P.D.

612 Insurance Code

(As amended R.A. 10607)

"GENERAL PROVISIONS”

"Section 1, IC. This Decree shall be known as ‘The Insurance Code’.

"Section 2, IC. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:

"(a) A contract of insurance is an agreement whereby one undertakes for a consideration

to indemnify another against loss, damage or liability arising from an unknown or
contingent event.

"A contract of suretyship shall be deemed to be an insurance contract, within the meaning
of this Code, only if made by a surety who or which, as such, is doing an insurance business
as hereinafter provided.

"(b) The term doing an insurance business or transacting an insurance business, within
the meaning of this Code, shall include:

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

"(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;

"(3) Doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;

"(4) Doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.

"In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.

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

NOTES:

 Test to determine whether a contract is one of insurance = when the assumption of risk
and the indemnification of loss is the principal object and purpose of the contract (National Auto
Service Corp. v. State, Texas Civ. App)

 Pre-need plans are also under the powers of the Insurance Commission, but they shall be
distinguished from insurance contracts.

Pre need plans are contracts, agreements, deeds or plans for the benefit other planholders which
provide for the performance of future service/s, payment of monetary considerations or delivery
of other benefits at the time of actual need or agreed maturity date, as specified therein, in
exchange for cash or installment amounts with or without interest or insurance coverage and

1
 includes life, pension, education, interment and other plans, instruments, contracts or deeds as
may in the future be determined by the Commission. (Sec. 4b RA 9829)

 Section 10(b), IRR of the Pre-Need Code. The pre-need company may be licensed and
authorized to issue plans falling under any or all of the following plan types:
i. Educational plan;
ii. Pension plan; and
iii. Life or Memorial plan

 The Insurance Code also governs “variable contracts”.

Sec. 238 (b), IC. The term variable contract shall mean any policy or contract on either a group
or on an individual basis issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to reflect investment results of any
segregated portfolio of investments or of a designated separate account in which amounts
received in connection with such contracts shall have been placed and accounted for separately
and apart from other investments and accounts.

This contract may also provide benefits or values incidental thereto payable in fixed or variable
amounts, or both. It shall not be deemed to be a security or securities as defined in The Securities
Act, as amended, or in the Investment Company Act, as amended, nor subject to regulations
under said Acts.

 Concepts related to Insurance:

Bancassurance - "Section 375, IC. The term bancassurance shall mean the presentation and
sale to bank customers by an insurance company of its insurance products within the premises of
the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of its
branches under such rules and regulations which the Commissioner and the Bangko Sentral ng
Pilipinas may promulgate.
To engage in bancassurance arrangement, a bank is not required to have equity ownership of the
insurance company. No insurance company shall enter into a bancassurance arrangement unless
it possesses all the requirements as may be prescribed by the Commissioner and the Bangko
Sentral ng Pilipinas.

Mutual Insurance Companies - an insurance company owned entirely by its policyholders.

Any profits earned by a mutual insurance company are either retained within the company or
rebated to policyholders in the form of dividend distributions or reduced future premiums.
It has no capital stock and the premiums/contributions of the members are the only sources of
funds to meet losses and expenses.

 Applicable Laws:
1. P.D. 602 as amended by R.A. 10607 (Insurance Code) - governs primarily
2. Civil Code of the Philippines – governs suppletorily.
Article 2011, Civil Code. The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code. 

2
 Article 2012, Civil Code. Any person who is forbidden from receiving any donation under
article 739 cannot be named beneficiary of a life insurance policy by the person who cannot
make any donation to him, according to said article. (n)

Article 2207, Civil Code. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party
shall be entitled to recover the deficiency from the person causing the loss or injury.

(Also see. Provisions re: perfection of contract in Title IV of the Civil Code)

3. Corporation Code
"Section 191, IC. The provisions of the Corporation Code, as amended, shall apply to all
insurance corporations now or hereafter engaged in business in the Philippines insofar as
they do not conflict with the provisions of this chapter.

ELEMENTS OF INSURANCE CONTRACT:

An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; (risk-spreading device) and

5. In consideration of the insurer's promise, the insured pays a premium. (gulf resorts, inc v. philippine
charter insurance corporation)

Note: The insurance must still have all the essential elements of a valid contract.

Article 1318, Civil Code. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

CHARACTERISTICS OF INSURANCE CONTRACT:

1. Risk- distributing device – risk of loss is not actually transferred to the insurer but a number
of people constituting the clients of the insurer contribute to a common fund by paying
premiums. In theory, insurer gets the amount to be paid to the insured from this pool or common
fund.

3
 2. Aleatory – Article 2010, Civil Code. By an aleatory contract, one of the parties or both
reciprocally bind themselves to give or to do something in consideration of what the other shall
give or do upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time. 

3. Unilateral – upon payment of the premium, there is only one party who has the obligation, that
is, the insurer’s obligation to pay the proceeds of the insurance in case of loss.

4. Personal – contract is entered into with due consideration to the circumstances of the parties
(character, credit, conduct, etc.)

5. Consensual – perfected by mere consent without need of delivery or any formality.

Article 1319, Civil Code. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to
his knowledge. The contract, in such a case, is presumed to have been entered into in the place
where the offer was made.

6. Contract of adhesion - one in which one of the parties imposes a ready-made form of contract,
which the other party may accept or reject, but which the latter cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing. It must be borne in mind, however, that contracts of adhesion are not
invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on
the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to
reject it entirely; if he adheres, he gives his consent.

7. Contract of indemnity or principle of indemnity – means that the insured should not
collect more than the actual cash value of the loss.

Exceptions:
o Life insurance – amount to be paid by the insurer can never equal the value of the life
being insured
o Valued policies under which the insurer will pay the value fixed in the policy regardless
of the actual cash value in case of total loss

8. Uberrimae Fidae – means that the contract is one of perfect good faith. Thus, both parties
must not only perform their obligations in good faith but they must also avoid material
concealment or misrepresentations. The caveat emptor rule is generally not applicable.

Right of subrogation of insurer to rights of insured against wrongdoer.

(1) Basis of right. — The doctrine of subrogation is basically a process of legal substitution; the insurer,
after paying the amount covered by the insurance policy, stepping into the shoes of the exist against the

4
wrongdoer at the time of the loss. It has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice and good conscience ought to pay. (Phil. American General Insurance Co., Inc. vs. Court of
Appeals, 273 SCRA 262 [1997]; Delsan Transport Lines, Inc. vs. Court of Appeals, 369 SCRA 24 [2001].)

(2) Purposes of subrogation condition in policy. — Its principal purpose is to make the person
who caused the loss, legally responsible for it and at the same time prevent the insured from receiving a
double recovery from the wrongdoer and the insurer. The insurer is entitled to recover either directly in a
suit against the wrongdoer (third party) or as the real party in interest in a suit brought by the insured and
thereby fully recover or at least lessen the amount of loss it may have paid the insured.

The rule likewise prevents tortfeasors from being free from liabilities and is thus founded on
considerations of public policy. There exists a wealth o f U.S . jurisprudence that whenever the wrongdoer
settles with the insured without the consent of the insurer and with knowledge of the insurer' s payment
and right of subrogation, such right is not defeated by the settlement. (Danza's Corporation vs. Abrogar,
478 SCRA 80 [2006].)

(3) Right of subrogation applicable only to property insurance. — The right of subrogation
under Article 2207 applies only to property, and not to life insurance. The value of human life is regarded
as unlimited and , therefore, no recovery from a third party can be deemed adequate to compensate the
insured' s beneficiary. The pecuniary value of a human life to the beneficiary of a life insurance policy can
seldom be determined with accuracy (except where the insurance is taken by a creditor on the life of a
debtor to secure a debt).

Life insurance contracts are not ordinarily contracts of indemnity, (see Chap. II, Title 2.)

(4) Privity of contract or assignment by insured of claim not essential. — Payment by the
insurer to the insured operates as an equitable assignment to the former of al l the remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. I t accrues simply upon payment of the insurance claim by the insurer , (see Pan
Malayan Insurance Corp. vs . Court of Appeals, 184 SCRA 54 [1990] ; Phil. American Genera l Insuranc e
Co. , Inc . vs . Cour t o f Appeals , supra; Aboiti z Shippin g Corp . vs . Insuranc e Company o f South
America, 561 SCRA 262 [2008].)

The presentation in evidence of the insurance polic y is not indispensable before the insurer may recover.
The subrogation receipt, by itself , is sufficient to establish not only the relationship of th e insurer and the
insured, but also the amount paid to settle the insurance . (Delsa n Transpor t Lines , Inc . vs . Cour t of
Appeals, supra; Federal Express Corporation vs. American Home Assurance Company, 437 SCRA 50
[2004].)

(5) Loss or injury for risk must be covered by the policy. — Under Article 2207, the cause of the
loss or injury must be a risk covered by the policy to entitle the insurer to subrogation. Thus, where the
insurer pays the insured for a loss which is not a risk covered by the policy, thereby effecting 'Voluntary
payment/' the insurer has no right of subrogation against the third party liable for the loss. Nevertheless,
the insurer may recover from the third party responsible for the damage to the insured property under
Article 1236 of the Civi l Code . (Sverige s Anfartygs Assurance Forening vs. Qua Chee Gan , 21 SCRA 12
[1967] ; see also St . Pau l Fire & Marine Insurance Co . vs . Macondray & Co. , Inc. , 70 SCRA 122 [1976];
Fireman's Fund Ins. Co. & Firestone Tire & Rubber Co. vs. Jamila, Inc., 70 SCRA 23 [1976].)

(6) Right of insured to recover from both insurer and third party. — The right of subrogation
given to the insurer prevents the insured from obtaining more than the amount of his loss. It is a method
of implementing the principle of indemnity that is at the heart of all insurance, (see Sec . 18.) The right
exists after indemnity has been paid by the insurer to the insured who can no longer go after the third
party. He can only recover once. Note, however, that if the amount paid by the insurance company does

5
not fully cover the injury or loss, it is the aggrieved party, i.e., the insured, not the insurer, who is entitled
to recover the deficiency from the person responsible for the loss or injury, (see F.F. Cruz & Co., Inc. vs.
Court of Appeals, 164 SCRA 731 [1988].) This is true in case of under-insurance.

(7) Right of insured to recover from insurer instead of the third party. — The insurer cannot
defeat the insured's claim for indemnity on the ground that the insured has a right to be indemnified by a
third person. Having been paid a premium to make good the insured's loss, the insurer cannot compel
him to seek indemnity elsewhere.

(8) Right of insurer against third party limited to amount recoverable from latter by the
insured. — The literal language of Article 2207 makes it clear that the insurance company that has paid
indemnity "shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract." As the insurer is subrogated merely to the rights of the insured, it can necessarily
recover only the amount recoverable by the insured from the party responsible for the loss. It cannot
recover in full the amount it paid to the insured if it is greater than that to which the insured could
lawfully lay claim against the person causing the loss. 6 (Riza l Surety & Insurance Co . vs. Manila
Railroad Co., 23 SCRA 205 [1968].)

(9) Exercise of right of subrogation by insurer discretionary. — Whether or not the insurer
should exercise the rights of the insured to which it had been subrogated lies solely within the former's
sound discretion . Since its identity is not of record, it has to claim its right to reimbursement of the
amount paid to the insured. (F.F . Cruz & Co., Inc. vs. Court of Appeals, supra.)

(10) Loss of right of subrogation by act of insured or insurer. — The right of subrogation has its
limitations to wit : (a ) both the insurer (of goods covered by a bill of lading) , and the consignee are bound
by the contractual stipulations under the bill of lading; and (b ) the insurer can be subrogated only to the
rights as the insured may have against the wrongdoer . Should the insured, after receiving payment from
the insurer, release by his own act the wrongdoer or third party responsible for the loss or damage from
liability , the insurer loses his rights against the wrongdoer since the insurer can be subrogated to only
such rights as the insured may have. For defeating the insurer's right of subrogation, the insured is under
obligation to return to the insurer the amount paid thereby entitling the latter to recover the same.

Under Article 2207, the insurer is the real party-in-interest with regard to the portion of the indemnity
paid for he is deemed subrogated to the rights of the insured with respect thereto . (Manila Mahogany
Manufacturing Corp. vs . Cour t of Appeals, 154 SCRA 650 [1987]; Pioneer Insurance & Surety Corp. vs.
Court of Appeals , 17 5 SCRA 668 [1989] ; Aboiti z Shippin g Corp . vs . Insurance Company of South
America, supra.)

Similarly, where the insurer pays the insured the value of the lost goods without notifying the carrier who
has in good faith settled the claim for loss of the insured, the settlement is binding on both the insured
and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation, (see
Pan Malayan Insurance Corp. vs. Court of Appeals, supra.)

(11) Effect of assignment by insured of its rights against third party to insurer. — Where the
insured (shipper/consignee of goods) has assigned its rights against defendant (carrier of goods) for
damages caused to the cargo shipped to the insurer which paid the amount represented by the loss, the
case is not between the insured and the insurer but one between the shipper and the carrier because the
insurance company merely stepped into the shoes of the shipper. And if the shipper has a direct cause of
action against the carrier on account of the damage to cargo, such action can be asserted or availed of by
the insurer as a subrogee of the insured and the carrier cannot set up as a defense any defect in the
insurance policy because it is not a privy to it. (Compania Maritima vs. Insurance Co. of North America, 12
SCRA 213 [1964].)

"CHAPTER I "THE CONTRACT OF INSURANCE

6
 "TITLE 1 "WHAT MAY BE INSURED”

"Section 3, IC. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may be
insured against, subject to the provisions of this chapter.

"The consent of the spouse is not necessary for the validity of an insurance policy taken out
by a married person on his or her life or that of his or her children.

"All rights, title and interest in the policy of insurance taken out by an original owner on
the life or health of the person insured shall automatically vest in the latter upon the death
of the original owner, unless otherwise provided for in the policy.

Terminologies:

Risk – uncertainty of loss

Peril – specific cause of loss that is insured against

Pure risk – results in either loss or no loss. This is the type of risk that may be assumed by the insurer.

Speculative risk – results in either loss or gain.

Hazards – circumstances/conditions that create or increase the risk of loss.

Loss- end result of the risk. Involves diminution/disappearance of value

Inherent Vice – losses that arise from the very nature or condition of the property. These are not generally
covered by the insurance unless expressly provided for in the policy.

Requisites of a contract of insurance.

(1) A subject matter in which the insured has an insurable interest (see Sees. 12-14.);

(2) Event or peril insured against which may be any (future) contingent or unknown event, past or
future (Sec . 3.), and a duration for the risk thereof (see Sec. 51 [g].);

(3) A promise to pay or indemnify in a fixed or ascertainable amount (see Sec. 2.);

(4) A consideration for the promise, known as the premium,, (see Sec. 77.) ; and

(5) A meeting of minds of the parties upon all the foregoing essentials, (see Arts. 1318,1319 , Civil
Code.)

Of course , the parties must be competent to enter into the contract, (see Arts. 1327-1329, Civil
Code; Sees. 6-7.) Under Section 226, it is provided that "no policy of insurance shall be issued o r
delivered within the Philippine s unless in the form previously approved by the Insurance
Commissioner. Of course, the contract must not be for a purpose contrary to law or public
policy

Insurance by a married woman.

A married woman may take ou t an insurance on her life or that of her children without the consent of her
husband (Sec . 3, par. 2.) , or that of her husband, she having an insurable interest in the latter, (see Sec.

7
10.) She may also take out insurance on her paraphernal or separate property, or on property given to her
by her husband. (Harding vs. Comm. Union Assurance Co., 38 Phil. 464 [1918] ; see Art. 39 , Civi l Code;
Arts. 110 , 111 , Family Code [Exec. Order No . 209].)

Insurance by a minor.

(1) Life, health, o r accident insurance. — Under Section 3 (par. 3.), a minor may enter into a valid
contract of insurance provided that:

(a) He is 18 years of age or over;

(b) The contract is for life, health, or accident insurance;

(c) The insurance is taken on his life ; and

(d) The beneficiary (the person designated to receive the proceeds of the insurance upon the happening of
the event insured against) is any of those enumerated by law. (2) Other insurance. — A contract of
insurance other than life, health, or accident insurance, such as fire or marine insurance, entered into by a
minor is not entirely void. It is one which is merely voidable, that is, i t i s valid unti l annulle d i n a
proper action in cour t by th e mino r o r hi s lega l representative . (Art . 1390, Civil Code.) If the contrac t
i s no t disaffirmed by th e minor , th e insurer cannot escape liability by pleading minority as a defense
because "persons who are capable canno t allege the incapacity o f those with whom they contracted." (Art
. 1397 , ibid.) But if the contract is fai r an d n o frau d o r undu e influenc e wa s practice d b y the insurer,
th e mino r canno t recove r th e premium s paid , i f he cannot return the benefits received, (see Arts. 1385
, 1241, par. 1, 1427, ibid.; Johnson vs. Northwestern Mut. L . Ins . Co. , 59 N.W. 992.) The result is tha t an
insurance company contracting with a minor is bound by the contract; the minor ordinarily is not.

"Section 4, IC. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

 NOTES: This is to avoid wagering contracts; and because a loser in a game of chance is not
damnified by the loss because he can recover his loss from the winner.
Article 2014, Civil Code. No action can be maintained by the winner for the collection of what he
has won in a game of chance. But any loser in a game of chance may recover his loss from the
winner, with legal interest from the time he paid the amount lost, and subsidiarily from the
operator or manager of the gambling house.

RULE ON ACCEPTANCE BY AGENT:

1. The first rule which Joyce lays down is this: If the act of acceptance of the risk by the agent and
the giving by him of a receipt, is within the scope of the agent's authority, and nothing remains
but to issue a policy, then the receipt will bind the company.

2. The second rule laid down by Joyce is this: Where an agreement is made between the applicant
and the agent whether by signing an application containing such condition, or otherwise, that no
liability shall attach until the principal approves the risk and a receipt is given buy the agent, such
acceptance is merely conditional, and it subordinated to the act of the company in approving or
rejecting; so in life insurance a "binding slip" or "binding receipt" does not insure of itself.

8
 3. The third rule announced by Joyce is this: Where the acceptance by the agent is within the scope
of his authority a receipt containing a contract for insurance for a specific time which is not
absolute but conditional, upon acceptance or rejection by the principal, covers the specified
period unless the risk is declined within that period. (De Lim v. Sun Life Assurance)

CLASSIFICATION OF INSURANCE ACCORDING TO OBJECT:

 Life / Health Insurance

 Property Insurance
 Liability Insurance

SPECIAL TYPES OF INSURANCE:

 Marine Insurance
 Casualty Insurance
 Fire Insurance
 Life Insurance
 Compulsory Third Party Liability Insurance
 Microinsurance

"Section 187, IC. Microinsurance is a financial product or service that meets the risk protection needs of
the poor where:

"(a) The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed
seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in
Metro Manila; and

"(b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of the
current daily minimum wage rate for nonagricultural workers in Metro Manila.

"TITLE 2 "PARTIES TO THE CONTRACT

"Section 6. Every corporation, partnership, or association, duly authorized to transact

insurance business as elsewhere provided in this Code, may be an insurer.

"Section 7. Anyone except a public enemy may be insured.

"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.

"Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a

mortgagee, and, at the time of his assent, imposes further obligations on the assignee,

9
making a new contract with him, the acts of the mortgagor cannot affect the rights of said
assignee.

NOTES:

 Effect of war:

If there is no war yet at the time of taking the policy but war ensues between the Philippines and the
country of the insured, the insurance policy is deemed abrogated. (United States Rule)

 Under the new law, individuals no longer identified as persons who can be an insurer.
Domestic and Foreign companies, Mutual Benefit Association (Art. 184), Mutual Insurance
Companies (Art. 268) and Cooperatives (Art. 190) are allowed to be insurers.

 "Section 192. No corporation, partnership, or association of persons shall transact any

insurance business in the Philippines except as agent of a corporation, partnership or association
authorized to do the business of insurance in the Philippines, unless possessed of the capital and
assets required of an insurance corporation doing the same kind of business in the Philippines
and invested in the same manner; unless the Commissioner shall have granted it a certificate to
the effect that it has complied with all the provisions of this Code.

"Every entity receiving any such certificate of authority shall be subject to the insurance and other
applicable laws of the Philippines and to the jurisdiction and supervision of the Commissioner.

"Section 193. No insurance company shall transact any insurance business in the Philippines until
after it shall have obtained a certificate of authority for that purpose from the Commissioner upon
application therefor and payment by the company concerned of the fees hereinafter prescribed.

"The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his
judgment, such refusal will best promote the interest of the people of this country. No such certificate
of authority shall be granted to any such company until the Commissioner shall have satisfied himself
by such examination as he may make and such evidence as he may require that such company is
qualified by the laws of the Philippines to transact business therein, that the grant of such authority
appears to be justified in the light of local economic requirements, and that the direction and
administration, as well as the integrity and responsibility of the organizers and administrators, the
financial organization and the amount of capital, reasonably assure the safety of the interests of the
policyholders and the public.

"In order to maintain the quality of the management of the insurance companies and afford better
protection to policyholders and the public in general, any person of good moral character,
unquestioned integrity and recognized competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent provisions contained in the corporate
governance circulars prescribed by the Commissioner. In addition hereto, the Commissioner shall
prescribe the qualifications of directors, executive officers and other key officials of insurance
companies for purposes of this section.

"No person shall concurrently be a Director and/or Officer of an insurance company and an
adjustment company.

10
 "Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the
company is not that of any other known company transacting a similar business in the Philippines, or
a name so similar as to be calculated to mislead the public. The Commissioner may issue rules and
regulations on the use of names of insurance companies and other supervised persons or entities.

"The certificate of authority issued by the Commissioner shall expire on the last day of December,
three (3) years following its date of issuance, and shall be renewable every three (3) years thereafter,
subject to the company’s continuing compliance with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.

"Every company receiving any such certificates of authority shall be subject to the provisions of this
Code and other related laws and to the jurisdiction and supervision of the Commissioner.

"No insurance company may be authorized to transact in the Philippines the business of life and non-
life insurance concurrently, unless specifically authorized to do so by the Commissioner: Provided,
That the terms life and non-lifeinsurance shall be deemed to include health, accident and disability
insurance.

"No insurance company shall have equity in an adjustment company and neither shall an adjustment
company have equity in an insurance company.

"No insurance company issued with a valid certificate of authority to transact insurance business
anywhere in the Philippines by the Insurance Commissioner, shall be barred, prevented, or
disenfranchised from issuing any insurance policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in the Philippines, by any local government unit
or authority, for whatever guise or reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any insurance company shall be deemed null and
void ab initio.

 "Section 53, IC. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy.

Notes:

Insurer has no obligation to turn over the proceeds of the insurance to third persons even if the
third persons are immediate relatives if there is a designated beneficiary. (Heirs of Maramag v.
Eva Maramag)

*If no beneficiary: forms part of the estate

 Generally revocable nature of insurance

"Section 11, IC. The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in said policy. Notwithstanding
the foregoing, in the event the insured does not change the beneficiary during his
lifetime, the designation shall be deemed irrevocable.

NOTES:

Exception to irrevocability in the case of express waiver of revocability:

11
Art. 64, Family Code. After the finality of the decree of legal separation, the innocent spouse may
revoke the donations made by him or by her in favor of the offending spouse, as well as the designation of
the latter as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable. The
revocation of the donations shall be recorded in the registries of property in the places where the
properties are located. Alienations, liens and encumbrances registered in good faith before the recording
of the complaint for revocation in the registries of property shall be respected. The revocation of or change
in the designation of the insurance beneficiary shall take effect upon written notification thereof to the
insured.

The action to revoke the donation under this Article must be brought within five years from the time the
decree of legal separation become final.

 "Section 12, IC. 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.

 Disqualification of Beneficiaries

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

Article 739, Civil Code. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the
time of the donation;

(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;

(3) Those made to a public officer or his wife, descendants and ascendants, by
reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilt of the donor and donee may be
proved by preponderance of evidence in the same action. (n)

Notes: If the concubine is disqualified, her shares in the insurance proceeds must be awarded to
the illegitimate children who are also designated as beneficiaries. (Heirs of Maramag v.
Maramag)

"TITLE 3 "INSURABLE INTEREST

"Section 10. Every person has an insurable interest in the life and health:

12
"(a) Of himself, of his spouse and of his children;

"(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;

"(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and

"(d) Of any person upon whose life any estate or interest vested in him depends.

NOTES:

 Public policy requires an insurable interest to prevent wagering under the guise of insurance and
to reduce to a safe level the temptation to destroy the insured property. It is for the benefit of
society.

Other purposes of insurable interest:

1. Reduces moral hazard – dishonesty or character defects in the individual that increase the
chance of loss

2. Helps in measuring the loss of the insured

 INSURABLE INTEREST IN LIFE INSURANCE (enumerated in Sec. 10 of IC)

Classes of Insurable Interest in Life Insurance:

1. Own life

2. Life of another

a. Blood relationship – only to spouse and children

The persons under Art. 105 of the Family Code, have insurable interest to one another
by reason of legal obligation to support.

Art. 105. Subject to the provisions of the succeeding articles, the following are obliged to support
each other to the whole extent set forth in the preceding article:

(1) The spouses;

(2) Legitimate ascendants and descendants;

(3) Parents and their legitimate children and the legitimate and illegitimate children of the
latter;

(4) Parents and their illegitimate children and the legitimate and illegitimate children of the
latter; and

13
 (5) Legitimate brothers and sisters, whether of full or half-blood (291a)

b. Pecuniary Interest – reasonable expectation of a financial benefit from the

continuation of the life of the insured or a reasonable expectation of expenses upon
the death of the insured. (e.g. employers to his employees, partners, surety to the
principal

"Section 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.

"Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited when
the beneficiary is the principal, accomplice, or accessory in willfully bringing about the
death of the insured. In such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the policy contract. If the policy contract is
silent, the proceeds shall be paid to the estate of the insured.

"Section 13. Every interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.

"Section 14. An insurable interest in property may consist in:

"(a) An existing interest;

"(b) An inchoate interest founded on an existing interest; or

"(c) An expectancy, coupled with an existing interest in that out of which the expectancy
arises.

NOTES:

 Test in determining insurable interest in property: Whether or not one will derive pecuniary
benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its
destruction, termination, injury by the happening of the event insured against. (Harvardian Colleges
of San Fernando, Pampanga v. Country Bankers Insurance Corp.)

 Insurable interest exists in any of the following cases:

14
 1. Insured possesses a legal title to the property

2. Insured has equitable title to the property

3. Insured has possesses a qualified property or possessory right in the subject matter of the
insurance

4. Insured has possession or right of possession

5. He may suffer from its destruction, loss of a legal right dependent upon its continued existence.

 Inchoate interest with existing interest (e.g. shareholder over the properties of the corporation,
purchaser of a property in a judicial sale subject to redemption, etc.)

 Expectancy coupled with existing interest (e.g. profits that are to be earned by an establishment,
future crops of farmers, expected commissions, etc.),

 Insurable Interest of Mortgagor and Mortgagee: Both have independent insurable interest
over the property. May be covered in one policy or separate policy.

For mortgagor: insurable interest up to the value of the property

For mortgagee: only up to the extent of the debt, it serves as security

Loss payable clause vs. Union Mortgage Clause (see Sec. 9 of Insurance Code)

Loss Payable Clause – any default on the part of the mortgagor, which by the terms of the policy defeat
his rights, will also defeat all the rights of the mortgagee under the contract even though the latter may
not have been in any fault. Mortgagee is merely made a beneficiary in the contract, but not made a party
to the contract itself.

Standard/Union Mortgage Clauses – rights of the mortgagee shall not be defeated by the acts or
defaults of the mortgagor. A collateral independent contract between the insurer and mortgagee is
created.

"Section 15. A carrier or depository of any kind has an insurable interest in a thing held by
him as such, to the extent of his liability but not to exceed the value thereof.

"Section 16. A mere contingent or expectant interest in anything, not founded on an actual
right to the thing, nor upon any valid contract for it, is not insurable.

"Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.

15
"Section 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured.

"Section 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.

"Section 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.

NOTES:

 "Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it
until the same person becomes the owner of both the policy and the thing insured.

 "Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured.

"Section 21. A change of interest in a thing insured, after the occurrence of an injury which
results in a loss, does not affect the right of the insured to indemnity for the loss.

"Section 22. 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.

"Section 23. A change of interest, by will or succession, on the death of the insured, does
not avoid an insurance; and his interest in the insurance passes to the person taking his
interest in the thing insured.

"Section 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even though
it has been agreed that the insurance shall cease upon an alienation of the thing insured.

"Section 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.

DISTINCTIONS BETWEEN INSURABLE INTEREST IN PROPERTY AND LIFE

INSURANCE
Property Insurance Life Insurance
Extent: Value of property Extent: unlimited, except it secured by creditor

16
Time when it must exist: At perfection and Time when it must exist: At perfection
time of loss
Expectation of benefit must have legal basis Expectation of benefit need not have have legal
basis; or not based on legally enforceable
obligation
Beneficiary must have insurable interest Taken out of his own life: Beneficiary’s
insurable interest not necessary

Taken on the life another: Beneficiary must

have insurable interest
Assignment of policy to another person: Assignment of policy to another person:
Consent of insurer needed (see Sec. 184) Consent of insurer not needed

17