The Insurance Code

CHAPTER I
PRESIDENTIAL INSTITUTING AN INSURANCE CODE OF THE PHILIPPINES
I, Ferdinand E. Marcos, President of the Philippines, by virtue of the powers in me vested by the Constitution, do
hereby decree DECREE NO. 612 ORDAINING AND & order the following:
GENERAL PROVISIONS
SECTION 1. This Decree shall be known as The Insurance Code.
SECTION 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth
or indicated, unless the context otherwise requires:
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
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 w/c, as such, is doing an insurance business as hereinafter provided.
(DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4)
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 vocation, not as a mere incident to any other
legitimate business of a surety;
3. Doing any insurance business, including a reinsurance business;
4. Doing or proposing to do any business in substance equivalent to any of the foregoing
In the application of the provisions of this Code the fact 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 deemed
conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
(3) As used in this code, the term Commissioner means the Insurance Commissioner. acd
CHAPTER I THE CONTRACT OF INSURANCE
Title I WHAT MAY BE INSURED
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon,
2002 ed.)
1.
2.
3.
4.
5.
6.

Consensual it is perfected by the meeting of the minds of the parties.

Voluntary the parties may incorporate such terms and conditions as they may deem convenient.
Aleatory it depends upon some contingent event.
Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss.
Conditional It is subject to conditions the principal one of which is the happening of the event insured against.
Contract of 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.
7. Personal each party having in view the character, credit and conduct of the other.

REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002
ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for
the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as premium.
5. Meeting of the minds of the parties.

5 CARDINAL PRINCIPLES IN INSURANCE

1. Insurable Interest
2. Principle of Utmost Good Faith
An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to
disclose any material fact, which he knows or ought to know.
3. Contract of Indemnity
It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to
recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (Reviewer
on Commercial Law, Professors Sundiang and Aquino)
Rules:
a. Applies only to property insurance except when the creditor insures the life of his debtor.
b. Life insurance is not a contract of indemnity.
c. Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed
by the insurer in final printed form to which the insured may adhere if he chooses but which he cannot change. (Rizal
Surety and Insurance Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latters
rights against the wrongdoer at the time of loss.
The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the
insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent
upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity.
(Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)

Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. To make the person who caused the loss legally responsible for it.
2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured could have recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the
insureds claim for loss;
c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA,
184 SCRA 54)
d. In life insurance
e. For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However,
if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of
designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of
persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fund.
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing
device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)

IV. PERFECTION OF AN INSURANCE CONTRACT

An insurance contract 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 consideration.
What is being followed in insurance contracts is what is known as the cognition theory. Thus, an acceptance made
by letter shall not bind the person making the offer except from the time it came to his knowledge. (Enriquez vs. Sun
Life Assurance Co. of Canada, 41 Phil. 269)
Title II PARTIES TO THE CONTRACT
1. Insurer - Person who undertakes to indemnify another. (Sec 6)
For a person to be called an insurance agent, it is necessary that he should perform the function for compensation.
(Aisporna vs. CA, 113 SCRA 459)
2. Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to contract, must
possess an insurable interest in the subject of the insurance and must not be a public enemy. (Section 7)
A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject of such
nation.
1. In case of a mortgaged property (Section 8 & 9)
The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate
and distinct from the other.
a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt
equals such value. The reason is that the loss or destruction of the property insured will not extinguish the mortgage
debt.
b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the mortgage debt is
extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the
provision in the lease contract providing for such automatic assignment is void for being contrary to law and public
policy. (Cha vs. Court of Appeals, 227 SCRA 690)
STANDARD OR UNION MORTGAGE CLAUSE

OPEN OR LOSS PAYABLE MORTGAGE CLAUSE

Subsequent acts of the mortgagor cannot affect the rights

of the assignee

Acts of the mortgagor affect the mortgagee. Reason:

Mortgagor does not cease to be a party to the contract.
(Secs. 8 and 9)

Effects of Loss Payable Clause

a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the
contract.
b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if
the property is in the hands of the mortgagee.
c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the
mortgagee with the same effect.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.
In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance
but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to
the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)
Mortgage Redemption Insurance
A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a
mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of the loan, to the
extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance will be used to
pay for his indebtedness to the lender assured and the deceaseds heirs will thereby be relieved from paying the unpaid
balance of the loan. (Great Pacific Life Assurance Corp. vs. Court of Appeals, 316 SCRA 677)

Title III INSURABLE INTEREST

A. In General
A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so
related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer
pecuniary loss, damage or prejudice.
B. Life (SECTION 10)
Every person has an insurable interest in the life and health:
a. of himself, of his spouse and of his children;
b. of any person on whom he depends wholly or in part for education or support;
c. of any person under a legal obligation to him to pay money or respecting property or services, of which death or
illness might delay or prevent performance; and
d. of any person upon whose life any estate or interest vested in him depends.
When it should exist: When the insurance takes effect; not thereafter or when the loss occurs.
Amount:
GENERAL RULE: There is no limit in the amount the insured can insure his life.
EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of insurable
interest is equal to the amount of the debt.
Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover
on the policy because the principle of indemnity applies.
Beneficiary - A person designated to receive proceeds of policy when risk attaches. (Section 11&12)
Rules in the designation of the beneficiary:
a. LIFE
i. A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary
has an insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of
the NCC.
Reason: in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary
is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181)
ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable
interest in such life. (Sec. 10)
iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly waived the right
to revoke in the policy. (Sec. 11)
iv. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal
accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest
relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12)
b. PROPERTY
The beneficiary of property insurance must have an insurable interest in such property, which must exist not
only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).
Effects of Irrevocable Designation Of Beneficiary
Insured cannot:
1. Assign the policy
2. Take the cash surrender value of the policy
3. Allow his creditors to attach or execute on the policy;
4. Add new beneficiary; or
5. Change the irrevocable designation to revocable, even though the change is just and reasonable.
The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary
can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p.
665, cited in de Leon, p. 101, 2002 ed.)
C. Property
Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
1. an existing interest;
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec. 14)
When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime.
Amount: The measure of insurable interest in property is the extent to which the insured might be damnified by loss
or injury thereof. (Sec. 17)

INSURABLE INSURABLE INTEREST IN LIFE

Must exist only at the time the policy takes effect and need
not exist at the time of loss (sec 19)
Unlimited except in life insurance effected by creditor on life
of debtor.
The expectation of benefit to be derived from the continued
existence of life need not have any legal basis whatever. A
reasonable probability is sufficient without more.

INSURABLE INTEREST IN PROPERTY

Must exist at the time the policy takes effect and
when the loss occurs (sec 19)
Limited to actual value of interest in property insured.

The beneficiary need not have an insurable interest over the

life of the insured if the insured himself secured the policy.
However, if the life insurance was obtained by the
beneficiary, the latter must have insurable interest over the
life of the insured.

The beneficiary must have insurable interest over the

thing insured.

An expectation of a benefit to be derived from the

continued existence of the property insured must have
a legal basis. (sec 18)

SPECIAL CASES
2. In case of a carrier or depositary
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability
but not to exceed the value thereof (Sec. 15)
RISK
What may be insured against:
1. Future contingent event resulting in loss or damage Ex. Possible future fire
2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a vessel unknown to the parties
3. Contingent liability Ex. Reinsurance
SECTION 16. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon
any valid contract for it, is not insurable.
CHANE OF INTEREST IN THE THING INSURED (Section 20 to 24)
The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured. (Sec. 58)
Reason: Insurance contract is personal.
GENERAL RULE: 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 interests in the thing and the interest in the
insurance are vested in the same person. (Sec. 20)
EXCEPTIONS:
1. In life, health and accident insurance.(Sec. 20);
2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21);
3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22);
4. Change of interest, by will or succession, on the death of the insured. (Sec. 23);
5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to
others. (Sec. 24);
6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured. (Sec. 57);
7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of
insurance is not merely suspended but avoided. (Art. 1306, NCC).
SECTION 25.Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not
any interest in the property insured, or that the policy shall be received as proof of such interest, & every policy executed
by way of gaming or wagering, is void.
Title IV CONCEALMENT
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;
2. Precise delimitation of the risk;
3. Control of the risk;
4. Determining whether a loss occurred and if so, the amount of such loss.

Concealment A neglect to communicate that which a party knows and ought to communicate (Sec. 26)
Requisites: (Sec 28)
a. A party knows a fact which he neglects to communicate or disclose to the other.
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.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter
(Sec. 27).
Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether intentional
or unintentional entitles the injured party to rescind the contract of insurance.
SECTION 29.
An intentional & fraudulent omission, on the part of one insured, to communicate information of
matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
SECTION 30.
Neither party to a contract of insurance is bound to communicate information of the matters
following, except in answer to the inquiries of the other:
(a) Those w/c the other knows;
(b) Those w/c, in the exercise of ordinary care, the other ought to know, & of w/c the former has no reason to suppose
him ignorant;
(c) Those of w/c the other waives communication;
(d) Those w/c prove or tend to prove the existence of a risk excluded by a warranty, & w/c are not otherwise material;
(e) Those w/c relate to a risk excepted fr. the policy & w/c are not otherwise material.
B. Devices used for ascertaining and controlling risk and loss:
1. 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 his estimate of the advantages of the proposed contract,
or in making his inquiries (Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more material the information
required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246
SCRA 268).
The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make
inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will
not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make
further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002).
SECTION 34. Information of the nature or amount of the interest of one insured need not be communicated unless in
answer to an inquiry, except as prescribed by section fifty-one.
SECTION 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his
own judgment upon the matters in question.
Title V REPRESENTATION
Representations Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give
information to the insurer and induce him to enter into the insurance contract. They are considered an active form of
concealment.
Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with 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.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written. (sec 36)
c. It is made at the same time of issuing the policy or before but not after. (sec 37)
d. It may be altered or withdrawn before the insurance is effected but not afterwards. (sec 41)
e. It always refers to the date the contract goes into effect. (sec 42)
Kinds:
a. AFFIRMATIVE affirmation of a fact when the contract begins; and
b. PROMISSORY promise to be performed after policy was issued. (sec 39)

 Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes
false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite
knowledge of the ground for rescission. (As amended by Batasang Pambansa Blg. 874)
RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission.
(Sec. 45)
Limitations on the right of the insurer to rescind:
1. Non-life such right must be exercised prior to the commencement of an action on the contract;
2. Life such right must be availed of during the first two years from the date of issue of policy or its last reinstatement;
prior to incontestability. (Sec. 48)
Test of Materiality: Same as that in concealment. (sec 46)
Where the insured merely signed the application form and made the agent of the insurer fill 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 acts for
that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
SECTION 38. The language of a representation is to be interpreted by the same rules as the language of contracts in
general.
SECTION 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an
implied warranty.
SECTION 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information w/c
he has upon the subject, & w/c he believes to be true, w/ the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the insurer; & in neither case is he responsible for its truth,
unless it proceeds fr. an agent of the insured, whose duty it is to give the information.
SECTION 44. A representation is to be deemed false when the facts fail to correspond w/ its assertions or stipulations.
Title VI THE POLICY
POLICY OF INSURANCE The written instrument in which a contract of insurance is set forth. (Sec. 49)
SECTION 50.
The policy shall be in printed form w/c may contain blank spaces; & any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank
spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance & w/c is pasted or
attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty
or endorsement is also mentioned & written on the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy
shall be countersigned by the insured or owner, w/c countersignature shall be taken as his agreement to the contents
of such rider, clause, warranty or endorsement.
Group insurance & group annuity policies, however, may be typewritten & need not be in printed form.
Binding Receipt A mere acknowledgment on behalf of the company that its branch office had received from the
applicant the insurance premium and had accepted the application subject to processing by the head office.
Riders Printed stipulations usually attached to the policy because they constitute additional stipulations between
the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more
deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines,
1968 ed.)
Clauses An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188)
Endorsements Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)

 Contents: (Sec. 51)

1. Parties
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.
Cover Note (Ad Interim) (Sec. 52)
A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the
principal terms of an expected policy of insurance.
Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or
rejection of his application.
Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy.
SECTION 54.
When an insurance contract is executed w/ an agent or trustee as the insured, the fact that his
principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or
by other general words in the policy.
SECTION 55.
To render an insurance effected by one partner or part-owner, applicable to the interest of his
co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the
joint or common interest.
SECTION 56.
When the description of the insured in a policy is so general that it may comprehend any person or
any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.
SECTION 57.
A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of
the risk, may become the owner of the interest insured.
SECTION 58.
The mere transfer of a thing insured does not transfer the policy, but suspends it until the same
person becomes the owner of both the policy & the thing insured.
Kinds:
1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60)
The actual loss, as determined, will represent the total indemnity due the insured from the insurer except only
that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143
SCRA 62)
2.VALUED POLICY definite valuation of the property insured is agreed by both parties, and written on the face of
policy. (Sec. 61)
In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless
the insurance is for a lower amount.
3. RUNNING POLICY contemplates successive insurances and which provides that the object of the policy may
from time to time be defined (Sec. 62)
SECTION 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one year fr. the time when the cause of action accrues, is void.
CANCELLATION OF NON-LIFE INSURANCE POLICY
Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a nonlife policy.
Grounds:
1. Non-payment of premium;
2. Conviction of a crime out of acts increasing the hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts of omissions increasing the hazard insured against;
5. Physical changes in property making the property uninsurable; and
6. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code.
(Sec. 64)
Requirements:
1. Prior notice of cancellation to the insured;

2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy; (sec 65)
3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the
insurer must furnish facts on which the cancellation is based; (sec 65)
4. Grounds should have existed after the effectivity date of the policy.
SECTION 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the
policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured
shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any
policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy
written for a term longer than one year or any policy w/ no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.
Title VII WARRANTIES
Warranties Statement or promise by the insured set forth in the policy or by reference incorporated therein, the
untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by
such untruth or non-fulfillment, renders the policy voidable by the insurer. (Sec 67 to 70)
Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the
change to the condition of the property.
Kinds:
a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk
are or shall be true, or certain acts relating to the same subject have been or shall be done. (sec 71)
b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance,
seaworthiness of the vessel.
Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to
rescind the contract. (Sec. 74)
EXCEPTIONS:
a. Loss occurs before the time of performance of the warranty.
b. The performances becomes unlawful at the place of the contract.
c. Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
WARRANTY
Part of the contract
Written on the policy, actually or by reference
Presumed material
Must be strictly complied with

REPRESENTATION
Mere collateral inducement
May be written in the policy or may be oral.
Must be proved to be material
Requires only substantial truth and compliance

SECTION 72. A statement in a policy w/c imparts that it is intended to do or not to do a thing w/c materially affects
the risk, is a warranty that such act or omission shall take place.
SECTION 76. A breach of warranty without fraud merely exonerates an insurer fr. the time that it occurs, or where it is
broken in its inception, prevents the policy fr. attaching to the risk.
Title VIII PREMIUM
PREMIUM PAYMENTS
Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.
Basis of the right of the insurer to collect premiums: Assumption of risk.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any
agreement to the contrary is void. (Sec. 77)

EXCEPTIONS:
1.
2.
3.
4.
5.

In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
Section 77 may not apply 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. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)

 Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid.
(Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.
(Sec. 78)
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
A. Whole:
1. If the thing insured was never exposed to the risks insured against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81)
3. If contract is voidable because of the existence of facts of which the insured was ignorant without his fault;
(Sec. 81)
4. When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81)
5. When rescission is granted due to the insurers breach of contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof;
Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2. When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and the parties are in pari delicto.
PREMIUM
Levied and paid to meet anticipated losses.
Payment is not enforceable against
the insured.
Not a debt.

ASSESSMENT
Collected to meet actual losses.
Payment is enforceable once
levied unless otherwise agreed upon.
It becomes a debt once properly levied unless otherwise
agreed.

SECTION 80.
If a peril insured against has existed, & the insurer has been liable for any period, however short,
the insured is not entitled to return of premiums, so far as that particular risk is concerned.
Title IX LOSS
A. LOSS, IN INSURANCE
Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or
misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured.
(Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable
1. Loss the proximate cause of which is the peril insured
against (Sec. 84);
2. Loss the immediate cause of which is the peril insured
against except where proximate cause is an excepted peril;
3. Loss through negligence of insured except where there
was gross negligence amounting to willful acts; and
4. Loss caused by efforts to rescue the thing from peril
insured against;
5. If during the course of rescue, the thing is exposed to a
peril not insured against, which permanently deprives the
insured of its possession, in whole or in part (Sec. 85).

Loss for which insurer is not liable

1. Loss by insureds willful act;
2. Loss due to connivance of the insured (Sec. 87); and
3. Loss where the excepted peril is the proximate
cause.

Proximate Cause An event that sets all other events in motion without any intervening or independent case, without
which the injury or loss would not have occurred.

REQUISITES FOR RECOVERY UPON INSURANCE

1. The insured must have insurable interest in the subject matter;
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused by the peril insured against.
Title X NOTICE OF LOSS
In fire insurance

In other types of insurance

Required
Failure to give notice will defeat the right of the insured to
recover.

Not required
Failure to give notice will not exonerate the insurer,
unless there is a stipulation in the policy requiring the
insured to do so.

B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
LIFE POLICIES
a. Maturing upon the expiration of the term The
proceeds are immediately payable to the insured, unless
they are made payable in installments or as annuity, in
which case, the installments or annuities shall be paid
as they become due.
b. Maturing at the death of the insured, occurring
prior to the expiration of the term stipulated The
proceeds are payable to the beneficiaries within 60 days
after presentation and filing of proof of death.

NON-LIFE POLICIES
The proceeds shall be paid within 30 days after the receipt
by the insurer of proof of loss, and ascertainment of the loss
or damage by agreement of the parties or by arbitration but
not later than 90 days from such receipt of proof of loss
whether or not ascertainment is had or made.

In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can recover: 1)
attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest
rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398)
SECTION 89. 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 justice; but it is sufficient for him to give the best evidence w/c he has in his power at the
time.
SECTION 90. All defects in a notice of loss, or in preliminary proof thereof, w/c the insured might remedy, & w/c the
insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.
SECTION 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if
he omits to take objection promptly & specifically upon that ground.
SECTION 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other
than the insured, it is sufficient for the insured to use reasonable diligence to procure it, & 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 by any just grounds
of disbelief in the facts necessary to be certified or testified.
Title XI DOUBLE INSURANCE
A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the value of the
property with the same insurance company.
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the property lost;
2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property;
B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject
and interest. (Sec. 93)
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.

 Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are severally liable under their respective contracts;
2. Where the policy under which the insured claims is a valued 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;
3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable
value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value
in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to
the amount for which he is liable under his contract.
Additional or Other Insurance Clause
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property
insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may declare that a violation
of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it.
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been double insurance.
Title XII REINSURANCE
C. REINSURANCE a contract by which the insurer procures a third person to insure him against loss or liability by reason
of an original insurance (also known as Reinsurance Cession). (Sec. 95)
In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate
policies.
DOUBLE INSURANCE
Involves the same interest
Insurer remains in such capacity
Insured is the party in interest in the 2 contracts
Subject of insurance is property
Insured has to give his consent

REINSURANCE
Involves different interest
Insurer becomes the insured in relation to reinsurer
Original insured has no interest in the reinsurance
contract.
Subject of insurance is the original insurers risk
Insureds consent not necessary

TERMS:
1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to cede and the
other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306)
2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the
risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party having a free
choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by
payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured.
It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)