PART 1

I. INTRODUCTION
II. INSURANCE AS SPECIAL CONTRACTS

a. Requisites of a valid contract (Art. 1318)

1. Consent
1.1 Persons who cannot give consent to a contract of insurance (Art. 1327)
- Minors
- Insane or demented person, and deaf-mutes who do not know how to write

1.2 Mistake, Violence, Intimidation, Undue influence renders the contract voidable.
2. Object
3. Cause or Consideration

b. Defective Contracts and Insurance Law

1. Voidable contracts vs. Voidable Insurance contracts
2. Unenforceable contracts
3. Void contracts
4. Rescissible contracts of insurance

III. CHARACTERISTICS

a. Aleatory Contract - one which is dependent on the occurrence of an uncertain event or one which is
certain to happen but the time is unknown.
b. Onerous - there is valuable consideration
c. Bilateral
d. Form — solemn

IV. CONCEPTS AND TERM USED

Type of Insurance
(1) Life
- Individual
- Group
- Industrial

(2) Non-life
- Marine
- Fire
- Casualty

(3) Surety

V. APPLICABLE LAW — The primary law that governs insurance contracts is the Insurance Code which
was enacted as PD 602, as amended by RA 10607 pursuant to Art. 2011 of the Civil Code, which
provides that, “the contract of insurance is governed by special law. Matters not expressly provided for in
such special laws shall be regulated by this Code.”, which means that the Civil Code provisions is merely
suppletory.

1. New Insurance Code (RA 10607)

2. Civil Code provisions on contracts and Art. 2011 and other related articles
3. Family Code
4. Other Special Law

FJTR REVIEWER — INSURANCE

PART 2: INSURANCE CODE OF THE PHILIPPINES

I. INSURANCE DEFINED (Sec 2.)

- an agreement whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.
- Doing an insurance business or transacting an insurance business, within the meaning of this Code,
shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.

"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.

II. WHAT MAY BE INSURED IN A CONTRACT OF INSURANCE?

a. Any contingent or unknown event, whether past or future, which may damnify a person having
an insurable interest, or create a liability against him, may be insured against, subject to the provisions of
this chapter. (Sec. 3)
b. insurance for or against the drawing of any lottery, or for or against any chance or ticket in a
lottery drawing a prize is not allowed. (Sec. 4)

III. PARTIES TO A CONTRACT OF INSURANCE

A. WHO CAN BE AN INSURER? (Sec. 6)

- Every corporation, partnership, or association, duly authorized to transact insurance business as
elsewhere provided in this Code, may be an insurer.

A.1. KINDS OF INSURERS

a.1.1 Insurance Companies and Reinsurance Companies

a,1.2 Partnerships, persons, associations
a.1.3 Mutual benefit association

Sec. 184 — A policy of insurance upon life or health may pass by transfer, will or succession to
any person, whether he has an insurable interest or not, and such person may recover upon it whatever
the insured might have recovered.

a.1.4 Mutual Insurance Companies

Sec. 268 — Any domestic stock life insurance company doing business in the Philippines may
convert itself into an incorporated mutual life insurer. To that end it may provide and carry out a plan for
the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any
class or classes of its policyholders, by complying with the requirements of this chapter.

a.1.5 Cooperative and Cooperative Insurance Socities (Sec. 190, in relation to Art. 105-109 of PH
Cooperative Code)

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 Sec. 190 — For purposes of this Code, the term insurer or insurance company shall include all
partnerships, associations, cooperatives or corporations, including government-owned or -controlled
corporations or entities, engaged as principals in the insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the term shall also include professional reinsurers
defined in Section 288. Domestic company shall include companies formed, organized or existing under
the laws of the Philippines. Foreign company when used without limitation shall include companies
formed, organized, or existing under any laws other than those of the Philippines.

A.2 BASIC QUALIFICATIONS OF INSURER

- has capital and assets required (Sec. 192)
- certificate of authority from the Commissioner (Sec. 193)

B. WHO MAY BE INSURED?

b.1 DEFINITION OF INSURED/ CONTRAST WITH ASSURED

- In life insurance, if a person insures the life of another, the person whose life is insured is called
the “insured” while the person who took out an insurance on the insured is called the “assured”.
- Stipulation pour autrui — stipulation in favor of a 3rd person

b.2 Capacity of insured to contract.

Art. 1327 — The following cannot give consent to a contract:

(a) Minors;
(b) Insane or demented person, and deaf-mutes who do not know how to write.

Art. 1390 — The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the contracting parties is incapable of giving consent to a contract;
(2) Those consents is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification.

b.3 General Rule: Anyone except public enemy may be insured. (Sec. 7)

- Transfer of insurance from one mortgagor to another. (Sec. 8 and 9)

Sec. 8 — Unless the policy otherwise provides, where a mortgagor of property effects insurance
in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does
not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but
any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed
by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

Sec. 9 — If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee,

and, at the time of his assent, imposes further obligations on the assignee, making a new contract with
him, the acts of the mortgagor cannot affect the rights of said assignee.

b.3.1 Spouses may enter into a contract of insurance on their own.

Sec. 3 — The consent of the spouse is not necessary for the validity of an insurance policy taken
out by a married person on his or her life or that of his or her children.

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 Sec. 73 of FC — Either spouse may exercise any legitimate profession, occupation, business or
activity without the consent of the other. The latter may object only on valid, serious, and moral grounds.

b.3.2 Minors cannot enter into contracts of insurance (RA 10607 removed the right of minors to
enter into contracts of insurance, this was previously allowed under the Old Insurance Code)

b.3.3 Effect of death of owner (Applicable only to life insurance)

Sec. 3, last paragraph — All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall automatically vest in the latter upon the
death of the original owner, unless otherwise provided for in the policy.

b.3.4 Public Definition - a country with whom the Philippines is at war including its citizen. (no
need to declare war)

C. BENEFICIARY

c.1 Definition — The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy. (Sec. 53)

c.2 Persons disqualified to be beneficiaries

Art. 2012 of CC - Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to
him, according to said article.

Art. 739 of CC - The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action.

CASE:

LORETO vs. MARAMAG

- No legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured.
- The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of
no moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the
children of illicit relationships by the insured, the shares of Eva in the insurance proceeds, whether
forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the
insurers themselves for reasons based on the insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases
where the insured has not designated any beneficiary, or when the designated beneficiary is
disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the
benefit of the estate of the insured.

c.3 Designation of beneficiary is generally revocable

General Rule: The insured shall have the right to change the beneficiary he designated in the
policy.

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 Exception:
(1) Expressly waived the right in the policy
(2) In the event the insured does not change the beneficiary during his lifetime, the designation
shall be deemed irrevocable.
(3) After the finality of the decree of legal separation, the innocent spouse may revoke the
donations made by him or by her in favor of the offending spouse, as well as the designation of the latter
as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable. (Sec. 64 of
FC)

c.4 Forfeiture of the rights of the beneficiary

- 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.

- Rule when one beneficiary forfeits —

a. the share forfeited shall pass on to the other beneficiaries, unless otherwise
disqualified.
b. In the absence of other beneficiaries, the proceeds shall be paid in accordance with
the policy contract.
c. If the policy contract is silent, the proceeds shall be paid to the estate of the insured.

- Rule when there is no beneficiary or the designation of beneficiary is ineffectual — the proceeds
becomes part of the estate of the deceased insured.

c.5 Use of Community Fund or Conjugal fund to procure insurance — proceeds of the policy will
constitute community property if the policy was made payable to the deceased’s estate. 1/2 will belong to
the estate and the other half to the surviving spouse.

CASE:

BPI vs. POSADAS

- (1) the proceeds of a life-insurance policy payable to the insured's estate, on which the premiums were
paid by the conjugal partnership, constitute community property, and belong one-half to the husband
and the other half to the wife, exclusively; (2) if the premiums were paid partly with paraphernal and
partly conjugal funds, the proceeds are likewise in like proportion paraphernal in part and conjugal in
part; and (3) the proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if
delivered to the testamentary administrator of the former as part of the assets of said estate under
probate administration, are subject to the inheritance tax according to the law on the matter, if they
belong to the assured exclusively, and it is immaterial that the insured was domiciled in these Islands or
outside.

c.6 If there is a designated beneficiary, source of funds.

d. Third Party

e. Trustee or agent procuring insurance — 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. (Sec. 56)

f. Partner procuring insurance — 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. (Sec. 55)

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 g. Rights of Assignee of Insurance

Life Insurance — A policy of insurance upon life or health may pass by transfer, will or succession
to any person, whether he has an insurable interest or not, and such person may recover upon it
whatever the insured might have recovered. (Sec. 184)
Property Insurance — 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 and the thing insured. (Sec. 58)

Example:
You insured your car. You sell it to another person, will the insurance be transferred to the buyer? No.
"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 and the thing insured. Logical step for the
buyer is to consolidate in himself, the policy. The buyer cannot claim the proceeds.

IV. INSURABLE INTEREST

a. Concept — interest which a person is deemed to have in the subject matter insured, where he
has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or
advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage
from its destruction, termination, or injury by the happening of the event insured against. (Lalican vs.
Insular Life)

a.1 Life Insurance — the relationship of the insured with the one insured, so that the
death, disability, or injury of the insured will result in emotional and/or economic dislocation of the insured.
(Warnock vs. Davis, 104 US 775)
- There is an interest by the insured in seeing to it that the life, health or economic
capacity of insured is not diminished.
- Based on emotional loss, not economic.

a.2 Property Insurance

Sec. 13 — Every interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is
an insurable interest.
- The interest of the insured over the object insured so that the person will be
economically damnified by the damage or loss of the object insured.

b. Effect of lack of insurable interest — when there is no insurable interest, the policy is akin to a
wager in gambling and is void.

Sec. 25 — Every stipulation in a policy of insurance for the payment of loss whether the person
insured has or has no any interest in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or wagering, is void.

c. Insurable Interest in Life Insurance

Sec. 10 — Every person has insurable interest in the life and health:

c.1 His own life

c.2 His spouse and children

CASES:

GERCIO vs. SUNLIFE ASSURANCE

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- The wife has an insurable interest in the life of her husband.
- The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery.
- When a policy of life insurance is taken out by the husband in which the wife is named as beneficiary,
she has a subsisting interest in the policy. And this applies to a policy to which there attached the
incidents of a loan value, cash surrender value, and automatic extension by premiums paid, and to an
endowment policy, as well as to an ordinary life insurance policy.
- If the policy contains no provision authorizing a change of beneficiary without the beneficiary's consent,
the insured cannot make such change.
- A life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of
the beneficiary and beyond the control of the husband.
- In the absence of a statute to the contrary, if a policy is taken out upon a husband's life and the wife is
named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy.
- The insured—the husband—has no power to change the beneficiary—the former wife—and to name
instead his actual wife, where the insured and the beneficiary have been divorced, and where the
policy of insurance does not expressly reserve to the insured the right to change the beneficiary.

LALICAN vs. INSULAR LIFE ASSURANCE

- Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of the Policy.
True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the
amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy could
only be considered reinstated after the Application for Reinstatement had been processed and
approved by Insular Life during Eulogio’s lifetime and good health. Hence, Eulogio was not able to
reinstate the lapsed insurance policy on his life before his death. Ergo, Violeta cannot claim the
proceeds of the policy, but she is entitled to receive the full refund of the payments made by Eulogio
thereon.

MANILA BANKER’S LIFE vs. ABAN

- Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.
- An insurer is given two years — from the effectivity of a life insurance contract and while the insured is
alive — to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.

c.3 A person for whom he relies on for support, education or a person to whom he has pecuniary
interest on.

c.4 Any person under a legal obligation to him for the payment of money, or respecting property
or services, of which death or illness might delay or prevent the performance.

c.4.1 Creditor
c.4.2 Mortgage Redemption Insurance

c.5 Any person upon whose life or estate or interest vested in him the insured depends.

d. Insurable Interest in Property Insurance

Sec. 13 — Every interest in property, whether real or personal, or any relation thereto, or liability
in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an
insurable interest.

Sec. 18 — No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.

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 d.1 Test — economic or whether the loss or injury will result in pecuniary damage to the person?
If yes, you have insurable interest over the property.
- Is there an economic limit on how much you can collect? Yes only as much as your
damage.
- If you own a object, you are automatically damnified.
- If you do not own, you may be damnified due to your continued benefit or use of the
object.

d.2 Kinds of insurable interest over property

d.2.1 Existing Interest

CASES:

CAGAYAN vs. INSURANCE COMPANY OF NORTH AMERICA

- Anyone has an insurable interest in property who derives a benefit from its existence or would suffer
loss from its destruction.
- Unpaid accounts. It is well-settled that when the words of a contract are plain and readily understood,
there is no room for construction. In this case, the questioned insurance policies provide coverage for
“book debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines;”and defined book debts as
the “unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the
loss covered under this Policy.” Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.
- A vendor or seller retains an insurable interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its destruction, as where he has a vendor’s lien.
In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered by the policies.

FILIPINO MERCHANTS vs. CA

- An "all risks" policy covers all losses other than those caused by the wilful and fraudulent act of
insured.
- The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.

ONG LIM SING JR. vs. FEB LEASING

- A lessee has an insurable interest in the equipment and motor vehicles leased, and the measure of its
insurable interest is the extent to which it may be damnified by loss or injury thereof.

d.2.2 An Inchoate Interest

CASE:

GEAGONIA vs. CA AND COUNTRY BAKERS

- The rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies
from two or more insurers in a total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the insurance. The public as well as
the insurer is interested in preventing a situation in which a fire would be profitable to the insured.
- A double insurance exists where the same person is insured by several insurers separately in respect
of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC do

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 not cover the same interest as that covered by the policy of the private respondent, no double
insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right to
recover on the private respondent's policy.

d.2.3 Expectancy

CASE:

FILIPINO MERCHANTS vs. CA

- An "all risks" policy covers all losses other than those caused by the wilful and fraudulent act of
insured.

d.2.4 Insurable Interest of Bailee

CASE:

GEAGONIA vs. CA
- As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be covered by one policy, or each may take out a separate
policy covering his interest, either at the same or at separate times. The mortgagor's insurable interest
covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full
value of the property. The mortgagee's insurable interest is to the extent of the debt, since the property
is relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien
thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of
the debt, not exceeding the value of the mortgaged property. Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the mortgagee.

d.2.5 Insurable Interest of Mortgagor (Sec. 9 and Sec. 20 in relation to changes in the
interest)

Sec. 9 — If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee,

and, at the time of his assent, imposes further obligations on the assignee, making a new contract with
him, the acts of the mortgagor cannot affect the rights of said assignee.

Sec. 20 — Except in the cases specified in the next four sections, and in the cases of life,
accident, and health insurance, 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.

CASES:

GREAT PACIFIC LIFE vs. CA

- Where the mortgagee under a mortgage redemption insurance has already foreclosed on the
mortgage, it cannot collect the insurance proceeds — the proceeds then rightly belong to the heirs of
the mortgagor.

CHA vs. CA
- 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/or public policy—the insurer cannot be compelled to pay the proceeds of
the policy to a person who has no insurable interest in the property insured.

MANILA BANKER’S LIFE vs. ABAN

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- Insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and
invest the same through the years, generating profits and returns therefrom for their own benefit, and
thereafter conveniently deny insurance claims by questioning the authority or integrity of their own
agents or the insurance policies they issued to their premium-paying clients.

LALICAN vs. INSULAR LIFE

- To reinstate a policy means to restore the same to premium-paying status after it has been permitted to
lapse. Both the Policy Contract and the Application for Reinstatement provide for specific conditions for
the reinstatement of a lapsed policy.
- Here, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of the
Policy. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy could
only be considered reinstated after the Application for Reinstatement had been processed and
approved by Insular Life during Eulogio’s lifetime and good health. Hence, Eulogio was not able to
reinstate the lapsed insurance policy on his life before his death. Ergo, Violeta cannot claim the
proceeds of the policy, but she is entitled to receive the full refund of the payments made by Eulogio
thereon.

d.2.6 Transfer of the thing insured, effect on policy and interest.

Sec. 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 and the thing insured.

d.2.7 Effect of change in the thing after injury or loss occurs

Sec. 21 — A change of interest in a thing insured, after the occurrence of an injury which results
in a loss, does not affect the right of the insured to indemnity for the loss.

d.2.8 Change in interest over one or more object separately insured.

Sec. 22 — A change of interest in one or more of several distinct things, separately insured by
one policy, does not avoid the insurance as to the others.

d.2.9 Change of interest by way of succession on the death of insured.

Sec. 23 — A change of interest, by will or succession, on the death of the insured, does not avoid
an insurance; and his interest in the insurance passes to the person taking his interest in the thing
insured.

General Rule: Upon the death of the insured, the policy is not suspended, but the beneficiary is
merely transformed to his estate.
Exception: Stipulation in the insurance contract

d.2.10 Transfer of interest by a partner, joint owner, or co-owner.

Sec. 24 — A transfer of interest by one of several partners, joint owners, or owners in common,
who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that
the insurance shall cease upon an alienation of the thing insured.

e. When must insurable interest exist?

Sec. 19 — An interest in property insured must exist when the insurance takes effect, and when
the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

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 - In life insurance, the interest must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.
- In life insurance, if a person insures his own life and designates a beneficiary, the beneficiary
need not have insurable interest over the life of the insured. However, please note that this will be treated
as a donation and the prohibition in donations still exist.
- Beneficiary in life insurance must have insurable interest in the property, otherwise it will be
treated as a wager.
- If a person insures the life of another and designates himself as the beneficiary, he must have
insurable interest over that person’s life.
- In property insurance, interest must exist when the insurance takes effect and when the loss
occurs, but need not exist in the meantime.

V. PREMIUM

1. Rationale — since insurance is a risk-spreading device, the premium provides a pool of funds
that is used to pay for the claims when the peril arises.

2. General Rule: Premium is required for policy to be binding. Insurer is entitled to payment of
premium, which is due from the moment the thing insured is exposed to the peril.

3. Exception:
a. When in cases of life or industrial life policy during the grace period. (Sec. 77)
b. When there is an acknowledgement in the policy or receipt that the premium has been paid.
(Art. 79)
c. When there is an agreement that the premium will be paid on installment
d. When credit has been extended which should not exceed 90 days from the date of issuance of
the policy. (Sec. 77)
e. In cases of estoppel

Notes:
(1) Grace period — usually 30 days from the date the premium becomes due
(2) Premium may be waived. (Atty. Ibarra)

4. Other schemes to prevent the lapsing of an insurance policy:

a. Automatic policy loan

b. Application of dividends
c. Reinstatement

5. General Rule: Premium once paid, cannot be refunded.

Exception:
1. The thing was not exposed to peril (Sec. 80)
2. In a “time policy” and there is a provision for a pro-rata refund
3. When the contract is declared voidable
4. When the contract is annulled due to fraud or misrepresentation of the insurer or of his
agent or on account of facts or the existence of which the insured was ignorant without his fault.
5. When by the default of the insured other than actual fraud, the insurer never incurred
liability under the policy.
6. In case of over-insurance by several insurers (Sec. 83)

Note: When insurance claim is denied, insured is not entitled to return of premium. (Sec. 82)

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VI. POLICY

1. What is the policy?

— It is the written document where the terms of the insurance contract is written.
— It is a contract of adhesion.

2. Mandatory contents

Sec. 51 — A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon
the termination of the contract, a statement of the basis and rates upon which the final premium is to
be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

3. Designation of beneficiary

Sec. 53 — The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.

4. Identification of Insured

Sec. 54 — When an insurance contract is executed with 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.

Sec. 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.

5. Designation of Class of person

Sec. 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.

6. Riders —are the additional clauses to a contract of insurance which are usually attached to the
main policy.

a. Requirements (Sec. 50)

- Must be attached to policy.
- The descriptive title or name of rider is mentioned and written on the blank spaces
provided in the main policy.
- If not applied by the insured or owner, rider must be counter-signed by the insured.

7. Cover notes —nature as temporary policy (Sec. 52)

a. Requirements
- Must be approved by the Insurance Commission

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 - Must be valid and binding for no more than 60 days and policy must be issued
thereafter. But it may be extended or renewed beyond such 60 days with the written approval of the
Commissioner if he determines that such extension is not contrary to and is not for the purpose of
violating any provisions of this Code.
- May be cancelled with 7-day notice to either party.

8. Cancellation of Property Insurance Policies (Sec. 64)

a. Non-payment of premium
b. Conviction of a crime which will increase the hazard insured against
c. Discovery of fraud or material representation
d. Discovery of willful or reckless acts or omissions increasing the hazard.
e. Physical changes in the property which increases the peril or making the object uninsurable
f. Over-insurance
g. Determination by the Insurance Commission that the continuation of the policy would place the
insurer in violation of the Insurance Code.

Note: Notice of cancellation must be in writing. (Sec. 65)

9. Renewal of Non-life insurance

Sec. 66 — In case of insurance other than life, unless the insurer at least 45 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 1 year shall be
considered as if written for a term of 1 year. Any policy written for a term longer than 1 year or any policy
with no fixed expiration date shall be considered as if written for successive policy periods or terms of 1
year.

VII.ASCERTAINING AND CONTROLLING RISK

1. Concealment — a neglect to communicate that which a party knows and ought to

communicate. (Sec. 26)

Sec. 28 — Each party to a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes no warranty, and
which the other has not the means of ascertaining.

CASE:

FLORENDO vs. PHILAM PLANS

- Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension
plan application; Pursuant to Section 27 of the Insurance Code, Manuel’s concealment entitles Philam
Plans to rescind its contract of insurance with him.

2. Materiality

Sec. 31 — Materiality is to be 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 disadvantages of the proposed contract, or in making his inquiries.

Test — Whether the fact will influence the insurer in his estimation of the risk.

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Note: Matter concealed need not be the cause of the loss.

3. Effects of Concealment — A concealment whether intentional or unintentional entitles the

injured party to rescind a contract of insurance. (Sec. 27)

4. When there is no concealment

Sec. 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 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 communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not
otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise material.

Sec. 32 — Each party to a contract of insurance is bound to know all the general causes which
are open to his inquiry, equally with that of the other, and which may affect the political or material perils
contemplated; and all general usages of trade.

Sec. 33 — The right to information of material facts may be waived, either by the terms of
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of
which information is communicated.

Sec. 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 51.

Sec. 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.

5. Representations — A representation may be made at the time of, or before, issuance of the
policy. (Sec. 37)

6. Effect of False Representation — 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. (Sec. 45)

7. Warranties — An affirmation of a fact or a promise to perform an act in a contract of insurance.

Sec. 67 — A warranty is either expressed or implied.

Sec. 68 — A warranty may relate to the past, the present, the future, or to any or all of these.

Sec. 69 — No particular form of words is necessary to create a warranty.

Sec. 70 — Without prejudice to Section 51, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured
and referred to in the policy as making a part of it.

Sec. 71 — A statement in a policy, of a matter relating to the person or thing insured, or to the
risk, as fact, is an express warranty thereof.

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 Sec. 72 — A statement in a policy, which imparts that it is intended to do or not to do a thing
which materially affects the risk, is a warranty that such act or omission shall take place.

Sec. 73 — When, before the time arrives for the performance of a warranty relating to the future,
a loss insured against happens, or performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the policy.

8. Breach of warranty by insured

- if after the peril, the insured is disqualified to receive the benefits of the insurance contract.
- if before the peril, insurer may ask for rescission.

9. Breach of warranty by the insurer entitles the insured to rescission. (Sec. 75)

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