IC403 Insurance Law Review

EH403
INSURANCE LAW SY 2017-2018 ATTY. ARANAS MIDTERM REViEWER

I. INTRODUCTION country, Insular Life Assurance Co., Ltd., was established.
A. Overview 1939: the Union Insurance Society of Canton appointed
Russel & Surgis as its agent in Manila, transacting business

limited to non-life insurance. During this time, the prevalent
If we based it on world history, the concept of insurance
type of insurance was non-life insurance (first insurance is
was popularized by the merchants when they engage in
non-life i.e goods, house, ship… against fire, others).
shipping transactions (shipments). There are persons
1936: Social Insurance was established with the enactment
selling insurance for a premium. The oldest form of the
of Commonwealth Act. 186 which created the GSIS which
Insurance Law is contained in the Hammurabi Code during
started operations in 1937. (this time, we are under the
the Babylonian Time.
American Regime)

Social Insurance means it can be availed by all but this is
In the Philippines, our formal history started in the Spanish
limited only to government employees because of the
Era. So the concept of insurance started during the Spanish
establishment of the GSIS.
Regime. Prior to that, iya-iya, ako-ako applies (my loss is my
1949: Government agency was formed to handle insurance
loss, my gain is my gain). The Insurance Laws are contained
affairs, where the Insular Treasurer was appointed
in the Spanish Civil Code.
commissioner ex-officio.

1950: Reinsurance was introduced by the Reinsurance
Insurance is governed by the Insurance Code of the
Company of the Orient when it wrote treaties for both life
Philippines PD 602, which was recently amended by RA
and non-life insurance. Reinsurance means the relationship
10607. There are many new forms of insurance being
between the insurer and the insured.
introduced by RA 10607 (an example is the bank
(the insurer is insured with another entity, which is the
assurance—BDO, “invest 50,000 in one year, talk to me”)
insurer)

1951: First workmen’s compensation pool was organized
Insurance Commission—the Office of the Insurance
as the Royal Group Incorporated. This is the part when the
Commission is in charge of the regulation of Insurance
ECC comes in for work-related injuries.
Companies/Corporations.
1954: RA 1161 was enacted which provided for the

organization of the SSS covering employee of the private
B. General Concept sector.

Republic vs General Motors, the SC said that the business of D. Development of Insurance Laws
Insurance is vested with public interest and public policy

therefore it is dictated that the insurance must be regulated
Spanish Period:
by the Insurance Commission.
The laws on Insurance were found in Title VII of Book 2 and

Section 3 of Title III of Book 3 of the Spanish Code of
Insurance vs Health Maintenance Organization
Commerce; and in Chapters 2 and 4 of Title XII of Book 4 of
(HMO)—when you are employed, these are the usual
the Spanish Civil Code of 1889.
entities that take care of the health issues of the employees

(MediCare, MaxiCare)
American Regime:

On December 11, 1914, the Philippine Legislature enacted
Mutual Savings Company vs Ordinary Insurance
the Insurance Act (Act 2427). This Act which took effect on
Company
July 01,1915 repealing the provisions of the Spanish Code of
—Mutual Savings Fund: pooling of funds to buy stocks in
Commerce on Insurance.
the stock market. This is speculative. This is also a type of

insurance but this time, the insured is also the insurer.
December 18, 1974: PD 612 (Insurance Code of the
There is risk of loss but the risk is minimized because of the
Philippines) was passed, thereby repealing Act 2427.
mutual savings scheme.
June 11, 1976: PD 1460 took effect; consolidated all

insurance laws into a single code (Insurance Code of 1978);
C. Brief History August 15, 2013: RA 10607, or the Amended Insurance
Code, was passed signed by then PNoy.
As far as documented history is concerned, there is no
insurance pre-Spanish era. Every loss must be born by the RA 10607 set another limit for capital before a company can
person or by the family who suffered the misfortune. In start an insurance business. It may be adjusted every 3
short, there is risk retention. During the Spanish Era, the years, same with the tax rates, but still subject to some
insurance in its present concept was started. It was conditions.
introduced in the Philippines when the Lloyd’s of London
appointed Strachman, Murray & Co., Inc. as its Primary law the governs insurance contracts is the
representative in the country. Insurance Code of the Philippines: (PD 612)

1898: life insurance was introduced with the entry of Sun Amended by RA 10607 (August 15, 20113)
Life Assurance of Canada in the local insurance market. New Civil Code (applied suppletorily)
1906: the first domestic non-life insurance company, the • rules on perfection of contracts
Yek Tong Lin Insurance Company, was organized. • grounds for disqualifications of beneficiaries
1910: the first domestic life insurance company in the • right of subrogation
BRAÑA|IBARRA|TUMAGAN|UCKUNG 1
EH403 INSURANCE LAW SY 2017-2018 ATTY. ARANAS MIDTERM REViEWER

-Insurance is still a contract. documentary stamp tax. Otherwise, it will be exempted
from DST. The SC explained that under RA 7875 (or the
Corporation Code National Health Insurance Act of 1995), an HMO is “an
• The provisions of the Corporation Code also apply to entity that provides, offers or arranges for coverage of
Insurance Corporation in the Philippines. designated health services needed by plan members for a
• SEC has regulatory powers over insurance fixed prepaid premium.”
corporations, aside from the Insurance Commission.
Section2 (2) of PD 1460 (otherwise known as Insurance
When you establish an insurance business, it has to be an Code) enumerates what constitutes “doing an insurance
insurance corporation. business” or “ transacting an insurance business:”

E. General Concept of Insurance a) making or proposing to make, as insurer, any
insurance contract;
Public Interest in the Insurance Business
b) making or proposing to make, as surety, any contract
of suretyship as a vocation and not as merely incidental
The business of insurance is imbued with public interest to any other legitimate business or activity of the
and involves a matter of public policy. surety;
c) doing any kind of business, including a reinsurance
It is subject to regulation by the State, with respect not only business, specifically recognized as constituting the
to the relations between the insurer and the insured, but doing of an insurance business within the meaning of
also to the internal affairs of insurance companies. When it this Code;
comes to regulation, the entity that has the primary d) doing or proposing to do ay business in substance
responsibility to regulate is the Insurance Commission. equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
Insurance Commission Deputy Commissioner: Atty.
Dennis B. Funa In this case, SC determined the contents of the contract
entered into by these clients. It turns out, in the contract, it
(discussed in the case of Del Monte): provides that this HMO guarantees that if the client wants
The Insurance Commission is vested with both regulatory to avail medical services, this HMO will shoulder the costs
and adjudicatory authority over insurance matters. provided that the client goes to the affiliated
Adjudicatory means that it can conduct hearing, impose doctor/professional. This arrangement is considered just
penalties, and you can file an appeal over that division of ‘rendering the service’.
the government.
In insurance, there is no such condition attached. You pay
Insurance is used as a tool to reduce the financial impact of the premium and you avail of the insurance only if you
a risk, albeit, it does not remove risk. Rather, it provides experience the loss. In HMO, you can avail of the service
security. Take note, when we talk of risk, this is different anytime. SC also followed the principal object and purpose
than loss or hazard. There are different types of risk, and test.
what we call as the pure risk or the insurable/actuarial risk
can only be the ones subject to insurance.
The principal object and purpose test

Risk: you face the danger that you will incur a loss in the
future. --Philippine Healthcare Providers, Inc. v. CIR GR 167330
September 18, 2009
For Insurance: what may be insured is the Financial Risk—
Pure, Insurable or Actuarial risk “whether the assumption of risk and indemnification of loss
(which are elements of an insurance business) are the
Pure risk vs. Speculative Risk principal object and purpose of the organization on
Pure risk: to incur or not to incur loss whether they are merely incidental to its business. If these
Speculative risk: incur a loss and on the other hand, gain are the principal objectives, the business is that of
profit (ex. Gambling) insurance. But if they are merely incidental and service ids
the principal purpose, then the business is not insurance.

Insurance vs. HMO
As an HMO, it is its obligation to maintain the good health of
its members. Accordingly, its health care programs are
Health Maintenance Organizations (HMO) are not designed to prevent or to minimize the possibility of any
engaged in the Insurance Business. assumption of risk on its part. Thus, its undertaking under
-Philippine Healthcare Providers, Inc. v. CIR GR 167330 its agreements not to indemnify its members against any
September 18, 2009 loss or damage arising from a medial condition but, on the
contrary, to provide the health and medical services needed
The primary issue in this case is whether or not the to prevent such loss or damage.
contracts entered into by Phil. Healthcare (the HMO) with
its clients is an insurance contract. If it is considered as an Overall, petitioner appears to provide insurance-type
insurance contract, then it will be subject to higher rate of benefits to its member (with respect to its curative medical

services), but these are incidental to the principal activity of In case materials facts were not disclosed, it can be a
providing them medical care, The “insurance-like” aspect of ground for the insurer not to honor the insurance.
petitioner’s business is miniscule compared to its The rule on caveat emptor does not apply.
noninsurance activities. Therefore, since it substantially
provides health care services rather than insurance 6. Executory and conditional
services, it cannot be considered as being in the insurance It is executory because once the loss happens; the insurer
business. must comply with the contract of insurance.
Conditional because it is subject to conditions, the principal
This was decided in 2009 so when RA 10607 was passed, it one of which is the happening of the event insured against.
was made clear that an HMO is not covered under the
regulatory and adjudicatory power of the Insurance 7. Personal
Commission. So that alone, gives you an idea that it is not It is a personal contract, between the insurer and the
insurance. insured each party having in view the character, credit and
conduct of the other.
A Health Care Agreement (HMO document) is not an
Insurance contract contemplated under Section 185 of the G. Elements of Insurance
NIRC of 1997. There was no legislative intent to impose DST
on Health Care Agreements of HMOs. 1. The insured has insurable interest;
2. The insured is subject to risk of loss;
Before this 2009 case, there were prior cases wherein the 3. The insurer assumes the risk;
SC declared that the healthcare agreements constitute 4. The assumption of risk is part of a general scheme to
insurance contracts. But in a 2002 case, it was merely an distribute the loss among large group of person
obiter dictum as the primary issue there is not ‘if it falls bearing similar risks;
under the DST provision’. NIRC provision specifies that 5. The insured pays a premium.
fidelity bonds and other contracts relating to insurance be
subject to this DST. Insurable Interest

F. Characteristics Risk—it may be a pure or speculative risk; whether or not
you may experience loss in the future
1. Risk distributing device Loss—the end result of the risk that you are trying to
The risk is distributed to those who paid premium for the distribute to people who paid the premiums
insurance; Hazard—the source of danger
Law of large numbers: the more who availed of the
insurance, the risk is heavily spread; the risk of loss to the Is hazard the same as risk? No.
insurer is lessened. Is risk the same as a fortuitous event?
In fortuitous event, you do not know what loss will you
2. Contract of Adhesion incur in the future, unexpected. In risk, you know what is
The contract of insurance is primarily prepared by the your possible loss. When we talk of insurable risk, you
insurer and it is up to the insured or the owner of the know what you are insuring for. You have to specify.
insurance, whether to accept it or not.
Strictly construed against the maker of the contract, in case Ex. Fire insurance, Flood insurance, etc. Otherwise, if you
of ambiguity in the contract. indicate insurance for all fortuitous events, ascertaining the
TN: The insurance contract is a consensual contract. amount of premium to be paid is impossible.

3. Aleatory contract Are they related? Yes. As that fortuitous event could result
It depends on a future uncertain event. There is probability to loss.
of happening/not happening.
In the insurance business, the insured pays the premium,
4. Indemnity contract and its purpose is to transfer the risk of losing to the
GR: The promise of the insurer is to make good only to the insurer. Basically, the insurer answers the loss once it
loss of the insured. happens.
Indemnification would only be equivalent to the value of
the loss. To be insurable, the risk must be a PURE RISK.
The insurable loss must be calculable and measurable.
Speculative risk is not insurable.
Exception: Ex. Risk in gambling
Fixed payment (usually in life insurance; fixed payment) Because one of the characteristic of a risk being insurable, it
In non-life, either fixed or actuarial (depends on the must be unintentional or accidental.
contract)
Requirements of insurable risk:
5. Uberrimae fides 1. Large number of homogeneous exposure units;
There must be utmost fidelity on the part of the insured. -must be similarly situated individuals who may suffer
Everything must be disclosed. the same risk or loss

2. The loss must be accidental and unintentional; What do you mean by doing an insurance business or
-not by the insured transacting an insurance business?
3. Loss must be determinable and measurable;
4. Loss should not be catastrophic; 1. Making or proposing to make, as insurer, any insurance
Catastrophic means that it must not affect every contract;
individual in one happening. 2. Making or proposing to make, as surety, any contract of
In case of this type of loss, there must be an express suretyship as a vocation and not as merely incidental
agreement between the insurer and insured, that the to any other legitimate business or activity of the
insurer shall be liable for such “catastrophic” event. surety;
It should not also be trivial 3. Doing any kind of business, including a reinsurance
5. Chance of loss must be calculable; business, specifically recognized as constituting the
6. The premium must be economically feasible. doing of an insurance business within the meaning of
The purpose of paying a premium is to insure a future this Code;
loss, which is greater than the amount of the premium. 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.
II. CONTRACT OF INSURANCE
Pre-need plan is not insurance contract, it refers to a future
A. Contract of Insurance vs. Suretyship vs. Pre-Need
need and there is no loss or risk in this case.
Plans vs. Variable Contracts

B. Kinds of insurance
Contract of suretyship
It is an agreement whereby a party called the surety
guarantees the performance of another, called the principal A. According to object:
or obligor, of an obligation or undertaking in favor of a third 1. Life or health insurance
person, called the obligee. 2. Property insurance
3. Liability insurance
Pre-need Plans
Pre-need plans” are contracts, agreements, deeds or plans B. Special types:
for the benefit of the planholders which provide for the 1. Marine insurance
performance of future service/s, payment of monetary 2. Casualty insurance
considerations or delivery of other benefits at the time of 3. Fire insurance
actual need or agreed maturity date, as specified therein, in 4. Life insurance
exchange for cash or installment amounts with or without 5. Compulsory Third Party Liability (CTPL)
interest or insurance coverage and includes life, pension, insurance
education, interment and other plans, instruments, 6. Microinsurance
contracts or deeds as may in the future be determined by
the Commission. (Section 4(b) of R.A. 9829) The primary purpose of compulsory third party liability
(CTPL) insurance is to afford protection to third persons
Examples: College Assurance Plan (CAP) who are not parties to the contract and who might suffer
loss or injury on account of the accident.
Variable Contracts
It is a policy that provides a guaranteed minimum death Microinsurance is an activity providing specific insurance,
benefit with the potential for increased benefits, without insurance-like and other similar products and services that
the necessity of paying additional premium. It is called meet the needs of the low-income sector for risk protection
variable contract because what the insured will receive in and relief against distress, misfortune and other contingent
the future varies, depending on the investment made by the events. This shall include all forms of insurance, insurance-
insurer. like and other similar activities with the following features:
Premiums, contributions, fees or charges are
When contract of suretyship is deemed an insurance collected/deducted prior to the occurrence of a contingent
contract: event; and
A contract of suretyship shall be deemed to be an insurance Guaranteed benefits are provided upon occurrence of a
contract, only if made by a surety who or which, as such, is contingent event. (IMC-1-2010)
doing an insurance business under the Insurance Code.
Basically, Microinsurance is provided by quasi-banking
institutions for the poor.


C. Parties to an Insurance Contract In this case, it is considered as a donation to a 3rd person.

There are two parties to the contract: the insurer and the Contract of insurance is considered void:
insured. 1. Insured/Assured – spouse
2. Beneficiary – concubine/paramour
Insurer
The party who assumes or accepts the risk of loss and In this case, it is considered as a donation to a 3rd person.
undertakes for a consideration to indemnify the insured or
to pay him a certain sum on the happening of a specified Effect of Death of the Assured (Owner of the policy)
contingency or event.
Sec. 3(3). All rights, title and interest in the policy of
Insured insurance taken out by original owner on the life or health of
The person in whose favor the contract is operative and the person insured shall automatically vest in the latter upon
who is indemnified against, or is to receive a certain sum the death of the original owner, unless otherwise provided for
upon the happening of a specified contingency or event. He in the policy.
is the person whose loss is the occasion for the payment of
the insurance proceeds by the insurer. If the owner of the policy dies, then the rights, title, and
interest in the policy shall go to the insured.
The insured is not always the person whom the proceeds
are paid. It may be the beneficiary or someone whom the Public Enemy Cannot be an Insured
proceeds are assigned by the insured.
Section 7. Anyone except a public enemy may be insured.
Assured – the policy owner, in case the insured and policy
owner are not the same person. Meaning of public enemy
A nation with whom the Philippines is at war and it includes
Both parties must have the capacity to enter into a contract every citizen or subject of such nation. A mob or robbers or
of insurance. thieves whoever they may be, are never considered as
public enemies under Sec 7.
1. Insured
A mob, however numerous they may be, or robbers, thieves,
Rule on Minors or even the Maute group whoever they may be, are never
Minor cannot enter into valid contract of insurance as the considered public enemies for purposes of Section 7.
assured; however, he can be a beneficiary or insured,
provided he is not the assured. As such, the insured need Effect of war
not be capacitated as long as the assured (owner of the
policy) is capacitated to enter into a contract of insurance. United States rule
In case of war between the country of the insured and the
Rule on Married Women insurer, the contract is not merely suspended, but is
It is not necessary for a spouse to secure consent of the abrogated by reason of nonpayment of premiums, since the
other spouse before entering into a contract of insurance. time of the payments is peculiarly of the essence of the
contract.
Sec. 3 (IC). The consent of the spouse is not necessary for the
validity of an insurance policy taken out by a married person New York rule
on hi/her life or that of his/her children. The war between states in which the parties reside
suspends the contract of life insurance and that, upon
Illegitimate children are covered by the word “children”. tender of all premiums due by the insured or his
representative after the war was terminated, the contract is
Illustrations: revived and becomes fully operative.
Consent is necessary:
1. Insured – 3rd party TN: We follow United States rule.
2. Assured – spouse

In case the insured is other than person of the spouse or 2. Insurer
his/her child; consent is necessary, provided that the
payment of premiums were taken from the conjugal Section 6. Every corporation, partnership, or association
property, because this would constitute administration of duly authorized to transact insurance business as elsewhere
the conjugal property. provided in this Code, may be an insurer.

Consent is necessary: It shall include all partnerships, associations, cooperatives
1. Insured/Assured – spouse or corporations, including government-owned or controlled
2. Beneficiary – 3rd party corporations or entities, engaged as principals in the
insurance business, excepting mutual benefit associations.


Reinsurer Cooperative
Those that insures the risk taken by an insurer for and in Art. 105. Cooperative Insurance Societies. – Existing
behalf of the insured. (Insurer of an insurer; considered an cooperatives may organize themselves into a cooperative
insurer) insurance entity for the purpose of engaging in the business
of insuring life and property of cooperatives and their
Domestic Company members.
Those companies formed, organized or existing under the The insurance law can apply to these cooperatives if they
laws of the Philippines engage in insurance business.

Foreign Company These cooperative can engage in life or non-life insurance
Those companies formed, organized or existing under any business. However, it before doing so, it needs a certificate of
laws other that those of the Philippines registration issued by the Insurance Commission, and must
meet the capitalization requirement set by the Insurance
Partnerships and corporations ordinarily carry on Code duly amended.
insurance business; however, any individual may be an
insurer, provided he holds a certificate of authority from Corporation: Incorporate first, register with SEC
the Insurance Commissioner. Cooperative: first, get a Certificate of Authority
—this is an approval part of the State for the entity to
Further, Mutual Benefit Association, although excluded engage in an insurance business. It is issued by the
from the term “insurer” under section 184 of the Insurance Insurance Commissioner upon application and payment of
Code, likewise within the regulatory powers of the fees.
Insurance Commission, they must first secure a license from
the Insurance Commission before they can transact Certificate of Authority
business
A certificate of authority is required because contracts of
Mutual Benefit Association insurance involve public interest and regulation thereof by
It collects voluntarily from its members. The collection is the State is necessary.
not even on the regular basis; unlike in an Insurance
business, the premium is fixed and you have to pay it Sec. 193 provides that “the certificate of authority issued by
regularly. the Commissioner shall expire on the last day of December,
three (3) years following its date of issuance, and shall be
Mutual Insurance Company renewable every three (3) years thereafter, subject to the
The policyholders themselves are also the beneficiaries. company’s continuing compliance with the provision of the
They pool together their funds and invest that particular Insurance Code.
fund, then it goes back to them as dividends or rebates in
their premiums. General Qualifications to get a Certificate of Authority under
the law; in actual practice, there are several other
Under normal circumstances, Mutual Insurance Companies requirements.
are not in the form of corporations but rather and
aggregation of individuals or small associations of Sec. 192. No corporation, partnership, or association of
insurance companies. persons shall transact any insurance business in the
If they want to act as a corporation, then that is the time Philippines except as agent of a corporation, partnership or
demutualization will occur. association authorized to do the business of insurance in the
Philippines, unless possessed of the capital and assets
Mutualization: required of an insurance corporation doing the same kind of
One in which the company's owners are also its clients. That business in the Philippines and invested in the same manner;
is, once mutualization occurs, the company's profits are unless the Commissioner shall have granted it a certificate to
distributed to its participating customers each year in the effect that it has complied with all the provisions of this
proportion to their individual exposures to the company. Code.
Many insurance companies are structured as mutual
companies, meaning that policyholders have the right to Every entity receiving any such certificate of authority shall
receive portions of the company's profits, and often may be subject to the insurance and other applicable laws of the
elect the company's management. Philippines and to the jurisdiction and supervision of the
Commissioner.
Demutualization:
The process by which a mutual company becomes a 2 basic qualifications:
publicly-traded company. A mutual company is a company 1. They possess the capital and assets required of an
owned by its members or users for the benefit of those insurance corporation doing the same kind of
members or users. In demutualization, the members give up business in the Philippines and invested in the same
their rights and receive shares in the company in return, manner;
which the (now former) members may then sell.
Demutualization happens most often when a stock
exchange owned by its members goes public.

Capitalization Requirement: provisions contained in the corporate governance circulars
• prior to the amendment of the insurance: 250 Million prescribed by the Commissioner. In addition hereto, the
• upon amendment, it provides that every 3 years it will Commissioner shall prescribe the qualifications of directors,
be increased executive officers and other key officials of insurance
• effective December 31, 2016: minimum capitalization companies for purposes of this section.
of 550 Million
• in another 3 years, in 2019: it will be increased again No person shall concurrently be a Director and/or Officer of
~900+ Million an insurance company and an adjustment company.

Notes: Must be the liquid capital. The increase of the Before issuing such certificate of authority, the Commissioner
capitalization applies to all those engaged in insurance must be satisfied that the name of the company is not that of
business (even existing). Such capitalization is shown in the any other known company transacting a similar business in
financial statements. the Philippines, or a name so similar as to be calculated to
mislead the public. The Commissioner may issue rules and
This is beneficial to the public as this gives an assurance regulations on the use of names of insurance companies and
that what happened to CAP and other companies before will other supervised persons or entities.
not happen again. You are sure whatever loss that may
happen to you, you will get paid as they have sufficient The certificate of authority issued by the Commissioner shall
funds. expire on the last day of December, three (3) years following
its date of issuance, and shall be renewable every three (3)
This is a continuing requirement. Every 3 years, it will years thereafter, subject to the company’s continuing
increase. As of the moment, the year 2022 amount is not yet compliance with the provisions of this Code, circulars,
provided. instructions, rulings or decisions of the Commission.

2. The Commissioner shall have granted to him or them a Every company receiving any such certificates of authority
certificate to the effect that he or they may have complied shall be subject to the provisions of this Code and other
with all the provisions of the law which an insurance related laws and to the jurisdiction and supervision of the
corporation doing business in the Philippines is required to Commissioner.
observe.
No insurance company may be authorized to transact in the
The liberal construction provided under the law applies to Philippines the business of life and non-life insurance
the other requirements. The basic requirements are strictly concurrently, unless specifically authorized to do so by the
applied. Commissioner: Provided, That the terms life and non-life
insurance shall be deemed to include health, accident and
Grounds for Disapproval of Application disability insurance.

No insurance company shall have equity in an adjustment
Section 193. No insurance company shall transact any
company and neither shall an adjustment company have
insurance business in the Philippines until after it shall have
equity in an insurance company.
obtained a certificate of authority for that purpose from the

Commissioner upon application therefor and payment by the
No insurance company issued with a valid certificate of
company concerned of the fees hereinafter prescribed.
authority to transact insurance business anywhere in the

Philippines by the Insurance Commissioner, shall be barred,
The Commissioner may refuse to issue a certificate of
prevented, or disenfranchised from issuing any insurance
authority to any insurance company if, in his judgment, such
policy or from transacting any insurance business within the
refusal will best promote the interest of the people of this
scope or coverage of its certificate of authority, anywhere in
country. No such certificate of authority shall be granted to
the Philippines, by any local government unit or authority, for
any such company until the Commissioner shall have satisfied
whatever guise or reason whatsoever, including under any
himself by such examination as he may make and such
kind of ordinance, accreditation system, or scheme. Any local
evidence as he may require that such company is qualified by
ordinance or local government unit regulatory issuance
the laws of the Philippines to transact business therein, that
imposing such restriction or disenfranchisement on any
the grant of such authority appears to be justified in the light
insurance company shall be deemed null and void ab initio.
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 • If such refusal will best promote the interest of the
people of this country
and the amount of capital, reasonably assure the safety of the
interests of the policyholders and the public. • If there is evidence that the applicant company is not
qualified by the laws of the Philippines to transact
In order to maintain the quality of the management of the business therein;
insurance companies and afford better protection to • If the grant of such authority appears to be unjustified
policyholders and the public in general, any person of good in the light of:
moral character, unquestioned integrity and recognized o Economic requirements
competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent

o The direction, administration, integrity and Why?
responsibility of the organizers and It goes back to the ability of the insurance company to cover
administrators the capitalization.
o Reasonable assurance of the safety of the To date, there are only 4 insurance companies who have the
interest of the policyholders and the public composite license to engage in the insurance business.
• The name if the applicant belongs to any other known
company transacting a similar business in the It does not mean double the amount of 550 Million but
Philippines or its name is so similar as to be calculated definitely a higher capitalization requirement.
to mislead the public
2. The insurer must not have equity in the adjustment
Prohibited Acts By the Insurance Company company; otherwise there is possibility of collusion.

Sec. 370. No insurance company doing business in the Adjustment Company: this is the one who checks/assess the
Philippines or any agent thereof, no insurance broker, and no value of the loss.
employee or other representative of any such insurance So, you have an insurer then you have an adjustment
company, agent, or broker, shall make, procure or negotiate company (3rd party) who makes the assessment as to the
any contract of insurance or agreement as to policy contract, value of the loss incurred.
other than is plainly expressed in the policy or other written
contract issued or to be issued as evidence thereof, or shall 3. You cannot negotiate any contract of insurance other
directly or indirectly, by giving or sharing a commission or in than is plainly expressed in the policy or other written
any manner whatsoever, pay or allow or offer to pay or allow contract issued to or to be issued as evidence thereof;
to the insured or to any employee of such insured, either as an
inducement to the making of such insurance or after such The policy signed by the insurer and the insured is the
insurance has been effected, any rebate from the premium governing contract between the parties. Any other oral
which is specified in the policy, or any special favor or agreement i.e. between the broker and the insured (that is
advantage in the dividends or other benefits to accrue promised) is not allowed.
thereon, or shall give or offer to give any valuable
consideration or inducement of any kind, directly or Example: the gent contracts with you (potential insured)
indirectly, which is not specified in such policy or contract of that if you get this insurance, 10% of my commission goes
insurance; nor shall any such company, or any agent thereof, to you. This is not allowed.
as to any policy or contract of insurance issued, make any
discrimination against any Filipino in the sense that he is This is in relation to #4 and #5.
given less advantageous rates, dividends or other policy
conditions or privileges than are accorded to other nationals 4. To directly or indirectly, by giving or sharing a
because of his race. commission or in any manner whatsoever, pay or allow
or offer to pay or allow to the insured or to any
Sec. 371. No insurance company doing business in the employee of such insured, either as an inducement to
Philippines, and no officer, director, or agent thereof, and no the making of such insurance or after such insurance
insurance broker or any other person, partnership or has been effected, any rebate from the premium which
corporation shall issue or circulate or cause or permit to be is specified in the policy, or any special favor or
issued or circulated any literature, illustration, circular or advantage in the dividends or other benefits to accrue
statement of any sort misrepresenting the terms of any policy thereon,
issued by any insurance company of the benefits or
advantages promised thereby, or any misleading estimate of 5. To directly or indirectly give or offer to give any
the dividends or share of surplus to be received thereon, or valuable consideration or inducement of any kind,
shall use any name or title of any policy or class of policies which is not specified in the policy
misrepresenting the true nature thereof; nor shall any such
company or agent thereof, or any other person, partnership Example: Get this insurance, I will pay for the lechon on
or corporation make any misleading representation or your birthday.
incomplete comparison of policies to any person insured in
such company for the purpose of inducing or tending to 6. To make any discrimination against any Filipino in
induce such person to lapse, forfeit, or surrender his said the sense that he is given less advantageous rates,
insurance. dividend or other policy conditions or privileges that
are accorded to other nationals because of his race.
When you register to engage in the insurance business, you
have to specify if you engage life, non-life, or composite (life Example: Agent will say for life insurance of the Filipinos:
and non-life). the premium is higher than that of the Japanese (known for
their longevity.)
1. One of the prohibited acts is you cannot engage in
both life and non-life insurance concurrently, unless There must be a basis for the computation of the premiums.
specifically authorized to do so (by the Insurance It should not be absurd. This is usually based on the
Commissioner). experience and study of the insurer.


You may notice if you compare one insurer to another, and What if there is no beneficiary? What will happen to the
you avail of the same insurance, they have different rates ad insurance?
premiums offered—as they have different experiences, Prior to the amendment, it goes to the estate of the
studies, and computations. deceased.

7. To issue or circulate or cause or permit to be issued Now
or circulated any literature, illustration, circular or If there is no named beneficiary at all, then it goes to the
statement of any sort misrepresenting the terms of any estate.
policy issued by any insurance company of the benefits If there are other named beneficiaries, then the proceeds
or advantages promised thereby, or any misleading will go to the other beneficiaries.
estimate of the dividends or share of surplus to be If no beneficiaries, then the proceeds will be distributed
received thereon, based on the provisions of the policy.
If there is no provision, then it will go to the estate of the
8. To use any name or title of any policy deceased.
misrepresenting the true nature thereof;
If the source of the premiums comes from the conjugal
9. To make any misleading representation or funds, then it will form part of the conjugal or community
incomplete comparison of policies to any person funds.
insured in such company for the purpose of inducing or But if the premium is paid out of the exclusive property of
tending to induce such person to lapse, forfeit, or the spouse who took out the insurance, then the proceeds
surrender his said insurance. will be classified as exclusive property, either capital or
paraphernal property.
If you are a potential client, you have to compare the policy
from one insurer to the other. However, the agents usually Designation of the Beneficiary
do not give a specific distinction as to the different policies
being offered—they give out the basic/generic e.g. ranking As to designation, such designation is presumed
but they do not dwell on the specifics e.g. premiums, how revocable, unless specified as irrevocable or the owner
much will you get after a particular period. If they do of the policy waives the right to revoke it.
disclose, they will not say from which particular company
the data came from. Sec. 11. The insured shall have the right to change the
beneficiary designated in the policy, unless he has expressly
Usually, the opening line of the agents is: ‘We are the #3.” waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the
3. Beneficiary beneficiary during his lifetime, the designation shall be
deemed irrevocable.
Who is a beneficiary?
A beneficiary is one who will receive the proceeds of an 1. Revocable-the policy owner of the insured reserves
insurance contract. S/he may be a third person. the right to change the beneficiary.

Two contracting parties: the insured and the insurer; the 2. Irrevocable- the beneficiary cannot be replaced. The
beneficiary is not a party to the contract. policy owner waives the right to change the beneficiary
and the beneficiary has vested rights over the policy. In
So long as the beneficiary is not the insured at the same case there is a cash surrender value, it is the
time, we do not look at the capacity of the beneficiary. irrevocable beneficiary who can take a policy load
Otherwise, if he is a party to the contract, then the capacity thereon.
of the beneficiary is necessary. Exception: such irrevocable designation can be
revoked if due to a decree of legal separation, which
Let’s say X’s life is insured. The beneficiary is Mr. Y. If X shall take effect upon written notification to the
dies, where will the proceeds go? To X’s estate or Y? insured.
The insurer is not mandated to turn over the proceeds of
the insurance to the estate or heirs of Mr. X so long as there Let’s reconcile:
is a named beneficiary in the policy. Tax rule vis-à-vis Insurance rule.
In estate taxation, we discussed that the insurance
What if the named beneficiary is the spouse of X? Is this proceeds, if the beneficiary is the estate, executor,
prohibited? administrator, regardless of the designation, the proceeds
The prohibition of donation between the husband and wife will form part of the gross estate.
shall not apply to insurance policies as the latter is covered
under special laws. If the beneficiary is other than the estate, executor, or
Under the Insurance Code, it is allowed that the beneficiary administrator, it will not form part of the gross estate if the
is the legal spouse of the deceased whose life has been designation is irrevocable.
insured.

Question:

In estate taxation, if the beneficiary is the estate, executor the policy.
or administrator, it will form part of gross estate and be 2. Assured cannot assign the policy to another.
subjected to estate tax. 3. Assured cannot take the cash surrender value of the
In insurance law, if there is a named beneficiary, the insurance.
proceeds of the life insurance goes to the beneficiary. 4. Assured cannot pre-terminate the contract of
Thus, is it not unfair on the estate of the deceased to subject insurance, since the irrevocable beneficiary may opt to
it to estate tax when under the insurance code, the proceeds continue paying for the insurance.
will go to the beneficiary? 5. If the assured has debt he cannot anymore pay, the
creditors cannot attach the insurance policy or its
Answer: proceeds to pay off the debt.
In estate taxation, in case of revocable insurance or if the 6. Assured cannot add another beneficiary because it is
beneficiary is the estate, executor or administrator, it will tantamount to modification to the irrevocable
form part of gross estate and be subjected to estate tax. In designation of the beneficiary.
insurance law, if there is a named beneficiary, the proceeds
of the life insurance go to the beneficiary. Beneficiaries Who Are Disqualified

Basically the decedent retains right over the property Beneficiaries may be a third person. They need not be
during his lifetime, however, this is applicable only to life capacitated to enter into contracts.
insurance. In case of life insurance, the designation of a
beneficiary is more like of a donation, hence, if the Article 2012. Any person who is forbidden from receiving
designation is revocable or if the designation is other than donation under Article 739 cannot be named beneficiary of a
the estate, executor or administrator, is more like a life insurance policy and by the person who cannot make any
donation mortis causa which will only take effect upon the donation to him, according to said article.
death of the donor. Further, we know that when the
transfer takes effect upon the death, it will subject to estate Those provided under Article 739 of the New Civil Code are
taxation. disqualified to be beneficiaries.

Cash Surrender Value in relation to Designation Article 739. The following donations shall be void:
1. Those made between persons who were guilty of
The cash surrender value is the sum of money an insurance adultery or concubinage at the time of the donation;
company pays to the policyholder or annuity holder in the 2. Those made between persons found guilty of the same
event his policy is voluntarily terminated before its criminal offense, in consideration thereof;
maturity or the insured event occurs. 3. Those made to a public officer or his wife, descendants
and ascendants, by reason of his office.
This is less than the total amount of the face value or even
the total amount of premiums. A wife cannot name her paramour as the beneficiary as
provided in Article 739, NCC.
One of the usual ways to terminate the insurance contract is However, this would not apply to the children borne out of
to stop paying. wedlock. The illegitimate children are not covered by the
prohibition. They have no fault at all. As a matter of fact, the
If the designation is revocable: New Civil Code recognized certain successional rights of
If you want to pre-terminate, then you can get the cash illegitimate children.
surrender value.
Under #1, a court order finding them guilty is not required.
If the designation is irrevocable: Conviction is not necessary. A declaration of nullity of
In effect, pre-termination is not allowed. The owner of the marriage is not needed. Only an allegation is needed and it
policy (assured), provided the beneficiary is another may be brought to the insurer during the distribution of
person, does not have the power to destroy the contract proceeds. It is up to the appreciation of facts by the insurer.
since the beneficiary has the right over the proceeds or to
continue paying for the insurance. (stipulation pour atrui) The contract of life insurance is a special contract.
Although there is a prohibition regarding donation between
If ever the insured/assured will stop paying for the and among spouses (which also applies to common-law
insurance, thus pre-terminating the contract, the cash wife), this does not apply to an insurance contract. The
surrender value shall go to the irrevocable beneficiary and Insurance contract is governed by the Insurance Code and
not to the assured. not by the Civil Code.
Common-law spouse can be made a beneficiary provided
Effects of Irrevocability of Designation there is no impediment to marry the other party.

GR: The designation is presumed revocable unless Under #2, criminal conviction is required.
expressly stated. Under #3, gifts made to a public officer, ex: bribery

Effects of irrevocability of designation:
1. Assured cannot change the name of the beneficiary of

Insurable Interest (Beneficiary) Illustration:
1. If Y is the girlfriend of X, Y can insure the life of X if
Life Insurance
the latter is one of the persons stated in Section 10.
However, if Y insured his girlfriend solely because
It means that the insured (the one who took the life of their relationship, this will be invalid for lack of
insurance) is connected to the subject matter of the insurable interest.
insurance, wherein, if the subject matter is lost, he will 2. If X is both the insured and the assured and Y as the
suffer a pecuniary loss or if the subject matter is retained he beneficiary. In this case, there is NO need for an
will derive a pecuniary benefit. insurable interest between X and Y.

Is it required that the insured or the assured must have Purpose:
an insurable interest with the beneficiary? Insurable interest is needed to avoid wagering contracts.
With insurable interest, in the first place you do not want
For life insurance the insured to die.
Insurable interest is necessary if:
The insured takes out insurance on the life of another (3rd If there is no insurable interest requirement, some may kill
person), designating himself/herself as the beneficiary. or cause injury to others to get the insurance proceeds.
—owner of the policy (assured) and the beneficiary at the
same time For property insurance (to be discussed later)
The beneficiary must have an insurable interest to the
If X took an insurance on the life of Y, X being the property.
beneficiary:
X: assured and beneficiary TN: In property insurance, insurable interest must be
Y: insured present at the time the contract of insurance was perfected
and at the time the loss happened.
The insurable interest should exist between the Whereas, in life insurance contract, insurable interest must
assured/beneficiary and the insured. exist only at the time the contract was perfect and need not
exist at the time of loss.
Also necessary if:
The assured takes a life insurance over another person
Forfeiture of the Rights of a Beneficiary
(insured) designating another else as a beneficiary.

In sum: As long as the assured took an insurance over the Instances when the rights of the beneficiary may be
life of another regardless of who the beneficiary is. forfeited, regardless if the designation is revocable or
irrevocable:
Section 10. Every person has an insurable interest in the life If revocable, the rights may be forfeited at will or under the
and health: grounds provided.
1. Of himself, of his spouse and of his children; If irrevocable, only the grounds provided.
2. Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary Sec. 12. The interest of a beneficiary in a life insurance policy
interest; shall be forfeited when the beneficiary is the principal
3. Of any person under a legal obligation to him for the accomplice or accessory in willfully bringing about the death
payment of money, or respecting property or services, of of the insured. In such case, the share forfeited shall pass on
which death or illness might delay or prevent the to other beneficiaries, unless otherwise disqualified. In the
performance; and absence of other beneficiaries, the proceeds shall be paid in
accordance with the policy contract. If the policy is silent, the
A creditor may insure the life of the debtor because the proceeds shall be paid to the estate of the insured.
creditor has a pecuniary interest against the debtor. The
death or illness of the debtor might delay the performance, 1. If the beneficiary in a life insurance policy is the
but such interest is only limited up to the extent of the debt principal, accomplice, or accessory in willfully bringing
and provided that the debt has not been settled upon the about the death of the insured.
happening of the loss for you to be indemnified of such loss.
There is no requirement of a criminal conviction however;
4. Of any person upon whose life any estate or interest an action must have started before the appropriate
vested in him depends. authorities.

Insurable interest is not necessary if: TN: this is applicable only to life insurance.
The insured and the assured are the same person and other
person was designated as beneficiary (3rd person). 2. In case of legal separation, upon finality of the decree,
the innocent spouse, may revoke the designation as a
If X took an insurance on his life, Y being the beneficiary: beneficiary in any insurance policy, even if such
X: assured and insured designation as a beneficiary in any insurance policy,
Y: beneficiary even if such designation is stipulated to be irrevocable.


4. Trustee or Agent It is required that the insurer must agree to the assignment
or transfer of the property insurance.
Sec. 54. When an insurance contract is executed with an
agent or trustee as the insured, the fact that his principal or 7. Insurance Agent vs. Insurance Broker
beneficiary is the real party in interest may be indicated by
describing the insured as agent or trustee, or by other general Sec. 308. The provisions of Sections 307 and 309 shall apply
words in the policy. to an employee who shall be engaged to sell insurance
products by an insurance company.
The one authorized by the insured to transact with the
insurer. The rules on agency shall apply. Sec. 307. No insurance company doing business in the
Philippines, nor any agent thereof, shall pay any commission
In the policy it must be clearly specified that the trustee or or other compensation to any person for services in obtaining
agent is acting in behalf of the insured. The real party in insurance, unless such person shall have first procured from
interest is the insured. the Commissioner a license to act as an insurance agent of
such company or as an insurance broker as hereinafter
Who signs the policy? It is the agent/trustee. provided.

If there is no indication that s/he is acting in behalf of the No person shall act as an insurance agent or as an insurance
insured, the presumption is that agent/trustee is the broker in the solicitation or procurement of applications for
insured. insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance
5. Partner company doing business in the Philippines, or any agent
thereof, without first procuring a license so to act from the
Sec. 55. To render an insurance effected by one partner or Commissioner, which must be renewed every three (3) years
part-owner, applicable to the interest, of his co-partners or thereafter. Such license shall be issued by the Commissioner
other part-owners, it is necessary that the terms of the policy only upon the written application of the person desiring it,
should be such as are applicable to the joint or common such application if for a license to act as insurance agent,
interest. being approved or endorsed by the company such person
desires to represent, and shall be upon a form prescribed by
You can enter into an insurance contract for your partner. the Commissioner giving such information as he may require,
The change in the name of the partnership does not avoid and upon payment of the corresponding fee hereinafter
the policy. 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
6. Assignee
revoke any such license in his discretion. The license shall

expire after the thirty-first day of December of the third year
Sec. 184. A policy of insurance upon life or health may pass
following the date of issuance unless it is renewed.
by transfer, will or succession to any person, whether he has

an insurable interest or not, and such person may recover
Licenses may be renewed in the case of the company
upon it whatever the insured might have recovered.
represented by such agents, and in the case of insurance

brokers, upon the application of the said brokers, themselves.
Sec. 185. Notice to an insurer of a transfer or bequest thereof

is not necessary to preserve the validity of a policy of
Sec. 309. Any person who for compensation solicits or
insurance upon life or health, unless thereby expressly
obtains insurance on behalf of any insurance company or
required.
transmits for a person other than himself an application for a

policy or contract of insurance to or from such company or
You can assign a life insurance policy. There is no
offers or assumes to act in the negotiating of such insurance
requirement that the assignee must have an insurable
shall be an insurance agent within the intent of this section
interest.
and shall thereby become liable to all the duties,

requirements, liabilities and penalties to which an insurance
Notice to the other party (insurer) of the transfer is not
agent is subject.
required but for practicality and for convenience purposes,
An insurance agent is an independent contractor and not an
do notify the insurer.
employee of the company represented. 'Insurance agent'
includes an agency leader, agency manager, or their
For Property Insurance
equivalent.

Sec. 58. The mere transfer of a thing insured does not
Since the insurance industry is imbued with public interest,
transfer the policy, but suspends it until the same person
the insurance companies upon approval of the Commissioner
becomes the owner of both the policy and the thing insured.
may exercise wide latitude in supervising the activities of

their insurance agents to ensure the protection of the
Mere transfer of the property insurance does not transfer
insuring public.
the policy. The insurance policy however is suspended.


Insurance Agent III. INSURABLE INTEREST
For Life Insurance
—represents the insurer
(Principal-Agent relationship; Law on Agency) In life insurance, such insurable interest must exist at the
time of the perfection of the insurance contract, not
The one who transacts and negotiates on behalf of the thereafter or the occurrence of the loss.
insurance company; also accepts applications from the (refer to previous discussion on insurable interest-
insured. beneficiary)

GR: Being a General Agent for several insurance companies GR: the amount you will receive over the life of the insured
is prohibited. has no limit.
Exc: if there is a special power of authority duly executed Exc: the creditor insuring the life of the debtor, the amount
by the insurance company. is equal to the debt.

They authorize the general agent wherein, that agent can
For Property Insurance
now receive notices, summons, and processes of any kind
from the court for example.
Sec. 13. Every interest in property, whether real or personal,
There are two classes of agents: or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
1. Employee—salaried, ER-EE relationship, Labor Code insured, is an insurable interest.

(discussion in relation to Tax) Sec. 14. An insurable interest in property may consist in:
Pay creditable withholding tax then file the usual income 1. An existing interest;
tax return. 2. An inchoate interest founded on an existing interest; or
If pure compensation income earner—apply for substituted 3. An expectancy, coupled with an existing interest in that
filing out of which the expectancy arises.

2. Independent Contractor—commission-based, Civil Code Sec. 16. A mere contingent or expectant interest in any thing,
not founded on an actual right to the thing, nor upon any
(discussion in relation to Tax) valid contract for it, is not insurable.
Commissions are added as ‘other income’ and included in
the income tax return. Sec. 17. The measure of an insurable interest in property is
Pure commission-based agent—the agent shall file by the extent to which the insured might be damnified by loss or
himself the income tax return as a self-employed individual; injury thereof.
final withholding tax.
The 5 or 10% will be accumulated at the end of the year and 1. Existing interest
you shall file that one if you were not credited by the time
you received the commission. Includes the interest of an owner; Title or ownership is not
essential. If such peril will happen, you will suffer pecuniary
If you want to know whether an agent is at the same time loss. This may be a legal title or equitable title. Undoubtedly,
an employee, look at the manner of filing the tax. the absolute owner of the property has an insurable
interest.

Insurance Broker
Examples:
Car registered in LTO. OR/CR
—represents the insured
2. Inchoate Interest founded on an existing interest
The one who negotiates for the insured, and can accept
premiums; such premium is being held in trust/fiduciary, Ex. Shareholder. You have an inchoate interest; it is not yet
which shall later be remitted to the insurance company. distributed to you. However, you have an existing interest
which are your shares in the corporation;
On questions pertaining to the relationship between the Property in a partnership if you are a partner;
insurance company and the insurance agent or broker, the Property in a co-ownership if you are a co-owner;
Insurance Commission has no jurisdiction. Basically if there are other owners then you do not have the
The regular courts has jurisdiction. sole right over the property.

However, it exercises regulatory powers over the acts of the What about in estate?
insurance agent or broker. Administrative sanctions can be No. When the decedent dies, that is the time you will have
imposed. an existing interest.

It must be founded on an existing interest.


Example: A stockholder has an inchoate interest in the Illustration:
property of the corporation, which he is a stockholder,
which is founded on existing interest arising from his A lessor leasing a warehouse to a lessee. The lessee took a
ownership of shares in the corporation. His insurable fire insurance over the merchandise with a clause
interest is limited to the extent of the value of his interest or designating the lessor as the beneficiary, is this valid? Does
share in the distribution of the corporation assets. the lessor have a legal basis to claim such proceeds?

3. An expectancy, coupled with an existing interest in The lessor has no insurable interest over the merchandise
that out of which the expectancy arises. but only on the warehouse as the owner thereof;
The lessee has insurable interest over the merchandise and
The interest is not direct over a particular property. the warehouse as he has interest on the continued existence
Ex. Property of a corporation of such property.
The one who has a direct right over it is the corporation.
Your right is still inchoate. In property insurance, the beneficiary must have an
insurable interest over the property. The beneficiary herein
The expectancy must be coupled with an existing interest in is the lessor. So a clause automatically designating the
that out of which such expectancy arises. lessor to claim the proceeds of the fire insurance policy on
Example: A farmer may insure future crops if they are to be the merchandise is not valid.
grown on land owned by him at the time of the issuance of
the policy, or although the crops are to be raised by him on Note: Lessor-lessee relationship is different from Bailor-
the land of another, provided the crops will belong to him bailee/Depositor-depositary.
when produced.
Insurable Interest of a Carrier or Depository
Can you insure a future inheritance?
No. As long as the owner is alive, you do not have a claim Sec. 15. A carrier or depository of any kind has an insurable
over the properties. interest in a thing held by him as such, to the extent of his
liability but not to exceed the value thereof.

Insurable Interest In Life and Property Insurance; Purpose:
Distinguished The loss of the thing may cause liability to the carrier or
depository to the extent of its value.
Life insurance Property insurance
As to extent Unlimited except Limited to the actual The depository has an insurable interest in a thing held by
if secured by the value of the property him up to the extent of his liability (as agreed), but not to
creditor exceed the value of the property deposited.
Time when it At the time of At the time of
must exist perfection and perfection and at the A carrier of goods has the same insurable interest and
need not exist at time of the loss; need extent as a depository.
the time of the not exist at the
loss meantime as when he Insurable Interest of a Mortgagor and Mortgagee
transfers then
reacquires the Sec. 8. Unless the policy otherwise provides, where a
property 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
Expectation Expectation of An expectation of deemed to be upon the interest of the mortgagor, who does
of benefit to benefit to be benefit is to be derived not cease to be a party to the original contract, and any act of
be derived derived from the from the continued his, prior to the loss, which would otherwise avoid the
continued existence of the insurance, will have the same effect, although the property is
existence of life property insured, in the hands of the mortgagee, but any act which, under the
insurance need must have a basis of contract of insurance, is to be performed by the mortgagor,
not have any legal legal right. may be performed by the mortgagee therein named, with the
basis same effect as if it had been performed by the mortgagor.

Beneficiary’s Beneficiary must Must have an Sec. 9. If an insurer assents to the transfer of an insurance
interest have insurable insurable interest to from a mortgagor to a mortgagee, and, at the time of his
interest if one the property. assent, imposes further obligations on the assignee, making a
took out an new contract with him, the acts of the mortgagor cannot
insurance over affect the rights of said assignee.
the life of another


Mortgagor has insurable interest over the property up to Assignment of Insurance policy
the value of the property mortgaged, as he is the owner
thereof.
Life insurance Property

insurance
Mortgagee has insurable interest over the property up to
Insurable No need. Necessary
his liability so long as the debt exists.
interest of Existence of insurable

the assignee interest between the
Each has independent insurable interest over the
owner of the policy
mortgaged property
and the assignee is not

necessary.
Debtor vs Creditor over the ‘life’

Debtor has no insurable interest over the life of the
Notice and Not necessary to make Necessary
creditor; hence, the debtor cannot take a life insurance on
consent of assignment effective The insurer needs
the life of the creditor;
the insurer to ascertain if
However, the creditor can insure the life of the debtor.
assignee has

insurable interest
Mortgage Redemption Insurance over the property.

An MRI is a form of life insurance that pays off a part or the If the assignee does not have any insurable interest over the
whole of the insured's outstanding mortgage balance in insured property, the clause providing for an automatic
case of his or her death or total disability. assignment of the policy is considered as VOID.

The proceeds of the insurance is payable to the mortgagee However, if the transfer of the property insurance policy is
(creditor). made after the loss, insurable interest on the part of the
beneficiary is no longer necessary.
Loss payable clause
The acts of the mortgagor generally affect the acts of the Assignment of Life Insurance
mortgagee, because, in that sense the mortgagor does not Life insurance may be assigned, and the assignee shall
cease to be a party to the insurance contract. receive the benefits that the insured would have been
entitled to.
The mortgagee is made merely a beneficiary under the
contract, recognized as such by the insurer, but not made a If you change the beneficiary of your insurance policy, such
party to the contract itself. Any default on the part of the change is not in the context of an assignment because when
mortgagor, which by the terms of the policy defeat his we talk of an assignment of life insurance, we are referring
rights, will also defeat all the rights of the mortgagee under to the transfer of the policy itself to somebody else.
the contract, even though the latter may not have been in
any fault. In life insurance, what is required is only that the insurable
interest must exist at the time of the perfection of the
Union or standard mortgage clause contract, such that upon assignment, the assignee need not
Creates a collateral independent contracts between the have an insurable interest because the requirement, which
insurer and mortgagee, and provide that the rights of the has already been complied with upon perfection, does not
mortgagee shall not be defeated by the acts or defaults of extend to him. (To be discussed further in Chapter 6)
the mortgagor.

GR: Mortgagor rights remain unaffected by any default or
breach of condition by the mortgagor to which the
mortgagee is not a party.

Basically, in case of loss, the mortgagee is entitled to the
proceeds of the insurance, but only to the extent to his
credit.

Effect of Payment

Upon payment by the insurer of the proceeds to the
mortgagee, the insurer (insurance company) will be
subrogated with the rights of the mortgagee as regards to
the credit. The insurer may go after the mortgagor, but only
up to the extent of the money paid by the former to the
mortgagee.


IV. PREMIUM An industrial life policy shall not lapse for non-payment of
premium if such non-payment was due to the failure of the
A. Concept
company to send its representative or agent to the place
indicated by him for the purpose of collecting such premium:
This is the consideration paid to an insurer for undertaking Provided, That the provision of this paragraph shall not apply
to indemnify the insured against the specified peril. when the premium on the policy remains unpaid for a period
of 3 months or 12 weeks after the grace period has expired.
Premium is the elixir vitae of insurance business. The
premiums paid by all clients are pooled by the insurer to Thus, if the failure to pay the subsequent premium is
answer for the losses of each insured, insurance being a brought about by the failure of the insurance company to
risk-spreading device. Premium is a fixed amount of smaller send agents to the insured to collect the premium, such
value compared to the value of the possible loss insured non-payment will not cause an expiration or lapse of the
against. policy.

Payment of premium is a unilateral obligation on the part of The insurer may NOT sue for the non-payment of the
the insured/assured. insurance premium because in such a case there is no
contract to speak of where the suit may be based upon since
Basis of the right of the insurer to collect premiums – the essential element/requisite of payment of premium has
the assumption of the risk. not been met. Besides, the obligation to pay the premium is
a unilateral one on the part of the insured/assured.
When to pay the premium
Section 77. An insurer is entitled to payment of the premium
Premium vs. Assessment
as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no Premium Assessment
policy or contract of insurance issued by an insurance levied and paid to meet collected to meet actual
company is valid and binding unless and until the premium anticipated losses losses
thereof has been paid, except in the case of a life or an payment is not enforceable payment is enforceable once
industrial life policy whenever the grace period provision against the insured levied, unless otherwise
applies or whenever under the broker and agency agreed upon
agreements with duly licensed intermediaries, a 90-day credit not a debt becomes a debt once
extension is given. No credit extension to a duly licensed properly levied unless
intermediary should exceed 90 days from date of issuance of otherwise agreed upon.
the policy.
When we talk of assessment, this is the loss assessment that
The moment you sign an insurance contract is also the time is usually collected by Mutual Benefits Associations. You
when premium should be paid to the insurer. The payment already know the actual value of the loss, and you just
of the premium is quite important because the Insurance divide such value among the members of the association. In
Code does not look at the date of the signing of the the United States, they have Homeowners Associations
insurance contract, but, instead, it looks at the date when because what is covered by insurance may not be the entire
the first premium has been paid in determining the date of value of the houses. Thus, they have these Homeowners
the effectivity of the insurance contract. Associations, where part of the agreement is loss
assessment in case there is an actual loss. For example, if
B. Effect of Non-payment of Premium the actual loss is P3M, and the insurance only covers P2M,
so that there is a difference of P1M, the association will
Non-payment of first premium – obligation of the insurer shoulder that P1M. If you are a member of these
will not become valid and binding. associations, payment is enforceable or legally demandable
because you’ve signed an agreement.
Non-payment of subsequent premiums – policies issued
will be deemed to have lapsed, that is, the insurance General rule
contract is not merely suspended but terminated, since the No policy or contract of insurance issued by an insurance
time of the payment is peculiarly the essence of the company is valid and binding unless and until the premium
contract. thereof has been paid (Sec.77).

Exception: Industrial Life Policy. Exceptions – the ff. are instances when contract of
Sec. 235. The term “industrial life insurance” as used in this insurance is valid and binding despite non-payment of
Code shall mean that form of life insurance under which the premium:
premiums payable either monthly or oftener, if the face
amount of insurance provided in any policy is not more than 1. In case of life or industrial life insurance when the
five hundred times that of the current statutory minimum grace period applies
daily wage in the City of Manila, and if the words “industrial
policy” are printed upon the policy as part of the descriptive Grace period – period after the date of payment of
matter. premium is due during which the premium can be paid
without interest charged and the policy remaining in force.

The presence of a grace period presupposes that the this case there was no express agreement that payment of
insurance policy had already been in force for a certain the premium may/should be on instalment, but said
period. payment was still voluntarily accepted by the insurance
company.
Grace period in life insurance – 30 days (1 month)
Group Life Insurance – 30 days (1 month) Sec. 77 may not apply if the parties have agreed to the
Industrial Life Insurance – 4 weeks payment of the premium in installments and partial
payment has been made at the time of the loss.
2. When the insurer makes a written
acknowledgement of his receipt of premium TN: In this case, there is no express agreement that the
payment of the premium is in installment. It was only done
Section 79. An acknowledgement in a policy or contract of on the third renewal of the policy. It was voluntarily
insurance or the receipt of premium is conclusive evidence of accepted also by the insurer or the insurance company. So,
its payment, so far as to make the policy binding, the Condominium Corp relied on this case, Arce vs Capital
notwithstanding any stipulation therein that it shall not be Surety in saying that ‘it is not stipulated in the contract so
binding until the premium is actually paid. you cannot compel us to pay the balance of the premium. ‘
This is a waiver on the part of the insurer to require
prepayment of premiums as a condition to the validity of SC said the reliance by petitioner on Arce vs Capital Surety
the contract. Even if, in fact, the insured hasn’t paid the and Insurance Co. is unavailing because the acts therein are
premium yet, the insurer’s obligation will already be in substantially different from those in the case at bar. In Arce,
force if there is already an agreement. This does not mean no payment was made by the insured at all despite the
that the insured is excused from paying the premium that is grace period given. In this case, Makati paid the initial
due. The insurer can still demand payment. installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance
Note: In the old insurance law, there were only these two policies. For the 1984 policy, petitioner paid (2)
above-mentioned exceptions, but jurisprudence has installments although it refused to pay the balance.
provided others.
1982 and 1983 are the previous policies
3. When there is an agreement that the premium 1984 is the renewal of the policy.
shall be payable on installment.
Basically, Makati Tuscany Condominium can be held liable
Makati Tuscany Condominium Corporation vs. CA for the payment of the remaining premium.
So Makati Tuscany is held liable for the payment of the
Facts: remaining premiums then the property insurance, the
This case involves a building owned by Makati Tuscany. insurance contracts remains to be effective for the period
They took out a one-year property insurance over the covered as agreed upon by the parties.
building. On the third renewal of said insurance, Makati
Tuscany paid on installment, but after paying the 2nd 4. Where the credit term has been agreed upon. (UCPB
installment, it defaulted. The insurance company filed a vs. Masagana Telemart, 308 scra 259)
case to collect for the remaining premiums. Makati Tuscany
contended that the insurance company cannot compel it to 5. Where the parties are barred by estoppel. They are
pay the remaining premiums because there is no perfected both considered to be at fault. (UCPB vs Maagana
insurance contract to speak since the premium has not been Telemart, 356 Scra 307)
paid.

Ruling: C. How to Prevent the Lapse of Life Insurance:
The Supreme Court ruled that the general rule that no
insurance contract is valid without payment of the premium (Where the 30 days or 1 month will apply)
does not apply if the parties agreed to the payment of the
premium in installment and partial payment has already
• Grace period- the period during which the premium
been made at the time of the loss.
may be paid with no interest and the policy remains in

force.
In this case, there was already a partial payment by Makati
—To prevent the lapse, it’s either you pay within the
Tuscany so the insurance company already has a cause of
given grace period or you enter into an automatic
action to collect:
policy load and cash surrender value or apply the
Section 77 (general rule) merely precludes the parties from
dividends as payment for the premium or you include a
stipulating that the policy is valid even if the premiums are
reinstatement clause
not paid, but does not expressly prohibit an understanding
• Presuppose that the policy had already been in force
to allow the insured to pay premiums in instalments, and
• Refer to Sections 233, 234, 236.
such an agreement is not contrary to morals, good customs,

public order, or public policy. At the very least, both parties
Cash surrender value: this is the amount that the insured is
should be deemed estopped to question the arrangement
supposed to receive if s/he pre-terminates the insurance
they have voluntarily accepted, because take note that in

contract. The amount of the cash surrender value is lower or more of the foregoing requirements more favorable to the
than the total premiums paid by the insured. policyholder than hereinbefore required.
This section shall not apply to policies of group life or
Sec. 233 (f) The required period to be able get the cash industrial life insurance.
surrender value is at least 3 full annual premium payment.
A provision specifying the options to which the policyholder is TN: The policy has already lapsed/expired but it can be
entitled to in the event of default in a premium payment after reinstated within the period 3 years from the time of lapse.
three (3) full annual premiums shall have been paid. Such Unless: The cash surrender value has been paid or the
option shall consist of: extension period has expired.
(1) A cash surrender value payable upon surrender of the
policy which shall not be less than the reserve on the policy, Extension period: 2 months from the due date of the
the basis of which shall be indicated, for the then current payment of premium
policy year and any dividend additions thereto, reduced by a
surrender charge which shall not be more than one-fifth Even with the clause, it is not automatic reinstatement. The
(1/5) of the entire reserve or two and one-half percent (2 insurer has the option to deny the reinstatement if the
1/2%) of the amount insured and any dividend additions insurer is not satisfied with the insurability of the insured.
thereto; and As a requirement to make the reinstatement effective, there
(2) One or more paid-up benefits on a plan or plans specified must be payment of the overdue premium as well as the
in the policy of such value as may be purchased by the cash indebtedness or penalties, as the case may be. The insurer
surrender value. also needs to reevaluate again if the insured and the owner
of the policy has insurable interest because you are
Automatic Loan Clause reinstating the policy.
If the insured fails to pay the premium, then the
value/amount of the cash surrender value will be applied as D. Entitlement of the Insured to Return of the
payment to the extent of the unpaid premium and the Premiums Paid
indebtedness to the insurance company.
Sec. 80. A person insured is entitled to a return of premium,
So during that time that the cash surrender value is as follows:
sufficient to pay for the premium then the life insurance will (a) To the whole premium if no part of his interest in the
not lapse or expire. It will remain effective. Eventually, upon thing insured be exposed to any of the perils insured against;
the time of exhaustion of the cash surrender value, then the (b) Where the insurance is made for a definite period of time
life insurance policy will lapse. and the insured surrenders his policy, to such portion of the
premium as corresponds with the unexpired time, at a pro
Usually the cash surrender value for a particular period is rata rate, unless a short period rate has been agreed upon
already indicated in the policy (in figure or %). and appears on the face of the policy, after deducting from
the whole premium any claim for loss or damage under the
Application of Dividends policy which has previously accrued: Provided, That no holder
If you have dividends in the policy, then such dividends will of a life insurance policy may avail himself of the privileges of
be applied to pay the premiums in order to continue the this paragraph without sufficient cause as otherwise
effectivity of the life insurance. provided by law.

Sec. 233 (e) If the policy is participating, a provision that the Sec. 81. If a peril insured against has existed, and the insurer
company shall periodically ascertain and apportion any has been liable for any period, however short, the insured is
divisible surplus accruing on the policy under conditions not entitled to return of premiums, so far as that particular
specified therein. risk is concerned.

Sec. 82. A person insured is entitled to a return of the
Reinstatement clause premium when the contract is voidable, and subsequently
Sec. 233 (j) A provision that the policyholder shall be annulled under the provisions of the Civil Code; or on account
entitled to have the policy reinstated at any time within three of the fraud or misrepresentation of the insurer, or of his
(3) years from the date of default of premium payment unless agent, or on account of facts, or the existence of which the
the cash surrender value has been duly paid, or the extension insured was ignorant of without his fault, or when by any
period has expired, upon production of evidence of default of the insured other than actual fraud, the insurer
insurability satisfactory to the company and upon payment of never incurred any liability under the policy.
all overdue premiums and any indebtedness to the company
upon said policy, with interest rate not exceeding that which A person insured is not entitled to a return of premium if the
would have been applicable to said premiums and policy is annulled, rescinded or if a claim is denied by reason
indebtedness in the policy years prior to reinstatement. of fraud.
Any of the foregoing provisions or portions thereof not
applicable to single premium or term policies shall to that
extent not be incorporated therein; and any such policy may
be issued and delivered in the Philippines which in the
opinion of the Commissioner contains provisions on any one

Instances when the insured may be entitled to the Instances when premiums are not recoverable:
return of premiums:
Either: 1. When the risk has already attached and the risk is
entire and indivisible
A. The return of the whole: 2. In life insurance
3. When the contract is rescindable or rendered void ab
1. If the thing insured was never exposed to the risks ignition by the fraud of the insured
insured against. (sec. 80) 4. When the contract is illegal and the parties are in pari
In property insurance, you insured the property for the delicto
particular period (usually fixed) then the risk insured
for did not occur, then the entire amount can be E. Advance Payments of Premiums
collected. Which is why in income taxation, this is not
subject to income tax because it is just the return of the Sec. 84. An insurer may contract and accept payments, in
capital. addition to regular premium, for the purpose of paying future
premiums on the policy or to increase the benefits thereof.
2. If the contract is annulled due to the fraud or
misrepresentation of insurer or his agents or on Are grant of premium rebates allowed?
account of facts, or the existence of which the insured No. This is one of the prohibited acts of the insurer and the
was ignorant or without his fault, (sec. 82) agents.

3. If contract is voidable and subsequently annulled What is the penalty?
under the provisions of the Civil Code, (sec. 82) Revocation of the license by the insurance commission and
penalty not exceeding 25, 000.
When we say the contract is voidable or annulled, it
means to say that the contract itself is an actionable (discussed earlier refer to Sec. 370)
document and there is something wrong in the
contract and the cause of that is not the insured, but
the insurer. So the insured will ask for the annulment
of the contract. Insured will file a complaint and attach
the insurance contract.

4. Whenever by any default of the insured other than
actual fraud, the insurer never incurred liability under
the policy, (sec. 82)

B. The return pro-rated:

1. When the insurance is for a definite period (“time
policy”) and the insured surrenders his policy before
the termination thereof;

if surrendered at the end of the period, then the entire
premium may be refunded, provided the risk did not
happen

Exceptions:
a) policy not made for a definite period of time
b) short period rate is agreed upon
c) life insurance policy
--You surrendered the policy after 3 years
required to get the cash surrender value, then the
entire premium will be returned to you

2. When there is over-insurance (sec. 83)
-will be discussed later, usually applicable in property
insurance

Sec. 83. In case of an over insurance by several insurers other
than life, the insured is entitled to a ratable return of the
premium, proportioned to the amount by which the
aggregate sum insured in all the policies exceeds the
insurable value of the thing at risk.


f) The risks insured against; and
V. POLICY g) The period during which the insurance is to continue.
Form of Contract of Insurance
Contents of the Policy (RRAPPID)

Sec. 226. Every insurance company authorized to do Section 51 enumerates what the policy of insurance must
business in the Philippines shall report to the Commissioner contain.:
on forms prescribed by him the particulars of reinsurance
treaties or any new treaties or changes in existing treaties 1. Names of parties
within three (3) months from their effectivity.
2. Amount of insurance
Printed Form Necessary to easily and exactly determine the amount of
Under the Insurance Code, the policy must be in printed indemnity to be paid to the insured. The sum insured is a
form. Before there was the type-written form but now it is basis for calculating the premium.
mostly the printed form. Exceptions: The sum need not be specified in cases of open
or running policies.
Any word, phrase, clause, mark, sign, symbol, signature,
number or word necessary to complete the contract of 3. Premium
insurance shall be written on the blank spaces provided in It represents the consideration of the contract, what the
the policy. insured pays the insurer to assume the risk of loss.

E-document form 4. Property or life insured
Only if an insurance company goes paperless and such form Constitutes the subject matter of the contract.
is posted thru websites. Other than the Insurance Code, this
shall also be covered by the Electronic Commercial 5. Interest of insured in property
Documents Law. Only required when the insured is not the absolute owner
—such form thereof previously approved by Insurance of the property insured. Especially important in fire
Commissioner insurance to determine the actual damage suffered by the
insured in case of loss, if he is not the absolute owner
Insurance policies generally are required in standard forms. thereof. (i.e. mortagagee)
Section 226 would make it seem that every contract of
insurance in the Philippines must be evidenced by a policy 6. Risks insured against
and that policy must be in the form previously approved by The undertaking of the insurer is to indemnify the insured
the Insurance Commissioner. for loss, damage or liability caused only by the risks insured
against.
POLICY IS A CONTRACT OF ADHESION
Terms drafted and imposed by insurer. Insurance contracts 7. Term or duration of insurance
are drafted with the aid of skillful and highly paid legal The duration may be expressed in terms of dates, or in
talent. The applicant on the other hand, is forced to accept terms of voyage. This is important because the insurer will
whatever contract may be offered on a take it or leave it not be liable unless it occurred during such duration of the
basis if he wishes insurance protection. insurance.
But it is not absolute that it cannot be changed, there are
always the attachments such as the riders, clauses, etc. ATTACHMENTS
Because in the conduct of insurance business, it often
Ambiguity resolved against insurer becomes necessary to add a new provision to a policy, or to
These types of contracts are viewed as traps for the weaker modify or waive an existing provision, or to make any
party whom the courts of justice must protect. desired change in the policy. This saves the trouble and
Consequently, where the language in the insurance contract expense of making an entirely new contract. That is why
is ambiguous, the same should be resolved liberally in favor insurance agents will resort to attachments to tailor-fit it
of the insured and strictly against the party responsible with the needs of the applicants.
therefor.
RIDER
Sec. 51. A policy of insurance must specify: A rider is a small printed or typed stipulation contained on
a) The parties between whom the contract is made; a slip of paper attached to the policy and forming an
b) The amount to be insured except in the cases of open or integral part of the policy.
running policies;
c) The premium, or if the insurance is of a character where Reason: Riders are usually attached to the policy because
the exact premium is only determinable upon the they constitute additional stipulations between the parties.
termination of the contract, a statement of the basis and Any rider properly attached to a policy is part of the
rates upon which the final premium is to be determined; contract as if embodied in the policy.
d) The property or life insured;
e) The interest of the insured in property insured, if he is Rule in case of conflict between a rider, etc. and printed
not the absolute owner thereof; stipulations of a policy

The rider prevails, as being a more deliberate and recent In the absence of fraud or mistake, the agreed value of the
expression of the agreement of the contracting parties. thing insured will be paid in case of total loss of the
property, unless the insurance is for a lower amount.
Clauses
Agreement between the insurer and the insured on certain In this type of policy, you will pay a higher premium.
matter relating to the liability of the insurer in case of loss.
Usually contained in the policy itself. Running Policy
Contemplates successive insurances and which provides
Endorsement that the object of the policy may from time to time be
Provision added to an insurance contract altering its scope defined.
or application.
This policy is common involving goods and merchandise
To be valid: stored in a warehouse.
1. It has to be attached
2. The descriptive title or name of the rider, clause, The goods inside the warehouse are being insured and not
warranty or endorsement must be mentioned and the warehouse.
written on the blank spaces provided in the
printed original policy form. Illustration:
3. If not applied for, the rider, clause, etc must be
countersigned by the insured. Suppose that Fortune owns a house valued at P 600,000.00
and insured the same against fire with 3 insurance
These are not covered by a premium, because these are just companies as follows:
part of the main policy agreed upon.
X ----------------------------------------- P 400,000.00
Kinds of Policies Y ------------------------------------------ 200,000.00
Z ------------------------------------------- 600,000.00
Sec. 60. An open policy is one in which the value of the thing Total P 1,2000,000.00
insured is not agreed upon, and the amount of the insurance
merely represents the insurer's maximum liability. The value In the absence of any stipulation in the policies, from which
of such thing insured shall be ascertained at the time of the insurance company or companies may Fortune recover in
loss. case of fire should destroy his house completely?
Sec. 61. A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific Answer:
sum. Fortune can collect from any insurance company, provided
Sec. 62 A running policy is one which contemplates it will not go exceed the face value of the insurance policy.
successive insurances, and which provides that the object of Example, in this case, the actual loss is P600,000 therefore,
the policy may be from time to time defined, especially as to he can collect 400,000 from X then 200,000 from Y; or
the subjects of insurance, by additional statements or 600,000 from Z.
indorsements.
Question:
Open policy Insofar as the insurer is concern, does it mean to say that
This is defined in Section 60. The value of the thing insured these are the only liability of the insurer?
is not agreed upon, but left to be ascertained in case of loss.
It is one in which a certain agreed sum is written on the face Answer:
of the policy not as the value of the property insured, but as No, because among the insurers their liability are pro rata,
the maximum limit of the insurer’s liability. based on joint liability. Hence,
Total insurance 1,200,000
The insurer will only pay the actual cash value of the
property as determined at the time of the loss. Actual loss 600,000
Share of X 400,000/1,200,000 (4/12 or 1/3)
Valued policy Share of Y 200,000/1,200,000 (2/12 or 1/6)
This is defined in Section 61. The value of the insured Share of Z 600,000/1,200,000 (6/12 or ½)
property is predetermined, written on the face of the policy,

and the value is the amount to be used in case of total loss.
Fomula for the liability: (Share) x (Actual loss):
Therefore, it is one in which the insured and the insurer

expressly agree in advance on the value of the subject
property. X’s liability (1/3) x (600,000) = 200,000
Y’s liability (1/6) x (600,000) = 100,000
Definite valuation of the property insured is agreed by both Z’s liability (1/2) x (600,000) = 300,000
parties, and written on the face of the policy.
Thus, if Fortune collected 600,000 from Z, the latter can
recover 100,000 from Y and 200,000 from X.


If each of the fire insurance policies obtained by Fortune in
problem: Duration: Not exceeding 60 days unless a longer period is
approved by the Insurance Commission.
(a) Is a valued policy and the value of his house was fixed
in each of the policies at P 1M, how much would Sec. 52 Cover notes may be issued to bind insurance
Fortune recovery has already obtained full payment on temporarily pending the issuance of the policy. Within sixty
the insurance policies issued by Y and Z? (60) days after issue of a cover note, a policy shall be issued in
lieu thereof, including within its terms the identical insurance
Fortune may collect from Z 600,000, then from X 400,000 or bound under the cover note and the premium therefor.
from X and Y 200,000 each.
Always remember, collection cannot exceed the face value Cover notes may be extended or renewed beyond such sixty
of the policy. (60) days with the written approval of the Commissioner if he
determines that such extension is not contrary to and is not
(b) If each of the policies obtained by Fortune in the for the purpose of violating any provisions of this Code. The
problem (a) above is an open policy and it was Commissioner may promulgate rules and regulations
immediately determined after the fire that the value of governing such extensions for the purpose of preventing such
Fortune’s house was P 2.4M, how much may he collect violations and may by such rules and regulations dispense
from X, Y and Z? with the requirement of written approval by him in the case
of extension in compliance with such rules and regulations.
Fortune may collect from Z 600,000, then from X 400,000
and Y 200,000 each. TN: Although this already provides temporary insurance,
Loss assessment compatibility will apply for the remaining there would be no requirement for a separate payment of
1,200,000. premium.
If what is covered by insurance is only P1.2M, the rest may
be shouldered by the homeowners association which you Requisites for the Validity of the Cover Notes:
are a member of.
1. Issued/renewed only upon prior approval of the
(c) In problem (a), what is the extent of the liability of the Insurance Commission.
insurance companies among themselves?
Written approval of the Insurance Commission may be
dispensed with upon the certification of the
X’s liability (1/3) x (600,000) = 200,000
president/vice/general manager of the insurance company
Y’s liability (1/6) x (600,000) = 100,000
that:
Z’s liability (1/2) x (600,000) = 300,000
(a) the risk involved, the values of such risks and premium

therefor, have not as yet been determined or established;
(d) Supposing in problem (a) above, Fortune was able to
(b) the extension or renewal is not contrary to or is not for
collect from both Y and Z, may he keep the entire
the purpose of violating the Insurance Coe or any rule.
amount he was able to collect from the said insurance

companies?
2. Valid and binding not more than 60 days from date of
issuance.
No. Principle of indemnification, you can only collect the 3. May be cancelled by either party upon prior notice to
amount of loss, hence, the excess amount collected worth the other of at least 7 days.
P200,000 shall be held in trust for the other insurers. 4. Policy should be issued within 60 days after the
issuance of the cover note.
The value of the actual loss will be determined by a third
party or entity (adjuster, appraiser, etc.). Remember that an
If the policy is not issued after the 60-day period, and there
insurance company is prohibited from having any equity in
being no extension granted, the policy will lapse.
an adjusting company to avoid partiality or fraud.

But if you are the insurance company, you would move
Cover Note (Ad Interim) heaven and earth to issue the policy because every policy
issued is money. This is especially true to an insurance
Cover note is different from a rider because cover note is agent who receives both regular and one-time-big-time
sort of a temporary policy pending the approval of your commissions.
policy. It basically summarizes the provisions in the policy.
5. The 60-day period may be extended upon written
A cover note is a concise and temporary written contract approval of the Insurance Commission.
issued to the insurer through its duly authorized agent
embodying the principal terms of an expected policy of
insurance.

Purpose: It is intended to give temporary insurance
protection coverage to the applicant pending the
acceptance or rejection of his application.

Cancellation of Policy (g) A determination by the Commissioner that the
continuation of the policy would violate or would place the
The following requirements must be complied with by the insurer in violation of this Code.
insurance company:
Sec. 65. All notices of cancellation mentioned in the
1. Prior notice of cancellation to the insured; preceding section shall be in writing, mailed or delivered to
2. Notice must be in writing, mailed, or delivered to the the named insured at the address shown in the policy, or to
named insured at the address shown in the policy; his broker provided the broker is authorized in writing by the
3. Notice must state which of the grounds set forth in Sec. policy owner to receive the notice of cancellation on his
64 is relied upon and upon request of the insured, the behalf, and shall state:
insurer must furnish facts on which the cancellation is (a) Which of the grounds set forth in Section 64 is relied
based; upon; and
4. Grounds should have existed after the effectivity date (b) That, upon written request of the named insured, the
of the policy. insurer will furnish the facts on which the cancellation is
based.
When may you cancel an insurance policy?
This is done by the insurer or insurance company. This is the right of the insurer to abandon the contract on
the occurrence of certain grounds after the effectivity date
Requirements: of a non-life policy.

1. Prior notice of cancellation to the insured; Grounds:
2. Notice must be in writing, mailed or delivered to the
named insured at the address shown in the policy; 1. Non-payment of premium
3. Notice must state which of the grounds set forth in Sec. 2. Conviction of a crime out of acts increasing the
64 is relied upon and upon request of the insured, the hazard insured against
insurer must furnish facts on which the cancellation is 3. Discovery of fraud or material misrepresentation
based; 4. Discovery of willful or reckless acts or omissions
4. Grounds should have existed after the effectivity date increasing the hazard insured against,
of the policy; 5. Physical changes in property making the property
uninsurable
Usual example of cancellation is the failure to pay the 6. Discovery of other insurance coverage that makes
premiums and the period has already lapsed. However, you the total insurance in excess of the value of the
can reinstate the policy if there is a reinstatement clause property insured
(within 3 years).
—failure to disclose other insurance coverage; there must
May the insured cancel the policy? be knowledge on the part of the insurer that there are other
insurance policies
In the Insurance Code, the cancellation of policy is made 7. Determination by the Insurance Commissioner
more applicable to the insurer by the Insurance that the continuation of the policy would violate
Commission. The insured however can also cancel by the Insurance Code.
terminating or surrendering the policy to the insurer i.e. the
cash surrender value. Time to commence action on the policy; Effect of
Stipulation
Cancellation of Non-Life Insurance Policy
Sec. 63 A condition, stipulation, or agreement in any policy of
Sec. 64. No policy of insurance other than life shall be insurance, limiting the time for commencing an action
cancelled by the insurer except upon prior notice thereof to thereunder to a period of less than one (1) year from the time
the insured, and no notice of cancellation shall be effective when the cause of action accrues, is void.
unless it is based on the occurrence, after the effective date of
the policy, of one or more of the following: If you have any concerns or complaints, you have to
(a) Nonpayment of premium; commence an action within a period of less than one year in
(b) Conviction of a crime arising out of acts increasing the order to enforce the condition, stipulation, or agreement in
hazard insured against; the contract.
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions Any stipulation limiting the time i.e. period of 6 months is
increasing the hazard insured against; considered void.
(e) Physical changes in the property insured which result in
the property becoming uninsurable; May the insured renew a non-life insurance policy?
(f) Discovery of other insurance coverage that makes the
total insurance in excess of the value of the property insured; Sec. 65 In case of insurance other than life, unless the insurer
or at least forty-five (45) days in advance of the end of the policy
period mails or delivers to the named insured at the address
shown in the policy notice of its intention not to renew the

policy or to condition its renewal upon reduction of limits or
elimination of coverages, the named insured shall be entitled
to renew the policy upon payment of the premium due on the
effective date of the renewal. Any policy written for a term of
less than one (1) year shall be considered as if written for a
term of one (1) year. Any policy written for a term longer
than one (1) year or any policy with no fixed expiration date
shall be considered as if written for successive policy periods
or terms of one (1) year

Yes unless there is a notice coming from the insurer or the
insurance company on the non-renewal, which must be
within 45 days.

What are the requisites for the reformation of policy?

Similar to the requisites of the reformation of the ordinary
contracts

1. If it does not show the intent of the parties,
2. Proof must be of satisfactory character that the intent
of the parties is lacking

In one case, it was held that if only mere mistake is made by
the parties, then reformation is not necessary especially if
the mistake is apparent in the policy.

Ex. You insured a car but the wrong model is indicated in
the policy.


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INSURANCE LAW SY 2017-2018 ATTY. ARANAS MIDTERM REViEWER

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