RFBT – INSURANCE LAW (RA 10607)

DEFINITION 5. Contract of Utmost Good Faith (uberrimae fides contract)

A contract of insurance is an agreement whereby one (insurer) undertakes for a consideration • It is a contract of good faith which requires the applicant to make certain disclosures
(premium) to indemnify another (insured) against loss, damage, or liability arising from an affecting risks of which he may be aware, or material facts, which he knows or ought
unknown or contingent event. to know.
6. Personal Contract
Suretyship is a contract where a person binds himself solidarily to the creditor to fulfill the • As a rule, a contract of insurance is not transmissible since the personal
obligation of the debtor in case the latter should fail to do so. qualifications of the applicant/insured were considered in the approval.
o Different from Contract of Guarantee, the liability of the guarantor arises only if the o e.g., a smoker pays more premium than a non-smoker due to higher health risks
debtor is unable to pay; whereas in Suretyship, surety is liable immediately. from smoking
A contract of suretyship shall be deemed to be an insurance contract, within the meaning of the Other Characteristics:
Insurance Code, only if made by a surety who or which, as such, is doing an insurance business • Executory – in the sense that once it is entered into and the insured has already paid the
(Section 2.B): premiums, no further actions required but to wait for the risk/peril to happen or not.
1. Making or proposing to make, as insurer, any insurance contract; • Obligation of Insurer can be considered as Conditional in Character – the liability arises
2. Making or proposing to make, as surety, any contract of suretyship as a vocation and only if the risk/peril insured against actually happens.
not as merely incidental to any other legitimate business or activity of the surety; • Reciprocal / Bilateral in Character – as to the obligations of the parties involved: (1)
3. Doing any kind of business, including a reinsurance business, specifically recognized insured has the obligation to pay for the premiums, and (2) insurer will have the obligation
as constituting the doing of an insurance business within the meaning of this Code; to take over the risk and compensate the insured or be liable once the risk/peril insured
4. Doing or proposing to do any business in substance equivalent to any of the foregoing against actually happens.
in a manner designed to evade the provisions of this Code.
ELEMENTS OF AN INSURANCE CONTRACT
CONCEPT / CHARACTERISTICS OF INSURANCE 1. The insured has an insurable interest.
1. Risk-Distributing Device 2. The insured is subject to a risk of loss by the happening of the designated peril.
• It serves to distribute the risk of economic loss among as many possible to those who 3. The insurer assumes the risk.
are subject to the same kind of risk. 4. Such assumption of risk is part of a general scheme to distribute actual losses among a
2. Contract of Adhesion large group of persons bearing a similar risk.
• Considering that usually it is the insurance company that prepares the terms and 5. In consideration of the insurer’s promise, the insured pays a premium.
conditions of the contract and the other party merely “adheres” to the said contract.
3. Aleatory CLASSES OF INSURANCE CONTRACTS
• It is generally aleatory, considering that the payment of the insurance claims is 1. Life Insurance 3. Contract of Suretyship
contingent upon the happening of an event which may or may not happen or that a. Individual Life Insurance 4. Microinsurance
which may happen at an indeterminate time. Although it may be considered b. Group Life Insurance 5. Varble Insurance
commutative given that there is still equivalent in prestations as to the payment of c. Industrial Life Insurance
premiums being equivalent to the protection given. 2. Non-Life Insurance
4. Contract of Indemnity (for property insurance) a. Marine Insurance
• In the sense that the owner of the property may recover only up to the amount of b. Fire Insurance
actual loss sustained. c. Casualty Insurance
o i.e., value of the property = maximum amount recoverable as indemnity
INDIVIDUAL LIFE INSURANCE packed, crated, baled, compressed, or similarly prepared for shipment or while
• Individual Life is insurance on human lives and insurance appertaining thereto or awaiting shipment, or during any delays, storage, transshipment, or re-shipment
connected therewith. incident thereto, including war risks, marine builder’s risks, and all personal property
• Every contract of undertaking for the payment of annuities including contracts for the floater risks.
payment of lump sums under a retirement program where a life insurance company • Person or property in connection with or appertaining to a marine, inland marine,
manages or acts as a trustee for such retirement program shall be considered a life transit or transportation insurance, including liability for loss of or damage arising
insurance contract. out of or in connection with the construction, repair, operation, maintenance, or use
of the subject matter of such insurance (but not including life insurance or surety
GROUP LIFE INSURANCE bonds nor insurance against loss by reason of bodily injury to any person arising out
• Group Life Insurance is essentially a single insurance contract that provides coverage for of ownership, maintenance, or use of automobiles).
many individuals. In its original and most common form, group insurance provides life or • Precious stones, jewels, jewelry, precious metals, whether in course of
health insurance coverage for the employees of one employer. transportation or otherwise.
• The coverage terms for group insurance are usually stated in a master agreement or • Bridges, tunnels, and other instrumentalities of transportation and
policy that is issued by the insurer to a representative of the group or to an administrator of communication (excluding buildings, their furniture and furnishings, fixed contents
the insurance program, such as an employer. and supplies held in storage); piers, wharves, docks, and slips, and other aids to
• The employer acts as a functionary in the collection and payment of premiums and in navigation and transportation, including dry docks and marine railways, dams and
performing related duties. Likewise falling within the ambit of administration of a group appurtenant facilities for the control of waterways.
policy is the disbursement of insurance payments by the employer to the employees. 2. Marine protection and indemnity insurance, meaning insurance against, or against legal
liability of the insured for loss, damage, or expense incident to ownership, operation,
INDUSTRIAL LIFE INSURANCE chartering, maintenance, use, repair, or construction of any vessel, craft, or
• Industrial Life Insurance shall mean that form of life insurance under which the premiums instrumentality in use of ocean or inland waterways, including liability of the insured for
are payable either monthly or oftener, if the face amount of insurance provided in any personal injury, illness or death or for loss of or damage to the property of another person.
policy is not more than five hundred times that of the current statutory minimum daily
wage in the City of Manila, and if the words “industrial policy” are printed upon the FIRE INSURANCE
policy as part of the descriptive matter. • Fire Insurance shall include insurance against loss by fire, lightning, windstorm, tornado
• Non-payment of premiums: An industrial life policy shall not lapse for non-payment of or earthquake and other allied risks, when such risks are covered by extension to fire
premiums if such non-payment was due to the failure of the company to send its insurance policies or under separate policies.
representative or agent to the insured at the residence of the insured or at some other
place indicated by him for the purpose of collecting such premium. CASUALTY INSURANCE
o This shall not apply when the premium on the policy remains unpaid for a period of • Casualty is insurance covering loss or liability arising from accident or mishap, excluding
three (3) months or twelve (12) weeks after the grace period has expired. certain types of loss which by law or custom are considered as falling exclusively within the
scope of other types of insurance such as fire or marine.
MARINE INSURANCE • It includes, but is not limited to:
1. Insurance against loss of or damage to: o Employer’s liability insurance
• Vessels, craft, aircraft, vehicles, goods freights, cargoes, merchandise, effects, o Motor vehicle liability insurance
disbursements, profits, moneys, securities, choses in action, instruments of debts, o Plate glass insurance, burglary and theft insurance
valuable papers, bottomry, and respondentia interests and all other kinds of property o Personal accident and health insurance
and interests therein, in respect to appertaining to or in connection with any and all o As written by non-life insurance companies, and other substantially similar kinds of
risks or perils of navigation, transit or transportation, or while being assembled, insurance.
MICROINSURANCE o Of any person under a legal obligation to him for the payment of money, or respecting
• Microinsurance is a financial product or service that meets the risk protection needs of property or services, of which death or illness might delay or prevent the performance.
the poor where: ▪ e.g., Creditor – Debtor (non-payment)
o The amount of contributions, premiums, fees, or charges, computed on a daily ▪ e.g., Customer – Contractor (delay/non-performance = damage / loss)
bases, does not exceed seven and a half percent (7.5%) of the current daily o Of any person upon whose life any estate or interest vested in him depends.
minimum wage rate for non-agricultural workers in Metro Manila. ▪ e.g., an heir cannot directly manage the property yet, therefore an
o The maximum sum of guaranteed benefits is not more than one thousand (1,000) executor/administrator will manage the estate in the meantime, in which case
times of the current daily minimum wage rate for non-agricultural workers in Metro the heir will have an insurable interest on the life of such executor/administrator.
Manila. • Children
o No distinction for legitimate and illegitimate. The designation of the illegitimate
VARIABLE INSURANCE children as beneficiaries in the deceased father’s insurance policy is valid because
• Variable Insurance shall mean any policy or contract on either a group or on an individual there is no legal proscription (action of forbidding something) that exists in naming as
basis issued by an insurance company providing for benefits or other contractual beneficiary the children of illicit relationships.
payments or values thereunder to vary so as to reflect investment results of any • Test
segregated portfolio of investments or of a designated separate account in which o Is whether or not the person is interested in the preservation of the insured life despite
amounts received in connection with such contracts shall have been placed and the insurance.
accounted for separately and apart from other investments and accounts. • Measure: Conditions sine qua non:
• This contract may also provide benefits or values incidental thereto payable in fixed or o Positive: will you be benefitted if the person does not die.
variable amounts, or both. o Negative: the amount of loss and effect of that loss, or the amount by which you will
• It shall not be deemed to be a security or securities as defined in The Securities Act, as be damnified.
amended, or in the Investment Company Act, as amended, nor subject to regulations • No Insurable Interest:
under said Acts. o Art. 2012 of the Civil Code provides that anyone who is forbidden from receiving any
donation under Art. 739 cannot be named beneficiary of a life insurance policy by a
person who cannot make any donation to him.
INSURABLE INTEREST (as defined by practitioners)
• Some pecuniary interest that you will have either on a right or a privilege or a property where Creditor: may only insure the life of the debtor up to the amount of the debt. Such that if the debt
the happening of a contingency would result in you suffering from any loss, damage, or has been paid prior to death, the creditor can no longer recover.
injury.
o e.g., you own a property, insured in against fire, and fire happened, upon the However, if the debtor insures his own life for the benefit of the creditor, upon full payment of the
happening of the contingency you suffered loss concerning the property involved. debt, the insurance will inure to the benefit of the debtor’s estate upon death.

LIFE INSURANCE Debt unenforceable or insolvency of the debtor: does not make the insurance unenforceable.
• Insurable interest is that interest which the insurer is required to have in the person of the The unenforceability and insolvency of the debtor discharges only his “legal” obligation to pay,
insured. not the moral obligation to settle the debt.
• Every person who has an insurable interest in the life and health: o e.g., if a debtor takes out life insurance to cover a loan and later becomes insolvent,
o Of himself, of his spouse, and of his children. the insurance policy doesn't automatically become void. Legally, the debtor might not
o Of any person on whom he depends wholly or in part for education or support, or in have to repay the debt anymore, but there's still a moral expectation that the debt
whom he has a pecuniary interest. should be settled. If the debtor passes away, the insurer can still pay the creditor up
to the debt amount, honoring that moral obligation.
Consent: of the person whose life is insured is not essential to the validity of an insurance taken INSURABLE INTEREST ON MORTGAGED PROPERTY
by another as long as the insured has a legal insurable interest at the inception of the policy. • Mortgagor:
o As owner, has an insurable interest to the extent of its value, even though the
mortgage debt equals such value.
PROPERTY INSURANCE • Mortgagee:
• Insurable interest in property is any interest therein, or liability in respect thereof, and it may o Has an insurable interest in the mortgaged property to the extent of the debt secured;
consist in: such interest continues until the mortgage debt is extinguished.
o An existing interest.
o An inchoate interest founded on existing interest. LOSS PAYABLE MORTGAGE CLAUSE
▪ e.g., stockholder has in insurable interest over the properties of the corporation • The mortgagor secures an insurance over the property and designates the mortgagee
o Any expectancy coupled with an existing interest. as the beneficiary (or assigns the policy of insurance to the mortgagee), the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
• In general, a person has an insurable interest in the property, if he derives pecuniary original contract and:
benefit or advantage from its preservation or would suffer pecuniary loss, damage, or o Any act of his, prior to the loss, which would otherwise avoid the insurance, will have
prejudice by its destruction whether he has or has no title in, or lien upon, or possession the same effect, although the property is in the hands of the mortgagee.
of the property. Hence, pecuniary interest over the property is always necessary. o But any act which, under the contract of insurance which is to be performed by the
mortgagor, may be performed by the mortgagee.
• Stockholder:
o Has an inchoate interest on the property of the corporation which is founded on his BENEFICIARY
existing stock ownership. • Property Insurance
• Contractor of a Building: o Beneficiary must have insurable interest.
o Has an interest on the building he is required to deliver to the owner prior to such • Life Insurance
delivery, as a requirement for collection. o If the insurance is taken by the insured on his own life, he may designate anybody as
beneficiary even those without insurable interest.
o If the insurance is taken by a third person on the life of the insured, he must have
LIFE vs PROPERTY INSURANCE insurable interest.
IN LIFE IN PROPERTY
▪ Unlimited (save in life insurance effected ▪ Limited to the actual value of the interest ASSIGNEE
by a creditor on the life of the debtor) thereon • Property Insurance
▪ Insurable interest exists at the time the ▪ Insurable interest exists when the o Assignee must have insurable interest, and the assignment must be with the consent
policy takes effect and need not exist at insurance takes effect AND when the loss of the insurer.
the time of the loss occurs, but need not exist in the meantime • Life Insurance
▪ Need not have such legal basis ▪ There must be a legal basis as to the o The assignee need not have insurable interest.
expectation of the benefit
▪ The beneficiary need not have insurable ▪ Beneficiary must have insurable interest CHANGE OF INTEREST IN INSURED PROPERTY
interest of the life of the insured if the over the thing insured General Rule:
insured himself secured the policy • A change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance suspends the insurance to an equivalent extent, until
the interest in the thing and the interest in the insurance are vested in the same person.
Exceptions: ▪ If there is an agreement to grant the insured credit extension of the premium
• In life, health, and accident insurance. due under Section 72 of the Insurance Code.
• A change of interest in the thing insured after the occurrence of an injury which results in a ▪ If the parties intended the policies to be valid despite payment of insurance
loss. premiums in installment.
• A change of interest in one or more of several distinct things, separately insured by one ▪ If the insurer granted a credit term for the payment of the premium and loss
policy. occurs before the expiration of the term, recovery on the policy should be
• A change of interest by will or succession on the death of the insured. allowed.
• A transfer of interest by one of several partners, joint owners, or owners in common, who ▪ When the parties are barred by estoppel.
are jointly insured, to the others. ➢ i.e., by the acts of the insurer, he led the insured to already believe that he
• When a policy is so framed that it will inure to the benefit of whomsoever, during the is covered despite the non-payment of the premiums, then he can no
continuance of the risk, may become the owner of the interest insured. longer raise as a valid defense the non-payment of the premiums in case
that there will be recovery.
When there is an express prohibition against alienation (complete transfer) in the policy, in case
of alienation, the contract of insurance is not merely suspended but avoided (void).
RESCISSION OF INSURANCE CONTRACTS
Consent: of the insurer is generally required, since the personal qualifications of the insured are
considered by the insurer. However, such consent is only necessary if there will be alienation of CANCELLATION OF NON-LIFE INSURANCE
the property. • Grounds:
o Non-payment of premiums
o Conviction of a crime arising out of acts increasing the hazard insured against
PERFECTION OF THE CONTRACT OF INSURANCE o Discovery of fraud or material misrepresentation
• A contract of insurance is a consensual contract which is perfected by the meeting of the o Discovery of willful or reckless acts or omissions increasing the hazard insured
minds between the insured and the insurer. Thus, the Supreme Court in one case held that against
“[t]here can be no contract of insurance unless the minds of the parties have met in o Physical changes in the property insured which result in the property becoming
agreement”. uninsurable
• In the usual course, it is the insured who will fill-up an application to be insured subject to o Discovery of other insurance coverage that makes the total insurance in excess of
the insurer’s approval. The mere submission of an application without the the value of the property insured
corresponding approval, even if no memorandum or rejection as provided, does not o A determination by the Commissioner that the continuation of the policy would
result in a perfected contract of insurance. violate or would place the insurer in violation of this Code

PREMIUMS OTHER GROUNDS FOR RESCISSION OR CANCELLATION

• This is the consideration paid by the insured to the insurer for undertaking the assumption • Concealment
of the risk covered by the insurance contract. • False Representation / Misrepresentation
• As a general rule, there can be no binding contract of insurance if there is no payment • Breach of Warranty
of the premium, considering that it is one of the elements of an insurance contract.
o Exceptions: CONCEALMENT
▪ Whenever a grace period provision applies as provided under Section 77 of the • A neglect to communicate that which a party knows and ought to communicate. A
Insurance Code. concealment, whether intentional or unintentional, entitles the injured party to rescind
the contract of insurance.
• Note that under Section 28, each party to a contract of insurance must communicate to • For example:
the other, in good faith, all facts within his knowledge which are material to the contract o There was a question in the application asking “whether any members of the
and as to which he makes no warranty, and which the other has not the means of household of the house that is being insured has been convicted of a crime in the past
ascertaining. 10 years”, you answered “NO” even though you know or are aware of its existence. If
• An intentional and fraudulent omission, on the part of one insured, to communicate the peril insured against happens, it can be a valid ground for the insurer to cancel the
information of matters proving or tending to prove the falsity of a warranty, entitles the insurance contract whether it relates to that which is being insured. In this particular
insurer to rescind. case, cancellation was approved because in the rules of the insurance company, they
• For example: would not have approved the insurance contract had they known correct information
o There was a requirement to disclose in the insurance application, any hospitalization that there was in fact somebody convicted of a crime in the past 10 years.
that one may have had in the past 6 years. The insured forgot to disclose the
information that he/she was hospitalized 4 years ago due to dengue/tuberculosis but NOTE:
he/she eventually died for reasons other than dengue/tuberculosis. Will that be a ❖ 2-Year Incontestability Clause:
valid ground to cancel the contract of insurance? YES. The fact remains that there o If the ground for cancellation will be misrepresentation or concealment but the
was concealment and whether it was unintentional, because that was an information contract of insurance has already been effective for 2 years, the contract can no
that the insured should have disclosed, particularly, because it was being asked in longer be cancelled on the grounds of misrepresentation or concealment.
the insurance application. Its concealment justifies the cancellation of the policy.
BREACE OF WARRANTY
• No duty to disclose: Except in answer to inquiries of the other: • A warranty may either be expressed or implied, and may relate to the past, the present, the
(a) Those which the other knows (e.g., gender if the name given is obviously that of a future or to any or all of these.
man or woman). • A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as
(b) Those which, in the exercise of ordinary care, the other ought to know, and of which fact, is an express warranty thereof.
the former has no reason to suppose him ignorant (e.g., occupation: soldier, “do you • The violation of a material warranty, or other material provision of a policy, on the part of
engage in an activity which will require you to handle firearms” and you failed to either party thereto, entitles the other to rescind.
supply an answer to such question). • Immaterial Breaches: a breach of warranty that is immaterial generally does not avoid the
(c) Those of which the other waives communication (e.g., “do you smoke” not contract of insurance except when the parties stipulated that its breach will avoid the
answered, and the policy is still issued. If the answer is yes, and how many packs are policy regardless of materiality.
consumed is asked but not answered but the policy is still issued). • For example:
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, o It is required under the insurance contract that Person A install fire alarms and smoke
and which are not otherwise material (e.g., body part insurance on legs and you detectors in the property that he is insuring, and he did not. Because Person A
failed to answer the question “do you smoke” – not material). warranted that he would install said fire alarms and smoke detectors but he failed to
(e) Those which relate to a risk excepted from the policy and which are not otherwise do so, that is a breach of his warranty, that is material against the risk that he is
material. insuring against. The premise here is that, the insurance company or insurer entered
into the insurance contract because of the express warranties Person A agreed to or
FALSE REPRESENTATION or MISREPRESENTATION that Person A promised. And for cases that there will be breaches in these warranties,
• A representation may be oral or written and may be made at the time of, or before, issuance it will likewise justify the cancellation or rescinding of the insurance contract.
of the policy.
• If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation
becomes false.
CLAIMS SETTLEMENT & SUBROGATION SUBROGATION
refers to the right your insurance company holds under your policy — after they've paid a covered
LIFE INSURANCE claim — to request reimbursement from the at-fault party.
a. If there is a maturity: • Subrogation is a normal incident of indemnity property insurance as a legal effect of
o Immediately upon such maturity. payment; it inures to the insurer without any formal assignment or any express
b. If the policy matures upon death: stipulation to that effect in the policy.
o Within 60 days after presentation of the claim and filing of the proof of the death of • Such right is not dependent upon nor does it grow out of any privity of contract. Payment to
the insured. the insured makes the insurer an assignee in equity (by operation of law).
• The rights of the insurer are those which are available to the insured at the time of payment.
PROPERTY INSURANCE • For example:
a. Ascertainment of loss is either by agreement or by arbitration: o Person A’s car is hit by Person C, the insurance company paid Person A. The insurer
o Within 30 days after proof of loss is received by the insurer and ascertainment of the will have a right to recover or ask for reimbursement from Person C.
loss or damage is made.
b. If no ascertainment is made within 60 days after receipt of proof of loss:
o 90 days after such receipt. NO RIGHT OF SUBROGRATION
• The insured by his own act releases the wrong-doer / third-person liable for the loss
(e.g., quitclaim)
DELAY • Where the insurer pays the insured for a loss or risk not covered by the policy.
• Non-compliance with the periods mentioned entitles the beneficiary to: • In life insurance (e.g., the insurer cannot ask for reimbursement from the murderer).
o Interest • For recovery of loss in excess of insurance coverage (e.g., payment in excess).
✓ For the duration of the delay at a rate TWICE the legal interest.
o Attorney’s fees and other litigation expenses
o Appropriate damages under the Civil Code like moral and exemplary damages CLAIMS
• Notice:
o Must be given without undue delay. Otherwise, the insurer is exonerated of liability.
PRESCRIPTION
o Must be filed within six (6) months from the date of accident, otherwise, the claim
(period within which you can file a claim)
shall be deemed waived.
• In the absence of stipulation, 10 years.
• Proof
o However, the parties may validly agree on a shorter period provided it is NOT less
o The insured may give the best evidence he has. Even if there is a stipulated
than 1 year from the time the cause of action accrues.
requirement of proof, substantial compliance thereof would suffice.
• The cause of action accrues from the time of the final rejection of the claim and not
from the time of loss.
• If there is a motion for reconsideration, the one year period is to be counted from the
date of first denial and not on the denial of the reconsideration.
• If they agreed on a period of 1 year from the time the cause of action accrues, it shall be
reckoned from the initial denial of the claim and not on the resolution of the motion for
reconsideration.