Insurance Law Suretyship – a contract whereby a person binds
Tue 7:30-9:30 – 1ST Semester 2019 himself solidarily with the principal debtor for the
Atty. Mary Kimberlie C. See
History
Code of Commerce
Insurance Act – July 01, 1915
Insurance Code/PD 612 – Dec. 18, 1974
Insurance Code/PD 1460 – June 11, 1978
Insurance Code/RA 10607 – Aug. 15, 2013
Insurance Code is of American Origin having been
patterned principally on the Civil Code of California
Laws Governing Insurance (In order of priority)
1. Insurance Code
2. Civil Code (in absence of applicable provisions in
the Insurance Code)
3. General Principles prevailing on the subject in
U.S.A. particularly in the State of California
(Because it is where our Insurance Code was based)
Case:
Alpha Insurance & Surety Co. V. Castor (Sept. 02, 2013)
Interpretation of Insurance Contracts
 Plain meaning Rule – In case there is no doubt as to
the tems of an insurance contract, the provisions
must be construed in their plain, ordinary, and
popular sense.
 Contra Proferentem Rule – In case of ambiguity,
such should be interpreted strictly against the
insurer and liberally in favour of the insured.
 Conflicting Provisions – must be harmonized and
construed in liberally in favour of the insured and
strictly against the insurer.
A Contract of Insurance is an agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage, or liability arising
from an unknown or contingent event. (Sec.2a)
Essential Requisites of an Ordinary Contract
1. Consent
2. Subject matter
3. Consideration
Elements of Insurance Contract:
1. Insured possesses an Insurable Interest.
2. Insured is subject to a risk of loss by the happening
of the designed peril
3. Insurer assumes that risk of loss
4. Assumption of risk is part of a general scheme to
distribute actual losses among a large group of
persons bearing a similar risk (Principle of Risk
Distribution)
5. Insured pays premium
fulfilment of an obligation.
When Suretyship deemed Insurance:
 A contract of suretyship shall be deemed to be an
insurance contract only if made by a surety who or
which, as such, is DOING AN INSURANCE
BUSINESS.
What “DOING AN INSURANCE BUSINESS”
includes: (Sec.2b)
1. Making or proposing to make, as insurer, any
insurance contract;
2. Making or proposing to make, as surety, any
contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or
activity of the surety;
3. Doing any kind of business, including reinsurance
business, specifically recognized as constituting the
doing of an insurance business;
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 insurance code.
Test to Determine if contract is an Insurance
Contract:
 Depends on the nature of the promise, the act
required to be performed, and the exact nature of
the agreement in the light of the occurrence,
contingency, or circumstances under which the
performance becomes requisite. It is not by what it
is called.
 If Assumption of risk and indemnification of loss are
the principal object and purpose of the organization
it is an insurance Contract.
 Health maintenance Organizations – whose object is
to provide the members of the group with health
services – not engaged in insurance business.
 Mutual Benefit Associations – where the members
are in effect both insurers and insured. Insurance
being incident and not the main purpose; Insurance
feature is not for gain but with the object of
benevolence.
CHARACTERISTICS OF INSURANCE
1. Aleatory Contract – undertakes for a
consideration to indemnify another against loss,
damage, or liability arising from unknown or
contingent event.
2. Contract of Indemnity – Property Insurance
indemnity is based on the loss or injury; Life
Insurance is an investment, human life has no
equivalent amount or valuation.
3. Personal Contract – Personal circumstances is
considered.
4. Executory Contract after the payment of
premiums – executed on the part of the insured
upon payment of premium and wholly executor on
the part of the insurer.
5. Conditional Contract – Insurer would wait the
insured peril before liability would arise.
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WHAT MAY BE INSURED
Any contingent or unknown event, Whether past
or future, which may damnify a person having an
insurable interest, or create a liability against
him, may be insured… (Sec.3a)
1. Insurance against Damage – one that may cause
damage to the insurer
2. Insurance against Liability – one that may create
liability against him (insured)
When Insurer liable for past event – the past event
causing the loss must be unknown to both parties and
they must expressly stipulate that a prior loss is insured
by the policy.
Fortuitous Event – the insurer is responsible even the if
the event could not be foreseen, or though foreseen, is
inevitable.
Insurance by a Married Person – may insure his/her own
life and that of his/her children without the consent of
the other spouse.
Effect of death of Policy’s original owner – the
death of the original policy owner shall automatically
vest title on the policy to the insured, unless otherwise
provided for in the policy.
Exception: the designation of a third person as
beneficiary is tantamount in the provision in the policy
that the rights, title, and interest in the policy should not
vest in the insured person when the original owner
predeceases the insured.
Gambling cannot be covered by gambling (Sec.4)
 Gambling courts fortune; gambling seeks to
avoid misfortune.
All kinds of insurance are subject to the provisions of
this chapter so far as the provisions apply (Sec.5)
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PARTIES TO THE CONTRACT
o Business of Insurance is limited only to Corporations,
partnerships, and associations – Individuals are no
longer included (Sec.190)
1. INSURER – a person who undertakes to indemnify
another in a contract of Insurance
2. INSURED - a person to be indemnified
3. BENEFICIARY – who receives a benefit or
advantage, or who is entitled to the benefit of a
contract, that is, the one to whom the insurance is
payable or who is entitled to the proceed of the
policy on the occurrence of the event designated
 DISQUALIFIED persons from being beneficiary
1. Persons forbidden to receive donations
under Art 739 of the Civil Code (Life
insurance Policy) Between persons guilty of
adultery or concubinage (conviction not
required); between persons guilty of same
criminal offense; made to a public officer or
his wife, descendants and ascendants, by
reason of office
2. Public enemy
Anyone EXCEPT a PUBLIC ENEMY may be insured
(Sec.7)
 Public enemy is a nation at war with the
Philippines and also every citizen or subject of
such nation. Such term does not include
robbers, thieves, and riotous mobs.
 Public enemy may not be insured because it is
contrary to the purpose of war which is to
cripple the power and exhaust the resources of
the enemy.
[Mortgagor=Owner]
[Mortgagee=only to the extent of his lien]
(Section 8)
Unless the policy otherwise provides,
where a mortgagor of property effects insurance
in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is
deemed to be upon the interest of the
mortgagor,
who does not cease to be a party to the original
contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will
have the same effect, although the property is in
the hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be
performed by the mortgagee therein
named, with the same effect as if it had
been performed by the mortgagor.
 Mortgagor and mortgagee may take out separate
policies with the same or different insurance
companies
 Mortgagor may insure the mortgaged property to
the full value of the property
 Mortgagee can insure the same only to the extent of
the amount of his credit
 Insurance by Mortgagor without assigning loss to
mortgagee – only the mortgagor may recover from
insurer since the policy taken is applied only
exclusively to his interest.
 Insurance by Mortgagor making loss payable
to Mortgagee - (assigns the policy to the
mortgagee) insurance is with the Mortgagor;
property is with the hands of mortgagee; acts of the
mortgagor is the acts of the Mortgagee; upon loss
mortgagee is entitled to recover the extent of his
credit and the remaining balance if any with
mortgagor. (rationale: loss is payable with
mortgagee); upon recovery by the mortgagee to the
extent of his credit from the insurer, mortgagor is
released from his indebtedness
ASSIGNMENT of the policy to mortgagee is not a
Payment - The assignment is merely to afford the
mortgagee a greater security for the settlement for the
mortgagors’ obligation and should not be construed as
payment.
Effect of “MORTGAGE REDEMPTION” insurance
procured by the Mortgagor – A life Insurance
procured by the mortgagor with mortgagee as
beneficiary up to the extent of mortgage indebtedness.
Rationale is to give protection with Mortgagor and
mortgagee. When mortgagor dies the will be applied for
the payment of mortgage debt.
Effect of Insurance procured by Mortgagee –
(mortgagee insures his interest without reference to the
right of the mortgagor) Mortgagee will collect from
insurer; Mortgagor has no right to collect the balance of
the proceeds if any, unless otherwise stated in the
policy; insurer upon payment to the mortgagee is
subrogated to the right of the mortgagee and may
collect the debt of the mortgagor to the extent of the
amount paid to the mortgagee. Mortgagee can no longer
collect, if there is still balance after the payment of
insurer of the proceeds he may still charge the
mortgagor for the balance. And finally, the payment of
the insurer in favour of mortgagee doesn’t release the
mortgagor from his debts.
UNION MORTGAGE CLAUSE (SECTION 9)
 UMC creates the relation of insured and insurer
between the mortgagee and the insurance company
independent of the contract with the mortgagor.
 Mortgagee shall not be affected by any act or
neglect of the mortgagor.
 UMC’s Purpose is to provide an independent contract
between the mortgagee and the insurer so that the
mortgagee will be responsible only for his own acts.
 Open Mortgage Clause – the mortgagor does not
cease to be a party to the insurance contract and,
therefore, any act of his which would otherwise
avoid the policy shall have the same effect.
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INSURABLE INTEREST
It is the relation or connection with, or concern
in, such subject matter that he derive pecuniary
benefit or advantage from its preservation or will
suffer pecuniary loss or damage from its
destruction, termination or injury by the
happening of the event insured against.
 Insurable Interest is Necessary – if such interest is
lacking, the policy is void
SEC. 10. Every person has an insurable interest in
the life and health:
“(a) Of himself, of his spouse and of his children;
“(b) Of any person on whom he depends wholly
or in part for education or support, or in whom he
has a pecuniary interest;
o Spouse
o Legitimate Ascendants and Descendants
o Parents and Acknowledged natural children
o Parents and natural Children by legal fiction
o Parents and Illegitimate children not natural
o Brothers and Sisters
“(c) Of any person under a legal obligation to him
for the payment of money, or respecting property
or services, of which death or illness might delay
or prevent the performance; and
“(d) Of any person upon whose life any estate or
interest vested in him depends.
 In Life insurance insurable interest exist where there
is reasonable ground, founded in the relation of the
parties, either pecuniary, or contractual, or by blood
or affinity to expect some benefit or advantage from
the continuance of the life of the insured.
 Intimate friendship of many years standing, by
virtue of such relationship alone does NOT create
insurable interest in life of one another.
TIME when insurable interest in life MUST exist
 Must exist at the time of the effectivity of the policy
and need not exist at the time of the death of the
 insured, as life insurance is not a contract of
indemnity
 However in case of insurable interest of a creditor
on the life of a debtor must exist not only at the
time of effectivity but also at the time of debtors
death, for such kind of insurance is still a contract of
indemnity.
Beneficiary need NOT have Insurable interest
 Person procuring insurance in his own life, may
name anyone he chooses as beneficiary, even
though he is a stranger and has no insurable interest
in the life of the insured. Except those beneficiaries
referred to in Article 739 of the Civil Code.
 In Property Insurance the beneficiary must have an
insurable interest in the property insured.
CONSENT of insured NECESSARY
 Where a life insurance policy is taken by one person
on the life of another – the person procuring must
have insurable interest and – obtain the consent of
the insured
Insurable Interest on the Debtors life
 Creditor has insurable interest on the life of his
debtor to the extent of the indebtedness.
Insured has Right to change the beneficiary
designated in the policy (unless waived). If the
insured does not change the beneficiary during
his lifetime, designation is called Irrevocable
(Sec.11)
 In case no designated Beneficiary or designation is
invalid – the insurance proceeds shall accrue to the
estate of the insured.
Beneficiary predeceases the Insured
 If beneficiary is irrevocable and with vested interest
in the insurance – legal representatives are entitled
to the proceeds of the insurance
 If beneficiary is revocable and without interest in the
insurance – right to the proceeds passes to the
estate of the insured.
Beneficiary fails to submit an insurance claim
 Insurance agent must give proper notice of the
existence of the insurance coverage to the
beneficiary upon the death of the insured.
 Agent shall bear the loss and not the beneficiary.
The interest of a beneficiary in a life insurance
policy shall be forfeited - when the beneficiary is
the principal, accomplice, or accessory in willfully
bringing about the death of the insured.
In such a case, the share forfeited shall pass on to
the other beneficiaries, unless otherwise
disqualified.
In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the
policy contract. - If the policy contract is silent,
the proceeds shall be paid to the estate of the
insured. (Sec.12)
Insurable Interest in property is not limited to ownership
of the subject-matter of the insurance. It includes
liability. (Sec.13)
SEC. 14. An insurable interest in property may
consist in:
“(a) An existing interest;
“(b) An inchoate interest founded on an existing
interest; or
“(c) An expectancy, coupled with an existing
interest in that out of which the expectancy
arises.
“SEC. 15. A carrier or depository of any kind has
an insurable interest in a thing held by him as
such, to the extent of his liability but not to
exceed the value thereof.
“SEC. 16. A mere contingent or expectant interest
in any thing, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
insurable.
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“SEC. 17. The measure of an insurable interest in
property is the extent to which the insured might
be damnified by loss or injury thereof.
“SEC. 18. No contract or policy of insurance on
property shall be enforceable except for the
benefit of some person having an insurable
interest in the property insured.
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SEC. 19. An interest in property insured must
exist when the insurance takes effect, and when
the loss occurs, but need not exist in the
meantime; and interest in the life or health of a
person insured must exist when the insurance
takes effect, but need not exist thereafter or
when the loss occurs.
Reason: insurable interest at the time of effectivity to
avoid speculative policies which is against public policy;
as to the insurable interest at the time of loss – being a
contract of indemnity, will not be indemnified if no
damage is evident.
SEC. 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a
thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the
insurance to an equivalent extent, until the
interest in the thing and the interest in the
insurance are vested in the same person.
Change of interest contemplated is – absolute transfer of
insured’s entire interest to another not previously
insured
Alienation of Property does NOT transfer the
Property
 Transfer assignment or conveyance – does not
transfer any right in the insurance – unless Insured
makes an express assignment thereof – express
transfer will allow the purchaser to the proceeds of
the insurance, because the transfer of the interest in
the thing insured constitutes transfer of the policy
SEC. 25. Every stipulation in a policy of insurance
for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering, is
void.
Void Stipulations
 for the payment of loss whether the person insured
has or has not any interest in the property insured
or;
 that the policy shall be received as proof of such
interest
 every policy executed by way of gaming or wagering
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Concealment
Representation

1. By express stipulation of the parties; where Warranty

insurance is on account of the owner; the
insurance is on account of the bearer. Policy
(constitutes change in interest/transfer)
2. By will or succession on death of the insured Premium
(constitutes transfer)
3. Transfer of interest by one of several partners
who are jointly insured, to the others.

Reaquisition by the insured of the property

previously transferred revives the property
(revived from being suspended)

Exception: (Policy is NOT suspended)

1. There is prohibition of alienation
2. In case of life, accident, health insurance
3. Change of interest in the thing insured after an
occurrence of an injury which results in loss.
(SEC.21)
4. A change of interest in one or more of several
distinct things, separately insured by one policy,
does not avoid the insurance as to the others.
(SEC.22)
5. A change of interest, by will or succession, on
the death of the insured, does not avoid an
insurance; and his interest in the insurance
passes to the person taking his interest in the
thing insured. (SEC.23)
6. A transfer of interest by one of several partners,
joint owners, or owners in common, who are
jointly insured, to the others, does not avoid an
insurance even though it has been agreed that
the insurance shall cease upon an alienation of
the thing insured. (SEC.24)

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