REPUBLIC ACT NO.

10607
AN ACT STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING PRESIDENTIAL DECREE NO. 612,
OTHERWISE KNOWN AS THE INSURANCE CODE, AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280, 1455,
1460, 1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Presidential Decree No. 612, as amended, is hereby further amended to read as follows:
GENERAL PROVISIONS
Section 1. This Decree shall be known as ‘The Insurance Code’.
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:
(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.
CHAPTER I
THE CONTRACT OF INSURANCE
TITLE 1
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 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.
Section 4. 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.
Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.
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, making a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee.
TITLE 3
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 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.
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.
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.
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.
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.
DE LEON
Sources of Insurance Law:
  Code of Commerce
 Insurance Act (Act No. 2427)
 Civil Code (R.A. No. 386)
 P.D. 612 (instituted the Insurance Code of the Philippines)
 PD. No. 1460 (Insurance Code of 1978, June 11, 1978)
Right of Subrogation of Insurer to Rights of Insured Against Wrongdoer
 Process of legal substitution where insurer, after paying amount covered by the insurance policy, steps into the shoes of the
insured and avails himself of the latter’s rights that exist against the wrongdoer at the time of the loss. Based on equity.
 Applicable only to property insurance
 Art. 2207. 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.
 life insurance contracts are not ordinarily contracts of indemnity
 for subrogation to exist, the cause of the loss or injury must be a risk covered by the policy. If not covered, it is in the form of
a voluntary payment.
 UNDER INSURANCE – amount paid does not fully cover the injury or loss, then aggrieved party (insured) may recover
deficiency from person responsible for loss or injury. MEANING HE CAN’T JUST RECOVER ONCE.
 Right of insurer against 3rd party limited to amount recoverable from latter by the insured
SECTION 2
 Article 1319 of the 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 offeror 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.
 Character of insurance is determined by exact nature of the contract. Content > Term used.
 Elements:
- Subject matter – thing insured. (ex: fire and marine insurance, thing insured is property; life, health or accident insurance,
life or health of person; casualty insurance, insured’s risk of loss or liability)
- Consideration – premium
- Object and purpose – principal object and purpose is transfer and distribution of risk of loss, damage, or liability
arising from unknown or contingent event.
 Characteristics:
- Consensual
- Voluntary
- Aleatory (depends upon some contingent event; but not a contract of chance) This basic feature distinguishes an insurance
contract from other contracts (called commutative) that are presumed to represent even exchanges
- Unilateral. Payment of premium as condition precedent
- Conditional
- Contract of Indemnity (except life and accident insurance where the result is death) – promise of insurer is to make good
only the loss of the insured
- Personal – insured cannot assign his rights under a property policy to others without consent of insurer.
- Property in legal contemplation because it is a contract

 5 distinguishing elements of contract of Insurance

- Insurable interest
- Insured is subject to a risk of loss
- Insurer assumes risk of loss
- Assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons
bearing a similar risk
- Premium
 If only first 3 elements exist, contract becomes risk-shifting device. Insurance contract is a risk-distributing policy.
 Diversification – limiting effects of loss. Ex: individuals who invest in the stock market expect to make money, but they are
also at risk of losing money.
  Risk management – examples are diversification and self-insurance.
 “transferring risk”
 Risk preferring v. risk neutral v. risk averse – r.p. chooses to forego certain loss in hope of incurring no loss despite equal
probability of suffering a large loss; r.n. – indifferent to alternatives; r.a. chooses to lose P500 with certainty instead of
confronting the 50% chance of losing twice as much.
 Expected loss – magnitude of loss times the probability that it will occur. (ex: if someone has a one in two chances of losing
500, expected loss is 250)
 adverse selection – situation where some insured will be better risks than others, even though they pay the same premium.
Any group will have a higher proportion of less desirable risks, since more applications for the insurance will tend to come
from those who get a better bargain.
 Inchmaree Clause is a term associated with maritime law. It is a clause in a marine insurance policy that protects against damage
or loss caused by the negligence of a vessel's captain or crew or by any defect in the ship's hull or machinery and not caused
by nature.
 Classifications of contracts of insurance:
- Fire
- Marine
- Life
- Accident
- Guaranty insurance – earthquake, explosion or due to non-perf of contracts of which insured is a party
- Credit insurance – insolvency of debtors
- Fidelity insurance – defalcations of employees and agents
- Theft insurance – theft and burglary
- Title insurance – defective titles or interest in property
- First-party v. Third-party insurance
o FP – contract between insurer and insured is designed to indemnify insured for a loss suffered directly by insured.
(ex. Property insurance); TP – interest protected is of third parties (ex: liability insurance) insured’s loss is indirect
because it is third party’s loss which is direct.
o No-fault insurance – substitution of first-party insurance for tort liability
- All-risk vs. specified-risk
o A.R. reimburses insured for damage to the subject matter of the policy from all causes except those specifically
excepted in the polic. S.R. covers damage to subject matter only if it results from specifically identified causes
listed in policy.
- “jeweler’s block insurance”
 Multiple line underwriting – writing of insurance in all lines except life.
 Life insurance v. non-life insurance contracts v. contracts of suretyship or bonding
- L.i. – individual, group, industrial life; N.I – marine, fire, casualty
 Marriage benefit insurance – insurer is bound to pay the beneficiary or his wife at the time of the beneficiary’s marriage
 contracts of insurance are to be construed or interpreted liberally in favor of the insured and strictly against the insurer resolving
all ambiguities against the latter
 bargaining contract – both parties participate in drawing up its t & cs (as opposed to contract of adhesion)
 The court is bound to adhere to the insurance contract as the authentic expression of the intention of the parties, and it must be
construed and enforced according to the sense and meaning of the terms which the parties themselves have used. If such terms
are clear and certain, they must be taken in their plain and ordinary sense. // contracts have the force of law between contracting
parties and should be complied with in good faith.
 Where under the terms of the policy, an action on a claim denied by the insurer must be brought within one (1) year from the
denial, the contract which is the law between the parties, governs, not the rules on the prescription of actions.
 If contract is silent as to a particular matter, any doubt should be resolved against insurer.
 PRINCIPAL OBJECT AND PURPOSE TEST – used to determine nature of contract. If po & p is indemnity, contract is
insurance. But if it is service, risk transfer and distribution being merely incidental, not insurance and thus, not subject to laws
regulating insurance.
 The basic distinction between medical service corporations and ordinary health and accident insurers is that the former,
undertake to provide prepaid medical services (at reduced cost, not to distribute risk like an insurer) through participating
physicians, thus relieving subscribers of any further financial burden, while the latter undertake to indemnify an insured for
medical expenses up to, but not beyond, the schedule of rates contrained in the policy.
 Main function of insurance is risk-bearing.
SECTION 3
 Requisites for a valid and enforceable contract of insurance:
 - subject matter in which insured has an insurable interest
- event or peril insured against which may be any contingent or unknown event
o event must be that will: 1) damnify or cause loss to a person having an insurable interest or 2) create a liability
against him.
- promise to pay or indemnify in a fixed or ascertainable amount
- consideration for promise aka premium
- meeting of minds of parties
 insurance by a minor
- to be valid, 1) 18 y/o or over, 2) contract is for life, health, or accident insurance, 3) insurance is taken on his life, 4)
beneficiary is any of those enumerated by law
SECTION 4
 essential elements of lottery: 1) consideration, 2) prizes, and 3) chance.
 Failure to win a prize would not damnify or create a liability against him.
 Contract of insurance =/= wagering or gambling contract

SECTION 5
 Provisions of Ch. 1 on contact of insurance are also applicable to marine, fire, casualty insurance, etc.
PARTIES
SECTION 6
 “Every corporation, partnership, or association, duly authorized to transact insurance business as elsewhere provided in this
Code, may be an insurer.”
 Relation between insurer and insured is that of contingent debtor and creditor, subject to conditions of policy
 “insured” – owner of property insured or person whose life is subject of contract of insurance; “assured” – person for whose
benefit the insurance is granted (aka beneficiary)
 Who may be insurer? Foreign or domestic insurance company or corporation (must first obtain certificate of authority);
individual partnership or association (individual may be insurer as long as he holds a certificate of authority from Insurance
Commissioner // as long as he has capital assets required)
 Insurance corporation – Sec. 185 – “one formed or organized to save any person 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/s or
other corporations for any such l, d, or l, or to guarantee the performance of or compliance with contractual obligations or the
payment of debts of others.”
 “bancassurance” – bank engages in insurance business as insurer.
SECTION 7
 “Anyone except a public enemy may be insured”.
 Insured may either be natural person or juridical person. For natural, he must be competent to make a contract and must possess
an insurable interest in the subject of the insurance.
 “public enemy” – citizen or subject of a nation in which PH is at war against
 Control test – a corporation is deemed to have same citizenship as controlling stockholders in time of war
 Rule with respect to life insurance – US RULE – contract is not merely suspended but is abrogated by reason of nonpayment
of premiums since time of payments is essence of the contract. But insured is entitled to cash or reserve value of policy – which
is excess of the premiums paid over the actual risk carried during years when policy had been in force.
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.”
 Double Insurance – mortgagor and mortgagee take out separate insurance policy on same property or one policy covering
their respective interests
 Extent of insurable interest of mortgagee is to the extent of debt secured. His II is prima facie the value mortgaged and extends
only to amount of debt. For mortgagor, II to the extent of its value.
  The mortgagor cannot recover upon the insurance beyond the full amount of his loss and the mortgagee, in excess of the credit
at the time of the loss nor the value of the property mortgaged.
 When mortgagee insures his own interest in the mortgaged property, he is entitled to the proceeds of the policy in case of loss
before payment of the mortgage.
 Ways by which mortgagee may be made beneficial payee:
o Become assignee of policy with insurer’s consent
o Mere pledgee (w/o consent)
o Ride making policy payable to mortgagee as his interest may appear
o “standard mortgage clause” containing collateral independent contract between mortgagee and insurer may be
attached
o Policy, although payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty
to insure for the mortgagee’s benefit (mortgagee acquires an equitable lien upon proceeds)
 Legal effects where mortgagor effects insurance in his own name providing that loss shall be payable to mortgagee:
o Contract is deemed to be upon interest of mortgage
o Any act of mortgagor prior to loss affects mortgagee
o Any act which is required to be performed by mortgagor may be performed by mortgagee with the same effect
o In case of loss, mortgagee is entitled to proceeds to the extent of his credit
o Upon recovery by mortgagee to extent of his credit, debt is extinguished.
- Rule on subrogation by insurer to the right of the mortgagee does not apply in this case.
 Standard or union mortgage clause – purpose is to make a separate and distinct contract of insurance on interest of the
mortgagee. Acts of m/or doe not affect m/ee.
 Open or loss-payable mortgage clause – payment of loss to mortgagee as his interest may appear and under it, acts of
mortgagor affect the mortgagee. If policy is obtained by mortgagor with l-p clause in favor of mortgagee, mortgagee is only a
beneficiary under the contract but not made a party to the contract itself.
SECTION 9
 Assignee, unless he makes a new contract with the insurer, acquires no greater right under the insurance than the assignor had
subject to insurer’s defenses.
 As to fire policy – with consent
 As to marine policy – assignable even without insurer’s consent
 Casualty policy – insurer’s consent is required // commonly involves moral hazards (ex: theft)
 Life policy – may be assigned before or after loss to any person whether he has an insurable interest or not!
 Assignment or transfer of: 1) policy itself which transfer rights to the contract to another insured, 2) proceeds of policy after a
loss has happened, 3) subject matter of insurance – effect is to suspend insurance until the same person becomes owner of both
policy and thing insured.
 Assignment of fire insurance policy by mortgagor to m/ee with consent of insurer does not convert the contract into one of
indemnity. Remains with mortgagor as it is his interest alone that is covered. Assignment operates merely as an equitable
transfer.

SECTION 10
 Insurable interest – interest which law requires the owner of an insurance policy to have in person/thing insured. // will derive
pecuniary or financial 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.
 To have an insurable interest in the life of a person, the expectation of benefit from the continued life of that person need not
necessarily be of a pecuniary nature.
 If there is no insurable interest, person insuring would be gambling which is prohibited.
 Policy issued to a person without interest in subject matter insured is mere wager policy or contract and is void for illegality.
 II req not required in industrial life insurance
 II is required because of considerations of public policy
 Wager policy is invalid and allows insured to have an interest in the destruction of subject matter rather than its preservation.
It also affords temptation or an inducement to insured as he has nothing to lose and everything to gain.
 2 classes of life policies
o Insurance upon one’s life – in case it matures only at his death, or for the benefit of a third person who may be
designated as beneficiary
o Insurance upon life of another – must have II in the life of that person; II must be a pecuniary one (related to money)
 Evidence of wagering policy
o Original proposal to take out insurance was that of the beneficiary
 o Premiums are paid by beneficiary
o Beneficiary has no interest, economic or emotional, in continued life of insured.
 Life insurance policy and donation is both founded on same consideration: liberality
 Cestui que vie – person who benefits.
 If owner of policy insure life of another and designates a third party as beneficiary, both owner and beneficiary must have II in
life of cestui que vie. If II is satisfied, policy is assignable.
 EX: X takes an insurance on his own life and names friend as benef (valid because beneficiary need not have II in life of
insured). X insures Y’s life with himself as beneficiary (void because X has no II on Y’s life)
 Key person insurance – insuring president, executive officers, dept head who are important to the organization which expects
to receive necessary gain from continuation of the lives
 Creditor has II in life of debtor. The fact that debt becomes subsequently unenforceable does not cut off II of the creditor.
 Section 10 (d) simply means that one may insure the life of a person where the continuation of the estate or interest vested in
him who takes the insurance depends upon the life insured.
SECTION 11
 If beneficiary is a person other than insured, he may occupy one of three relations to the insured:
o Insured himself (immediate party to the contract and is called assured)
o Third person who paid a consideration
o Third person through mere bounty of insured
 In all three instances, proceeds become exclusive property of beneficiary upon death of insured.
 Anyone can be beneficiary irrespective of lack of II, EXCEPT:
o Those forbidden from receiving donation (guilty of adultery or concubinage, guilty of same criminal offense, made to
a public officer or his wife, descendants and ascendants, by reason of his office)
 In absence of beneficiary named or where beneficiary is disqualified, proceeds of insurance will go to estate of deceased
insured.
 Insured has power to change beneficiary without latter’s consent who acquires no vested right but only an expectancy of
receiving proceeds.
 Right to change beneficiary is personal on insured.
 If right to change is expressly waived, insured has no power to change without beneficiary’s consent.
 Vested right of beneficiary should be measured on its full face value and not on its cash surrender value. If insured
discontinues paying premiums, beneficiary may continue paying.
 Who may be beneficiaries?
o Children – includes adopted, adult child not forming a part of household, after-born children
o Husband; wife or widow
o Husband and children; w and children – insured’s “husband and children” – insurance money must be divided per
capita among husband and children.
o Family – to be determined by court
o Heirs or legal heirs
o Estate or legal representatives of deceased
SECTION 12
 “interest” – right to receive proceeds
 Does not apply when caused under circumstances not amounting to a felony and when death was not intentionally caused
SECTION 13
 Section 13 defines insurable interest in property. The interest may be in the property itself (e.g., ownership), or any relation
thereto (e.g., interest of a trustee or a commission agent), or
liability in respect thereof (e.g., interest of a carrier or depository of goods)
 Title or right to possession not essential
 Factual expectation insurance – expectation not arising from any legal right or duty in connection with the property does not
constitute an insurable interest. But suffices in life insurance.
SECTION 14
 II in property need not be an existing interest.
 EXISTING INTEREST
o May be a legal title or equitable title (legal title: trustee, mortgagor, lessor) (equitable title: purchaser of property
before delivery, mortgagor after foreclosure but before expiration of period within which redemption is allowed)
MORE THAN ONE II MAY EXIST OVER SAME PROPERTY
  INCHOATE INTEREST
o Stockholder has inchoate interest in property of corporation
 EXPECTANCY
o Must be coupled with an existing interest in that out of which such expectancy arises
o Farmer may insure future crops, owner of business can insure against a contingency
SECTION 15
 Reason for rule is that loss of thing may cause liability to carrier or depository to the extent of its value
SECTION 16
 Ex: father cannot insure his son’s prop and v.v. as son’s interest is merely an expectancy of inheriting. Spouse also has no II in
property of another
 Life of parents/children/spouses – may insure because under mutual obligation to support
SECTION 17
 Any contract of property insurance that gives to insured more than indemnity against his actual loss is in nature of wagering
policy contrary to public policy.
 Amount of insurance is not amount payable but represents maximum limit of recovery of the insured (ex: X insured prop valued
at 100k for 120k. X suffered total loss. Amount of insu (120k) =/= amount payable. Under indemnity rule, insurer liable only
to pay P100k)
SECTION 18
 Fire insurance taken on property belonging to another is void even if insured subsequently acquired II.
 Doctrine of waiver or estoppel not applicable because public has interest in matter independent of the consent/concurrence of
the parties
 The amount of insurance fixed in the policy of a marine or fire insurance is not the exact measure of indemnity to which the
insured is entitled, but the maximum indemnity which he might obtain. The insured cannot recover in excess of his actual loss.
 Valued policies – valuation of thing insured is conclusive between parties
 Liability insurance contracts – considered contracts of indemnity against liability and not against loss. In this type of
insurance, the insurer's promise is to pay the proceeds of the policy on behalf of the insured to a third person to whom the
insured is liable. If the insured suffers no loss because his liability to the third person, for some reason, cannot be enforced, the
insurer has no obligation to pay the proceeds.
 Life insurance contracts – not contracts of indemnity. Amount fixed payable at death is not considered true value of thing
insured because life of person is priceless.
 Personal accident insurance contracts are not contracts of indemnity also. Life and limb are not capable of being valued.
 Health insurance contracts are not contracts of indemnity. But those that cover medical expenses are contracts of indemnity
 Health care agreement – non-life insurance which is a contract of indemnity. Because contract of indemnity, paid to person
who incurred expenses.
SECTION 19
 Applies only to insurance on property and not to life insurance (except that on the life of debtor)
 In life insurance, the insurable interest requirement is satisfied if the interest exists at the time the policy is procured, even if it
has ceased to exist at the time of the insured's death.
 “need not exist in the meantime” – to prevent issue of wagering policies
 Insurable interest in life v. II in property
o Extent – life – unlimited; property – limited to actual value of interest thereon
o Time when II must exist – life – at time policy takes effect and need not exist at time of loss; property – must exist
when insurance takes effect and when loss occurs.
o Expectation of benefit to be derived – life – does not need legal basis; property – derived from continued existence of
property insured.
SECTION 20
 Provision against alienation or change of interest or title
 Mere transfer of thing insured doesn’t transfer policy but suspends it until same person becomes owner of both policy and
thing insured.
 The rule that change of interest suspends the insurance is subject to exceptions, to wit:
(1) In life, health, and accident insurance (Sec. 20.);
(2) A change of interest in the thing insured after the occurrence of an injury which results in a loss (Sec. 21.);
(3) A change of interest in one or more of several things, separately insured by one policy (Sec. 22.);
 (4) A change of interest by will or succession on the death of the insured (Sec. 23.);
(5) A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to
the others (Sec. 24.);
(6) When a policy is 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 (Sec. 57.);
(7) When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance
is not merely suspended but is avoided. (Art. 1306, Civil Code; see Sec. 24.)
SECTION 21
 After loss has happened, liability of insurer becomes fixed. Right is absolute and cannot be delimited by agreement. The insured
has also the absolute right to transfer the thing insured after the occurrence of the loss. Such change of interest does not affect
his right to indemnity for the loss.
SECTION 22
 Divisible v. indivisible contract
 Divisibility is question of intention
SECTION 23
SECTION 24
 Same rule even if there is a stipulation that insurance shall cease upon an alienation of thing insured
 But a policy will be avoided by a sale of an interest in partnership property by the partner to one of his co-partners, without the
consent of the insurer and before the loss occurs, where the policy contains the condition "that in case of any sale, 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
 It is alienation or transfer to a stranger or third person that will avoid the policy. A sale by a partner of his interest to a stranger
ends the contract of insurance as to him but does not affect the insurance as to the others.
 Ex: policy of fire insurance was issued to partnership X under its firm name. The policy makes no provision for changes in the
personnel of the firm. Will the subsequent withdrawal of a partner or admission of a new partner affect the validity of the
policy? No. Under Section 26, the insurance continues despite the changes in the firm's membership
SECTION 25
 2 void stipulations contemplated:
o Stipulation for payment of loss whether person insured has or has not any interest in subject matter of insurance
o Stipulation that policy shall be received as proof of II
 A wager policy has been defined as a pretended insurance where the insured has no interest in the thing insured and can sustain
no loss by the happening of the misfortunes insured against.
 It is a fundamental postulate of all insurance that it must not be a mere bet upon a future event. Wager or gaming policies are
disapproved and condemned not only under statutes declaring them void, but also independently of statute, on the ground of
public policy. They are regarded as detrimental to society. Such policies have a tendency to create a desire for the event, and
furnish strong temptation to the party interested to bring about if possible the event insured against
NOTES:
 Contract or life annuity was not perfected if acceptance of application never came to knowledge of applicant who died
 Insurance contract is null if consideration is false or fraudulent
 Common-law wife is disqualified from becoming beneficiary of insured (Art. 2012, in relation to Art. 739 of CC)
 Insurance is a type of Contract
 POLICY – written insurance contract
 If the insured has no insurable interest, contract is void and unenforceable because it is contrary to public policy
 Property insurance is personal in a limited sense. Insurance is on insured’s interest in property, not on the property itself.
It is the damage to the personal interest not the property that is being reimbursed under a policy of property insurance.
 even if the contract contains all the elements, it is not an insurance contract within the context of the Insurance Code if the
primary purpose of the parties is the rendering of service and not the indemnification of a party for loss, damage, or liability
incurred by the latter.
 Value of prop is amount payable!