INSURANCE TRANSCRIPT | ATTY.
SOLENG | EH 401 2019-2020
August 28, 2019
The origin of contract of insurance and how it is
connected with maritime law
Atty: In the olden days, the italian merchants were
very good. They have these very big vessels laden
with goods to be transported some other parts of
Europe, including London. Of course, if you were a
merchant at that time, there is great loss on your
part if and when the vessel you own will sink in the
sea without any protection at all. You will assume
all the liabilities.
If your liabilities is not shared by other persons
who are similarly situated, you will suffer all the
losses. So they pooled all their resources and they
agreed among themselves to distribute the risk.
That started the insurance business.
Particularly before, there is loan on bottomry
which you will learn later on, such that if I borrow
money and I put the goods in my vessel and if
vessel will sink to the bottom of the sea, I am not
supposed to pay any liability. Because no vessel,
no liability. That’s the loan on bottomry, as part
and parcel of the insurance contracts.
So Italian merchants brought the concept of
insurance to London, England. At that time, the
business climate of London started to flourish and
then from England it was brought to US.
Development in the Philippines
Student: Before the spaniards came, when a family
member is lost, the liability or the expenses were
primarily incurred by the family. However, with the
coming of the spaniards and the
institutionalization of the baranggays, the concept
of loss within the family was evenly distributed to
society, where Baranggay members would often
contribute to the families bereaving the loss of
their loved ones.
Atty: Even nowadayy, in the province, there is such
a thing as paluwagan system. They contributed a
certain amount of money and then when someone
dies, your family will receive some sort of
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remuneration. Because when someone in your
family dies class, there are attendant expenses.
It’s expensive to die nowadays. So the bereaved
family will spend money for the coffin. And even
before that, there are hospital expenses. If you
don’t have any contract with St. Peters, you have
to pay, I think around 200k-300k. And then there
are daily expenses such as food for those who will
attend the wake and burial. In the province, they
put a container and inside they put what they call
a limos which can defray the expenses of the
family. In a way you are distributing the risk if you
are a member of that mutual benefit association.
S: The concept of insurance as to non-life property
was brought by the british through the
establishment of the first non-life insurance
company. Few years later, the first life insurance
company in the Philippines was established by
SunLife Canada Corp where the concept of Life
Insurance was introduced to the country.
Atty: It started with foreign corporations, foreign
insurance companies, coming into the jurisdiction
of the Philippines then we have some domestic
insurance companies for life and non-life.
Concept of Social Insurance
Atty: It’s a social insurance in a sense that it is
mandated by law. There is a law which creates
these entities for purposes of defraying all the
possible liabilities which may be suffered by the
members.
GSIS and SSS
GSIS does not collect premiums, GSIS is collecting
contributions. GSIS is not an insurer, but it
functions akin to an insurer. Same as SSS. But they
are included under the concept of a social
insurance. But sometimes SSS calls it premium
contributions.
For example you are working with government,
that is compulsory. You have to give contribution
to GSIS, such that if something happens to you,
say for example if you die during the period when
you are still working with the government, your
 INSURANCE TRANSCRIPT | ATTY. SOLENG | EH 401 2019-2020
beneficiaries will receive something from the
government. Or if you continued to live until you
retired, you will receive your pension benefits
from your contribution.
Same with SSS – you contribute, but with SSS
there is such thing as voluntary members. If you
are not employed by a private company you can
voluntary pay some contribution to SSS to protect
you also. Example if something happens to you,
your children, or spouse, or all your beneficiaries
will receive something from SSS on a monthly
basis.
Sources of Insurance Law in the Philippines
Student: Primarily, the source of our insurance law
is the Insurance code. First it was the PD 612, which
repealed the insurance act, so it is now the
insurance code. It has several amendments
leading to the latest amendment which is the RA
10697 which is the current insurance code. These
are the primary source of the insurance laws in the
Philippines. (Check the book for the complete list of
sources)
Application of the Civil Code
Student: The Civil Code applies since insurance is a
contract, the requirements of a contract under the
Civil Code also applies. For example, when it
comes to donation, the persons who shall not
receive a donation shall also not be a beneficiary
of a contract of insurance. So sometimes the
insurance law makes reference on the provisions
of the Civil Code.
X lives with his paramore Y. During his lifetime he
insured his life and made Y his beneficiary. And
thereafter X decided to die and transfer his
residence to Sempar(?). May Y claim for the
proceeds of the insurance?
No. Art. 2012 of the Civil Code states that those
who cannot be considered as donee under art. 739
may not be allowed to be a beneficiary under the
contract of insurance.
Art. 2012, Civil Code. Any person who is forbidden
from receiving any donation under Article 739
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cannot be named benefeciary of a life inusrance
policy by the person who cannot make any
donation to him, according to the said article.
Art. 739, Civil Code. The following donations shall
be void:
(1) Those made between persons who were
guilty of adultery or concubinage at the
time of the donation.
Contract of Annuity
Art. 2021, Civil Code. 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 the income.
Atty: That’s the difference between life insurance
and life annuity. In life annuity, you pay during his
lifetime. In life insurance, you pay the beneficiary
after the death. In annuity, a determinate person
can receive an annual pension or income during his
lifetime. By reason of the ownership transferred.
In consideration of the capital that has been paid
by that person, to the debtor. There is some sort
of capital expenditure he made to the debtor. Be
it a money or property. The ownership is in fact
transferred already to the debtor. That’s why
during the lifetime of this person who transferred
his property or his money to that person, this
person binds himself to give a life annuity to the
other party.
Special Laws
Insurance code, PDIC, SSS law, and the GSIS law
(Check the book for the complete list of special
laws)
Concept of Subrogation
Student: Subrogation is the substitution of one
person to another with respect to legal claim or
right. Applying the insurance law, for example,
there is an insured and insurer, so the insured, for
example, meets an accident. The insurer can
subrogate or step into the shoes of the insured.
 INSURANCE TRANSCRIPT | ATTY. SOLENG | EH 401 2019-2020
Therefore, the insurer can now take a legal action
against the wrongdoer.
Basis of Subrogation
It is rooted from equity and provided for by Art.
2202 of the Civil Code.
A insured his life for 1M pesos and made his wife
B as a beneficiary. Here comes C, a friend of A.
One day, they had a verbal altercation which
resulted to the murder of A. C, in fact, was
convicted. The wife, meanwhile, went to the
insurer and claimed the proceeds of the
insurance. She claimed the amount of 1M pesos
from the insurer. The insurer would now want to
seek your advice whether the insurer may go
after C, to indemnify itself of the amount it gave
to B, the wife of the beneficiary.
There can be no subrogation because the right of
subrogation only applies to property insurance
and not life insurance.
Article 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.
Student: Since the value of the life of a person
cannot be determined with accuracy. Hence, a
third person cannot accurately say how much he is
liable to pay to compensate for the life of that
person.
Accrual of the right of subrogation
It accrues from the moment of payment of the
insurer to the insured. Once the insurer pays the
insured, the amount that is covered by the
insurance policy, then the right of subrogation
accrues.
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Example:
Student: I insured my laptop and the insurance
contract has a theft clause. Someone stole my
laptop. The moment that the insurer pays me the
amount that is covered by the insurance policy,
that is when the right of subrogation accrues. And
so, the insurer, now subrogated to my rights, she
can now go after the person who stole my laptop.
The right of subrogation already accrued at the
time when she paid you without her first the
person who stole the property?
No need to inform the culprit.
Supposing the amount of the insurance was 100k
pesos. The insurer paid you 100k pesos because
that is what is provided for in the contract of
insurance, when the true value of your laptop is
just 50k pesos. Are you saying that the insurer can
get the entire 100k from the culprit?
No. The spring cannot rise higher than its source.
Since the insured is the source and the spring is the
insurer, the insurer cannot rise higher than
whatever rights that I have. Since my laptop only
amounts to 50k, the claim of insurer would only be
up to that amount, which is 50k. Regardless of the
value that is covered by the insurance.
Where will the insurer then get the remaining
50k?
The insurer can get the excess from the insured
based on the concept under the Civil Code
provision that “no person shall be unjustly
enriched at the expense of another”.
The contract of insurance is a contract of
indemnity. Such that, you can only get the
proceeds up to the amount that you are supposed
to be damnified. So if the damage caused to you
was only 50k, then the insurer must only pay you
only up to 50k.
A person insured his car against all types of
damages excluding theft. Thereafter, his car was
stolen. Then the insurer paid him the value of the
insurance. May the insurer, after paying the
amount of the insurance to the owner of the car,
 INSURANCE TRANSCRIPT | ATTY. SOLENG | EH 401 2019-2020

go after the person who took the car? Is there a

right of subrogation there?
None. Because the insurance is limited to
coverage of the insurance policy. Since the
insurance excludes theft, and the cause of the loss
was theft, the insurance company cannot assume
that risk arising from that specific situation.

Atty: Of course not. Because the cause of damage

is not accident. The cause of damage is theft.

Can the insurer ask for reimbursement from the

culprit despite the fact that there is no right of
subrogation?
Yes, because he has the right to seek for beneficial
reimbursement under the Civil Code.

Art. 1235, Civil Code. Whoever pays for another

may demand from the debtor what he has paid,
except that if he paid without the knowledge or
against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the
debtor.

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