Contract of Insurance economic loss of a defined type,

each member contributes to a small

- An agreement whereby one undertakes for a
degree toward compensation for
consideration to indemnify another against
losses suffered by any member of
loss, damage or liability arising from an
the group.
unknown or contingent event.
2) Contract of Adhesion or Fine Print Rule
Contract of Suretyship  Most of the terms of the contract do
not result from mutual negotiations
- An agreement whereby a party called the between the parties as they are
surety guarantees the performance by prescribed by the insurer in printed
another called the principal or obligor of form to which the insured may
an obligation or undertaking in favor of a “adhere” if he chooses but which he
third party called the obligee. cannot change.
- It shall be deemed to be an insurance  The contract shall be interpreted
contract if made by a surety who or strictly against the insurer and
which, as such, is doing an insurance liberally in favor of the insured.
business. 3) Aleatory
 The obligation of the insurer to pay
the proceeds of the insurance arises
A person is doing or transacting an insurance only upon the happening of an
business if he performs any of the following: event which is uncertain, or which is
to occur at an indeterminate time.
a. Making or proposing to make as insurer, 4) Contract of Indemnity
any insurance contract.  The insured who has insurable
b. Making or proposing to make, as surety, interest over the property is only
any contract of suretyship as a vocation, entitled to recover the amount of
not as a mere incident to any other actual loss sustained and the
legitimate business of a surety. burden is upon him to establish the
c. Doing any insurance business like amount of such loss.
reinsurance and similar acts.  This is applicable only to property
d. Doing or proposing to do any business insurance, except creditor insuring
equivalent to the above the life of his debtor.
 Life insurance is not a contract of
indemnity. Hence, there is no
An entity owned by the policyholders that caters overinsurance in life insurance.
only to the insurance needs of the same There is overinsurance only in
policyholders/members is still engaged in property insurance and if this is
insurance business. These entities are mutual present, the insurer is only liable up
insurance companies which have no capital stock to the extent of the loss.
and the contributions of members are the only  • Insurance contracts are not
sources of funds to meet losses and expenses. wagering contracts.
5) Uberrimae Fides Contract
 The contract of insurance is one of
Bancassurance perfect or utmost good faith not for
the insured alone, but equally so for
- The presentation and sale to bank the insurer.
customers by an insurance company of its  It requires the parties to the
insurance products within the premises of contract of insurance to disclose
the head office of such bank duly licensed conditions affecting the risk of which
by the BSP or any of its branches. he is aware, or material fact, which
- The bank itself will not engage in the applicant knows, and those,
insurance business because it is which he ought to know.
prohibited under the General Banking Law 6) Personal Contract
to engage in insurance business.  The law presumes that the insurer
Characteristics of Insurance: considered the personal
qualifications of the insured in
1) Insurance as a Risk Distributing approving the insurance
Device application.
 The device of insurance service
serves to distribute the risk of
economic loss among as many as ELEMENTS OF INSURANCE:
possible to those who are subject to
the same kind of risk. 1) Existence of an Insurable Interest
 By paying a pre-determined amount 2) Risk of Loss
into a general fund out of which 3) Assumption of Risk
payment will be made for an 4) Scheme to Distribute Losses
 5) Payment of Premiums shall be issued or delivered unless in the
form previously approved by the IC.
- The Code does not provide for prescribed
PERFECTION: forms but requires certain provisions to
be included in the policy.
 Since an insurance is consensual, it is - Basic Contents:
perfected the moment there is a meeting of 1) Parties
minds with respect to the object and the 2) Amount of Insurance except in
cause or consideration. Delivery of the open or running policies
policy is not necessary for perfection. 3) Rate of premium
 The mere submission of the application 4) Property or life insured
without the corresponding approval of the 5) Interest of the insured in the
policy does not result in the perfection of property if he is not the absolute
the contract of insurance. owner
6) Risk insured against
7) Period during which the insurance
Cover Notes is to continue

- Persons who wish to be insured may get Rider

protection before the perfection of the
- This is an attachment to an insurance
insurance contract – notice of approval of
policy that modifies the conditions of the
the application – by securing a cover
policy by expanding or restricting its
note.
benefits or excluding certain conditions
- The cover note issued by the insurer shall
from the coverage.
be deemed an insurance contract.
- NOT binding on the insured unless the
- Rules:
descriptive title or name thereof is
a) The cover note shall be issued or
mentioned and written on the blank space
renewed only upon prior approval
provided in the policy.
of the Insurance Commission (IC).
- Riders and the like shall be countersigned
b) It shall be valid and binding not
by the insured or owner unless he was the
more than 60 days from the date
one who applied for the rider, clause,
of its issuance.
warranty, etc.
c) No separate premium (separate
from the policy or main contract)
is required for the cover note.
d) It may be cancelled by either party TYPE OF INSURANCE CONTRACT
upon prior notice to the other of at
1. LIFE INSURANCE
least seven (7) days.
a. Individual life
e) The policy should be issued within
b. Group Life
60 days after the issuance of the
c. Industrial Life
cover note.
2. NON-LIFE INSURANCE
f) The 60-day period may be
a. Marine
extended upon written approval of
b. Fire
the IC; and
c. Casualty
g) The written approval of the IC is
3. CONTRACT OF SURETYSHIP
dispensed with upon the
 The surety guarantees the
certification of the president, VP,
performance by another party
or general manager of the insurer
called the principal or obligor of an
that the risk involved, the values
obligation or undertaking in favor of
of such risks and premium
a third party called the obligee.
therefor, have not as yet been
 It includes official recognizances,
determined or established and the
stipulations, bonds or undertakings
extension or renewal is not
issued by any company by virtue of
contrary to or is not for the
and under the provisions of Act No.
purpose of violating the ICP or any
536, as amended by Act No. 2206.
rule.
4. MICROINSURANCE
 A financial product or service that
meets the risk protection needs of
Insurance Policy the poor where:
a. The amount of contributions,
- It is a written instrument where the terms
premiums, fees or charges,
and conditions of the insurance contract
computed on a daily basis,
are set forth.
does not exceed seven and a
- The policy is not necessary for the
half percent (7.5%) of the
perfection of the contract. However, the
current daily minimum wage
law provides that no policy of insurance
 rate for nonagricultural 3. Beneficiary
workers in Metro Manila; and - A person designated to receive
b. ) The maximum sum of proceeds of policy when risk
guaranteed benefits is not attaches.
more than one thousand - He may designated ANY person as
(1,000) times of the current the beneficiary whether or not the
daily minimum wage rate for beneficiary has an insurable interest
nonagricultural workers in in the life of the insured. However,
Metro Manila. the following persons specified in
Art. 739 of the Civil Code cannot be
designated.
PARTIES TO INSURANCE CONTRACT a. Made between persons who
are guilty of adultery or
1. Insurer concubinage at the time of
- Person who undertakes to donation.
indemnify another. b. Made between persons
- May be partnerships, associations, found guilty of the same
or corporations who are duly criminal offense in
authorized by the IC to engage in consideration thereof.
insurance business. c. Made to a public officer or his
- Does not include “individuals”. wife, descendants or
Hence, an individual natural person ascendants by reason of his
is no longer allowed to be an office.
insurer.
- The term includes: The designation of the above is
a. Professional reinsurers VOID but the policy is binding. The
b. Mutual insurance companies estate will get the proceeds.
c. Cooperative
- The interest of a beneficiary in a life
a. Must have sufficient
insurance shall be forfeited when
capital required by IC.
the beneficiary is the principal,
b. Must have certificate of
accomplice, or accessory in willfully
authority to operate
bringing about the death of the
issued by IC.
insured. In such case, the forfeited
- Certificate of Authority is
share shall pass on to:
required before an insurance
a. Other beneficiaries unless
company can transact any business
otherwise disqualified.
in Philippines which expires on last
b. In the absence of other
day of December, three years
beneficiaries, the proceeds
following its date of issuance, and
shall be paid in accordance
renewable every three years
with the policy contract;
thereafter.
c. Policy is silent, the proceeds
2. Insured
shall be paid to the estate of
- Person with capacity to contract and
the insured.
having an insurable interest in the
- If a person will insure the life of
life or property of the insured.
another payable to himself, he must
- Public enemy may not be insured. A
have insurable interest on the life of
public enemy is a nation, including
the person whose life he is insuring.
its citizens or subjects, with whom
- In property insurance, the
the Philippines is at war.
beneficiary must have insurable
- Minors cannot enter insurance
interest on the property.
contracts.
- The designation is REVOCABLE
- The consent of the spouse is NOT
unless the right to revoke is
necessary for the validity of an
expressly waived in the policy.
insurance policy taken out by a
- Section 64 of the Family Code
married person on the life of the
allows the innocent spouse to
spouses themselves or his or her
revoke the designation of the other
children.
spouse as irrevocable beneficiary
- Effect of Death of Owner of the
after legal separation.
Policy. All rights, title and interest
- The insured cannot assign the policy
in the policy of insurance taken out
if the designation of the beneficiary
by an original owner on the life or
is irrevocable. The irrevocable
health of the person insured shall
beneficiary has a vested right.
automatically vest in the latter upon
- If there is no waiver of the right to
the death of the original owner,
revoke, assignment of the policy
unless otherwise provided for in the
policy.
 may be deemed as implied - Insurable interest of a creditor on the life
revocation. of a debtor must exist not only at the time
- If the insured refuses to pay the the policy takes effect, but also at the time
premiums, the designated of the debtor’s death, for such kind of life
irrevocable beneficiary may insurance is still a contract of indemnity.
continue the policy by paying - Every interest in property, whether real or
premiums that are due. personal, or any relation thereto, or liability
- If the premiums are paid out of the in respect thereof, of such nature that a
conjugal funds, the proceeds are contemplated peril might directly damnify
considered conjugal. the insured, is an insurable interest.
- If the beneficiary is other than the - An insurable interest in property may
insured’s estate, the sources of consist in:
premiums would not be relevant. a. Existing interest
- The designation of the illegitimate b. Inchoate interest founded on an
children as beneficiaries in the existing interest
deceased father’s insurance policy c. Expectancy, coupled with an
is valid because no legal existing interest in that out of which
proscription exists in naming as the expectancy arises.
beneficiaries the children of illicit - A depositary can insure the things
relationships by the insured. deposited to him because he is responsible
for the property deposited to him and he
will be liable in case of damage or
Insurable Interest destruction to the thing.
- An heir has no insurable interest over
- A person has an insurable interest in the properties that he will inherit.
subject-matter insured where he has such - An owner whose property was levied upon
a relation or connection with, or concern in, by a judgment creditor and who lost the
such subject matter that he derives same in an execution sale retains insurable
pecuniary benefit or advantage from its interest thereon during the redemption
preservation or will suffer pecuniary loss or period.
damage from its destruction, termination - The carrier has insurable interest over the
or injury by the happening of the event goods that are being shipped.
insured against. - In Property vs In Life:
- An insurable interest in the part of the In Property In Life
person taking out of the policy is essential Unlimited Limited
to the enforceability of the contract of Exist at the time Necessary that it
insurance, and if such interest is lacking, the policy takes exist when
the policy is void. effect and need not insurance takes
- Every person has an insurable interest in exist at time of effect and when
the life and health: loss loss occur.
a. Of himself, of his spouse and of his Expectation need There must be
children; not have any legal legal basis.
b. Of any person on whom he depends basis.
wholly or in part for education or Beneficiary need Later must have
not have insurable insurable interest
support, or in whom he has a
interest
pecuniary interest;
- Both the mortgagor and mortgagee have
c. ) Of any person under a legal
an insurable interest in the property
obligation to him for the payment of
mortgaged and this interest is separate and
money, or respecting property or
distinct from the other. They may take out
services, of which death or illness
separate policies at the same or at separate
might delay or prevent the
times.
performance; and
- The mortgagor, as owner, has an insurable
d. Of any person upon whose life any
interest to the extent of its value, even
estate or interest vested in him
though the mortgage debt equals such
depends.
value. The reason is that the loss of
- Insurable interest in life must exist at the
destruction of the property insured will not
time of the effectivity of the policy and
extinguish the mortgage debt.
need not exist at the time of the death of
- The mortgagee as such has an insurable
the insured, as life insurance is not a
interest in the mortgaged property to the
contract of indemnity.
extent of the debt secured; such interest
- Where a life insurance policy is valid at its
continues until the mortgage debt is
inception by reason of the existence of
extinguished.
insurable interest at the time, the
- For property insurance, the beneficiary and
subsequent diminution or cessation of that
the assignee must have insurable interest.
interest does not invalidate the policy.
 Consent of the insurer must be secured would retroact to the date of the
before the assignment. instrument and its acceptance by the
- For life insurance, if the insured takes the creditor.
insurance on his own life, he can designate - The insured is entitled to return of
anybody who does not have insurable premiums paid when:
interest. If a third person takes the policy, a. The thing insured was never
the beneficiary must have insurable exposed to the risks insured
interest. In case of assignment, the against.
assignee need not have insurable interest. b. Contract is voidable due to the fraud
or misrepresentation of insurer.
c. Insurer never incurred liability.
Risk Insured Against d. When the insurance is for a definite
period and the insured surrenders
- Contingency or unknown event the his policy before the termination
happening of which will damnify the person thereof.
having insurable interest or will create e. Contract is voidable because of the
liability against him. Even fortuitous events existence of facts of which the
may be insured against. insured was ignorant without his
- General Rule: A future event is the only fault.
event that can be covered by an insurance f. When there is over-insurance.
contract. g. When rescission is granted due to
- Exceptions: A past event may be covered the insurer’s breach of contract.
by a marine insurance – if the loss of the h. When the contract is annulled on
vessel in the past could not have been account of the fraud or
known by ordinary means of misrepresentation of the insurer or
communication. of his agent or on account of facts,
or the existence of which the
insured was ignorant of without his
Premium fault.
- To prevent the lapse of life insurance
- Consideration paid to an insurer for policy, the insured may avail of:
undertaking to indemnify the insured a. Grace period
against a specified peril. b. Automatic policy loan from the
- General Rule: No insurance policy issued policy’s cash surrender value
or renewal is valid and binding until actual c. Application of dividend
payment of the premium. Any agreement d. Restatement clause – have the
to the contrary is void. policy reinstated at anytime within
- Exceptions: 3 years from date of default of
1. In case of life and industrial life premium payment. However, there
whenever the grace period must be (1) proof of insurability and
provision applies. (2) payment of overdue premiums.
2. Where there is an acknowledgment
in the contract or policy of insurance
that the premium had already been
TRANSFER OF POLICY
paid.
3. If the parties have agreed to the  Life insurance policy may be transferred
payment of the premium in even without the consent of the insurer.
instalments and partial payment  Property insurance cannot be transferred
has been made at the time of loss. without the insurer’s consent because the
4. Where a credit term was agreed insurer approved the policy based on the
upon, e.g. an agreement where the personal qualification and the insurable
insurer granted a 60-90 day credit interest of the insured.
term for the payment of the  If the property insurance policy was
premiums transferred without the consent of the
5. Where the parties are barred by insurer, the policy is suspended and will not
estoppel be avoided until the interest in the thing
- The payment of a premium by a post-dated and the interest in the insurance are vested
check at a stated maturity subsequent to in the same person.
the loss is insufficient to put the insurance
into effect.
- Payment by means of a check or a note,
DEVICES USED FOR ASCERTAINING AND
accepted by the insurer, bearing a date CONTROLLING RISK OF LOSS
prior to the loss, assuming an availability of
the funds thereof, would be sufficient even 1. Concealment
if it remains unencashed at the time of the
loss. The subsequent effects of encashment
 - Neglect to communicate that which c. Performance become
a party knows and ought to impossible
communicate. - Not all breach of the provisions in
- Test of materiality of concealment is the policy may give the right to
not by the event, but solely by the rescind the policy. Immaterial
probable and reasonable influence provisions do not avoid the policy.
of the facts upon the party to whom - Exceptions: When the parties
the communication is due, in stipulate that violation of particular
forming his estimate of the provision, through normally
disadvantages of the proposed immaterial, shall avoid the policy. In
contract, or in making his inquiries effect, the parties converted the
on in fixing the premium rate. Good immaterial provision into a material
faith is not a defense. one.
- Concealment vitiates the contract
Warranty vs Representation
and entitles the insurer to rescind,
even if the death or loss is due to a Warranty Representation
cause not related to the concealed Part of contract Collateral
matter. inducement
- The matter concealed need not be Written on the Need not be
the cause of the loss. policy or in valid written
2. Representation rider or
- An oral or written statement of a attachment
fact or condition affecting the risk, Generally Established to be
made by insured to insurer, tending conclusive material
to induce insurer to assume risk. presumed to be
- It may be either: material
Must strictly Requires only to
a. Affirmative – affirmation of a
complied be substantially
fact when the contract
true
begins.
4. Exceptions
b. Promissory – promise to be
- Make more definite the coverage
performed after the policy
indicated by the general description
was issued.
of the risk by excluding certain
- The test of materiality of
specified risks that otherwise would
representation is determined by the
be included under the general
probable and reasonable influence
language describing the risks
of the facts on the party on whom
assumed.
communication is due, in forming
- The burden of proving that the loss
his estimate of the contract, risks
was caused by an excepted peril
and premium.
rests with the insurer.
- When there is misrepresentation,
5. Condition
the injured party is entitled to
- The insurer must also protect
rescind from the time the
himself against fraudulent claims of
representation becomes false.
loss and attempts to do by inserting
3. Warranty
in the policy various conditions
- Statement or promise set forth in
which take the form of either
the policy or by reference
conditions precedent or
incorporated therein, the untruth or
subsequent.
nonfulfillment of which in any
6. Other Insurance Clause
respect, and without reference to
- This refers to a clause in the policy
whether the insurer was in fact
that provides that the policy shall be
prejudiced by such untruth or
VOID if the insured procures
nonfulfillment, renders the policy
additional insurance without the
voidable.
consent of the insurer. The purpose
- Kinds:
is to prevent over-insurance and
a. Express
thus avert the possibility of
b. Implied
perpetration of fraud.
c. Affirmative
- May be subject to waiver but the
d. Promissory
waiver must either be express or if
- The effect of breach of warranty is it
it is to be implied from conduct
gives insurer the right to rescind.
mainly, said conduct must be clearly
- The exceptions are:
indicative of a clear intent to waive
a. Loss occur before the time of
such right. There must be a clear
performance of he warranty
showing that the insurer knew
b. The performance become
about the violation of the clause.
unlawful
4 Primary Concern of the Insurer: 2. There are two or more insurers
insuring separately
1. Correct estimation of risk which enables
3. The subject matter is the same
insurer to determine if her will approve the
4. The interest insured is also the
policy application and, if so, at what
same
premium rate
5. The risk of peril insured against is
2. Delimitation of the risk
likewise the same.
3. Control of risk to guard against increase of
risk
4. Determine if loss occurs and, if so, the
amount thereof EFFECTS OF DOUBLE INSURANCE AND
OVERINSURANCE

1. The insured, unless the policy otherwise

INCONTESTABILITY CLAUSE provides, may claim payment from the
insurers in such order as he may select, up
 After a policy of life insurance made
to the amount for which the insurers are
payable on the death of the insured shall
severally liable under their respective
have been in force during the lifetime of the
claims.
insured for a period of two (2) years from
2. Where the policy under which the insured
the date of its issue or of its last
claims is a valued policy, any sum
reinstatement, the insurer cannot prove
received by him under any other policy
that the policy is void ab initio or is
shall be deducted from the value of the
rescindable by reason of the fraudulent
policy without regard to the actual value of
concealment or misrepresentation of the
the subject matter insured.
insured or his agent.
3. Where the policy under which the insured
 Requisites:
claims is a valued policy, any sum received
1. The insurance is a life insurance
by him under any other policy shall be
policy payable on the death of the
deducted from the value of the policy
insured.
without regard to the actual value of the
2. It has been in force during the
subject matter insured
lifetime of the insured for at least
4. Where the policy under which the insured
two (2) years from its date of
claims is a valued policy, any sum received
issuance or of its last reinstatement.
by him under any other policy shall be
The period of two (2) years may be
deducted from the value of the policy
shortened but it cannot be extended
without regard to the actual value of the
by stipulation.
subject matter insured
 Defenses:
5. Where the policy under which the insured
1. That the person taking the
claims is a valued policy, any sum received
insurance lacked insurable interest
by him under any other policy shall be
as required by law
deducted from the value of the policy
2. That the cause of the death of the
without regard to the actual value of the
insured is an excepted risk
subject matter insured
3. That the premiums have not been
paid
4. That the conditions of the policy
Reinsurance
relating to military or naval service
have been violated - It is a contract through which the insurer
5. That the fraud is of a particularly procures a third person to insure him
vicious type against loss or liability by reason of such
6. That the beneficiary failed to furnish original insurance.
proof of death or to comply with any - In every reinsurance, the original contract
condition imposed by the policy of insurance and the contract of
after the loss has happened reinsurance are separate and distinct from
7. That the action was not brought each other and covered by separate
within the time specified policies.
- There is no privity between the original
insured and reinsurer. The original insured
Double Insurance has no interest in a contract of reinsurance.
Thurs, the original insured cannot file an
- Same person is insured by several insurers
action to recover from the reinsurer even if
separately in respect to the same subject
he has difficulty in recovering from the
and interest.
original insurer.
- It is not prohibited by law, but it may be
- Exception: The original insured may be
prohibited by “other insurance clause.”
allowed to directly sue the reinsurer if the
- Requisites:
reinsurance policy contains a stipulation
1. The person insured is the same
pour autrui in favor of the original insured.