and the depositary have insurable interest over the
property subject to the provisions of Section 15 of the Insurance Code
which provides:
Section 15
A carrier or depository of any kind has an insurable

interest in a thing held by him as such, to the extent of
his liability but not to exceed the value thereof.
Included in insurance policies taken by depositaries are the so-called bailee

policies that are involved in transportation of goods.
c.4 Insurable Interest of Mortgagor and Mortgagee Section 8, IC

Both the mortgagor and the mortgagee have insurable interest over the
mortgage property. The mortgagor is the owner of the mortgaged property,
hence, he has an existing interest that may be the subject of an insurance.
Section 8 governs situations when the mortgagor takes an insurance on the
basis of his own insurable interest:
Section 8
28
Unless the policy otherwise provides, where a mortgagor

of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the

insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the
same effect as if it had been performed by the mortgagor.
As a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be covered
by one policy, or each may take out a separate policy covering his interest,
either at the same or at separate times. The mortgagors insurable interest
covers the full value of the mortgaged property. The mortgagees insurable
interest is to the extent of the debt, since the property is relied upon as
security thereof, and in insuring he is not insuring the property but his
interest or lien thereon. His insurable interest is prima facie the value of the
mortgaged property. Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.
The usual practice and contractual stipulation is for mortgagor to take out
insurance for the benefit of the mortgagee. The mortgagee may be made
the beneficial payee in several ways including the following:
(1) He may become the assignee of the policy with the consent of the
insurer; or
(2) A mere pledgee without such consent, or the original policy may
contain a mortgage clause; or
(3) A rider making the policy payable to the mortgagee as his
interest may appear may be attached; or
(4) A standard mortgage clause, containing a collateral independent
contract between the mortgagee and the insurer, may be
attached; or
(5) The policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a
contract duty to insure for the mortgagees benefit, in which case
the mortgagee acquires an equitable lien upon the proceeds; or
(6) The policy may provide for a loss payable clause in favor of the
mortgagee.
In the policy obtained by the mortgagor with loss payable clause in favor
of the mortgagee as his interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as such by the insurer but
not made a party to the contract himself. Hence, any act of the mortgagor
which defeats his right will also defeat the right of the mortgagee. This kind
of policy covers only such interest as the mortgagee has at the issuance of
the policy. The typical loss payable clause is also known as the open
mortgage clause.
A loss payable clause should be distinguished from a union mortgage
clause where there is a transfer of an insurance from the mortgagor to the
mortgagee with the assent of insurer. The applicable statute is Section 9 of
the Insurance Code which provides:
Section 9
If an insurer assents to the transfer of an insurance from

a mortgagor to a mortgagee, and, at the time of his
assent, imposes further obligations on the assignee,
making a new contract with him, the acts of the
mortgagor cannot affect the rights of said assignee.
The different variations of loss payable clauses were explained by Prof.

Vance in this wise:
In the first class are those that merely designate the mortgagee as
payee, to the extent of his interest, of such sum as may become
payable under the provisions and conditions of the policy. Under such
clause the mortgagee is made merely a beneficiary under the contract,
recognized as such by the insurer, but not made a party to the contract
itself. Any default on the part of the mortgagor, which by the terms of
the policy defeat his rights, will also defeat all rights of the mortgagee
under the contract, even though the latter may not have been in any
fault.
In the second class are those clauses, known in their more usual forms,
as standard or union mortgage clauses, which create collateral
independent contracts between the insurer and mortgagee, and
provide that the rights of the mortgagee shall not be defeated by the
acts or defaults of the mortgagor. Under clauses of this class, we have
the general rule that the mortgagees rights remain unaffected by any
default or breach of condition by the mortgagor to which the
mortgagee is not a party.
29

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Insurance Notes for Midterms

PART ONE: INSURANCE IN RELATION TO OTHER LAWS

II. INSURANCE AS SPECIAL CONTRACTS

Insurance in relation to civil law

x x x The contract of life insurance is a special contract and the destination

The following donations shall be void:

SOUTHERN LUZON EMPLOYEES ASSOCIATION v. GOLPEO

THE INSULAR LIFE ASSURANCE COMPANY, LTD v. EBRADO

Co, Anne Lorraine Pongos |

INSURANCE LAW | Atty. Ibarra

Those made between persons who were guilty of adultery or

Those made between persons found guilty of the same

Those made to a public officer or his wife, descendants or

Insurance Notes for Midterms

In the case referred to in No. 1, the action for declaration of nullity

a.1 Consent (Articles 1319 1326, NCC)

a.1.1 Persons who cannot give consent to a contract of insurance

Co, Anne Lorraine Pongos |

INSURANCE LAW | Atty. Ibarra

Insurance Notes for Midterms

a.1.2 Mistake, Fraud, Violence, Intimidation, Undue Influence (Articles

A threat to enforce one's claim through competent

Article 1335 There is violence when in order to wrest consent,

All services which are not contrary to law, morals, good

Impossible things or services cannot be the object of

Article 1349 The object of every contract must be determinate as to

INSURANCE LAW | Atty. Ibarra

Insurance Notes for Midterms

a.3 Cause/Consideration (Article 1350, NCC) Payment of insurance

(b) Defective Contracts and Insurance Law

Those where one of the parties is incapable of

(2) Those where the consent is vitiated by mistake,

b.2 Unenforceable Contracts and Unenforceable Contracts of Insurance

Those entered into in the name of another

(2) Those that do not comply with the Statute of Frauds as

INSURANCE LAW | Atty. Ibarra

An agreement that by its terms is not to be

b.3 Void Contracts and Void Contracts of Insurance

Insurance Notes for Midterms

These contracts cannot be ratified. Neither can the right to

b.4 Rescissible Contracts of Insurance

INSURANCE LAW | Atty. Ibarra

An aleatory contract contains elements of both a conditional obligation and an

Insurance Notes for Midterms

You have to give something.

Onerous describes a contract or lease that has more obligations than

(b) Non-Life Insurance

IV. CONCEPTS AND TERM USED

The term marine insurance cannot be given a simple definition; it has

(a) Insurance against loss of or damage to:

(a) Life Insurance

Section 101 Marine Insurance includes:

(1) Vessels, craft, aircraft, vehicles, goods, freights,

INSURANCE LAW | Atty. Ibarra

Insurance Notes for Midterms

interest in movable property, may be exposed during a certain

(2) Person or property in connection with or

(2) Inland Marine Insurance

(3) Precious stones, jewels, jewelry, precious metals,

(3) Aviation Insurance

INSURANCE LAW | Atty. Ibarra

Insurance Notes for Midterms