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Law on Insurance (As amended by RA

A. Concept of insurance
Insurance a contract whereby the insurer
undertakes for a consideration to indemnify insured
against loss, damage or liability arising from an
unknown or contingent event.(Sec2)
(Mayer steel pipe corp vs CA)
Insurance contract is one whereby one party, for
a consideration (premium), agrees to indemnify
another for loss or damage which he may suffer
from a specified peril.
GR: Only a future event can be covered by an
insurance contract
Exc: By marine insurance if the loss of the vessel in
the past could not have been known by ordinary
means of communication, then it could b the subject of
marine insurance. (sec109)
B. Elements of insurance contract (PARIS)
1. Payment of premium the consideration for
the insurers promise to undertake the risk of
2. Assumption of risk the insurer undertakes to
assume the risk of loss;
3. Risk of loss the happening of designated
events, either unknown or contingent, past or
future, will subject such interest to some kind of
loss, whether in the form of injury, damage or
4. Insurable Interest the insured has an
insurable interest in the life or thing insured.
(i.e. pecuniary interest)
5. Scheme to distribute the losses the
assumption of risk is part of a general scheme

to distribute the loss among a large number of

persons exposed to similar risks.
C. Characteristics/Nature
contracts (CVA-UCCP-PROU)
1. Consensual it is perfected by the meeting
of the minds of the parties
2. Voluntary parties may incorporate such
terms or conditions as they may deem
convenient, provided they are not contrary to
law, morals, god customs, public order, or
public policy.
3. Aleatory the insurers obli is dependent on
the happening of an event, which is
uncertain (fire insurance), or which s to occur
at an indeterminate time.(life insurance)
4. Unilatereal imposes legal duties on the
insurer who promises to indemnify another in
case f loss; executed as to be insured after
payment of premium and executor on the
part of the insurer until payment for a loss.
5. Conditional it is subject to conditions, the
principal one of which is the happening of
the event insured against.
6. Contract of Indemnity except life, and
accident insurance where the result is death,
a contract of insurance is a contract of
indemnity whereby the insurer promise to
make god only the loss of the insured.
7. Personal each party having in view of the
character, credit and conduct of the other.
8. Property since an insurance policy is a
contract, as such, t is property in legal
9. Risk distributing device the insurers
assumption of risk is part of a general

scheme to distribute the loss among a large

number of persons exposed to similar risks
who contributes to a common fund from
which the losses incurred are compensated.

consideration called the premium.
Uberrimae Fidae the contract of
insurance is one of perfect good faith which
required both the insurer an insured to
disclose among affecting the risk of which he
is aware, or material fact, which the
applicant knows, and those he ought to
D. Classes
1. Marine an insurance against risks
connected with navigation, to which a ship,
cargo, freightage, profits or other insurable
interest I moving property, may be exposed
during a certain voyage or a fixed period of
2. Fire a contract by which the insurer for a
consideration agrees to indemnify the
insured against loss of, or damage to,
property by hostile fire, including loss by
lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies.
3. Casualty covering loss or liability arising
from accident or mishap, excluding those
falling under other types of insurance such
as fire or marine.
4. Suretyship a contract of suretyship shall
be deemed to be an insurance contract,
within the meaning of this code, only if made

by a surety who or which, as such, is doing

an insurance business.
5. Life insurance on human lives and
insurance pertaining thereto or connected
therewith which includes every contract or
pledge for the payment of endowments or
6. Compulsory
insurance a specie of compulsory
insurance that provides for protection
coverage that will answer for legal liability
for losses and damages for bodily injuries or
property damage that may be sustained by
another arising from the use and operation of
motor vehicle by its owner.
E. Insurable Interest
- The relation between the insured and the
event insured against such that the
occurrence of the event will cause
substantial loss or harm of some kind to
the insured.
1. In life/health
- Insurable Interest should exist at the time
of effectivity of the policy. However, it
need not exist thereafter, not even at the
time of the loss.(Dizon, 2009)
- In Life insurance, the policy may be
transferred without the consent of the
insurer (Sec181)
Reason: the policy does not represent a
personal agreement between the insured
and the insurer.
Exception: when the notice to an insurer
of a transfer is expressly required in the
policy. (sec182)

2. In property
- The policy may not be transferred without
the consent of the insurer.
Reason: the insurer approved the policy
based on the personal qualification and
the insurable interest of the insured.
Effect of transfer without consent: The
insurance policy will be suspended and
will not be avoided until the interest in
the thing and the interest in the insurance
are vested in the same person.
3. Double insurance (duplicate protection
or dual insurance) - exists where the same
person is insured by several insurers
separately in respect to the same subject
and interest. (sec95)
- it is provided when two companies deal
with the same individual and undertake to
indemnify the person against the same
There is double insurance when:
a. the same person is insured
b. by two or more insurers
c. with respect to the same subject
d. involving the same insurable interest;
e. against the same risk
Over insurance by double insurance (sec96)
- the insurer is not liable for the total
amount of the insurance taken, his
liability being limited to the property
insured. Hence, the insurer is not entitled
corresponding to the excess of the

insurance over the insurable interest of

the insured.
- exists where there are two or more
policies on the same adventure and
interest or any part of it, and the sums
insured exceed the insurable value in the
case of an unvalued policy or the value
fixed by the policy in the case of a valued
policy. It is a situation in which the same
risk is insured by two overlapping but
independent insurance policies.
Multiple or several interests on same property
- the insured is entitled to a ratable return
of the premium proportioned to the
amount by which the aggregate sum
insured in all the policies exceeds the
insurable value of the thing at risk.
F. Perfection of the contract of insurance
1. Offer and acceptance/consensual
- An insurance contact is a consensual
contract and is therefore perfected the
moment there is a meeting of minds with
respect to the object and the cause or
a) Delay in delivery (acceptance) mere
unreasonable, in acting upon
application raises no implication of
acceptance nor does it estop the insurer
to deny the existence of the contract.
b) Delivery of policy the delivery of
policy is not, however, a prerequisite to a
valid contract of insurance. The contract
may be completed prior to the delivery of
the policy depending on the intention of
the parties.

correspondence follow the Cognition
theory an acceptance made by letter
shall not bind the person making the offer
except from the time it came to is
2. Premium payment
Cash and carry rule No insurance policy
issued or renewal is valid and binding until
actual payment of the premium. Any
agreement to the contrary is void. (sec77)
Reason: the insurer upon issuance of the
policy, is immediately exposed to liability for
the risks insured against; hence it is entitled
to be paid premium for extending protection
to the insured immediately upon such
Exceptions: (LACIE):
a. In case of life and industrial life whenever
the grace period provision applies (sec77)
b. Where there is an acknowledgment in the
contract or policy of insurance that the
premium had already been paid (sec78)
c. If the parties have agreed to the payment
of the premium in installments and partial
payment has been made at the time of
the loss
d. Where a credit term was agreed upon
e. Where the parties are barred by estoppels
NOTE: sec77 merely preclude the parties
from stipulating that the policy is valid even
if the premiums are not paid

Effect of Acknowledgment of Receipt of Premium

in Policy:
- Conclusive evidence of its payment, in so
far as to make the policy binding,
notwithstanding any stipulation therein
that it shall not be binding until the
premium is actually paid. (sec79)
Reason: when the policy contains such
written acknowledgment, it is presumed that
the insurer has waived the condition of
prepayment. It hereby creates a legal fiction
of payment.
Payment of premium by post-dated check:
- Delivery of a promissory note or a check
will no be sufficient to make the policy
binding until the said note or check has
been converted into cash.
NOTE: payment by means of a check or
note, accepted by the insurer, bearing a date
prior to loss, assuming availability of the
funds thereof, would be sufficient even if it
remains unencashed at the time of the loss.
The subsequent effects of enchashment
would retroact to the date of the instrument
and its acceptance by the creditor.
Entitlement of insured to return of premium
a. If the thing insured was never exposed to the
risks insured against
b. If contract is voidable due to fraud or
misrepresentation of the insurer or his agents
c. If contract is voidable because of the existence
of facts of which the insured was ignorant
without his fault.

d. When by any default of the insured other than

actual fraud, the insurer never incurred liability;
e. When rescission is granted due to the insurers
breach of contract.
a. When the insurance is for a definite period
and the insured surrenders his policy before
the termination thereof;
Policy not made for a definite period of
Short period rate is agreed upon
Life insurance policy



3. Non-default options in life insurance

(after payment of first premium)
Grace period 30 days within which to pay the
succeeding premiums.
Cash Surrender Value the amount the
insurer agrees to pay to the holder of the policy
if he surrenders it and releases his claim upon it.
Extended insurance where the insurance
originally contracted for is continued for such
period as the amount available therefor will pay
when it will terminate. In such case, the
insurance will be for the same amount as the
original policy but for a period shorter than the
period in the original contract.
Paid Up Insurance No more payments are
required, and consist of insurance for life in such
an amount as the sum available therefore,
considered as a single and final premium, will
purchase. It results to a reduction of the original
amount of insurance, but for the same period
originally stipulated.

e. Automatic loan clause A stipulation in the

policy providing that upon default in payment of
premium, the same shall be paid from the loan
value of the policy until that value is consumed.
In such a case, the policy is continued in force
as fully and effectively as though the premiums
had been paid by the insured from funds
derived from other sources.
f. Reinstatement of a lapsed policy of life
Provision that the holder of the policy shall be
entitled to reinstatement of the contract at any
time within 3yrs form the date of default in the
payment of premium, unless the cash surrender
value has been paid, or the extension period
expired, upon production of evidence of
insurability satisfactory to the company and the
payment of all overdue premiums and any
indebtedness to the company upon said policy.
g. Estoppel bars insurer from taking refuge
under sec77, since respondent relied in good
faith on such practice.
4. Refund of premiums
- If double insurance results in over
corresponding to the excess will be
refunded because as far as the excess is
concerned, there is no assumption of risk
on the part of the insurer.
G. Rescission of insurance contracts
1. Concealment
- Neglect to communicate that which a
party knows and ought to communicate

a. A party knows a fact (a material fact

which he neglects to communicate or
disclose to the other party)
b. Such party concealing is duty bound to
disclose such fact to the other;
c. Such party concealing makes no warranty
as to the fact concealed; and
d. The other party has no means of
ascertaining the fact concealed.
Test of materiality: Determined not by the event,
but solely by the probable and reasonable influence of
the facts upon the party to whom the communication
is due, in forming this estimate of the advantages of
the proposed contract, or in making his inquiries
Effect of concealment:
- If there is concealment under sec27, the
remedy of the insurer is rescission.
Impt. Notes:
- The party claiming the existence of
concealment must prove that there was
knowledge of the fact concealed on the
- Good faith is not a defense in
intentional or not entitled the injured
party to rescind the contract. (sec27)
- The matter concealed need not be the
cause of loss
- To be guilty of concealment, a party must
have knowledge of the fact concealed at
the time of the effectivity of the policy.
Matters that need not be disclosed: (KOWEE)
a. Those which the other knows;

b. Those which, in the exercise of ordinary

care, the other ought to know and of
which, the former has no reason to
suppose him ignorant.
c. Those of which the other waives
d. Those which prove or tend to prove the
existence of a risk excluded by a
warranty, and which are not otherwise
e. Those which relate to a risk excepted
from the policy and which are not
otherwise material.
Matters that must be disclosed even in the
absence of inquiry: (M-No means No war)
2. Those material to the contract
3. Those which the other has no means of
4. Those as to which the party with the duty to
communicate makes no warranty.
5. Misrepresentation/omissions
- An oral or written statement of a fact or
condition affecting the risk made by the
insured to the insurance company at the
time or before the issuance of the policy
tending to induce the insurer to assume
the risk.
a. Affirmative an affirmation of fact
existing when the contract begins
b. Promissory statement by the insured
concerning what is to happen during the
term of the insurance.
c. Oral or written

a. The insured stated a fact which is untrue

b. Such fact was stated with knowledge that it is
untrue and with the intent to deceive or which
he states positively as true without knowing it to
be true and which has a tendency to mislead.
c. Such fact in either case is material to the risk.
6. Breach of warranties
- Statements or promises by the insured
set forth in the policy itself or
incorporated in it by proper reference, the
untruth or non-fulfillment of which in any
respect, and without reference to whether
the insurer was in fact prejudiced by such
untruth or non-fulfillment render the
policy voidable by the insurer. The same
may be expressed, implied, affirmative or
7. Exceptions make more definite the

description of the risk by excluding certain

specified risks that otherwise would be
included under the general language
describing the risks assumed.
8. Condition the insurer must also protect
himself against fraudulent claims or loss and
this he attempts to do by inserting in the
policy various conditions which make the
form of ether conditions precedent or
H. Claims settlement and subrogation
1. Notice and proof f loss
2. Guidelines on claims settlement
a) Unfair claims settlement; sanctions
b) Prescription of action
c) subrogation