Insurance Law- General Provisions, Chapter I Title I- What May Be Insured

7/18/2019 Insurance Law- General Provisions, Chapter I Title I- What May Be Insured

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INSURANCE LAW

Cecille Carmela T. de los ReyesPhilippine Christian University College of Law

Atty. Anatoly Estrella



Sec. 1: This Decree

shall be known as The

Insurance Code of

1978

PD 1460, otherwise known as the Insuran

Code of 1978 is now the governing law o

insurance.

In the absence of applicable provisions in

Insurance Code of 1978, the provisions

the new Civil Code regarding contracts sh

govern.

Non-life insurance was first introduced in the Philippines

by Stracham, Murray and Co. Inc.

1898 = life insurance was first brought to the country by

Sun Life Assurance Company of Canada.

1906 = first domestic non-life insurance company Yek

Tong Lin Fire & Marine Insurance Co. was organized

1910 = first domestic life insurance company was

established

Department of Finance had approved Department Order

No. 100-94 (1994) which allows foreign insurance or

reinsurance companies or intermediaries to do businessin the Philippines provided they belong to the top 200

foreign insurance or reinsurance intermediaries in the

world or top 10 in the country doing insurance business

for the last 10 years.

As of license year 1994-1995 there were 127 insurance

companies registered and were issued certificates of

authority by the Insurance Commission broken down as

follows: composite insurance company, 25 life, 97 non life

and 4 reinsurance companies



Sec 2. The followingterms shall have

respective meaningsunless the contextotherwise requires

(a) What is aContract ofInsurance?

A contract whereby one undertakes for a

consideration to indemnify another againstlosses, damage or liability arising from anunknown or contingent event.

It is a contract of adhesion. Ambiguity in the

contract should be resolved against the

insurer or should it be construed liberally infavor of the insured and strictly against theinsurer.

An insurance contract exists when theseelements concur:

The insured has an insurable interest The insured is subject to a risk of loss

by the happening of the designatedperil

The insurer assumes the risks

Such assumption of risk is a general

part of the scheme to distribute actuallosses among a large group ofpersons bearing a similar risk, and

In consideration of the insurer s

promise, the insured plays apremium

Elements of anInsurance Contract

Contract = meeting of the minds betweentwo persons where one binds himselfwith respect to the other to givesomething or render service.

Relate to: Elements of a Contract:

1. Consent 2. Object 3. Consideration

Insurance contracts shall also require thepresence of an insurable interest.

Insurable interest = that interest in which

a person is deemed to have in thesubject matter insured, where he has arelation or connection with or concern init, such that the person will deprivepecuniary benefit or advantage from thepreservation of the subject matter insuredand will suffer pecuniary loss or damagefrom its destruction, termination or injuryby the happening of the event insuredagainst.

Characteristics of

an InsuranceContract

Consensual = perfected by the meeting of the minds of the parties.(Delivery of the policy does not give rise to the contract in the absenceof an agreement between the parties).

Contract of Indemnity = There is an exchange of value for value,particularly in property insurance.

Voluntary = it is NOT compulsory and the parties may incorporate suchterms and conditions as they may deem convenient which will bebinding provided they are not against the law or public policy.

Aleatory = depends upon some contingent event, there is an element of

risk.

Executed = as to the insured after the payment of premium

Executory = as to the insurer as it is not executed until payment for aloss

Conditional = subject to conditions the principal one of which is thehappening of the event insured against

Personal = each party in the contract have in view the character, credit

and conduct of the other

Uberrimae Fidae = entered into in good faith. Both parties must onlyperform their obligations in good faith but they must also avoid materialconcealment or misrepresentations. The caveat emptor rule also

applies. Good faith is also expected of the insurer.

Formal = formal and real, as a policy is required to be issued, and thepremium must first be paid

Test to determinewhether a contract

is a contract of

insurance or not

It is determined by its purpose, effect,contents and import and not necessarily onthe terminology used.

It depends on the nature of the promise, theact required to be performed and the exactnature of the agreement in the light ofoccurrence, contingency or circumstancesunder which the performance becomesrequisite.

Case: Philamcare Health Systems v. Court

of Appeals

The SC ruled that the contract involved was aninsurance contract rather than a pre0need

plan.

The insurable interest of respondent s husbandin obtaining the health care agreement was hisown health. Once a member incurs hospital,medical or any other expense arising fromsickness injury or other stipulated contingent,the health care provider must pay for the same

to the extent agreed upon under the contract.

Contra: Philippine Health Care

Inc. v. CIR —

The elements of insurance contract aThe SC ruled that there was no

precisely because the member merelthe medical services to be paid or alrin advance at a pre-agreed price uagreements.

Although risk is a primary elemeinsurance contract, it is not necessthat risk alone is sufficient to es

Almost anyone who undertakes a co

obligation bears a certain degree ofrisk.

Consequently, there is a need to d

prepaid service contracts for thinsurance contracts.

Note: Under DOCTRINE OF ESTOPPEL,when inequitable conduct is shown by aninsurance firm, it is estopped from enforcingforfeitures or exemptions in its favor in order to

forestall fraud or imposition on the insured.

Ambiguities must be strictly interpretedagainst the party that caused them =meaning, it shall be construed against theinsurer and in favor of those insured.

PRE-NEED PLANS.

Insurance contracts should be distfrom pre-need plans that are now uregulatory powers of the ICommission under the Pre-Need Co

9829). Pre-need plans are agreements, deeds or plans for the the planholders which provides

performance of future service/s, paymonetary considerations or deliverybenefits at the time of actual need maturity date.



How should an

insurance contract

be interpreted?

I t should be interpreted in accordance with

the intent of the part ies, as expressed in the

pol icy. [Rule 130, Sec. 12, Rules of Court] If the

intent be different from the actual words used, the

intention prevails over the words in the policy.[Art. 1370, Civil Code]

For the intent of the part ies, their

contemporaneous and subsequent acts

should be principal ly considered, [Art. 1371,

Civil Code] and the circumstances under which

the policy was made, including the situation of its

subject and of the parties, may be shown. [Sec.

13, Rule 130, Rules of Court]

If the provisions of a policy are clear, they mustbe understood in their ordinary meaning. [Art.

1340, Civil Code]

The interpretat ion shal l not favor the one who

caused the obscur i ty . [Art. 1377, Civil Code]

Thus, for any ambiguities, which, by the exclusive

control of the insurance company over the terms

and phraseology of the contract, the ambiguity

must be strictly interpreted against the insurer,most especially to avoid forfeiture of the proceeds

thereof. [Gua Chee Can v. Law Union, G.R. No.

L-4611, December 17, 1955]



A contract of suretyship is bedeemed to be an insurance

contract within the meaning of

the Insurance Code when

made by a surety who or

which is doing an insurance

business

Contract of suretyship = Civil Code: It is

agreement whereby one binds himself solid

with the principal debtor.

LegalWhiz: contractual relation resulting from

agreement whereby one person, the sur

engages to be answerable for the debt; defaumiscarriage of another known as the princ

(Surety s obligation is accessorial or collatera

the obligation contracted by the principal).

Contract of suretyship = Civil Code: It

agreement whereby one binds himself so

with the principal debtor.

LegalWhiz: contractual relation resulting fro

agreement whereby one person, the s

engages to be answerable for the debt; def

miscarriage of another known as the prin

(Surety s obligation is accessorial or collate

the obligation contracted by the principal).

Variable Contracts =

The Insurance Code likewise governs variable contracts

which means any policy or contract on either a group or on an

individual basis issued by an insurance company

x x x providing for benefits or other contractual payments or

values thereunder

x x x to vary as to reflect investment results of any segregated

portfolio of investments or of a designated separate accountin which amounts received in connection with such contracts

shall have been placed and accounted for separately and

apart from other investments and accounts.



The term doing an insurance business or transacting

an insurance business within the meaning of the

Insurance Code, shall include:

(1) Making or proposing to make, as insurer, any

insurance contract

(2) Making or proposing to make, as surety, any

contract of suretyship as a vocat ion and not as

merely incidental to any other legitimate business or

activity of the surety;

(3) Doing any kind of business, including a

reinsurance business, specifically recognized as

constituting the doing of an insurance business

within the meaning of this Code;

(4) Doing or proposing to do any business in

substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this

Code.

NOTE: In application of the provisions of this Code,

the fact that no profit is derived from the making of

insurance contracts or that no separate or direct

consideration is received shall not be deemed

conclusive to show that the making thereof does not

constitute the doing or transacting of an insurance

business.

The fact that no profit is derive

the making of insurance conagreements or transactions or t

separate or direct considera

received therefor, shall no

deemed conclusive to show th

making does not constitute the

or transacting of an ins

business.

A single transaction is sufficie

consider that the party

extends the protection unde

contract is engaged in insur

business because the

considers making any insur

contract as engaging in

business of insurance.

Bancassurance

= an arrangement in which a bank

and an insurance company form a

partnership so that the insurance

company can sell its products to

the banks client base. This

partnership arrangement can be

profitable for both companies.

Mutual Insurance Companies

= An insurance company owned

entirely by its policyholders. Any

profits earned by a mutual insurance

company are rebated to policyholders

in the form of dividend distributions or

reduced future premiums.

Designed to promote the welfare of its

members and the money collected

from them is solely for their own

protection. In this sense, the member

is both the insurer and the insured. Ithas no capital stock and the

premiums or contributions of the

members are the only sources of

funds to meet losses and expenses.



Applicable Laws

Primary law that governs insurance contracts is the Insurance

Code of the Philippines originally enacted as PD 602, and

amended further by several PDs and BPs. The previous edition of

this work is based on PD 1460 otherwise known as InsuranceCode of 1978.

The most recent amendment is RA 10607 dated August 2013, in

which it re-enacted PD 602 and introduced new concepts and

provisions.

For example: it introduced provisions on microinsurance,

bancassurance, trust operations of insurane companies and

self-regulatory organizations.

It also strengthened the regulatory provisions of the Code, which

includes but is not limited to:

1. Increase of paid-up capital and net worth requirements for

insurers

2. New requirements for unimpaired capital or assets and reserved

3. New provisions on financial reporting framework

4. Adoption of corporate governance rules

5. Changes in the provisions on margin of solvency

6. Changes in the provisions on investments7. Fixing the term of Insurance Commissioner to six (6) years

8. Changes in the jurisdiction of the Insurance Commission over

insurance claims.

NEW CIVIL CODE. Provisions on the NCC gov

suppletorily. / Right of subrogation under the Civil C

also applies, where if the amount paid by the insura

company does not fully cover the injury or loss,

aggrieved party shall be entitled to recover the deficie

from the person causing the loss or injury.

CORPORATION CODE. Section 191 of the Insura

Code states that the provisions of the Corporation Cod

the Philippines shall apply to all insurance corporat

engaged in the business in the Philippines insofar as

do not conflict with the provisions of the Insurance Cod



ELEMENTS OF AN

INSURANCE CONTRACT

The insured has an insurable interest

The insured is subject to a risk of loss bythe happening of the designated peril

The insurer assumes the risk

Such assumption of risk is part of a general

scheme to distribute actual losses among a

large group of persons bearing similar risk

In consideration of the insurer s promise,

the insured pays a premium

REQUISITES OF A VALID

CONTRACT

Consent of the contractingparties

Object certain which is the

subject matter of the contract

Cause of the obligation which

is established

DISTRIBUTION OF LOSSES

The insurer must also be compelled to comply

with its obligation under the insurance

contract, and is still considered engaged in

insurance business because it is doing or

proposing to do business which in substance

is equivalent to those expressly enumerated

in Sec. 2 of the Insurance Code in a mannerdesigned to evade the provisions of the

Insurance Code.



What may be insured/ other

terms

Perils

Specific cause of loss that is

insured against while risk is the

uncertainty that the property or

person insured will be lost or

damaged by reason of the

designated or some other peril.

Past event

A marine insurance policy for a ship is lost or

not lost, insures the ship even for the event thatmay have already transpired. At the time of the

policy, the parties were not aware if the ship is

already lost. The insurer will still pay even if the

ship turns out to be already lost at the time the

policy was taken.

Dis tingu ished f rom

fortui tous eventand condi t ion

In fortuitous event, was is unknown

is the condition itself, while in

insurance, what is unknown is thetime when the risk will happen.

An insurance policy taken out by a married woman

life or that of her children does not require the cons

the husband for its validity. She may exercise all the

and privileges of an owner under the policy.

Any minor of the age 18 y.o. or more may contract

health and accident insurance with any insucompany duly authorized to do business i

Philippines; provided the insurance is taken on h

life and the beneficiary appointed is the minor s es

the minor s father, mother, husband, wife, child, bro

sister. (by consanguinity)

HOW INSURANCE DEALS

WITH THE RISK

Risk Distributing Device = the risk of loss i

actually transferred to the insurer but a numb

people constituting the clients of the insurer cont

to a common fund by paying premiums

Law of Large Numbers = Pooling of loss experien

large number of homogenous exposure units wil

allow the insurer to predict future losses with

accuracy. This is consistent with what is known a

law of large numbers according to which the g

number of exposures, the more closely will the a

results approach the probable results that are exp

from an infinite number of exposures



Sec. 4. The preceding section

does not authorize insurance

for or against the drawing of

any lottery, or for or against

any chance or ticket in a

lottery drawing price.

A person who purchases an in

sweepstakes ticket cannot insure hi

against the failure of his ticket to win a p

A contract of insurance is a contraindemnity and not a gambling contract.

holder fails to win, it cannot be said tha

suffered a loss of the prize. Failure to w

prize would not cause him damage or c

a liability against him.

In a gambling contract, the parties

contemplate gain through mere chance,

while in a contract of insurance, the parties

seek to distribute possible loss by reason of

mischance. In the former, the gambler courts

fortune, while in the latter, the insured seeks

to avoid misfortune.



Characteristics

of Insurance

Contract

Aleatory

Unilateral

Personal

Article 2010, NCC = a contract is aleatory when one of the parties or both

reciprocally bind themselves to give or to do something in consideration o

what the other shall give or do upon the happening of an uncertain event.

Insurance contract falls under this classification. It is not a contract o

chance but a contract where some of the rights of the parties of the

contract are contingent upon chance events.

The payment of the premium is not traditionally imposed as

an obligation but an event that gives the contract obligatory

force. Upon payment of premium there is only one party who

has the obligation—that is the insurer s obligation to pay the

proceeds of the insurance in case of loss.

The contract entered into is with due consideration to

the circumstances of the parties. The character, credit

and conduct of the person who insures a property are

all important considerations.



BENEFITS OF AN

INSURANCE

CONTRACT

It gives peace of

mind

Keeps families and

businesses together

Increases marginal utility of

assets because it serves as

intermediary between those

who have small need for a

minor amount of capital and

those who have great needs

for immediate use of large

sums to meet losses they

have suffered

Facilitates

credit

transactions

Stimulates

savings

Provides

investment capital

Provides incentives to

business or individuals

because they are

relieved of fortuitouslosses

Helps in loss

prevention



Art. 1319, Civil Code. 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 counter-

offer.

Acceptance made by letter or telegram does not bind the offeror

except from the time it came to his knowledge. The contract in such

a case is presumed to have been entered into the place where the

offer was made.

COGNITION

THEORY

An insurance contract is perfected the

moment the offeror learns of the

acceptance of his offer by the other party.

In insurance contracts, the insured

makes the of fer by submit t ing the

appl icat ion to the insurer or i ts

author ized agent.

The insurer accepts the of fer by

approving the appl ication and the

contract is perfected up on receipt of

not ice by the insured of such app roval.

Eternal Gardens Memorial Park v.

Philippine American Life InsuranceCorporation = insurance contract is

perfected from the time the applicant learns

about the acceptance or approval of his

application by considering that the petitioner

Eternal Gardens should be deemed the

agent of the insurer with respect to the

subject group life insurance.



KINDS OF

INSURANCE

Private

Insurance

Government

Insurance

Social Insurance

Contracts

GovernmentService Insurance

System

Social Security

System

Governmentemployees

Private sector

employees

CLASSIFICATION

OF INSURANCE

ACCORDING TO

OBJECT

Life/ Health

Insurance

Property

Insurance

Liability Insurance

SPECIAL

TYPES

Marine

Insurance

Casualty

Insurance

Fire Insurance

Life Insurance

Compulsory Third

Party Liability

Insurance

Microinsurance



PROPERTY

INSURANCE

Fire/ Allied

Insurance

Marine

Insurance

Casualty

Insurance

Microinsurance

Financial product or service that meets the risk protection

needs of the poor where:

(a) The amount of contributions, premiums, fees or

charges computed on a daily basis does not exceed sevenand a half percent 7.5% of the current daily minimum

wage rate for nonagricultural workers in Metro Manila

(b) The maximum sum of guaranteed benefits is not more

than one thousand times of the current daily minimum

wage rate for nonagricultural workers in Metro Manila

PRINCIPLE OF

INDEMNITY

(The insured should

not collect more than

the actual cash value

of the loss)

Exceptions:

(1) Life insurance = because the

amount to be paid by the insurer

can never be equal to the value of

the life that is being insured

(2) Valued policies = under

which the insurer will pay the

value fixed in the policy

regardless of the actual cash

value in case of total loss.

Documents

Insurance Law- General Provisions, Chapter I Title I- What May Be Insured