Insurance Code of the Philippines PD No.

1460, as amended
July 26, 2012

Insurance
A contract of insurance is an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Section 2)

Doing an insurance or transacting an insurance business

Making or proposing to make an insurer, any

insurance contract; Making or proposing to make as surety any contract of suretyship as a vocation as a vocation,, not as a mere incident to any other legitimate business of a surety; Doing any insurance business like reinsurance and similar acts; and, Doing or proposing to do any business equivalent to the above. (Section 2, par.4)

Characteristics
Insurance as a risk distributing device
By paying a pre-determined amount into a general fund out of which payment will be made for an economic loss of a defined type, each member contributes to a small degree toward compensation for losses suffered by any member of the group

Characteristics
Contract of adhesion or fine print rule
Aleatory
In case of doubt, the contract shall be interpreted strictly against the insurer and liberally in favor of the insured The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event which is uncertain or which is to occur at an indeterminate time

Characteristics
Commutative
The amount paid by the insured is deemed the equivalent of the protection given by the insured based on the insurance contract

Contract of indemnity
The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss

Characteristics.
Applicable only to property insurance, except

creditor insuring the life of his debtor; Life insurance is not a contract of indemnity. There is no overinsurance in life insurance There is overinsurance only in property insurance and if this is present, the insurer is only liable up to the extent of the loss. Insurance contracts are not wagering contracts. (Section 4)

Characteristics
Uberrimae fides contract
The contract of insurance is one of perfect good faith not for the insured alone, but equally so for the insurer, in fact, it is more so for the latter since its dominant bargaining position carried with it stricter responsibility.

Personal contract
The law presumes that the insured considered the personal qualifications of the insured in approving the insurance application.

Elements of insurance
Existence of an insurable interest Risk of loss Assumption of risks Scheme to distribute losses; and, Payment of premiums

The Policy
It is a written instrument where the terms and conditions

of the contract of insurance are set forth. ( Section 49) Basic contents of policy ( Section 51)
Parties Amount of insurance, except in open of running policies Rate of premium Property or life insured Interest of the insured in the insured in the property if he is not the absolute owner Risk insured against The period during which the insurance is to continue

The Policy
Rider
An attachment to an insurance policy that modifies the conditions of the policy by expanding or restricting its benefits or excluding certain conditions from the coverage

Cancellation of non-life policy

Grounds (Section 64)
Requires prior notice to the insured Non-payment of premium Conviction of a crime out of acts in creasing the hazard insured against Fraud or material misrepresentation Willful or reckless acts of omissions increasing the risk insured against Physical changes in property making the property uninsurable Determination by the insurance commissioner that the policy would violate the Insurance Policy

Requisites for cancellation (Section 65)

Prior notice of cancellation to insured Notice must be based on the occurrence after
effective date of the policy or one or more of the grounds mentioned; Notice must be in writing, mailed or delivered to the insured at the address shown in the policy; and, Notice must state the grounds relied upon provided in Section 64 of ICP.

Kinds of Policies
Open policy- value of the thing insured is not

agreed upon, but left to be ascertained at the time of loss (Section 60) Valued policy-definite valuation is agreed by both parties and written on the face of the policy Running policy- contemplates successive insurances and which provides that the subject of the policy may from time to time be defined. (Section 62) Life insurance policies are always valued policies.

Types of Insurance Contracts

Life insurance
Individual life- insurance on human live and insurance appertaining thereto or connected therewith ( Section 179) Group life- a blanket policy covering a number of individuals. Its most common form is an insurance that provides life or health insurance coverage for the employees of a single employer. Industrial life

Types
Non-life insurance
Marine Fire Casualty

Contracts of suretyship

Parties to Insurance Contract

Insurer
The person who undertakes to indemnify another May be individuals, partnership, associations or corporations Insurance corporation

Parties
Insured-the person with capacity to
contract and having an insurable interest in the life or property of the insured Beneficiary- person designated to received proceeds of policy when the risk attaches

Designation of the beneficiary

When one insures his own life, he may

designate any person as beneficiary; If the person who will insure the life of another payable to himself, he must have insurable interest on the life of the person he is insuring; In property insurance, the beneficiary must have insurable interest in the property The designation is revocable unless provided otherwise.

Insurable Interest
Life Insurance Every person has an insurable interest in the life and
health:
Of himself, of his spouse and of his children; Of any person on whom he depends wholly or in part for education or support or in whom he has pecuniary interest Of any person under a legal obligation to him for the payment of money or respecting property or services, of which death might delay or prevent the performance Of any person upon whose life any estate or interest vested in him depends

Insurable interest
Insurable interest in property is any
interest therein, or liability in respect thereof and it may consist in an existing interest, an inchoate interest founded on an existing interest or any expectancy coupled with an existing interest

Insurable interest
A person has an insurable interest in the
property if he derives pecuniary benefit or advantage from its preservation or would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has no title in or lien upon or possession of the property.

Insurable interest in property vs insurable interest in life

Limited to the actual value of Unlimited save in life the interest thereon insurance effected by a creditor on the life of his debtor Exists at the time the policy Exists at the time the policy takes effect and at the time takes effect but need not be of loss present at the time of loss No need for legal basis There must be legal basis
Need for insurable interest of Not necessary if the insurer the beneficiary insured himself

Risks insured against

May be any contingency or unknown event the
happening of which will damnify a person having insurable interest or will create liability against him. Even fortuitous events may be insured against. General Rule: A future event is the only event that can be covered by an insurance contact. Exception: A event may be covered by a marine insurance- if the loss of the vessel in the past could not have been known by ordinary means of communication.

Premium ( Sections 77 and 78)

Premium is the consideration paid to an
insurer for undertaking to indemnify the insured against a specified peril. When the insured is entitled to return of premiums paid:
If thing insured was never exposed to the risks insured against; Contract is voidable due to the fraud or misrepresentation of insurer;

Return of premiums
Insurer never incurred liability; When the insurance is for a definite period and

the insured surrenders his policy before the termination thereof; Contract is voidable because of the existence of facts of which the insured was ignorant without his fault; When there is over-insurance; When rescission is granted due t the insurers breach of contract.

Devices for ascertaining and controlling risk and loss

Concealment- a neglect to communicate that
which a party knows and ought to communicate ( Section 26) Representation- factual statements made by the insured at the time of or prior to the issuance of the policy to give information to the insurer and otherwise induce him to enter into the insurance policy

Devices
Warranties- statements or promise by the
insured set forth in the policy itself or incorporated in it by proper reference. The same may be expressed, implied, affirmative or promissory Condition- the insurer must also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent.

Incontestability Clause
After a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issuance or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. (Section 48)

Defenses that are not barred by the incontestability clause

That the person taking the insurance lacked

insurable interest; That the cause of the death of the insured is an excepted peril; That the premiums have not been paid That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; That the action was not brought within the time specified.

Double insurance
The person insured is the same; There are two or more insurers insuring

separately; The subject matter is the same; The interest insured is also the same; The risk or peril insured against is likewise the same

Double insurance vs. reinsurance

Involves the same interest Insurer remains in such capacity Insured in the 1st contract is a party in the second contract Subject of insurance is property
Insured has to give his consent

Insurance of different interest Insurer becomes an insured in relation to the reinsurer Original insured has no interest in reinsurance contract Subject of insurance is the original insurers risk
Consent of original insured is not necessary

Liabilities
The insurer is liable if:
Loss the proximate cause of which is the peril insured against; Loss the immediate cause of which is the peril insured against except where the proximate cause is an excepted peril; Loss through negligence of the insured; Loss caused by efforts to rescue the thing from peril insured against

Liabilities
The insurer is not liable:
Loss by insureds willful act or gross negligence; Loss due to connivance of the insured; and, Loss where the expected peril is the proximate cause.

Fire insurance
A contract of indemnity by which the
insurer for the consideration agrees to indemnify the insured against loss of or damage to, property by fire, but may include loss by lighting, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies.

Casualty insurance
An insurance covering loss or liability
arising from accident of mishap, excluding those falling under other types of insurance as fire or marine; Third Party Liability-

Compulsory Motor Vehicle Liability Insurance (CTPL)

An insurance or guaranty to indemnify the
death or bodily harm of a third party or passenger arising from the use of a vehicle; Registration of any vehicle will not be made or renewed without complying with this requirement;

Purpose of CTPL
To give immediate financial assistance to
victims of motor vehicle accidents. No fault clause:
The injured party or passenger is given the option to file a claim of death or injury without the necessity of proving fault or negligence of any kind.

No fault clauseconditions
The total indemnity in respect of any person

shall not exceed five thousand pesos; The following proof of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim:

Police report of accident; Death certificate and evidence sufficient to establish the proper payee; Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed.

Other rules concerning motor vehicles

Authorized driver clause- a stipulation in a motor
vehicle insurance which provides that the driver, other than the insured owner, must be duly licensed to drive the motor vehicle otherwise the insurer is excused from liability. Theft clause- if there is such a provision and the vehicle was unlawfully taken, the insurer is liable under the theft clause.

The Insolvency Law (Act No. 1956)

Purposes:
To effect equitable distribution of the insolvents property among his creditors; To discharge the debtor from his liabilities so that he can start afresh with the property set apart to him as exempt.

Suspension of Payment vs. Insolvency

The debtor has sufficient property The debtor does not have but he foresees the impossibility sufficient property to pay his debts of meeting his debts as they fall due The purpose is to suspend or delay the payment of debts. The amount of indebtedness is not affected The purpose is to discharge the debtor from paying certain debts Some of the creditors may receive less than their credits

The number of creditors is immaterial

In case of involuntary insolvency, three or more creditors are required

Voluntary insolvency vs. involuntary insolvency

One creditor is sufficient Filed by the debtor No need for commissions of acts of insolvency Three or more creditors are required Filed by three or more qualified creditors Debtors must have committed one or more acts of insolvency

Amount of indebtedness must exceed one thousand pesos Bond is not required

Indebtedness must not be less than one thousand

Petition must be accompanied by bond

Effects of filing petition for suspension of payments

No disposition in any manner of his property

may be made by the Petitioner except insofar as concerns the ordinary operations of commerce or if industry in which he engaged; No payments may be made by the petitioner except in the ordinary course of his business or industry; and, Upon request to court, all pending executions against the debtor shall be suspended except execution against property especially mortgaged.

Effects of adjudication of insolvency

Forbid the payment to the debtor of any
debt due to him and the delivery to him of any property belonging to him; Forbid the transfer of any property to him; Stay of all pending civil proceedings against the insolvent.

Discharge
The insolvent debtor is released from:
All his debts and liabilities set forth in the schedule; and, All debts, liabilities or claims which were or might have been proved against the estate in insolvency.

Discharge
Only natural persons may ask for
discharge; Corporations cannot ask for discharge

The following are not discharged:

Taxes or assessment due to the National
or local government; Debt created by fraud or embezzlement; Debts created by defalcation by public officer or while acting in fiduciary capacity; Claims of secured creditors.