insurance reviewer (from previous classes)

7/27/2019 Insurance Reviewer (From Previous Classes)

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INSURANCE REVIEWER Atty. Quimson page 1

Most of the content of this reviewer was taken from the Reviewer of Johnbee Sioson (3-B,1994) edited to include newjurisprudence and subject matter discussed in class.

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

GENERAL PROVISIONS

Section 1. This decree shall be known as the Insurance 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 the purpose of extending aid to their unfortunate members

from a fund contributed by all, have been in existence from the earliest times. They existed among theEgyptians, the Chinese, the Hindus, the Romans, and are known to have been established among the Greeksas early as, believe it or not, 3 B.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 who

suffered the misfortune.Spanish era Insurance, in its present concept, was introduced in the Philippines when Lloyds of

London appointed Strachman, Murray & Co., Inc. as its representative here.1898 Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in

the local insurance market.1906 First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized1910 First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized1939 Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The business

transacted the Philippines was then limited to non-life insurance.1936 Social insurance was established with the enactment of Commonwealth Act no. 186 which

created the Government Service Insurance System (GSIS) which started operations in 1937. The Act coversgovt employees.

1949 Government agency was formed to handle insurance affairs, where the Insular Treasurer wasappointed commissioner ex-officio.

1950 Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties forboth life and non life.

1951 First workmens compensation pool was organized as the Royal Group Incorporated.1954 RA 1161 was enacted which provided for the organization of the Social Security System (SSS)

covering employees of the private sector.

At present, there are 130 insurance companies registered with the Office of the Insurance Commissioner.Of these, 2 are composite insurance companies (engaged in both life and non-life insurance), 23 are lifeinsurance companies, 101 are non-life insurance companies and 4 are reinsurance companies.

How did insurance laws develop in the Philippines?During the Spanish Period, the laws on insurance were 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 the SpanishCivil Code of 1889 (whew!)

During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of Commerceon Insurance.

When the Civil Code of the Philippines (RA 386) took effect 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, 123 and 317 were issued, amending PD 612. Finally PD1460 which took effect on June 11, 1976 consolidated all insurance laws into a single code and this is whatwe know now as the Insurance Code of 1978.

3D SY 2004-2005 rhys alexei


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What are the present laws that govern insurance (also known as the laws we have to know for exams)?The laws we have to know are, of course, PD 1460, and Articles 2011-2012, 2021-2027 and 2166 of the

New Civil Code.

What do these Civil Code Provisions say?Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in

such special laws shall be regulated by this Code.

Art. 2012. Any person who is forbidden from receiving any donation under Art. 739 cannot be namedbeneficiary of a life insurance policy by a person who cannot make any donation to him, according to saidarticle.

Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or incomeduring the life of one or more determinate persons in consideration of a capital consisting of money or otherproperty, whose ownership is transferred to him at once with the burden of income.

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon thatof 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 the person or persons upon whose life or lives the contract is

entered into, or in favor of another or other persons.

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at thetime the contract was entered into, or who was at the that time suffering from an illness which caused hisdeath within twenty days following said date.

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity todemand the reimbursement of the capital or to retake possession of the property alienated, unless there is astipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrearsand to require a security for the future income, unless there is a stipulation to the contrary.

Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain inproportion to the days during which he lived; if the income should be paid by installments in advance, thewhole amount of the installment which began to run during his life shall be paid.

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the timethe annuity is established that the same shall not be subject to execution or attachment on account of theobligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter mayask for execution or attachment of the property.

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose lifethe annuity is constituted.

What is so important about the Civil Code Provisions?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 them up. However, for reference they are:

1. Revised GSIS Act of 1977 (PD 1146, as amended)

2. Social Security Act of 1954 ( RA 1161, (as amended)3. The Property Insurance Law ( RA 656, as amended by PD 245)4. Republic Act No. 48985. EO 250; and6. RA 3591

How do we construe the provisions of the Insurance Code (IC)?Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from the law

of California (except for Chap V, which was taken from the law of NY), the courts should follow in



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fundamental points, at least, the construction placed by California Courts on California law (and theconstruction placed by the NY Courts on NY law).

This is in accordance with the well settled rule in statutory construction that when a statute has beenadopted from some other state or country, and said statute has previously been construed by the courts ofsuch state or country, the statute is usually deemed to have been adopted with the construction so given.

Cases:

(1) Constantino v. Asia Life87 PHIL 248

Facts:

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 it insuredthe life of Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary.

o First premium covered the period up to Sept. 26, 1942. No further premiums were paid after thefirst premium and Arcadio died on Sept. 22, 1944.

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

On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and Agustina

Peralta for the sum of P3T for 20 years. The annual premium stipulated was regularly paid from Aug. 1,1938 up to and including Sept. 30, 1940.o Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such

quarterly 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 Agustina Peralta as his beneficiary.

Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside from thisthe 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 to Sept. 7, 1942.

Both policies contained this provision:All premiums are due in advance and any unpunctuality in makingsuch payment shall cause this policy to lapse unless and except as kept in force by the grace periodcondition.

Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive theproceeds of the policies less all sums due for premiums in arrears. They also allege that non-payment of

the premiums were caused by the closing of ALICs offices during the war and the impossiblecircumstances by the war, therefore, they should be excused and the policies should not be forfeited.

Lower court ruled in favor of ALIC.

Issue: May a beneficiary in a life insurance policy recover the amount thereof although the insured diedafter repeatedly failing to pay the stipulated premiums, such failure being caused by war?

Held: NO.Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga

v. Sun Life, it was held that a life policy was avoided because the premium had not been paid within the timefixed; since by its express terms, non-payment of any premium when due or within the 31 day grace periodipso fact caused the policy to lapse.

When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war doesNOT excuse non-payment and does not avoid forfeiture. Essentially, the reason why punctual payments are

important is that the insurer calculates on the basis of the prompt payments. Otherwise, malulugi sila.

It should be noted that the parties contracted not only as to peace time conditions but also as to war-time conditions since the policies contained provisions applicable expressly to wartime days. The logicalinference therefore is that the parties contemplated the uninterrupted operation of the contract even ifarmed conflict should ensue.

(2) Insular Life v. Ebrado80 SCRA 181



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Facts:

Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a riderfor Accidental Death Benefits for the same amount.

Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.

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

Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although sheadmitted that she and the insured were merely living as husband and wife without the benefit of

marriage. Pascuala Ebrado also filed her claim as the widow of the deceased insured.

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

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

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

provision grossly resolutory of the prime question at hand. 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 regulated by thisCode. When not otherwise specifically provided for in the insurance law, the contract of life insurance isgoverned by the general rules of civil law regulating contracts.

Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannotbe named beneficiary of a life insurance policy by a person who cannot make any donation to him, accordingto said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at thetime of the donation shall be void.

In essence, a life insurance policy is no different from civil donations insofar as the beneficiary isconcerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee becausefrom the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profitsof said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurancecontracts.

Therefore, since common-law spouses are barred from receiving donations, they are likewise barred fromreceiving proceeds 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 copra andhemp in which the appelle deals with exclusively.

The warehouses together with the contents were insured 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 merchandise stored were destroyed completely.

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

Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims andthat the fire had been deliberately caused by the insured.

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

Issues and Resolutions:(1) WON the policies should be avoided for the reason that there was a breach of warranty.

Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet ofexternal wall measurements of the compound, and since bodegas insured had an external wall per meter of1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.



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Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, becauseknowing that the number of hydrants it demanded never existed from the very beginning, appellantnevertheless issued the policies subject to such warranty and received the corresponding premiums. Theinsurance company was aware, even before the policies were issued, that in the premises there were only 2hydrants and 2 others were owned by the Municipality, contrary to the requirements of the warranties inquestion.

It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void thepolicies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed,and after it had misled the insured into believing that the policies were effective.

Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of apolicy has the knowledge of existing facts, which if insisted on, would invalidate the contract from its veryinception, such knowledge constitutes a waiver of conditions in the contract inconsistent with known facts,and the insurer is stopped thereafter from asserting the breach of such conditions. The reason for the rule is:To allow a company to accept ones money for a policy of insurance which it knows to be void and of noeffect, though it knows as it must that the insured believes it to be valid and binding is so contrary to thedictates of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to fair-mindedmen. It would be to allow the company to treat 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 rule that ambiguities or obscurities must strictly beinterpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars thelatter from questioning the existence of the appliances called for, since its initial expression the undernotedappliances for the extinction of fire being kept on the premises insured hereby.. admits of the interpretationas an admission of the existence of such appliances which insurer cannot now contradict, should the paroleevidence apply.

(2) WON the insured violated the hemp warranty provision against the storage of gasoline since insuredadmitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and not affected bythe fire.

It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the so-called hemp warranty. The clause relied upon by the insurer speaks of oils. Ordinarily, oils meanlubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance

company over the terms of the contract, the ambiguity must be held strictly against the insurer and liberallyin favor of the insured, specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insureds business. It is a well settled rule thatkeeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such keepingis incidental to the business. Also, the hemp warranty forbade the storage only in the building to which theinsurance applies, and/or in any building communicating therewith; and it is undisputed that no gasoline wasstored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found stood isolatedfrom the other bodegas.

(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.

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

On Dec. 24. 1953, a fire broke out in the factory were 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 received treatment at the Natl Orthopedic Hospital for six listedinjuries. The attending surgeon certified that these injuries would cause the temporary total disability ofTys left hand.

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



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CFI reversed on the ground that under the uniform terms of the policies, partial disability due to loss ofeither hand of the insured, to be compensable must be the result of amputation.

Issue: WON Ty should be indemnified under his accident policies.

Held. NO.SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial disability as loss

of either hand by amputation through the bones of the wrist, the insured cannot recover under said policiesfor temporary disability of his left hand caused by the fractures of some fingers. The provision is clearenough to inform the party entering into that contract that the loss to be considered a disability entitled toindemnity, must be severance or amputation of the affected member of the body of the insured. In thewords of Atty. Quimson: Aba gago pala siya, Sinabi ng loss by amputation, pinagpipilitan pa nyang fracturelang 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 P3,000 asindemnity.

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

The heir filed a complaint for recovery of the balance of P2,000, claiming that the insurere should payhim 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 with

respect to the terms and conditions of the policy, the same shall be resolved against the one responsiblethereof. The insured has little, if any, participation in the preparation of the policy. The interpretation ofobscure stipulations in a contract should not favor the 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 vehicle necessitated by damage and the liability of the insured islimited to 150.

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

Issue: WON the insurer is liable for the total amount of the repair.

Held: NO.The insurance policy stipulated that if it is the insured who authorized the repair, the liability of the

insurer is limited to 150. The literal meaning of the stipulation must control, it being the actual contract,expressly and plainly provided for in the policy.

(7) Verendia v. CA217 SCRA 1993

Facts:



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Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876 effectivebetween June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential in the amount ofP385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank.

Verendia also insured the same building with two other companies, namely, The Country BankersInsurance for P56,000.00 and The Development Insurance for P400,000.00.

While the three fire insurance policies were in force, the insured property was completely destroyed byfire.

Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of the loss.Despite demands, Fidelity refused payment under its policy, thus prompting Verendia to file a complaintfor the recovery of 385,000

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

Issue: WON Verendia can claim on the insurance despite the misrepresentation as to the lessee and theoverinsurance.

Held: NOPE.The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered

into between him and one Robert Garcia, a couple of days after the effectivity of the insurance policy. Whenthe rented residential building was razed to the ground, it appears that Robert Garcia was still within the

premises. However, according to the investigation by the police, the building appeared to have "nooccupants" and that Mr. Roberto Garcia was "renting on the otherside of said compound" These pieces ofevidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the reallessee, was occupying the building when it was burned.

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contractbut it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all the while. Verendia,however, failed to explain why Marcelo had to sign his cousin's name when he in fact he was paying for therent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these provenfacts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflectresponsibility for the fire towards an alleged "lessee", inflated the value of the property by the allegedmonthly rental of P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's fairmarket value to be only P40,300.00, insured the same property with two other insurance companies for atotal coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of RobertGarcia.

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms andconditions constitute the measure of the insurer's liability and compliance therewith is a condition precedentto the insured's right to recovery from the. As it is also a contract of adhesion, an insurance contract shouldbe liberally construed in favor of the insured and strictly against the insurer company which usually preparesit.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false leasecontract to support his claim under Fire Insurance Policy, the terms of the policy should be strictly construedagainst the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which isexpressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited " ifthe claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or ifany fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefitunder the policy". Verendia, having presented a false declaration to support his claim for benefits in the form

of a fraudulent lease contract, he forfeited all benefits therein 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 by submitting the subrogation receipt as evidence in court,Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount ofP142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative ofFidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filledup. More significantly, the same receipt states that Verendia had received the aforesaid amount. However,that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filedthe complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been effortsto settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had



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been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidenceas indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting thewill of the Court for that of the parties

Section 2. Whenever used in this Code, the following terms shall have the respective meaningshereinafter set forth or indicated, unless the context otherwise requires:

(1) A Contract of Insurance is an agreement whereby 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 an insurance contract, within the meaning of thisCode, only if made by a surety who or which, as such, is doing an insurance business as hereinafterprovided.

(2) The term doing an insurance business or transacting an insurance business withing themeaning of this Code, shall include:

(a) Making or proposing to make, as insurer, any insurance contract;(b) Making, or proposing to make, as surety, any contract of suretyship as a vocation and not

as merely incidental to any other legitimate business or activity of the surety;(c) Doing any kind of business including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code;(d) Doing or proposing to do any business in substance equivalent to any of the foregoing in

a manner designed to evade the provisions of this code.

In the application of the provisions of this Code, the fact that no profit is derived from the makingof insurance contracts, agreements or transactions or that no separate or distinct consideration isreceived therefor, shall not be deemed conclusive to show that the making thereof does notconstitute the doing or transacting of an insurance business.

(3) As used in this Code, the term Commissioner means the Insurance Commissioner.

Is the definition of a contract of insurance under Sec. 2 sufficient?De Leon believes that it is not. He opines that the definition does Not include Life insurance which is a

contract upon a condition rather than a contract to indemnify for nor recovery can fully repay a beneficiaryfor the loss of life which is beyond pecuniary value.

A better definition he thinks, is that of Vance who said that a contract of insurance is an agreement bywhich one party, for a consideration, promises to pay money or its equivalent, or to do some act valuable tothe insured or his nominee, upon the happening of a loss, damage, liability or disability arising from anunknown or contingent event.

What are the characteristics of an insurance contract?A contract of insurance has the following characteristics:1. Consensual perfected by the meeting of the minds of the parties2. Voluntary it is not compulsory and the parties may incorporate such terms and conditions as they

may deem convenient which will be binding provided they 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 executed until payment for a loss6. Conditional subject to conditions the principal one of which is the happening of the event insured

against7. Personal each party in the contract have in view the character, credit and conduct of the other

What are the elements of an insurance contract?Like any other contract, an insurance contract must have consent of the parties, object and cause or

consideration. The parties who give their consent in this contract are the insurer and insured. The object ofthe contract is the transferring or distributing of 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 pays theinsurer.



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What is an additional element of an insurance contract?Insurable Interest. This means that the insured possesses 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 strictly interpreted against the party that caused them. As the

insurance policy is prepared solely by the insurer, the ambiguities shall be construed against it and in favorof the insured. (Qua Chee Gan)

What does the term doing insurance business include?The term doing an insurance business or transacting an insurance business includes:a) Making or proposing to make, as insurer, any insurance contract;b) Making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely

incidental to any other legitimate business or activity of the surety;c) Doing any kind of business including a reinsurance business, specifically recognized as constituting

the doing of an insurance business within the meaning of this Code;d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner

designed to evade the provisions of this code.

Does the fact that no profit was derived from the transaction nor a separate considerationreceived therefore mean that no insurance business was transacted?

No. Fact that no profit is derived from the contract or transaction or that no separate or directconsideration is received for such contract or transaction is NOT deemed conclusive to show that no

insurance business was transacted.

Will any suretyship agreement amount to an insurance contract?No. In order for a suretyship agreement to come under the purview of the Insurance Code, the Surety

undertaking to ensure the performance of the obligations must be registered with the InsuranceCommissioner and must have been issued by the latter with a certificate of authority. Furthermore, theperson acting as a surety is habitually engaged as such for a livelihood.

Cases:

(8) Philamlife v. Ansaldo234 SCRA 509

Facts:

Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging certain problems

encountered by agents, supervisors, managers and public consumers of the Philamlife as a result ofcertain practices by said company.

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

The complaint prays that provisions on charges and fees stated in the Contract of Agency executedbetween Philamlife and its agents, as well as the implementing provisions as published in the agents'handbook, agency bulletins and circulars, be declared as null and void. He also asked that the amountsof such charges and fees already deducted and collected by Philamlife in connection therewith bereimbursed to the agents, with interest at the prevailing rate reckoned from the date when they werededucted



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

Insurance Commissioner set the case for hearing and sent subpoena to the officers of Philamlife. Ortegafiled a motion to quash the subpoena alleging that the Insurance company has no jurisdiction over thesubject matter of the case and that there is no complaint sufficient in form and contents has been filed.

The motion to quash was denied.

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

Held: No, it does not have jurisdiction.The general regulatory authority of the Insurance Commissioner is described in Section 414 of the

Insurance Code, to wit:"The Insurance Commissioner shall have the duty to see that all laws relating to insurance,

insurance companies and other insurance matters, mutual benefit associations and trusts forcharitable uses are faithfully executed and to perform the duties imposed upon him by this Code, . . .."

On the other hand, Section 415 provides:"In addition to the administrative sanctions provided elsewhere in this Code, the Insurance

Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, theirdirectors and/or officers and/or agents, for any willful failure or refusal to 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 orunsound manner as may be determined by the Insurance Commissioner, 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."

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authorityto regulate the business of insurance, which is defined as 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 reinsurancebusiness, specifically recognized as constituting the doing of an insurance business within the

meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any ofthe foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2])

Since the contract of agency entered into between Philamlife and its agents is not included within themeaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdictionover the same to the Insurance Commissioner. Expressio unius est exclusio alterius.

(9) Philamcare v. CA379 SCRA 356 (2002)

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 orbeen treated 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 one year from March 1, 1988 to March 1, 1989. He was aissued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits,whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" suchas annual physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was 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 suffered a heart attack and was confined at the Manila MedicalCenter (MMC) for one month beginning March 9, 1990.



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While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement.However, Philamcare denied her claim saying that the Health Care Agreement was void.

According to Philamcare, there was concealment regarding Ernani's medical history.o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was

hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

Julita had no choice but to pay the hospitalization expenses 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 General Hospital (CGH). Due to financial difficulties, Julita broughther 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 the CGH where he died on the same day.

Julita instituted, an action for damages against Philamcare. 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 careagreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6,Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the healthcare agreement was his own health. The health care agreement was in the nature of non-life insurance,which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense

arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same tothe extent agreed upon under the contract.

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of theAgreement within which to contest the membership of the patient if he had previous ailment of asthma, andsix months from the issuance of the agreement if the patient was sick of diabetes or hypertension. Theperiods having expired, the defense of concealment or misrepresentation no longer lie.

Petitioner argues that respondent's husband concealed a material fact in his application. It appears that inthe application for health coverage, petitioners required respondent's husband to sign an expressauthorization for any person, organization or entity that has any record or knowledge of his health to furnishany and all information relative to any hospitalization, consultation, treatment or any other medical advice orexamination.

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 automaticallyinvalidate the Agreement from the very beginning and liability of Philamcare shall be limited toreturn of all Membership Fees paid. An undisclosed or misrepresented information is deemedmaterial if its revelation would have resulted in the declination of the applicant by Philamcare or theassessment of a higher Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of theapplicant. This largely depends on opinion rather than fact, especially coming from respondent's husbandwho was not a medical doctor. Where matters of opinion or judgment are called for, answers made in goodfaith and without intent to deceive will not avoid a policy even though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment ofthe 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 the statement is

material to the risk, if the statement is obviously of the foregoing character, since in such case theinsurer is not justified in relying upon such statement, but is obligated to make further inquiry. Thereis a clear distinction between such a case and one in which the insured is fraudulently andintentionally states to be true, as a matter of expectation or belief, that which he then knows, to beactually untrue, or the impossibility of which is shown by the facts within his knowledge, since insuch case the intent to deceive the insurer is obvious and amounts to actual fraud.

The fraudulent intent on the part of the insured must be established to warrant rescission of theinsurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is anaffirmative defense and the duty to establish such defense by satisfactory and convincing evidence restsupon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for



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claims made under the contract. Having assumed a responsibility under the agreement, petitioner is boundto answer the same to the extent agreed upon. In the end, the liability of the health care provider attachesonce the member is hospitalized for the disease or injury covered by the agreement or whenever he avails ofthe covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contractof insurance." The right to rescind should be exercised previous to the commencement of an action on the

contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as ininsurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;2. Notice must be based on the occurrence after effective date of the policy of one or more of the

grounds mentioned;3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon

request of insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract containlimitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to beconstrued strictly against the party which prepared the contract the insurer. By reason of the exclusivecontrol of the insurance company over the terms and phraseology of the insurance contract, ambiguity mustbe strictly interpreted against the insurer and liberally in favor of the insured, especially to 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 liberally construed in favor of the subscriber, and if doubtful orreasonably susceptible of two interpretations the construction conferring coverage is to be adopted, andexclusionary clauses of doubtful import should be strictly construed against the provider.

CHAPTER 1CONTRACT OF INSURANCE

TITLE I WHAT MAY BE INSURED

Section 3. Any contingent or unknown event, whether past or future, which may damnify aperson having an insurable interest, or create a liability against him, may be insured against, subjectto the provisions of this chapter.

The consent of the husband is not necessary for the validity of an insurance policy taken out bythe married woman on her life or that of her children.

Any minor of the age of eighteen years or more, may notwithstanding such minority, contract forlife, health and accident insurance, with any insurance company duly authorized to do business inthe Philippines, provided the insurance is taken on his own life and the beneficiary appointed is theminors estate or the minors father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise allthe rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on thelife or health of a minor shall automatically vest in the minor upon the death of the original owner,

unless otherwise provided in the policy.

What perils or risk may be insured?The following risks may be insured:1. Any contingent or unknown event whether past or future which may cause damage to a person

having an insurable interest; or2. Any contingent or unknown event, whether past or future, which may create liability against the

person insured.

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



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

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

13, 1989).

Atty Quimson asked us to look at a few provisions of law with respect to this section. What arethey?

Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared bystipulation, or when the nature of the obligation requires the assumption of risk, no person shall beresponsible for those events which, could not be foreseen, 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 the marriage, transfer the administration of his or her exclusive property to theother by means of a public instrument, which shall be recorded in the registry of property of the place wherethe property is located.

Art. 1327 (NCC). The following cannot give consent to a contract:(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may have beenno 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 susceptibleof ratification.

Problem:A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and talked to anexporter who willingly agreed to consign several tons of ginsengs with him on the condition that he will comeand pick the goods up. A then sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August

14, A insured the 5 vessels against perils of the South China Sea Lost or Not Lost with B Insurance Co.Without the knowledge of both parties, the ships had already sunk on Aug. 14. Is B Insurance Co. liable forthe ships?

Yes. This is an example of a past unknown event because the sinking of the ship is a past event at thetime that the policy took effect. The contract is valid and B Insurance Co. is liable because he agreed to payeven though the ship be already lost. An insurance against an unknown past event is peculiar only tomarine insurance. However, Atty. Quimson said in class that nowadays, most if not all insurance companiesno longer insure a past event since technology has progressed in such a manner that a ships current statuscan easily be known while the application 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 orbeen treated 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 one year from March 1, 1988 to March 1, 1989. He was aissued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits,whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" suchas annual physical examinations, preventive health care and other out-patient services.



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Upon the termination of the agreement, the same was 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 suffered a heart attack and was confined at the Manila MedicalCenter (MMC) for one month beginning March 9, 1990.

While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement.However, Philamcare denied her claim saying that the Health Care Agreement was void.

According to Philamcare, there was concealment regarding Ernani's medical history.o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was

hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

Julita had no choice but to pay the hospitalization expenses 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 General Hospital (CGH). Due to financial difficulties, Julita broughther 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 the CGH where he died on the same day.

Julita instituted, an action for damages against Philamcare. 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 careagreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6,

Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the healthcare agreement was his own health. The health care agreement was in the nature of non-life insurance,which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expensearising from sickness, injury or other stipulated contingent, the health care provider must pay for the same tothe extent agreed upon under the contract.

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of theAgreement within which to contest the membership of the patient if he had previous ailment of asthma, andsix months from the issuance of the agreement if the patient was sick of diabetes or hypertension. Theperiods having expired, the defense of concealment or misrepresentation no longer lie.

Petitioner argues that respondent's husband concealed a material fact in his application. It appears that inthe application for health coverage, petitioners required respondent's husband to sign an expressauthorization for any person, organization or entity that has any record or knowledge of his health to furnishany and all information relative to any hospitalization, consultation, treatment or any other medical advice orexamination.

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 the

application or medical examination, whether intentional or unintentional, shall automaticallyinvalidate the Agreement from the very beginning and liability of Philamcare shall be limited toreturn of all Membership Fees paid. An undisclosed or misrepresented information is deemedmaterial if its revelation would have resulted in the declination of the applicant by Philamcare or theassessment of a higher Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of theapplicant. This largely depends on opinion rather than fact, especially coming from respondent's husband

who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in goodfaith and without intent to deceive will not avoid a policy even though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment ofthe 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 the statement ismaterial to the risk, if the statement is obviously of the foregoing character, since in such case theinsurer is not justified in relying upon such statement, but is obligated to make further inquiry. Thereis a clear distinction between such a case and one in which the insured is fraudulently andintentionally states to be true, as a matter of expectation or belief, that which he then knows, to beactually untrue, or the impossibility of which is shown by the facts within his knowledge, since insuch case the intent to deceive the insurer is obvious and amounts to actual fraud.



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The fraudulent intent on the part of the insured must be established to warrant rescission of theinsurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is anaffirmative defense and the duty to establish such defense by satisfactory and convincing evidence restsupon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable forclaims made under the contract. Having assumed a responsibility under the agreement, petitioner is boundto answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches

once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails ofthe covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contractof insurance." The right to rescind should be exercised previous to the commencement of an action on thecontract. In this case, no rescission was made. Besides, the cancellation of health care agreements as ininsurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;2. Notice must be based on the occurrence after effective date of the policy of one or more of the

grounds mentioned;3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon

request of insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain

limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to beconstrued strictly against the party which prepared the contract the insurer. By reason of the exclusivecontrol of the insurance company over the terms and phraseology of the insurance contract, ambiguity mustbe strictly interpreted against the insurer and liberally in favor of the insured, especially to 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 liberally construed in favor of the subscriber, and if doubtful orreasonably susceptible of two interpretations the construction conferring coverage is to be adopted, andexclusionary clauses of doubtful import should be strictly construed against the provider.

Section 4. The preceding section does not authorize an insurance for or against the drawing ofany lottery, or for against any chance or ticket in a lottery drawing a prize.

Is a contract of insurance a wagering or gambling contract?NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract.

Although it is true that an insurance contract is also based on a contingency, it is not a contract of chance.

What is the concept of a lottery?The term lottery extends to all schemes for the distribution of prizes by chance, such as policy playing,

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 is consideration of price aid if it appears that the prizes offered by whatever name they may be

called came out of the fund raised by the sale of chances among the participants in order to win the prizes.

Are all prizes equivalent to a lottery?If the prizes do not come out of the fund or contributions by the participants, no consideration has been

paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain products, resorts to ascheme which envisions the giving away for free of certain prizes for the purchase of said products, for theparticipants are not required to 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 prize

would not damnify or create a liability against him.



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What are the distinctions between an insurance contract and a wagering contract?A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25)

White it is based on a contingency, it is not a contract of chance and is not used for profit. The distinctionsare the following:

Insurance Contract Gambling contractParties seek to distribute loss by reason of

mischance

Parties contemplate gain through mere chance

or the occurrence of a contingent event.Insured avoids misfortune. Gambler courts fortuneTends to equalize fortune. Tends to increase the inequality of fortune.What one insured gains is not at the expense ofanother insured. The entire group of insuredsprovides through the premiums paid, the fundswhich make possible the payment of all claims;

Essence is whatever one person wins from awager is lost by the other wagering party.

Purchase of insurance does not create a new andnon-existing risk of loss to the purchaser. Inpurchasing insurance, the insurer faces analready existing risk of economic loss.

As soon as a party makes a wager, he creates arisk of loss to himself where no such risk existedpreviously.

What are the similarities between an insurance contract and a gambling contract?They are similar in only one respect. In both, one party promises to pay a given sum to the other upon

the occurrence of a given future event, the promise being condition upon the payment of, or agreement topay, a stipulated amount by the other party to the contract.

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 jumping competition. They contributed P1,000 each to a fundavailable for the use of any member who is injured in the contest. Is this insurance or gambling?

This is an insurance contract. Each member contributes 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 tothe ground. Is this insurance or gambling?

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

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

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 any other kind of insurance (Sec. 2) so far as said provisions canapply. Matters not expressly provided for in the Insurance Code and special laws are regulated by the CC.

So, an insurance contract under RA 1611 (Social Security Act of 1954) shall be governed primarily by the

said law and subsidiarily by Chap. 1 of the Insurance Code, and in the absence of the applicable provisions inboth laws, the pertinent provisions of the CC shall be applied.

TITLE II PARTIES TO THE CONTRACT

Section 6. Every person, partnership, association or corporation duly authorized to transactinsurance business as elsewhere provided in this Code, may be an insurer.

Who are the parties to the contract of insurance?



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The Insurer is the party who assumes or accepts the risk 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. Thebusiness of insurance may be carried on by individuals just as much as by corporations and associations.The state itself may go into insurance business.

The insured, or the second party to the contract, is the person in whose favor, the contract is operativeand who is indemnified against, or is to receive a certain sum upon the happening of a specified contingency

or event. He is the person whose loss is the occasion for the payment of the insurance proceeds by theinsurer.

Is the insured always the person to whom the proceeds are paid?No. The person paid may be the beneficiary designated in the policy. A common example of this

situation is a life insurance policy where the proceeds are not given to the insured but to a third partydesignated by the insured.

What is the nature of the relationship between the insurer and the insured?It is that of a contingent debtor and creditor, subject to the conditions of the policy and NOT that of

trustee and cestui que trust.

How are the terms assurer, insured and assured used in insurance?Accdg to Blacks Law, Insurer is synonymous with the term assurer or underwriter.

The terms insured and assured are generally used interchangeably; but strictly speaking, the terminsured refers to the owner of the property insured or the person whose life is the subject of the contractof insurance, while assured refers to the person for whose benefit the insurance is granted.

For ex: A wife insures the life of her husband for her own benefit. The wife is the assured, and thehusband the insured. The wife is the owner of the policy but she is not the insured.

In property insurance, like fire insurance, the insure is also the assured where the proceeds are payableto him.

Assured is also used sometimes as a synonym of beneficiary. The beneficiary is the persondesignated by the terms of the policy as the one to receive the proceeds of the insurance. He is the thirdparty in a contract of life insurance, whose benefit the policy is issued and to whom the loss is payable.

Who may be an insurer?A foreign or domestic insurance company may transact business in the Philippines but must first obtain a

certificate of authority for that purpose from the Insurance Commissioner who has the discretion to refuse toissue such certificate if it will best promote 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 the InsuranceCommissioner, and provided further that he is possessed of the capital assets required of an insurancecorporation doing the same kind of business in the Philippines and invested in the same manner. (Secs. 184-186)

What is an insurance corporation?IC defines it as one formed or organized to save any person or persons or other corporations harmless

from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or tocompensate any person or persons or other corporations for any such loss, damage, or liability, or toguarantee the performance of or compliance with contractual obligations or the payment of debts of others.(Sec. 185) The last part of the statement refers to suretyship. (Sec. 175)

What does the term insurer and insurance company include?It includes individuals, partnerships, associations or corporations, including GOCCs or entities, engaged

as principals in the insurance business, except mutual benefit associations. It shall also include professionalreinsurers as defined in Sec. 280 (Sec. 184)



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Is the Business of Insurance affected with public interest?Yes. It is therefore, subject to regulation and control by the state by virtue of the exercise of its police

power or in the interest of public convenience and the general good of the people.

Atty. Quimson asked us to look at Sec. 184-185 for the meaning of insurer, insurancecompany, and Insurance corporation; and Sec. 187 for the certificate of authority required to

transact insurance business. What do these sections provide?

Sec. 184. For the purposes of this Code, the term insurer or insurance company shall include allindividuals, partnerships, associations, or corporations including government-owned or controlledcorporations or entities, engaged as principals in the insurance business, excepting mutual benefitassociations. Unless the context otherwise requires, the term shall also include professional reinsurersdefined in Sec. 280. Domestic Company shall include companies formed, organized or existing under thelaws of the Philippines. Foreign Company, when used without limitation, shall include companies formed,organized, or existing under any lws other than those of the Philippines.

Sec. 185. Corporations formed or organized to save any person or persons or other corporationsharmless from loss, damage, or liability arising from any unknown or future or contingent event, or toindemnify or to compensate any person or persons or other corporations for any such loss, damage, orliability, or to guarantee the performance of or compliance with contractual obligations or the payment ofdebts of others shall be known as insurance corporations.

The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engagedin business in the Philippines in so far as they do not conflict with the provisions of this chapter.

Sec. 187. No insurance company shall transact any insurance business in the Philippines until after itshall have obtained a certificate of authority for that purpose from the Commissioner upon applicationtherefore and payment by the company concerned of the fees hereinafter prescribed.

The Commissioner may refuse to issue a certificate of authority to any insurance company if, in hisjudgment, such refusal will best promote the interests of the people of this country. No such certificate ofauthority shall be granted to any such company until the Commissioner shall have satisfied himself by suchexamination as he may make and such evidence as he may require that such company is qualified by thelaws of the Philippines to transact business therein, that the grant of such authority appears to be justified inthe light of local economic requirements, and that the direction and administration, as well as the integrity

and responsibility of the organizers and administrators, the financial organization and the amount of capital,notwithstanding the provisions of section 188, reasonably assure the safety of the interests of thepolicyholders and the public.

In order to maintain the quality of the management of insurance companies and afford better protectionof policyholders and the public in general, any person of good moral character, unquestioned integrity andrecognized competence may be elected or appointed director or officer of insurance companies. TheCommissioner shall prescribe the qualifications of the executive officers and other key officials of insurancecompanies for the purposes of this section.

No person shall concurrently be a director and/or officer of an insurance company and an adjustmentcompany.

Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on totheir positions until the end of their terms or two years from the effectivity of the Decree, whichever is

shorter.

Before issuing such certificate of authority, the Commissioner must be satisfied that the name of thecompany is not that of any other known company transacting a similar business in the Philippines, or a nameso similar as to be calculated to mislead the public.

Such certificate of authority shall expire on the last day of June of each year and shall be renewedannually if the company is continuing to comply with the provisions of this Code or the circulars, instructions,rulings or decisions of the Commissioner. Every company receiving any such certificate of authority shall be



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subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of theCommissioner.

No insurance company may be authorized to transact in the Philippines the business of life and non-lifeinsurance concurrently, unless specifically authorized to 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 an adjustment company and neither shall an adjustmentcompany have an equity in an insurance company.

Insurance companies and adjustment companies presently affected by the above provisions shall havetwo years from the effectivity of the Decree within which to divest of their stockholdings.

Section 7. Anyone except a public enemy may be insured.

What are the requisites in order that a person may be insured in a contact of insurance?There are 3 requisites namely:

c) He must be competent to enter into a contract.d) He must possess an insurable interest in the subject 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, and it includes every citizen or subject of such nation.

What is the effect of war on the existing insurance contracts between the Philippines and acitizen or subject of a public enemy, with respect to property insurance?

With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to bevalid and enforceable as soon as the insured becomes a public enemy.

What is the effect of war on the existing insurance contracts between the Philippines and acitizen or subject of a public enemy, with respect to life insurance?Three doctrines have arisen.

(1) Connecticut Rule there are two elements in the consideration for which the annual premiumis paid:

a. The mere protection for the year; and

b. The privilege of renewing the contract for each succeeding year by paying the premium for thatyear at the time agreed upon.

Accdg. to this view, the payments of the premiums are a condition precedent, the non-performanceof which (as when the performance would be illegal) necessary defeats the right to renew the contract.

(2) New York Rule apparently followed by the number of decisions. War between the states inwhich the parties reside merely suspends the contracts of life insurance and that upon the tender ofpremiums due by the insured or his representatives after the war has terminated revives the contractwhich becomes fully operative.

(3) US Rule declared the contract not merely suspended but is abrogated by reason of non-payment of premiums, since the time of the payment is 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 ofthe premiums paid over the actual risk carried during the years when the policy had been in force.

We follow the 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 declared Metro Manilas Public Enemy No.1. If A wants to secureinsurance on the life of B, may the insurer refuse on the grounds that B is a public enemy and therefore maynot be insured under Sec. 7 of the IC?



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NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom the Phil is at war and everycitizen and or subject thereof.

Cases.

(11) Filipinas Cia de Seguros v. Christern Huenfeld & Co.80 PHIL 54

Facts:

Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas, fire policyno. 29333 for P100T covering merchandise contained in a building located in Binondo.

On Feb. 27, 1942, during the Jap occupation, the building 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 were German subjects. This being so, SC ruled that said

corporation became an enemy corporation upon the war between the US and Germany. The Phil Insurance

Law in Sec. 8 provides that anyone except a public enemy may be insured. It stands to reason that aninsurance policy ceases to be allowable as soon as an insured becomes a public enemy.

The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it isinconsistent that one country should destroy its enemy property and repay in insurance the value of whathas been so destroyed, or that it should in such manner increase the 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 an enemy corporation on Dec. 10. 1941, the insurancepolicy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid and enforceable, and since theinsured goods were burned after Dec. 10, 1941, and during the war, Christern was NOT entitled to anyindemnity under said policy from Filipinas.

Elementary rules of justice require that the premium paid by Christern for the period covered by thepolicy from Dec. 10, 1941 should be returned by Filipinas.

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

Is it alright if both the mortgagor and the mortgage insure the same property?YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged, and

this interest is separate and distinct from the other. Consequently, insurance taken by one in his own name

only and in his favor alone does not inure to the benefit of the other. And in case both of them take outseparate insurance policies on the same property, or one policy covering their respective interests, the sameis not open to the objection that there is double insurance.

What is the extent of the insurable interest of the mortgagor?The mortgagor of the property, as owner has an insurable interest to the extent of the value of the

property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction of theproperty insured will NOT extinguish the mortgage debt.

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



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

Up to what extent can each recover?The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee

cannot recover in excess of the credit at the time of the loss.

Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his ownname and provides that the loss be payable 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

a party to the contract;(2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects

the mortgagee even if the property is in the hands of the mortgagee;(3) Any act which under the contract of insurance is to be performed by the mortgagor, may be

performed by the mortgagee;(4) In case of loss, the mortgagee is entitled to the proceeds 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 effects insurance on behalf of the mortgagor?Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to

receive the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the

debt.

Atty. Quimson wants us to look at Art. 2127 CC. What does it say?Art. 2127. The mortgage extends to the natural accession, to the improvements, growing fruits, and the

rents or income not yet received when the obligation becomes due, and to the amount of the indemnitygranted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriationfor public use, with the declarations, amplifications and limitations established by law, whether the estateremains in the possession of the mortgagor, or it passes into the hands of a third person.

Problems.

A is the owner of a house worth 10T which he mortgaged to B to secure a loan of 5T. What is the insurable

interests of each?Insurable interest of A, mortgagor is P10T, while the insurable interest of B, mortgagee is P5T.

A insured for 1M her house with the policy providing that the loss shall be payable to B. The house wasmortgaged to B as security for a loan of P750T. It was totally destroyed by accidental fire. Who may recoveron the policy?

B, the mortgagee may receive the 1M but is entitled only to the extent of his credit of P750T, and heshall hold 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 A effected the insurance in his own name and he did NOT

cease to be a party to the contract although it was provided that the indemnity be paid to B.

Suppose it was B, mortgagee who insured the house for 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 her credit.

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

Will A get the proceeds?No. Because A was never a party to the contract. It is important to note that it was B, mortgagee who

effected the insurance.

Cases:



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(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, authorizing

SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds aswould cover the mortgage debt.

Dunn likewise authorized SMB to take out the insurance policy for him.

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

Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procuredanother policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name ofSMB only and contained no reference to any other interests 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 no assignment of the policies was made to the latter.

Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding wasmade a defendant because by virtue of the sale, he became the owner of the property, although the

policies were issued in SMBs name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to

Harding.

Insurance Companies contended that they were not liable to Harding because their liability under thepolicies was limited to the insurable interests of SMB only.

SMB eventually reached a settlement with the insurance compa

insurance reviewer (from previous classes)

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