PRELIMINARIES/UPDATES ON INSURANCE LAW

The usual issues in the supreme court on insurance cases: Insurance Commission Legal Opinion No. 2020-20 Re: LGBTQIA+:

1) Insurer hindi nag-bayad ng proceeds The insured who secured a life insurance policy on his own life may
designate any individual as beneficiary, subject only to the XPNS
2) Insurer ayaw mag-bayad ng proceeds dahil ni-raise ang provided in Art. 2012 in rel. to Art. 739 of the Civil Code.
CONCEALMENT OR MISREPRESENTATION

3) Insurer matagal mag-bayad ng proceeds Article 2012. Any person who is forbidden from receiving any
donation under article 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make any donation to
"Section 248. The proceeds of a life insurance policy shall be paid him, according to said article. (n)
immediately upon maturity of the policy, unless such proceeds are
made payable in installments or as an annuity, in which case the
installments, or annuities shall be paid as they become Article 739. The following donations shall be void:
due: Provided, however, That in the case of a policy maturing by the
death of the insured, the proceeds thereof shall be paid within sixty (1) Those made between persons who were guilty of
(60) days after presentation of the claim and filing of the proof of adultery or concubinage at the time of the donation;
death of the insured. Refusal or failure to pay the claim within the
time prescribed herein will entitle the beneficiary to collect interest
(2) Those made between persons found guilty of the same
on the proceeds of the policy for the duration of the delay at the
criminal offense, in consideration thereof;
rate of twice the ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the ground that the claim is
fraudulent. (3) Those made to a public officer or his wife, descendants
and ascendants, by reason of his office.
"The proceeds of the policy maturing by the death of the insured
payable to the beneficiary shall include the discounted value of all In the case referred to in No. 1, the action for declaration of nullity
premiums paid in advance of their due dates, but are not due and may be brought by the spouse of the donor or donee; and the guilt
payable at maturity. of the donor and donee may be proved by preponderance of
evidence in the same action. (n)
"Section 249. The amount of any loss or damage for which an insurer
may be liable, under any policy other than life insurance policy, shall
be paid within thirty (30) days after proof of loss is received by the BQ (2014): Carlo and Bianca met in the La Boracay festivities.
insurer and ascertainment of the loss or damage is made either by Immediately, they fell in love with each other and got married soon
agreement between the insured and the insurer or by arbitration; after. They have been cohabiting blissfully as husband and wife, but
but if such ascertainment is not had or made within sixty (60) days they did not have any offspring. As the years passed by, Carlo
after such receipt by the insurer of the proof of loss, then the loss or decided to take out an insurance on Bianca’s life for P1,000,000.00
damage shall be paid within ninety (90) days after such receipt. with him (Carlo) as sole beneficiary, given that he did not have a
Refusal or failure to pay the loss or damage within the time steady source of income and he always depended on Bianca both
prescribed herein will entitle the assured to collect interest on the emotionally and financially. During the term of the insurance, Bianca
proceeds of the policy for the duration of the delay at the rate of died of what appeared to be a mysterious cause so that Carlo
twice the ceiling prescribed by the Monetary Board, unless such immediately requested for an autopsy to be conducted. It was
failure or refusal to pay is based on the ground that the claim is established that Bianca died of a natural cause. More than that, it
fraudulent. was also established that Bianca was a transgender all along – a fact
unknown to Carlo. Can Carlo claim the insurance benefit? (5%)
4) Hindi tama ang bayad
A: Yes, Carlo can claim the insurance benefit. He had insurable
Double Indemnity Arising from Accident Clause – The mere addition interest on Bianca’s life under Sec. 10 [b] of the Insurance Code as
of the double indemnity clause providing for increased insurance the problem states that Carlo “always depended on Bianca both
upon proof of death by accident did not divest the policy of its emotionally and financially.”
character of insurance on life, or make the contract other than life
insurance, for insurance on life includes all policies of insurance in The insurable interest upon the life of another under the aforesaid
which the payment of the insurance money is contingent upon the provision need not be based on kinship or legal obligation to
loss of life. support. The fact that their marriage may be void is irrelevant.

Who may be insured:

Sun Insurance vs. Court of Appeals – the mere act of the insured of
pointing the gun to his temple, believing the gun was not loaded and
the gun fired when he pulled the trigger resulting in his death was Section 7 of the IPC – Anyone except a public enemy may be
held as an accident insured.

Dela Cruz vs. Capital Insurance – death arising from a boxing match Insurance Commission Circular Letter 2019-30:
is an accident
A health maintenance organization (HMO) cannot decline an
application of a person living with HIV (PLHIV) on the sole basis of
his HIV status.

Philippine Health Care Providers, Inc. vs. CIR (209):

A HMO is NOT engaged in the business of insurance.

Note: This case must be read side by side with Executive Order No.
192 (2015), Transferring the Regulation and Supervision over HMOs
from the DOH to the Insurance Commission

WHEREAS, insurance companies, pre-need companies, and HMOs

function under a common concept of receiving compensation,
either through premiums or contributions, and in turn, promise
certain contractual benefits in the future.
 BAR SYLLABUS PROPER People’s General Insurance Corp. vs. Doctors of New Millennium
Holdings (Leonen Decision) Re: Surety Bonds

A. CONCEPT OF INSURANCE The liabilities of an insurer under the surety bond are not
extinguished when the modifications in the principal contract do not
The contract of insurance is primarily a risk distributing device, a substantially or materially alter the principal's obligations. The surety
mechanism by which all members of a group exposed to a particular is jointly and severally liable with its principal when the latter
risk contribute premiums to an insurer. From these contributory defaults from its obligations under the principal contract.
funds are paid whatever losses occur due to exposure to the peril
insured against. Each party therefore takes a risk: the insurer, that of By its very nature, under the laws regulating suretyship, the liability
being compelled upon the happening of the contingency to pay the of the surety is joint and several but is limited to the amount of the
entire sum agreed upon, and the insured, that of parting with the bond, and its terms are determined strictly by the terms of the
amount required as premium, without receiving anything therefor in contract of suretyship in relation to the principal contract between
case the contingency does not happen.  the obligor and the obligee

Section 2 (a). A contract of insurance is an agreement whereby one Although the contract of suretyship is, in essence, secondary only to
undertakes for a consideration to indemnify another against loss, a valid principal obligation, the surety’s liability to the creditor is
damage or liability arising from an unknown or contingent event. direct, primary, and absolute; he becomes liable for the debt and
duty of another although he possesses no direct or personal interest
"A contract of suretyship shall be deemed to be an insurance over the obligations nor does he receive any benefit therefrom.
contract, within the meaning of this Code, only if made by a surety
who or which, as such, is doing an insurance business as hereinafter A surety, however, is not released by a change in the contract which
provided. does not have the effect of making its obligation more onerous.

Section 2 (b). "(b) The term doing an insurance B. ELEMENTS OF AN INSURANCE CONTRACT [PARIS]
business or transacting an insurance business, within the meaning of
this Code, shall include: An insurance contract exists where the following elements concur:

"(1) Making or proposing to make, as insurer, any 1. The insured has an insurable interest;
insurance contract;
2. The insured is subject to a risk of loss by the happening of the
"(2) Making or proposing to make, as surety, any contract designated peril;
of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
3. The insurer assumes the risk;

"(3) Doing any kind of business, including a reinsurance

4. Such assumption of risk is part of a general scheme to distribute
business, specifically recognized as constituting the doing
actual losses among a large group of persons bearing a similar risk;
of an insurance business within the meaning of this Code;
and

"(4) Doing or proposing to do any business in substance

5. In consideration of the insurer’s promise, the insured pays a
equivalent to any of the foregoing in a manner designed to
premium.
evade the provisions of this Code.

A contract possessing only the first 3 elements above is a risk-

"In the application of the provisions of this Code, the fact
shifting device.
that no profit is derived from the making of insurance
contracts, agreements or transactions or that no separate
or direct consideration is received therefor, shall not be If all the elements, it is a risk-distributing device.
deemed conclusive to show that the making thereof does
not constitute the doing or transacting of an insurance
business.

Milagros P. Enriquez vs. Mercantile Insurance Co. Inc. (Leonen

Decision) Re: Effectivity of Surety Bonds

A surety bond remains effective until the action or proceeding is

finally decided, resolved, or terminated, regardless of whether the
applicant fails to renew the bond. The applicant will be liable to the
surety for any payment the surety makes on the bond, but only up
to the amount of this bond.
 C. CHARACTERISTICS OF AND NATURE OF INSURANCE
CONTRACTS [VIP C COBRA]

1. Risk distributing device

2. Consensual – perfected by the meeting of the minds of the parties

Article 1319. Consent is manifested by the meeting of the offer and

the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer

except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made.

3. Voluntary – the parties may incorporate such terms and

conditions as they may deem convenient

4. Aleatory –

Article 2010. By an aleatory contract, 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.

5. Indemnity –

Except life and accident insurance, a contract of insurance is a

contract of indemnity whereby the insurer promises to make good
only the loss of the insured.

6. Personal – insurer considered the personal qualifications of the

insured in approving the contract

7. Bilateral – both parties are bound to do something

Insured – pay premium

Insurer – cover the risk and pay in case of liability, loss or damage

8. Onerous – there is a valuable consideration called the premium.

9. Conditional – subject to conditions such as the happening of the

event insured against, payment of premium, etc.

Note: Since insurance is a contract, it is property in legal

contemplation.
 D. CLASSES OF INSURANCE Simply put, arising from the violent action of the wind and the
waves.
1) MARINE INSURANCE
Perils of the ship – a loss which in the ordinary course of events,
1.1. Codal Provisions: results from the:

Section 101. Marine Insurance includes: 1. Natural and inevitable action of the sea;

(a) Insurance against loss of or damage to: 2. Ordinary wear and tear of the ship; or

(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, 3. Negligent failure of the ship’s owner to provide vessel with proper
merchandise, effects, disbursements, profits, moneys, securities, equipment to convey the cargo under ordinary conditions
choses in action, instruments of debts, valuable papers, bottomry,
and respondentia interests and all other kinds of property and 1.3. Marine Insurance Special Contracts and Clauses
interests therein, in respect to, appertaining to or in connection with
any and all risks or perils of navigation, transit or transportation, or
All Risks Policy
while being assembled, packed, crated, baled, compressed or
similarly prepared for shipment or while awaiting shipment, or
during any delays, storage, transhipment, or reshipment incident GR: Insurance against all causes of conceivable loss or damage
thereto, including war risks, marine builder’s risks, and all personal
property floater risks; XPNs: 1) As otherwise excluded in the policy or 2) Due to fraud or
intentional misconduct on the part of the insured.
(2) Person or property in connection with or appertaining to a
marine, inland marine, transit or transportation insurance, including The insured under an "all risks insurance policy" has the initial
liability for loss of or damage arising out of or in connection with the burden of proving that the cargo was in good condition when the
construction, repair, operation, maintenance or use of the subject policy attached and that the cargo was damaged when unloaded
matter of such insurance (but not including life insurance or surety from the vessel; thereafter, the burden then shifts to the insurer to
bonds nor insurance against loss by reason of bodily injury to any show the exception to the coverage.
person arising out of ownership, maintenance, or use of
automobiles); BQ (2017) Absolute Timber Co. (ATC) has been engaged in the
logging business in lsabela. To secure one of its shipments of logs to
(3) Precious stones, jewels, jewelry, precious metals, whether in be transported by Andok Shipping Co., ATC purchased a marine
course of transportation or otherwise; and policy with an "all risks" provision. Because of a strong typhoon then
hitting Northern Luzon, the vessel sank and the shipment of logs was
(4) Bridges, tunnels and other instrumentalities of transportation totally lost. ATC filed its claim, but the insurer denied the claim on
and communication (excluding buildings, their furniture and several grounds, namely: (1) the vessel had not been seaworthy; (2)
furnishings, fixed contents and supplies held in storage); piers, the vessel's crew had lacked sufficient training; (3) the improper
wharves, docks and slips, and other aids to navigation and loading of the logs on only one side of the vessel had led to the
transportation, including dry docks and marine railways, dams and tilting of the ship to that side during the stormy voyage; and (4) the
appurtenant facilities for the control of waterways. extremely bad weather had been a fortuitous event.

(b) Marine protection and indemnity insurance, meaning insurance ATC now seeks your legal advice to know if its claim was sustainable.
against, or against legal liability of the insured for loss, damage, or What is your advice? Explain your answer. (3%)
expense incident to ownership, operation, chartering, maintenance,
use, repair, or construction of any vessel, craft or instrumentality in A: ATC’s claim is sustainable. The all risks policy that ATC procured
use of ocean or inland waterways, including liability of the insured from the insurer insures against all causes of conceivable loss or
for personal injury, illness or death or for loss of or damage to the damage except when otherwise excluded or when the loss or
property of another person. damage was due to fraud or intentional misconduct committed by
the insured.
1.2. What Kind of Risk May be Insured Against by a Marine
Insurance The grounds of denial that the insurer invoked are not due to fraud
or intentional misconduct of the insurer.
GR: It is only PERILS OF THE SEA/PERILS OF NAVIGATION which may
AA: ATC’s claim of fortuitous event is not valid.
be insured against, NOT perils of the ship.
The ship is not seaworthy. It loss was not due to the perils of the sea
XPN: Unless perils of the ship is covered by an all-risk policy. but perils of the ship. ATC’s negligence also bars it from invoking the
defense of force majeure.
Perils of the Sea/Perils of Navigation – includes only those
casualties due to the unusual violence or extraordinary action of the Barratry Clause
wind or other extraordinary causes connected with navigation.
 A clause which provides that there can be no recovery on the policy a. When caused by circumstances over which neither the
in case of any willful misconduct on the part of the master or crew master nor the owner of the ship has any control
in pursuance of some unlawful or fraudulent purpose without the
consent of the owner and to the prejudice of owner’s interest. It b. When necessary to comply with a warranty OR to avoid a
requires an intentional and willful act in its commission. No honest peril, whether or not the peril is insured against
error or judgment or mere negligence, unless criminally gross, can
be barratry. c. When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril
1.4. Implied Warranties in Marine Insurance
d. When made in good faith, for the purpose of saving
human life OR relieving another vessel in distress
1. That the ship is seaworthy at the inception of the
insurance Every deviation not specified in the last section is improper (Sec.
127).
Seaworthiness is a relative term, depending upon the nature of the
ship, voyage, service and goods, denoting in general the ship’s
An insurer is NOT LIABLE for any loss happening to the things
fitness to perform the service and to encounter the ordinary perils of
insured subsequent to an improper deviation.
the voyage contemplated by the parties to the policy.

A warranty of seaworthiness extends not only to the condition of the 3. That the ship will not engage in an illegal venture
structure of the ship itself, but requires that it be:
4. Warranty of neutrality – where the nationality of
a. Properly laden; neutrality of a ship is expressly warranted, it is implied
b. Provided with competent master that the ship will carry the requisite documents of
c. Sufficient number of competent officers and seamen nationality or neutrality to show such nationality or
d. Requisite appurtenances and equipment neutrality and that it will not carry any documents which
e. Other necessary or proper stores and implements for the cast reasonable suspicion thereon
voyage
How to determine the nationality of the vessel? Registration
Non-compliance may result to the denial of the claim by the insurer. determines nationality.
A ship which is seaworthy for the voyage may, nevertheless, by
reason of being unfitted to receive the cargo, be unseaworthy for 5. Presence of insurable interest
the purpose of the insurance upon the cargo. Thus, it becomes the
obligation of a cargo owner to look for reliable common carrier Note: The payment made by the insurer for the insured value of the
which keeps its vessels in seaworthy conditions. lost cargo operates as waiver of its to enforce the term of the
implied warranty against the assured under the marine insurance
GR: An implied warranty of seaworthiness is complied with if the policy.
ship be seaworthy at the time of the commencement of the risk.
However, the same cannot be validly interpreted as an automatic
Prior or subsequent unworthiness is NOT a breach of warranty nor is admission of the vessel’s seaworthiness by the insurer as to
it material that the vessel arrives in safety at the end of her voyage. foreclose recourse against the common carrier for any liability under
the contractual obligation as such common carrier.
2. Implied Warranty Against Improper Deviation – that the
ship will not deviate from the agreed voyage unless 1.5. Loss
deviation is proper
 May be total or partial
Deviation – is a 1) departure from the course of voyage insured OR  Total loss may be actual or constructive.
an 2) unreasonable delay in pursuing the voyage OR 3) the
commencement of an entirely different voyage (Sec. 125). Total Loss

Instances of Deviation 1. Actual Loss – exists when the subject matter of the insurance is
wholly destroyed or lost or when it is so damaged that it no longer
a. Deviation from the agreed voyage exists in its original character.

b. Departure of vessel from the course of sailing fixed by

It is caused by:
mercantile usage

c. Departure of the vessel from the most natural, direct, and a. A total destruction of the thing insured;
advantageous route, not fixed by mercantile usage
b. The irretrievable loss of the thing by sinking, or by being broken
d. Unreasonable delay in pursuing the voyage up;

Proper Deviation (Sec. 126) c. Any damage to the thing which renders it valueless to the owner
for the purpose for which he held it;
d. Any other event which effectively deprives the owner of the When the property is insured for less than its value, the insured is
possession, at the port of destination of the thing insured. [Sec. 132] considered a co-insurer of the difference between the amount of
insurance and the value of the property.
An actual loss may be presumed from the continued absence of a
ship without being heard of. The length of time which is sufficient to Rules on Co-Insurance:
raise this presumption depends on the circumstances of the case.
[Sec. 134] 1. Applies only to marine insurance

Right to payment: Upon an actual total loss, a person is entitled to 2. Logically, there cannot be co-insurance in life insurance (there is
payment without notice of abandonment, as distinguished from no partial death)
constructive total loss where notice of abandonment is required.
3. Applies in fire insurance only when expressly provided for by the
2. Constructive Loss (Technical Total Loss) – More than ¾ Rule parties

a. Actual loss of more than ¾ of the value of the thing insured 1.6. Abandonment

b. Damage reducing value by more than 3/4 of the value of the It is the act of the insured by which, after a constructive total loss, he
vessel and of cargo declares the relinquishment to the insurer of his interest in the thing
insured. [Sec. 140]
c. Expense of transshipment exceed 3/4 of the value of the cargo
Requisites for Validity of Abandonment
BQ: Two (2) shipments in the amount of 500K each was covered by
1 insurance policy. The first vessel arrived with no damage while the 1. There must be an actual relinquishment by the person insured of
second vessel arrived with 400K damage. his interest in the thing insured

Can constructive total loss be invoked? If no, can the insured 2. There must be constructive loss
recover?
3. The abandonment must be neither partial nor conditional [Sec.
A: No. Since covered by 1 insurance policy only, apply the totality 142]
rule. Applying the totality rule, the constructive total loss may not be
invoked as the damage did not reach 3/4 (75%). Nonetheless, the
4. It must be factual
insured may still recover by means of actual partial loss.

5. The abandonment must be made within a reasonable time after

Options of the insured in case of constructive total loss:
receipt of reliable information of the loss, but where the
information is of a doubtful character, the insured is entitled to a
1. Abandon the goods or vessel to the insurer and claim for the reasonable time to make inquiry [Sec. 143]
whole insured value; OR
6. Abandonment is made by giving notice thereof to the insurer,
2. Without abandoning the vessel, claim for partial actual loss. which may be done orally, or in writing: Provided, That if the notice
be done orally, a written notice of such abandonment shall be
Note: It is the sole prerogative of the insured to choose between submitted within seven days from such oral notice [Sec. 145]
constructive loss OR actual partial loss.
7. The notice of abandonment must expressly specify the particular
Note: If there is a partial loss and there is underinsurance, there will cause of abandonment
be a situation of co-insurance.
Effects of Valid Abandonment
Requisites of co-insurance:
1. An abandonment is equivalent to a transfer by the insured of his
1. The loss is partial; AND interest to the insurer, with all the chances of recovery and
indemnity [Sec. 148];
2. The amount of insurance is less than the value of the property of
the insured. 2. Upon an abandonment, acts done in good faith by those who
were agents of the insured in respect to the thing insured,
Co-insurance – a marine insurer is liable upon a partial loss, only for subsequent to the loss, are at the risk of the insurer, and for his
such proportion of the amount insured by him as the loss bears to benefit [Sec. 150].
the value of the whole interest of the insured in the property
insured. Acceptance of the Abandonment

The acceptance of abandonment may be express or implied from

the conduct of the insurer.
The mere silence of the insurer for an unreasonable length of time It is very crucial to determine whether a marine vessel is covered
after notice shall be construed as an acceptance. by a marine insurance of fire insurance. The determination is
important for two reasons:
The acceptance of the abandonment, whether express or implied, is
conclusive upon the parties, and admits the loss and the sufficiency 1. Rule on constructive total loss and abandonment – applies only to
of the abandonment. marine insurance

2. Rule on co-insurance – applies to fire insurance only if expressly

Abandonment is irrevocable once it is accepted, unless the ground
agreed upon
upon which it is made proves to be unfounded.

Alterations in Use or Condition

If a marine insurer pays for a loss as if it were an actual total loss ,
he is entitled to whatever may remain of the thing insured, or its
proceeds or salvage, as if there had been a formal abandonment An alteration in the use or condition entitles an insurer to rescind a
[Sec. 149]; contract of fire insurance if the following requisites are present:

2) FIRE INSURANCE 1. The use or condition of the thing is specifically limited or

stipulated in the policy;
Fire insurance shall include insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks, when such 2. Such use or condition as limited by the policy is altered;
risks are covered by extension to fire insurance policies or under
separate policies. 3. The alteration was made without the consent of the insurer

Risks or Losses Covered 4. The alterations was made by means within the control of the
insured;
1. Direct Losses
5. Such alterations increases the risk.
2. Indirect or Consequential Losses

a. physical damage 6. There must be a violation of a policy provisions. Note: A contract

b. loss of earnings of fire insurance is not affected by any act of the insured subsequent
to the execution of the policy, which does not violate its provisions,
PLEASE NOTE! even though it increases the risk and is the cause of the loss. [Sec.
172]
The liability of the insurer is to pay for direct loss only.
Note: Does not affect a contract of fire insurance if the alteration
The insurer may be liable to pay for consequential damage if does not increase the risk. [Sec. 170-171]
covered by extension to such fire policies or insured under a
separate policy. Measure of Indemnity

Prerequisites to Recovery
1. In an open policy, only the expense necessary to replace the thing
1. Notice of loss – must be immediately given, unless delay is waived lost or injured in the condition it was at the time of the injury will be
expressly or impliedly by the insurer paid;

2. Proof of loss – according to the best evidence obtainable. Delay In the absence of express valuation in a fire insurance policy, the
may likewise be waived expressly or impliedly by the insurer. insured is only entitled to recover the amount of actual loss
sustained and the burden of proof is upon him to establish the
Hostile Fire Friendly fire amount of such loss by preponderance of evidence.
Fire that escapes from the Fire that burns in a place
place where it was intended to where it is intended to burn In an open policy, the actual loss, as determined, will represent the
burn and ought to be, or one and ought to be like fire total indemnity due the insured except only that the total indemnity
which remains completely burning in a stove or a lamp. shall not exceed the total value of the policy. [Development. Ins.
within its proper place Corp. v. IAC, G.R. No. 71360 (1986)]

2. In a valued policy, the parties are bound by the valuation, in the

Insurer is liable Insurer is not liable absence of fraud or mistake [Sec. 173];

If there is a valuation, the effect shall be similar to a marine

insurance policy wherein the valuation is conclusive between the
parties in adjusting the loss. [Sec. 158]
3. The parties may provide for an option-to-rebuild clause purpose and always in accordance with the general principles of
concerning the repairing, rebuilding, or replacing of buildings or insurance law.
structures wholly or partially damages. [Sec. 174]
Liability Insurable in TPL
3) CASUALTY INSURANCE
1. Liability for quasi-delict or non-fulfillment of contract
Casualty insurance is insurance covering loss or liability arising from
accident or mishap 2. Liability for criminal negligence

Excluding certain types of loss which by law or custom are

What is the liability of the insurer if the insured was convicted of
considered as falling exclusively within the scope of other types of
committing a felony?
insurance such as fire or marine.

It includes, but is not limited to, employer’s liability insurance, motor Liabilities arising out of acts of negligence, which are also criminal,
vehicle liability insurance, plate glass insurance, burglary and theft are also insurable on the ground that such acts are accidental.
insurance, personal accident and health insurance as written by non-
life insurance companies, and other substantially similar kinds of But liability consequences of deliberate criminal acts are NOT
insurance. INSURABLE.

Classifications of Casualty Insurance Intentional Injury Accidental Injury

Intentional implies the Injury happens by chance or
1. Insurance against specified perils which may affect the person exercise of the reasoning fortuitously, without intention
and/or property of the insured faculties, consciousness and or design, which is unexpected,
volition. unusual and unforeseen
Examples: Personal accident, robbery/theft insurance Where a provision of the
policy excludes intentional
injury (not a peril insured
In burglary, robbery, and theft insurance, "the opportunity to against), it is the intention of
defraud the insurer — the moral hazard — is so great that insurers the person inflicting the injury
have found it necessary to fill up their policies with countless that is controlling. If the
restrictions, many designed to reduce this hazard.  injuries suffered by the insured
clearly resulted from the
Persons frequently excluded under such provisions are those in the intentional act of a third
insured's service and employment.  The purpose of the exception is person, the insurer is relieved
to guard against liability should the theft be committed by one from liability as stipulated.
having unrestricted access to the property. 

2. Insurance against specified perils which may give rise to liability

on the part of the insured for claims or injuries to or damage to the Right of a third party injured to sue the insurer of a party at fault
property of others (Third party liability insurance).
Depends on whether the contract of insurance is intended to benefit
Insurable interest is based on the interest of the insured in the third persons OR only the insured.
safety of persons and their property, who may maintain an action
against him in case of their injury or destruction, respectively. Test Applied:

Example: Workmen’s compensation, motor vehicle liability 1. Indemnity against third party liability – a third party injured can
directly sue the insurer.
In a third-party liability (TPL) insurance contract, the insurer assumes
the obligation of paying the injured third party to whom the insured Purpose: to protect injured persons against the insolvency of the
is liable. The insurer becomes liable as soon as the liability of the insured who causes such injury
insured to the injured third person attaches. Prior payment by the
insured to the injured third person is not necessary in order that 2. Indemnity against actual loss or payment – a third party has no
the obligation of the insurer may arise. From the moment that the cause of action against the insurer. The third person’s recourse is
insured became liable to the third person, the insured acquired an limited to the insured alone.
interest in the insurance contract, which interest may be garnished
like any other credit.
If the policy provides for “reimbursement after actual payment by
the insured,” or for the indemnity against loss, a third person has no
Note: Aside from compulsory motor vehicle liability insurance, the
cause of action against the insurer.
Insurance Code contains no other provisions applicable to casualty
insurance. Therefore, such casualty insurance are governed by the
general provisions applicable to all types of insurance, and outside Pan Malayan Insurance Corp. vs. CA – The insurer is NOT solidarily
such statutory provisions, the rights and obligations of the parties liable with the insured.
must be determined by their contract, taking into considerations its
Ratio: The insurer’s liability is based on contract; that of the insured Milagros P. Enriquez vs. Mercantile Insurance Co. Inc. (Leonen
is based on torts. Furthermore, the insurer’s liability is limited by the Decision) Re: Effectivity of Surety Bonds
amount of insurance coverage.
A surety bond remains effective until the action or proceeding is
4) SURETYSHIP finally decided, resolved, or terminated, regardless of whether the
applicant fails to renew the bond. The applicant will be liable to the
Is an agreement whereby a party, called the surety, guarantees the surety for any payment the surety makes on the bond, but only up
performance by another party, called the principal or obligor, of an to the amount of this bond.
obligation or undertaking in favor of a third party called the obligee.
[Sec. 177] People’s General Insurance Corp. vs. Doctors of New Millennium
Holdings (Leonen Decision) Re: Surety Bonds
It includes official recognizances, stipulations, bonds or undertakings
issued by any company by virtue of and under the provisions of Act. The liabilities of an insurer under the surety bond are not
No 536, as amended by 2206. [Sec. 177] extinguished when the modifications in the principal contract do not
substantially or materially alter the principal's obligations. The surety
Nature of Contract is jointly and severally liable with its principal when the latter
defaults from its obligations under the principal contract.
It shall be deemed as insurance contract if the surety’s main
By its very nature, under the laws regulating suretyship, the liability
business is that of suretyship, and not where the contract is merely
of the surety is joint and several but is limited to the amount of the
incidental to any other legitimate business or activity of the surety.
bond, and its terms are determined strictly by the terms of the
contract of suretyship in relation to the principal contract between
It is an accessory contract unlike a contract of insurance which is the the obligor and the obligee.
principal contract itself.
Although the contract of suretyship is, in essence, secondary only to
The contract of a surety is evidenced by a document called surety a valid principal obligation, the surety’s liability to the creditor is
bond which is essentially a promise to guarantee the obligation of direct, primary, and absolute; he becomes liable for the debt and
the obligor. In turn, the obligor executes an indemnity agreement in duty of another although he possesses no direct or personal interest
favor of the insurer [de Leon]. over the obligations nor does he receive any benefit therefrom.

Liability of Surety A surety, however, is not released by a change in the contract which
does not have the effect of making its obligation more onerous.

1. The liability of the surety or sureties under a bond is joint and

several, or solidary [Sec. 178]. This means that upon the default of Fidelity Bond – a contract of insurance against loss from misconduct
the principal obligor, the surety becomes primarily liable. Unlike a
guarantor, a surety is not entitled to the benefit of exhaustion of the A form of insurance protection that covers policy holders for losses
principal obligor’s assets and assumes a regular party to the that they incur as a result of fraudulent acts by specified individuals.
undertaking.
It usually insures a business for loss caused by the dishonest acts of
2. Said liability is limited or fixed to the amount of the bond. its employees.

3. It is determined strictly by the terms of the contract of suretyship Performance Bond – is issued to one party of a contract as a
in relation to the principal contract between the obligor and the guarantee against the failure of the other party to meet the
obligee. obligations in the contract.

SURETYSHIP PROPERTY INSURANCE 5) LIFE INSURANCE

Accessory Contract Principal Contract
Parties: Surety, Obligor, Parties: Insurer and Insured Life insurance is insurance on human lives and insurance
Obligee appertaining thereto or connected therewith.
Credit Accommodation Contract of Indemnity
Surety can recover from Insurer has no such right; only Every contract or undertaking for the payment of annuities including
principal right of subrogation contracts for the payment of lump sums under a retirement program
Bond can be cancelled on with May be cancelled unilaterally where a life insurance company manages
consent of the obligee, either by insured or insurer on
Commissioner, or court grounds provided by law
OR
Requires acceptance of the No need of acceptance by any
obligee to be valid third party
Risk-shifting device, premium Risk-distributing device, acts as a trustee for such retirement program shall be considered a
paid being in the nature of a premium paid as a ratable life insurance contract for purposes of this Code.
service fee contribution to a common fund
Special Notes
 1. There is no over insurance in life insurance As applied to life insurance policy, it is the amount insured, in case of
default, after the payment of at least 3 full annual premiums, is
2. There is no subrogation in life insurance entitled to receive if he surrenders the policy and releases his claims
upon it.
Liability of the Insurer When Insured Died By Reason of Some
Peculiar Causes 6) MICROINSURANCE

1. Suicide Microinsurance is a financial product or service that meets the risk

protection needs of the poor, where:
The insurer in a life insurance contract shall be liable in case of
suicide only when: 1. The amount of contributions, premiums, fees or charges,
computed on a daily basis, does not exceed 7.5% of the current daily
a. Committed after the policy has been in force for a period minimum wage rate for nonagricultural workers in Metro Manila;
of two (2) years from the date of its issue or of its last and
reinstatement, unless the policy provides a shorter period;
OR 2. The maximum sum of guaranteed benefits is not more than 1,000
times of the said current daily minimum wage rate. [Sec. 187]
b. Committed in the state of insanity shall be compensable
regardless of the date of commission, except when suicide 7) COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
is an excepted peril.
A specie of compulsory insurance that provides for protection
Note: Any stipulation EXTENDING the 2-year period is VOID. coverage that will answer for legal liability for losses and damages,
for bodily injuries, or property damage that may be sustained by
2. Death at the hands of the law (death penalty) another arising from the use and operation of motor vehicle by its
owner.
It is one of the risks assumed by the insurer under a life insurance
policy, in the absence of a valid policy exception. It shall be unlawful for any land transportation operator or owner of
a motor vehicle to operate the same in the public highways unless
3. Killing by the Beneficiary there is in force, a policy of insurance or guaranty in cash or surety
bond:
GR: The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary is the principal, accomplice, or 1. Issued in accordance with the provisions of this chapter;
accessory in willfully bringing about the death of the insured, in
which event, the nearest relative of the insured shall receive the 2. To indemnify the death, bodily injury and/or damage to property
proceeds of said insurance if not otherwise disqualified. of a third- party or passenger, as the case may be, arising from the
use thereof. [Sec. 387]
XPN:
It is a requisite for registration or renewal of registration of a motor
1. Accidental killing vehicle by every land transportation operator or owner. [Sec. 390] It
2. Self-defense is the only type of compulsory insurance provided for under the
3. Insanity of the beneficiary at the time he killed the insured Insurance Code.

Right to Assign Life Insurance Policy It applies to all vehicles whether public or private vehicles.

1. A policy of insurance upon life or health may pass by transfer, will The insurer’s liability is direct and primary so the insurer need not
or succession to any person, whether he has an insurable interest or wait for final judgment in the criminal case to be liable. [Shafer v.
not, and such person may recover upon it whatever the insured Judge, RTC Olongapo, G.R. No. 78848 (1988)]
might have recovered (Section 184)
The claimants/victims may be a passenger or a third party. The
2. Notice to an insurer of a transfer or bequest thereof is not insured may be the party at fault as against claims of third parties
necessary to preserve the validity of a policy of insurance upon life (i.e. third- party liability) or the victim of the contingent event.
or health, unless thereby expressly required (Section 185)
No Fault Clause is a provision required in every compulsory motor
Measure of Indemnity in Life Insurance vehicle liability insurance that gives the victim (injured person or
heirs of the deceased) an option to file a claim for death or injury
without the necessity of proving fault or negligence.
The measure of indemnity in life or health insurance policy is the
sum fixed in the policy, except when a creditor insures the life of
his debtor. The total indemnity in respect of any person shall not exceed
P15,000.
Cash Surrender Value
The claim shall be made against only one motor vehicle.
In the case of an occupant, the claim shall lie against the insurer of It is an insurance mechanism made available by the law to provide
the vehicle in which the occupant is riding, mounting, or insurance protection for OFWs.
dismounting from.
Each migrant worker to be deployed by a recruitment/manning
In any other case, the claim shall lie against the insurer of the agency shall be covered by a compulsory insurance contract which
directly offending vehicle. shall be secured at no cost to the said worker.

In all cases, the right of the party paying the claim to recover against Basis: It is the policy of the State to provide adequate protection to
the owner of the vehicle responsible for the accident shall be the overseas Filipino workers by ensuring coverage under the
maintained. compulsory insurance requirement in Section 37-A of the Migrant
Workers and Overseas Filipinos Act of 1995, as amended. [Sec. 1(b),
Perla Compania de Seguros vs. Ancheta – the claimant is not free to Insurance Guidelines on Rule XVI of the Omnibus Rules and
choose from which insurer he will claim the "no fault indemnity," as Regulations Implementing RA 8042]
the law, by using the word "shall, makes it mandatory that the claim
be made against the insurer of the vehicle in which the occupant is *It is mandatory for AGENCY-HIRED OFWS.
riding, mounting or dismounting from.
It is NOT mandatory for direct-hired, name-hired, or re-hired
That said vehicle might not be the one that caused the accident is of OFWs. If interested, the latter can also avail of this insurance.
no moment since the law itself provides that the party paying may
recover against the owner of the vehicle responsible for the
What are the peculiarities?
accident.

This is precisely the essence of "no fault indemnity" insurance  *Suicide is covered
which was introduced to and made part of our laws in order to
provide victims of vehicular accidents or their heirs immediate  The coverage starts at the enforcement of the insurance
compensation, although in a limited amount, pending final coverage
determination of who is responsible for the accident and liable for
the victims’ injuries or death.  *The usual 2-year contestability clause in insurance
contracts is NOT applicable
The no fault-clause does NOT apply to property damage.
 Only covers permanent and total damage to both arms,
Special Clauses relevant to CMVLI: feet, and eyes.

 The agency applies for the insurance coverage in behalf of

1. Authorized Driver Clause – A clause which aims to indemnify the the Agency-Hired OFW
insured owner against loss or damage to the car but limits the use
of the insured vehicle to the insured himself OR any person who
 An insurance proof cover is one of the requirements of the
drives on his order or with his permission.
Philippine Overseas Employment Administration (POEA)
before the Agency-Hired OFW can be issued an Overseas
The requirement that the driver be "permitted in accordance with Employment Certificate (OEC)
the licensing or other laws or regulations to drive the Motor
Vehicle and is not disqualified from driving such motor vehicle by  *The recruitment or manning agency should pay the
order of a Court of Law or by reason of any enactment or regulation insurance premium.
in that behalf," applies only when the driver" is driving on the
insured's order or with his permission." The recruitment or manning agency may negotiate the
payment with the foreign employer.
It does not apply when the person driving is the insured himself.
*In no case should the OFW pay for the said premium
2. Theft Clause – a clause which includes theft as among the risks whether directly or as a deduction from his salary. It
insured against. should be an no cost to the OFW

When the car is unlawfully and wrongfully taken without the

owner’s consent or knowledge, such taking constitutes theft, and
thus, it is the “theft clause” and not the “authorized driver clause”
that should apply.

3. Cooperation Clause – a clause in an automobile insurance policy

which provides in essence that the insured shall give all such
information and assistance as the insurer may require, usually
requiring attendance at trials or hearings.

8) COMPULSORY INSURANCE COVERAGE FOR AGENCY-

HIRED WORKERS
 E. VARIABLE CONTRACTS "(d) Of any person upon whose life any estate or interest
vested in him depends.
The term variable contract shall mean any policy or contract on
either a group or on an individual basis issued by an insurance When should insurable interest exist?
company providing for benefits or other contractual payments or
values thereunder to vary so as to reflect investment results of any Insurable interest in the life of another need exist only at the time
segregated portfolio of investments or of a designated separate of perfection of the contract and need not exist thereafter or when
account in which amounts received in connection with such the loss occurs.
contracts shall have been placed and accounted for separately and
apart from other investments and accounts. This contract may also
Amount
provide benefits or values incidental thereto payable in fixed or
variable amounts, or both. It shall not be deemed to be a security or
securities as defined in The Securities Act, as amended, or in the GR: No limit in the amount the insured can insure his life
Investment Company Act, as amended, nor subject to regulations
under said Acts. XPN: Except in a creditor-debtor relationship where the creditor
insures the life of the debtor (the limit of the insurable interest is
In Layman’s Term: equal to the amount of the debt).

Variable life insurance is a permanent life insurance policy with an Related notes:
investment component.

The policy has a cash-value account, which is invested in a number An insuring creditor could only recover such amounts which remain
of sub-accounts available in the policy. unpaid at the time of the death of the debtor. If the whole debt has
been paid, recovery on the policy by the creditor is no longer
A sub-account acts similar to a mutual fund, except it is only possible.
available within a variable life insurance policy.
Where the debtor, in good faith, insures his life for the benefit of the
These contracts are riskier than the typical contract because they creditor, full payment of the debt does not invalidate the policy. In
depend on the value of the separate account that serves as the such case, the proceeds shall go to the estate of the debtor.
backing for the contract.
When the debt is barred by the statute of limitations or of the
F. INSURABLE INTEREST debtor was discharged by virtue of insolvency, it does not cut-off the
insurable interest of the creditor, because the equitable obligation
IN GENERAL of the debtor to pay his debt is not discharged.

 A person has insurable interest in the subject matter if he

Consent of the person whose life is insured
is so connected, so circumstances, so related, that by the
preservation of the property he shall derive pecuniary
benefit, and by its destruction he shall suffer pecuniary It is NOT essential to the validity of the insurance taken by another,
loss, damage, or prejudice. as long as the insured has a legal insurable interest at the inception
of the policy, the insurance contract is VALID.
 A policy issued to a person without the requisite insurable
interest in the subject matter is a mere wager policy or 2) IN PROPERTY
contract, hence it is VOID.
Every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a
1) IN LIFE/DEATH contemplated peril might directly damnify the insured, is an
insurable interest (Section 13, Insurance Code)

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

An insurable interest in property may consist in:
"(a) Of himself, of his spouse and of his children;
"(a) An existing interest;
"(b) Of any person on whom he depends wholly or in part
for education or support, or in whom he has a pecuniary "(b) An inchoate interest founded on an existing interest;
interest; or

"(c) Of any person under a legal obligation to him for the Note: A stockholder has an inchoate interest in the property of the
payment of money, or respecting property or services, of corporation of which he is the stockholder which is founded on an
which death or illness might delay or prevent the interest arising from his ownership of shares in the corporation.
performance; and
Philippine Association Smelting and Refining Corp. vs. Pablito Lim The mortgagor and the mortgagee each have an insurable interest in
Double Insurance and Over Insurance (Leonen Case) Re: Right to the property mortgaged and this interest is separate and distinct
Inspect of Stockholders from each other. Therefore, insurance taken by one in his name and
in his favor alone, do not inure to the benefit of another.
The stockholder's right of inspection of the corporation's books and
records is based upon their ownership of the assets and property of a. Mortgagor – as the owner, has an insurable interest to the extent
the corporation. of its value, even though the mortgage debts equals such value

It is, therefore, an incident of ownership of the corporate property,

whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership.

"(c) An expectancy, coupled with an existing interest in

that out of which the expectancy arises (Section 14,
Insurance Code)

When should insurable interest exist?

When the insurance takes effect AND when the loss occurs, but
need not exist in the meantime.

Amount

The measure of the insurable interest in the property is the extent to

which the insured might be damnified by the loss or injury thereof
(Section 17)

Reason: Because a contract of property insurance that gives the

insured more than the indemnity of his actual loss suffered by
reason of the designated perils is a wagering policy contrary to
public policy, hence, VOID.

Insurable Interest in Life Insurable Interest in Property

Must exist only at the time the Must exist at the time policy
policy takes effect and need takes effect AND when the loss
not exist at the time of loss occurs, but need not exist in
the meantime.

Unlimited except in life Limited to actual value of

insurance effected by creditor interest in property insured
on the life of debtor
The expectation of benefit to An expectation of benefit to be
be derived from the continued derived from the continued
existence of life need not have existence of the property
any legal basis whatever. A insured must have legal basis.
reasonable probability is
sufficient without more.
The beneficiary need not have The beneficiary must have
an insurable interest over the insurable interest over the
life of the inured if the insured thing insured.
himself secured the policy.

However, if the life insurance

was obtained by the
beneficiary, the latter must
have an insurable interest over
the life of the insured.

Insurable Interest in a Mortgaged Property

Reason: The loss or destruction of the property insured will not

extinguish the mortgage debt

3. Where the policy under which the insured claims is an unvalued
b. Mortgagee – his interest is only up to the extent of the debt. Such policy, he must give credit as against the full insurable value, for any
interest continues until the mortgage debt is extinguished. sum received by him under the any policy.

Under the Principle of Contribution or Contribution Clause, it is

Reason: The Property relied on is only a security. In insuring the
required that each insurer contribute ratably to the loss or damage
property, he is not insuring the property itself but only his interest
considering insurances to cover the same subject matter and the
or lien thereon.
interest against the same peril.

Palileo v. Caltex: FORMULA:

In case if an insurance taken by the mortgagee alone and for his

benefit, the mortgagee, after recovery from the insurer, is not AMOUNT OF POLICY
allowed to retain his claim against the mortgagor, but it passes by LIABILITY OF INSURER = ______________________ x LOSS
subrogation to the insurer to the extent of the insurance money
paid. TOTAL INSURANCE LOSS

3) DOUBLE INSURANCE AND OVER INSURANCE

Additional or Other Insurance Clause – a condition in the policy
A double insurance exists where the same person is insured by requiring the insured to inform the insurer of any other insurance
several insurers separately in respect to the same subject and coverage of the property insured is lawful and specifically allowed
interest. under Sec. 75 of the ICP which provides that “a policy may declare
that a violation of a specified provisions thereof shall avoid it,
Requisites: otherwise the breach of an immaterial provision does not avoid it.”

1. The person insured is the same; It is a stipulation against double insurance.

2. Two or more insurers insuring separately;
3. The subject matter is the same; Purposes of the Additional or Other Insurance Clause:
4. The interest insured is the same; and
5. The risk or peril insured against is the same. a. Prevent an increase in the moral hazards
b. Prevent over insurance and fraud
Over-insurance results when the insured insures the same property
for an amount greater than the value of the property with the same To constitute a violation of the clause, there must have been
insurance company. double insurance.

Effect in case of loss: 4) Multiple or Several Interests on the Same Property

1. The insure is bound only to pay to the extent of the real General Rule: The insurance proceeds shall be applied exclusively to
value of the property lost the proper interest of the person in whose name or for whose
benefit it is made.
2. The insured is entitled to recover the amount of premium
corresponding to the excess in value of the property. Exception: Unless otherwise specified in the policy. [Sec. 53]

OVER-INSURANCE DOUBLE INSURANCE Examples wherein multiple persons may each have insurable
One insurer is sufficient Two or more insurers interest over the same property:
Insurance taken must be more Total amount of polices taken
than the amount of the need not exceed the amount
(1)  Corporations – the corporation and its stockholders have
insurable interest of the insurable interest
insurable interest over the corporate assets.
Where double insurance is allowed, but over-insurance results,
WHAT ARE THE EFFECTS? (2)  Partnerships – the partnership and the partners composing it
have insurable interest over its assets.
1. The insured, unless the policy otherwise provides, may claim
payment from the insurers in such order as he may select, up to the (3)  Assignments – the assignor and assignee have insurable interest
amount for which the insurers are severally liable under their over the property assigned.
respective contracts.
(4)  Trusts – the trustor and trustee have insurable interest over the
2. Where the policy under which the insured claims is a valued property in trust.
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 (5)  Lease Agreements - the lessor, lessee and sub-lessees have
insurable interest over the property in lease.
(6)  Mortgages – the mortgagor and mortgagee/s have insurable
interest over the property mortgaged.
b. Delivery of policy
Insurable Interest in a Mortgaged Property
It is an evidence of the making of the contract and of its terms and
The mortgagor and the mortgagee each have an insurable interest in as communication of the insurer’s acceptance of the insured’s offer.
the property mortgaged and this interest is separate and distinct (De Leon)
from each other. Therefore, insurance taken by one in his name and
in his favor alone, do not inure to the benefit of another. It is not, however, a pre-requisite of a valid contract of insurance.

a. Mortgagor – as the owner, has an insurable interest to the extent Delivery to the agent cannot be considered delivery to the insured,
of its value, even though the mortgage debts equals such value as the agent of the insurance company is not the agent of the
insured. [Bradley v. New York Life Ins., 275 F. 657 (1921)]
Reason: The loss or destruction of the property insured will not
extinguish the mortgage debt 2) Premium Payment

b. Mortgagee – his interest is only up to the extent of the debt. Such An insurance premium is the agreed price for assuming and carrying
interest continues until the mortgage debt is extinguished. the risk, that is, the consideration paid an insurer for undertaking to
indemnify the insured against the specified peril.
Reason: The Property relied on is only a security. In insuring the
property, he is not insuring the property itself but only his interest Section 77. An insurer is entitled to payment of the premium as
or lien thereon. soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or
Palileo v. Caltex: contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except
In case if an insurance taken by the mortgagee alone and for his in the case of a life or an industrial life policy whenever the grace
benefit, the mortgagee, after recovery from the insurer, is not period provision applies, or whenever under the broker and agency
allowed to retain his claim against the mortgagor, but it passes by agreements with duly licensed intermediaries, a ninety (90)-day
subrogation to the insurer to the extent of the insurance money credit extension is given. No credit extension to a duly licensed
paid. intermediary should exceed ninety (90) days from date of issuance
of the policy.
G. PERFECTION OF THE CONTRACT OF INSURANCE
General rule (Cash and Carry Rule): No policy or contract of
insurance issued by an insurance company is valid and binding
1) Offer and acceptance/consensuality
unless and until the premium thereof has been paid. [Sec. 77]

Consensual contract and therefore the perfected the moment there

Any agreement to the contrary is void.
is meeting of the minds with respect to the object and the cause or
consideration.
Exceptions:
Mere submission of the application without the corresponding
approval of the policy does not result in the perfection of the 1. Whenever the grace period provision applies in the case of a life
contract of insurance. or an industrial life policy. [Sec. 77]

What is being followed in insurance contract is the Cognition Theory Applicable Grace Periods
NOT the Manifestation Theory. Thus, an acceptance made by letter
shall not bind the person making the offer except from the time it In case of individual life insurance or endowment insurance, the
came to his knowledge. policyholder is entitled to a grace period either of thirty (30) days or
of one (1) month within which the payment of any premium after
a. Delay in acceptance the first may be made, subject at the option of the insurer to an
interest charge not in excess of six percent (6%) per annum for the
number of days of grace elapsing before the payment of the
An insurance contract is not perfected in case there is only an offer
premium, during which period of grace the policy shall continue in
into an insurance contract in the form of an insurance application;
full force, but in case the policy becomes a claim during the said
mere delay by the insurer, although unreasonable, in acting upon
period of grace before the overdue premium is paid, the amount of
the application raises no implication of acceptance.
such premium with interest may be deducted from the amount
payable under the policy in settlement[Sec. 233]
It does not estop the insurer from denying the existence of the
contract. However, implied acceptance of an offer can be In cases of industrial life insurance,  the insured is entitled to a grace
established only if there are other circumstances that will indicate period of four (4) weeks within which the payment of any premium
such acceptance other than inaction or delay. (Aquino) after the first may be made, except that where premiums are
payable monthly, the period of grace shall be either one (1) month
or thirty (30) days; and that during the period of grace, the policy controlled corporations, may pay their insurance premiums and loan
shall continue in full force, but if during such grace period the policy obligations through salary deduction
becomes a claim, then any overdue and unpaid premiums may be
deducted from any amount payable under the policy in settlement. Provided, That the treasurer, cashier, paymaster or official of the
entity employing the government employee is authorized,
[Sec. 236] notwithstanding the provisions of any existing law, rules and
regulations to the contrary, to make deductions from the salary,
wage or income of the latter pursuant to the agreement between
2. Whenever under the broker and agency agreements with duly
the insurer and the government employee and to remit such
licensed intermediaries, a 90-day credit extension is given.
deductions to the insurer concerned, and collect such reasonable fee
for its services.
Note: No credit extension to a duly licensed intermediary should
exceed 90 days from the date of issuance of the policy. [Sec. 77]
3) Non-Default Option in Life Insurance

3. When there is an acknowledgment in the contract that the

See “Applicable Grace Periods” above.
premium has been paid. [Sec. 79]

In the case of individual life or endowment insurance, the policy

Note: Such acknowledgment is a conclusive evidence of its
shall contain a provision specifying the options to which the
payment, so far as to make the policy binding, notwithstanding any
policyholder is entitled to in the event of default in a premium
stipulation there that it shall not be binding until the premium is
payment after three (3) full annual premiums shall have been paid.
actually paid.
[Sec. 233(f)]

However, the conclusive presumption extends only to the question

Such option shall consist of:
on 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. (1)  A cash surrender value payable upon surrender of the policy
which shall not be less than the reserve on the policy.
The insurer may still dispute its acknowledgment but only for the
purpose of receiving the premium due and paid.  The basis of which shall be indicated, for the then current
policy year; and
Ratio: When the policy contains such written acknowledgment, it is
 Any dividend additions thereto, shall be reduced by a
presumed that the insurer has waived the condition of the payment.
surrender charge, which shall not be more than one-fifth
(1/5)of the entire reserve or two and one-half percent
Jurisprudence decided before RA 10607 provides two further (21⁄2%) of the amount insured and any dividend additions
exceptions: thereto.

4. Agreement to grant payment of premium in installment basis and (2)  One or more paid-up benefits on a plan or plans specified in the
partial payment has been made at the time of the loss; [Makati policy of such value as may be purchased by the cash surrender
Tuscany v. CA, G.R. No. 95546, (1992)] value. [Sec. 233(f)]

5. When parties are barred by Estoppel. [UCPB v. Masagana Cash Surrender Value (CSV)
Telemart, G.R. No. 137172 (2001)]
The CSV is the amount that the insured is entitled to receive if he
Effect of non-payment surrenders the policy and releases his claims upon it.

Notwithstanding any agreement to the contrary, no policy or The right to CSV accrues only after three full annual premium
contract of insurance issued by an insurance company is valid and payments.
binding unless and until the premium thereof has been paid.
The insured is given the right to claim the amount not less than the
Effect of acceptance of premium reserve, reduced by surrender charge, [Sec. 233(f)(1)]

Acceptance of the premium within the stipulated period for The CSV is an amount which the insurance company holds in trust
payment thereof, including the agreed period for grace, merely for the insured to be delivered to him upon demand. When the
assured continued effectivity of the insurance policy in accordance company’s credit for advances is paid out of the cash value or cash
with its terms. surrender value, that value and the company’s liability is diminished.
[Manufacturer’s Life Ins. v. Meer, G.R. No. L- 2910(1951)]
Premium Payment for Government Employees
Rationale: The premium is uniform throughout a lifetime, but the
Employees of the Republic of the Philippines, including its political risk is varied (i.e. higher risk when older, lower when young). Thus,
subdivisions and instrumentalities, and government-owned or - the cost of protection is more expensive during the early years of
the policy.
 4) Reinstatement of a Lapsed Policy of Life Insurance The right to rescind is waived by the acceptance of premium
payments despite the knowledge of the ground
The policyholder shall be entitled to have the policy reinstated at
any time within three (3) years from the date of default of premium Limitations on the Right of the Insurer to Rescind
payment unless the cash surrender value has been duly paid, or the
extension period has expired, upon production of evidence of 1. Non-life policy – such right must be exercised prior to the
insurability satisfactory to the company and upon payment of all commencement of an action on the contract
overdue premiums and any indebtedness to the company upon said
policy.
2. Life insurance – such right must be availed of during the first 2
years from the date of the issue of policy OR its last reinstatement
5) Refund of Premiums
The Incontestability Clause
Entitled to the return of the WHOLE:
Requisites:
1. If no part of his interest in the thing insured be exposed to any of
the perils insured against. [Sec. 80]
1. he insurance is a life insurance policy

2. When the contract is voidable due to the fraud or

2. It is payable on the death of the insured
misrepresentation of insurer or his agent. [Sec. 82]

3. It has been in force during the lifetime of the insured for at least 2
3. When the contract is voidable because of the existence of facts of
years from its date of issue OR of its last reinstatement
which the insured was ignorant without his fault. [Sec. 82]

NOTE! The period of 2 years may be shortened but it CANNOT be

4. When by any default of the insured other than actual fraud, the
extended by stipulation.
insurer never incurred any liability under the policy. [Sec. 82]

Effect When Policy Becomes Incontestable

5. When rescission is granted due to the insurer’s breach of contract.
[Sec. 74]
a. Barred Defenses of the Insurer:
Entitled to the return PRO-RATA:
1. The policy is void ab initio
2. It is rescissible by reason of the fraudulent concealment or
1. Where the insurance is for a definite period and the insured
misrepresentation of the insured
surrenders his policy, the portion of the premium that corresponds
to the unexpired time at a pro rata rate, unless a short period rate
has been agreed upon and appears on the face of the policy should 1) CONCEALMENT
be return. [Sec. 80(b)]
A neglect to communicate that which a party knows and ought to
2. When there is over-insurance by several insurers, the return communicate, is called a concealment (Section 26).
premiums should be proportioned to the amount by which the
aggregate sum insured in all the policies exceeds the insurable value Requisites of Concealment:
of the thing at risk. [Sec. 83]
1. A party knows a fact (material fact) which he neglects to
3. In case of over insurance by double insurance, the insurer is not communicate or disclose to the other;
liable for the total amount of the insurance taken, his liability being
limited on the property insured. Hence, the insurer is not entitled to 2. Such party concealing is duty bound to disclose such fact to the
the portion of the premium corresponding to the excess of the other;
insurance over the insurable interest of the insured.

3. Such party concealing makes no warranty of the fact concealed;

H. RESCISSION OF INSURANCE CONTRACTS and

Rescission is brought about by any of the following grounds: 4. The other party has not the means of ascertaining the fact
concealed.
1. Concealment
Test of Materiality
2. Misrepresentation
The test of materiality is whether the insurer would have agreed to
3. Breach of Warranties issue the policy had it known of the facts concealed OR, perhaps,
impose additional terms or require higher premium.
Waiver of the Right to Rescind
Materiality relates to the probable and reasonable influence of the 1. Matters already known to the insurer [Sec. 30(a)];
facts upon the party to whom the communication should have been
made, in: 2. Matters which each party are bound to know [Sec. 30(b) and Sec.
32];
1. Assessing the risk involved;
2. Making or omitting to make further inquiries; and 3. Matters of which the insurer waives communication [Sec. 30(c)
3. Accepting the application for insurance. [Sec. 31] and Sec. 33];

XPNs to Concealment: 4. Matters which prove or tend to prove the existence of a risk
excluded by a warranty and which are not otherwise material [Sec.
1. Incontestability Clause – in life insurance, after the policy has 30(d)];
been in force during the lifetime of the insured for at least 2 years,
the insurer cannot rescind the policy due to the fraudulent 5. Matters which relate to a risk excepted in the policy, and which
concealment or misrepresentation of the insured are not otherwise material [Sec. 30(e)];

2. A concealment in a marine insurance, in respect to any of the 6. Information of the nature or amount of the interest of one
following matters, does not vitiate the entire contract, but merely insured unless if inquired upon by the insurer, except if required by
exonerates the insurer from a loss resulting from the risk Sec. 51 [Sec. 34];
concealed:
7. Matters of opinion. [Sec. 35]
(a) The national character of the insured;
Each party to a contract of insurance is bound to know all the
(b) The liability of the thing insured to capture and general causes which are open to his inquiry, equally with that of the
detention; other, and which may affect the political or material perils
contemplated; and all general usages of trade. [Sec. 32]
(c) The liability to seizure from breach of foreign laws of
trade; 2) MISREPRESENTATION/OMISSIONS

(d) The want of necessary documents; and Representations are factual statements made by the insured at the
time of, or prior to, the issuance of the policy, which give
(e) The use of false and simulated papers. information to the insurer and induce him to enter into the
insurance contract.
TAKE NOTE: The waiver of a medical examination [in a non-medical
insurance contract] renders even more material the information Requisites of False Representation (Misrepresentation):
required of the applicant concerning previous condition of health
and diseases suffered, for such information necessarily constitutes 1. The insured stated a fact which is untrue;
an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not (Sunlife vs. Sps. Bacani)
2. Such fact was stated with knowledge that it is untrue and with
intent to deceive OR which he states positively as true without
TANDAAN!!! Philamcare Health Systems, Inc. vs. Court of Appeals – knowing it to be true and which has a tendency to mislead;

Where matters of opinion or judgment are called for, answers made 3. Such fact in either case is material to the risk.
in good faith and without intent to deceive will not avoid a policy
even though they are untrue.
Note: Like in concealment, fraud or intent is not essential to entitle
the insurer to rescind on the ground of misrepresentation. [Sec. 45]
Reason: The insurer cannot rely on those statements. He must make
further inquiry.
A misrepresentation by the insured renders the insurance contract
voidable at the option of the insurer
Matters that Must be Communicated Even in the Absence of
Inquiry (Sec. 28): Effect? The injured party is entitled to rescind from the time when
the representation becomes false
1. Those material to the contract
Kinds of Misrepresentation:
2. Those which the other has no means of ascertaining said the facts

3. Those as to which the party with the duty to communicate makes 1. Affirmative – Refers to any affirmation as to the existence or non-
no warranty existence of a fact when the contract begins

2. Promissory – Any promise to be fulfilled after the contract has

Matters which Need Not be Disclosed come into existence; or any statement concerning what is to happen
during the existence of the insurance. [Sec. 39]
Things to Remember: a. Violation of Material Warranty

A representation may be made at the time of OR before the issuance GR: Violation of material warranty or of a material provision of a
of the policy policy will entitle the other party to rescind the contract

A representation as to the future is to be deemed a promise, unless XPNS:

it appears that it was merely a statement of belief or expectation.
1. Loss occurs before the time of performance of the warrant
Test of materiality: same as that of in concealment
2. The performance becomes unlawful at the place of the contract
Insular Life Assurance Co. vs. Feliciano – where the insured merely
signed the application form and made the agent of the insurer fill 3. Performance becomes impossible
the same for him, it was held that by doing so, the insured made the
agent of the insurer his own agent and he was responsible for his act
b. Violation of Immaterial Warranty
for that purpose.

GR: It will not avoid the policy

3) BREACH OF WARRANTIES

XPN: When the policy express provides or declares that a violation

A warranty is a statement or promise by the insured set forth in the
thereof will avoid it
policy itself or incorporated in it by proper reference, the untruth or
nonfulfillment of which in any respect and without reference to
whether the insurer was in fact prejudiced by such untruth or non- I. CLAIMS SETTLEMENT AND SUBROGATION
fulfillment, renders the policy voidable by the insurer.
1) Notice and Proof of Loss
Purpose: To eliminate potentially increasing hazards which may
either be due to the acts of the insured or to the change of the a. Notice of Loss
condition of the property
Purpose: To apprise the insurance company so that it may make
Basis: The insurer took into consideration the condition of the proper
property at the time of the effectivity of the warranty
Failure to Give Notice
Warranty Representation
Part of the contract Mere collateral inducement In fire insurance: an insurer is exonerated, if written notice thereof
Written on the policy or May be written in the policy or be not given to him by an insured, or some person entitled to the
incorporated by proper may be oral benefit of the insurance, without unnecessary delay. [Sec. 90]
reference
Falsity or non-compliance Falsity renders the policy
In other types of insurance:
operates as a breach of the voidable on the ground of
contract fraud
Must be strictly complied with Requires substantial GR: Failure to give notice will not exonerate the insurer.
compliance
XPN: There is a stipulation in the policy requiring the insured to do
Kinds of Warranties so.

a. Express – an agreement expressed in a policy whereby the insured However, it has been held that formal notice of loss is not necessary
stipulates that certain facts relating to the risk are or shall be true, or if insurer has actual notice of loss [Fidelity Phoenix Insurance v.
certain acts relating to the same subject matter have been or shall Friedman, 174 SW 215 (1987)] but there is a ruling to the contrary
be done [Col. Sav. Bank v. American Surety, 87 P 118].

b. Implied – it is deemed included in the contract although not Form

expressly mentioned e.g. in marine insurance, seaworthiness of the
vessel. In case of loss as regards fire insurance, there must be a written
notice thereof [Sec. 90]. But as to other non-life insurance policies,
c. Affirmative – Asserts the existence of a fact or condition at the the law does not provide for a necessity of written notice. [de Leon]
time it is made.
The notice of loss may be in the form of an informal or provisional
d. Promissory – The insured stipulates that certain facts or claim containing a minimum of information, as distinguished from a
conditions shall exist OR that certain things shall be done or omitted. formal claim which contains the full details of the loss, computations
It is in the nature of a condition subsequent. [Sec. 72 and 73] of the amounts claimed, and supporting evidence, together with a
demand or request for payment [de Leon].

Effects of Breach of Warranty

Time for Giving Notice (4) Not attempting in good faith to effectuate prompt, fair
and equitable settlement of claims submitted in which
Notice of loss must be given within reasonable time. [Bachrach v. liability has become reasonably clear; or
Britain American Assurance, G.R. No. L-5715 (1910)]
"(5) Compelling policyholders to institute suits to recover
For compulsory motor vehicle insurance, the notice must be given amounts due under its policies by offering without
within six months from the date of the accident. [Sec. 397] justifiable reason substantially less than the amounts
ultimately recovered in suits brought by them. [Section
237 (a), Insurance Code]
For other non-life insurance, the Commissioner may specify the
period for the submission of the notice of loss. [Sec. 90]
Sanction: If it is found, after notice and an opportunity to be heard,
that an insurance company has violated this section, each instance
b. Proof of Loss
of noncompliance with paragraph (a) may be treated as a separate
violation of this section and shall be considered sufficient cause for
On Preliminary Proof of Loss the suspension or revocation of the company’s certificate of
authority. [Section 237 (a), Insurance Code]
When a preliminary proof of loss is required by a policy, the insured
is not bound to give such proof as would be necessary in a court of b. Prescription of Actions
justice; but it is sufficient for him to give the best evidence which he
has in his power at the time. (Section 91)
Rules:

If the policy requires, by way of preliminary proof of loss, the

1. In the absence of an express stipulation in the policy, it being
certificate or testimony of a person other than the insured, it is
based on a written contract, the actions prescribes in 10 years
sufficient for the insured to use reasonable diligence to procure it,
and in case of the refusal of such person to give it, then to furnish
reasonable evidence to the insurer that such refusal was not induced 2. The parties may validly agree on a shorter period provided it is
by any just grounds of disbelief in the facts necessary to be certified NOT LESS THAN ONE YEAR from the time the cause of action
or testified. (Section 94) accrues.

TAKE NOTE! All defects in a notice of loss OR in preliminary proof A condition, stipulation, or agreement in any policy of insurance,
thereof, which the insured might remedy, and which the insurer limiting the time for commencing an action thereunder to a period
omits to specify to him, without unnecessary delay, as grounds of less than 1 year from the time when the cause of actions accrues, is
objection, are waived.(Section 92) void.

Delay in the presentation to an insurer of notice OR proof of loss is 3. The cause of action accrues from the rejection of the claim of the
waived if caused by any act of him, or if he omits to take objection insured and not at the time of the loss.
promptly and specifically upon that ground. (Section 93)
Prescriptive period shall commence from the initial denial of the
claim, not from the resolution of the motion for reconsideration
filed by the insured, otherwise, it can be used by the insured as a
scheme or device to waste the time until the evidence which may be
2) Guidelines on Claims Settlement
used against him is destroyed. (Sun Insurance Office Ltd. vs. Court of
Appeals)
a. Unfair Claims Settlements; Sanctions
4. In CMVLI, the written notice of claim must be filed within 6
Any of the following acts by an insurance company, if committed months from the date of the accident; otherwise, the claim is
without just cause and performed with such frequency as to indicate deemed waived even if the action is brough within one year from its
a general business practice, shall constitute unfair claim settlement rejection (Vda. De Gabriel vs. Court of Appeals)
practices:
c. Subrogation
(1) Knowingly misrepresenting to claimants pertinent facts
or policy provisions relating to coverage at issue;
A process of legal substitution where the insurer steps into the shoes
of the insured and he avails of the latter’s rights against the
(2) Failing to acknowledge with reasonable promptness wrongdoer at the time of loss.
pertinent communications with respect to claims arising
under its policies;
The principle of subrogation is normal incident of indemnity
insurance as legal effect of payment; it inures to the insurer without
(3) Failing to adopt and implement reasonable standards formal assignment OR any express stipulation to that effect in the
for the prompt investigation of claims arising under its policy. Said right is not dependent upon nor does it grow out of any
policies; private contract. Payment to the insured makes the insurer a
subrogee in equity. (Malayan Insurance Co. Inc, vs. Court of Appeals)
Purposes  Must not be merely incidental to any other legitimate
business or activity of the surety
1. To make the person who caused the loss responsible for it

2. To prevent the insured from receiving double recovery from the (3) Doing any kind of business, specifically recognized as constituting
wrongdoer and the insurer the doing of an insurance business within the meaning of the
Insurance Code;
3. To prevent tortfeasors from being free from liability and is thus
founded on public policy  Including a reinsurance business,

Rules (4) Doing or proposing to do any business in substance equivalent to

any of the foregoing in a manner designed to evade the provisions of
the Insurance Code. [Sec. 2(b)]
1. Applicable only to property insurance

The following shall NOT be deemed conclusive to show that the

Reason: The value of human life is regarded as unlimited and
making thereof does not constitute the doing or transacting of an
therefore no recovery from a third party can be deemed adequate
insurance business:
to compensate the insured’s beneficiary

a. The fact that no profit is derived from the making of insurance

2. The insurer can only recover from the third person what the
contracts, agreements or transactions; or
insured could have recovered

b. The fact that no separate or direct consideration is received

No Subrogation in the Following Instances
therefor. [Sec. 2(b)]

1. Where the insured by his own act releases the wrongdoer or third
For the purpose of determining what "doing an insurance business"
party liable for the loss or damage
means, we have to scrutinize the operations of the business as a
whole and not its mere components. [Philippine Health Care
2. Where the insurer pays the insured the value of the loss without Providers, Inc. v. CIR, G.R.167330 (2009)]
notifying the carrier who has in good faith settled the insured’s claim
for loss
"Section 192. No corporation, partnership, or association of persons
shall transact any insurance business in the Philippines except as
3. Where the insurer pays the insured for a loss or risk not covered agent of a corporation, partnership or association authorized to do
by the policy. (Pan Malayan Insurance Company vs. Court of the business of insurance in the Philippines, unless possessed of the
Appeals) capital and assets required of an insurance corporation doing the
same kind of business in the Philippines and invested in the same
Things to Remember manner; unless the Commissioner shall have granted it a certificate
to the effect that it has complied with all the provisions of this Code.
Should the insured, after receiving payment from the insurer,
release by his own act the wrongdoer or the third party responsible "Every entity receiving any such certificate of authority shall be
for the loss or damage from liability, the insurer losses his rights subject to the insurance and other applicable laws of the Philippines
against the wrongdoer since the insurer can only be subrogated to and to the jurisdiction and supervision of the Commissioner.
such rights as the insured may have. (Manila Mahogany Mfg. Corp.
vs. Court of Appeals) "Section 193. No insurance company shall transact any insurance
business in the Philippines until after it shall have obtained a
If the amount paid by the insurance company does not fully cover certificate of authority for that purpose from the Commissioner
the injury or loss, it is the aggrieved party, the insured, who is upon application therefor and payment by the company concerned
entitled to recover the deficiency from the person responsible for of the fees hereinafter prescribed.
the loss or injury
xxx xxx xxx
J. Business Insurance; Requirements

Business of Insurance "In order to maintain the quality of the management of the
insurance companies and afford better protection to policyholders
and the public in general, any person of good moral character,
The term “doing an business or transacting an insurance business”
unquestioned integrity and recognized competence may be elected
includes:
or appointed director or officer of insurance companies in
accordance with the pertinent provisions contained in the corporate
(1)  Making or proposing to make, as insurer, any insurance contract; governance circulars prescribed by the Commissioner. In addition
hereto, the Commissioner shall prescribe the qualifications of
(2)  Making or proposing to make, as surety, any contract of directors, executive officers and other key officials of insurance
suretyship as a vocation; companies for purposes of this section.
"No person shall concurrently be a Director and/or Officer of an mercantile registry of that Commission in accordance with
insurance company and an adjustment company. the Corporation Code.

"Before issuing such certificate of authority, the Commissioner must A copy of the articles of incorporation and bylaws, and any
be satisfied that the name of the company is not that of any other amendments to either, if organized or formed under any
known company transacting a similar business in the Philippines, law requiring such to be filed, duly certified by the officer
or a name so similar as to be calculated to mislead the public. The having the custody of same, or if not so organized, a copy
Commissioner may issue rules and regulations on the use of names of the law, charter or deed of settlement under which the
of insurance companies and other supervised persons or entities. deed of organization is made, duly certified by the proper
custodian thereof, or proved by affidavit to be a copy; also,
"The certificate of authority issued by the Commissioner shall expire a certificate under the hand and seal of the proper officer
on the last day of December, three (3) years following its date of of such state or country having supervision of insurance
issuance, and shall be renewable every three (3) years thereafter, business therein, if any there be, that such corporation or
subject to the company’s continuing compliance with the provisions company is organized under the laws of such state or
of this Code, circulars, instructions, rulings or decisions of the country, with the amount of capital stock or assets and
Commission. legal reserve required by this Code;

xxx xxx xxx "(d) If not incorporated and of foreign domicile, aside from
the certificate mentioned in paragraph (c) of this section, a
"No insurance company may be authorized to transact in the certificate setting forth the nature and character of the
Philippines the business of life and non-life insurance concurrently, business, the location of the principal office, the name of
unless specifically authorized to do so by the the individual or names of the persons composing the
Commissioner: Provided, That the terms life and non-life insurance partnership or association, the amount of actual capital
shall be deemed to include health, accident and disability insurance. employed or to be employed therein, and the names of all
officers and persons by whom the business is or may be
"No insurance company shall have equity in an adjustment managed.
company and neither shall an adjustment company have equity in
an insurance company. K. Insurance Commission and its Powers

Requirement for New Domestic Life or Non-life Insurance Company

1. Jurisdiction and Adjudicatory Powers
"Section 194. Except as provided in Section 289, no new domestic
life or non-life insurance company shall, in a stock corporation, The Insurance Commissioner exercises administrative supervision
engage in business in the Philippines unless possessed of a paid-up over insurance companies, mutual benefit associations and trusts for
capital equal to at least One billion pesos (P1,000,000,000.00). charitable uses. He has the duty to see that all laws relating to
insurance companies and other insurance matters are faithfully
"The Commissioner may, as a pre-licensing requirement of a new executed. [Carale]
insurance company, in addition to the paid-up capital stock, require
the stockholders to pay in cash to the company in proportion to In addition to administrative powers, the Commissioner has the
their subscription interests a contributed surplus fund of not less power to adjudicate disputes relating to an insurance company’s
than One hundred million pesos (P100,000,000.00). liability to an insured under a policy. [Sec.437]

He may also require such company to submit to him a business plan A complaint or claim filed with such official is considered an “action”
showing the company’s estimated receipts and disbursements, as or “suit” the filing of which would have the effect of tolling the
well as the basis therefor, for the next succeeding three (3) years. suspending the running of the prescriptive period.

"Section 195. Every company must, before engaging in the business Concurrent jurisdiction (with regular civil courts) over cases where
of insurance in the Philippines, file with the Commissioner the any single claim does not exceed P5,000,000 involving liability arising
following: from:

"(a) A certified copy of the last annual statement or a 1. Insurance contract;

verified financial statement exhibiting the condition and 2. Contract of suretyship;
affairs of such company; 3. Reinsurance contract;
4. Membership certificate issued by members of mutual
"(b) If incorporated under the laws of the Philippines, a benefit association [Sec. 439]
copy of the articles of incorporation and bylaws, and any
amendments to either, certified by the Securities and Primary and exclusive jurisdiction over claims for benefits involving
Exchange Commission to be a copy of that which is filed in pre-need plans where the amount of benefits does not exceed
its Office; P100,000. [Sec. 55, RA 9829]

"(c) If incorporated under any laws other than those of the For the purpose of proceeding under its adjudicatory powers under
Philippines, a certificate from the Securities and Exchange the Insurance Code, the Commissioner or any officer thereof
Commission showing that it is duly registered in the designated by him, is empowered to administer oaths and
affirmation, subpoena witnesses, compel their attendance, take creditors. The conservator will take charge of the management of
evidence and require the production of any books, papers, the insurance company. [Sec. 255]
documents or contracts or other records which are relevant or
material to the inquiry [Sec. 439]. 4. Codal Provision

Note: However, the Insurance Commission has no jurisdiction to "Section 437. xxx xxx xxx
decide the legality of a contract of agency entered into between an
insurance company and its agent. The same is not covered by the
term “doing or transacting insurance business” under Sec. 2, neither
"In addition to the foregoing, the Commissioner shall have the
is it covered by Sec. 439, which grants the Commissioner
following powers and functions:
adjudicatory powers. [Sundiang and Aquino]

"(a) Formulate policies and recommendations on issues

concerning the insurance industry, advise Congress and
other government agencies on all aspects of the insurance
2. Revocation of Certificate of Authority industry and propose legislation and amendments thereto;

The Certificate of Authority issued to the domestic or foreign "(b) Approve, reject, suspend or revoke licenses or
company by the Commission may be revoked or suspended by the certificates of registration provided for by this Code;
Insurance Commissioner for any of the following grounds:
"(c) Impose sanctions for the violation of laws and the
The company is in an unsound condition: rules, regulations and orders issued pursuant thereto;

a. That it has failed to comply with the provisions of law or "(d) Prepare, approve, amend or repeal rules, regulations
regulations obligatory upon it and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations and
orders;
b. That its condition or method of business is such as to render its
proceedings hazardous to the public or its policyholders "(e) Enlist the aid and support of, and/or deputize any and
all enforcement agencies of the government in the
c. That its paid-up capital stock, in the case of a domestic stock implementation of its powers and functions under this
corporation, or its available cash assets, in the case of a domestic Code;
mutual company, or its security deposits, in the case of a foreign
company, is impaired or deficient "(f) Issue cease and desist orders to prevent fraud or injury
to the insuring public;

d. That the margin of solvency required of such company is deficient. "(g) Punish for contempt of the Commissioner, both direct
[Sec. 254] and indirect, in accordance with the pertinent provisions
of and penalties prescribed by the Rules of Court;
The Commissioner is authorized to suspend or revoke all certificates
of authority granted to such insurance company, its officers and "(h) Compel the officers of any registered insurance
agents, and no new business shall thereafter be done by such corporation or association to call meetings of stockholders
company or for such company by its agents in the Philippines while or members thereof under its supervision;
such suspension, revocation, or disability continues or until its
authority to do business is restored by the Commissioner. [Sec. 254] "(i) Issue subpoena duces tecum and summon witnesses to
appear in any proceeding of the Commission and, in
Before restoring such authority, the Commissioner shall require the appropriate cases, order the examination, search and
company concerned to submit to him a business plan showing the seizure of all documents, papers, files and records, tax
company’s estimated receipts and disbursements, as well as the returns, and books of accounts of any entity or person
basis therefor, for the next succeeding three years. [Sec.254. under investigation as may be necessary for the proper
disposition of the cases before it, subject to the provisions
of existing laws;
3. Liquidation of Insurance Company

"(j) Suspend or revoke, after proper notice and hearing,

If the company is determined by the Commissioner to be insolvent
the license or certificate of authority of any entity or
or cannot resume business, he shall, if public interest requires, order
person under its regulation, upon any of the grounds
its liquidation. [Sec. 256]
provided by law;

This should be distinguished from a situation where a conservator is

"(k) Conduct an examination to determine compliance
appointed when the Commissioner finds that a company is in a state
with laws and regulations if the circumstances so warrant
of continuing inability or unwillingness to maintain a condition of
as determined by appropriate rules and regulations;
solvency or liquidity adequate to protect the policyholders and
"(l) Investigate not oftener than once a year from the last
date of examination to determine whether an institution is
conducting its business on a safe and sound
basis: Provided, That, the deficiencies/irregularities found
by or discovered by an audit shall be immediately
addressed;

"(m) Inquire into the solvency and liquidity of the

institutions under its supervision and enforce prompt
corrective action;

"(n) To retain and utilize, in addition to its annual budget,

all fees, charges and other income derived from the
regulation of insurance companies and other supervised
persons or entities;

"(o) To fix and assess fees, charges and penalties as the

Commissioner may find reasonable in the exercise of
regulation; and

"(p) Exercise such other powers as may be provided by law

as well as those which may be implied from, or which are
necessary or incidental to the express powers granted the
Commission to achieve the objectives and purposes of this
Code.
 PRE-NEED (f) Copy of the proposed pre-need plan; and

A. DEFINITION (g) Sample of sales materials.

Such registration statements and sales materials required

Pre-need Plans – are contracts, agreements, deeds or plans for the under this section shall contain the appropriate risk factors
benefit of the planholders which provide for the performance of as may be determined by the Commission.
future service/s, payment of monetary considerations or delivery of
other benefits at the time of actual need or agreed maturity date, as C. LICENSING OF SALES COUNSELOR AND GENERAL AGENT
specified therein,
Section 20. Licensing of Sales Counselors. - No sales counselor shall
in exchange for cash or installment amounts with or without
be allowed to solicit, sell or offer to sell pre-need plans under this
interest or insurance coverage and includes life, pension,
Code without being licensed as such by the Commission. No license
education, interment and other plans, instruments contracts or
shall be issued unless the following qualifications have been
deeds as may in the future he determined by the Commission.
complied with:
(Section 4 (b), R.A. No. 9829).

Pre-need Company – refers to any corporation registered with the (a) The applicant must be of good moral character and must not
Commission and authorized/licensed to sell or offer to sell pre-need have been convicted of any crime involving moral turpitude;
plans. The term "pre-need company" also refers to schools,
memorial chapels, banks, nonbank financial institutions and other (b) The applicant has undergone a training program approved by the
entities which have also been authorized/licensed to sell or offer to Commission and such fact has been certified under oath by a duly
sell pre-need plans insofar as their pre-need activities or business authorized representative of a pre-need company; and
are concerned.
(c) The applicant has passed a written examination administered by
B. REGISTRATION OF PRE-NEED PLANS the. Commission: Provided, That the administration of the
examination may be delegated to an independent organization
Section 14. Registration of Pre-need Contracts/Plans. – Within a under the supervision of the Commission.
period of forty - five (45) days after the grant of a license to do
business as a pre-need company, and for every pre-need plan which Such license shall automatically expire every thirtieth (30th) day of
the pre-need company intends to offer for sale to the public, the June or such date of every year as may be fixed by the Commission
pre-need company shall file with the Commission a registration and may be accordingly renewed.
statement for the sale of pre-need plans pursuant to this Code.
Section 21. Denial, Suspension, Revocation of License. - An
The Commission shall promulgate rules governing the registration of application for the issuance or renewal of a license to act as sales
pre-need plans and the required documents which include, among counselor may be denied, or such license, if already issued, shall be
others, the viability study with certification, under oath, of a pre- suspended or revoked based on the following grounds:
need brochure, a copy of the pre-need plan, and information and
documents necessary to ensure the protection of planholders and
the general public. Said rules shall further set forth the conditions (a) Materially misrepresented statements in the application
under which such registration may be denied revoked, suspended or requirements;
withdrawn, and the remedies of pre-need companies in such
instances. (b) Obtained or attempted to obtain a license by fraud or
misrepresentation;

Section 15. Registration Requirements. – The Commission shall set (c) Materially misrepresented the terms and conditions of pre-need
forth the requirements for registration of pre-need plans and shall plan which he sold or offered to sell;
require the following documents, among others;
(d) Solicited, sold or attempted to solicit or sell a pre-need plan by
(a) Duly accomplished Registration Statements; means of false or misleading representation and other fraudulent
means;
(b) Board resolution authorizing the registration of applicant’s pre-
need plans; (e) Terminated for cause from another pre-need company;

(c) Opinion of independent counsel on the legality of the issue; (f) Similar grounds found in Section II of this Code;

(d) Audited financial statements; (g) Willfully allowing the use of one's license by a non - licensed or
barred individual; and
(e) Viability study with certification, under oath, of pre-need actuary
accredited by the Commission; (h) Analogous circumstances.
Section 22. Licensing of General Agents. - If the issuer should
contract the services of a general agent to undertake the sales of its
plans, such general agent shall be required to be licensed as such
with the Commission, in accordance with the requirements imposed
by the Commission.

D. DEFAULT AND TERMINATION

Section 23. Default; Reinstatement Period. - The pre-need company

must provide in all contracts issued to planholders a grace period of
at least sixty (60) days within which to pay accrued installments,
counted from the due date of the first unpaid installment.
Nonpayment of a plan within the grace period shall render the plan
a lapsed plan. Any payment by the planholder after the grace period
shall be reimbursed forthwith, unless the planholder duly reinstates
the plan.

The planholder shall be allowed a period of not less than two (2)
years from the lapse of the grace period or a longer period as
provided in the contract within which to reinstate his plan. No
cancellation of plans shall be made by the issuer during such period
when reinstatement may be effected.

Within thirty (30) days from the expiration of the grace period and
within thirty (30) days from the expiration of the reinstatement
period, which is two (2) years from the lapse of the grace period, the
pre-need company shall give written notice to the planholder that
his plan will be cancelled if not reinstated within two (2) years.
Failure to give either of the required notices shall preclude the pre-
need company from treating the plans as cancelled.

Section 24. Termination of Pre-need Plans. - A planholder may

terminate his pre-need plan at any time by giving written notice to
the issuer.

A pre-need plan shall contain a schedule of termination values to

which the planholder is entitled to upon termination. Such schedule
of termination value shall be required for all in - force pre-need
plans and shall be fair, equitable and in compliance with the
Commission issuances. The termination value of the pre-need plan
shall be predetermined by the actuary of the pre-need company
upon application for registration of the pre-need plans with the
Commission and shall be disclosed in the contract.

E. CLAIMS AND SETTLEMENT