INSURANCE

(PD 612, as amended by RA 10607)

Q:What is a contract of insurance?

ANS: 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.
Insurance is a risk-distributing device, a mechanism by which all
members of a group exposed to a particular risk contribute
premiums to an insurer. From these contributory funds are paid
whatever losses occur due to exposure to the peril insured against.
Q: What perils or risks may be insured against?

ANS: The following are the perils or risks that may be insured:
1. Any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest or
creates a liability against him. (Section 3).
2. A past event, provided the loss is unknown to both parties and
they expressly stipulated that prior loss is insured by the policy.
3. Contingent Liability. For example: Reinsurance.
Q: What may be the subject of an insurance contract?

ANS: Life, and property, whether real or personal, or any relation

thereto, or liability in respect thereof, or such nature that a
contemplated peril might directly damnify the insured
(INSURANCE CODE, Secs. 10 and 14).
 Q: Enumerate and discuss the classes of Insurance Contract
ANS: They are the following:
1. Fire Insurance - a contract by which the insurer for a consideration
agrees to indemnify the insured against loss of, or damage to,
property by hostile fire, including loss by lightning, windstorm,
tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate
policies (INSURANCE CODE, Sec. 169);
2. Casualty Insurance -It is an insurance covering loss or liability
arising from accident or mishap, excluding those falling under
other types of insurance such as fire or marine (INSURANCE
CODE, Sec. 176);
3. Suretyship -It is an agreement whereby a surety guarantees the
performance by the principal or obligor of an obligation or
undertaking in favor of an obligee (INSURANCE CODE, Sec.
177). However, a contract of suretyship shall be deemed to be an
insurance contract, within the meaning of the Code, only if made
by a surety who or which, as such, is doing an insurance business
(INSURANCE CODE, Sec. 2, (Par.2);
4. Marine Insurance -an insurance against risks connected with
navigation, to which a ship, cargo, freightage, profits or other
insurable interest in movable property, may be exposed during a
certain voyage or a fixed period of time. However, under the
present laws, it also covers inland marine insurance
(INSURANCE CODE, Sec. 101);
5. Life Insurance - an insurance on human lives and insurance
appertaining thereto or connected therewith (INSURANCE
CODE, Sec. 181).
It may be payable on the death of the person or on his surviving a
specified period or otherwise contingently on the continuance or
cessation of life (INSURANCE CODE, Sec. 182);
6. Compulsory Motor Vehicle Liability Insurance- provides for
coverage that will answer for legal liability for losses and damages
due tb protection bodily injuries and/or damage to property of a
third-party or passenger arising from the use and operation of motor
vehicle by its owner. The policy refers to a contract of insurance
against the passenger and third-party liability for death or bodily
injuries and damage to property arising from motor vehicle
accidents;
7. Microinsurance- an activity providing specific insurance-like
and other similar products and services that meet the needs of the
low-income sector for risk protection and relief against distress,
misfortune, and other contingent events (Insurance Memorandum
Circular No. 001-10, January 20, 2010).
Q: What is insurable interest?
ANS: In general an insurable interest is that interest which a person
is, deemed to have in the subject matter insured, where he has a
relation or connection with or concern in it such that the person will
derive pecuniary benefit or advantage from the preservation of the
subject matter insured and will suffer pecuniary loss or damage
from its destruction, termination, or injury by the happening of the
event insured against. The insurable interest need not always be
pecuniary in nature.
Q: What is the status of the insurance contract when the insured
has no insurable interest over the life or property he insures?

ANS: The insurance contract is considered unenforceable.

Moreover, if it can be established that the contract is really a
wager, the same can be considered void for being against public
policy.
Q: What is the measure of insurable interest in property?

ANS: The measure of insurable interest in property is the extent

to which the insured might be damnified by the loss or injury
thereof (INSURANCE CODE, Sec. 17).
Q: How is the existence of insurable interest in a property determined?

ANS: Insurable interest in property does not necessarily imply a

property interest in, or a lien upon, or possession of, the subject matter
of the insurance, and neither title nor a beneficial interest is requisite
to the existence thereof. It is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it
be injured or destroyed by the peril against which it is insured.
Anyone has an insurable interest in property when he derives a benefit
from its existence or would suffer loss from its destruction.
Q: What are some special cases with respect to insurable
interests?

ANS: The following are special cases:

1. In case of a carrier or depositary: a carrier or depository of any
kind has an insurable interest in a thing held by him as such, to
the extent of his liability but not to exceed the value thereof
(INSURANCE CODE, Sec.15).
2. In case of a mortgaged property - the mortgagor and mortgagee
may each have an insurable interest in the same property so
mortgaged and these interests are separate and distinct from the
other. Therefore, insurance taken by one in his name only and in
his favor alone does not inure to the benefit of the other.
a. As to the Mortgagor-As owner, has an insurable interest therein
to the extent of its value, even though the mortgage debt equals
such value. The reason is that the loss or destruction of the
property insured will not extinguish his mortgage debt.

b. As to the Mortgagee - His interest is only up to the extent of the

debt. Such interest continues until the mortgage debt is
extinguished.
3. In case of a property under a lease contract - the lessor cannot
validly be a beneficiary of a fire insurance policy taken by a
lessee over his merchandise, and the provision in the lease
contract providing for such automatic assignment is void for
being contrary to law and public policy (Cha v. CA, G.R. No.
124520, August 18, 1997).
Q: What is the insurable interest of the carrier and depositary in a
contract of carriage?

ANS: The carrier may be damnified by the loss of the goods

because he may be obligated to pay the shipper any damage to the
property. On the other hand, a depositary is obligated to take care
of the thing deposited and he can be made liable if the thing
deposited is damaged (AQUINO, Insurance, supra at 69).
Q: Distinguish Standard or Union Mortgage Clause from Open or
Loss Payable Mortgage Clause.
ANS: The distinctions are as follows:
Standard or Union Mortgage Clause
Subsequent acts of the mortgagor cannot affect the rights of the
assignee.
Reason: It is as if the insurer made a new and independent
contract with the mortgagee.
Open or Loss Payable Mortgage Clause

Acts of the mortgagor affect the mortgagee.

Reason: Mortgagor does not cease to be a party to the contract.

Q: What are the effects of loss payable clause?

ANS: The effects are the following (I-LARA):

1. The contract is deemed to be upon the Interest of the
mortgagor; hence, he does not cease to be a party to the contract;
2. In case of Loss, the mortgagee is entitled to the proceeds to the
extent of his credit.
3. Any act of the mortgagor prior to the loss, which would
otherwise Avoid the insurance affects the mortgagee even if the
property is in the hands of the mortgagee;
4. Upon Recovery by the mortgagee to the extent of his credit,
the debt is extinguished; and
5. Any Act, which under the contract of insurance is to be
performed by the mortgagor, may be performed by the
mortgagee with the same effect.
Q:What is double insurance?

ANS: Double insurance exists when the same person/property is

insured by several insurers separately, in respect to the same
subject and interest (INSURANCE CODE, Sec.95).
Q:What are the requisites of double insurance?

ANS: The requisites are the following:(TIR)

1. Two or more insurers insuring separately:
2. Same Insured person;
3. Same Risk or peril insured against.
Q:Is there a prohibition against double insurance under the
Insurance Code?

ANS: Double Insurance is not prohibited by law, unless the policy

declares that additional or other insurance clauses shall be avoided.
Nonetheless, it must be disclosed in order to prevent an increase in
the moral hazard; and to prevent over-insurance and fraud and thus,
avert the perpetration of fraud.
Q: What is the Additional or Other Insurance Clause?

ANS: This is a stipulation prohibiting the taking of another

insurance policy over the same property, upon the same subject
matter, and upon the same interest therein (Gonzalez La O v. Yek
Tong Lin Fire & Marine Insurance Co., Ltd., G.R. No.33131,
December 13, 1930).
This type of stipulation is lawful because a policy may declare that
a violation of a specified provision thereof shall avoid it
(INSURANCE CODE, Sec.75).
Q: What is over-insurance?

ANS: Over-insurance exists when the insured takes out an

insurance over the property insured in an amount which is in
excess of the value of his insurable interest.
Q: Distinguish Over-Insurance from Double Insurance .

ANS:The distinctions are as follows:

 Over-Insurance Double Insurance

As to Amount of Insurance

When the amount of the insurance There may be no over-insurance

is beyond the value of the as when the sum total of the
insured’s insurable interest. amounts of the policies issued
does not exceed the insurable
interest of the insured.
 As to Number of Insurers

There may only be one There are always several

insurer involved. insurers involved.
Q: What are the effects of over-insurance by double insurance?
ANS: The following are the effects: (CVU-ER)
1. The insured, unless the policy otherwise provides, may Claim
payment from the insurers in such order as he may select, up to
the amount for which the insurers are severally liable under their
respective contracts;
2. Where the policy under which the insured claims is a Valued
policy, the insured must give credit as against the valuation for
any sum received by him under any other policy without regard to
the actual value of the subject matter insured;
3. Where the policy under which the insured claims is an
Unvalued policy, he must give credit, as against the full insurable
value, for any sum received by him under any policy;

4. Where the insured receives any sum in Excess of the valuation

in the case of valued policies, or of the insurable value in the case
of unvalued policies, he must hold such sum in trust for the
insurers, according to their right of contribution among
themselves; and
5. Each insurer is bound, as between himself and the other
insurers to contribute Ratably to the loss in proportion to the
amount for which he is liable under his contract.
Q: What is the nature of the liability of the several insurers in double
insurance? Explain.(2005 Bar)

ANS: The nature of the liability of the several insurers in case of double
insurance is that each insurer is bound to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.
The ratable contribution of each insurer is determined using this
formula:
Liability of the Insurer = Amount of the Insurer's Policy x Value of Loss
Total Amount of Insurance taken by Insured
Q: What is reinsurance?

ANS: It is a contract by which the insurer procures a third person to

insure him against loss or liability by reason of an original insurance
(INSURANCE CODE, Sec.97). An original insured has no interest in
a contract of reinsurance (INSURANCE CODE, Sec 100).
A reinsurance is presumed to be a contract of indemnity against
liability, and not merely against damage (INSURANCE CODE, Sec
99). It is also called as "an insurance of an insurance”.
Q: What is Retrocession?

ANS: It is a transaction whereby the reinsurer, in turn passes to

another insurer a portion of the risk reinsured.
Q: Discuss the nature of contract of reinsurance?

ANS: A contract of reinsurance is:

1.Separate form original insurance policy-the contract of
insurance is independent of and separate from the contract of
reinsurance. The practice is for the reinsurer to pay the insurer
even before the latter has indemnified the original insured;
2. Contract of Indemnity against liability - in reinsurance, the
reinsurer agrees to indemnify the insurer, not against actual
payment but against liabilities incurred. Therefore, it is by no
means necessary that the insurer shall first have paid loss accruing
as a condition precedent to his demanding payment to the
reinsurer;
3. Insurable Interest in requirement applicable -the primary
insurer is not entitled to contract for reinsurance exceeding the
limits of the policy ceded to the reinsurer. Similarly, the reinsurer
cannot provide coverage for risks beyond the scope of the
coverage provided by the primary insurer;
4. Contract Based on the original policy- the reinsured risk must
be the same as that covered by the original insurance policy; and

5. Subrogation applicable - in general, a reinsurer, on payment of

a loss, acquires the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss (Id).
Q: Distinguish co-insurance from Reinsurance.(1994 Bar)

ANS: Reinsurance is where the insurer procures a third party,

called the reinsurer, to insure him against liability by reason of
such original insurance. A reinsurance is an insurance against
liability which the original insurer may incur in favor of the
original insured (INSURANCE CODE,Sec.97).
Co-insurance exists when a condition of the policy requires the
insured to bear ratable proportion of the loss when the value of the
insured property exceeds the face value of the policy. Co-insurance
may also exist where the same person is insured by several insurers
separately in respect to the same subject and interest there is double
insurance under our statute. The situation is also sometimes
described in the texts and cases as concurrent insurance, additional
or other insurance, or co-insurance (General Insurance & Surety
Corporation v Ng Hua. G.R. No.L-14373,January 30.1973) .
Q:Distinguish Double Insurance from Reinsurance.

ANS:The distinctions are as follows:

 Double Insurance Reinsurance
As to Interest

Involves the same interest Involves different interest

As to Subject

Subject of insurance is property Subject of insurance is the original

insurer's risk.
 As to Insurer

Insurer remains in such capacity or Insurer becomes the insured in

as the insurer of the original relation to reinsurer.
insured.

As to Insured

Insured is the party in interest in Original insured has no interest in

the two insurance contracts. the reinsurance contract
 As to Insured’s Consent

Insured has to give his Insured's consent is not

consent. necessary.
Q:What are the liabilities of the reinsurer as to the reinsured and
to the original insured?

ANS: The liabilities of the reinsurer are as follows:

1. As to the reinsured- The reinsurer is not liable to the reinsured
for a loss under an original policy if the latter is not liable to the
original insured or for an amount more than the sum actually paid
to the insured.

Note: The reinsurer is entitled to avail itself of every defense which

the reinsured might urge in an action by the person originally insured
(Gibson v Revilla, G.R. No. 1-41432,July 30,1979).
2. As to the original insured - the original insured may stand in
three (3) relations toward the reinsurer in accordance with the
terms of the particular contract of insurance:
a. Contract of reinsurance solely between insurer and reinsurer-
the original insured has absolutely no interest in the contract and a
total stranger to it. Unless the reinsurance contract contains a
stipulation assigning the right of the insurer in favor of the
insured, the latter not being privy to the contract, has no cause of
action against the reinsurer, but only against the insurer.
b. Contract of reinsurance with stipulation in favor of original
insured - the contract of reinsurance may contain a provision
whereby the reinsurer binds himself to pay to the policyholder
any loss for which the insurer may become liable; and
c. Contract of reinsurance amounting to novation or original
contract - the original insured may also maintain an action
directly against the reinsurer in those cases in which the
circumstances attending the making of the contract of reinsurance
amount to novation of the original contract.
Q:What are the methods of ceding reinsurance?

ANS:The following are the methods:

1. Automatic Reinsurance- the reinsured is bound to cede and the

reinsurer is obligated to accept a fixed share of the risk which has
to be reinsured under the contract.
2. Facultative Reinsurance- there is no obligation to cede or
accept participation in the risk each party having a free choice.
But once the share is accepted, the obligation is absolute and the
liability assumed thereunder can be discharged by payment of
share of losses (Equitable Ins.& Casualty Co. Inc. vs. Rural Ins. &
Co., Inc. G.R. No.L-17436, January 31, 1962).
Q: What is the “No Fault Clause”?

ANS: Any claim for death or bodily injuries sustained by a passenger

or third party under a Compulsory Motor Vehicle Liability Insurance
(CMVLI) policy shall be paid without the necessity of proving fault or
negligence of any kind provided the total indemnity in respect of any
person shall be fifteen thousand pesos for all motor vehicles
(INSURANCE CODE, Sec. 391).
Q: What are the rules governing claims under the “no fault”
clause?

ANS: They are as follows:

1. The total indemnity in respect of any person shall not be less

than Fifteen thousand pesos (P15,000.00);
2.The following proofs of loss, when submitted under oath, shall
be sufficient evidence to substantiate the claim:
a. Police report of accident; and
b. Death certificate and evidence sufficient to establish the proper
payee: or
c. Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed;
3. Claim may be made against one motor vehicle only. In the case
of an occupant of a vehicle, claim, shall lie against the insurer of
the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. In all cases, the right of
the party paying the claim to recover against he owner of the
vehicle responsible for the accident shall be maintained
(INSURANCE CODE, Sec. 391).
Q: What is the liability of the insurer in a life insurance in case
the insured commits suicide?
ANS: The insurer is liable in the following cases:
1.If the suicide is committed 2 years after the date of the policy's
issue or its last reinstatement; or
Note: Any stipulation extending the 2-year period is null and void
(Tan v. Court of Appeals, G.R. No. 48049, June 28, 1989).
2. If the suicide is committed after a shorter period provided for in
the policy; or

3. If the suicide is committed in a state of insanity regardless of

the date of the commission unless suicide is an excepted peril
(INSURANCE CODE, Sec.183).
Q:Is the insurer liable in case the death was sanctioned by law
(e.g. by legal execution)?

ANS: Yes, it is one of the risks assumed by the insurer under a life
insurance policy, unless there is a valid policy exception.
Q: Who shall receive the life insurance proceeds when the
beneficiary is the principal, accomplice or accessory in willfully
bringing about the death of the insured?

ANS: The share forfeited shall pass on to the other beneficiaries,

unless otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in accordance with the
policy. If the policy is silent, the proceeds shall be paid to the
estate of the insured (INSURANCE CODE, Sec. 12).
Exception: Although the law used the word willfully, it is a condition
that the act must also be felonious. Invocation of the common law rule
requires proof of the beneficiary's intent to kill the victim. But what
was interesting about this rule is that it did not require the conviction
of the crime to bar recovery. The civil standard of liability rather than
the criminal standard of guilt is what is required. Thus, if the death of
the insured was not made by the beneficiary in a willful manner but
through reckless imprudence or with the presence of justifying
circumstances, he does not forfeit his right over the proceeds.
Q: What is the Incontestability Clause?
ANS: The “incontestability clause" under Sec. 48 of the Insurance
Code provides that an insurer is given 2 years from the effectivity of a
life insurance contract and while the insured is alive to discover or
prove that the policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or his
agent. After the two-year period lapses, or when the insured dies
within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or
misrepresentation.
Note: The period of 2 years for contesting a life insurance policy
by the insurer may be shortened but it cannot be extended by
stipulation (Tan v. CA, G.R. No. 48049,June 28, 1989).
Q: What are the requisites for incontestability?

ANS: The following requisites must be present: (LiP-2)

1. It must be a Life Insurance policy;
2.It must be Payable on the death of the insured;
3. It must be in force during the lifetime of the insured for at least
two (2) years from its date of issue or of its last reinstatement
(INSURANCE CODE, Sec. 48).
Q: What is the effect when the policy becomes incontestable?

ANS: When a policy of life insurance becomes incontestable, the

insurer may not refuse to pay the same by claiming that:
1. The policy is void ab initio;
2. It is rescissible by reason of the fraudulent concealment of the
insured or his agent, no matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent representation of the
insured or his agent.
Q: What are the defenses not barred by incontestability clause?

ANS: The defenses are the following: (FAB-P²C²)

1. That the Fraud is of a particular vicious type;
2. That the Action was not brought within the time specified;
3. That the Beneficiary failed to furnish proof of death or to
comply with any conditions imposed by the policy after the loss
has happened;
4. That the Person taking the insurance lacked insurable interest
as required by law;
5. That the Premiums have not been paid;
6. That the Cause of the death of the insured is an excepted risk;
and
7. That the Conditions of the policy relating to the military or
naval service have been violated (ld.).
Q: What are the instances in which the incontestable clause is
inapplicable?

ANS: The incontestable clause cannot be invoked in the following

cases:(PWP)
1. Non-payment of Premium;
2. Violation of the conditions of the policy relating to military or naval
services in times of War; and
3. Property Insurance.
Q: What are the elements of a contract of insurance?

ANS: The elements are the following:(PARIS)

1. Payment of Premium -in order that an insurance policy be valid

and binding, actual payment of the premium (consideration) must
be made (INSURANCE CODE,Sec.77);
2. Assumption of risk - the insurer undertakes to indemnify the
insured against loss, damage, or liability (INSURANCE CODE,
Sec.2);

3. Risk of loss-the happening of designated events, either

unknown or contingent, past or future, will subject the insured to
some kind of loss, whether in the form of injury, damage or
liability;
4. Insurable interest- public policy requires an insurable interest to
prevent wagering under the guise of insurance; and

5. Scheme to distribute the losses - an insurance contract is a

risk-spreading device; that is to distribute the actual losses among
a large group of persons bearing a similar risk.
Q: State the characteristics of an insurance contract. (RAPE-
ACU2)
ANS: The characteristics of an insurance contract are:

1. Risk Distributing Device-the device of insurance serves to

distribute the risk of economic loss among, as many as possible,
those who are subject to the same kind of risk.
2. Aleatory- a contract wherein one of the parties or both
reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to occur at
an indeterminate time (CIVIL CODE, Art. 2010).
3.Personal- the law presumes that the insurer considered the
personal qualifications of the insured in approving the insurance
application.
4. Executory - the contract is executory to the insurer and subject
to the conditions, the principal one of which is the happening of
the event insured against.
5.Contract of Adhesion or Fine Print Rule - most of the terms of
the contract do not result from mutual negotiations between the
parties as they are prescribed in printed form to which the insured
may adhere if he chooses to but which he cannot change.
6. Consensual - the contract is perfected by mere consent without
the need of delivery or any formality
Conditional - it is dependent upon the happening of the principal
condition and other conditions, if any, which must be complied
with as precedent to the right of the insured to claim proceeds.
7. Uberrimae Fidei Contract - both parties must not only perform-
their obligations in good faith but must avoid materiaI
concealment or misrepresentations as contracts of insurance are
one of utmost good faith.

8. Unilateral-upon payment of the premium, the insurer has the

obligation to pay the proceeds of the insurance in case of loss.
Q: Who are the parties to a contract of insurance?

ANS: The following are the parties:

1.Insurer - party who assumes 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.
Note: Under the Code, the business of insurance may now be
carried only by corporations, partnerships, and associations.
Individuals are no longer included in the term insurer.
2.Insured - the party who is indemnified against, or is to receive a
certain sum upon the happening of a specified contingency or
event.

Note: The insured is not, however, always the person to whom the
proceeds are paid. This person may be the beneficiary designated
in the policy.
Q. Who is the beneficiary?

ANS: A beneficiary is one for whose name or for whose benefit

the insurance proceeds shall be applied exclusively
(INSURANCE CODE,Sec.53).
Q: Who are disqualified from being designated as beneficiaries?

ANS: The following cannot be designated as a beneficiary of a

contract of insurance:
1.Any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy and
by cannot make any donation to him, according to said article (CIVIL
CODE,Art.2012).
Such persons are the following:
a. Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
b. Those made between persons found guilty of the same criminal
offense, in consideration thereof; or
c. Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
2. Public Enemy
Note: The Insurance Code does not expressly prohibit a public
enemy from being a beneficiary of a contract of insurance.
However, well-established is the principle that what cannot be
done directly cannot be done indirectly. Thus, if a public enemy
were designated as a beneficiary in order to circumvent the
prohibition on instituting a public enemy as an insured, the same
is void.
Q: Do rebels/insurgents fall under the definition of “public
enemy?”

ANS: No, A public enemy is a citizen or national of a country

with which the Philippines is at war.
Q: May a member of the MILF or its breakaway group, the Abu
Sayyaf, be insured with a company licensed to do business under
the Insurance Code of the Philippines? Explain. (2000 Bar)

ANS: A member of the MILF or the Abu Sayyaf may be insured

with a company licensed to do business under the Insurance Code
of the Philippines. They can be insured because the prohibition is
only against a public enemy (INSURANCE CODE, Sec.7).
Q: How is an insurance contract perfected?

ANS: Since it is consensual, an insurance contract is perfected by

the meeting of the minds of the parties with respect to the object
and consideration of the contract(CIVIL CODE, Art. 1319).
Q: Is the absence of policy fatal to the perfection of an insurance
contract?

ANS: No, absence of a policy does not bar the contract from
coming into existence. An insurance contract is a consensual
contract. It is perfected by mere consent and no formality is
required for its perfection.
However, as mandated by law, the policy must be in printed form
(INSURANCE CODE, Sec.50).
Q: What are the Rights of the Insurer?

ANS: The rights of an insurer in a contract of insurance are: (DR-

PECS)
1. Right to receive Payment of the premium(INSURANCE
CODE,Sec.77).
2. Right to Deny the reinstatement of a lapsed policy;
3. Right to Rescind for just cause;
4. Right to Cancellation of a non-life Policy;

5. Right to be Exonerated from a loss resulting from fraud or

connivance; and

6.Right to Subrogation to the right of action of the insured against

the cause of the latter's loss or injury.
Q:When is the insurer entitled to the payment of premium?

ANS: The insurer is entitled to the payment of the premium as

soon as the thing insured is exposed to the peril insured against
(INSURANCE CODE, Sec. 77).
Q: What is the rule on payment of premium?

ANS: As a general rule, no insurance policy issued or renewed is

valid and binding until actual payment of the premium. Any
agreement to the contrary is void (INSURANCE CODE, Sec. 77).
This rule is commonly called the Cash and Carry Rule (DE
LEON, Insurance, supra at 256).
Q:What are the exceptions to the Cash and Carry Rule?

ANS: As summarized by the Supreme Court, the exceptions are

as follows: (LACIE)
1.In case of Life or industrial life policy, whenever the grace
period provision applies;
2.Where the insurer Acknowledged in the policy or contract of
insurance itself the receipt of premium, even if premium has not
been actually paid;
3.Where the insurer granted the insured a Credit term for the
payment of the premium, and loss occurs before the expiration of
the term;

4.Where the parties agreed that premium payment shall be in

Installments and partial payment has been made at the time of
loss; and
5.Where the insurer is in Estoppel (Gaisano v. Development
Insurance and Surety Corporation, G.R. No. 190702, February
27,2017,citing UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc., G.R. No. 137172 (Resolution), April 4, 2001).
Q: Is credit extension allowed under the Insurance Code?

ANS: Yes. A 90-day credit extension may be given under the

broker and agency agreements with duly licensed intermediaries.
The requisites are as follows:
1. The credit extension must be provided for under the broker and
agency agreements; and

2. The credit extension to a duly licensed intermediary should not

exceed ninety (90) days (INSURANCE CODE, Sec. 77).
Q: What is the effect of acknowledgment of receipt of premium in a
policy?
ANS: It is conclusive evidence of its payment, in so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid (INSURANCE CODE,
Sec. 79).
The conclusive presumption extends only to the question as to the
binding effect of the policy. As far as the payment of the premium
itself is concerned, the acknowledgment is only a prima facie evidence
of the fact of such payment.
 Q: Discuss the concept of reinstatement of a lapsed policy of life
insurance.

ANS : A life insurance policy which has lapsed for non-payment

pf premiums may be reinstated within three (3) years from default
unless the cash surrender value has been duly paid, or the
extension period has expired (INSURANCE CODE Sec.233(j)).
The reinstated of the policy is made upon production of evidence
of continued insurability and upon payment of all overdue
premiums and any indebtedness to the company upon said policy,
with interest rate not exceeding that which would have been
applicable to said premiums and indebtedness (INSURANCE
CODE Sec. 233(j)).
Q: Does the insured in a life insurance policy have an absolute right to
reinstatement?
ANS: No. The stipulation in a life insurance policy giving the insured
the privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of an
application. The insurer has the right to deny the reinstatement if it is not
satisfied as to the insurability of the insured or if the latter does not pay
all overdue premium and all other indebtedness to the insurer (Andres v.
The Crown Life Insurance Company, G.R. No. L-10874, January 28,
1958).
Q:When can the insurer rescind the contract of insurance?

ANS: The insurer has the right to rescind for the following just
causes:
1. breach of material warranty;
2. false material representation or material misrepresentation
3. breach of conditional subsequent;
4. alteration; and
5. concealment (DE LEON, Insurance, supra at 171).
Q: Must concealment be intentional on the part of the insured to
entitle the insurer to rescind?

ANS: No. Concealment whether intentional or unintentional

entitles injured party to rescind a contract of insurance
(INSURANCE CODE, Sec. 27).
Q: May an insurer cancel a life insurance policy as a matter of
right?

ANS: No. The insurer only has the right to cancel a policy of
insurance other than life insurance. (INSURANCE CODE, Secs.
64-65)
Q: Will an insurer be liable for a risk caused by the own fault of
the insured?

ANS: No. As a general rule the insured, or of the insurance

agents, or others (INSURANCE CODE, Sec.89);
Q: Is suicide treated as a circumstance exonerates the insurer in a
life insurance?

ANS: Yes, suicide by the insured may exonerate the insurer,

unless the suicide was:
1.Committed 2 years after the date of the policy's issue or its last
reinstatement;

2. Committed after a shorter period provided for in the policy; or

3.Committed in a state of insanity regardless of the date of the

commission unless suicide is an excepted peril (INSURANCE
CODE, Sec. 183).
Q: What is the statutory basis of an insurer's right to be
subrogated to the rights of the insured?

ANS: 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 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
(C/VIL CODE, Art. 2207).
Q: Discuss the Principle of Subrogation?

ANS: Subrogation is the substitution of one person in the place of

another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt
or claim, including its remedies or securities. (Sulpicio Lines, Inc.
v. First Lepanto-Taisho Insurance Corporation, G.R. NO. 140349,
June 29, 2005).
Accordingly, in subrogation,
1. There is no need of a formal assignment or an express
stipulation in the policy. It is the legal effect of payment.

2.The insurer can only recover from the third person what the
insured could have recovered. There can be no recovery if the
insurer voluntarily paid even if the loss is not covered by the
policy.
3.The insured can no longer recover from the offending party
what was paid to him by the insurer but he can recover any
deficiency, that is, if his damages is more than what was paid. The
deficiency is not covered by the right of subrogation.

4.The insurer must present the policy as evidence to determine the

extent of its coverage (Wallen Phil. Shipping, Inc. v Prudential
Guarantee assurance, Inc. G.R. No. 152158, February 7,2003).
Q: When will subrogation take place?

ANS: The following requisites must concur: (CLIP)

1. The indemnity is Covered by the face value of the policy;
2. There is a Loss arising from the risk insured against;
3. The insured received Indemnity from the insurer for the loss; and
4. The insurance involved is Property insurance.
Q: Give examples of cases when the insurer will not have right of
subrogation despite payment to the insured.

ANS: Some examples of situations where no right to subrogation

arises are:
1. Where the insurer pays the insured for a loss or risk not
covered by the policy . (Sveriges Angfartygs Assurans Forening
vs Qua Chee Gan, G.R.NO. L- 22146,September 5, 1967);

2. When the insured by his own act releases the wrongdoer/third

person liable for the loss (Pan Malayan Insurance Corporation v.
CA,G.R. NO.81026,April 3, 1990);
3. When life insurance is involved (CIVIL CODE, Art. 2207);

4. For recovery of loss in excess of insurance coverage(id.)

5. Where the insurer pays the insured the value of the lost goods
without notifying the carrier who has in good faith settled the
insured's claim for loss;
Q: What are the obligations of the insurer under the contract of
insurance?
ANS: The insurer has the following obligations under the contract
of insurance:
1. Duty to accept the contract of insurance;
2. Duty to deliver the policy to the insured upon acceptance;
3. Duty to promptly pay the benefits of the policy;
4. Duty to return premiums paid under certain conditions.
Q: What is the effect in case there is a delay in acceptance?

ANS: No. An insurance contract is not perfected in case there is

only an offer to enter into an insurance contract in the form of an
insurance application; mere delay by the insurer, although
unreasonable, in acting upon the application raises no implication
of acceptance.
Q: What is the liability of an insurer for delay in payment of a
claim?

ANS: The Insurer shall be liable for refusal or failure to pay the
interest twice ceiling the within the time prescribed by the
Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent (INSURANCE CODE,
Sec. 248 and 249).
Q: When must a just claim on a life insurance contract be paid?

ANS: A just claim on a life insurance contract must be paid in the

following periods:
1. Immediately upon maturity;

2.As installments or annuities become due, in case proceeds are

made payable by installments or as annuities under the policy;

3. Within sixty (60) days from presentation of the claim and

filling of the proof of the death of the insured in case the policy
matures upon the death of the insured. (INSURANCE CODE,
Sec. 248).
Q: When must a just claim on a non-life insurance policy be paid?

ANS: A just claim on a non-life insurance policy must be paid

within the following periods:
1.Thirty (30) days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration;

2. Ninety (90) days after receipt of the proof of loss if no such

ascertainment of loss is made within sixty (60) days after the
receipt of such proof (INSURANCE CODE, Sec. 249).
Q: When does the duty of the insurer to return premiums arise?

ANS: An insurer must return premiums paid when:

1.No part of the interest of the insured in the thing insured is

exposed to any of the perils insured against;
2. The insurance is made for a definite period of time and the
insured surrenders his policy, with respect to such portion of the
premium as corresponds with the unexpired time, at pro rata rate,
unless a short period rate has been agreed upon and appears on
the face of the policy, after deducting from the whole premium
any claim for loss or damage under the policy which has
previously accrued (INSURANCE CODE, Sec.80).
Q: What are the rights of the insured in an insurance policy?

ANS: The insured has the following rights under an insurance

policy.
1. Right to the delivery of the policy;
2. Right to reinstatement of lapsed policy upon proper
application;
3. Right to prevent forfeiture of a life insurance policy
4. Right to receive refund of premium;

5. Right to change the beneficiary he designated in the policy;

6. Right to abandonment; and

7. Right to recover damages in case of delay in payment of

proceeds.
Q: Why is the delivery of the policy important?

ANS: It is evidence of the making of the contract and of its terms

and as communication of the insurer's acceptance of the insured's
offer. Also, the delivery may affect the term of the coverage.
Q:What are the effects of delivery of policy?

ANS: It would depend on the following circumstances:

1. Where delivery is conditional - non-performance of the

condition precedent prevents the contract from taking effect
(Argente v. West Coast Life Ins. Co., G.R. No.L-24899,March 19,
1928).
2. Where delivery is unconditional - it ordinarily consummates
the contract and the policy as delivered becomes the final contract
between the parties (44 C.J.S.1069).

3. Where premium still unpaid after unconditional delivery - the

policy will lapse if the premium is not paid, at the time and in the
manner specified in the policy.
Q: When may the insured demand the reinstatement of a lapse life
insurance policy?

ANS: The insured shall have the right to have the policy
reinstated at any time within 3 years from the date of default of
premium payment provided that:
1. The insured produces of evidence of continued insurability.

2.The insured pays all overdue premiums and any indebtedness to

the company upon said policy, with interest rate not exceeding
that which would have been applicable to said premiums and
indebtedness (INSURANCE CODE, Sec.233(j)).
Q. What are the devices used to prevent the forfeiture of a life
insurance after the payment of the first premium?

ANS: The devices are the following: (GRACE-P)

1. Grace period-after the payment of the first premium, the insured is
entitled to a grace period of 30 days within which to pay the
succeeding premiums.

2. Reinstatement - the holder of the policy shall be entitled to a

reinstatement of the contract at any time within 3 years from the date
of default in the payment of premium, unless the cash surrender value
has been paid, or the extension period expired, upon production of
evidence of insurability satisfactory to the company and the payment
of all overdue premiums and any indebtedness to the company upon
said policy.
3. Automatic Loan Clause - a stipulation in the policy providing
that upon default in payment of premium, the same shall be paid
from the loan value of the policy until that value is consumed. In
such a case, the policy is continued in force as fully and
effectively as though the premiums had been paid by the insured
from funds derived from other sources.
4. Cash Surrender Value-the amount the insurer agrees to pay to the
holder of the policy if he surrenders it and releases his claim upon
it.

5. Extended Insurance Where the insurance originally contracted for

is continued for such period as the amount available therefore will
pay when such is terminated. In such case,the insurance will be for
the same amount as the original policy but for a period shorter than
the period in the original contract.
6. Paid Up Insurance- no more payments are required, and consist
of insurance for life in such an amount, as the sum available
therefore, considered as a single and final premium. It results to a
reduction of the original amount of insurance,but for the same
period originally stipulated (PEREZ, Reviewer on Insurance,
Insolvency and Code of Commerce.(2000))[hereinafter,PEREZ,
Reviewer].
Q: When can the insured receive whole or pro rata refund of
premiums paid?

ANS: The insured is entitled to:

1.Whole (NV-VDR)
a. If the thing insured was Never exposed to the risks insured
against (INSURANCE CODE,Sec.80);
b. If contract is Voidable due to fraud or misrepresentation of the
insurer or his agents (INSURANCE CODE, Sec. 82);
c. If contract is Voidable because of the existence of facts of
which the insured was ignorant without his fault (INSURANCE
CODE, Sec.82);
d. When by any Default of the insured other than actual fraud, the
insurer never incurred liability (INSURANCE CODE, Sec. 82);
and
e. When Rescission is granted due to the insurer's breach of
contract (INSURANCE CODE, Sec. 74).
2.Pro rata (DODS)

A. When the insurance is for a Definite period and the insured

surrenders his policy before the termination thereof;
B. Except:
i. If policy is not made for a definite period of time;
ii. A short period rate is agreed upon;
iii. It involves a life insurance policy
C. When there is Over-insurance;

D. In case of over-insurance by Double insurance, the insurer is

not liable for the total amount of the insurance taken, his liability
being limited to the property insured. Hence, the insurer is not
entitled to that portion of the premium corresponding to the
excess of the insurance over the insurable interest of the insured;
E. In case of over-insurance by Several insurers, the insured is
entitled to a ratable return of the premium, proportioned to the
amount by which the aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk (INSURANCE
CODE, Sec. 83).
Q: When may the policy owner change the beneficiary designated in
his policy?

ANS: The designation of a beneficiary shall be revocable unless

otherwise provided in the policy. Thus, the policy owner may change
the designation without the consent of such beneficiary. However,
when the right to change is expressly waived, that is-when the
beneficiary is designated as irrevocable-the consent of the beneficiary
shall be necessary (INSURANCE CODE, Sec. 11).
However, in a subsequent marriage declared void by the recording
of an affidavit of reappearance, the innocent spouse may revoke
the designation of the subsequent spouse as beneficiary, if such
subsequent spouse acted in bad faith, even if such designation be
stipulated as irrevocable (FAMILY CODE, Art. 43, par. (4)).
Q: What is Abandonment?

ANS: Abandonment is the act of the insured by which, after a

constructive total loss, he declares the relinquishment to the
insurer of his interest in the thing insured (INSURANCE CODE,
Sec. 140).
Q: What damages may the insured recover in case of delay in
payment of the insurer proceeds?

ANS: In case of unreasonable delay/denial in the payment of the

insured’s claim by the insurer. The Insured can recover the
following damages:
1.Interest at double the legal interest fixed by the monetary board
(INSURANCE CODE, Sec.248);
2. Attorney's fees;
3. Amount of claim; and
4. Expenses incurred by reason of the unreasonable with holdings
(INSURANCE CODE,Sec.250).
Q: What are the rights of the beneficiary under a contract of
insurance?

ANS: The beneficiary of a contract of insurance has thefollowing

rights.

1. Right to receive the proceeds of the insurance policy

2. Right not to be deprived the benefits of the policy in case of a
irrevocable beneficiary (INSURANCE CODE, Sec. 11).

a. An irrevocable beneficiary has a right to continue the policy by

paying the premiums that are due if the insured refuses payment;
b.The insured cannot assign the policy if the designation of the
beneficiary is irrevocable. The irrevocable beneficiary has a
vested right.
c. The insured cannot revoke the designation of an irrevocable
beneficiary without the consent of such beneficiary, except where
the beneficiary is the guilty spouse of an insurance owned by the
innocent spouse upon finality of annulment of marriage or legal
separation (FAMILY CODE, Art. 63).
Q: What may a beneficiary not do under a contract of insurance?

ANS: The beneficiary has the duty not to willfully bring about the
death of the insured. The interest of a beneficiary in a life
insurance policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing about the
death of the insured (INSURANCE CODE, Sec. 12).
Q: What are the grounds for rescission of an insurance contract?
ANS: The grounds are the following:(PCo-FM-IPO-C²W)

1. Non-payment 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 property insured;
7.Determination by the Commissioner that the continuation of the
policy would violate or would place the insurer in violation of this
Code (INSURANCE CODE, Sec. 64);

8. When the Concealment (INSURANCE CODE,Sec.27)

9. There is a breach of material Warranty (INSURANCE CODE,

Sec. 74).
Q:When must the insurer exercise the right to rescind the contract
in a non-life policy?

ANS: The insurer must exercise the right to rescind the contract
before the commencement of an action on the contract
(INSURANCE CODE, Sec. 77).
Q:What is concealment?

ANS: It is the neglect to communicate that which a party knows

and ought to communicate (INSURANCE CODE, Sec. 26). A
concealment whether intentional or unintentional entitles the
injured party to rescind a contract of insurance (INSURANCE
CODE, Sec. 27).
Q: When is there concealment?

ANS: There is concealment when the following are present: (N-DNA)

1. A party knows a material fact which he Neglects to
communicate or disclose to the other party;
2. Such party concealing is Duty bound to disclose such fact to
the other party;
3. Such party concealing makes No warranty as to the fact
concealed; and

4. The other party has no means of Ascertaining the fact

concealed (Florendino v. Philam Plans, Inc., G.R. No. 186983,
February 22, 2012).
Q: What is the Test of Materiality?

ANS: Materiality is determined not by the event, but solely by the

probable and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate of the
advantages of the proposed contract, or in making his inquiries
(INSURANCE CODE, Sec. 31). It is sufficient if the knowledge of
it would influence the parties in making the contract.
Q: What are the matters that need not be disclosed?

ANS: Except in answer to inquiries of the other, parties to a

contract of insurance is not bound to communicate information of
the following matters:(OWKE²)
1.Those which, in the exercise of ordinary care, the other Ought to
know and of which, the former has no reason to suppose him
ignorant;
2. Those of which the other Waives the communication;
3. Those which the other already Knows;
4. Those which prove or tend to prove the existence of a risk
Excluded by a warranty, and which are not otherwise material; and
5. Those which relate to a risk Excepted from the policy and which
are not otherwise material (INSURANCE CODE, Sec. 30).
Q: What are the matters that must be disclosed even in the
absence of inquiry?

ANS: The matters to be disclosed despite the absence of an

inquiry are: (NoMaD)
1. Those which the other has No means of ascertaining
(INSURANCE CODE, Secs. 30, 32, and 33);

2.Those Material to the contract (INSURANCE CODE, Secs.

31,34,35);and

3.Those as to which the party with the Duty to communicate

makes no warranty (INSURANCE CODE, Secs. 67-76).
Q: What are the rules on concealment?

ANS: The rules are the following:

1.It there is concealment under Sec. 27,the remedy of the insurer
is rescission (INSURANCE CODE, Sec. 29);
2. The party claiming the existence of concealment must prove
that there was knowledge of the fact concealed on the part of the
party charged with concealment;
3. Good faith is not a defense in concealment.
Concealment, whether intentional or unintentional entitles the
injured party to rescind the contract of insurance (INSURANCE
CODE,Sec.27);

4. The matter concealed need not be the cause of the loss;

5. To be guilty of concealment, a party must have knowledge of
the fact concealed at the time of the effectivity of the policy; and

6.Failure to communicate information acquired after the

effectivity of the policy will not be a ground to rescind the
contract.
Q: What is representation?

ANS: Representation is a statement made by the insured at the

time of, or prior to, the issuance of the policy (INSURANCE
CODE, Sec. 37) as to an existing or past fact or state of facts, or
concerning a future happening, to give information to the insurer
and otherwise induce him to enter into the insurance contract.
Q: What are the kinds of representations?

ANS: The kinds of representations are the following: (APO)

1. Affirmative-involves statements affirming or supporting facts
existing at the time the contract is made;
2. Promissory-pertains to statements made by the insured concerning
what is to happen at some material time after the statement is made;
and
3. Oral or Written (INSURANCE CODE, Sec. 36)
Q: When is there misrepresentation?

ANS: There is misrepresentation when the insured makes

erroneous statements of facts with the Intent of inducing the
insurer to enter into the insurance contract. The following are the
requisites:(UKM)
1. The insured stated a fact which is Untrue;

2. Such fact was stated with Knowledge that it is untrue and with
intent to deceive or which he states positively as true without
knowing it to be true and which has a tendency to mislead; and

3. Such fact in either case is Material to the risk (43 Am. Jur. 2d
1019).
Q: When and how misrepresentation is made?

ANS: Misrepresentation may be oral or written the date of the

effectivity material. Only misrepresentations made before the
effectivity of the policy renders the contract defective. In other
words, misrepresentations made after the the policy is effective
have no bearing.
Q: What are the effects of misrepresentation?
ANS: The effects are the following: (RWaN)

1. The injured party is entitled to Rescind the contract from the

time when the representation becomes false (INSURANCE
CODE, Sec. 45).
2.When the insurer accepted the payment of premium with the
knowledge of the ground for rescission, there is a Waiver of such
right.

3.There is no waiver of the right of rescission if the insurer had

No knowledge of the ground therefore at the time of acceptance
of premium payment (Stokes v.Malayan Insurance Co., Inc.,G.R.
No.L-34768,February 24,1984).
Q: What are the instances in which the injured party cannot
rescind the policy on the ground of false representation.

ANS: Based on Section 48 and second sentence of Section 45 the

injured party cannot rescind the policy on the ground of false
representation in the following cases:
1. When there is waiver;

2. When an action has already been commenced on the contract;

and

3. When the incontestable clause applies.

Q: What is a warranty?

ANS: A warranty is a statement or promise set forth in the policy,

or by reference incorporated therein, the untruth or non-
fulfillment of which in any respect, and without reference to
whether the insurer was in fact prejudiced by such untruth or non-
fulfillment, renders the policy voidable by the insurer (Prudential
Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, G.R.
No. 151890, June 20, 2006)
Q: What are the kinds of warranty?

ANS: The kinds of warranties are the following:

1. Express-on that is stated in the policy or any of its attachments;
2. Implied - a natural element of the contract imposed by law and
are part of the policy without the need that it be stated in the
policy;
3. Affirmative- an affirmation of fact that exist at the time they are
made, an undertaking that some positive allegation of fact is true;
and

4. Promissory-where one party is bound by the executory

stipulation.
Q: What are the ways of making an express warranty part of the
insurance contract?

ANS: In order for an express warranty to be deemed part of the

insurance contract it must be:
1. Contained in the policy itself;or
2. In another instrument signed by the insured and referred to in
the policy as making a part of it (INSURANCE CODE, Sec. 70).
Q: What is a material warranty? Give 3 examples of a violation of
the same.

ANS: A material warranty is a warranty that goes into the

effectivity of the policy or the consent of the insurer. Hence, every
warranty is conclusively presumed to be material.
Breach of a material warranty has the effect of giving the other
party the right to rescind the contract of insurance (INSURANCE
CODE, Sec.74).
Q: What are the effects of breach of warranty?

ANS: Violation of a material warranty, or of a material provision

of a policy, on the part of either party, entitles the other to rescind
the contract (INSURANCE CODE,Sec.74), except when:
1.Loss occurs before the time for the performance of the
warranty;
2.The performance of the warranty becomes unlawful at the place
of the contract; or

3.The performance of the warranty becomes impossible

(INSURANCE CODE, Sec.73).
Q: What is loss?

ANS: In life insurance, it means the injury or damage sustained

by the insured in consequence of the happening of one or more of
the accidents or misfortune against which the insurer, in
consideration of the premium, has undertaken to indemnify the
insured (Bonifacio Bros., Inc v. Mora, G.R. No. L-20853, May
29, 1967).
In property insurance, loss means the pecuniary detriment
consisting of the total cash value of the property in case of total
loss or the reduction of the value thereof in case of partial loss. In
life insurance, loss occurs when the person insured dies. In health
insurance, loss occurs in case of injury to or disability of the
insured.
Q: When is notice of loss and proof of loss required?

ANS: Notice and proof of loss is generally not required, unless

the parties agree on stipulation in the policy that notice should be
given within a certain period from the time of the loss.
However with respect to the fire insurance, notice of loss is
mandatory because failure to give such will defeat the right of the
insured to recover. (INSURANCE CODE, Sec. 90).
Q: What are the purposes of notice and proof of loss?

ANS: The purposes are the following: (DDC)

1.To give the insurer information by which he may Determine the
extent of his liability;
2. To afford the insurer a means of Detecting any fraud that may have
been practiced upon him; and
3. To operate as a Check upon extravagant claims.
Q: When the policy provides that “immediate notice" is required,
what does it mean?

ANS: It is construed to mean “only within reasonable time" (E.M.

Bachrach v. British American Assurance Co.,G.R. No.L-5715,
December 20, 1910).
Q: What is the kind of proof of loss required by law to be
presented in case such is required by a policy?

ANS: All that the law requires is for the insured to give the best
evidence which he has in his power to submit at that time.
Q: When must a just claim on a life insurance contract be paid?

ANS: A just claim on a life insurance contract must be paid in the

following periods:

1. Immediately upon maturity;

2.As installments or annuities become due, in case proceeds are
made payable by installments or as annuities under the policy;

3. Within sixty (60) days from presentation of the claim and filing
of the proof of the death of the insured in case the policy matures
upon the death of the insured. (INSURANCE CODE, Sec. 248).
Q: When must a just claim on a non-life insurance policy be paid?

ANS: A just claim on a non-life insurance policy must be paid

within the following periods:
1. Thirty (30) days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration;

2. Ninety (90) days after receipt of the proof of loss if no such

ascertainment of loss is made within sixty (60) days after the
receipt of such proof (INSURANCE CODE,Sec.249).
Q: What constitutes unfair claim settlement practices?

ANS: Any of the following acts by an insurance company, if

committed without just cause and performed with such frequency
as to indicate a general business practice, shall constitute unfair
claim settlement practices: (FaCISS)
1. Knowingly misrepresenting to claimants pertinent Facts or
policy provisions relating to coverage at issue;
2. Failing to acknowledge with reasonable promptness pertinent
Communications with respect to claims arising under its policies;
3. Failing to adopt and implement reasonable standards for the
prompt Investigation of claims arising under its policies;
4. Not attempting in good faith to effectuate prompt, fair and
equitable Settlement of claims submitted in which liability has
become reasonably clear; or
5. Compelling policyholders to institute Suits to recover amounts
due under its policies by offering without justifiable reason
substantially less than the amounts ultimately recovered in suits
brought by them (INSURANCE CODE, Sec.247(a)).
Q: What is the penalty for the unjustified refusal of an insurance
company to settle claims?

ANS: In addition to the administrative sanctions provided

elsewhere in the Insurance Code, the Insurance Commissioner is
authorized, at his discretion, to impose the following:
1. Fine not less than Five thousand pesos (P5,000.00) and not
more than Two hundred thousand pesos (P200,000.00); and

2. Suspension, or after due hearing, removal of directors and/or

officers and/or agents (INSURANCE CODE, Sec. 438).
Q: To whom will the Insurance Commissioner impose the penalty
mentioned above?

ANS: The Insurance Commissioner will impose the sanction upon

insurance companies, their directors and/or officers and/or
agents(INSURANCE CODE, Sec. 438).
Q: When will the insured or any person incur criminal liability
during settlement of claims?

ANS: When the insured:

1.Presents or causes to be presented any fraudulent claim for the
payment of a loss under a contract of insurance; and
2.Fraudulently prepares, makes or subscribes any writing with intent
to present or use the same, or to allow it to be presented in support of
any such claim (INSURANCE CODE, Sec. 251).
Q: What is the penalty for the presentation of fraudulent claims?

ANS: Any person who violates this shall be punished by a fine

not exceeding twice the amount claimed or imprisoned of 2 years
or both, at the discretion of the court (INSURANCE CODE, Sec.
251(b)).
Q: What is the exception to the general rule that there is no
prescriptive period provided under the Insurance Code for the
filing of a complaint for the recovery of the proceeds?

ANS: There is a 1-year period rule in the case of Compulsory

Third-Party Liability Insurance (INSURANCE CODE, Sec. 397).
Q: May the parties stipulate a prescriptive period in the policy?

ANS: Yes, provided that such period should not be less than 1
year from the time when the cause of action accrues.
Otherwise ,such stipulation is void (INSURANCE CODE, Sec
63).
Q: What are the rules on prescription of action to claim on an
insurance policy?

ANS: The rules are the following:

1. The stipulated prescriptive period shall begin to run from the
date of the insurer's rejection of the claim filed by the insured or
beneficiary and not from the time of the loss.
2. In case the claim was denied by the insurer but the insured filed
a petition for reconsideration, the prescriptive period should be
counted from the date the claim was denied at the first instance
and not from the denial of the reconsideration (Sun Life Office,
Ltd. v. Court of Appeals, G.R. No.89741, March 13, 1991).

3. If there is no stipulation or the stipulation is void, the insured

may bring the action within 10 years in case the contract is
written (CIVIL CODE, Art. 1144).
4. A suit for damages, either with the proper court or with the
Insurance Commissioner, should be filed within one (1) year from
the date of the denial of the claim by the insurer; otherwise,
claimant's right of action shall prescribe (INSURANCE CODE,
Sec.397).
5. In CMVLI, the written notice of claim must be filed within 6
months from the date of the accident; otherwise, the claim is
deemed waived even if the same is brought within one year from
its rejection (Vda. De Gabriel v. CA,G.R. No. 103883, November
14, 1996).
GOD BLESS YOU!