INSURANCE REVIEWER– Atty. Quimson THE INSURANCE CODE (Republic Act No.

10607)

GENERAL PROVISIONS

Section 1. This decree shall be known as the –Insurance Code of 1978–

What is the principle behind insurance?

Insurance is based upon the principle of aiding another from a loss caused by an unfortunate event.

How old is the concept of insurance?

Very old. Benevolent societies organized for the purpose of extending aid to their unfortunate members from a
fund contributed by all, have been in existence from the earliest times. They existed among the Egyptians, the
Chinese, the Hindus, the Romans, and are known to have been established among the Greeks as early as,
believe it or not, 3 B.C.

1460 which took effect on June 11, 1976 consolidated all insurance laws into a single code and this is what we
know now as the Insurance Code of 1978.

What are the present laws that govern insurance (also known as the laws we have to know for exams)?

The laws we have to know are, of course, RA 10607 and Articles 2011-2012, 2021-2027 and 2166 of the New
Civil Code.

What do these Civil Code Provisions say?

Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code.

Art. 2012. Any person who is forbidden from receiving any donation under Art. 739 cannot be named
beneficiary of a life insurance policy by a person who cannot make any donation to him.

Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the
life of one or more determinate persons in consideration of a capital consisting of money or other property,
whose ownership is transferred to him at once with the burden of income.

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third
person, or upon the lives of various persons, all of whom must be living at the time the annuity is established. It
may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into,
or in favor of another or other persons.

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the
contract was entered into, or who was at the that time suffering from an illness which caused his death within
twenty days following said date.

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand
the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation
to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require
a security for the future income, unless there is a stipulation to the contrary.

Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain in proportion
to the days during which he lived; if the income should be paid by installments in advance, the whole amount of
the installment which began to run during his life shall be paid.

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the time the
annuity is established that the same shall not be subject to execution or attachment on account of the
obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask
for execution or attachment of the property.

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the
annuity is constituted.

What is so important about the Civil Code Provisions?

Atty. Quimson never fails to ask about Art. 2012.

Are there special laws that govern insurance?

Yes, but Atty. Quimson did not tell us to look them up. However, for reference they are:

1. RA 10607

2. Revised GSIS Act of 1977 (PD 1146, as amended)

3. Social Security Act of 1954 ( RA 1161, (as amended)

4. The Property Insurance Law ( RA 656, as amended by PD 245)

5. Republic Act No. 4898

6. EO 250; and

7. RA 3591

How do we construe the provisions of the Insurance Code (IC)?

Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from the law of
California (except for Chap V, which was taken from the law of NY), the courts should follow in fundamental
points, at least, the construction placed by California Courts on California law (and the construction placed by
the NY Courts on NY law).

This is in accordance with the well settled rule in statutory construction that when a statute has been adopted
from some other state or country, and said statute has previously been construed by the courts of such state or
country, the statute is usually deemed to have been adopted with the construction so given.

Cases:

(1) Constantino v. Asia Life 87 PHIL 248

(2) Insular Life v. Ebrado 80 SCRA 181

(3) Qua Chee Gan v. Law Union Rock 98 PHIL 85

(4) Ty v. Filipinas Compañia de Seguros 17 SCRA 364

(5) Del Rosario v. Equitable Insurance 118 PHIL 349

(6) Misamis Lumber v. Capital Insurance 123 Phil 1077

(7) Verendia v. CA 217 SCRA 1993

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

(1) 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.

(2) The term –doing an insurance business– or –transacting an insurance business– withing the meaning of this
Code, shall include:

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

(b) 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;

(c) 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;

(d) 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 distinct 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.

(3) As used in this Code, the term –Commissioner– means the –Insurance Commissioner.–

Is the definition of a contract of insurance under Sec. 2 sufficient?

De Leon believes that it is not. He opines that the definition does Not include Life insurance which is a contract
upon a condition rather than a contract to indemnify for nor recovery can fully repay a beneficiary for the loss of
life which is beyond pecuniary value. A better definition he thinks, is that of Vance who said that a –contract of
insurance is an agreement by which one party, for a consideration, promises to pay money or its equivalent, or
to do some act valuable to the insured or his nominee, upon the happening of a loss, damage, liability or
disability arising from an unknown or contingent event.”

What are the characteristics of an insurance contract?

A contract of insurance has the following characteristics:

1. Consensual – perfected by the meeting of the minds of the parties

2. Voluntary – it is not compulsory and the parties may incorporate such terms and conditions as they

may deem convenient which will be binding provided they are not against the law or public policy

3. Aleatory – depends upon some contingent event

4. Executed – as to the insured after the payment of the premium

5. Executory – as to the insurer as it is not executed until payment for a loss

6. Conditional – subject to conditions the principal one of which is the happening of the event insured against

7. Personal – each party in the contract have in view the character, credit and conduct of the other

What are the elements of an insurance contract?

Like any other contract, an insurance contract must have consent of the parties, object and cause or
consideration. The parties who give their consent in this contract are the insurer and insured. The object of the
contract is the transferring or distributing of the risk of loss, damage, liability or disability from the insured to
the insurer. The cause or consideration of the contract is the premium which the insured pays the insurer.

What is an additional element of an insurance contract?

Insurable Interest. This means that the insured possesses an interest of some kind susceptible of pecuniary
estimation.

How are insurance contracts classified?

Insurance contracts are classified as follows?

1) Life insurance contracts

a) Individual (Sections 179-183, 227)

b) Group Life (Sections 50 and 228)

c) Industrial Life (Sections 229-231)

2) Non-Life Insurance Contracts

a) Marine (Sections 99-166)

b) Fire (Sections 167-173)

c) Casualty (Section 174)

3) Contracts of Suretyship and bonding (Sections 175-178)

How are insurance contracts construed?

Ambiguities or obscurities must be strictly interpreted against the party that caused them. As the insurance
policy is prepared solely by the insurer, the ambiguities shall be construed against it and in favor of the insured.
(Qua Chee Gan)

What does the term –doing insurance business– include?

The term –doing an insurance business or –transacting an insurance business– includes:

a) Making or proposing to make, as insurer, any insurance contract;

b) 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;

c) 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;

d) 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.

Does the fact that no profit was derived from the transaction nor a separate consideration received therefore
mean that no insurance business was transacted?

No. Fact that no profit is derived from the contract or transaction or that no separate or direct consideration is
received for such contract or transaction is NOT deemed conclusive to show that no insurance business was
transacted.

Will any suretyship agreement amount to an insurance contract?

No. In order for a suretyship agreement to come under the purview of the Insurance Code, the Surety
undertaking to ensure the performance of the obligations must be registered with the Insurance Commissioner
and must have been issued by the latter with a certificate of authority. Furthermore, the person acting as a
surety is habitually engaged as such for a livelihood.

Cases:

(8) Philamlife v. Ansaldo 234 SCRA 509

(9) Philamcare v. CA 379 SCRA 356 (2002)

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from
noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer. By reason of the exclusive control
of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.

This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.
CHAPTER 1 CONTRACT OF INSURANCE

TITLE I – WHAT MAY BE INSURED

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

The consent of the husband is not necessary for the validity of an insurance policy taken out by the married
woman on her life or that of her children.

Any minor of the age of eighteen years or more, may notwithstanding such minority, contract for life, health
and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided
the insurance is taken on his own life and the beneficiary appointed is the minor–s estate or the minor–s father,
mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and
privileges of an owner under a policy.

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

What perils or risk may be insured?

The following risks may be insured:

1. Any contingent or unknown event whether past or future which may cause damage to a person having an
insurable interest; or

2. Any contingent or unknown event, whether past or future, which may create liability against the person
insured.

May a married woman take out an insurance? If so, on what?

Yes. A married woman may take out an insurance on her life or that of her children even without the consent of
her husband. She may likewise take out an insurance on the life of her husband, her paraphernal property, or on
property given to her by her husband.

May a minor take out an insurance?

Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA 8809, Dec.

13, 1989).

Atty Quimson asked us to look at a few provisions of law with respect to this section. What are they?

Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those
events which, could not be foreseen, or which, though foreseen, were inevitable.

Art. 110 (FC). The spouses retain the ownership, possession, administration and enjoyment of their exclusive
properties.

Either spouse may during the marriage, transfer the administration of his or her exclusive property to the other
by means of a public instrument, which shall be recorded in the registry of property of the place where the
property is located.

Art. 1327 (NCC). The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These
contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
(10) Philamcare v. CA (repeat – Case #09) 379 SCRA 356

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from
noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer. By reason of the exclusive control
of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.

This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.

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

Is a contract of insurance a wagering or gambling contract?

NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract.

Although it is true that an insurance contract is also based on a contingency, it is not a contract of chance.

What is the concept of a lottery?

The term –lottery– extends to all schemes for the distribution of prizes by chance, such as policy playing, gift
exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling.

What are the three essential elements of lottery?

Consideration, prizes and chance.

There is consideration of price aid if it appears that the prizes offered by whatever name they may be called
came out of the fund raised by the sale of chances among the participants in order to win the prizes.

Are all prizes equivalent to a lottery?

If the prizes do not come out of the fund or contributions by the participants, no consideration has been paid
and consequent, there is no lottery. Ex: A company, to promote the sale of certain products, resorts to a scheme
which envisions the giving away for free of certain prizes for the purchase of said products, for the participants
are not required to pay more than the usual price of the products.

Can a sweepstakes holder insure himself against the failure of his ticket to win?

NO. It cannot be said that he suffered a –loss– of prize when he did not win. The failure to win a prize

would not damnify or create a liability against him.

What are the distinctions between an insurance contract and a wagering contract?

A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25)

While it is based on a contingency, it is not a contract of chance and is not used for profit. The distinctions are
the following:

Insurance Contract Gambling contract

Parties seek to distribute loss by reason of Parties contemplate gain through mere chance or
mischance the occurrence of a contingent event.

Insured avoids misfortune. Gambler courts fortune

Tends to equalize fortune. Tends to increase the inequality of fortune.

What one insured gains is not at the expense of Essence is whatever one person wins from a
another insured. The entire group of insureds
provides through the premiums paid, the funds wager is lost by the other wagering party.
which make possible the payment of all claims;
Purchase of insurance does not create a new and
non-existing risk of loss to the purchaser. In As soon as a party makes a wager, he creates a
purchasing insurance, the insurer faces an risk of loss to himself where no such risk existed
previously.
already existing risk of economic loss.

As soon as a party makes a wager, he creates a risk of loss to himself where no such risk existed previously.

What are the similarities between an insurance contract and a gambling contract?

They are similar in only one respect. In both, one party promises to pay a given sum to the other upon the
occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a
stipulated amount by the other party to the contract.

In either case, one party may receive more, much more, than he paid or agreed to pay.

Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

What is the applicability of the provisions of Chapter 1?

Provisions of Chap 1 on –The Contract of Insurance– (Secs 1-98) are also applicable to marine Insurance (Secs.
99-166), Fire insurance (Secs. 167-173), Casualty Insurance (Sec. 174), Suretyship (Secs. 175-178),

Life Insurance (Secs. 179-183), and to any other kind of insurance (Sec. 2) so far as said provisions can apply.

Matters not expressly provided for in the Insurance Code and special laws are regulated by the CC.

So, an insurance contract under RA 1611 (Social Security Act of 1954) shall be governed primarily by the said law
and subsidiarily by Chap. 1 of the Insurance Code, and in the absence of the applicable provisions in both laws,
the pertinent provisions of the CC shall be applied.

TITLE II – PARTIES TO THE CONTRACT

Section 6. Every partnership, association or corporation duly authorized to transact insurance business as
elsewhere provided in this Code, may be an insurer.

Who are the parties to the contract of insurance?

The Insurer is the party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify
the insured or to pay him a certain sum on the happening of a specified contingency or event. The business of
insurance may be carried on by individuals just as much as by corporations and associations.

The state itself may go into insurance business.

The insured, or the second party to the contract, is the person in whose favor, the contract is operative and who
is indemnified against, or is to receive a certain sum upon the happening of a specified contingency or event. He
is the person whose loss is the occasion for the payment of the insurance proceeds by the insurer.

Is the insured always the person to whom the proceeds are paid?

No. The person paid may be the beneficiary designated in the policy. A common example of this situation is a
life insurance policy where the proceeds are not given to the insured but to a third party designated by the
insured.
What is the nature of the relationship between the insurer and the insured?

It is that of a contingent debtor and creditor, subject to the conditions of the policy and NOT that of trustee and
cestui que trust.

How are the terms assurer, insured and assured used in insurance?

Accdg to Black–s Law, Insurer is synonymous with the term –assurer– or –underwriter–. The terms –insured–
and –assured– are generally used interchangeably; but strictly speaking, the term insured– refers to the owner
of the property insured or the person whose life is the subject of the contract of insurance, while –assured–
refers to the person for whose benefit the insurance is granted.

For ex: A wife insures the life of her husband for her own benefit. The wife is the assured, and the husband the
insured. The wife is the owner of the policy but she is not the insured.

In property insurance, like fire insurance, the insure is also the assured where the proceeds are payable to him.

Assured is also used sometimes as a synonym of –beneficiary.– The beneficiary is the person designated by the
terms of the policy as the one to receive the proceeds of the insurance. He is the third party in a contract of life
insurance, whose benefit the policy is issued and to whom the loss is payable.

Who may be an insurer?

A foreign or domestic insurance company may transact business in the Philippines but must first obtain a
certificate of authority for that purpose from the Insurance Commissioner who has the discretion to refuse to
issue such certificate if it will best promote the interests of the people of this country. (Sec. 187)

An individual may also be an insurer, provided he holds a certificate of authority from the Insurance
Commissioner, and provided further that he is possessed of the capital assets required of an insurance
corporation doing the same kind of business in the Philippines and invested in the same manner. (Secs. 184-
186)

What is an insurance corporation?

IC defines it as one formed or organized to save any person or persons or other corporations harmless from loss,
damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate
any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the
performance of or compliance with contractual obligations or the payment of debts of others.

(Sec. 185) The last part of the statement refers to suretyship. (Sec. 175)

What does the term –insurer– and –insurance company– include?

It includes individuals, partnerships, associations or corporations, including GOCC–s or entities, engaged as

principals in the insurance business, except mutual benefit associations. It shall also include professional
reinsurers as defined in Sec. 280 (Sec. 184)

Is the Business of Insurance affected with public interest?

Yes. It is therefore, subject to regulation and control by the state by virtue of the exercise of its police power or
in the interest of public convenience and the general good of the people.

Atty. Quimson asked us to look at Sec. 184-185 for the meaning of –insurer–, –insurance company–, and
–Insurance corporation–; and Sec. 187 for the certificate of authority required to transact insurance business.
What do these sections provide?

Sec. 184. For the purposes of this Code, the term –insurer– or –insurance company– shall include all individuals,
partnerships, associations, or corporations including government-owned or controlled corporations or entities,
engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context
otherwise requires, the term shall also include professional reinsurers defined in Sec. 280. –Domestic Company–
shall include companies formed, organized or existing under the laws of the Philippines. –Foreign Company,–
when used without limitation, shall include companies formed, organized, or existing under any lws other than
those of the Philippines.

Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from
loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to
compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee
the performance of or compliance with contractual obligations or the payment of debts of others shall be
known as –insurance corporations.”
The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in
business in the Philippines in so far as they do not conflict with the provisions of this chapter.

Sec. 187. 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 therefore 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 interests 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, notwithstanding the
provisions of section 188, reasonably assure the safety of the interests of the policyholders and the public.

In order to maintain the quality of the management of insurance companies and afford better protection of
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. The
Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance
companies for the purposes of this section.

No person shall concurrently be a director and/or officer of an insurance company and an adjustment company.

Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their
positions until the end of their terms or two years from the effectivity of the Decree, whichever is shorter.

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.

Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the
company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or
decisions of the Commissioner. Every company receiving any such certificate of authority shall be subject to the
provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner.

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, provided however, that the terms –life– and
–non-life– insurance shall e deemed to include health, accident and disability insurance. No insurer company
shall have any equity in an adjustment company and neither shall an adjustment company have an equity in an
insurance company.

Insurance companies and adjustment companies presently affected by the above provisions shall have two
years from the effectivity of the Decree within which to divest of their stockholdings.

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

What are the requisites in order that a person may be insured in a contact of insurance?

There are 3 requisites namely:

c) He must be competent to enter into a contract.

d) He must possess an insurable interest in the subject of insurance.

e) He must NOT be a public enemy.

What is a public enemy?

It is a nation with whom the Philippines is at war, and it includes every citizen or subject of such nation. What is
the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public
enemy, with respect to property insurance?

With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to be valid
and enforceable as soon as the insured becomes a public enemy.
What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of
a public enemy, with respect to life insurance?

Three doctrines have arisen.

(1) Connecticut Rule – there are two elements in the consideration for which the annual premium is paid:

a. The mere protection for the year; and

b. The privilege of renewing the contract for each succeeding year by paying the premium for that year at the
time agreed upon.

Accdg. to this view, the payments of the premiums are a condition precedent, the non-performance of which (as
when the performance would be illegal) necessary defeats the right to renew the contract.

(2) New York Rule – apparently followed by the number of decisions. War between the states in which the
parties reside merely suspends the contracts of life insurance and that upon the tender of premiums due by the
insured or his representatives after the war has terminated revives the contract which becomes fully operative.

(3) US Rule – declared the contract not merely suspended but is abrogated by reason of non-payment of
premiums, since the time of the payment is peculiarly of the essence of the contract. However, the insured is
entitled to the cash or reserve value of the policy (if any) which is the excess of the premiums paid over the
actual risk carried during the years when the policy had been in force.

We follow the US Rule.

Cases. (11) Filipinas Cia de Seguros v. Christern Huenfeld & Co. 80 PHIL 54

Section 8. Unless the policy otherwise provides, where a mortgagor of the property effects insurance in his own
name providing that a 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.

Is it alright if both the mortgagor and the mortgage insure the same property?

YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged, and this
interest is separate and distinct from the other. Consequently, insurance taken by one in his own name only and
in his favor alone does not inure to the benefit of the other. And in case both of them take out separate
insurance policies on the same property, or one policy covering their respective interests, the same is not open
to the objection that there is double insurance.

What is the extent of the insurable interest of the mortgagor?

The mortgagor of the property, as owner has an insurable interest to the extent of the value of the property,
even if the mortgage debt is equal to such value. The reason is that the loss or destruction of the property
insured will NOT extinguish the mortgage debt.

What is the extent of the insurable interest of the mortgagee?

The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of the debt
secured, such interest continues until the mortgage debt is extinguished.

Up to what extent can each recover?

The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee
cannot recover in excess of the credit at the time of the loss.

Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his own name and
provides that the loss be payable to the mortgagee?

The legal effects of this are:

(1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be a party to
the contract;

(2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects the
mortgagee even if the property is in the hands of the mortgagee;
(3) Any act which under the contract of insurance is to be performed by the mortgagor, may be performed by
the mortgagee;

(4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and

(5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

What is the effect if the mortgagee effects insurance on behalf of the mortgagor?

Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to receive
the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the debt.

Atty. Quimson wants us to look at Art. 2127 CC. What does it say?

Art. 2127. The mortgage extends to the natural accession, to the improvements, growing fruits, and the rents or
income not yet received when the obligation becomes due, and to the amount of the indemnity granted or
owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use,
with the declarations, amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

Cases:

(12) San Miguel Brewery v. Law Union Rock Insurance Company 40 PHIL 674

(13) Saura Import Export Co. v. Philippine International Surety 118 PHIL 150

(14) Palilieo v. Cosio 97 PHIL 919

(15) Grepalife v. CA 3D SY 2004-2005

Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the
time of his assent, imposes further obligations on the assignee, making a new contract with him, the acts of the
mortgagor cannot affect the rights of said assignee.

What does this provision say?

Under this section, where an insurer assents to the transfer of an insurance from a Mortgagor (Mor) to a
Mortgage (Mee), and at the time of his assent the insurer imposes further obligation on the Mee, a new and
distinct consideration passed from the Mee to the insurer, and a new contract is created between them. The
acts of the Mor cannot anymore affect the rights of the Mee.

What is the significance of this provision?

Remember we said in Sec. 8 that all acts of the mortgagor affects the mortgagee? Well, this provision provides
the exception to the rule.

TITLE III – INSURABLE INTEREST

Section 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 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.

Why is this section important?

Other than it discusses the concept of keyman insurance, Atty. Quimsons asked this in a past mid-term exam,
asking the students to Quote the provision.

What is insurable interest?

Insurable interest is one the most basic of all requirements in insurance. In general, a person is deemed to have
insurable interest in the subject matter insured where he ha a relation or connection with or concern in it that
he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage
from its destruction, termination or injury by the happening of the event insured against.
Why must there be an insurable interest?

It is essential for validity and enforceability of the contract or policy. A policy issued to a person without interest
in the subject matter is a mere wager policy or contract.

When is there insurable interest in life insurance?

In life insurance, Insurable interest exists where there is reasonable ground founded on the relations of the
parties whether pecuniary, contractual or by blood or affinity, and to expect some benefit or advantage from
the continuance of the life of the insured.

Cases:

(16) Col. C. Castro v. Insurance Commissioner GR. 55836, Feb. 16, 1981

(17) Lincoln National Life v. San Juan CA GR 34588-88, Nov. 27, 1971

(18) Gercio v. Sun Life 48 PHIL 53

(19) El Oriente v. Posadas 56 PHIL 147 (1931)

Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any other
section is reference made to the provisions of section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and
vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual
beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance
policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may
be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the proceeds
of life insurance policies received by corporations constitute income which is taxable.

It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than
thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it
might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the
plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in
this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of
life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the
plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death
of its manager.

(20) Philamcare v. CA (repeat – Case # 09) 379 SCRA 356

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from
noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer. By reason of the exclusive control
of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.

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

A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the recipient of
the proceeds in the insurance.

Who can be a beneficiary?

Any person in general can be a beneficiary.

Are there any exceptions?

Yes. The only persons disqualified from being a beneficiary are those not qualified to receive donations under
Art. 739. They cannot be named beneficiaries of a life insurance policy by the person who cannot make any
donation to him.

In case of adultery, concubinage does the disqualification extend to the illegitimate children?

NO. The disqualification does not extend to the children, and as such, they may be made beneficiaries.

What is the old rule regarding revocability of designation of beneficiary as enunciated in the case of Gercio v.
Sunlife?

The OLD rule is: When the insured did NOT expressly reserve his right to revoke the designation of his
beneficiary, such designation is irrevocable and he cannot change his beneficiary without the consent of the
latter.

What is the current rule?

The rule now is: The insured has the power to revoke the designation of the beneficiary even without the
consent of the latter, whether or not such power is reserved in the policy. Such right must be exercised
specifically in the manner set forth in the policy or contract. It is of course, extinguished at his death and
CANNOT be exercised by his personal representatives or assignees.

Under the current rule, when does the insured lose the right to change the beneficiary?

When the right to change the beneficiary is expressly waived in the policy, the insured has no power to make
such change without the consent of the beneficiary.

What if the beneficiary dies before the insured and the insured did not change the designation, who gets the
proceeds?

There is a divergence of opinion, but the general trend is to give it to the estate of the beneficiary.

What are the other provisions of law that Atty. Quimson required us to read?

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

Art. 739. 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.*

*Atty. Quimson said that the designation of the public officer MUST be by reason of his office and NOT all public
officers are disqualified from being beneficiaries of a life insurance policy, as long as the designation was not
made in consideration of an act done by the public officer by reason of his office in favor of the insured.

Art. 43, FC. The termination of subsequent marriage produces the following effects:

xxx.

(4) The innocent spouse may revoke the designation of the other spouse who acted in bad faith as a beneficiary
in any insurance policy even if such designation be stipulated as irrevocable.

Art. 64, FC. After the finality of the decree of legal separation, the innocent spouse may revoke the designation
of the offending spouse as beneficiary in any insurance policy. The revocation of or change in the designation of
the insurance beneficiary shall take effect upon written notification to the insured.
Art. 50, FC. The effects provided for by paragraph (4) of Art. 43 xxx shall also apply in the proper cases to
marriages which are declared void ab initio or annulled by final judgment under Art. 40 & 45.

Cases.

(21) Insular Life v. Ebrado (repeated case ” case #2) 80 SCRA 181

(22) Souther Luzon Employee–s Association v. Golpeo 96 PHIL 83

(23) Nario v. Philamlife Insurance Company 20 SCRA 434

(24) Villanueva v. Oro 81 PHIL 464

(25) Philamlife v. Pineda 175 SCRA 416

(26) SSS v. Davao 17 SCRA 863

(27) In Re: Mario Chanliongco 79 SCRA 364

(28) Vda. De Consuegra v. GSIS 37 SCRA 315

(29) Gercio v. Sun Life (repeat, case #18) 48 PHIL 53

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 which event, the
nearest relative of the insured shall receive the proceeds of said insurance if not otherwise qualified. In the
absence of other beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the policy is
silent, the proceeds, the proceeds shall be paid to the estate of the insured.

Who are the –nearest relatives– mentioned here?

Those related to the decedent in the order mentioned under the rules of intestate succession such as: (the order
of the following relatives are as follows)

1. The legitimate children;

2. The father and mother, if living;

3. The grandfather and grandmother; or ascendants nearest in degree, if living;

4. The illegitimate children;

5. The surviving spouse; and

6. The collateral relatives, to wit:

a. Brothers and sisters of the full blood;

b. Brothers and sisters of the half-blood; and

c. Nephews and nieces

7. In default of the above, the STATE shall be entitled to receive the insurance proceeds.

There is no law or jurisprudence that treats of this situation. However, Atty. Quimson said in class that there
must be a conviction before Sec. 12 can operate to disqualify or forfeit the interests of Anakin and Lois. Sec. 12
speaks of –principals, accomplice or accessory–, and there must therefore be a conviction of the beneficiaries as
either of the three to the crime against the insured.

Suppose Anakin and Lois are not convicted and they are not instituted as beneficiaries of Clark, can they now
collect the proceeds?

In this case, Sec. 12 is no longer the relevant provision, but Art. 1032 (2) of the CC. However, it is submitted (by
JohnBee Sioson) that there must be a final conviction in order for Art. 1032 to apply, i.e., to bar Anakin and Lois
from collecting on the ground of unworthiness. Furthermore, Art. 1034 says: In order to judge the capacity of
the heir, devisee or legatee, his qualifications at the time of the death of the decedent shall be the criterion. In
cases falling under Nos. 2, 3 & 5 of Art. 1032, it shall be necessary to wait until final judgment is rendered.

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.
What is the importance of this provision?

It defines insurable interest in PROPERTY.

Cases:

(30) Harvardian Colleges v. Country Bankers Insurance Corp. 1 CARA 2

Section 14. An insurable ineters 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.

What is existing interest?

Existing interest in property is the legal or equitable title on the property.

What is an inchoate interest?

It is an interest which has not yet ripened, such as the interest of a stockholder in the property of the
corporation which he owns stocks.

In what kind of expectancy may insurable interest consist?

The expectancy MUST be coupled with an existing interest in that, out of which such expectancy arises.

Examples would be: a farmer insuring future crops that he will grow on his land, or a workman insuring the
building which he was contracted to repair.

Cases:

(31) Suter v. Union Surety 51 OG 1905

(32) Traders Insurance and Surety Co. v. Golangco 95 PHIL 826

(33) Zenith Insurance Corporation v. The Insurance Commission 87 OG 6249

(34) Filipino Merchants v. CA 179 SCRA 638

Section 13 of the Insurance Code defines insurable interest in property as 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. In principle, anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien
upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an
inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.

Section 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.

What is the reason for this provision?

The loss of the thing may make the carrier or depositary liable to the owner of the goods, to the extent of the
value of the goods, and the law therefore allows such a carrier or depositary to insure his possible liability
therefor.

Case: (35) Lopez v. Del Rosario 44 PHIL 98

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.

What does this section mean?

Mere hope or expectation of benefit which may be frustrated by the happening of some event uncoupled with
any present legal right will not support a contract of insurance.
Examples:

A son cannot insure the property of his father which he expects to inherit from the latter, or a husband insuring
the paraphernal property of his wife; the reason being, their interest is merely an expectancy of inheriting, and
the rights to succession are transmitted only from the moment of the death of the decedent.

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

Cases: (36) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674

(37) Ang Ka Yu v. Phoenix Assurance 1 CARA 704

(38) Cha v. Cha 277 SCRA 690 (1997)

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.

Simplified, the provision states that? NO insurable interest = NO contract of Insurance.

Cases:

(39) Sharuff and Co. v. Baloise Fire Insurance Co. 64 SCRA 258

(40) Garcia v. HongKong Fire and Marine Insurance Co. 45 PHIL 122

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.

When must insurable interest exist?

In case of life insurance at the time the insurance takes effect.

In case of property insurance, at the time the insurance takes effect AND at the time of the loss, but it need not
exist in the meantime.

Beatrix insured her house for 1T. At that time, she was the owner of the house. During the effectivity of the
policy, she sold the house to Bill for 2T, but did not transfer the policy. Because of the effects of Sec. 20, the
insurance was suspended. A week later, Beatrix realized how much she missed the house and bought it from Bill
for 3T. The next day, the house burned down. Is the Insurer liable notwithstanding the transfer of interest from
Beatrix to Bill during the effectivity of the policy?

Yes. Beatrix had insurable interest on the house as she was the owner at the time the insurance took effect. She
also had insurable interest on the house at the time of the loss since she had already reacquired it from Bill. The
law says Beatrix need not have insurable interest in the meantime, or during the intervening period between
the time of effectivity of the insurance, and the time of the loss. Therefore, notwithstanding the ownership of
Bill during the intervening period, as Beatrix had insurable interest at the two points in time required by law,
then the insurer is liable.

Cases: (41) Tai Tong Chua Che & Co. v. Insurance Commission 158 SCRA 366

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 interests in the thing and the
interest in the insurance are vested in the same person.

What is the general rule embodied in this section?

The General Rule is that the mere transfer of the 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. The term –change of interest– in
this section means absolute transfer of the property insured such as the conveyance of the property insured by
means of an absolute deed of sale.

What are the exceptions to the general rule?

The exceptions, where a change of interest does NOT suspend the insurance are:

1. Life, health and accident insurance (Sec. 20)

2. Change of interest in the thing insured occurs after the injury which results in a loss (Sec. 21)
3. Change of interest in one or more of several things separately insured by one policy (Sec. 22)

4. Change of interest by will or succession on the death of the insured (Sec. 23)

5. Transfer of interest by one of several partners, joint owners or owners in common who are jointly insured, to
the other (Sec. 24)

What is the reason for this provision suspending the insurance in case of change of interest?

The object of the provision is to provide against changes which might supply a motive to destroy the property,
or might lessen the interest of the insurer in protecting and guarding it.

Case:

(42) Bachrach v. British American Insurance Co. 17 PHIL 555

(43) San Miguel Brewery v. Law Union Rock Insurance Company (repeat – case #12) 40 PHIL 674

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.

Problem:

A insured his house for 10T. On Aug. 10, 2004, the house was partially damaged by fire. On Aug. 15, 2004, he
sold the same house so partially damaged to C. Can A collect on the insurance after selling the house?

Yes. The change of interest was made after the occurrence of the injury which resulted in a partial loss. Upon
the occurrence of the risk insured against, the liability of the insurer became fixed and from that day onward, he
became duty bound to indemnify A for his loss.

Section 22. A change in interest in one or more of several distinct things, separately insured by one policy, does
not avoid the insurance as to the others.

Problem.

A is the owner of a Feroza and a Civic. He insures the Feroza for 200T and the Civic for 150T under a single policy
for which he paid a total premium of 20T. If he sells the Feroza without the insurer”s consent, is the insurer
liable in case the Civic is lost?

Yes. Since the vehicles are separately insured. Under Sec. 22, the sale of one distinct thing does NOT avoid the
insurance as to the others.

A is the owner of a Feroza and a Civic. He insured the Feroza and the Civic for 350T under a single policy for
which he paid a premium of 20T. In case he sells the Feroza without the insurer”s consent, is the insurer liable in
case the Civic is lost?

NO. Since the two cars are not separately valued in the policy and the premium was meant to cover both
vehicles. In this case, the sale of one thing affects the insurance of the others.

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

Problem.

A insures his nipa hut, his only property. He has no compulsory heirs. He institutes B as his universal heir.

Thereafter, A dies and B inherits the hut. If the hut burns down can B collect?

Yes. Sec. 23 says so.

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 the insurance, even though it has been agreed that the insurance shall
cease upon the alienation of the thing insured.

What does this section provide?

It provides that a transfer of interest in the insured property by a partner, joint owner, or owner in common to
the others who are jointly insured, will NOT avoid the insurance. The rule is the same even if there is a
stipulation that the insurance will cease upon the alienation of th thing insured.
What is the reason for the rule?

The underlying principle is that each partner, or owner or owner in common is interested in the whole property
and hazard is NOT increased because the purchasing partner has acquired a greater interest in the property by a
transfer of his co-partner–share. In other words, the transfer does not affect the risk because

NO NEW PARTY is brought into the contractual relationship with the insurer.

Is there an exception to the rule?

Yes. If the policy contains the stipulation that –in case of ANY sale or transfer or change of title of any property
insured by this company, or of any undivided interest therein, such insurance will be void and cease.”

What is the effect if the sale was made to a stranger?

All the more, the contract will be avoided because the risk is already affected since a new party is brought into
the contract of insurance. However, such sale to a stranger ends the contract of insurance only as to the interest
of the transferor and does NOT affect the insurance of the other partners, joint owners or owners in common.

Problems.

A fire insurance policy was issued by Spiderman Insurance Co. to Peter, MJ, and Harry, who are partners.

Harry sold his interest to Doc Ock. In case of fire is the insurer liable to Doc Ock?

NO, since Doc Ock is a stranger.(Furthermore arch-enemy siya ni spiderman”hehehe) However, the insurer is
liable to Peter and MJ whose insurance was not affected by the sale of Harry.

If using the same facts, Harry sells to Peter. Is the insurer liable to Peter?

Yes. Peter is a partner.

What must the insurer do to avoid the policy?

Spiderman Insurance Co. must stipulate in the policy that –any sale of the property or any interest therein
avoids the policy.– This is the only way the insurer cannot be held liable.

Section 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or
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.

This section avoids two types of stipulations in an insurance policy. What are they?

1. Stipulation for the payment of loss WON the person insured has any interest in the subject matter of the
insurance (exception: life insurance)

2. Stipulation that the policy will be received as proof of insurable interest

What is the reason for voiding such stipulations?

As to the 1st stipulation, we must remember that insurable interest is a requisite of a valid contract of
insurance. Lack of this requisite avoids the contract.

As to the 2nd stipulation, the law permits the insurer to show lack of insurable interest on the part of the
insured, even after the issuance of a policy of insurance to avoid liability. (Sec. 83)
xxxxxx

How did insurance develop in the Philippines?

Pre-Spanish Era - there was no insurance; every loss was borne by the person or the family who

suffered the misfortune.

Spanish era – Insurance, in its present concept, was introduced in the Philippines when Lloyd–s of

London appointed Strachman, Murray & Co., Inc. as its representative here.

1898 – Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in

the local insurance market.

1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized

1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized

1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The

business transacted the Philippines was then limited to non-life insurance.

1936 – Social insurance was established with the enactment of Commonwealth Act no. 186 which

created the Government Service Insurance System (GSIS) which started operations in 1937. The Act covers

gov–t employees.

1949 – Government agency was formed to handle insurance affairs, where the Insular Treasurer was

appointed commissioner ex-officio.

1950 – Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties for

both life and non life.

1951 – First workmen–s compensation pool was organized as the Royal Group Incorporated.

1954 – RA 1161 was enacted which provided for the organization of the Social Security System (SSS)

covering employees of the private sector.

At present, there are 130 insurance companies registered with the Office of the Insurance Commissioner.

Of these, 2 are composite insurance companies (engaged in both life and non-life insurance), 23 are life

insurance companies, 101 are non-life insurance companies and 4 are reinsurance companies.

How did insurance laws develop in the Philippines?

During the Spanish Period, the laws on insurance were found in Title VII of Book II and Section III of Title

III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book IV of the Spanish

Civil Code of 1889 (whew!)

During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act

2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of Commerce
on Insurance.

When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of the

Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the Insurance Act was the

governing law on insurance in the Philippines.

On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the

Philippines, thereby repealing Act 2427. PD–s 63, 123 and 317 were issued, amending PD 612. Finally PD

Xxxx

INSURANCE CODEPD 612, as amended with RA 10607

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.Interpretation of Insurance
Contracts In case there is no doubt as to the terms of the insurance contract, the provisions must be construed
in their plain, ordinary and popular sense.

However, when the terms of the policy are ambiguous, uncertain or doubtful, they should be interpreted strictly
against the insurer, and liberally in favor of the insured.

Characteristics of an Insurance Contract

It is Consensual Why?

A contract of insurance is a product of the meeting of the minds without the corresponding approval of the
policy does not result in the perfection of the contract of insurance. (Great Pacific Life Assurance Corp. vs.Court
of Appeals, 89 SCRA 543).

It is an Aleatory contract Why?

depends upon some contingent event against, the occurrence of which it is intended to provide, even though
such event.

may It is a contract of lndemnity Why? The insured will be indemnified or repaired back to the situation he was
at the time of the loss or damage to the extent that It is a Risk-distributing device Why? The same is not borne
alone by him or the insurer.

It a Personal contract Why?

The insurer takes into account the character, credit, and conduct of the insured. n case of change or ownership
over an insured property, the coverage does not automatically transfer to the new owner. The insurer has the
option not to extend cover to the said insured property if ever the new owner applies for a continuation of the
existing insurance.

It is Executory after payment of the premiums It is not executed until there is a loss on the part of the insured.

It is a Conditional contract Why? The insurer is not obligated to pay unless the loss arises from the specified
perils. The obligation of the insurer to pay the insured is dependent upon the compliance of the insured with the
terms and conditions of the insurance contract such as payment of premium, timely feeling of a claim, and
submission of proofs of loss, among others. It is one of Perfect good faith(uberrima fides). Why? The contract of
insurance is one perfect good faith not for the insured alone, but equally so for the insurer in fact, if is more so
for the latter, since ifs dominant bargaining position carries with it stricter responsibility (Fieldmen’s Insurance
Co., Inc. v. Vda. De Songco, 25 SCRA 70)

It is a contract of Adhesion
Parties to an Insurance Contract (Old)Insurer- is any person, firm or corporation which has received license to do
insurance business from the Office of the Insurance Commissioner. Insured-is any person, firm or corporation
which is not a public enemy.

Beneficiary-the third party in whose favor a stipulation is made.

Who may be an Insurer? (new) Insurer- It refers to any entity which is duly authorized by the Insurance
Commission to transact insurance business.Under the Amended Insurance Code, an insurer must meet the net
worth requirement which will increase every three years from 2013 until 2022. The required net worth- defined
as the sum of paid-up capital, retained earnings, unimpaired surplus, and revalued assets-is set atP250 million in
2013,P550 million effective June 30, 2016,P900 million starting June 30,2019,and P1.3 billion by June 30, 2022.
Who may be insured? (new) Insured- Any individual or corporation can be insured,provided the said individual
or corporation is not a public enemy. A public enemy refers a citizen of an enemy state A public enemy is a
citizen or national of a country with which the Philippines is at war. Functions of Insurance Risk-bearing- it is the
principal function of insurance. It provides for the distribution of losses of the few over the many out of fund
contributed by all. Stimulates business enterprise-it enables the businessmen to use their capital in the
development of their business by paying a fixed contribution by way of premium and obtain financial security
against insured risks, instead of freezing capital to guard against various contingencies.

Encourages efficiency and enterprise-the elimination of risk is an increase in business efficiency. Promotes loss
prevention-insurance encourages loss prevention through a system of rating which allows discounts for good
features and impose special conditions where the risk is unsatisfactory.

Encourages savings by protecting the individual against unforeseen events, insurance provides for a climate
where savings are encouraged. Solves social problems (De Leon, Hector, 2003)

Kinds of Insurance

•Life Insurance

•Non-life Insurance

Fire or Property Insurance

Marine Insurance

Casualty

Suretyship

Fire Insurance- insurance against loss by fire and/or lightning on the insured's property. It may extend to include
acts of nature such earthquake, typhoon, flood, to name a few subject to payment of additional premium.
Suretyship or Surety Bond- is an agreement whereby a party called the surety guarantees the performance by
another party called the principal or obligor of an obligation or undertaking in favor of a third party called the
obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue
of and under the provisions of Act No. 536, as amended by Act No. 2206. Casualty Insurance- includes all other
types of insurance that is not Fire Insurance, Marine Insurance or Suretyship such as Motor Car;Personal
Accident Insurance; Crime Insurance; Liability Insurance policies such as Professional Liability Insurance,
Directors and officers Liability Insurance, Comprehensive General, and Personal Liability Insurance; Workmen's
Compensation Insurance. Marine Insurance-Insurance against loss of or damage to: (A) Vessels, craft, aircraft,
vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, chooses in
nation, instruments o debts, valuable papers, bottomry and respondentia interests and all other kinds of
property (NOTE PINUTOL KO NA ANG HABA HAHAHAHA)

3 Main Categories of Insurers

•Life Insurer

•Non-Life Insurer

•Composite Insurer is an insurer who possesses both a life and non-life insurance license with the Insurance
Commission.

Elements of the Contract of Insurance

Parties (legal capacity of the parties) 2) Subject matter (The insured is subject to a risk of loss by the happening
of the designated peril and the insurer assumes the risk)

3) Premium (consideration)

4) Insurable Interest Subject Matter It must be the life of the insured or his property or the vessel belonging to
him or in which property or vessel the insured has an insurable interest Consideration It is known as the
PREMIUM, without payment of which prevents the contract of insurance from becoming effective. N.B.-
Payment of premium is a condition precedent to, and essential for,the efficaciousness of insurance. (South Sea
Surety and Insurance Co. v, Court of Appeals, 244 SCRA 744)