LAW ON INSURANCE

What is the principle behind insurance?

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

Insurance Law - the law that governs contracts of insurance, in general.

Department of Insurance - is the government bureau or department that

regulates insurance. This department is headed by the Insurance
Commissioner.

Insurance - A contract whereby one person (called “insurer”) undertakes to

indemnify another (called “insured”) against loss or damage caused by the
happening of an event insured against.

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.

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.

Characteristics of an insurance contract

1. Consensual – perfected by the meeting of the minds of the parties
2. Voluntary – it is not compulsory and the parties may incorporate such
terms and conditions as they may deem convenient which will be binding
3. Aleatory – depends upon some contingent event
4. Executed – as to the insured after the payment of the premium
5. Executory – as to the insurer as it is not executed until payment for a
loss
6. Conditional – subject to conditions the principal one of which is the
happening of the event insured against
7. Personal – each party in the contract have in view the character, credit
and conduct of the other
Elements of an insurance contract
Like any other contract, an insurance contract must have:
a. consent of the parties - The parties who give their consent in this
contract are the insurer and insured.  
b. object - The object of the contract is the transferring or distributing of
the risk of loss, damage, liability or disability from the insured to the
insurer. 
c. cause or consideration - The cause or consideration of the contract is
the premium which the insured pays the insurer.

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

Most common types of Insurance

LIFE - insurance against death happening within a specified period.

HEALTH, DISABILITY - insurance over the health of a person.

PROPERTY - insurance on the  home and/or property of a person.

LIABILITY - insurance on the possible liability of a person.

AUTOMOBILE - insurance coverage on automobile, motor vehicle or

motorcycle owned or in possession of a person.

MARINE - insurance on ships, boat and or cargo against PERILS OF THE SEA.
(there are many others, like insurance on CROPS, MORTGAGE, FIRE, etc.).

EXAMPLE:
FACTS: “A” insured his automobile against collision for P500,000, subject to a
deductible of P1000.  “B” is the insurer. The automobile got totally wrecked in
a single-car collision/accident.

Classification of Insurance
1. Life insurance contracts
a. Individual (Sections 179-183, 227)
b. Group Life (Sections 50 and 228)
c. Industrial Life (Sections 229-231)

2. Non-Life Insurance Contracts

a. Marine (Sections 99-166)
b. Fire (Sections 167-173)
 c. Casualty (Section 174)

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

Terms to remember:

INSURED - the person who is covered by insurance. At times, called ASSURED

OR POLICYHOLDER.

INSURER - the person or company who issues insurance coverage/insurance

policy.

INSURANCE POLICY - is the insurance contract or insurance document.

PREMIUM - the money or consideration paid by the insured to buy insurance.

EVENT INSURED AGAINST - the event which is the subject of insurance or

the event which, when it happens, makes the insurer liable to indemnify the
insured for the latter’s loss or damage.
EXAMPLE: in life insurance, when the insured dies, the insurer pays the
amount of death insurance.

INDEMNITY - the amount of loss or damage, up to the limit of insurance, 

which the insurer pays the insured or beneficiary when the event insured
against happens.

DEDUCTIBLE - the amount which the Insured is to pay,  as his share of the
loss, which is deducted from the insurance proceeds.In some jurisdictions, this
is called “CO PAY” portion.

BENEFICIARY - the person named in the policy who is entitled to receive the
proceeds of insurance.

PROCEEDS OF INSURANCE - money collectible from the insurance after the

event insured against has happened.

DEPRECIATION OR BETTERMENT - the amount of reduction in value of the

thing insured or thing to be paid because of age, usage, obsolescence or wear
and tear.

DENIAL OF CLAIM - insurance claim is refused payment for whatever reason.

INSURANCE IS A CONTRACT OF INDEMNITY - it means when the event

insured against happens, the insured is entitled to receive the amount of loss
or damage, NO MORE, NO LESS.
PROCEDURE: “A” would claim the collision damage on his automobile. After
investigating, and if everything is okay, “B” would pay the amount of
insurance, which is P500,000 less the deductible of P1000 or P499,000.

WHAT MAY BE INSURED?

► Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him.
       
Any minor of the age of eighteen years or more, may notwithstanding such
minority, contract for life, health and accident insurance, with any insurance
company duly authorized to do business in the Philippines, provided the
insurance is taken on his own life and the beneficiary appointed is the minor’s
estate or the minor’s father, mother, husband, wife, child, brother or sister.

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

What perils or risk may be insured?

The following risks may be insured:
1. Any contingent or unknown event whether past or future which may
cause damage to a person having an insurable interest; or
2. Any contingent or unknown event, whether past or future, which may
create liability against the person insured.

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

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

Parties to the contract of insurance

a. Insurer - the party who assumes or accepts the risk of loss and
undertakes for a consideration to indemnify the insured or to pay him a
certain sum on the happening of a specified contingency or event.  The
business of insurance may be carried on by individuals just as much as
by corporations and associations.  The state itself may go into insurance
business.
b. Insured, or the second party to the contract - the person in whose favor,
the contract is operative and who is indemnified against, or is to receive
a certain sum upon the happening of a specified contingency or
event.  He is the person whose loss is the occasion for the payment of the
insurance proceeds by the insurer.

Is the insured always the person to whom the proceeds are paid?
        ► No.  The person paid may be the beneficiary designated in the
policy.  A common example of this situation is a life insurance policy where the
proceeds are not given to the insured but to a third party designated by the
insured.

What is the nature of the relationship between the insurer and the
insured?
        ► It is that of a contingent debtor and creditor, subject to the conditions
of the policy and NOT that of trustee and cestui que trust.
Who may be an insurer?
1. A foreign or domestic insurance company may transact business in
the Philippines but must first obtain a certificate of authority for that
purpose from the Insurance Commissioner who has the discretion to
refuse to issue such certificate if it will best promote the interests of the
people of this country. (Sec. 187)
2. An individual may also be an insurer, provided he holds a certificate of
authority from the Insurance Commissioner, and provided further that
he is possessed of the capital assets required of an insurance corporation
doing the same kind of business in the Philippines and invested in the
same manner. (Secs. 184-186)

What are the requisites in order that a person may be insured in a contact
of insurance?
1. He must be competent to enter into a contract.
2. He must possess an insurable interest in the subject of insurance.
3. He must NOT be a public enemy.

What is a public enemy?

► It is a nation with whom the Philippines is at war, and it includes every
citizen or subject of such nation.

INSURABLE INTEREST

Every person has an insurable interest in the life and health:

a. Of himself, of his spouse and of his children;
b. Of any person on whom he depends wholly in part for education or
support, or in whom he has a pecuniary interest;
c. Of any person under a legal obligation to him for the payment of money,
or respecting property or services, Of which death or illness might delay
or prevent the performance; and
d. Of any person upon whose life any estate or interest vested in him
depends.

What is insurable interest?

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

Why must there be an insurable interest?

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

When is there insurable interest in life insurance?

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

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

Who can be a beneficiary?

       ► Any person in general can be a beneficiary.

Are there any exceptions?

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

What is the rule regarding revocability of designation of beneficiary?

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

Under the current rule, when does the insured lose the right to change
the beneficiary?
► When the right to change the beneficiary is expressly waived in the
policy, the insured has no power to make such change without the consent of
the beneficiary.
What if the beneficiary dies before the insured and the insured did not
change the designation, who gets the proceeds?
       ► There is a divergence of opinion, but the general trend is to give it to
the estate of the beneficiary.

Insurable interest in PROPERTY

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

What consists insurable interest in property?

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.

When must insurable interest exist?

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

► In case of property insurance, at the time the insurance takes effect AND at
the time of the loss, but it need not exist in the meantime.
Distinguish insurable interest in property insurance from insurable
interest in life insurance.

INSURABLE INTEREST PROPERTY INSURANCE LIFE INSURANCE

BASIS OF INTEREST  In property insurance,
expectation of benefit
must have a legal basis.
LIMIT In property insurance,
the actual value of the
interest therein is the
limit of the insurance
that can validly be
placed thereon.
INSURABLE INTEREST
AT THE TIME OF LOSS In property insurance,
an interest insured must
exist when the insurance
takes effect and when
the loss occurs but need
In life insurance, the
expectation of benefit to
be derived from the
continued existence of a
life need not have any
legal basis.
In life insurance, there is
no limit to the amount of
insurance that may be
taken upon life.
In life insurance, it is
enough that insurable
interest exists at the
time when the contract
is made but it need not
exist at the time of loss.
not exist in the
meantime.