Professional Documents
Culture Documents
04 Insurance Law
04 Insurance Law
INSURANCE LAW
DEFINITION: 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.
Suretyship is a contract where a person binds himself solidarily to the creditor to fulfill the obligation of the debtor in case the
latter should fail to do so.
A contract of suretyship shall be deemed to be an insurance contract, within the meaning of the Insurance Code, only if made
by a surety who or which, as such, is doing an insurance business.
CONCEPT/CHARACTERISTICS OF INSURANCE
1. Uberrimae Fides Contract - The contract of insurance is one of perfect good faith, not for the insured alone, but equally so
for the insurer. In fact, it is more so for the latter since the insurer’s dominant bargaining position carries with it stricter
responsibility.
2. Contract of Indemnity - The insured is entitled to recover only the amount of total loss sustained, and the burden is upon
him to prove the amount of such loss.
3. Risk Distributing Device - The risk of economic loss is distributed among a large group of people bearing the same risk.
4. Aleatory - The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event
which is uncertain. It does not depend upon some contingent event.
5. Contract of Adhesion - An insurance contract is a ready-made form of contract, which the other party may accept or reject,
but which the latter cannot modify.
6. Personal - The law presumes that the insurer considered the personal qualification of the insured in approving the insurance
application. The insured cannot assign, before the happening of the loss, his rights under a property policy without the
consent of the insurer.
7. Voluntary - A contract of insurance is not compulsory, and the parties may incorporate such terms and conditions as they
may deem convenient. This is allowed provided that they do not contravene any provision of law and are not against public
policy.
8. Synallagmatic - Both the insured and insurer have reciprocal obligations of equal value to each other.
LIFE INSURANCE
a. Individual Life - is insurance on human lives and insurance appertaining thereto or connected therewith.
Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under a
retirement program where a life insurance company manages or acts as a trustee for such retirement program shall be
considered a life insurance contract.
b. Group Life – is essentially a single insurance contract that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to
a representative of the group or to an administrator of the insurance program, such as an employer.
The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise
falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to
the employees.
c. Industrial Life - shall mean that form of life insurance under which the premiums are payable either monthly or oftener,
if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory
minimum daily wage in the City of Manila, and if the words industrial policy are printed upon the policy as part of the
descriptive matter.
An industrial life policy shall not lapse for nonpayment of premium if such nonpayment was due to the failure of the company
to send its representative or agent to the insured at the residence of the insured or at some other place indicated by him
for the purpose of collecting such premium. This shall not apply when the premium on the policy remains unpaid for a
period of three (3) months or twelve (12) weeks after the grace period has expired. (Section 235, Insurance Code)
NON-LIFE INSURANCE:
a. Marine Insurance
i. Insurance against loss of or damage to:
1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys,
securities, choses in action, instruments of debts, valuable papers, bottomry, and respondentia interests and all
other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks
or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or
similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or
reshipment incident thereto, including war risks, marine builder’s risks, and all personal property floater risks;
MICROINSURANCE - is a financial product or service that meets the risk protection needs of the poor where:
a. The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed seven and a half
percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and
b. The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of the current daily minimum wage
rate for nonagricultural workers in Metro Manila.
VARIABLE INSURANCE - shall mean any policy or contract on either a group or on an individual basis issued by an insurance
company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results
of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with
such contracts shall have been placed and accounted for separately and apart from other investments and accounts.
This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both.
It shall not be deemed to be a security or securities as defined in The Securities Act, as amended, or in the Investment Company
Act, as amended, nor subject to regulations under said Acts
INSURABLE INTEREST
LIFE INSURANCE: that interest which the insurer is required to have in the person of the insured.
Every person who has an insurable interest in the life and health:
1. Of himself, of his spouse, and of his children;
2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
3. 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
4. Of any person upon whose life any estate or interest vested in him depends. (Sec. 10)
No Insurable Interest: Art. 2012 of the Civil Code provides that anyone who is forbidden from receiving any donation under
Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him
Creditor: may only insure the life of the debtor upto the amount of the debt. Such that if the debt has been paid prior to death,
the creditor can no longer recover.
However, if the debtor insures his own life for the benefit of the creditor, upon full payment of the debt, the insurance will inure
to the benefit of the debtor’s estate upon death.
Debt unenforceable or insolvency of the debtor: does not make the insurance unenforceable. The unenforceability and insolvency
of the debtor discharges only his “legal” obligation to pay, not the moral obligation to settle the debt.
Consent: of the person whose life is insured is not essential to the validity of an insurance taken by another as long as the
insured has a legal insurable interest at the inception of the policy.
PROPERTY INSURANCE: insurable interest in property is any interest therein, or liability in respect thereof, and it may consist
in:
1. An existing interest,
2. An inchoate interest founded on existing interest, or
3. Any expectancy coupled with an existing interest.
In general, a person has an insurable interest in the property, if he derives pecuniary benefit or advantage from its preservation
or would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has no title in, or lien upon, or
possession of the property. Hence, pecuniary interest over the property is always necessary.
Contractor of a Building: has an interest on the building he is required to deliver to the owner prior to such delivery, as a
requirement for collection.
IN PROPERTY IN LIFE
Limited to the actual value of the interest thereon Unlimited (save in life insurance effected by a creditor on
the life of the debtor)
Insurable interest exists when the insurance takes effect AND Insurable interest exists at the time the policy takes effect
when the loss occurs, but need not exist in the meantime and need not exist at the time of the loss
There must be a legal basis as to the expectation of the benefit Need not have such legal basis
Beneficiary must have insurable interest over the thing insured The beneficiary need not have insurable interest of the life
of the insured if the insured himself secured the policy.
Mortgagor: as owner, has an insurable interest to the extent of its value, even though the mortgage debt equals such value.
Mortgagee: has an insurable interest in the mortgaged property to the extent of the debt secured; such interest continues
until the mortgage debt is extinguished.
Loss Payable Mortgage Clause: the mortgagor secures an insurance over the property and designates the mortgagee as the
beneficiary (or assigns the policy of insurance to the 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
1. 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,
2. but any act which, under the contract of insurance which is to be performed by the mortgagor, may be performed by the
mortgagee. (Sec. 8, Insurance Code)
BENEFICIARY:
1. Property – must have insurable interest;
2. Life
a. If the insurance is taken by the insured on his own life, he may designate anybody as beneficiary even those without
insurable interest;
b. If the insurance is taken by a third person on the life of the insured, he must have insurable interest.
ASSIGNEE:
1. Property – must have insurable interest and the assignment must be with the consent of the insurer;
2. Life – the assignee need not have insurable interest.
General Rule: 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.
Exceptions:
1. a change of interest in the thing insured after the occurrence of an injury which results in a loss.
2. a change of interest in one or more of several distinct things, separately insured by one policy.
3. A change of interest by will or succession on the death of the insured
4. A transfer of interest by one of several partners, joint owners or owners in common, who are jointly insured, to the others.
5. 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.
When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not
merely suspended but avoided.
Consent: of the insurer is generally required, since the personal qualifications of the insured are considered by the insurer.
However, such consent is only necessary if there will be alienation of the property.
PERFECTION: A contract of insurance is a consensual contract which is perfected by the meeting of the minds between the
insured and the insurer. Thus, the Supreme Court in one case held that “[t]here can be no contract of insurance unless the
minds of the parties have met in agreement.” (Pilar De Lim vs. Sun Life Assurance Company of Canada, GR No. L-15774, Nov.
29, 1920)
In the usual course, it is the insured who will fill-up an application to be insured subject to the insured’s approval. The mere
submission of an application without the corresponding approval, even if no memorandum or rejection as provided, does not
result in a perfected contract of insurance. (Great Pacific Life Assurance Company vs. CA, GR No. L-31845, April 30, 1979)
PREMIUMS: this is the consideration paid by the insured to the insurer for undertaking the assumption of the risk covered by
the insurance contract.
As a general rule, there can be no binding contract of insurance if there is no payment of the premium, considering that it is
one of the elements of an insurance contract.
A NON-LIFE Insurance Policy may be CANCELLED by the insurer on the following ground:
1. Nonpayment of premium;
2. Conviction of a crime arising out of acts increasing the hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts or omissions increasing the hazard insured against;
5. Physical changes in the property insured which result in the property becoming uninsurable;
6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or
7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation
of this Code.
Note that under Section 28, each party to a contract of insurance must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has
not the means of ascertaining.
An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or
tending to prove the falsity of a warranty, entitles the insurer to rescind.
A representation may be oral or written and may be made at the time of, or before, issuance of the policy. (Section 36 and
37, Insurance Code)
If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind
the contract from the time when the representation becomes false. (Section 45, Insurance Code)
3. Breach of Warranty
A warranty may either be expressed or implied, and may relate to the past, the present, the future or to any or all of these.
(Sections 67 and 68, Insurance Code)
A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as fact, is an express warranty
thereof. (Section 71)
The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the
other to rescind. (Section 74)
Immaterial breaches: a breach of warranty that is immaterial generally does not avoid the contract of insurance except
when the parties stipulated that its breach will avoid the policy regardless of materiality.
LIFE INSURANCE:
1. If there is a maturity – immediately upon such maturity;
2. If the policy matures upon death – within 60 days after presentation of the claim and filing of the proof of the death of the
insured.
PROPERTY INSURANCE:
1. Ascertainment of loss is either by agreement or by arbitration – within 30 days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made;
2. If no ascertainment is made within 60 days after receipt of proof of loss – within 90 days after such receipt.
PRESCRIPTION:
1. In the absence of stipulation, 10 years.
2. However, the parties may validly agree on a shorter period provided it is NOT less than 1 year from the time the cause of
action accrues.
The cause of action accrues from the time of the final rejection of the claim and not from the time of loss. If there is a motion
for reconsideration, the one year period is to be counted from the date of first denial and not on the denial of the reconsideration.
If they agreed on a period of 1 year from the time the cause of action accrues, it shall be reckoned from the initial denial of the
claim and not on the resolution of the MR.
SUBROGATION: is a normal incident of indemnity property insurance as a legal effect of payment; it inures to the insurer
without any formal assignment or any express stipulation to that effect in the policy.
Such right is not dependent upon nor does it grow out of any privity of contract. Payment to the insured makes the insurer an
assignee in equity.
The rights of the insurer are those which are available to the insured at the time of payment.
CLAIMS:
1. Notice – must be given without undue delay. Otherwise, the insurer is exonerated;
2. Proof – the insurer may give the best evidence he has. Even if there is a stipulated requirement of proof, substantial
compliance thereof would suffice.
1. It is an agreement whereby one who undertakes, for a consideration, to indemnify another against loss,
damage, or liability arising from an unknown or contingent event.
A. Contract of sale C. Contract of pledge
B. Contract of insurance D. Contract of guaranty
2. He is the person whose loss is the occasion for the payment of the insurance proceeds by the insurer. He
must have the capacity to enter into a contract and he must not be a public enemy.
A. Insured C. Beneficiary
B. Assured D. Insurer
3. He is the person who assumes the risk of loss and undertakes for a consideration to indemnify the insured
upon the happening of the designated peril.
A. Insured C. Beneficiary
B. Assured D. Insurer
7. The contract of insurance is one of perfect good faith, not for the insured alone, but equally so for the insurer.
A. Uberrimae fides contract C. Risk distributing device
B. Contract of indemnity D. Aleatory
8. The insured is entitled to recover only the amount of total loss sustained, and the burden is upon him to prove
the amount of such loss.
A. Uberrimae fides contract C. Risk distributing device
B. Contract of indemnity D. Aleatory
10. Both the insured and insurer have reciprocal obligations of equal value to each other.
A. Contract of adhesion C. Voluntary
B. Personal D Synallagmatic
11. The risk of economic loss is distributed among a large group of people bearing the same risk.
A. Uberrimae fides contract C. Risk distributing device
B. Contract of indemnity D. Aleatory
12. The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event
which is uncertain. It does not depend upon some contingent event.
A. Uberrimae fides contract C. Risk distributing device
B. Contract of indemnity D. Aleatory
13. An insurance contract is a ready-made form of contract, which the other party may accept or reject, but which
the latter cannot modify.
A. Contract of adhesion C. Voluntary
B. Personal D. Synallagmatic
14. The law presumes that the insurer considered the personal qualification of the insured in approving the
insurance application. The insured cannot assign, before the happening of the loss, his rights under a property
policy without the consent of the insurer.
A. Contract of adhesion C. Voluntary
B. Personal D. Synallagmatic
15. A contract of insurance is not compulsory, and the parties may incorporate such terms and conditions as they
may deem convenient. This is allowed provided that they do not contravene any provision of law and are not
against public policy.
A. Contract of adhesion C. Voluntary
B. Personal D. Synallagmatic
16. Both the insured and insurer have reciprocal obligations of equal value to each other.
A. Contract of adhesion C. Voluntary
B. Personal D. Synallagmatic
20. In property insurance, the proceeds must be paid within ___ days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made.
A. 10 C. 50
B. 30 D. 100
1. B 6. C 11. C 16. D
2. A 7. A 12. D 17. C
3. D 8. B 13. A 18. B
4. C 9. C 14. B 19. C
5. D 10. D 15. C 20. B