PREFACE TO THE 1983 EDITION presidential Decree No. 612 otherwise known as the In- surance Code of the Philippines, has undergone several ‘Sincndments since its promulgation on December 18, 187 Toconsolidate and codify all the Insurance laws of the Phil ippines, Presidential Decree No, 1460 enacted the insur- ‘ce coe of 1978, The new code together with the recent ccflonsof the Supreme Court made the revision of the 1975 edition ofthis book a necessity. Maat, Metro-Manila, May 26, 1983 emioreemt eee TABLE OF CONTENTS INSURANCE CODE GENERAL PROVISIONS Section 1 ‘Orain of inseronce, 1, Philippine Insurance Low, Interpreten aaron cnocts, 3 Maa 5 Conn ol Ty ond Panam ditinguche, 10. Section 2 Note, Mj lnvornce contract defined, Imes france cna 15, Scheme to ioits 15, Sent 13: When suraip deemed Inmarence, 17s Alsaory contac Inder 17-185 tana, 18; Life ieornee nol ‘naa of odemaity, 18; luatratons, 18; Personal ‘ented, 19; Mhuartion, 20; Erector aller payment I premiums, 20: Conditional contract, 20. (CHAPTER I, THe CONTRACT OF INSURANCE Tile 1 Secon 3 leis at, 22.20; tence by mare women, te tinal ovr, 24 Note, 24; Reoton for prohibition, 24-25 Section 5) Not, 25 Title 2. Secon Notes, 25; Ponies to insurance contracts, 26-26. Section 7 Nolet, 26; Public enemy dlined 26; Feoto for prohibition, 28 Mshations, 26. Section 8 Notes, 27; Who may inure mongoged pope 27; Matron, 27; Isuronce by mongoger wtnow ot 2 21 2 24 25 25 25 26 Pd{Rating ae pope to mangege, 28s felon 9 ay var TRodpage 0-31; Musrrions, 31-32, section rmatgane dae, 32 le vt Tite'3. ‘orate nares, 3; Macenty of nerable Section 16 Note; ela Ince i 34.35; Tine when in emo ot, 35; tana, Not, 2, Where benny il isred, 42.49 Sechon 13 Nie 42; Te finale neat In propery M4 Secton It Sechon 15 Seefon 16 Note 45; What con tor is es Seckon 17 Note 47; Conn of nei 47. Section 18 2 o a a 2 “4 a“ u "7 ” Section 24 21; Elle of chnge of inert, 1-52; ate eral 325 Mae 5 ok jayed ty heration ie eee Seiwa ce Note 89; Iurnce i contra of mas gcd lath, Seisred mo hove inawaye ct lcs fenced, Exceptions, 60; Knowledge se eleciviy, 60.84, secton 37 bet coneonent 4 eaten ea swohon 28 Wt, 84 Rage ofc tat met be common ‘std, 5; Irs Imerign 35, Fas Creed pens sectsn 3 oe seman ing ay de secton 36 ther pany ought to inom 6788; Examen 18; Conmomesnon vated, 6 pled wae 68 ” 3 31 3 st 3 so 9 ” on 66 66THE INSURANCE CODE General Provisions SECTION 1. This decree shall be known as “The Insurance Code” ORIGIN OF INSURANCE. The origin of insurance ts ‘wrapped up in obscunty. An exhaustive examination of the ‘works of most learned authors on this subject falls to dis ‘over the exact time when insurance was first known or prac ‘eed. However, some writers have observed points of resem= blance between moder insurance and the alliances or soct- ‘ties formed by ancient Greeks, Romans, Chinese, Teutons. Hebrews and early Christians for mutual benefits and as- sistance. Such alliances of societies were later developed {nto customs and usages of merchants which expressed in surance as we know i snd, from there, the law of insurance has gradually taken form and developed until at present when very conceivable fon or kind of risk seems to be covered.* PHILIPPINE INSURANCE LAW. Insurance law n the Phil {ppines was formerly included in the Code of Commerce un- {lth Tasurance Act took elect on July 1. 1915.°The insur lance Act im turn was repealed by the Insurance Codéem- ‘odie in Presklentil Decree No=O12 which was Issued and made ellecive on December GA974? To consolidate and Codifall he insurance laws ofthe Philippines. Presidential DDeeree No, 1460 enacted the Insurance Code of 1978 which tookelfect on June 11, 1978. Notwithstanding the changes brought about “by the Insurance Code.i ‘TMIEINSURANCE CODE, tne same like the former Insurance Act* Is stil basically [american in origin having been patterned principally on te Chill Code of California. LAWS GOVERNING INSURANCE. The laws applic- aie to insurance in thelr order oF priority are: (af In- surance Code: (OFIn the absence of applicable provisions. tn the Insurance Code, the Civil Code, and te) In the absence ofapplicable provisions in the Insurance Code ard the Civil Code, the general principles prevailing on the subject in the United States, particularly in the State of [Calornia where our Insurance C. ILLUSTRATIONS: (a) Civil Code applied (0) Hof Manila applied for a contract of We sasurance with 5 Co., with efces at Montreal, Cana- 4a. The application was mailed to S Co.. and on November 26. the insurer gave notice of acceptance by eable, The said notice was never received by H ‘who died on December 20. The Act Silent as to the contract entered into by correspon 4:nct. Question: What law should be applied?” An= ews based there was no valid contract. a8 Ingofthe acceptance of his application.” (2B, a married man, obtained a life Insurance poliey and designated his common-| Deneficary. Upon B's death, P. his widow cont the right of C to recelve the proceeds of the policy he Sraronce ad — deter es Met ex het vt be GENERAL PROVISION 3 ‘The Insurance Code does not contain any specific provision applicable to the case. However, Article of the CW Co ‘Should C be disqualifc as pursuant (0 ihe applicable provislons of the Civil Code? Answer: ‘The general rules of civi law should be applied to ‘evolve this vold fn the Insurance Law. Article 2011 Of the new Civil Code’ states: beneficiary was old.) (@) American prinetple applied: ‘sla Lif Insurance Co.. an American corporation, insured the life of Arcadio Constantino for a term 0f 20 years. The Myst premium covered the period {tp to September 26, 1942. After the first payment. zo farther premium was paid. The insurer being an Icon of te American corporation had to close {ts branch olfice ‘nManila by reason of the Japanese occupation. 1 fing bd: from January 2 1942. until the year 4049. The Geely the Insured dled on September 22, 1944, The Insurer re= "} fsed to pay the proceeds of the policy and asserted fore’ Wt the poltey had lapsed for non-payment of pre wile coed ums. On the other hand, the beneiclary maintaled fy vormer that inasmuch as the nor the consequence of war, It should be excused and ed Caltforni should not cause forfeiture of the policy. Question: Was the insurer lable? Answer: Since the year 1917." the Philippine law on Insurance was found tn 427, as amended, and the Civil Code, Act No, 2427 was lanjely copied from the Civil Code of "And this Court has heretofore announced tee(4 The un ‘THE INSURANCE CODE {ts Intention to supplement the statutory laws with fgeneral principles. prevailing on the subject in the Gated states, tn determining the effect of nom-pay rent of premiums occasioned by war, the Amerioan ‘aves may be divided into three groups, the so called Bonk tae. Whe New York Role oe United ‘The' Connecticut Rule holds the view that there are two elements in the consideration for whlch the fous! premium is pald-fist the mene pein. Grits feay and extend yaaa rac for eath succeeding Year paying the ‘premium_for ‘The New York Rule holds that war between states whieh the parties reside merely suspends the contract of ie ingurance, and that. upon tender ‘ofall premiums due by the Insured or his epresenta: live alter the war has terminated, the contract Te- ‘ives and becomes fully operative. States Rule declares that the contract 5 not-met fed bul ts abrogated ‘afon-payment of ‘peculiarly ofthe esse Alter perusing the Insurance Act, we are mly Persuaded that the non-payment of premiums is such 4 Will defense of insurance companies that since the very beginning, said Act No, 2427 expressly preserved {thy providing that after the policy shell have been. In force for two years, it shall become incontestable (le. the insurer shail have no defense) except for Jraud, ion-payment of premiums, and aniltary oF ‘aval service in Ue of war. ‘ently amended this section (Rep. Act No. 171 ‘elense of fraud was eliminated, wile the delense ‘on-payment of premiums was preserved. Thus, the tal character of the undertaking tO Pay Dre ent of premiums, since the tine of payment. ence ofthe contrac GENERAL PROVISIONS 5 rmiums and the high importance of the defense of ‘ow payment thereof was speciiealy recognize. In keeping with such legislative policy, we feel no hestaton fo adopt the Lined States Role, which Bin effect a variation of the Connecticut rule for thesake of qty. INTERPRETATION OF INSURANCE CONTRACTS. incase here sano doubt ast the terms ofan insurance conta th a ogee, men he tes ct thepoley reason, agement of ne wore emplyed-and the language rut i slected with ret eave and deliberation, and legal adverts pl by and acting ex ‘slusively in the interest ol, the ins uny."” Fur= “thermore, insurance policies arejeontracts by adherence. that ageement prepared by-ene party a imposed Upon parce dealing witht which sony not be changed tebe’ patyation in ine agree belng rece toihe afteatve to “take for feve fe, Is contrast 10 those ered Ino by pares barguning onan equa oot. ig and therefore, acy amiga thereon sowie be re fohvedaghinst the insurer Ue party preparing the cons ict ILLUSTRATIONS: (@) Clear provision given ordinary meaning: (1) Diosdado C. Ty obtained personal aceident| polices which stipulated, among others. that for par= tial disability resulting to the loss of either hand, the| Insurer shall be liable for PO50.00. It was further sated in the policies that, “The loss of @ hand shall ape ou oe Sa, 08 8 aa EEN eS ERS Ere e Say]"THEINSURANCE CODE, amean the Joss by amputation through the bones of the wrist" A fre toe out wh italy deed Breadway Cotton Factory, Ty emplarge eunee his way out of the factory. Ty wat tjured ne eit handy a heavy abject AL a result sate nt 2 temporary total disabiity of his felt head aie prevented him ftom performing his wonkar Wet hecessany in the pursuance ot his ocuperion, Gere tomes the insurer lable? Answers THe ines wast able, We can not go Deyond tne siae el Express condions of the surence polices af at which defined partial disability as loss either heed {iy amputation through the bones of the wrist Tae erie stch amputation A That was ond ht the physieal Injuries caused temparary al Aisabitty'of Ty's let hand, We might eal that tae freement contained in the insurarce poles fs inw between the parties "As the tems of the alt cles are clear, express and apectbe that ony apa ation of the lt hand should be considers ast oss threo. an interpretation that wou include te mere ircture or ether temporary dieabiy not towed by the policies would certainly be unvvarronted. (2 Bduardo de ta Cruz was the holder of an aceldent insurance policy. In connection with the ‘ebration of the New Year, the insure. m non-pro- fessional boxer, participated in a boxing contest In {he course of his bout with another person, lkswise ‘on-professional, ofthe same height, weight an ste, Eduardo slipped! and was hit by his opponent on the Jet part of the back of the head, easing Eduard to {all with his head hitting the rope of the ring THe {insured died with the cause of death reported as, “hemorrhage intracranial, left’. The Insurer refused to pay the proceeds of the policy en the ground that the death of the insured, caused by his peretpation In boxing contest. was rob accidental and, there fore, not covered by Insurance. Question: Was the eath of the insured covered by the polly? Answer: The terms “accident” and "accidental", a8 Used In ‘ym pn Sg Scasse M"#MIK Sae | i as the insurance contact, have not acquired any teh ‘al meaning. and are construed by the courts in thelr ‘rainary and common aceeptaon, Ths ‘an event that proceeds (roman unkown cause, or fan unusual elect ota known cause and, there ore. expected. Without in unintentional sipping ofthe de eased, perhaps be woul net have received the bow in the head and would not have det The fact that boxing IS attended with some rks of externa inuriee docs ‘ot make any injury received inthe course ofthe game Pot ecient ning asta an Sens ny of eth ca nb ancl o Produced ty some unoreseen happening o evel oe ‘What occured in this case’ The eure was able ‘on this poiey pursuant to Secton 80 ofthe Insurance Code, by orn behalf ofthe Company before the oxctt= see ofan legging bene unde is poly ‘hall be deemed forteted" Une insured obtained ether policies covering te same property insured without in forming the insurer about The loss occurred Dut the fnsarer refused to pay, claiming violation ofthe “Other insurance Clause” The insured on the oer hand. l= lege that he di’ not read the poliey and that the lnsurers agent knew of the existence of other insur ‘ance policies on the property Insured. Question: Was. the insurer lable? Answer: The insurer was nol lable _sinee the Insure violated the “Other Insurance Clause‘THE INSURANCE CODE. cence 4 unambiguous, a to disclose to the she tte of pene Fa re earn pl enh aE “phe terms of the contract were clear The femared was specifically requir The inety other insurance and ite particulars which insurer sry Centected on the same subject matter The Fe et woul rca Seer a 2 Jenowledge of such by the insurers aus. and ple tobe peste me NE fequisiuon tered ty tht former, Soe anemone at eat Stop the iasurer 0m) ot rare wal as OE Se eee ust abide by the (erin Fev iowa epiau ares denying {hs S]8° use such terms constitute the of the coat "Somphiance tnerewit since ie ry syne 858 wos ee ofthe cope gasurers Habit, Str of te nea recedeg 0 ne euros EN ae ae M28 8 Spon the insurer seus ses SO mbyguous provisson InterDre ae ep ted against (1) Awarranty 1m singh ape a on agaihe ‘THE INSURANCE CODE be resolved In favor of the widow of Serrano, The inter pretation of obscure words or stipulation ina contract Shall not favor the party who caused the obscurity (Art. A377, Chil Code) and provisions tending to work as & ‘pretureofinsurance policies should be construed most strongly against those lor whose benefit they are Inserted land most favorably toward those against whom they are {tended to operate. While the issuance of the Group, Mortgage Redemption Insurance fsa contract between ‘SSS and the insurer, the fact Is that SSS entered into ‘such contract toalford protection not only to tselfshould the morigagor de before fully paying the loan, bat aso to ‘afford protection tothe mortgagor CASES OF TY AND PANATON DISTINGUISHED. In the case of Ty vs. National Surety & Assurance Co, Ine.” ie supreme Courtruted that since the plleyexprestiy stp ated that disability means loss of elther hand Py amputa- ‘on the insured whose left hand was injured but not amp tated was not ented to the benefits ofthe policy In distin- ishing the said case with the case of Panaton vs. Ma- layan Insurance Co.. Ine the Court of Appeals pointed + Wate poyment out tha the injures sustained by Tycatsed ony temporary of onan ‘othisefthand. On the other hand, the inary sured by Fanaton produced a total paralysis ofboth legs equine tecomatichencftncecottat mesial ait thle the i ent total paralysis ofboth legs, he would be bedridden for eand the amputation oh legs would not alter the result 'SMPULATIONS CAN NOT BE SEGREGATED. Provisions im an insurance contract must be read in its entirety and ; (GENERAL PROVISION the stipulations therein can not be segregated in determ ILLUSTRATION: Natlonal Power Corporation (NPC) entered into a ‘contract with Far Bastern Electro, ine.(FEEI} on Decem= ber 26, 1962 for the constriction of Angat-Balintawale transmission lines. FEEI agreed to complete the work ‘within 120 days, otherwise tt would pay NPC P200.00 per calendar day of delay. Philippine American General Insurace Co.. Inc, {PHILAMGEN) Issued a surety bond: forthe faith performance ofthe undertaking by FEEL ‘The bond provided that: fal the lability of the surety wall expire 1 year trom final completion and acceptance Of the work and said bond will be cancelled 30 days ffir its expiration unless the surety is notified of any ‘existing obligation thereunder: (b) the bond will be = Jeased by NPC atthe expiration of 1 year from comple ton and acceptance of te work: (2) should the contrac tor fall to complete the work or ifit is abandoned. NPC shall have the power to take over the work, FEEL started, Construction December 26, 1962 but on May 20, 1963, both FEE! end PHILAMGEN wrote NPCa lelter request ‘ng assistance to complete the project due to unavail- abily of equipment on the part of FEEL. On June 26, 1963, FEE! abandoned the construction leaving it ns Anished, OnJune 18,1963 in Joint eter, PHILAMGEN and FEEL informed NPC that FEEL was giving up the ‘construction due to financial diftcults. On the same date, NPC wrote PHILAMGEN informing It of the with: ‘drawal of FEE! fom the work ar formally holding both FEEL and PHILAMOEN liable. The work was completed by NPC on September 30, 1963. On January 30, 1967 [NPC demanded paymentof tne amount of the bond fom, PHILAMGEN which requested fore detailed statement Dut upon receipt thereo, refused to pay. PHILAMGEN2 ‘THE INSURANCE CODE contended that its obligation expired on September 20, 1964 and claimed that no notice of any obligation of the surety ns given within 80 days after its expiration ‘Question: Was the surety correct? Answer: No, the Surety was not corect, The 30-day notice averted on the surety bond applies (o the completion of the work bythe contracior This never materialized, PHILAMGEN ‘was duly Informed ofthe fate of ts principal to com _Diywith ie undertaking In fact, sald notice of fature ‘was also signed by PHILAMGENS Assistant vice-presl- ‘dent The surety bond must be read in ts entisety-and together with the contract with NPC and the contractor. ‘The psisions must be construed together to arive at the true meaning. Certain stipulations: {gated and then made to control FEET breach of con {fact that is, he abandonment of the unfinished work ‘was within the ellecive date of the contract and the “Surety bond, Such abandonment gave rise to the con- ‘Unulng labityen the bond.* JUDICIAL CONSTRUCTION CAN NOT ALTER TERMS. nile econtractof insurance isa contractofedhesion thus Any ambiguity therein should be resolved against he insurer, fort should be construed liseally im favor of the insured ‘and strely against the insurer. however, ithe tems of the Contract are clear and unambiguous, dete fs,no 00m "The terms of he polly 01 late the measure ofthe insurer's abil. Inthe absence of statutory prohibition tothe contrary Insurance compa- ‘les have the same rights as individuals t limit thet ab iy and toumpose whatever conditions they deem best upon ‘Hhelrobigations not inconsistent with public pliey MUsTRATION: Protucers Bank obtained an insurance against thet and robbery tom Fortune insurance. The policy exciuded sf Sea som oe (GENERAL PROVISIONS ie “any loss caused by any dishonest. (raudulent or “Ermine act of the insured or any olieer. employee fpriner, director, drusce oc autaedrptesentline tine insured whether acting alone orn conjunction wrth others” While inthe proces of transfering cash In the sum of P725,000 Irom the Pasay branch of the Insured tos head oe in Makats I armored ca car ‘ying the money was robbed. A the tine the armored Gar was driven by Magalong and escorted by Securty Guard Ati: Magalong wa assigned by PRE Manage ‘ment Systems tote inured while Allg Was assigned By Unicorn Security Serves to the insured. Aer ttvestigaon, Magalong and ALga, together with Cee ther persons were charged with aaton of the A= Rotocry law, When the Insured demanded peyment {rom the insurer the later felused to payon the ground that the loss was excluded from the coverage of the yoy. Question Was the loss excluded by the policy? ‘oswer eas was excluded bythe poy Whe he Contracts ofthe Insured from PRC Management and Unicorn Security Services provided “labor anly- ‘Magog and Atga were, in respect of he transfer of Producers money fom tz Pasay branch to lts-head flee n.Makal “auortaedepreseniaves™ who ‘Served ag such. Fortune unwer the general exception Clause othe policy was not hiable or he oss cased by the cauthorata representative” of te inure. While limitations of ably should be regarded with extreme Jealousy and must Be construed in such a way 35 10 preclude the insurer frm non-compliance with the Sbigation, however ifthe temns of tecontact are Clear tnd unambguous, thee s no oom for construction Sand such tenns cannot be enlarge o diminishes Judiialeonstructons* Ed Section 2. Wherever used In this code. the fol- lowing terms shall have the respective meaning here Inafler set forth oF indicated, unless the context oth cenwise requires:"THE INSURANCE CODE, aa Is an. Code, only (it is. doing an’tnsurance business as hereinafter (2) The term “doing an insurance business” or transacting an insurance business.” within the teaning of this Code, shall include (aPmaking-or Prepoding te makers Jaautenamy ioruranec con fact: Uf making oF proposing to make, as surety. ace business within the meaning of this Code: Aa In the application of the provisions of this Code the fact that no profit ts derived from the making of Insurance contracts, agreements or transactions or that no separate or direct consideration ts-received therefor, shall not be deemed conelusive to show that the making thereof does not constitute the doing oF lwansacting of am insurance business (9) As used fn this Code, the term “commisstoner™ means the Insurance Comiisstoner. NOTES, With the excepton ofthe definition of insurance ‘which was embodled in Section 2 ofthe former Insurance ‘et this section ia new provision. *Acontractofinsute Dy one undertakes for ens GENERAL PROVISIONS 1s ‘a consideration to indemnify another against loss. damaite iy arfaing from an unknown or contingent event ce from the ofan ordinary contract sch gon ed gconsideralign-* an insurance contrac Snpot have te following elements: The insured possesses an Interest of some Kind sus P pible of pecuniary estimation. known a ab {R 2. The insumts-subjecttossarskeioflass:through the destruction orimpat ‘ofdesignated pets As Th 4. Such assumption i part ofa general schen bearing ‘Somewhat similar sks. 5. As consseration forthe insurer’ promise, the insured. a's suis conto Sai pM 8 general {nstrance fund.” ‘SCHEME TO DISTRIBUTE LOSSES. The business of n~ Ba at adventure goods and thereby Se et une goes and persons are thereby Sl and bore by many persons consenting sed agreeing {opay any oe. By such datnbutionaflsses, a merchant hein neste none entre wil tte rlned ever, bu by giving premiums to ether persons fo inure his gods, the lees ft happens. wil be divided among the ‘erGhants so suring nd such merchant may be able to {iynis fortune n another venture = su fan agreement whereby a a trance yd [thr part called the prinepal or obliga ofan bligatign or Solcaingin or father ai oe Sige ts16 TEINSURANCE CODE WHEN SURETYSHIP DEEMED AN INSURANCE, “Acontractofeuretyship shall be deemed tobe an insurance ‘Contract only ifmavte by surety who or which. as such Is “lalngan insurance busivess.> Le, making. or proposing ‘ake, as surety. any ‘ad. not merely Incklental io any other legitimate business tthe surety ‘When person acts as surety n any contractof suety~ ship not as avocation butas.a mere ineldent ofa legitimate ‘pusiness or activity ofthe surety. such contract shall not be (eemed to be a contract of insurance since i Iaeks the eles — shentof insurance that the assumplon of isk shou bea scine to stresses ong ge — vat sumllar sks Serge was borrowing mone rom Banko Ames sus Sets “Ugaye acted as surety for te payment of Te ee utidon: was LguyatscontractofsuretshP set Ste a conuact of insurance? Answer Such insurance, since acting surety did pe vocation oC Jee ae oh transaction a tepid alvty of Liga. However. eet ays aon tact ae sure ad therefore the Sarehip contrat was. part of te general scheme Reece mong a tnge group ofpersons bear aera atime sks, then such const shall be Semen tobe'econtactofinsurence ‘WHIAT-DOING ANINSURANCE BUSINESS" INCLUDES? “Te i doing at nsuranee business or transacting ar insurance busines Inches" 1. Making or proposing tomake, as fasurer any ns Suretyship as a vocation. Menai! GENERAL PROVISIONS v 2. Making or proposing to make, as sur. any con tasctofsureyshipasa vocation ane ot as mere tclden- {Gio any omer legimate business or acti ofthe se ‘3. Doing any kind of business ncuing reinsurance nstne Speicaly regen as constttng the ins ‘tan iosumince business: 1 Doing or proposing todo any business n substance cqunalent to any ofthe regoing ina manner designed 10 Aud te provisions of Insurance Code ‘The fact that no profits is derived from the making of nuance contracts oF tat no separate o direct conser ‘Rms ecved ineefr shallot be deemed conclusive ‘chow thatthe maidng teen does not constte the Bangor unsacung of a Insurance business ‘Abts ‘Pts a gomtmetotindgmass Po. nis esomaheontact, cs (5.11550 conaionacontiat* By analeatory contract. neat Mee leary the sense Out Ors Fa ea agus inecccurenc ofwnich intended ont ugh such ee may Dever eeu” Insurance eters thas ota {TE INSURANCE CODE cemetary contract of indemty by Which is meant that the"pitysn- mT Girmensure of insurable interest in property i the extent to which the insured might be damnified by loss or injry thereat as the gftpose of Insurance is merely to Tin purse the 3F his actual loss not exceeding the Binount agreed in the policy. ILLUSTRATION: ‘Avwas the owner ofa house valued at F20,000.00. te oblained a P20,000.00 re insurance pelicy on the said house. Later, the house was damaged to the Extent of P7.000.00. Question: How much may A recover? Answer: He may recover only 7,000.00 ¢ because insurance ts-a contract of indemnity and. LIFE INSURANCE NOT CONTRACT OF INDEMNITY. Life Ansurance is based upon the prinetple of indemnity. only nso farasit cannot exst unless there fs insurable interest In the if ef the party Insured at the ume of the making of "pneiple of indemnity the contract. But beyond this, the "Thus, fe Insurance plc fowever where the amount? ferest of a person procuring the insurance Iie of another ls susceptible of pecuay esl ke i em i GENERAL PROVISIONS 9 ILLUSTRATIONS: (a) Not contract of indemnity ‘Acanemployee, ears P2000.00 a month or 24.000 ‘a year In ten years, he will earn P240,000,00. He ob- talned.a ten-yearlfe nsurance policy on his own hfe for '7500,000 00 A died, but the insurer refused to pay 900,000.00 and insted ofered to pay only F240.000.00 nthe theory thal AKI not die, he would have cared Gh 240,000.00. Question: Was the refusal of the Insurer corect? Answer No. The insures was lise for 'P300,000.00- strange is not contract of ‘indemnity as (0) Contract of indemnity: borrowed money from C. C insured the life of . After the polly was taken, D died. D's admins- tuator then pald the debt. Question: May C still recover from the Insurer? Answer: The insurer was ‘not lable because the payment of the debt removed the basis of recovery. Insurance taken by a creditor ‘on the life of the debtor is @ contract of indemnity. provided that the creditor paid the premiums." Pa : sieht ne etapa en oe Ee teem welisud Dealiogesher unwiling ia insure hesame property fowned yanclber” Accordingy/an insurance taken by one per- ‘son will not apply to the interest of another person in the fame propery insured. And as a consequence ofthe prin- tiple that insurance Isa personal contract the assignment frconveyanceof the property insured doesnot transter the Insurance and instead the policy is suspended.2 ‘THE INSURANCE CODE iLusTRATION: A insured his house with X Co. against fire. Later. A'sold his house © B. Alter the sale. the house was totally burned. Question: May B. the few owner, recover from X Co, Answer. aimee he_poliy faken by applied fo_his interest alone tnd the sale ofthe house did not automatially trans fer the policy to B but instead, the policy wa: Susperied, sot a nate SPE policy, wa ang epee er at is exccuted_on the part ofthe instred upon payment of premium and wholly exseutary'on the part of the canes ncondonlin thesense toner noble pay aa [cares hapten However wean | eet surance cos on tee anne | tener propery insurance an inane nt Sina ens ray ory notocraand when tore Cates ots at he neo happening _nyesatngent element Chapter! THE CONTRACT OF INSURANCE ‘TLE 1. WHAT MAY BE INSURED may be provision of this chapter. “ine consent of the husband Is. 08 necessary or ncaa an Insurance poles taken out by aseted womanon her We-oc it of het Chldies- imino of te age of eighteen years oF more, may Motmitnstanding excl minor. contract for Ie, aire cane ain any iuranee Seu trac te anneae the Phi Sa eee he insure aken-on his, om ot fe neneaclny appa t-te minors see ene inet ate usband, ee ome ‘The married woman of the minor herein ‘to take out an insurance. policy may 1 shits, Lule and, in the policy of in- suranc taken Out by an onginal owner on the life or health of « mioor hall-automabicallyesesteethe Coniess NOTES. The fist three paragraphs ofthis section are tne sme asthe provislons of Section Sof the Insurance Act ‘wl tne exception that the lat sentence of paragraph three Srihe ater was eliminated In the new provision. The de sens an nie atti barat” ‘ela a onc fe surance com se put ote ley inant SBR ett sucatevate! Te tener tte Sentence dkd notin any way affect the right of the minor[a2 THF contRacT oF iNSURANCE Inasmuch as this section gives the minor the right to xercse all the’rights and privileges of an owner unter a policy which includes the ‘hsurancescompany.* “The last two paragraphs ofthis section are new provl= sons. sks that may be Insured may ceither be: the insurer of ‘Ortneatanay.ereateliabity against him, Said risks may be insured against events which are contingent or unknown, whether pastor fature® ILLUSTRATIONS: (a) Insurance against damage: ‘An insurance taken by the owner of a house against destruction caused by fire is an insurance ‘guint damage. (0 Insurance against lability: ‘An insurance taken by the owner of a ear against damage and injury he may cause while operating ‘said car, i an Insurance against lability. WHEN INSURER IS LIABLE FOR PAST EVENT. Jorainariy the event covered by a policy sa future contin= eency. However a past event may likewise be inched within the coverage ofa policy. To be so covered. the past event fr spulaton including pir Tos within the : ually expressed by te use othe phrase ost or not LIABLE-FOR FORTUITOUS EVENT. An insurer@nno) cot msm aay by cating tht tess of the loss or damage to the thing insured is a (rtullous event ‘THE INSURANCE. CODE 23 where such events among the rsks included inthe policy. Fbrthe nature of the ebligation to the insurer requttes the SSeS Secon She au ua INSURANCE BY MARRIED WOMEN. A married woman may insure her own ile and thatof her children without the Consent of the husband and exercise all rights and privi= leges ofan owner under & policy.” Jes submited: that she “Per separate property” INSURANCE BY AMINOR. Section 3. paragraph 3 of the Insurance Code granted a minor the right to enter Info a contract of Insurance upon his ow Ife, Wealth or Acci- Gent, provided such minor eighteen Years of age or more. ‘This has been rendered moot and academe by Republic Act, Bod which amended Article 234 of the Family Code ofthe Tescing the age ofmajorty frm 21 years to peted minor may procure any kind of insurance without the onsent ofthe parents or guardian. An unemaneipated mi ‘or, however, cannotenter into acontractoftnsturance wit fut the consent ofthe parents or guardian and when he oes, such contract is yaidahle in such ease, the insur~ lance company whom an unemsncipated minor contracted24 THE CONTRACT OF INSURANCE ILLUSTRATION: A minor insured his house against fire. When the house was burned. the insurer refused to pay fon the ground that the contract was voiduble, Ques tion: Was the insurer's refusal to pay correct? ‘Answer No, because the insurer.cannol claim the # minority ofthe sured asa defense." EFFECT OF DEATH OF FOLICY'S ORIGINAL OWNER. In «ase the original owner ofa policy taken on the life of a mi- nor should predecease the latter. fright. ie én Inter= Cetin the ply shal automatically vet the min un lesdotherwise provided for in the polly." Thus, even I the ‘original owner he policy designated himselfas benetciary In the policy insuring the lie of « minor, the death of the foriinal policy owner shall automatically vest tle on the pally to the minor. Suppose. however. the husband tock ay. polly onthe lle of his minor son and designated his wife as beneficiary. in case the husband dies, would his wie be de rived of inerest in the policy s0 that the minor son could Aoquie the rights. Ue and interest therein? Its submited. toa provision in the policy that the must be bome inmind that by express provision of Section ‘8. were the policy provides otherwise, the death ofthe origl= nal policy ewner shall not transfer the rights, itl and inter- ston the poleyto the minor whose life was insured. SECTION 4. The preceding section does not au- thorize an insurance for or against the drawing of any lottery. or for or against any-chance or ticket in ‘THE INSURANCE CODE a8 NOTE. This ts the san met REASON FOR PROHIBITION. Gambling may possibly ee sultry ch nang ania, yer {Ete gomblng ef any-sorcmayantaenaured'Thus! en Eira icine fetmntea ete eave mister 2 aareseitetofgumilng efoto nese nequaiy ak Bee ene tne fas Sectlon 4 of the Insurance SECTION 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. NOTE. This section isthe same as Section 5 of the In- TITLE 2. PARTIES TO THE CONTRACT SECTION 6. Every person, partnership. assoc lon oF corporation duly authorized to transact In- surance business as elsewhere provided in this Code, may be an insurer. NOTES. This section s substantially the same as Sec- {Won 7 of the Insurance Act. The new Instrance Code elimI- nated Section 6of the Insurance Act which provided for the efits of the “insured” anvd “insurer.” LPARTIESTOINSURANGEICONTRACIS. the partes to aconmetof nouanee on ‘one who receives a benef or advan- tage or Whe i ented to te bene of contract. that26 ©THE CONTRACT OF INSURANCE Sometimes, the person on whose application the policy 4 “Min. fs refered 10 as the “assured, s hot necessary the person on whose lie or proper ky {Swntten. Thus, where a wile nsures her husband’ lie for hherown beneit and he has no Interest in the polly she ts Ue “assured” and the husbands the “iauged *! This dis- lnetion, however, Is nol very materialin modern insurance ‘under whieh te ers “insured” and “assured are regarded assynonymous™ = SECTION 7. Anyone except a public enemy may be insured NOTE. This Is the same as Section 8 ofthe Insurance PUBLIC ENEMY DEFINED. ns a Such tern Qees notynclude (bbers, ieies Sd as abs. * REASON FOR PROLIIBITION. A public enemy may not be ins a fend itis ineonsiss | ccot tat one county shout testes te enemy. and repay In insurance the value of what has been 20 destroyed of ‘that I'shoull in such manner increase the resousres of re enemy or render i ald ILLUSTRATION: ‘A Co.. a corporation controlled by German sub- Jeets, obtained a tre Insurance policy in the Philip- pines on October 1, 1941. On December 10. 1941, War broke out between the United States and Germany. Thereafter. the goods insured were burned. Question: Was the insurer lable for the loss? Answer: No, {he insured became an enemy corporation because of the outbreak of the war between ihe United States BERETS bac ae me rte ‘TIE INSURANCE CODE a and Germany and the Eves tert ep apiece premium paid forthe period after the Insured Ijogne a public enemy shoukl te returned ro) (Aecriow 8. Unless the poiicy otherwise provides. ‘where a morlgagor of property effects Insurance In ‘his own name providing that the loss shall be pay” ‘party to the ariginaicantract, and any act of hi prior_to the loss, which would otherwise avotd the Jnsurance. will have the same effect although the ‘property 1s in the hands of the mortgagee./but any ct which, under the contract of Insurance, is to be performed by the mortgagor. may be performed by the mortgagee therein named, with the same elfect as IFIL has been performed by the mortgagor. 2 “Note. This section's the same as Seetiom@of the: ‘Note. tn ‘surance act 2 WHO MAY INSURE MORTGAGED PROPERTY? When @ property is morigaged. the mortgagor and he mor ay take ont ILLUSTRATION: ‘he omer ofa house ued at 50,00, rowed P2080 em Bande secu the pment i tee morgen neue ab, Quesre Wh may incars Siete murano he ome ye sure tnehuse br 0.000 ne te marge likewise insure said house for P30,000, _ Fitire serene cm ma SSSR Sone ol Fes bli 2 IONE a Sa ETTa THLE CONTRACT OF INSURANCE INSURANCE BY MORTGAGOR GTO) assiaNING ostie moetanabe Whee i getiaper meee 1S MO reeataboutating thee pbc he Fer ean sccurtas otic oes amp en orgagesonsilusl shall eed tae poe ‘tthe incemnity paid Ly the insurer of he mortgaged prop erty upon oceyrence of the loss” and, therefore, the Mmogt- ‘gagee has len on he proceeds ofthe policy. INSURANCE BY MORTOAGOR MALLING LOSSEAYABD) ‘TO MORTOAGEE = Where the morigegor of a POpEZG iets Tasurance thereon in his own name providing Cat the loss shall be payable to the mortgagee. or assigns the policy tothe mortgagee, the effects thereof are as Iolows: ne insurance ssl deemed tobe upon the interest, cor thé mortgagor, who doesnot cease to bea part to the xgnal contract teisan matric onthe pave Be. ‘Basen atoning te contact sone te ae Bseitlivectanle neces ILLUSTRATION: ‘Ainsured his buikling against fie and made the loss payable tothe morgage. Later on, the insurer canceled the policy pursuant to @ stipulation thereon allowing celther party to terminate the contract by giving notice thereof to te other The insurer gave the notice of can- sxlation tothe mortgagee and nof to the mortgagor, The Dullding was thereafter burned, Question: Was the in surer lable? Answer: Yes he cancellation ofthe policy seat ag 8 ne an ea 1 bc 3 3 ‘THE INSURANCE CODE, 2» yas not binding upon the moytgagor since the sigue: another fnsurance. The ‘actofthe morigagor. prior (othe oss which woud ‘oxhervise avoid the Insurance will have the same eflectal- ng the propery In the hands ofthe mortgagee. * ILLUSTRATION: ‘A mortgaged his house to B to secure the payment ofa loan. A then insured his house and made the loss payable to the mortgagee. A violated the policy by stor J infarnmnable materials within he insured premises. fut result of which, the house was burned. Question: & the mortgagee recover Irom the insurer? Answer: i because the act ofthe morigagor in violation ofthe iy avolded the contrac although the loss was made to the mortgagee @ unde the contact of insurance, Isto ebetformed bythe mortgagor. e Tor example) the policy requires the {noured fo give notice and proof of loss without unneces- sary delay. Notice or proof of less may be given by Whe mort- [gage to whom the loss Is made payable withthe same ef- fect as ifthe same was given by the morgagor jpon occurrence ofthe les, the mortgagee is entitled30 THE CONTRACT OF INSURANCE sustained under a polcy of fasurance where was Japayabletohiand such action may be Reagan by ‘Frorigagee even without including the morigagoras pay to heaton ILLUSTRATION: ‘Acwned a house valued at P20,000. He mortgaged the said house to B to secure a loan of P15,000. A then Insured the house against fre for P20,000 and made the loss payable to the mortgagee, B. Questio UUpon occurrence of the loss, who may recover (om the Insurer? Answer: The mortgagee. B, as benell- ‘lary may recover to the extent of his credit, P15.000, fand as an Insured, A may recover the balance of 5.000. ronan ine maggot extent ots remorlgagors released from his Indebtedness.” ASSIGNMENT OF POLICY TO MORTGAGEE NOT APAY- -MBNT. In case the mortgagor insures the morjaaged prop Ane proceed rcalecie . Urerefore the morgage vlebtedness is notextinguished wnt such ime as the mortgagee has collected the proceeds ofthe policy rom the insurer aller the occurrence ofthe loss ** property without reference to the right ofthe mortgagor. the eflets ofsuch policy taken areas follows: ‘THE INSURANCE CODE a | Sieeeaeeer _B2Unless otherwise slated inthe policy, the ‘BAHeEEEUTD upon payment to the mortgage - insured. and may. therefore collect. thesdebbofthe {asured:° This principle applies where the policy ebiained by the mortgagee covers his interest alone." -4cthe @OERPEETSTED can ny longer collec the mmontgagors indebleIneze aller receiving falpayment of is {redit tom the Insurer since tn ater thereby acyuires the Fgnttocolect rom the mortgagor by virtue of subrogation.“ ‘Bethe mortgagor is not released f insurer's payment tothe mortgagee-insure ILLUSTRATIONS: ‘Awas the owner ofa building valued at P1S,000. He bborrted P10,000 from Band to secure the oan, Amott. ‘gaged his building to B. B. the mortgagee, obiaines! a fire insurance In the amount of P18,000 without tne cling the interest of An the policy. The bullding was, ‘Subsequently bumed totally. Question: What are the ‘ights of the partes. Answer: (a the morgagee, may collect from the insurer only PY0,000 since the mortgagee insurable interest Gi the merigaged property limited fo the amount of sored 53 aga Brewery in ad Ran 8. re‘THE. CONTRACT OF INSURANCE. cokfoihe mortgagor has 10 ght io secover the oal- ance arP,000 since the polleytovered the Interest of ihe morgage alone without reference to the interest ota (©) Ate paying BP10.000, the insurers automatl- cally subrogated to Ue rghtofB against Aand, theres foe, thedfueday collect the mount paid aD fom ‘A.the morigagor” (a8) the ee. after collecting the full amount of his credit rom the insurer. cant n0 to fuld(A) the morggagor. lable, since the eght of B Ser fie creat i Ganatseed 0 the weurer upon the fanters payment (0-8 type sont HowevernifB was abte io Baleet only F000 fom te Insurer due to the latter's insolvency. B may collect {he balance of P4,000 from A {fan Insurance from a mortgagor. to a morlgagee ind at the time of his assent. imposes further oblic ons on the assignee, making a new contract with im, the. act of the-morigagor can not affect. the rights. signee. NOTE; This section ts the same as Section 10 of the >This section a ey man dk a, eek o . So “SECTION 9. If an insurer asStnis"to the transfer ‘THE INSURANCE CODE, 33 EFFECT OF UNION MORTGAGE CLAUSE. Ordinary. where the mortgagor insures the property mortgaged and Takes the loss payable to the morgage the meoryagor does nt cease tobe party to the insurance contract and there- fre, any act of his which would otherwise avo the policy Sail have the same eflec® In insurance parlance. such Supulation is eerred fas “open mortgage tse.” Bul where hepolkey contains “union mortgage clause. Instead of an Open merigage clause” the mortgagee shall not be affected Grprejudiced by any act ornegleet ofthe morigagor™ since the purpose ofthe “unfon mortgage clause” ‘TITLE 3, INSURABLE INTEREST In general a person has an in srable interest in the subject-matter insured where he bas 3 oc wil euler or *"piferent persons nay have separate instrabte interest in the samme property ‘Tha in the same properly morigaged. the mortgagor has Insurable intrest Urercn as. owner while the mortgage Uke~ tie has insurable interest in such propery to the extent of his tien {CESSITY OF INSURABLE INTEREST An @ouia nthe part ofthe person tak and tach interest slacking. nepal oH.34 THE CONTRACT OF INSURANCE, ‘contract of indemnity. If he insured has no insurable inter ston the subject-matter of the surance, he will not stand fo suffer any loss or damage by the happening ofthe event Insured against and hence. should that event occur. he | should not be allowed to recover from the insurer, otherwise, Ihe will profit rom the effects of insurance and thereby vio= | late the prineiple that Insurance fs a contract of indemni } section 10. Every person has insurable inter- est in the.lfe and health: ©) of himself, of his spouse and of his children: sn Deka pron on whom is wholly or part for education or support, or in whom he has pecuntary Interest jou nda a vor ct anv_person unger a esa obligation to him for the paynteht of money. or feencU propery OF Stivicessof which death or iinece tight Gclay OF Prevent the performance: and (of, estate or snterest vested in-him depends. NOTE: Tis secon amersed Secuon 1 of the Insurance eragraph INSURABLE INTERESTIN LIFE. to life nsurane insur able Interest exists where there Is reasonqble ground, |i founded on felther pecuniary of “contractual oPby blood or expect some benell of ni ‘advantage fom the continuance of the life ofthe insured.” (nsurabie interest n I Sa mie cme gre coment * ‘THE INSURANCE CODE 3s ‘expectation for advantage giving rise (0 InsUr~ ‘able interest need aot be based upon a right which can be enforced in law or equity agalnst the person from whom ary bene stp" gunaie esha Jeans wirturofsueh relation: iP ‘TIME WHEN INSURABLE INTEREST IN LIFE MUST EXIST. Insurable interest in life must exist at_the fime of the effectivity of the pollcy and need no istatthe tne ofthe death of the insured. a ence, where a ile Insurance polley fs valid at lis inception by reason of the tustence of insurable interest at the Une, the subsequent fiiminution orceseation ofthat interest does not invalidate the poliey. However insurable Interest ofa creditor on the Iie ofthe debtor must exist not only atthe time the policy lates effect but alzo at the time ofthe deblors death, for sue kind oie insurance is sulla contract of indemnity. * ILLUSTRATION: ‘Where the wife insured the Ife of the husband, a subsequent divorce does not terminate the policy since {lle insurance. the fact that insurable interest ceased before the death ofthe insured i immaterial” vot apegunrig ame aR BENEFICIARY NEED NOT HAVE INSURABLE INTER- est. cen though Pe ‘Setmngecandhas no nsuablenltest inh Menge Fiowever. 8 person who cannot recelve danauon trom the Inoured under arele 79 of the Chil Code cannot be des: \gnated as beneficiary.”mie CONTRACT OF INSURANCE ecient nen er seesgcae ‘CONSENT OF INSURED NECESSARY, Where a life insurance poly Is taken by one person on the Ife of tothe. 3 outer afte pol eG subset raid bythe insured» Thu Potey Shyu procuring iaurance met hot ony hase fed bathe must Hewse —yicpale rare rt Sigs tice Rambo pepmte eat ‘THE INSURANCE CODE 37 yor services, of which death or ness might Vine performance However. Insurance on the He Prife debtor tobe valid must befor an ammount which is not the ameunt ofthe obligation. oth see he policy is notval for being wagering contract. ‘fhus, the fest ofa creditor insurable inevest is whether Tr inount ofthe debt ls reasonably proportionate to the cresunt of be insurance which he contacts. Jf the deDt 1s [nce the creditor lacks insurable interest of eto SFimsurance is nothing more than awagering scheme.” wen by a daughter upon her fathers tie without his y ieald aig ‘Gosent isnot valid." However, an ZF ao sao” roa granted a loan to D amounting to P70. C then Ra insure the Mie of D for P3,000. Such policy was a ‘SUPPORT, & SOURCE OF INSURABLE INTERES person hes insurable interest in the life and health of any Acton whom he depends wholly orin part for education Betupport= The following are the persons obliged to suy- porteach other: > SSE? > Leglimate ascendants amm.G5ee 108057 x. nd acknow Parents and Megs LEONA x men « INSURABLE INTEREST OND tur tnimaraie nset n ee f ee exten of Une indebtedness Thus. 2 personas nei Shleiterest on te ie ofancther “under 8 egal NEN tohhim for the payment of money. oF respecting and the JeBTOR'S LIFE." Acreditor ‘is debtor, atleast 10 rere magering contractand therefore not vali TATE DEPENDENT ON LIFE INSURED. When thes tasboratierest vested inthe person procuring insurance is Ucpondent on the ie of another, the former has insurable Interest n the Mle of he ltt: ILLUSTRATION: ‘allows Bouse his land as longas As alive. B has insurable interest im the lie of A since A's death will terminate the nghtof Dover the land and consequently ‘cause damage B [Ro[Un}SECTION 11. The insured shall have the right to ‘change the beneilelary he designated in the policy.Aan- tesa ga expressly waved this right tn said policy NOTES. This Is a new provision. This secon changed the former rule that a beneiclary designated ina if ineur- lance contractearinot be changed without the consent ofthe beneiclary Beoause he has a vested interest in the policy:* While the Ot rule was the designation ofa beneficiary Is resumed tobe ievocable, under the present rule, the desig: