INSURANCE

Lecture Outline
Judge Nelita Jesusa A. Bacaling
College of Law
University of San Agustin
Iloilo City

Lecture 1 (June 2017)

1. Insurance – a commercial device that distributes the damning effects of certain

risks to a larger number of people in order to minimize the resultant loss, damage,
or injury suffered by the happening of such risks.

2. Insurance Contract-

“It is a contract whereby the insurer, undertakes for a consideration, to indemnify

insured against loss, damage, or liability arising from an unknown or contingent
event.” (Sec. 2, Insurance Code, as Amended by R.A. 10607)

2.1 The definition provided by law has been subject to criticism since it seems
to exclude life Insurance which is not a contract of indemnity since the
loss of life can never be indemnified.

2.2 A better definition would be: A contract of Insurance is an agreement by

which the insurer, upon payment of consideration called a premium, paid
by the insured, promises to pay the latter, money or an equivalent act for
the benefit of the insured or his beneficiary whenever there is loss,
damage, liability or injury, caused by an unknown or contingent event,
insured against.

3. This concept is based on equity so that the person suffering loss will not carry the
burden all on his own. At one point or another, the risks that are insured against
such as loss, damage, injury or liability will also be experienced by everyone
hence, everyone should also participate in minimizing the effects of the
happening of such risks to the persons experiencing the same at the moment. This
distribution in practical terms is done by contributing monetarily to a common
fund, so that the happening of these risks that results to loss damage or injury to a
certain portion of the participating public will give rise to a claim against that fund,
thereby minimizing the effects of such loss, damage or injury, instead of having no
fund from where to source any help or aid, and carrying the burden all by oneself.

4. As a contract, insurance takes on characteristics that are not the same as those
of ordinary contracts contemplated under the Civil Code of the Philippines. The
interpretation is different, the effects are different, and in some cases, the rights of
the parties or the consequence of their actions produce different effects from that
or ordinary contracts. One distinct difference is that insurance contracts could
give rise to subrogation, which is an exception to the rule on privity of contracts.
But in many respects, the Civil Code applies suppletorily.

4.1 The concept of subrogation is based on equity. The insurance company

who paid its client who suffered the loss, is subrogated to the latter’s right
to go after the party who caused the loss.

Case: Malayan Insurance, Inc. v. Alberto, 664 SCRA 791 (2012)

5. Classifications of Insurance under the Insurance Code:

1) Life Insurance contacts, which may be:

a) Individual Life (Sec 181-186; 233) – This is the most common type of Life
Insurance. It has become very popular in view of the aggressive marketing
of life insurance products which, lately have been re-introduced to have
investment features. It covers the life of an individual person, who is
guaranteed of benefits to be given to his heirs after his death. So many
innovations have already been introduced to individual life plans such that
the insured is usually now given the option to enjoy some of the benefits
during his lifetime and not only after his death.
b) Group Life (Secs 50, lat par. 234)- These are similar to Individual Life policies
however, they are offered to cover groups of people who are similarly
situated such as employees of the same company. The premiums are
usually less burdensome because of the number of persons paying.
c) Industrial life (Sec 235-237)- these are offered to blue collared workers who
prefer to have some kind of insurance just enough to cover minor medical
or burial and death benefits. The payment is usually computed on a daily
or weekly basis.
2) Non-Life Insurance contracts, which may be:
a) Marine (Sec. 101-168)
b) Fire ( Secs 169-175)
c) Casualty (Sec. 176); and
d) Contracts of Suretyship or bonding (Sec. 177-180)

6. Construction of Insurance Contracts – General Rule: Construed strictly against the

insurer and liberally in favor of the Insured. Liberality is also shown towards the end
that the policy should be given effect and not declared void leaving the insured
without any recourse under the policy. Moreover, insurance contracts are
generally contacts of adhesion which gives the presumption that the insured did
not have much say in its preparation and therefore, any ambiguity arising from its
interpretation must be construed in favor of the insured.

Case: American Home Assurance Corp. versus Tantuco 366 SCRA 740 (2001)

7. Homework: Read Sec. 2

7.1“Doing an Insurance Business”

Are HMO’s considered as doing an insurance business?

Case: Philippine Health Care Provider, Inc. vs. Comm. of Internal Revenue, 600
SCRA 413 (2009)