FEU INSTITUTE OF LAW

Insurance Law
C.IBARRA, AB, JD.
Schedule : Thursdays 1700-1900hrs

JOSE VENER

I. Introduction
PART ONE : INSURANCE IN RELATION TO OTHER LAWS
II. Insurance as Special Contracts
a. Requisites of a valid contract. (Art. 1318 CCP)
a.1. Consent (Art. 1319, 1320-1326)
a. 1.1. Persons who cannot give consent to a contract of
insurance (see Art .1327) (see
also Art. 1328 CCP).
a.1.2. Mistake, Violence, Intimidation, undue influence ( Art. 13301339 CCP)
a.2. Object (See Art. 1347-1349 CCP) - In relation to insurable interest
a.2. Cause/ Consideration (See Art 1350 CCP)-Payment of insurance
premium
b. Defective Contracts and Insurance Law-

b.1. Voidable Contracts and Voidable Contracts of Insurance

b.2. Unenforceable Contracts and Unenforceable contracts of
insurance
b.3. Void contracts and void contracts of insurance
b.4. Rescisible contracts of insurance?
III. Characteristics
a. Aleatory contract - Element of risk. An aleatory contract is one which is
dependent on the occurence of an uncertain event or one which is certain to
happen but the time is unknown.
nb. An aleatory contract contains elements of both a conditional obligation and
an obligation subject to a period.
b. Onerous - There is valuable consideration.
c. Bilateral
d. Form - It is a formal contract.

IV. Concepts and term used a. Type of Insurancea.1. Life Insurance

i. Individual life
ii. Group Life
iii. Industrial Life
a.2. Non-Life Insurance
i. Marine
ii. Fire
iii Casualty
a.3. Suretyship
V. Applicable Law a. New Insurance Code (RA 10607)
b. Civil Code provisions on contracts and Art. 2011 and other related
articles.
c. Family Code
d. Other special laws.
PART TWO: THE INSURANCE CODE OF THE PHILIPPINES.
VI.
VII

Insurance defined - Sec. 2. I.C.

What may be insured in a contract of insurancea. Future, Contingent or past event may be insured. (Sec. 3. I.C.)
b. Insurance on Lottery (Sec. 4, I.C.)

VIII. Parties to a Contract of Insurancea. Who can be an Insurer (Sec. 6, I.C.)a.1. Kinds of Insurers
a.1.1 Insurance Companies and Reinsurance Companiesa.1.2. Partnerships, persons, associations etc.
a.1.3. Mutual Benefits Association- (Sec. 184 IC)
a.1.4. Mutual Insurance Companies (sec. 268 IC)
a.1.5. Cooperative and Cooperative Insurance Societies (Sec.
190 IC, in relation to Arts. 105-109 Philippine Cooperative Code)
a.2. Basic Qualification of Insurer (Sec. 192 IC)
a.3. Certificate of Authority, Jurisdiction of Insurance Commission
(Sec. 193, IC)

b. Who may be insured ?

b.1. Definition of Insured / Contrast with definition of assured.

b.2. Capacity of Insured to contract. (See Art. 1327 and 1390 CCP)
b.3. General Rule : Anyone except a public enemy may be
insured (Sec. 7)
- Transfer of insurance from one mortgagor to another (Sec. 8
and 9)
b.3.1. Spouses may enter into a contract of insurance on
their own (Sec. 3. IC, in relation to Section 73 and other
relevant provision of the Family Code)
b.3.2. Minors cannot enter into contracts of insurance(nb. RA 10607 removed the right of minors to enter into
contracts of insurance, this was previously allowed under
the old Insurance Code).
b.3.3. Effect of death of owner (See Sec.3 , last par)
Applicable only to life insurance. All interest, 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
b.3.4. Public Enemy- Definition
VIII. Insurable Interest
a. Concept
a.1. In Life Insurance- The relationship of the insured with the one
insured, so that the death, disability or injury of the insured will
result in emotional and/or economic dislocation of the insured. (see
also Warnock vs Davis 104 US 775, as discussed in Aquino,
Essentials of Business Law, pg. 57-58).
-There is an interest by the insured in seeing to it that the life,
health or economic capacity of insured is not diminished.
a.2. Property Insurance- Cf. Sec. 13 IC. The interest of the insured
over the object insured so that the person will be economically
damnified by the damage or loss of the object insured.

b. Effect of Lack of Insurable interest cf.Sec. 25 IC. When there is no

insurable interest the policy is akin to a wager in gambling and is
void.
c. Insurable Interest in Life Insurance- Cf. Sec. 10 IC- Generally, the
persons whose life he has insurable interest in are:
c.1. His own life. (Sec. 10 a IC)
c.2. Life of persons to whom he has blood relations (namely his
spouse, his children) (Ibid)
Case: Hilario Gercio vs. Sunlife Assurance of
Canada (GR No. 23703, Sept. 28, 1925)
Lalican vs. Insular Life Assurance (GR No. 183526,
August 25, 2009)
Manila Bankers Life Insurance vs. Aban (G.R. No.
175666 July 29, 2013).
Lalican vs. Insular Life Assurance Co. (G.R. No.
183526 Aug. 25, 2009)

c.3. A person for whom he relies on for support, education or a

person to whom he has pecuniary interest on. (Sec. 10b, IC)
c.3.1. Creditor
c.3.2. Mortgage Redemption Insurance
c.4. Any person upon whose life or estate or interest vested in
him the insured depends. (Sec 10d. IC)
d. Insurable Interest in Property Insurance Cf. Sec. 18 in relation to
Sec. 13. I.C.
d.1. Test see Sec. 13 I.C.
d.2. Kinds of insurable interest over property (cf. Sec. 14 I.C.)
d.2.1. An existing interest.
Cases : Gaisano Cagayan vs. Insurance Company of
North America (G.R. No. 147839 June 8, 2006)
Filipino Merchants Insurance vs. CA (G.R. No.
85141, Nov. 28, 1989)

Vicente Ong Lim Sing Jr. vs. FEB Leasing (G.R. No.
168115, June 8, 2007)
d.2.2. An inchoate interestCases : Armando Geagonia vs. CA and Country
Bankers (G.R. No. 114427)

d.2.3. Expectancy
Case :Filipino Merchants Insurance Co. Vs. CA
(G.R. No. 85141, November 28, 1989)
d.2.4. Insurable Interest of Bailee
Case : Armando Geagonia vs.CA
(G.R. No. 114427, February 6, 1995)
d.2.3. Insurable interest of mortgagor See also Sec. 9
I.C.
Case : Great Pacific Life Assurance Corp. vs. Court of
Appeals
(G.R. No 113899, October 13, 1999)
Read also : Lost payable clauses Aquino, pg. 72.
d.2.4. Insurable interest of Mortgagor- See also Sec. 9 I.C.
See Geagonia vs. CA (op. cit. )
- See also Sec. 20 I.C., in reference to changes in the
interest.
Cases: Spouses NILA CHA and STELLA UY CHA vs. CA
(G.R. No. 124520 August 18, 1997)
Manila Bankers Life vs. Aban (G.R. No. 175666
July 29, 2013)
Violeta Lalican vs. Insular Life Assurance (G.R. No.
183526
August 25, 2009)

d.2.5. Transfer of the thing insured, effect on policy and

interest (Sec. 58 I.C.)
d.2.6. Effect of change in the thing after injury or loss
occurs (Sec. 21)
d.2.7. Change in interest over one or more object
separately insured (Sec. 22 I.C.)
d.2.8. Change of interest by way of succession on the
death of insured (Sec. 23 I.C.)
d.2.10. Transfer of interest by a partner, joint owner, or
co-owner (Sec. 24 I.C.)

e. d.2.5 When must insurable interest exist? Cf. Sec. 19 I.C.

-In life insurance the interest must exist when the insurance takes
effect, but need not exist thereafter or when the loss occurs.
-In life insurance if a person insures his own life and designates a
beneficiary, the beneficiary need not have insurable interest over the
life of the insured. However, please note that this will be treated as a
donation and the prohibition in donations still exist.

-Beneficiary in life insurance must have insurable interest in the

property, otherwise it will be treated as a wager.
-If a person insures the life of another and designates himself the
beneficiary, he must have insurable interest over that persons life.
-In property insurance , interest must exist when the insurance takes
effect and when the loss occurs, but need not exist in the meantime.
IX . Premium
A. Rationale- Since insurance is a risk-spreading device, the premium provides
a pool of funds that is used to pay for the claims when the peril arises.

B. General Rule- Premium is required for policy to be binding- (cf. Sec. 77 I.C.).
Insurer is entitled to payment of premium the moment the thing insured is
exposed to the peril (ibid)
C. Exception to the rule that Premium is required for the policy to be bindinga. When in cases of life or industrial life policy during the grace period.
b. When there is an acknowledgement in the policy or receipt that the
premium has been paid. (cf. Sec. 79 I.C.)
c. When there is an agreement that the premium will be paid on installment.
d. When credit has been extended. (see Sec. 77 IC)
e. In cases of estoppel.
Cases: UCPB General Insurance vs. Masagana Telamart GR. 137172 April 4, 2001.
Makati Tuscany Condominium vs. CA GR No. 95546 November 6, 1992
South Sea Surety vs. Court of Appeals and Valenzuela Hardwood GR No.
102253 June 2, 1995.
Nb: Grace Period- Usually 30 days from the date the Premium becomes due
(cf. Sec. 233, 234, 236 IC)
D. Other schemes to prevent the lapsing of an insurance policy:
a. Automatic policy loan.
b. Application of Dividends.
c. Reinstatement.
E.
Return of Premiums - Premiums may be returned when:
a. The thing was not exposed to the peril (Sec. 80 I.C.)
b. In a "time policy" and there is a provision for a pro rata refund (ibid)
c. When the contract is voidable and declared as such (sec. 82 IC)
d. When the contract is annulled due to fraud or misrepresentation of the
insurer or of his agent or on account of facts or the existence of which the insured
was ignorant without his fault. (ibid)
e. When by the default of the insured other than actual fraud the insurer
never incurred liability under the policy (ibid)
f. In case of over-insurance by several insurers (Sec. 83 IC).
Note: When insurance claim is denied, insured is not entitled to return of
premium (Sec 82 IC).
F. Advanced Payment of premium (cd. Sec. 84 IC)
X. THE POLICY
A. What is the Policy - It is the written document where the terms of the
Insurance Contract is written. a. Consensual Contract- Since the

Insurance Contract is Consensual, absence of policy does not bar the

contract from existing.
a. As a contract of adhesion (cf. Art. 1377 CCP)
b. Approval needed by the Insurance Commission (cf.Sec. 232 IC)
B. Mandatory Contents (Sec. 51 IC)
C. Designation of beneficiary (Sec. 53 IC).
D. Identification of Insured (Sec. 54, 55 IC) . Designation of Class of
Person(Sec. 56 IC)
E.
Riders- Definition are additional clauses to a contract of insurance
which are usually attached to the main policy.
a. Requirements (Sec. 50 IC):
i. Must be attached to policy.
ii. The descriptive title or name of rider is mentioned and written on
the blank spaces provided in the main policy.
iii. If not applied by the insured or owner, rider must be counter-signed
by the insured.
F. Cover notes- Nature as temporary policy, requisites (cf. Sec. 52 IC)
a. Must be approved by the insurance commission.
b. Must be valid and binding for no more than 60 days and policy must be
issued thereafter.
c, May be cancelled with seven (7) day notice to either party.
G. Cancellation of Property Insurance Policies (cf. Sec 64 IC)
a. Non-payment of premium.
b. Conviction of a crime which will increase the hazard insured against.
c. Discovery of fraud or material misrepresentation.
d. Discovery of wilfull or reckless acts or omissions increasing the
hazard.
e. Physical changes in the property which increases the peril or making
the object uninsurable.
f. Over insurance.
g. Determination by the Insurance Commission that the continuation of
the policy would place the insurer in violation of the Insurance Code.
nb. Notice of Cancellation must be in writing (cf. Sec 65 IC).
H. Renewal of non-life insurance (Sec. 66 IC)