Insurance Code & PDIC Act

8/9/2019 Insurance Code & PDIC Act

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3.Insurance Code

(PD 1460)

Chapter I.

INTRODUCTION

1. Laws on Insurance

1.1. Sources of Insurance Law in thePhilippines During the Spanish period, all the provisions

concerning insurance in the Philippines werefound in Title 7 of Book 2 and Section 3 ofTitle 3 of Book 3 of the Code of Commerce,and in Chapters 2 and 4 of Title 12 of Book 4of the old Civil Code of 1889.

When Act # 2427, enacted on December 11,

1914, otherwise known as the Insurance Act,took effect on July 1 1915 during theAmerican Regime, the provisions of the Codeof Commerce on insurance were expresslyrepealed.

Ang Giok vs. Springfields

Facts: Ang Giok insured the contents of hiswarehouse with three insurance companies for60K. The warehouse and its contents weredestroyed by fire while the policies were inforce. The plaintiff instituted action in the CFIof Manila against one of the insurers to recovera proportional part of the loss coming to P8,

170. 59. Four special defenses wereinterposed by the insurer, one being plantedon a violation of warranty F fixing the amountof hazardous goods which might be stored inthe insured building. Securely pasted on theleft hand margin of the policy reading in partas follows: It is agreed that during thecurrency of this policy no hazardous goods bestored in the buildingexceeding in all 3percent of the total value of the wholemerchandise contained in said warehouse.Held: The rider or slip containing saidwarranty F attached to the policy in questionand referred to therein as making part of thetwo forms provided in said Section 65 of the

Insurance Law. The law says that everyexpress warranty must be contained in thepolicy itself. The word contained, accordingto the dictionaries, means included, enclosed,embraced, comprehended etc. Whentherefore, the courts speak of a rider attachedto the policy, and thus embodied therein, or of

a warranty incorporated into the policy, it isbelieved that the phrase contained in the policyitself must necessarily include such ride andwarranty. As to the alternative relating to another instrument as here used could notmean a mere slip of paper like a rider, butsomething akin to the policy itself. The wordinstrument has a well defined definition inCalifornia, and as used in the Codes invariablymeans some written paper or instrument signedand delivered by one person to another,

transferring the title to, or giving a lien, onproperty, or giving a right to debt or duty. Therider, warranty F, is contained in the policyitself, because by the contract agreed to by theparties is made to form part of the same, but isnot another instrument signed by the insuredand referred to in the policy as forming a part ofit. The rider is therefore valid and binding.

Gercio vs. Sunlife

Facts: On January 1910, the Sun Lifeassurance Co., of Canada issued a 20-yearendowment policy on the life of Hilario Gercio.The insurance company agreed to insure the lifeof Gercio for P2, 000, to be paid to him onFebruary 1, 1930, or if the insured should diebefore said date, then to his wife, should shesurvive him; otherwise, to the executors,administrators, or assigns of the insured. Thepolicy did not include any provision reserving tothe insured the right too change the beneficiary.When the policy was issued, Andrea Zialcita wasthe lawful wife of Hilario. In 1919, she wasconvicted of adultery. In 1920, a decree ofdivorce was issued in a civil case completelydissolving the bonds of matrimony betweenGercio and Zialcita. In 1922, Fercio formallynotified Sun Life that he had revoked his

donation in favor of Zialcita, and that he haddesignated in her stead his present wife, AdelaGarcia de Gercio, as the beneficiary of thepolicy. Gercio requested Sun Life to eliminateZialcita as beneficiary. This the insurancecompany has refuse to do and still refuses to do.Held: The Code of Commerce, the Civil Code orthe Insurance Act does not contain any provisioneither permitting or prohibiting the insured tochange the beneficiary. We must perforceconclude that whether the case be considered inthe light of the Code of Commerce, the CivilCode, or the Insurance Act, the deficiencies inthe law will have to be supplemented by thegeneral principles prevailing on the subject. To

that end, we have gathered the rules whichfollow from the best considered Americanauthorities. In adopting these rules, we do sowith the purpose of having the Philippine Law ofInsurance conform as nearly as possible to themodern Law of Insurance as found in the UnitedStates. The beneficiary has an absolute vested


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interest in the policy from the date of itsissuance and delivery. So when a policy of lifeinsurance is taken out by the husband in whichthe wife is named the beneficiary, she has asubsisting interest in the policy.

When RA 386, otherwise known as the CivilCode of the Philippines, took effect onAugust 30, 1950, those provisions of the oldCivil Code on insurance were also expresslyrepealed.

Presidential Decree # 612, as amended,which ordained and instituted the InsuranceCode of the Philippines, was promulgated onDecember 18, 1974 during the period ofmartial law. It repealed Act # 2427, asamended. Before Presidential Decree 612,amendments to the Act were made by PDs #63, 123, 317.

Presidential Decree # 1460, consolidated allinsurance laws into a single code known asthe Insurance Code of 1978. Basically, itreenacted Presidential Decree # 612, asamended. It has been amended byPresidential Decree # 1814 and Batas

Pambansa Blg. 874.

1.2. Laws Governing Insurance

Insurance Code of 1978The law on insurance is contained now inthe Insurance Code of 1978 (PD # 1460,as amended) and special laws andpartly, in the pertinent provisions of theCivil Code.The Insurance Code primarily governsthe different types of insurancecontracts and those engaged ininsurance business in the Philippines. Ittook effect on June 11, 1978, the date of

its promulgation without prejudice,however, to the effectivity dates ofvarious laws, decrees and executiveorders which have so far amended theprovisions of the Insurance Code of thePhilippines (PD 612)

Civil CodeThe provisions of the Civil Code dealingon insurance are found in articles 739and 2012 (void donations), Article 2011(applicability of the Civil Code), Articles2021-2027 (life annuity contracts),Article 2186 (compulsory motor vehicleliability insurance), and Article 2207

(right of subrogation).

Special laws The Insurance Codeof 1978 (PD 1460) The RevisedGovernment Service Insurance Act

of 1977 (PD 1146, as amended), withrespect to insurance of governmentemployees The Social Security Actof 1954 (RA 1161, as amended) withrespect to insurance of employees inprivate employment

Others insofar as the Civil Code isconcerned, the Code of Commerce isconsidered a special law

RA 656 (as amendedby PD 245), known as the PropertyInsurance Law, dealing withgovernment property RA 4898 (as amendedby RA 5756) providing life, disabilityand accident insurance coverage tobarangay officials EO 250 (July 25, 1987)increases, integrates and rationalizesthe insurance benefits of barangayofficial sunder RA 4898 and membersof Sangguniang Panlalawigan,Sangguniang Panlungsod, andSangguniang Bayan under PD 1147.The insurance benefits are extendedby the GSIS. RA 3591 (as amended)establishes the Philippine DepositInsurance Corporation which insuresthe deposits of all banks which areentitled to the benefits of insuranceunder this Act

Chapter IITHE CONTRACT OF INSURANCE

1. Definitions

1.1. Section 2, Insurance Code

Sec. 2. Whenever used in this Code, the followingterms shall have the respective meaningshereinafter set forth or indicated, unless thecontext otherwise requires:

(1) A "contract of insurance" is an agreementwhereby one undertakes for a consideration toindemnify another against loss, damage or liability

arising from an unknown or contingent event.A contract of suretyship shall be deemed to be aninsurance contract, within the meaning of thisCode, only if made by a surety who or which, assuch, is doing an insurance business as hereinafterprovided.


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(2) The term "doing an insurance business"or "transacting an insurance business", withinthe meaning of this Code, shall include (a)making or proposing to make, as insurer, anyinsurance contract; (b) making or proposing tomake, as surety, any contract of suretyship as avocation and not as merely incidental to anyother legitimate business or activity of thesurety; (c) doing any kind of business, includinga reinsurance business, specifically recognized asconstituting the doing of an insurance businesswithin the meaning of this Code; (d) doing orproposing to do any business in substanceequivalent to any of the foregoing in a mannerdesigned to evade the provisions of this Code.

In the application of the provisions of this Codethe fact that no profit is derived from the makingof insurance contracts, agreements ortransactions or that no separate or directconsideration is received therefore, shall not bedeemed conclusive to show that the makingthereof does not constitute the doing ortransacting of an insurance business.

(3) As used in this code, the term"Commissioner" means the "InsuranceCommissioner".

1.2. Contract of Insurance An agreement by which one party

(insurer) for a consideration (premium)paid by the other party (insured),promises to pay money or its equivalentor to do some act valuable to the latter(or his nominee), upon the happening ofa loss, damage, liability, or disabilityarising from an unknown or contingentevent.

White Gold Marine Services vs. Pioneer(2005)

An insurance contract is a contract is a contractof indemnity wherein one undertakes for aconsideration to indemnify another against loss,damage, or liability arising from an unknown orcontingent event. Regulation by the statethrough a license or certification of authority isnecessary since a contract of insurance involvespublic interest.

1.3. Doing an Insurance BusinessGeneral Rule: An insurance business consists

of undertaking, for a consideration, toindemnify another against loss, damage orliability arising from an unknown orcontingent event

Supplementary Rule: The fact that anestablishment is not formally designated as

one of insurance does not preclude its beingdeemed to be engaged in an insurancebusiness if it undertakes any of the following(even if not for profit or for any independentconsideration):

Making or proposing to make, as insurer,any insurance contract

Making or proposing to make, as surety,any contract of surety ship as a vocation

Doing any king of business, including a

reinsurance business, specificallyrecognized as constituting the doing of aninsurance business with the meaning ofthis Code

Doing or proposing to do any business insubstance equivalent to any of theforegoing in a manner designed to evadethe provisions of the Insurance Code

2. Elements

2.1. Insurable interest The insured has an insurable interest in

the thing or the life of the insured

2.2. Risk of Loss or Damage /Designated Peril as Cause

The happening of the designated events,either unknown or contingent, past orfuture, will subject such interest to someloss, whether in the form of injury,damage, or liability

2.3. Consideration: Premium The insurer undertakes to assume the

risk of such a loss for a considerationcalled the premium to be paid by the

insured

2.4. Risk Distributing Scheme This assumption of risk is part of a general

scheme to distribute the loss among alarge number of persons exposed tosimilar risks

3. Characteristics/Nature ofInsurance Contracts

3.1. Consensual

Perfected by the meeting of the minds ofthe parties

If an application for insurance has notbeen either accepted or rejected, there isno contract as yet

3.2. Voluntary


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It is not compulsory and the parties mayincorporate such terms and conditions asthey may deem convenient which will bebinding provided they do not contraveneany provision of law and are notopposed to public policy

Though generally avoluntary contract, thecarrying of insurance,particularly liabilityinsurance, may be required

by law in certaincircumstances such as formotor vehicles, oremployees (Labor Code Art.168-184) or as a conditionto granting a license toconduct a business orcalling affecting publicsafety or welfare Social insurance formembers of GSIS and foremployees of the privatesector covered by the SSSis also established by law

3.3. Aleatory

Art. 2010. By an aleatory contract, one of theparties or both reciprocally bind themselves togive or to do something in consideration of whatthe other shall give or do upon the happening ofan event which is uncertain, or which is to occurat an indeterminate time.

It depends upon some contingent event Not a contract of chance although the

event against the occurrence of which itis intended to provide may never occur

It means one of the parties or bothreciprocally bind themselves to give orto do something in consideration of whatthe other shall give or do upon thehappening of the event which isuncertain, or which is to occur at anindefinite time

Each party must take a risk Insurer - beingcompelled upon the happeningof the contingency, to pay theentire sum agreed upon Insured partingwith the amount required aspremium without receivinganything in case thecontingency does not happenexcept what is ordinarily termedprotection which is itself is avaluable consideration

3.4. Executory (insurer) and executed(insured)

Executory on the part of the insurer in thesense that it is not executed untilpayment for a loss

It is executed as to the insured afterpayment of the premium

It is a unilateral contract imposing legalduties only on the insurer who promises toindemnify in case of loss

3.5. Conditional It is subject to conditions the principal one

of which is the happening of the eventinsured against

The contract usually includes many otherconditions, such as payment of premiumor performance of some other act, whichmust be complied with as precedent to theright of the insured to claim benefit underit

3.6. A contract of indemnity (exceptlife and accident insurance where the

result is death) The promise of the insurer is to makegood only the loss of the insured

Any contract that contemplates a possiblegain to the insured by the happening ofany event upon which the liability of theinsurer becomes fixed is contrary to thenature of insurance

No person may secure insurance uponproperty in which he has no interest.

If the insured has no insurable interest,the contract is void and unenforceable asbeing contrary to public policy because itaffords a temptation to the insured towish or bring about the happening of the

loss

3.7. An investment (life insurance) Measure of economic security for the

insured during life, and beneficiary afterdeath

Financial assistance during financial crisis

Liability of insurer is face value of thepolicy and not the earning capacity of theinsured at the time of death

3.8. A personal contract Each party having in view the credit,

character and conduct of another

As a rule, the insured cannot assign,before the happening of the loss, hisrights under a property policy without theconsent of the insurer. The obligation ofthe insurer to pay does not attach or runwith the property whether it be realproperty or personal


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If a person whoseproperty is insured sells it toanother, the buyer cannot behis successor in the contract ofinsurance unless, of course, thesale is with the consent of theinsurer or unless by expressstipulation of the parties, thecontract is made to run with theproperty of the transferee Where the insurance

is on account of the owner or for whom it may concern orwhere the loss is payable tobearer, the subsequenttransferees or owners becomeby the terms of the contract,the real parties to the contractof insurance.

All insurance contracts share a commontrait of personal-ness

Personal insurance(includes life, health, accident,and disability insurance) applies only to a particularindividual, and it is not possible,for example, for the insuredunilaterally declaring that hishealth insurance policy shallnow be deemed to cover thehealth of someone else Liability insurance each person purchases coveragefor his own (or a group ofrelated persons) potentialliability to others. The insurerprices the coverage dependingon the characteristics and traitsof the particular insured Property insurance -

the insurance is on the insuredsinterest in the property, not onthe property itself. It is thedamage to the personal interestnot the property that is beingreimbursed Life insurance GENERALLY ASSIGNABLE asthey are in the nature ofproperty and do not represent apersonal agreement betweeninsured and insurer

3.9. A contract of adhesion Policy is presented to the insured

already in its printed form Take it or leave it

3.10. Of highest degree of good faith Each party is enjoined by law to deal

with each other in good faith Disclosure or the duty to disclose

Violation of the duty gives the other partythe right to rescind the contract

3.11. It is property in legalcontemplation

4. Requisites of a validcontract of insurance

A subject matter in which the insurer has

an insurable interest

Event or peril insured against which may

be any (future) contingent or unknownevent, past or future (Sec. 3), and aduration for the risk thereof

A promise to pay or indemnify in a

fixed or ascertainable amount

A consideration for the promise known

as a premium

A meeting of the minds of the parties

upon all of the foregoing essentials

The parties must be competent to enterinto the contract

Under Sec. 226, no policy of insurance

shall be issued or delivered within thePhilippines unless in the form previouslyapproved by the Insurance Commissioner

The purpose must not be contrary to law

or public policy

5. Contracts for ContingentServices; Pre-need Plans andSimilar Arrangements

5.1. Contracts for Contingent PersonalServices

It does not necessarily follow that acontract containing the abovementionedelements would be an insurance contact

The primary purpose of the partiesmaking the contract may negate theexistence of an insurance contract

A law firm which entersinto contracts with clients inconsideration of periodical payments,where it promises to represent suchclients in all suits for or against them,

is not engaged in an insurancebusiness. Its contracts are simply forthe purpose of rendering personalservices A contract by which aconsideration of a stipulated amount,agrees at its own expense to defend a


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physician against all suits fordamages for malpractice is one ofinsurance, and the corporation willbe deemed as engaged in thebusiness of insurance Unlike the lawyersretainer contract, the essentialpurpose of such a contract is not torender personal services, but toindemnify against loss or damageresulting from the defense of actions

for malpractice. A corporation whichenters into contracts with carowners and agrees to engage andpay for the services of a lawyer tohandle any damage case arisingfrom collision of their cars, isengaged in the insurance businessand must therefore comply with thelaws relative to the transaction ofinsurance business and should belicensed as such before it canlawfully transact such business Such contracts do notprovide for the payment of any sumdirectly to the contractee, but itdoes provide for the relief of thecontractee from the expenses ofemploying an attorney It would beimmaterial that the contract stateson its face that it is not a contract ofinsurance, for the nature of thecontract cannot be changed by sucha declaration

5.2. Contracts with ContingentIncidental Benefit

In the case ofAttorney General ex rel Monk

vs. C.E. Osgood Co., the defendant companywas engaged in the business of sellinghousehold furniture on the installment plan.Under the contracts with its customers,although delivery would be made at the timeof the contract, title to the furniture wouldnot pass until all payments have beencompleted. Said contracts also providedthat should the buyer die before fullpayment of the agreed price, the unpaidbalance would be remitted to the extent of$500.The Insurance Commissioner, through theAtty. Gen., claiming that this last provisionmade it an insurance contract brought suit to

restrain the defendant from pursuing itsbusiness without first securing the properlicense. The Court upheld the AttorneyGenerals contention and issued aninjunction holding that the contract had allthe elements of an insurance contract.Whether this clause in the contract is

ancillary to defendants chief business or ismainly for advertising ends was held irrelevantin view of the prohibition against the makingof insurance contracts by companies notauthorized by law.It would seem, however, that the purpose ofthe stipulation, taken with its effects in case ofthe death of the buyer, did not warrant aholding that the furniture company should firstsecure a license to engage in the insurancebusiness. Although all the elements of an

insurance contract may seem to be present,yet the furniture buyer and/or his heirs didnot, under the circumstances, need theprotection which the law aims to give theinsuring public by the requirement of a priorlicense.First of all, when the buyer purchased thefurniture, he must have seen and examined itand must have believed that it was worth theamount he agreed to pay for it. Secondly, thefurniture was delivered to him at the time ofthe contract and used by him thereafter.Upon his death, his heirs continued enjoyingthe use of the furniture. Therefore, the buyerand/or his heirs stood to lose nothing by thequestioned stipulation, and if at all, stood togain by it.

5.3. Pre-need Plans

Philamcare Health Systems vs. CA

Ratio: Section 3 of the Insurance Code statesthat any contingent or unknown event, whetherpast or future, which may damnify a personhaving an insurable interest against him, may beinsured against. Every person has an insurableinterest in the life and health of himself. Section10 provides: Every person has an insurable

interest in the life and health (1) for himself, of hisspouse and of his children; (2) of any person onwhom he depends wholly or in part for educationor support, or in whom he has a pecuniaryinterest; (3) of any person under a legal obligationto him for the payment of the money, respectingproperty or service, of which death or illness mightdelay or prevent the performance; and (4) of anyperson upon whose life any estate or interestvested in him depends. In the case at bar, theinsurable interest of respondents husband inobtaining the health care agreement was on hisown health. The health care agreement was in thenature of non-life insurance, which is primarily a

contract of indemnity. Once the member incurshospital, medical or any other expense arisingfrom sickness, injury or other stipulatedcontingent, the health care provider must pay forthe same to the extent agreed upon under thecontracts.


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6. Classification under theCode

6.1. Life - defined as a mutual agreement bywhich a party agrees to pay a given sum on thehappening of a particular event contingent onthe duration of human life, in consideration ofthe payment of a smaller sum immediately, or inperiodical payments by the other party

a) Individual life

Sec. 179. Life insurance is insurance onhuman lives and insurance appertaining theretoor connected therewith.

Sec. 180. An insurance upon life may bemade payable on the death of the person, or onhis surviving a specified period, or otherwisecontingently on the continuance or cessation oflife.

Every contract or pledge for the payment of

endowments or annuities shall be considered alife insurance contract for purpose of this Code

In the absence of a judicial guardian, the father,or in the latter's absence or incapacity, themother, or any minor, who is an insured or abeneficiary under a contract of life, health oraccident insurance, may exercise, in behalf ofsaid minor, any right under the policy, withoutnecessity of court authority or the giving of abond, where the interest of the minor in theparticular act involved does not exceed twentythousand pesos. Such right may include, butshall not be limited to, obtaining a policy loan,surrendering the policy, receiving the proceeds

of the policy, and giving the minor's consent toany transaction on the policy.

Sec. 180-A. The insurer in a life insurancecontract shall be liable in case of suicides onlywhen it is committed after the policy has been inforce for a period of two years from the date ofits issue or of its last reinstatement, unless thepolicy provides a shorter period: Provided,however, That suicide committed in the state ofinsanity shall be compensable regardless of thedate of commission. (As amended by BatasangPambansa Blg. 874)

Sec. 181. A policy of insurance upon life orhealth may pass by transfer, will or succession toany person, whether he has an insurable interestor not, and such person may recover upon itwhatever the insured might have recovered.

Sec. 182. Notice to an insurer of a transferor bequest thereof is not necessary to preservethe validity of a policy of insurance upon life orhealth, unless thereby expressly required.

Sec. 183. Unless the interest o f a personinsured is susceptible of exact pecuniarymeasurement, the measure of indemnity under a

policy of insurance upon life or health is the sumfixed in the policy.

Insurance on human lives and insuranceappertaining thereto or connectedtherewith

Made payable on the death of a person, oron his surviving a specified period, orotherwise contingently on the continuanceor cessation of life

one insures ones life or that of anotheragainst death or sickness

Effect of suicide of insuredLiability of insurer in case of suicide

When liable: The suicide is committed after the

policy has been in force for aperiod of 2 years from date of itsissue or of its reinstatement;

The suicide is committed after ashorter period provided in thepolicy although within the 2-yearperiod;

The suicide is committed in thestate of insanity regardless of thedate of commission, unlesssuicide is an excepted risk.

*Note that the policy cannot provide aperiod longer than 2 years. So, if the

policy provides for a 3-year period andsuicide is committed within the period butafter 2 years, insurer is liable.

When not liable:

Suicide is not byreason of insanity and iscommitted within the 2-yearperiod.

Suicide is byreason of insanity but is notamong the risks assumed by theinsurer regardless of the date ofcommission. Insurer can showthat the policy was obtained withthe intention to commit suicideeven in the absence of anysuicide exclusion in the policy.

b) Group life


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Sec. 50.The policy shall be in printed form whichmay contain blank spaces; and any word,phrase, clause, mark, sign, symbol, signature,number, or word necessary to complete thecontract of insurance shall be written on theblank spaces provided therein.

Any rider, clause, warranty or endorsementpurporting to be part of the contract of insuranceand which is pasted or attached to said policy is

not binding on the insured, unless the descriptivetitle or name of the rider, clause, warranty orendorsement is also mentioned and written onthe blank spaces provided in the policy.

Unless applied for by the insured or owner, anyrider, clause, warranty or endorsement issuedafter the original policy shall be countersigned bythe insured or owner, which countersignatureshall be taken as his agreement to the contentsof such rider, clause, warranty or endorsement.

Group insurance and group annuity policies,however, may be typewritten and need not be inprinted form.

May be typewritten and need not be inprinted form

Members usually a cohesive group Pay a uniform premium Usually no medicalexamination Normally requires aspecified number of persons insuredbefore policy is issued

c) Industrial life

Sec. 229. The term "industrial life

insurance" as used in this Code shall mean thatform of life insurance under which the premiumsare payable either monthly or oftener, if the faceamount of insurance provided in any policy is notmore than five hundred times that of the currentstatutory minimum daily wage in the City ofManila, and if the words "industrial policy" areprinted upon the policy as part of the descriptivematter.

An industrial life policy shall not lapse for non-payment of premium if such non-payment wasdue to the failure of the company to send itsrepresentative or agent to the insured at theresidence of the insured or at some other place

indicated by him for the purpose of collectingsuch premium; Provided, That the provisions ofthis paragraph shall not apply when the premiumon the policy remains unpaid for a period ofthree months or twelve weeks after the graceperiod has expired.

Form of life insurance under which thepremiums are payable either monthly oroftener

Face amount of insurance provided in anypolicy is not more than five hundred timesthat of the current statutory minimumdaily wage in the City of Manila

Shall not lapse for non-payment ofpremium if such non-payment was due tothe failure of the company to send its

representative or agent to the insured atthe residence of the insured or at someother place indicated by him for thepurpose of collecting such premium

This shall not applywhen the premium on the policyremains unpaid for a period of threemonths or twelve weeks after thegrace period has expired.

6.2. Non-life include policies covering risks towhich property may be exposed, as well as thosewhich cover the risk of liability to third persons. Itcovers a specified period of time (not more than 1year) and has a definite period of coverage.

a) Marine

Sec. 99.Marine Insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods,freights, cargoes, merchandise, effects,disbursements, profits, moneys, securities, chosesin action, evidences of debts, valuable papers,bottomry, and respondentia interests and all otherkinds of property and interests therein, in respectto, appertaining to or in connection with any andall risks or perils of navigation, transit ortransportation, or while being assembled, packed,

crated, baled, compressed or similarly preparedfor shipment or while awaiting shipment, or duringany delays, storage, transhipment, or reshipmentincident thereto, including war risks, marinebuilder's risks, and all personal property floaterrisks;

(b) Person or property in connection with orappertaining to a marine, inland marine, transit ortransportation insurance, including liability for lossof or damage arising out of or in connection withthe construction, repair, operation, maintenance oruse of the subject matter of such insurance (butnot including life insurance or surety bonds norinsurance against loss by reason of bodily injury to

any person arising out of ownership, maintenance,or use of automobiles);

(c) Precious stones, jewels, jewelry, preciousmetals, whether in course of transportation orotherwise;


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(d) Bridges, tunnels and otherinstrumentalities of transportation andcommunication (excluding buildings, theirfurniture and furnishings, fixed contents andsupplies held in storage); piers, wharves, docksand slips, and other aids to navigation andtransportation, including dry docks and marinerailways, dams and appurtenant facilities for thecontrol of waterways.

(2) "Marine protection and indemnityinsurance," meaning insurance against, oragainst legal liability of the insured for loss,damage, or expense incident to ownership,operation, chartering, maintenance, use, repair,or construction of any vessel, craft orinstrumentality in use of ocean or inlandwaterways, including liability of the insured forpersonal injury, illness or death or for loss of ordamage to the property of another person.

Ocean marine insurance an insuranceagainst risk connected with navigation,to which a ship, cargo, freightage,

profits or other insurable interest inmovable property, may be exposedduring a certain voyage or a fixed periodof time

Inland marine insurance it is ofcomparatively recent origin and coversprimarily the land or over the landtransportation perils of property shippedby railroads, motor trucks, airplanes,and other means of transportation. Italso covers risks of lake, river, or otherinland waterway transportation andother waterborne perils outside of thoserisks that fall definitely within the oceanmarine category

b) Fire

Sec. 167. As used in this Code, the term"fire insurance" shall include insurance againstloss by fire, lightning, windstorm, tornado orearthquake and other allied risks, when suchrisks are covered by extension to fire insurancepolicies or under separate policies.

c) Casualty or Liability Insurance

Sec. 174. Casualty insurance is insurancecovering loss or liability arising from accident ormishap, excluding certain types of loss which by

law or custom are considered as fallingexclusively within the scope of other types ofinsurance such as fire or marine. It includes, butis not limited to, employer's liability insurance,motor vehicle liability insurance, plate glassinsurance, burglary and theft insurance, personal

accident and health insurance as written by non-life insurance companies, and other substantiallysimilar kinds of insurance.

d) Suretyship

Sec. 175. A contract of suretyship is anagreement whereby a party called the surety

guarantees the performance by another partycalled the principal or obligor of an obligation orundertaking in favor of a third party called theobligee. It includes official recognizances,stipulations, bonds or undertakings issued by anycompany by virtue of and under the provisions ofAct No. 536, as amended by Act No. 2206.

Sec. 176. The liability of the surety orsureties shall be joint and several with the obligorand shall be limited to the amount of the bond. Itis determined strictly by the terms of the contractof suretyship in relation to the principal contractbetween the obligor and the obligee. (As amended

by Presidential Decree No. 1455)

Sec. 178. Pertinent provisions of the CivilCode of the Philippines shall be applied in asuppletory character whenever necessary ininterpreting the provisions of a contract ofsuretyship.

A contract of suretyship shall be deemedto be an insurance contract, only if madeby a surety who or which is doing aninsurance business

6.3. Variations in Life InsuranceContracts

a) Whole life plan The terms of which the insured is required

to pay a certain fixed premium annually orat more frequent intervals throughout lifeand the beneficiary is entitled to receivepayment under the policy only after thedeath of the insured

The ultimate payment of the insuranceproceeds is as certain as death itself

b) Limited payment plan

The terms of which the premiums arepayable only during a limited period ofyears, usually ten, fifteen, or twenty

When the specified number of premiumpayments have been made, the insuranceis fully paid for


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It is like whole life policies in that it ispayable only at the death of the insured

If the insured should die within thespecified period, his beneficiary isentitled to all the proceeds of the policywithout any liability for the unpaidpremiums

Because of the limited number ofpayments to be made by the insured,the premiums are proportionately higher

c) Term plan One which provides coverage only of the

insured dies during a limited period It is an insurance for a fixed or a specific

term, such as two, five, or ten years If the insured dies within the period

specified, the policy is paid to thebeneficiary

If he survives the period, the contractterminates

The premium paid is levied during thespecified terms and increases with eachrenewal term or the amount of thecoverage declines, and this is becauseas a person ages, the risk of death

increases The premium is lower than in the case of

whole life policies because of thepossibility that the insurer may not beobliged to pay anything in proceedswhatsoever if the insured survives theterm

d) Pure endowment plan Insured pays premium for a specified

period and should he survive the period,the insurance company pays him theface value of the policy

If he should die within the period theinsurance company is released from anyliability and unless provided in the

contract, need not reimburse any part ofthe premiums paid

e) Endowment plan The terms of which the insurer binds

himself to pay a fixed sum to the insuredif he survives for a specified period(maturity date stated in the policy), or ifhe dies within such period, to someother person indicated

The premium is higher because the cashvalues of the policy grow more rapidly.

This kind of policy differs from thelimited payment life policy in that in thecase of the latter, the policy is paid onlyupon the death of the insured

The insured stands a chance of beingpaid the proceeds of the policy while stillalive

The proceeds on maturity can be paideither in a lump sum or as an annuity

7. Construction /Interpretation of InsuranceContracts

7.1. Where there is Ambiguity orDoubt

As a general rule, contracts of insuranceare to be construed liberally in favor ofthe insured and strictly against the

insurer, resolving all ambiguities againstthe latter, so as to effect its dominantpurpose of indemnity or payment to theinsured, especially were a forfeiture isinvolved

An insurance contract should be sointerpreted as to carry out the purpose forwhich the parties entered into the contractwhich is to insure against risk of loss,damage or liability on the part of theinsured

The insurer is under the duty to make itsmeaning clear if it desires to limit orrestrict the operation of the general

provisions of its contract by specialproviso, exception or exemption A policy of insurance which contains

exceptions or conditions tending to work aforfeiture of the policy shall be interpretedmost favorably toward those againstwhom they are intended to operate andmost strictly against the insurancecompany or the party for whose benefitthey are inserted

Where restrictive provisions are open totwo interpretations, that which is mostfavorable to the insured is adopted.Limitations of liability must be construedin such a way as to preclude the insurer

from non compliance with its obligations

7.2. Where Terms are Clear The cardinal principle of insurance law of

interpreting insurance contracts favorablyto the insured is applicable only in casesof doubt, not when the intention of thepolicy is clear or the language issufficiently clear to convey the meaning ofthe parties

The court is bound to adhere to theinsurance contract as the authenticexpression of the intention of the parties,and it must be construed and enforcedaccording to the sense and meaning of the

terms which the parties themselves haveused.

If such terms are clear and certain, theymust be taken in their plain and ordinarysense

Obligations arising from contracts havethe force of law between the contracting


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parties and should be complied with ingood faith

7.3. Literal or Strict Interpretation

First Quezon City Insurance vs. CA

Facts: Del Rosario fell off a De Dios MarikinaTransportation Co. Inc. bus. Del Rosario wasbrought to the hospital and stayed there for 40days. The cost for the hospitalizationamounted to P69,444 while unearned salarydue to confinement amounted to P7,500. DelRosario filed a complaint against DMTC and itsinsurance company, First Quezon CityInsurance Company.Held: The insurance companys liabilityshould be limited to P12,000 only. Theinsurance policy clearly placed the maximumlimit of First Quezon Citys liability for damagesarising from death or bodily at P12,000 perpassenger and its maximum liability peraccident at P50,000. This means that theinsurers maximum liability for any singleaccident will not exceed 50K regardless of the

number of the passengers killed or injured.

Ty vs. First National

Facts: Ty was a mechanic foreman in theBroadway Cotton Factory. A fire broke outwhich totally destroyed the factory. As Ty wasfighting his way out of the factory, he injuredhis left hand, causing temporary total disabilitydue to fractures o his index, middle, and fourthfingers. He filed a notice of accident and claimto recover indemnity from First National Surety$ assurance Co. Inc., pursuant to his insurancepolicy which provides: the loss of a handshall mean the loss by amputation through the

bones of the wrist The insurance companyrejected Tys claim saying that since there wasno severance by amputation of the hand, thedisability suffered by him was not coveredunder the policy.Held: The insurance company is not liable toindemnify Ty. We cannot go beyond the clearand express conditions of the insurancepolicies, all of which define partial disability asloss of either hand by amputation through thebones of the wrist There was no amputationin this case. The agreement contained in theinsurance policies is the law between theparties. An interpretation that would includethe mere fracture or other temporary disability

not covered by the policies would certainly beunwarranted.

Misamis Lumber vs. Capital Inc.

Facts: Misamis Lumber Corporation, insuredits motor car for the amount of P14,000. The

insured car, passed over a water whole whichthe driver did not see because an oncoming cardid not dim its lights. The car was later towedand repaired by Morosi Motors at a total cost ofP302.27. Capital Insurance refused to pay forthe total cost of towage and repairs.Held: The insurance company is not liable forthe payment of the repairs in excess of P150.The insurance policy stipulated in paragraph 4that if the insured authorizes the repair, theliability of the insurer is limited to P150. The

literal meaning of this stipulation must control, itbeing the actual contract, expressly and plainlyprovided for in the policy. The policy is alsodrew out not only the limits of the insurersliability but also the mechanics that the insuredhad to follow to be entitled to full indemnity ofrepairs. The option to undertake the repairs isaccorded to the insurance company perparagraph 2. The said company was deprived ofthe option because the insured took it upon itselfto have the repairs made, and only notified theinsurer when the repairs were done. As aconsequence, paragraph 4, which limits thecompanys liability to P150 applies.

Sun Insurance vs. CA

Facts: Tan took from Sun Insurance a propertyinsurance worth 300K to insure his interest inthe electrical supply store of his brother housedin a building in Iloilo City. Four days after, thebuilding was burned down including the insuredstore. When Tan filed a claim with the insurancecompany, the same was denied, after which heasked for reconsideration which was againdenied. It is stipulated in the insurance policythat any action should be filed with theInsurance Commission or any court ofcompetent jurisdiction within 12 months after

receipt by the insured of a rejection of his claimand failure to do so would constituteabandonment of claim and can no longer berecoverable.Held: The 12-month prescriptive periodcommenced upon receipt by Tan of therejection/denial of his claim by Sun Insuranceand does not stop upon filing of the motion forreconsideration. The words of the provisions inthe insurance policy is clear and free from anydoubt or ambiguity whatsoever and thus mustbe taken and understood in its plain, ordinaryand popular sense.

Fortune Insurance vs. CA

Facts: An armored car of Producers Bank, whilein the process of transferring cash in the sum of725K, was robbed of the said cash. After aninvestigation by police authorities, the driver andthe guard were charged with Violation of PD532, the Anti-Highway Robbery Law. Demands


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were made by the bank upon the insurancecompany to pay the amount of 725K, but thelatter refused to pay as the loss is excludedfrom the coverage of the insurance policywhich reads: The company shall not be liableunder this policy in respect of . . . any losscaused by any dishonest, fraudulent orcriminal act of the insured or any officer,employee, partner, director, trustee orauthorized representative of the insuredwhether acting alone or in conjunction with

othersHeld: The insurance company is not liable. Itis clear that insofar as Fortune is concerned, itwas its intention to exclude and exempt fromprotection and coverage losses arising fromdishonest, fraudulent, or criminal acts ofpersons granted or having unrestricted accessto the banks money or payroll. When it usedthe term employee, it must have in mind anyperson who qualifies as such as generally andequivocally understood, or jurisprudentiallyestablished in light of the determination of theER-EE relationship. It is settled that the termsof the policy constitute the measure of theinsurers liability. In the absence of statutoryprohibition to the contrary, insurancecompanies have the same rights as individualsto limit their liability and to impose whateverconditions they deem best upon theirobligations not inconsistent with public policy

7.4. Liberal Interpretation;Reasonable Expectations

Fieldmans Inc. vs. Vda. De Songco

Facts: Songco owned a private jeepney. Hewas induced by an agent of FieldmensInsurance to apply for a Common Carriers

Insurance Policy, which is applicable to publicutility vehicles. The policy provides: thecompany will, subject to the limits of liabilityand under terms of this policy, indemnify theinsured in the event of accident caused by orarising out of the use of motor vehicle againstall sums which will become liable to pay inrespect of death or bodily injury to any fare-paying passenger. During the effectivity ofthe policy, the insured vehicle collided withanother car killing Songcos son and woundinghis wife.Held: Doctrine of estoppel applies. Afterleading Songco to believe that he could qualifyunder the common carrier policy and to enter

into the contract of insurance paying thepremiums due, Fieldmens cannot be permittedto change its stand. Also, except for the factthat the victims were not fare-payingpassengers, their status as beneficiaries underthe policy is recognized. Even assuming therewas an ambiguity, ambiguities or obscurities

must be strictly interpreted against the partythat caused them. This rigid application of therule of ambiguities has become necessary inview of current business practices.

Malayan Ins. vs. CA

Facts: TKC Marketing Corp. was theowner/consignee of some 3,189.171 metric tonsof soya bean meal which was loaded on boardthe ship MV Al Kaziemah. Said cargo was

insured against the risk of loss by MalayanInsurance Corporation. While the vessel wasdocked in South Africa on September 1989enroute to Manila, the civil authorities arrestedand detained it because of a lawsuit on aquestion of ownership and possession. TKCnotified the insurance company of the arrest ofthe vessel and made a formal claim for theamount of US$916,886.66. Malayan replied thatthe arrest of the vessel by civil authority was nota peril covered by the policies.Held: Malayan insurance should be held liablefor the payment of the insurance claim. Sincewhat was also excluded in the deleted F.C. & S.Clause was "arrest" occasioned by ordinary judicial process, logically, such "arrest" wouldnow become a covered risk under subsection 1.1of Section 1 of the Institute War Clauses,regardless of whether or not said "arrest" bycivil authorities occurred in a state of war. Ithas been held that a strained interpretationwhich is unnatural and forced, as to lead to anabsurd conclusion or to render the policynonsensical, should, by all means, be avoided.Likewise, it must be borne in mind that suchcontracts are invariably prepared by thecompanies and must be accepted by the insuredin the form in which they are written.Exceptions to the general coverage are

construed most strongly against the company.Even an express exception in a policy is to beconstrued against the underwriters by whom thepolicy is framed, and for whose benefit theexception is introduced.

Western Guaranty vs. CA

Facts: De Dios Transportation Inc. Figured inan accident when it struck Rodriguez who wascrossing the pedestrian lane on Airport Road.The driver ignored the stop signal given by atraffic enforcer. Rodriguez was thrown to theground and hit her head and resulted to her facegetting permanently disfigured. De Dios

Transportation filed a complaint against WesternGuaranty since they were insured by Westernunder a Master Policy which provided protectionagainst third party liability.Held: Western Guaranty is liable to pay for thedamage caused to the victim including loss ofearnings, moral damages and attorneys fees.


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The Schedule of Indemnities does not purportto limit or exhaustively enumerate the speciesof bodily injury to the list found in theSchedule of Indemnities since an accident mayresult to an injury to internal organs notnecessarily to a loss of limb (amputation of theleg, arm, finger, hand) but such injuries arecertainly covered by the Master Plan since theyconstituted bodily injuries. Also, the Scheduleof Indemnities also does not purport to restrictthe kind of damages that may be paid by the

insurer once liability has arisen, under theLiability to Third Party clause, and does notsay that the limit is subject to the list indicatedin the Schedule of Indemnities. All other typesof damages may be awarded against theinsurer once liability is shown to have arisen.A contract of insurance is a contract ofadhesion and must be construed strictlyagainst the party which prepared the contract.

Qua Chee Gan vs. Law Union

Facts: This case involved a claim on a fireinsurance policy which contained a provision asto the installation of fire hydrants the numberof which depended on the height of theexternal wall perimeter of the bodega that wasinsured. When it was determined that thebodega should have eleven fire hydrants in thecompund as required by the terms of thepolicy, instead of only two that it had, theclaim under the policy was resisted on thatground.Held: The said deviation from the terms ofthe policy did not prevent the claim under thesame. We are in agreement with the trialCourt that the appellant is barred by waiver(or rather estoppel) to claim violation of the socalled fire hydrants warranty, for the reason

that knowing fully that the number of hydrantsdemanded therein never existed from the verybeginning, the appellant nevertheless issuedthe policies in question subject to suchwarranty, and received the correspondingpremiums. It would be perilously received thecorresponding premiums. It would beperilously close to conniving at fraud upon theinsured to allow the appellant to claim now asvoid ab initio the policies that it had issue tothe plaintiff without warning of their fataldefect, of which it was informed, and after ithad misled the defendant into believing thatthe policies were effective. When the policycontains a condition which renders it voidable

at its inception, and this result is known to theinsurer, it will be presumed to have intendedto waive the conditions and to execute abinding contract, rather than to have deceivedthe insured into thinking he is insured when infact he is not, and to have taken his money

without consideration. The insurance companyis liable on the insurance contract.

Del Rosario vs. Equitable Insurance

Facts: The insurer has bound itself under thepolicy to pay P1,000-3,000 as indemnity for thedeath of the insured for bodily injury, the policycontaining specific amounts that may berecovered. The policy, however, does notpositively state any definitive amount that may

be recoverable in case of death by drowning,although it is a ground for recovery apart fromdeath for bodily injury.Held: There is an ambiguity in this respect inthe policy, which ambiguity must be interpretedin favor of the insured and strictly against theinsurer to allow a greater indemnity, that is,P3,000.

Geagonia vs. CA

Facts: Geagonia is the owner of Norman's Martlocated in the public market of San Francisco,Agusan del Sur. He obtained from the privaterespondent, Country Bankers InsuranceCorporation. The policy contained the followingcondition: 3. The insured shall give notice tothe Company of any insurance or insurancesalready effected, or which may subsequently beeffected, covering any of the property orproperties consisting of stocks in trade Fire ofaccidental origin broke out at the public marketof San Francisco, Agusan del Sur. Geagoniasinsured stocks-in-trade were completelydestroyed prompting him to file with CBIC aclaim under the policy. The company denied theclaim and the basis of which was the petitioner'salleged violation of Condition 3 of the policy.Held: Geagonia is not precluded from

recovering from Country Bankers. Condition 3of the policy is a condition which is notproscribed by law. Its incorporation in the policyis allowed by Section 75 of the Insurance Codewhich provides that "[a] policy may declare thata violation of specified provisions thereof shallavoid it, otherwise the breach of an immaterialprovision does not avoid the policy." Itsviolation would thus avoid the policy. However,in order to constitute a violation, the otherinsurance must be upon the same subjectmatter, the same interest therein, and the samerisk. As to a mortgaged property, themortgagor and the mortgagee have each anindependent insurable interest therein and both

interests may be covered by one policy, or eachmay take out a separate policy covering hisinterest, either at the same or at separate times.. It is a cardinal principle of law that forfeituresare not favored and that any construction whichwould result in the forfeiture of the policybenefits for the person claiming, will be avoided,


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if it is possible to construe the policy in amanner which would permit recovery, as, forexample, by finding a waiver for suchforfeiture. Provisions, conditions or exceptionsin policies which tend to work a forfeiture ofinsurance policies should be construed moststrictly against those for whose benefits theyare inserted, and most favorably toward thoseagainst whom they are intended to operate.

Sun Insurance vs. CA

Facts: Sun Insurance issued a PersonalAccident Policy to Lim with a face value of200K. Two months later he was dead with abullet wound on his head. Lims death wascaused when he was playing with his handgunwhich accidentally fired. His wife soughtpayment on the policy but her claim wasrejected. The contention of Sun Insurance wasthat Lim willfully exposed himself to needlessperil and thus removed himself from thecoverage of the insurance policy. Under theexceptions clause of the policy, the insurancecompany shall not be liable when the insuredperson attempting to commit suicide orwillfully exposing himself to needless perilexcept in an attempt to save human life.Held: The cause of Lims death was anaccident within the limits set forth in the policyand therefore not exempt from the liability ofthe insurer. The definition of an accident isan event which happens without any humanagency or, if happening through humanagency, an event which under thecircumstances, is unusual to and not expectedby the person to whom it happens Contraryto the contention of Sun Insurance, Lim didnot intentionally expose himself to danger, astestified by his secretary, he removed the

magazine of the gun to ensure that it wouldnot fire and pointed it to his temple in thebelief that it is safe to do so.

Rizal Surety vs. CA

Facts: Rizal Surety issued a fire insurancepolicy for Transworld Knitting Mills. A firebroke out in the compound of Transworld,razing the middle portion of the four-spanbuilding and partly gutting the left and rightsections. It also destroyed the two-storeyannex building where fun and amusementmachines and spare parts were stored.Transworld filed insurance claim with Rizal but

to no avail. Rizals contention is that the policycovered only the contents of the four-spanbuilding which was only partly burned and notthe damage caused to the two-storey annexbuilding.Held: The annex building and the contentsare covered under the policy. The so called

annex formed an integral and inseparable partof the four-span building. It was a [permanentstructure which adjoined the 4-storey buildingdescribed in the policy and consequently, thethings stored therein were covered by theinsurer. Considering that the annex was alreadyexisting when the insurance policy wascontracted, Rizal should have specificallyexcluded it from the coverage of the fireinsurance if it wanted to but it did not. Doubtshould be resolved against Rizal who drafted the

insurance policy contract. This is because theinsured usually has no voice in the selection orarrangement of the words employed and thatthe language of the contract is selected withgreat care and deliberation by experts and legaladvisers employed by, and acting exclusively inthe interest of the insurance companies.

Gulf Resorts vs Philippine CharterInsurance Corporation (2005)

Intention of parties is shown by provisions ofcontracts and the amount of premium paid sincepremium is the consideration paid for the riskundertaken by the insurer. When there is anapparent change of the wording of an insurancecontract but no corresponding change in theamount of premium paid, it will be interpreted tomean that there was no intended change at all.An assumption of additional risk is presumed tocause a commensurate additional premiumbecause the premium, not the mere wording ofthe policy, is a more accurate indication of suchan assumption of additional risk.

8. PERFECTION OF THECONTRACT OF INSURANCE

8.1. Offer and Acceptance;consensuality

Applicant usually makes the offer to theinsurer.

Submission of application, even w/payment is a mere offer on the part of theapplicant, it does not bind the insurer.

Approval of the application by the insureris necessary to perfect contract. If made:

- w/ payment of premium policybecomes effective- w/o payment effective uponpayment of premium

i. Delay in Acceptance; Tort Theory

Situation where applicant submitsapplication for insurance, but due tonegligence of company, w/c takes anunreasonably long time beforeprocessing the application, the


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applicant dies before the applicationis processed, thus, the contract isnot perfected.

REMEDY: Insurer liable for

damages (Tort Theory) in theamount of the face value of thepolicy, w/c is given to the estate ofthe deceased applicant. (not tobeneficiary because contract notperfected. Also, no contractual

liability also bec. no contact) Why Tort Theory - because

Insurance business is affected w/public interest. It is thus, the duty ofinsurer, w/c derives its authority toact as such from the State (when itapplies to get license to be in theinsurance business), to act w/reasonable promptness in eitherrejecting or accepting theapplication. In case of unreasonabledelay and applicant dies, applicantwould have been deprived ofopportunity to secure insurancefrom another source.

ii. Delivery of the Policy

Delivery the act of putting the

insurance policy the physicaldocument into the possession ofthe insured.

Individual life insurance contractsusually stipulate that:

Premium be paid and Policy be delivered to theinsured while he is alive and ingood health. Concurrence ofboth is necessary. (see Perez vCA case)

Actual delivery of the policy isnot essential unless the parties haveso agreed in clear language.Constructive delivery may besufficient. (See Vda. De Sindayencase) WoN policy was delivered afterits issuance depends not uponmanual possession by the insuredbut rather upon the intention of theparties as manifested in their acts oragreements. WON Delivery to agent isdelivery to insured is a questionover w/c there has been many

conflicting opinions. Effect of Delivery: Where delivery is conditional

Non-performance of Conditionprecedent prevents contractfrom taking effect

Where delivery is unconditional if corresponding terms ofapplication, ordinarilyconsummates the contract andpolicy as delivered becomes finalcontract between the parties.Where parties so intend,insurance becomes effective atthe same time as delivery

Where premium still unpaid after

unconditional delivery Policy willlapse if premium unpaid at timeand manner specified in thepolicy, in the absence of any clearagreement that insurer willextend credit. Insurer cannot bepresumed to have extended creditfrom the mere fact of unconditional delivery of thepolicy w/o prepayment ofpremium, and even if suchpresumption may be inferred,there must be a clear and expressacceptance by insured of theinsurers offer to extend credit.

Perez v CA

Facts: Perez, already previously insured with BFLifeman Insurance Co. applied for additionalcoverage. He paid premium and was issued areceipt by the agent of BF Lifeman. However, hedied before his application papers weretransmitted to the head office of BF Lifeman.Issue: WON the insurance policy was perfectedHeld: No. There was no acceptance of the offer.The perfection of the contract was conditionedupon compliance with the provision in theapplication form w/c stated that perfection onlylies when the applicant pays and the premium andreceives and accepts the policy while still in goodhealth. Thus, the assent of BF Life was not givenwhen it merely received the application form ofPerez in its provincial office. Also, delivery to Perezwould be impossible as he is already dead. So longas an application for insurance has not beenaccepted or rejected by the insurer, it is merely anoffer or proposal to make a contract. The contractto be binding from date of application must havebeen a completed contract that leaves nothing tobe done, passed upon or determined, before itshall take effect..

Vda. De Sindayen v Insular Life Assurance

Co.

FACTS Dec. 1932 Arturo Sindayen had partiallypaid his agent the first premium for a lifeinsurance policy. Agent and Sindayen agreed thatpolicy, when and if issued, should be delivered toSindayens aunt who will complete the payment of


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the first annual premium. Jan. 16, 1933 agentreceived approved policy and delivered it toSindayens aunt on Jan. 18. However, before thepolicy was given to Arturo himself, he died onJan. 19.ISSUE: WON Insular Life assumed the riskcovered by Sindayens policyHELD: YES. Delivery to the insured in person isnot necessary, and may be made by mail or dulyconstituted agent (in this case, Sindayens aunt).Insurance company is bound by the acts of its

agent. In this case, the agent is not a mereautomaton and is vested w/ some discretion indeciding WON the condition as to the health ofthe applicant has been complied with. Once hedecides that it has and delivers the policy, then,in the absence of fraud, the insurance companyis estopped from claiming the policy has noeffect.

Enriquez v Sun Life Assurance Co.

Facts: Herrer applied for insurance and paid thepremium, however, he died before he receivedthe notice of acceptance (of his application) sentby Sun Life from its Montreal head office.Issue: WON the insurance contract wasperfected w/o the notice of acceptance coming tothe knowledge of the applicantHeld: NO. Under the CC, Consent is shown bythe concurrence of offer and acceptance. Anacceptance shall not bind the person making theoffer except from the time it came to hisknowledge.

8.2. Premium PaymentSec. 77 &78; 64

Sec. 77 An Insurer is entitled to payment of thepremium as soon as the thing insured is exposedto the peril insured against. Notwithstanding anyagreement to the contrary, no policy or contractof insurance issued by an insurance company isvalid and binding unless and until the premiumthereof has been paid, except in the case of a lifeor an industrial life policy whenever the graceperiod provision applies.

Premium the agreed price for

assuming and carrying the risk, that is, theconsideration paid an insurer forundertaking to indemnify the insuredagainst the specified peril.

- if only one premium is paid forseveral things not separately valued orseparately insured, the contract isindivisible or entire, not divisible orseverable, as to items insured.

SIR: WORST SECTION of the Insurance

Code. This is the cash-and-carry provision(see below for explanation why) Why it raises several questions (Campos):--Is it intended to apply to all classes ofinsurance, or does the word thing limit itto property insurance? As to exception, itonly applies to life policies w/in the graceperiod w/c does not support the theory thatit applies only to property insurance.

- As to grace period, grace period in lifeinsurance applies only to premiumssubsequent to the first, therefore, howcan this be an exception to the rule?- With respect to non-life policies, the firstsentence gives the insurer the right todemand the payment of the premium assoon as the thing insured is exposed toperil insured against This assumes thecontract is binding even before thepayment of the premium meaning thecontract is perfected when the applicantsoffer is accepted by the insurer. Thisassumption is inconsistent w/ the nextsentence w/c says that no policy can be

binding w/o premium payment.- Also, Sec. 77 and 78 seem contradictory.- However, Sir says above does not applyto life insurance because Life Insurancelapses upon non-payment.

Present provision came from Sec 72 of the

old Insurance Code. However, Sec. 77 hasomitted the portion of Sec. 72 w/c permittedcredit extension of the premium due(meaning, extension of period to pay thepremium). Apparently, the intention is toput the contract of insurance on a cash-and-carry basis meaning the premiummust be paid in cash as a condition

precedent for a non-life insurance policy tobe valid and binding, and an agreement togrant the insured credit extension of thepremium is void. However, Makati Tuscanyv CA and the second UCPB case saysotherwise. Hence, credit extensionagreements may be valid.

EXCEPTIONS to Sec. 77: In the case of a life oran industrial policy whenever the graceperiod provision applies (Sec. 77) Article 78 (see below) Agreement to grant theinsured credit extension for the

payment of the premium When there is anagreement allowing the insured to paypremium in installment and partialpayment has been made at the time ofthe loss (See Makati Tuscany v CA)


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Sec. 78 An acknowledgment in a policy orcontract of insurance of receipt of premium isconclusive evidence of its payment, so far as tomake the policy binding, notwithstanding anystipulation therein that it shall not be bindinguntil the premium is actually paid

Effect of acknowledgment of receipt ofpremium in property Insurer cannot deny the

truth of the receipt of the premium even if it isunpaid.

Law established a legal fiction of

payment (prima facie evidence of payment).Thus insurer presumed to have waived thecondition of prepayment.

SC has decided that above is anexception to Sec. 77

Sec. 64 No policy of insurance other than lifeshall be cancelled by the insurer except uponprior notice thereof to the insured, and no noticeof cancellation shall be effective unless it isbased on the occurrence, after the effective date

of the policy, of one or more of the following:

(a) non-payment of premium;

(b) conviction of a crime arising out ofacts increasing the hazard insured against;

(c) discovery of fraud or materialmisrepresentation

(d) discovery of willful or reckless actsor omissions increasing the hazard insuredagainst;

(e) physical changes in the propertyinsured which result in the property

becoming uninsurable; or

(f) a determination by theCommissioner that the continuation of thepolicy would violate or would place theinsurer in violation of this Code

Cancellation right to rescind, abandon orcancel a contract of insurance, termination ofpolicy before its expiration.

Premium referred to in 64(a) refers topayment after effective date of the policybecause Sec. 77 ordains that insurance policyis valid and binding unless and until premiumhas been paid.

Conditions under w/c above exercised: Prior notice ofcancellation to insured

Notice must bebased on the occurrence, after the

effective date of the policy, of one or moreof the grounds mentioned It must be inwriting, mailed or delivered to the namedinsured at the address shown in the policy.In this regard, proof of actual receipt of thenotice is necessary for it to take effect;mere proof that the insurer mailed thenotice is not sufficient to effect thecancellation.

It must state w/cof the ground set forth is relied upon. It is the duty of theinsurer upon written request of the insuredto furnish the facts in which the cancellationis based.

If there was no premium paid at all, the action

appropriate would be a declaration of nullity,based on Section 77 which provides that nopolicy or contract of insurance issued by aninsurance company is valid and binding unlessand until the premium thereof has been paid

Tibay v CA

Facts: Fortune Life issued a fire insurance policyin favor of Tibay on a bldg in Makati, together w/all their personal effects therein. Violeta paidpart of the total premium. 2 mos. Afer, a firecompletely destroyed the bldg. 2 days after thefire, Tibay paid the balance of the premium.Fortune denied Tibays claim for violation ofSec77 of Insurance Code.Issue: WON a fire insurance policy is alreadyvalid, binding and enforceable upon mere partialpayment of premiumHeld: NO Sec. 77 applies. Since acceptance ofpartial payment is not mentioned among theexceptions provided in Sec 77 and 78 of the

Insurance Code, no policy of insurance can everpretend to be efficacious until premium has beenfully paid.- The policy contained a condition w/c said thatThe policy including any renewal thereof is notin force until the premium has been fully paid xx x Clearly, the Policy provides for payment ofpremium in full.Dissent: (IMPT) The insurance coverage shouldbecome effective from the day that the partialpayment is accepted by the insurer, anystipulation in the policy to the contrarynotwithstanding. Partial payment is enough toestablish the juridical relation between the twoparties. The law does not require a specific

amount of premium payment in order to createthe juridical tie.- If the contract is automatically cancelled uponthe non-payment in full by the insured, then theefficacy of the contract will be fully dependenton his will. This violates the principle ofmutuality of contracts.


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Makati Tuscany v CA

Facts: American Home Assurance (AHAC)issued in favor or Makati Tuscany an insurancepolicy on the latters bldg for 1 year. It wasrenewed over the course of 3 years. In 1982,the total premiums were paid in fourinstallments but in 1983, Tuscany paid only 2installments and refused to pay the remainingbalance. Reason for discontinuation: policy

contained a reservation wherein Acceptanceof payment by AHAC will not waive any of thecompany rights to deny liability on any claimunder the policy arising before such paymentsor after the expiration of the credit clause ofthe policy, and Subject to no loss prior topremium payment. If there be any loss, suchis not covered. AHAC filed a suit to recoverthe remaining balance. Makati Tuscany filedcounterclaim for the total amount of premiumsit had paid during the previous years.Issue: WON payment by installment ofpremiums due on an insurance policyinvalidates the contract of insuranceHeld: NO The policies are valid even if thepremiums paid in installments because therecords clearly show that the two partiesintended the policies to be binding andeffective notwithstanding the staggeredpayment of the premiums. Te acceptance ofthe installment payments over the period of 3years speak loudly of intention of insurer tohonor the policies it issued to Makati Tuscany.- Sec 77 merely prohibits the parties fromstipulating that the policy is valid even ifpremiums were not paid, but it does notexpressly prohibit an agreement grantingcredit extensions. Sec. 78 also allows theinsurer to waive the condition of full payment

by acknowledging in the policy that there hasbeen receipt of premium despite the fact thatpremium is actually unpaid. If the Code allowsa waiver when no actual payment has beenmade, then a waiver should also be allowed inthis case where the insurer has alreadyacknowledged receipt of partial payment.NOTE: Difference with Tibay case: In Tibay,there was an express stipulation w/c said thatpayment shall be made in full. In this case, the

policy was binding because of the prioragreement to allow installment payments,hence full payment under Sec.77 deemedwaived.

UCPB Gen. Ins. v Masagana Telemart

Facts: Masagan Telemart obtained insurancepolicies on its properties from UCPB. Thepolicies had the effectivity term of May 1991 May 1992. On June 1992, Masagansproperties were razed by a fire. On the same

day, Masagana tenedered, and UCPB acceptedrenewal premium payments. The next day,Masagana filed a claim for the burned insuredbldgs. UCPB rejected the claims on the groundthat the polices exprired on May 1992 and werenot renewed for another term and that the firetook place before the tender of premiumpayment under the renewed policy. (Note: Thisis a motion for reconsideration from previousSC decision declaring that there was no renewalof the policy and that UCPB not liable)

Issue: WON Sec 77 of the Insurance Codemust be strictly applied despite its practice ofgranting a 60-90 day credit term for payment ofpremiumHeld: NO There are exceptions to Sec 77:a.) The first is provided by Sec. 77 itself andthat is, in case of a life or industrial life policywhenever the grace period appliesb.) Sec 78: An acknowledgment in a policy orcontract of insurance of the receipt of premiumis conclusive evidence of its payment, so far asto make the policy binding, notwithstanding anystipulation therein that it shall not be bindinguntil premium is actually paid.c.) Sec. 77may not apply if the parties haveagreed to the payment in installments of thepremium and partial payment has been made atthe time of the loss.d.) The insurer may grant credit extension forthe payment of the premiume.) It would be unjust and inequitable ifrecovery on the policy would not be permittedagainst UCPB, w/c consistently granted the 60-90 day credit term for the payment of thepremiums despite its full awareness of Sec. 77.Estoppel bars it from taking refuge under theaction, since Masagana relied on good faith onsuch a practiceDissent(Vitug):

-Estoppel cannot create a contract of insuranceneither can it be invoked to create a PRIMARYLIABILITY. So essential is the premium paymentto the creation of the vinculum juris that itwould be doubtful to have that payment validlyexcused even for a fortuitous eventDissent (Pardo):- Masagana tried to pay the overdue premiumsbefore giving written notice that a fire has razedthe property. This shows the fraudulentcharacter of the claim. Failure to give notice iswas a material misrepresentation affecting therisk insured against.- Estoppel cannot give validity to an act that isprohibited by law or against public policy. Actual

payment of premiums is a condition precedentto the validity of an insurance contract otherthan the insurance policy. Any agreement to thecontrary is VOID as against the law and publicpolicy.


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8.3. Premium default in life insurance(Sec 227, h & j); options; lapsedpolicy

Sec. 227 In the case of individual life orendowment insurance, the policy shall contain insubstance the following conditions: x x x

(h) A table showing in figures cash surrender values

and paid-up options available under the policy each

year upon default in premium payments, during atleast twenty years of the policy beginning with theyear in which the values and options first becomeavailable, together with a provision that in the eventof the failure of the policy-holder to elect one of the

said options within the time specified in the policy,one of the said options shall automatically takeeffect and no policyholder shall ever forfeit his rightto same by reason of his failure to so elect.

x x x x x x x x x x x x

(j)A provision that the policy shall be entitled tohave the policy reinstated at any time within 3years from the date of default of premium paymentunless tha cash surrender value has been duly paid,or the extension period has expired, upon

production of evidence of insurablility satisfactory tothe company and upon payment of all overduepremiums and any indebtedness to the companyupon said policy, with interest rate not exceedingthat which would have been applicable to saidpremiums and indebtedness in athe policy yearsprior to reinstatement x x x

NON-LIFE

(Refer to Sec.77) Seems to say thatpolicy is in effect as soon as the thing isexposed to risk even if the premium has notbeen paid yet. Where contract covers a period of 1

year, there would normally be only onepremium payment for the period. If parties agreed to pay ininstallments, and there is a failure to payany installment when it falls due insurermay:- cancel policy after due notice

- compel the payment of installments

LIFE Intended to be in force for aperiod longer than a year; involves severalperiodical premium payments (annual, semi-annual, etc)

Contract not binding until

first periodical premium payment. After firstpayment, insured under no legal obligationto pay subsequent premium. Insurance Code grantsgrace period within which to pay subsequentpremiums. If policy becomes a claim duringthe grace period but before overdue

premium is paid, overdue may be deductedfrom proceeds of policy

Failure to pay w/in graceperiod = automatic lapse

Exception: Insured has paid

three full annual premiums. Entitled to thefollowing Options upon default:

Cash Surrender Value

The amount

the insured, in case of default, afterthe payment of at least 3 full annualpremiums, is entitled to receive if hesurrenders the policy and releases hisclaims upon it. It is the portion ofreserve on a life policy.

Nature of CSV: Premium is uniform throughoutlifetime of policy, so during the earlieryears of the policy, the premiumcharges will be more than the actualcost of the protection against the riskin order to meet the higher cost ofrisk during the latter years of thepolicy when the insured is older.

Reserve Value - Surrender Charge =Cash Surrender Value The morepremiums he has paid, the greaterwill be the CSV but the value isalways a lesser sum than the totalamt of premiums paid.

CSV is theamount company holds in trust forinsured deliverable upon demand. Solong as the policy remains in force,the company has practically nobeneficial interest in it except as itscustodian; this is the practical, though

not the legal, relation of the companyto this fund. EFFECT:Surrender policy; terminates thecontract of insurance

Extended Insurance

EFFECT:Policy continues in force from date ofdefault, for a period either stated orequal to the amount of the cashsurrender value, taken as a singlepremium, will purchase; the insured isgiven the right, upon default, afterthe payment of at least three full

annual premiums to have the policycontinued in force from the date ofdefault for a time either stated orequal to the amount as the net valueof the policy taken as a singlepremium, will purchase Also called term insurance, temporary


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insurance or paid-up extendedinsurance

Dependson availability of CSV.

Duringextended period: If insured dies,beneficiary can recover face amountof policy. Insured can also reinstatethe policy w/in this period.

Beyond

extended period: If he survives Nobenefits. He cannot even reinstatethe policy by paying past premiums;has to purchase new policy

Betteroption if insured not in good healthor geriatric

Paid-up Insurance

Amount of Insurance that theCSV, applied as a single premium,can purchase. EFFECT: Policy continues inforce from date of default for thewhole period and under the same

conditions of the original contractw/o further payment of premiums.However, in case of death ofinsured, he may recover only thepaid-up value of the policy w/c ismuch less than the original amountagreed upon. (In other words, na-reduce yung original insurancecontract to one with a lower value)

Better option if insured is stillyoung and in good health becauseunlike extended insurance, he maylater reinstate policy if he wishes.

Automatic Premium

Loan

Upon default,

insurer lends/advances to theinsured without any need ofapplication on his part, amountnecessary to pay overduepremium, but not to exceed theCSV of the policy.

Only applies ifrequested in writing by the insuredeither in the application or at anytime before the expiration of thegrace period. EFFECT:Insurance continues in force for

period covered by the payment.After period, if insured still does notresume paying his premiums, policylapses, unless there remains CSV. If there is stillCSV, auto premium loan continuesuntil it is exhausted.

Advantageous tothe insured because it helps tocontinue the contract and all itsfeatures in full force and effect.

Insured under nolegal obligation to repay loan

Reinstatement(Sec j)

EFFECT: Doesnot create a new contract, merely

REVIVES the old policy. Thus, insurercannot require higher premium thanamount stipulated in the contract.

Required byInsurance Code for every individualand industrial life policy

Not required that3 annual premiums have been paid

REQUISITES:

exercised w/in 3 years

from default

insured must present

evidence of insurabilitysatisfactory to the company

pay all back premiumsand all his indebtedness to theinsurance company

CSV has not been dulypaid nor the extension periodexpired

Insurability does not meanthat insured is in good health. Otherfactors affect insurability like nature ofwork, age, etc.

Application for reinstatementmust be filed during the insureds lifetime.

Other Effect:

Forfeiture Absoluteforfeiture of all insured rights. Generallynot favored. Due to liberal spirit in theconduct of life insurance, insurers instead,give the insurer the benefit of the reservevalue of the policy.

8.4. Form and contents of policy

Sec. 49 The written instrument in which acontract of insurance is set forth is called a policyinsurance.

Sec. 50 The policy shall be in printed form whichmay contain blank spaces; and any word, phrase,clause, mark, sign, symbol, signature, number, orword necessary to complete the contract ofinsurance shall be written on the blank spacesprovided therein.


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Any rider, clause, warranty, orendorsement purporting to be part of thecontract of insurance and which is pasted orattached to said policy is not binding on theinsured, unless the descriptive title or name ofthe rider, clause, warranty, or endorsement isalso mentioned and written on the black spacesprovided in the policy.

Unless applied for by the insured or

owner, any rider, clause, warranty orendorsement issued after the original policy shallbe countersigned by the insured or owner, whichcountersignature shall be taken as his agreementto the contents of such rider, clause, warranty,or endorsement.

Group insurance and group annuitypolicies, however, may be typewritten and neednot be in printed form.

Sec 51. A policy of insurance must specify:

(a) The parties between whom the contractis made;

(b) The amount to be insured except in thecases of open or running policies;

(c) The premium, or if the insurance is of acharacter where the exact premium is onlydeterminable upon the termination of thecontract, a statement of the basis and ratesupon which the final premium is to bedetermined;

(d) The property or life insured;

(e) The interest of the insured in propertyinsured, if he is not he absolute ownerthereof;

(f) The risks insured against; and

(g) The period during which the insuranceis to continue

The Insurance Code does not require aparticular form for the validity of thecontract. However, the policy mustcontain the enumeration in Art. 51 (seeabove) The policy is different from the

contract itself.

Policy - written instrument

embodying the terms and stipulations ofa contract of insurance. Not essential tothe validity of the contract as long as allthe essential elements for the existence

of contract are present. (Consent, object,consideration, competent parties) Other stipulations not required by lawmay be included as long as they are notprohibited or inconsistent with the law.

Missing provisions required does notvoid policy. Missing provisions will be readinto the policy and will substitute thosew/c are in conflict w/ the law.

Stipulations not in the exact terms of

the statute, if more favorable to theinsured, will be enforced. SIR (on oral contracts): In some jurisdictions of the US, oral contract isvalid, provided that all the terms areagreed upon. In our Insurance Code,although written form not required forvalidity, some provisions say that aPRINTED POLICY is best evidence ofcontract. SC has not ruled categoricallyon this matter. The following are required to appear ininsurance policies:

The policy, which must be inprinted form (except group insurancepolicies which may be typewritten), maycontain blank spaces; any word, phrase,clause, mark, sign, symbol, signature,number, or word necessary to completethe contract of insurance shall bewritten on the blank spaces provided.

Any rider, clause, warranty, orendorsement may only be deemedpart of the insurance policy if, afterhaving been attached to the policyitself, its descriptive title or name is alsomentioned and written in the blankspaces in the policy. Required clauses in the policy:

The parties between

whom the contract is made;

The amount to be

insured except in the cases ofopen or running policies;

The premium, or if the

insurance is of a character wherethe exact premium is onlydeterminable

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