insurance law reviewer art1-50

7/31/2019 Insurance law reviewer ART1-50

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THE INSURANCE CODE OF 1976(Presidential Decree No. 1460)

GENERAL PROVISIONS

Section 1 . This decree shall be known as theInsurance Code of 1978

What is the principle behind insurance?Insurance is based upon the principle of aiding

another from a loss caused by an unfortunate event.

How old is the concept of insurance?Very old. Benevolent societies organized for thepurpose of extending aid to their unfortunatemembers from a fund contributed by all, have beenin existence from the earliest times. They existedamong the Egyptians, the Chinese, the Hindus, theRomans, and are known to have been establishedamong the Greeks as early as, believe it or not, 3B.C.

How did insurance develop in the Philippines?Pre-Spanish Era - there was no insurance; every

loss was borne by the person or the family whosuffered the misfortune.Spanish era Insurance, in its present concept, wasintroduced in the Philippines when Lloyds of Londonappointed Strachman, Murray & Co., Inc. as itsrepresentative here.1898 Life insurance was introduced in this countrywith the entry of Sun Life Assurance of Canada in thelocal insurance market.1906 First domestic non-life insurance company,the Yek Tong Lin Insurance Company, was organized1910 First domestic life insurance company, theInsular Life Assurance Co., Ltd., was organized1939 Union Insurance Society of Canton appointedRussel & Surgis as its agent in Manila. The businesstransacted the Philippines was then limited to non-life insurance.1936 Social insurance was established with theenactment of Commonwealth Act no. 186 whichcreated the Government Service Insurance System(GSIS) which started operations in 1937. The Actcovers govt employees.1949 Government agency was formed to handleinsurance affairs, where the Insular Treasurer wasappointed commissioner ex-officio.1950 Reinsurance was introduced by theReinsurance Company of the Orient when it wrotetreaties for both life and non life.1951 First workmens compensation pool wasorganized as the Royal Group Incorporated.1954 RA 1161 was enacted which provided for theorganization of the Social Security System (SSS)covering employees of the private sector.

At present, there are 130 insurance companiesregistered with the Office of the InsuranceCommissioner. Of these, 2 are composite insurancecompanies (engaged in both life and non-lifeinsurance), 23 are life insurance companies, 101 arenon-life insurance companies and 4 are reinsurancecompanies.

How did insurance laws develop in thePhilippines?During the Spanish Period , the laws on insurancewere found in Title VII of Book II and Section III of

Title III of Book III of the Spanish Code of Commerce;and in Chapters II and IV of Tile XII of Book IV of theSpanish Civil Code of 1889 ( whew!)

During the American Regime , on Dec. 11, 1914, thePhil Legislature enacted the Insurance Act (Act 2427).

This Act which took effect on July 1, 1915 repealedthe provisions of the Spanish Code of Commerce onInsurance.

When the Civil Code of the Philippines (RA 386) tookeffect on August 30, 1950, the provisions of theSpanish Civil Code of 1889 were likewise repealed.

For quite a long time, the Insurance Act was thegoverning law on insurance in the Philippines.

On Dec. 18, 1974, PD 612 was promulgated,ordaining and instituting the Insurance Code of thePhilippines, thereby repealing Act 2427. PDs 63, 123and 317 were issued, amending PD 612. Finally PD1460 which took effect on June 11, 1976 consolidatedall insurance laws into a single code and this is whatwe know now as the Insurance Code of 1978.

What are the present laws that governinsurance (also known as the laws we have to knowfor exams) ?

The laws we have to know are, of course, PD 1460,and Articles 2011-2012, 2021-2027 and 2166 of theNew Civil Code.

What do these Civil Code Provisions say?Art. 2011. The contract of insurance is governed byspecial laws. Matters not expressly provided for insuch special laws shall be regulated by this Code.Art. 2012. Any person who is forbidden fromreceiving any donation under Art. 739 cannot benamed beneficiary of a life insurance policy by aperson who cannot make any donation to him,according to said article.Art. 2021 . The aleatory contract of life annuity bindsthe debtor to pay an annual pension or incomeduring the life of one or more determinate persons inconsideration of a capital consisting of money orother property, whose ownership is transferred tohim at once with the burden of income.Art. 2022 . The annuity may be constituted upon thelife of the person who gives the capital, upon that of a third person, or upon the lives of various persons,all of whom must be living at the time the annuity isestablished. It may also be constituted in favor of theperson or persons upon whose life or lives thecontract is entered into, or in favor of another orother persons.Art. 2023. Life annuity shall be void if constitutedupon the life of a person who was already dead atthe time the contract was entered into, or who was atthe that time suffering from an illness which causedhis death within twenty days following said date.Art. 2024 . The lack of payment of the income duedoes not authorize the recipient of the life annuity todemand the reimbursement of the capital or toretake possession of the property alienated, unlessthere is a stipulation to the contrary; he shall haveonly a right judicially to claim the payment of theincome in arrears and to require a security for thefuture income, unless there is a stipulation to thecontrary.Art. 2025 . The income corresponding to the year inwhich the person enjoying it dies shall be pain inproportion to the days during which he lived; if theincome should be paid by installments in advance,the whole amount of the installment which began torun during his life shall be paid.Art. 2026 . He who constitutes an annuity bygratuitous title upon his property, may provide at the


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time the annuity is established that the same shallnot be subject to execution or attachment on accountof the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, thelatter may ask for execution or attachment of theproperty.Art. 2027 . No annuity shall be claimed without firstproving the existence of the person upon whose lifethe annuity is constituted.

What is so important about the Civil CodeProvisions?Atty. Quimson never fails to ask about Art. 2012 .

Are there special laws that govern insurance? Yes, but Atty. Quimson did not tell us to look themup. However, for reference they are:1. Revised GSIS Act of 1977 (PD 1146, as amended)2. Social Security Act of 1954 ( RA 1161, (asamended)3. The Property Insurance Law ( RA 656, as amendedby PD 245)4. Republic Act No. 48985. EO 250; and

6. RA 3591How do we construe the provisions of theInsurance Code (IC)?Since our present IC is based mainly on the InsuranceAct, which in turn was taken verbatim from the law of California (except for Chap V, which was taken fromthe law of NY), the courts should follow infundamental points, at least, the construction placedby California Courts on California law (and theconstruction placed by the NY Courts on NY law). Thisis in accordance with the well settled rule in statutoryconstruction that when a statute has been adoptedfrom some other state or country, and said statutehas previously been construed by the courts of suchstate or country, the statute is usually deemed tohave been adopted with the construction so given.

Cases:(1) Constantino v. Asia Life87 PHIL 248Facts:

Appeal consolidates two cases.Asia life insurance Company (ALIC) was

incorporated in Delaware.For the sum of 175.04 as annual premium duly

paid to ALIC, it issued Policy No. 93912 whereby itinsured the life of Arcadio Constantino for 20 yearsfor P3T with Paz Constantino as beneficiary.o First premium covered the period up to Sept. 26,1942. No further premiums were paid after the firstpremium and Arcadio died on Sept. 22, 1944.

Due to Jap occupation, ALIC closed its branchoffice in Manila from Jan. 2 1942-1945.

On Aug. 1, 1938, ALIC issued Policy no. 78145covering the lives of Spouses Tomas Ruiz andAgustina Peralta for the sum of P3T for 20 years. Theannual premium stipulated was regularly paid fromAug. 1, 1938 up to and including Sept. 30, 1940.o Effective Aug. 1, 1941, the mode of payment waschanged from annually to quarterly and suchquarterly premiums were paid until Nov. 18, 1941.o Last payment covered the period until Jan. 31,1942.o Tomas Ruiz died on Feb. 16, 1945 with AgustinaPeralta as his beneficiary.

Due to Jap occupation, it became impossible andillegal for the insured to deal with ALIC. Aside fromthis the insured borrowed from the policy P234.00

such that the cash surrender value of the policy wassufficient to maintain the policy in force only up toSept. 7, 1942.

Both policies contained this provision: All premiums are due in advance and any unpunctuality in making such payment shall cause this policy tolapse unless and except as kept in force by the grace

period condition.Paz Constantino and Agustina Peralta claim as

beneficiaries, that they are entitled to receive the

proceeds of the policies less all sums due forpremiums in arrears. They also allege that non-payment of the premiums were caused by the closingof ALICs offices during the war and the impossiblecircumstances by the war, therefore, they should beexcused and the policies should not be forfeited.

Lower court ruled in favor of ALIC.

Issue: May a beneficiary in a life insurance policyrecover the amount thereof although the insureddied after repeatedly failing to pay the stipulatedpremiums, such failure being caused by war?

Held: NO.

Due to the express terms of the policy, non-paymentof the premium produces its avoidance. In Glaraga v.Sun Life, it was held that a life policy was avoidedbecause the premium had not been paid within thetime fixed; since by its express terms, non-paymentof any premium when due or within the 31 day graceperiod ipso fact caused the policy to lapse. When thelife insurance policy provides that non-payment of premiums will cause its forfeiture, war does NOTexcuse non-payment and does not avoid forfeiture.Essentially, the reason why punctual payments areimportant is that the insurer calculates on the basisof the prompt payments. Otherwise, malulugi sila. Itshould be noted that the parties contracted not onlyas to peace time conditions but also as to wartimeconditions since the policies contained provisionsapplicable expressly to wartime days. The logicalinference therefore is that the parties contemplatedthe uninterrupted operation of the contract even if armed conflict should ensue.

(2) Insular Life v. Ebrado80 SCRA 181

Facts:Buenaventura Ebrado was issued by Insular Life

Assurance Co. a whole life plan for P5,882.00 with arider for Accidental Death Benefits for the sameamount.

Ebrado designated Carponia Ebrado as therevocable beneficiary in his policy, referring to her ashis wife.

Ebrado died when he was accidentally hit by afalling branch of tree.

Insurer by virtue of the contract was liable for11,745.73, and Carponia filed her claim, although sheadmitted that she and the insured were merely livingas husband and wife without the benefit of marriage.

Pascuala Ebrado also filed her claim as the widowof the deceased insured.

Insular life filed an interpleader case and the lowercourt found in favor of Pascuala.

Issue: Between Carponia and Pascuala, who isentitled to the proceeds?

Held: Pascuala.It is quite unfortunate that the Insurance Act or ourown Insurance Code does not contain a specific


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provision grossly resolutory of the prime question athand. Rather, the general rules of civil law should beapplied to resolve this void in the insurance law. Art.2011 of the NCC states: The contract of insurance isgoverned by special laws. Matters not expressly

provided for in such special laws shall be regulatedby thisCode. When not otherwise specifically provided for inthe insurance law, the contract of life insurance isgoverned by the general rules of civil law regulating

contracts. Under Art. 2012, NCC: Any person who isforbidden from receiving any donation under Art. 739cannot be named beneficiary of a life insurance

policy by a person who cannot make any donation tohim, according to said article . Under Art. 739,donations between persons who were guilty of adultery or concubinage at the time of the donationshall be void. In essence, a life insurance policy is nodifferent from civil donations insofar as thebeneficiary is concerned. Both are founded on thesame consideration of liberality. A beneficiary is likea donee because from the premiums of the policywhich the insured pays, the beneficiary will receivethe proceeds or profits of said insurance. As a

consequence, the proscription in Art. 739 shouldequally operate in life insurance contracts. Therefore,since common-law spouses are barred from receivingdonations, they are likewise barred from receivingproceeds of a life insurance contract.

(3) Qua Chee Gan v. Law Union Rock 98 PHIL 85

Facts:Qua Chee Gan, a merchant, owned 4 warehouses

in Albay which were used for the storage or copraand hemp in which the appelle deals with exclusively.

The warehouses together with the contents wereinsured with Law Union since 1937 and the loss madepayable to PNB as mortgagee of the hemp and copra.

A fire of undetermined cause broke out in July 21,1940 and lasted for almost 1 whole week.

Bodegas 1, 3, and 4 including the merchandisestored were destroyed completely.

Insured then informed insurer of the unfortunateevent and submitted the corresponding fire claims,which were later reduced to P370T.

Insurer refused to pay claiming violations of thewarranties and conditions, filing of fraudulent claimsand that the fire had been deliberately caused by theinsured.

Insured filed an action before CFI which rendered adecision in favor of the insured.

Issues and Resolutions:(1) WON the policies should be avoided for thereason that there was a breach of warranty.Under the Memorandum of Warranty, there should beno less than 1 hydrant for each 150 feet of externalwall measurements of the compound, and sincebodegas insured had an external wall per meter of 1640 feet, the insured should have 11 hydrants inthe compound. But he only had 2. Even so, theinsurer is barred by estoppel to claim violation of thefire hydrants warranty, because knowing that thenumber of hydrants it demanded never existed fromthe very beginning, appellant nevertheless issued thepolicies subject to such warranty and received thecorresponding premiums. The insurance companywas aware, even before the policies were issued, thatin the premises there were only 2hydrants and 2 others were owned by theMunicipality, contrary to the requirements of the

warranties in question. It should be close toconniving at fraud upon the insured to allow theinsurer to claim now as void the policies it issued tothe insured, without warning him of the fatal defect,of which the insurer was informed, and after it hadmisled the insured into believing that the policieswere effective. Accdg to American Jurisprudence: It isa well-settled rule that the insurer at the time of theissuance of a policy has the knowledge of existingfacts, which if insisted on, would invalidate the

contract from its very inception, such knowledgeconstitutes a waiver of conditions in the contractinconsistent with known facts, and the insurer isstopped thereafter from asserting the breach of suchconditions. The reason for the rule is:

To allow a company to accept ones money for apolicy of insurance which it knows to be void and of no effect, though it knows as it must that the insuredbelieves it to be valid and binding is so contrary tothe dictates of honesty and fair dealing, as so closelyrelated to positive fraud, as to be abhorrent to fair-minded men. It would be to allow the company totreat the policy as valid long enough to get the

premium on it, andleave it at liberty to repudiate it the next moment.Moreover, taking into account the well-known rulethat ambiguities or obscurities must strictly beinterpreted against the party that cause them, thememorandum of warranty invoked by the insurerbars the latter from questioning the existence of theappliances called for, since its initial expression theundernoted appliances for the extinction of fire beingkept on the premises insured hereby.. admits of theinterpretation as an admission of the existence of such appliances which insurer cannot now contradict,should the parole evidence apply.

(2) WON the insured violated the hemp warranty provision against the storage of gasoline sinceinsured admitted there were 36 cans of gasoline inBodega 2 which was a separate structure and not affected by the fire.It is well to note that gasoline is not specificallymentioned among the prohibited articles listed in theso called hemp warranty. The clause relied upon bythe insurer speaks of oils. Ordinarily, oils meanlubricants and not gasoline or kerosene. Here again,by reason of the exclusive control of the insurancecompany over the terms of the contract, theambiguity must be held strictly against the insurerand liberally in favor of the insured, specially to avoida forfeiture. Furthermore, the gasoline kept was onlyincidental to the insureds business. It is a wellsettled rule that keeping of inflammable oils in thepremises though prohibited by the policy does NOTvoid it if such keeping is incidental to the business.Also, the hemp warranty forbade the storage only inthe building to which the insurance applies, and/or inany building communicating therewith; and it isundisputed that no gasoline was stored in the burntbodegas and that Bodega No. 2 which was where thegasoline was found stood isolated from the otherbodegas.

(4) Ty v. Filipinas Compaia de Seguros17 SCRA 364

Facts:Ty was employed as a mechanic operator by

Braodway Cotton Factory at Grace Park, Caloocan.


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In 1953, he took personal accident policies from 7insurance companies (6 defendants), on differentdates, effective for 12 mos.

On Dec. 24. 1953, a fire broke out in the factorywere Ty was working. A hevy object fell on his handwhen he was trying to put out the fire.

From Dec. 1953 to Feb. 6, 1954 Ty receivedtreatment at the Natl Orthopedic Hospital for sixlisted injuries. The attending surgeon certified thatthese injuries would cause the temporary total

disability of Tys left hand.Insurance companies refused to pay Tys claim forcompensation under the policies by reason of saiddisability of his left hand. Ty filed a complaint in themunicipal court who decided in his favor.

CFI reversed on the ground that under the uniformterms of the policies, partial disability due to loss of either hand of the insured, to be compensable mustbe the result of amputation.

Issue: WON Ty should be indemnified under hisaccident policies.

Held. NO.

SC already ruled in the case of Ty v. FNSI that werethe insurance policies define partial disability as lossof either hand by amputation through the bones of the wrist, the insured cannot recover under saidpolicies for temporary disability of his left handcaused by the fractures of some fingers. Theprovision is clear enough to inform the party enteringinto that contract that the loss to be considered adisability entitled toindemnity, must be severance or amputation of theaffected member of the body of the insured. In thewords of Atty. Quimson: Aba gago pala siya, Sinabing loss by amputation, pinagpipilitan pa nyangfracture lang ang kailangan.

(5) Del Rosario v. Equitable Insurance118 PHIL 349

Facts:Equitable Insurance issued a life Insurance policy

to del Rosario binding itself to pay P1,000 to P3,000as indemnity.

Del Rosario died in a boating accident. The heirsfiled a claim and Equitable paid them P1,000.

The heir filed a complaint for recovery of thebalance of P2,000, claiming that the insurere shouldpay him P3,000 as stated in the policy.

Issue: WON the heir is entitled to recover P3,000.

Held: YES.Generally accepted principles or ruling on insurance,enunciate that where there is an ambiguity withrespect to the terms and conditions of the policy, thesame shall be resolved against the one responsiblethereof. The insured has little, if any, participation inthe preparation of the policy. The interpretation of obscure stipulations in a contract should not favorthe party who cause the obscurity.

(6) Misamis Lumber v. Capital Insurance123 Phil 1077

Facts:Misamis lumber insured its motor car for P14T

with Capital Insurance. The policy stipulated that theinsured may authorize the repair of the vehiclenecessitated by damage and the liability of theinsured is limited to 150.

Car met an accident and was repaired by MorosiMotors at a total cost of P302.27. Misamis made areport of the accident to Capital who refused to paythe cost of the repairs.

Issue: WON the insurer is liable for the total amountof the repair.

Held: NO. The insurance policy stipulated that if it is the insured

who authorized the repair, the liability of the insureris limited to 150. The literal meaning of thestipulation must control, it being the actual contract,expressly and plainly provided for in the policy.

(7) Verendia v. CA217 SCRA 1993

Facts:Fidelity and Surety Insurance Company (Fidelity)

issued Fire Insurance Policy No. F-18876 effectivebetween June 23, 1980 and June 23, 1981 coveringRafael (Rex) Verendia's residential in the amount of P385,000.00. Designated as beneficiary was the

Monte de Piedad & Savings Bank.Verendia also insured the same building with twoother companies, namely, The Country BankersInsurance for P56,000.00 and The DevelopmentInsurance for P400,000.00.

While the three fire insurance policies were inforce, the insured property was completely destroyedby fire.

Fidelity appraised the damage amounting to385,000 when it was accordingly informed of theloss. Despite demands, Fidelity refused paymentunder its policy, thus prompting Verendia to file acomplaint for the recovery of 385,000

Fidelity, averred that the policy was avoided byreason of over-insurance, that Verendia maliciouslyrepresented that the building at the time of the firewas leased under a contract executed on June 25,1980 to a certain Roberto Garcia, when actually itwas a Marcelo Garcia who was the lessee.

Issue: WON Verendia can claim on the insurancedespite the misrepresentation as to the lessee andthe overinsurance.

Held: NOPE. The contract of lease upon which Verendia relies tosupport his claim for insurance benefits, was enteredinto between him and one Robert Garcia, a couple of days after the effectivity of the insurance policy.When the rented residential building was razed to theground, it appears that Robert Garcia was still withinthe premises. However, according to theinvestigation by the police, the building appeared tohave "no occupants" and that Mr. Roberto Garcia was"renting on the otherside of said compound" Thesepieces of evidence belie Verendia's uncorroboratedtestimony that Marcelo Garcia whom he consideredas the real lessee, was occupying the building whenit was burned. Ironically, during the trial, Verendiaadmitted that it was not Robert Garcia who signedthe lease contract but it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all thewhile. Verendia, however, failed to explain whyMarcelo had to sign his cousin's name when he infact he was paying for the rent and why he(Verendia) himself, the lessor, allowed such a ruse.Fidelity's conclusions on these proven facts appear,therefore, to have sufficient bases: Verendiaconcocted the lease contract to deflect responsibility


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for the fire towards an alleged "lessee", inflated thevalue of the property by the alleged monthly rental of P6,500) when in fact, the Provincial Assessor of Rizalhad assessed the property's fair market value to beonly P40,300.00, insured the same property with twoother insurance companies for a total coverage of around P900,000, and created a dead-end for theadjuster by the disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance

contract is the law between the parties. Its terms andconditions constitute the measure of the insurer'sliability and compliance therewith is a conditionprecedent to the insured's right to recovery from the.As it is also a contract of adhesion, an insurancecontract should be liberally construed in favor of theinsured and strictly against the insurer companywhich usually prepares it.

Considering, however, the foregoing discussionpointing to the fact that Verendia used a false leasecontract to support his claim under Fire InsurancePolicy, the terms of the policy should be strictlyconstrued against the insured. Verendia failed to live

by the terms of the policy, specifically Section 13thereof which is expressed in terms that are clearand unambiguous, that all benefits under the policyshall be forfeited " if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent meansor devises are used by the Insured or anyone actingin his behalf to obtain any benefit under the policy ".Verendia, having presented a false declaration tosupport his claim for benefits in the form of afraudulent lease contract, he forfeited all benefitstherein by virtue of Section 13 of the policy in theabsence of proof that Fidelity waived such provision.

There is also no reason to conclude that bysubmitting the subrogation receipt as evidence incourt, Fidelity bound itself to a "mutual agreement"to settle Verendia's claims in consideration of theamount of P142,685.77. While the said receiptappears to have been a filled-up form of Fidelity, norepresentative of Fidelity had signed it. It is evenincomplete as the blank spaces for a witness and hisaddress are not filledup. More significantly, the same receipt states thatVerendia had received the aforesaid amount.However, that Verendia had not received the amountstated therein, is proven by the fact that Verendiahimself filed to settle Verendia's claims, but surely,the subrogation receipt by itself does not prove thata settlement had been arrived at and enforced. Thus,to interpret Fidelity's presentation of the subrogationreceipt in evidence as indicative of its accession to its"terms" is not only wanting in rational basis butwould be substituting the will of the Court for that of the parties

Section 2. Whenever used in this Code, thefollowing terms shall have the respective meaningshereinafter set forth or indicated, unless the contextotherwise requires:(1) A Contract of Insurance is an agreementwhereby one undertakes for a consideration toindemnify another against loss, damage or liabilityarising from an unknown or contingent event. Acontract of suretyship shall be deemed to be aninsurance contract, within the meaning of this Code,only if made by a surety who or which, as such, isdoing an insurance business as hereinafter provided.

(2) The term doing an insurance business ortransacting an insurance business withing themeaning of this Code, shall include:(a) Making or proposing to make, as insurer, anyinsurance contract;(b) Making, or proposing to make, as surety, anycontract of suretyship as a vocation and not asmerely incidental to any other legitimate business oractivity of the surety;(c) Doing any kind of business including a

reinsurance business, specifically recognized asconstituting the doing of an insurance businesswithin the meaning of this Code;(d) Doing or proposing to do any business insubstance equivalent to any of the foregoing in amanner designed to evade the provisions of thiscode.

In the application of the provisions of this Code, thefact that no profit is derived from the making of insurance contracts, agreements or transactions orthat no separate or distinct consideration is receivedtherefor, shall not be deemed conclusive to showthat the making thereof does not constitute the doing

or transacting of an insurance business.(3) As used in this Code, the term Commissionermeans the Insurance Commissioner.

Is the definition of a contract of insuranceunder Sec. 2 sufficient?De Leon believes that it is not. He opines that thedefinition does Not include Life insurance which is acontract upon a condition rather than a contract toindemnify for nor recovery can fully repay abeneficiary for the loss of life which is beyondpecuniary value. A better definition he thinks, is thatof Vance who said that a contract of insurance is anagreement by which one party, for a consideration,

promises to pay money or its equivalent, or to dosome act valuable to the insured or his nominee,upon the happening of a loss, damage, liability or disability arising from an unknown or contingent event.

What are the characteristics of an insurancecontract?A contract of insurance has the followingcharacteristics:1. Consensual perfected by the meeting of theminds of the parties2. Voluntary it is not compulsory and the partiesmay incorporate such terms and conditions as theymay deem convenient which will be binding providedthey are not against the law or public policy3. Aleatory depends upon some contingent event4. Executed as to the insured after the payment of the premium5. Executory as to the insurer as it is not executeduntil payment for a loss6. Conditional subject to conditions the principalone of which is the happening of the event insuredagainst7. Personal each party in the contract have in viewthe character, credit and conduct of the other

What are the elements of an insurancecontract?Like any other contract, an insurance contract musthave consent of the parties, object and cause orconsideration. The parties who give their consent inthis contract are the insurer and insured. The objectof the contract is the transferring or distributing of


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the risk of loss, damage, liability or disability from theinsured to the insurer. The cause or consideration of the contract is the premium which the insured paysthe insurer.

What is an additional element of an insurancecontract?Insurable Interest. This means that the insuredpossesses an interest of some kind susceptible of pecuniary estimation.

How are insurance contracts classified?Insurance contracts are classified as follows?1) Life insurance contractsa) Individual (Sections 179-183, 227)b) Group Life (Sections 50 and 228)c) Industrial Life (Sections 229-231)

2) Non-Life Insurance Contractsa) Marine (Sections 99-166)b) Fire (Sections 167-173)c) Casualty (Section 174)

3) Contracts of Suretyship and bonding (Sections

175-178)How are insurance contracts construed?Ambiguities or obscurities must be strictlyinterpreted against the party that caused them. Asthe insurance policy is prepared solely by the insurer,the ambiguities shall be construed against it and infavor of the insured. (Qua Chee Gan)

What does the term doing insurancebusiness include?

The term doing an insurance business ortransacting an insurance business includes:a) Making or proposing to make, as insurer, anyinsurance contract;b) Making, or proposing to make, as surety, anycontract of suretyship as a vocation and not asmerely incidental to any other legitimate business oractivity of the surety;c) Doing any kind of business including a reinsurancebusiness, specifically recognized as constituting thedoing of an insurance business within the meaning of this Code;d) Doing or proposing to do any business insubstance equivalent to any of the foregoing in amanner designed to evade the provisions of thiscode.

Does the fact that no profit was derived fromthe transaction nor a separate considerationreceived therefore mean that no insurancebusiness was transacted?No. Fact that no profit is derived from the contract ortransaction or that no separate or directconsideration is received for such contract ortransaction is NOT deemed conclusive to show thatno insurance business was transacted.

Will any suretyship agreement amount to aninsurance contract?No. In order for a suretyship agreement to comeunder the purview of the Insurance Code, the Suretyundertaking to ensure the performance of theobligations must be registered with the InsuranceCommissioner and must have been issued by thelatter with a certificate of authority. Furthermore, theperson acting as a surety is habitually engaged assuch for a livelihood.

Cases:(8) Philamlife v. Ansaldo234 SCRA 509

Facts:Ramon M. Paterno sent a letter-complaint to the

Insurance Commissioner alleging certain problemsencountered by agents, supervisors, managers andpublic consumers of the Philamlife as a result of certain practices by said company.

Commissioner requested petitioner Rodrigo de losReyes, in his capacity as Philamlife's president, tocomment on respondent Paterno's letter.

The complaint prays that provisions on chargesand fees stated in the Contract of Agency executedbetween Philamlife and its agents, as well as theimplementing provisions as published in the agents'handbook, agency bulletins and circulars, bedeclared as null and void. He also asked that theamounts of such charges and fees already deductedand collected by Philamlife in connection therewithbe reimbursed to the agents, with interest at theprevailing rate reckoned from the date when theywere deducted

Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant to the President,asked that the Commissioner first rule on thequestions of the jurisdiction of the InsuranceCommissioner over the subject matter of the letters-complaint and the legal standing of Paterno.

Insurance Commissioner set the case for hearingand sent subpoena to the officers of Philamlife.Ortega filed a motion to quash the subpoena allegingthat the Insurance company has no jurisdiction overthe subject matter of the case and that there is nocomplaint sufficient in form and contents has beenfiled.

The motion to quash was denied.

Issue: WON the insurance commissioner had jurisdiction over the legality of the Contract of Agency between Philamlife and its agents.

Held: No, it does not have jurisdiction. The general regulatory authority of the InsuranceCommissioner is described in Section 414 of theInsurance Code, to wit:"The Insurance Commissioner shall have the duty tosee that all laws relating to insurance, insurancecompanies and other insurance matters, mutualbenefit associations and trusts for charitable uses arefaithfully executed and to perform the dutiesimposed upon him by this Code,."

On the other hand, Section 415 provides:"In addition to the administrative sanctions providedelsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to imposeupon insurance companies, their directors and/or officers and/or agents, for any willful failure or refusalto comply with, or violationof any provision of this Code, or any order,instruction, regulation or ruling of the InsuranceCommissioner, or any commission of irregularities,and/or conducting business in an unsafe or unsoundmanner as may be determined by the InsuranceCommissioner, the following:a) fines not in excess of five hundred pesos a day;andb) suspension, or after due hearing, removal of directors and/or officers and/or agents."


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A plain reading of the above-quoted provisions showthat the Insurance Commissioner has the authority toregulate the business of insurance, which is definedas follows:"(2) The term 'doing an insurance business' or 'transacting an insurance business,' within themeaning of this Code, shall include (a) making or

proposing to make, as insurer, any insurancecontract; (b) making, or proposing to make,as surety, any contract of suretyship as a vocation

andnot as merely incidental of the surety; (c) doing any kind of business, including a reinsurance business,specifically recognized as constituting the doing of an insurance business within the meaning of thisCode; (d) doing or proposing to do any business insubstance equivalent to any of the foregoing in amanner designed to evade the provisions of thisCode. (Insurance Code, Sec. 2 [2]) Since the contractof agency entered into between Philamlife and itsagents is not included within the meaning of aninsurance business, Section 2 of the Insurance Codecannot be invoked to give jurisdiction over the sameto the Insurance Commissioner. Expressio unius est

exclusio alterius.(9) Philamcare v. CA379 SCRA 356 (2002)Facts:

Ernani Trinos, applied for a health care coveragewith Philamcare. In the standard application form, heanswered NO to the following question: Have you or any of your family members ever consulted or beentreated for high blood pressure, heart trouble,diabetes, cancer, liver disease, asthma or pepticulcer? (If Yes, give details)

The application was approved for a period of oneyear from March 1, 1988 to March 1, 1989. He was aissued Health Care Agreement, and under such, hewas entitled to avail of hospitalization benefits,whether ordinary or emergency, listed therein. Hewas also entitled to avail of "out-patient benefits"such as annual physical examinations, preventivehealth care and other out-patient services.

Upon the termination of the agreement, the samewas extended for another year from March 1, 1989 toMarch 1, 1990, then from March 1, 1990 to June 1,1990. The amount of coverage was increased to amaximum sum of P75,000.00 per disability.

During the period of his coverage, Ernani suffereda heart attack and was confined at the ManilaMedical Center (MMC) for one month beginningMarch 9, 1990.

While her husband was in the hospital, Julita triedto claim the benefits under the health careagreement. However, Philamcare denied her claimsaying that the Health Care Agreement was void.

According to Philamcare, there was concealmentregarding Ernani's medical history.o Doctors at the MMC allegedly discovered at thetime of Ernani 's confinement that he washypertensive, diabetic and asthmatic, contrary to hisanswer in the application form.

Julita had no choice but to pay the hospitalizationexpenses herself, amounting to about P76,000.00

After her husband was discharged from the MMC,he was attended by a physical therapist at home.Later, he was admitted at the Chinese GeneralHospital (CGH). Due to financial difficulties, Julitabrought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very

weak. Julita was constrained to bring him back to theCGH where he died on the same day.

Julita instituted, an action for damages againstPhilamcare. She asked for reimbursement of herexpenses plus moral damages and attorney's fees.RTC decided in favor of Julita. CA affirmed.

Issues and Resolutions:Philamcare brought the instant petition for review,raising the primary argument that a health care

agreement is not an insurance contract; hence the"incontestability clause" under the Insurance CodeTitle 6, Sec. 48 does not apply. SC held that in thecase at bar, the insurable interest of respondent'shusband in obtaining the health care agreement washis own health. The health care agreement was inthe nature of non-life insurance, which is primarily acontract of indemnity. Once the member incurshospital, medical or any other expense arising fromsickness, injury or other stipulated contingent, thehealth care provider must pay for the same to theextent agreed upon under the contract.

Under the title Claim procedures of expenses,

Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest themembership of the patient if he had previous ailmentof asthma, and six months from the issuance of theagreement if the patient was sick of diabetes orhypertension. The periods having expired, thedefense of concealment or misrepresentation nolonger lie. Petitioner argues that respondent'shusband concealed a material fact in his application.It appears that in the application for health coverage,

petitioners required respondent's husband to sign anexpress authorization for any person, organization or entity that has any record or knowledge of his healthto furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.

Philamcare cannot rely on the stipulation regarding"Invalidation of agreement" which reads:Failure to disclose or misrepresentation of any material information by the member in theapplication or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginningand liability of Philamcare shall be limited toreturn of all Membership Fees paid. An undisclosedor misrepresented information is deemed material if its revelation would have resulted in the declinationof the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefitsapplied for.

The answer assailed by petitioner was in response tothe question relating to the medical history of theapplicant. This largely depends on opinion ratherthan fact, especially coming from respondent'shusband who was not a medical doctor. Wherematters of opinion or judgment are called for,answers made in good faith and without intent todeceive will not avoid a policy even though they areuntrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of

premium, and this is likewise the rule although thestatement is material to the risk, if the statement isobviously of the foregoing character, since in suchcase the insurer is not justified in relying upon such


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statement, but is obligated to make further inquiry.There is a clear distinction between such a case andone in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, tobe actually untrue, or the impossibility of which isshown by the facts within his knowledge, since insuch case the intent to deceive the insurer is obviousand amounts to actual fraud.

The fraudulent intent on the part of the insured mustbe established to warrant rescission of the insurancecontract. Concealment as a defense for the healthcare provider or insurer to avoid liability is anaffirmative defense and the duty to establish suchdefense by satisfactory and convincing evidencerests upon the provider or insurer. In any case, withor without the authority to investigate, petitioner isliable for claims made under the contract. Havingassumed a responsibility under the agreement,petitioner is bound to answer the same to the extentagreed upon. In the end, the liability of the healthcare provider attaches once the member ishospitalized for the disease or injury covered by the

agreement or whenever he avails of the coveredbenefits which he has prepaid.

Under Section 27 of the Insurance Code, "aconcealment entitles the injured party to rescind acontract of insurance." The right to rescind should beexercised previous to the commencement of anaction on the contract. In this case, no rescission wasmade. Besides, the cancellation of health careagreements as in insurance policies require theconcurrence of the following conditions:1. Prior notice of cancellation to insured;2. Notice must be based on the occurrence aftereffective date of the policy of one or more of thegrounds mentioned;3. Must be in writing, mailed or delivered to theinsured at the address shown in the policy;4. Must state the grounds relied upon provided inSection 64 of the Insurance Code and upon requestof insured, to furnish facts on which cancellation isbased.

None of the above pre-conditions was fulfilled in thiscase. When the terms of insurance contract containlimitations on liability, courts should construe them insuch a way as to preclude the insurer fromnoncompliance with his obligation. Being a contractof adhesion, the terms of an insurance contract areto be construed strictly against the party whichprepared the contract the insurer. By reason of theexclusive control of the insurance company over theterms and phraseology of the insurance contract,ambiguity must be strictly interpreted against theinsurer and liberally in favor of the insured, especiallyto avoid forfeiture.

This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital servicecontracts, such as the one at bar, must be liberallyconstrued in favor of the subscriber, and if doubtfulor reasonably susceptible of two interpretations theconstruction conferring coverage is to be adopted,and exclusionary clauses of doubtful import shouldbe strictly construed against the provider.

CHAPTER 1CONTRACT OF INSURANCETITLE I WHAT MAY BE INSURED

Section 3. Any contingent or unknown event,whether past or future, which may damnify a personhaving an insurable interest, or create a liabilityagainst him, may be insured against, subject to theprovisions of this chapter.

The consent of the husband is not necessary for thevalidity of an insurance policy taken out by themarried woman on her life or that of her children.

Any minor of the age of eighteen years or more, maynotwithstanding such minority, contract for life,health and accident insurance, with any insurancecompany duly authorized to do business in thePhilippines, provided the insurance is taken on hisown life and the beneficiary appointed is the minorsestate or the minors father, mother, husband, wife,child, brother or sister.

The married woman or the minor herein allowed totake out an insurance policy may exercise all therights and privileges of an owner under a policy. Allrights, title and interest in the policy of insurancetaken out by an original owner on the life or health of

a minor shall automatically vest in the minor uponthe death of the original owner, unless otherwiseprovided in the policy.

What perils or risk may be insured? The following risks may be insured:1. Any contingent or unknown event whether past orfuture which may cause damage to a person havingan insurable interest; or2. Any contingent or unknown event, whether past orfuture, which may create liability against the personinsured.

May a married woman take out an insurance? If so, on what?

Yes. A married woman may take out an insurance onher life or that of her children even without theconsent of her husband. She may likewise take outan insurance on the life of her husband, herparaphernal property, or on property given to her byher husband.

May a minor take out an insurance? Third par of Sec. 3 is no longer applicable, since theage of majority is now 18 years old (RA 8809, Dec.13, 1989).

Atty Quimson asked us to look at a fewprovisions of law with respect to this section.What are they?Art. 1174 (NCC). Except in cases expressly specifiedby the law, or when it is otherwise declared bystipulation, or when the nature of the obligationrequires the assumption of risk, no person shall beresponsible for those events which, could not beforeseen, or which, though foreseen, were inevitable.Art. 110 (FC). The spouses retain the ownership,possession, administration and enjoyment of theirexclusive properties. Either spouse may during themarriage, transfer the administration of his or herexclusive property to the other by means of a publicinstrument, which shall be recorded in the registry of property of the place where the property is located.

Art. 1327 (NCC ). The following cannot give consentto a contract:(1) Unemancipated minors;(2) Insane or demented persons, and deaf-mutes whodo not know how to write.


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Art. 1390 (NCC). The following contracts arevoidable or annullable, even though there may havebeen no damage to the contracting parties:(1) Those where one of the parties is incapable of giving consent to a contract;(2) Those where the consent 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.

Problem: A, wanted to open a medicinal herb shop. He placeda long distance phone call to Taiwan and talked to anexporter who willingly agreed to consign several tonsof ginsengs with him on the condition that he willcome and pick the goods up. A then sent 5 of hiscargo vessels to Taiwan. The ships left on August 9.On August 14, A insured the 5 vessels against perilsof the South China Sea Lost or Not Lost with BInsurance Co.Without the knowledge of both parties, the ships had

already sunk on Aug. 14. Is B Insurance Co. liable for the ships?

Yes. This is an example of a past unknown eventbecause the sinking of the ship is a past event at thetime that the policy took effect. The contract is validand B Insurance Co. is liable because he agreed topay even though the ship be already lost. Aninsurance against an unknown past event is peculiaronly to marine insurance. However, Atty. Quimsonsaid in class that nowadays, most if not all insurancecompanies no longer insure a past event sincetechnology has progressed in such a manner that aships current status can easily be known while theapplication is being processed.

Case.(10) Philamcare v. CA (repeat Case #09)379 SCRA 356

Facts:Ernani Trinos, applied for a health care coverage

with Philamcare. In the standard application form, heanswered NO to the following question: Have you or any of your family members ever consulted or beentreated for high blood pressure, heart trouble,diabetes, cancer, liver disease, asthma or pepticulcer? (If Yes, give details)

The application was approved for a period of oneyear from March 1, 1988 to March 1, 1989. He was aissued Health Care Agreement, and under such, hewas entitled to avail of hospitalization benefits,whether ordinary or emergency, listed therein. Hewas also entitled to avail of "out-patient benefits"such as annual physical examinations, preventivehealth care and other out-patient services.

Upon the termination of the agreement, the samewas extended for another year from March 1, 1989 toMarch 1, 1990, then from March 1, 1990 to June 1,1990. The amount of coverage was increased to amaximum sum of P75,000.00 per disability.

During the period of his coverage, Ernani suffereda heart attack and was confined at the ManilaMedical Center (MMC) for one month beginningMarch 9, 1990.

While her husband was in the hospital, Julita triedto claim the benefits under the health careagreement. However, Philamcare denied her claimsaying that the Health Care Agreement was void.

According to Philamcare, there was concealmentregarding Ernani's medical history.o Doctors at the MMC allegedly discovered at thetime of Ernani's confinement that he washypertensive, diabetic and asthmatic, contrary to hisanswer in the application form.

Julita had no choice but to pay the hospitalizationexpenses herself, amounting to about P76,000.00

After her husband was discharged from the MMC,he was attended by a physical therapist at home.

Later, he was admitted at the Chinese GeneralHospital (CGH). Due to financial difficulties, Julitabrought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling veryweak. Julita was constrained to bring him back to theCGH where he died on the same day.

Julita instituted, an action for damages againstPhilamcare. She asked for reimbursement of herexpenses plus moral damages and attorney's fees.RTC decided in favor of Julita. CA affirmed.

Issues and Resolutions:Philamcare brought the instant petition for review,raising the primary argument that a health care

agreement is not an insurance contract; hence the"incontestability clause" under the Insurance CodeTitle 6, Sec. 48 does not apply. SC held that in thecase at bar, the insurable interest of respondent'shusband in obtaining the health care agreement washis own health. The health care agreement was inthe nature of non-life insurance, which is primarily acontract of indemnity. Once the member incurshospital, medical or any other expense arising fromsickness, injury or other stipulated contingent, thehealth care provider must pay for the same to theextent agreed upon under the contract.

Under the title Claim procedures of expenses,Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest themembership of the patient if he had previous ailmentof asthma, and six months from the issuance of theagreement if the patient was sick of diabetes orhypertension. The periods having expired, thedefense of concealment or misrepresentation nolonger lie.

Petitioner argues that respondent's husbandconcealed a material fact in his application. It appears that in the application for health coverage,

petitioners required respondent's husband to sign anexpress authorization for any person, organization or entity that has any record or knowledge of his healthto furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.

Philamcare cannot rely on the stipulation regarding"Invalidation of agreement" which reads:Failure to disclose or misrepresentation of any material information by the member in theapplication or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginningand liability of Philamcare shall be limited toreturn of all Membership Fees paid. An undisclosedor misrepresented information is deemed material if its revelation would have resulted in the declinationof the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefitsapplied for.


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The answer assailed by petitioner was in response tothe question relating to the medical history of theapplicant. This largely depends on opinion ratherthan fact, especially coming from respondent'shusband who was not a medical doctor. Wherematters of opinion or judgment are called for,answers made in good faith and without intent todeceive will not avoid a policy even though they areuntrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of

premium, and this is likewise the rule although thestatement is material to the risk, if the statement isobviously of the foregoing character, since in suchcase the insurer is not justified in relying upon suchstatement, but is obligated to make further inquiry.There is a clear distinction between such a case andone in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, tobe actually untrue, or the impossibility of which isshown by the facts within his knowledge, since in

such case the intent to deceive the insurer is obviousand amounts to actual fraud.

The fraudulent intent on the part of the insured mustbe established to warrant rescission of the insurancecontract. Concealment as a defense for the healthcare provider or insurer to avoid liability is anaffirmative defense and the duty to establish suchdefense by satisfactory and convincing evidencerests upon the provider or insurer. In any case, withor without the authority to investigate, petitioner isliable for claims made under the contract. Havingassumed a responsibility under the agreement,petitioner is bound to answer the same to the extentagreed upon. In the end, the liability of the healthcare provider attaches once the member ishospitalized for the disease or injury covered by theagreement or whenever he avails of the coveredbenefits which he has prepaid.

Under Section 27 of the Insurance Code, "aconcealment entitles the injured party to rescind acontract of insurance." The right to rescind should beexercised previous to the commencement of anaction on the contract. In this case, no rescission wasmade. Besides, the cancellation of health careagreements as in insurance policies require theconcurrence of the following conditions:1. Prior notice of cancellation to insured;2. Notice must be based on the occurrence aftereffective date of the policy of one or more of thegrounds mentioned;3. Must be in writing, mailed or delivered to theinsured at the address shown in the policy;4. Must state the grounds relied upon provided inSection 64 of the Insurance Code and upon requestof insured, to furnish facts on which cancellation isbased.

None of the above pre-conditions was fulfilled in thiscase. When the terms of insurance contract containlimitations on liability, courts should construe them insuch a way as to preclude the insurer fromnoncompliance with his obligation. Being a contractof adhesion, the terms of an insurance contract areto be construed strictly against the party whichprepared the contract the insurer. By reason of theexclusive control of the insurance company over theterms and phraseology of the insurance contract,

ambiguity must be strictly interpreted against theinsurer and liberally in favor of the insured, especiallyto avoid forfeiture.

This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital servicecontracts, such as the one at bar, must be liberallyconstrued in favor of the subscriber, and if doubtfulor reasonably susceptible of two interpretations theconstruction conferring coverage is to be adopted,

and exclusionary clauses of doubtful import shouldbe strictly construed against the provider.

Section 4. The preceding section does not authorizean insurance for or against the drawing of anylottery, or for against any chance or ticket in a lotterydrawing a prize.

Is a contract of insurance a wagering orgambling contract?NO. A contract of insurance is a contract of indemnityand not a wagering or gambling contract. Although itis true that an insurance contract is also based on acontingency, it is not a contract of chance.

What is the concept of a lottery? The term lottery extends to all schemes for thedistribution of prizes by chance, such as policyplaying, gift exhibition, prize concerts, raffles at fairs,etc. and various forms of gambling.

What are the three essential elements of lottery?Consideration, prizes and chance. There isconsideration of price aid if it appears that the prizesoffered by whatever name they may be called cameout of the fund raised by the sale of chances amongthe participants in order to win the prizes.

Are all prizes equivalent to a lottery?If the prizes do not come out of the fund orcontributions by the participants, no considerationhas been paid and consequent, there is no lottery.Ex: A company, to promote the sale of certainproducts, resorts to a scheme which envisions thegiving away for free of certain prizes for the purchaseof said products, for the participants are not requiredto pay more than the usual price o the products.

Can a sweepstakes holder insure himself against the failure of his ticket to win?NO. It cannot be said that he suffered a loss of prize when he did not win. The failure to win a prizewould not damnify or create a liability against him.

What are the distinctions between aninsurance contract and a wagering contract?A contract of insurance is a contract of indemnity andnot a wagering, or gambling contract.(Sec. 25) Whiteit is based on a contingency, it is not a contract of chance and is not used for profit. The distinctions arethe following:

Insurance Contract Gambling contractParties seek to distribute loss Parties contemplategainby reason of mischance through mere chanceor

the occurrence of acontingent event.

Insured avoids misfortune. Gamblercourts fortune


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Tends to equalize fortune. Tends toincrease the

inequality of fortune.

What one insured against is not Essence iswhatever oneat the expense of another person winsfrom a wager insured. The entire group of

lost by the other wagering

insureds provides through the party.premiums paid, the funds whichmake possible the payment of all claims;

Purchase of insurance does not As soon as a partymakescreate a new and non-existing a wager, he creates ariskrisk of loss to the purchaser. of loss tohimself where noIn purchasing insurance, the such risk

existedinsurer faces an already existing previously.

risk of economic loss.What are the similarities between an insurancecontract and a gambling contract?

They are similar in only one respect. In both, oneparty promises to pay a given sum to the other uponthe occurrence of a given future event, the promisebeing condition upon the payment of, or agreementto pay, a stipulated amount by the other party to thecontract. In either case, one party may receive more,much more, than he paid or agreed to pay.

Problems. A, B, C and D decided to join a bungee jumpingcompetition. They contributed P1,000 each to a fundavailable for the use of any member who is injured inthe contest. Is this insurance or gambling?

This is an insurance contract. Each membercontributes to a common fund, out of which one isreimbursed for the losses that he may suffer.

Suppose A, B, C, and D agree that the whole amount of 4T would be given to the one who swings nearest to the ground. Is this insurance or gambling?

This is now a gambling contract. The parties are nowcontemplating a gain based upon uncertain events.

Section 5. All kinds of insurance are subject to theprovisions of this chapter so far as the provisions canapply.

What is the applicability of the provisions of Chapter 1?Provisions of Chap 1 on The Contract of Insurance(Secs 1-98) are also applicable to marine Insurance(Secs. 99-166), Fire insurance (Secs. 167-173),Casualty Insurance (Sec. 174), Suretyship (Secs. 175-178), Life Insurance (Secs. 179-183), and to anyother kind of insurance (Sec. 2) so far as saidprovisions can apply. Matters not expressly providedfor in the Insurance Code and special laws areregulated by the CC. So, an insurance contract underRA 1611 (Social Security Act of 1954) shall begoverned primarily by the said law and subsidiarilyby Chap. 1 of the Insurance Code, and in the absenceof the applicable provisions in both laws, thepertinent provisions of the CC shall be applied.

TITLE II PARTIES TO THE CONTRACT

Section 6. Every person, partnership, association orcorporation duly authorized to transact insurancebusiness as elsewhere provided in this Code, may bean insurer.

Who are the parties to the contract of insurance?

The Insurer is the party who assumes or accepts therisk of loss and undertakes for a consideration toindemnify the insured or to pay him a certain sum on

the happening of a specified contingency or event. The business of insurance may be carried on byindividuals just as much as by corporations andassociations. The state itself may go into insurancebusiness. The insured , or the second party to thecontract, is the person in whose favor, the contract isoperative and who is indemnified against, or is toreceive a certain sum upon the happening of aspecified contingency or event. He is the personwhose loss is the occasion for the payment of theinsurance proceeds by the insurer.

Is the insured always the person to whom theproceeds are paid?

No. The person paid may be the beneficiarydesignated in the policy. A common example of thissituation is a life insurance policy where the proceedsare not given to the insured but to a third partydesignated by the insured.

What is the nature of the relationship betweenthe insurer and the insured?It is that of a contingent debtor and creditor, subjectto the conditions of the policy and NOT that of trustee and cestui que trust.

How are the terms assurer, insured andassured used in insurance?Accdg to Blacks Law, Insurer is synonymous with theterm assurer or underwriter. The terms insuredand assured are generally used interchangeably;but strictly speaking, the term insured refers tothe owner of the property insured or the personwhose life is the subject of the contract of insurance,while assured refers to the person for whosebenefit the insurance is granted. For ex: A wifeinsures the life of her husband for her own benefit.

The wife is the assured, and the husband the insured. The wife is the owner of the policy but she is not theinsured. In property insurance, like fire insurance, theinsure is also the assured where the proceeds arepayable to him. Assured is also used sometimes as asynonym of beneficiary. The beneficiary is theperson designated by the terms of the policy as theone to receive the proceeds of the insurance. He isthe third party in a contract of life insurance, whosebenefit the policy is issued and to whom the loss ispayable.

Who may be an insurer?A foreign or domestic insurance company maytransact business in the Philippines but must firstobtain a certificate of authority for that purpose fromthe Insurance Commissioner who has the discretionto refuse to issue such certificate if it will bestpromote the interests of the people of this country.(Sec. 187) An individual may also be an insurer,provided he holds a certificate of authority from theInsurance Commissioner, and provided further thathe is possessed of the capital assets required of aninsurance corporation doing the same kind of business in the Philippines and invested in the samemanner. (Secs. 184- 186)


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What is an insurance corporation?IC defines it as one formed or organized to save anyperson or persons or other corporations harmlessfrom loss, damage, or liability arising from anyunknown or future or contingent event, or toindemnify or to compensate any person or persons orother corporations for any such loss, damage, orliability, or to guarantee the performance of orcompliance with contractual obligations or the

payment of debts of others. (Sec. 185) The last partof the statement refers to suretyship. (Sec. 175)

What does the term insurer and insurancecompany include?It includes individuals, partnerships, associations orcorporations, including GOCCs or entities, engagedas principals in the insurance business, exceptmutual benefit associations. It shall also includeprofessional reinsurers as defined in Sec. 280 (Sec.184)

Is the Business of Insurance affected withpublic interest?

Yes. It is therefore, subject to regulation and controlby the state by virtue of the exercise of its policepower or in the interest of public convenience andthe general good of the people.

Atty. Quimson asked us to look at Sec. 184-185for the meaning of insurer, insurancecompany, and Insurance corporation; andSec. 187 for the certificate of authorityrequired to transact insurance business. Whatdo these sections provide?

Sec. 184 . For the purposes of this Code, the term insurer or insurance company shall include allindividuals, partnerships, associations, orcorporations including government-owned orcontrolled corporations or entities, engaged asprincipals in the insurance business, exceptingmutual benefit associations. Unless the contextotherwise requires, the term shall also includeprofessional reinsurers defined in Sec. 280.Domestic Company shall include companiesformed, organized or existing under the laws of thePhilippines. Foreign Company , when usedwithout limitation, shall include companies formed,organized, or existing under any lws other than thoseof the Philippines.

Sec. 185. Corporations formed or organized to saveany person or persons or other corporations harmlessfrom loss, damage, or liability arising from anyunknown or future or contingent event, or toindemnify or to compensate any person or persons orother corporations for any such loss, damage, orliability, or to guarantee the performance of orcompliance with contractual obligations or thepayment of debts of others shall be known as insurance corporations.

The provisions of the Corporation Law shall apply toall insurance corporations now or hereafter engagedin business in the Philippines in so far as they do notconflict with the provisions of this chapter.

Sec. 187. No insurance company shall transact anyinsurance business in the Philippines until after itshall have obtained a certificate of authority for thatpurpose from the Commissioner upon applicationtherefore and payment by the company concerned of

the fees hereinafter prescribed. The Commissionermay refuse to issue a certificate of authority to anyinsurance company if, in his judgment, such refusalwill best promote the interests of the people of thiscountry. No such certificate of authority shall begranted to any such company until the Commissionershall have satisfied himself by such examination ashe may make and such evidence as he may requirethat such company is qualified by the laws of thePhilippines to transact business therein, that the

grant of such authority appears to be justified in thelight of local economic requirements, and that thedirection and administration, as well as the integrityand responsibility of the organizers andadministrators, the financial organization and theamount of capital, notwithstanding the provisions of section 188, reasonably assure the safety of theinterests of the policyholders and the public.

In order to maintain the quality of the managementof insurance companies and afford better protectionof policyholders and the public in general, any personof good moral character, unquestioned integrity andrecognized competence may be elected or appointed

director or officer of insurance companies. TheCommissioner shall prescribe the qualifications of theexecutive officers and other key officials of insurancecompanies for the purposes of this section.

No person shall concurrently be a director and/orofficer of an insurance company and an adjustmentcompany. Incumbent directors and/or officersaffected by the above provisions are hereby allowedto hold on to their positions until the end of theirterms or two years from the effectivity of the Decree,whichever is shorter.

Before issuing such certificate of authority, theCommissioner must be satisfied that the name of thecompany is not that of any other known companytransacting a similar business in the Philippines, or aname so similar as to be calculated to mislead thepublic. Such certificate of authority shall expire onthe last day of June of each year and shall berenewed annually if the company is continuing tocomply with the provisions of this Code or thecirculars, instructions, rulings or decisions of theCommissioner. Every company receiving any suchcertificate of authority shall be subject to theprovisions of this Code and other related laws and tothe jurisdiction and supervision of the Commissioner.

No insurance company may be authorized to transactin the Philippines the business of life and non-lifeinsurance concurrently, unless specifically authorizedto do so, provided however, that the terms life andnon-life insurance shall e deemed to include health,accident and disability insurance.

No insurer company shall have any equity in anadjustment company and neither shall an adjustmentcompany have an equity in an insurance company.Insurance companies and adjustment companiespresently affected by the above provisions shall havetwo years from the effectivity of the Decree withinwhich to divest of their stockholdings.

Section 7. Anyone except a public enemy may beinsured.What are the requisites in order that a personmay be insured in a contact of insurance?

There are 3 requisites namely:c) He must be competent to enter into a contract.


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d) He must possess an insurable interest in thesubject of insurance.e) He must NOT be a public enemy.

What is a public enemy?It is a nation with whom the Philippines is at war, andit includes every citizen or subject of such nation.

What is the effect of war on the existinginsurance contracts between the Philippines

and a citizen or subject of a public enemy, withrespect to property insurance?With respect to property insurance, the rule adoptedin the Phil is that an insurance policy ceases to bevalid and enforceable as soon as the insuredbecomes a public enemy.

What is the effect of war on the existinginsurance contracts between the Philippinesand a citizen or subject of a public enemy, withrespect to life insurance?

Three doctrines have arisen.(1) Connecticut Rule there are two elements inthe consideration for which the annual premium is

paid:a. The mere protection for the year; andb. The privilege of renewing the contract for eachsucceeding year by paying the premium for that yearat the time agreed upon.

Accdg. to this view, the payments of the premiumsare a condition precedent, the nonperformance of which (as when the performance would be illegal)necessary defeats the right to renew the contract.

(2) New York Rule apparently followed by thenumber of decisions. War between the states inwhich the parties reside merely suspends thecontracts of life insurance and that upon the tenderof premiums due by the insured or hisrepresentatives after the war has terminated revivesthe contract which becomes fully operative.

(3) US Rule declared the contract not merelysuspended but is abrogated by reason of non-payment of premiums, since the time of the paymentis peculiarly of the essence of the contract. However,the insured is entitled to the cash or reserve value of the policy (if any) which is the excess of thepremiums paid over the actual risk carried during theyears when the policy had been in force. We followthe US Rule .

Problem.B is sideswiped by a balut vendor. Because he was

previously indicted for many other crimes includingillegal possession of balisongs, he was declaredMetro Manilas Public Enemy No.1. If A wants tosecure insurance on the life of B, may the insurer refuse on the grounds that B is a public enemy andtherefore may not be insured under Sec. 7 of the IC ?

NO. Sec. 7 speaks of a public enemy only inreference to a nation with whom the Phil is at warand every citizen and or subject thereof.

Cases.(11) Filipinas Cia de Seguros v. ChristernHuenfeld & Co.80 PHIL 54

Facts:

Oct. 1, 1941, Domestic Corp Christern, afterpayment of the premium, obtained from Filipinas, firepolicy no. 29333 for P100T covering merchandisecontained in a building located in Binondo.

On Feb. 27, 1942, during the Jap occupation, thebuilding and the insured merchandise were burned.Christern submitted to Filipinas its claim.

Salvaged goods were sold and the total loss of Christern was P92T.

Filipinas denied liability on the ground that

Christern was an enemy corp and cannot be insured.

Issue: WON Filipinas is liable to Christern, Huenfeld& Co.

Held: NO.Majority of the stockholders of Christern wereGerman subjects. This being so, SC ruled that saidcorporation became an enemy corporation upon thewar between the US and Germany. The PhilInsurance Law in Sec. 8 provides that anyone excepta public enemy may be insured. It stands to reasonthat an insurance policy ceases to be allowable assoon as an insured becomes a public enemy. The

purpose of the war is to cripple the power ad exhaustthe resources of the enemy, and it is inconsistentthat one country should destroy its enemy propertyand repay in insurance the value of what has been sodestroyed, or that it should in such manner increasethe resources of the enemy or render it aid.

All individuals who compose the belligerent powers,exist as to each other, in a state of utter exclusionand are public enemies. Christern having become anenemy corporation on Dec. 10. 1941, the insurancepolicy issued in his favor on Oct. 1, 1941 by Filipinashad ceased to be valid and enforceable, and sincethe insured goods were burned after Dec. 10, 1941,and during the war, Christern was NOT entitled toany indemnity under said policy from Filipinas.

Elementary rules of justice require that the premiumpaid by Christern for the period covered by the policyfrom Dec. 10, 1941 should be returned by Filipinas.

Section 8. Unless the policy otherwise provides,where a mortgagor of the property effects insurancein his own name providing that a loss shall bepayable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemedto be upon the interest of the mortgagor, who doesnot cease to be a party to the original contract, andany act of his, prior to the loss, which wouldotherwise avoid the insurance, will have the sameeffect, although the property is in the hands of themortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, maybe performed by the mortgagee therein named, withthe same effect as if it had been performed by themortgagor.

Is it alright if both the mortgagor and themortgage insure the same property?

YES. The mortgagor and the mortgagee have each aninsurable interest in the property mortgaged, andthis interest is separate and distinct from the other.Consequently, insurance taken by one in his ownname only and in his favor alone does not inure tothe benefit of the other. And in case both of themtake out separate insurance policies on the sameproperty, or one policy covering their respectiveinterests, the same


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is not open to the objection that there is doubleinsurance.

What is the extent of the insurable interest of the mortgagor?

The mortgagor of the property, as owner has aninsurable interest to the extent of the value of theproperty, even if the mortgage debt is equal to suchvalue. The reason is that the loss or destruction of the property insured will NOT extinguish the

mortgage debt.

What is the extent of the insurable interest of the mortgagee?

The mortgagee or his assignee has an insurableinterest in the mortgaged property to the extent of the debt secured, such interest continues until themortgage debt is extinguished.

Up to what extent can each recover? The mortgagor cannot recover upon the insurancebeyond the full amount of the loss, and themortgagee cannot recover in excess of the credit atthe time of the loss.

Under Sec. 8, what are the effects of insurancewhen the mortgagor effects insurance in hisown name and provides that the loss bepayable to the mortgagee?

The legal effects of this are:(1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be aparty to the contract;(2) Any action of the mortgage prior to the loss whichwould otherwise avoid the insurance affects themortgagee even if the property is in the hands of themortgagee;(3) Any act which under the contract of insurance isto be performed by the mortgagor, may beperformed by the mortgagee;(4) In case of loss, the mortgagee is entitled to theproceeds to the extent of his credit; and(5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

What is the effect if the mortgagee effectsinsurance on behalf of the mortgagor?Practically the same rules apply. Upon thedestruction of the property, then the mortgagee isentitled to receive the proceeds equal to the amountof the mortgage credit. Such payment operates todischarge the debt.

Atty. Quimson wants us to look at Art. 2127 CC.What does it say?Art. 2127. The mortgage extends to the naturalaccession, to the improvements, growing fruits, andthe rents or income not yet received when theobligation becomes due, and to the amount of theindemnity granted or owing to the proprietor fromthe insurers of the property mortgaged, or in virtueof expropriation for public use, with the declarations,amplifications and limitations established by law,whether the estate remains in the possession of themortgagor, or it passes into the hands of a thirdperson.

Problems. A is the owner of a house worth 10T which hemortgaged to B to secure a loan of 5T. What is theinsurable interests of each?Insurable interest of A, mortgagor is P10T, while theinsurable interest of B, mortgagee is P5T. A insured

for 1M her house with the policy providing that theloss shall be payable to B. The house was mortgagedto B as security for a loan of P750T. It was totally destroyed by accidental fire.

Who may recover on the policy?B, the mortgagee may receive the 1M but is entitledonly to the extent of his credit of P750T, and he shallhold as trustee for A, mortgagor, the excess of P250T.

Supposing before the fire occurred B had already been paid, who, if at all, will receive the proceeds?A will receive the proceeds. The reason is that Aeffected the insurance in his own name and he didNOT cease to be a party to the contract although itwas provided that the indemnity be paid to B.

Suppose it was B, mortgagee who insured the housefor 1M. If the loss occurred before B was paid who isentitled to receive the proceeds?B. But B can only recover P750T, the amount of hercredit.

What if the loss occurred after B was paid, can hestill receive the proceeds?No. Upon payment of the debt, B lost his insurableinterest in the property.

Will A get the proceeds?No. Because A was never a party to the contract. It isimportant to note that it was B, mortgagee whoeffected the insurance.

Cases:(12) San Miguel Brewery v. Law Union Rock Insurance Company40 PHIL 674

Facts:On Jan. 12, 1918, Dunn mortgaged a parcel of land

to SMB to secure a debt of 10T.Mortgage contract stated that Dunn was to have

the property insured at his own expense, authorizingSMB to choose the insurers and to receive theproceeds thereof and retain so much of the proceedsas would cover the mortgage debt.

Dunn likewise authorized SMB to take out theinsurance policy for him.

Brias, SMBs general manager, approached LawUnion for insurance to the extent of 15T upon theproperty. In the application, Brias stated that SMBsinterest in the property was merely that of amortgagee.

Law Union, not wanting to issue a policy for theentire amount, issued one for P7,500 and procuredanother policy of equal amount from Filipinas Cia deSeguros. Both policies were issued in the name of SMB only and contained no reference to any otherinterests in the propty. Both policies requiredassignments to be approved and noted on the policy.

Premiums were paid by SMB and charged to Dunn.A year later, the policies were renewed.

In 1917, Dunn sold the property to Harding, but noassignment of the policies was made to the latter.

Property was destroyed by fire. SMB filed an actionin court to recover on the policies. Harding was madea defendant because by virtue of the sale, hebecame the owner of the property, although thepolicies were issued in SMBs name.

SMB sought to recover the proceeds to the extentof its mortgage credit with the balance to go toHarding.


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Insurance Companies contended that they werenot liable to Harding because their liability under thepolicies was limited to the insurable interests of SMBonly.

SMB eventually reached a settlement with theinsurance companies and was paid the balance of itsmortgage credit. Harding was left to fend for himself.

Trial court ruled against Harding. Hence the appeal.

Issue: WON the insurance companies are liable to

Harding for the balance of the proceeds of the 2policies.

Held: NOPE.Under the Insurance Act, the measure of insurableinterest in the property is the extent to which theinsured might be daminified by the loss or injurythereof. Also it is provided in the IA that theinsurance shall be applied exclusively to the properinterest of the person in whose name it is made.Undoubtedly, SMB as the mortgagee of the property,had an insurable interest therein; but it could NOT,an any event, recover upon the two policies anamount in excess of its mortgage credit. By virtue of

the Insurance Act, neither Dunn nor Harding couldhave recovered from the two policies. With respect toHarding, when he acquired the property, no changeor assignment of the policies had been undertaken.

The policies might have been worded differently soas to protect the owner, but this was not done.

If the wording had been: Payable to SMB,mortgagee, as its interests may appear, remainder towhomsoever, during the continuance of the risk, may become owner of the interest insured , it would haveproved an intention to insure the entire interest inthe property, NOT merely SMBs and would haveshown to whom the money, in case of loss, should bepaid. Unfortunately, this was not what was stated inthe policies.If during the negotiation for the policies, the partieshad agreed that even the owners interest would becovered by the policies, and the policies hadinadvertently been written in the form in which theywere eventually issued, the lower court would havebeen able to order that the contract be reformed togive effect to them in the sense that the partiesintended to be bound. However, there is no clear andsatisfactory proof that the policies failed to reflectthe real agreement between the parties that would

justify the reformation of these two contracts.

(13) Saura Import Export Co. v. PhilippineInternational Surety118 PHIL 150

Facts:On Dec. 26, 1952, Saura mortgaged to PNB its

registered parcel of land in Davao to secure thepayment of a promissory note of P27T.

A building of strong materials which was alsoowned by Saura, was erected on the parcel of landand the building had always been covered byinsurance even before the execution of the mortgagecontract.

Pursuant to the mortgage agreement whichrequired Saura to insure the building and itscontents, it obtained a fire insurance for P29T fromPISC for a period of 1 year starting Oct. 2, 1954.

The mortgage also required Saura to endorse theinsurance policy to PNB. The memo stated: Loss if any, payable to PNG as their interest may appear,

subject to the terms, conditions and warranties of this policy.

The policy was delivered to PNB by Saura.On Oct. 15, 1954, barely 13 days after the

issuance of the fire insurance, PISC canceled thesame, effective as of the date of issue. Notice of thecancellation was sent to PNB in writing and wasreceived by the bank on Nov. 8, 1954.

On Apr. 6, 1955, the building and its contentsworth P4,685 were burned. On April 11, 1985, Saura

filed a claim with PISC and mortgagee bank.Upon presentation of notice of loss with PNB,Saura learned for the first time that the policy hadbeen previously canceled by PISC, when Saurasfolder in the banks file was opened and the notice of the cancellation by PISC was found.

Issue: WON there was proper cancellation of thepolicy?

Held. NO. The policy in question does NOT provide for thenotice of cancellation, its form or period. TheInsurance Law does not likewise provide for such

notice. This being the case, it devolves upon theCourt to apply the generally accepted principles of insurance, regarding cancellation of the insurancepolicy by the insurer. Actual notice of cancellation ina clear and unequivocal manner, preferably in writingshould be given by the insurer to the insured so thatthe latter might be given an opportunity to obtainother insurance for his own protection. The noticeshould be personal to the insurer and not to and/orthrough any unauthorized person by the policy. Boththe PSIC and the PNB failed, wittingly or unwittinglyto notify Sau

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