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INSURANCE LAW by: Judge Jovencio Gascon

INSURANCE CODE OF 1978
(Presidential decree 1460, as amended)
1. P.D. 1460 Insurance Code of 1978
2. Civil Code
i.

Art. 739 & 2012 = void contracts

ii.

Art. 2011 – applicability of the Civil Code

iii.

Arts. 2021-2027 – life annuity contracts

iv.

Art. 2186 – compulsory motor vehicle liability insurance

v.

Art. 2207 – insurer’s right of subrogation.
‘If the plaintiff’s property has been insured and he has received indemnity
from the Insurance Company for the injury or loss arising out of the wrong
or breach of contract complained of, the Insurance Company shall be
subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the
Insurance Company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing
the loss or injury.”

Applicable Special Laws:
1. Article 2011 of the Civil Code states that the contract of insurance is governed by
special laws and that matters not expressly provided for in the special laws shall
be regulated by the Civil Code. Therefore, the laws applicable to insurance shall
be in the following order:
a) Insurance Code of 1978
b) Civil Code, Article 2011 and other articles such as:
P.D. 1146 – Revised Government Service Insurance Act of 1977 –
insurance of government employees.
R.A. 1161 – Social Security Act – insurance of employees in private
employment.
c) Family Code (E.O. 209)
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(Sec. R. Parties in Insurance Contract: An insurance is a contract. The Code also covers the contract of surety.A. Definitions and Concepts: 1. Under Sec. 1987) – increases. 5756) – Life. Insurance = a contract whereby one undertakes for a consideration to indemnify another against loss. Events covered by Insurance: General Rule: Only a future event can be governed by an insurance contract (Sec. R. If the Insurance Code or a special law does not specifically provide for a particular matter in question. 3591 – PDIC which insures the deposits of all banks. 3.D.A. SB iv. so the general rule is that only those having capacity to contract may enter into such contract. 250 (July 25. Section 5 of the Insurance Code provides that it shall cover all kinds of insurance issued. 3.A. 245 – Property Insurance Law dealing with government property. SP. ii. 2) 2. the provisions of the Civil Code on contracts shall govern suppletorily. There are basically two types of insurance covered by the Insurance Code: a) Life Insurance. damage or liability arising from an unknown or contingent event.A.d) CODE of Commerce: i. a “minor” above 18 years of age may enter into insurance contract.O. R. integrates and rationalizes the insurance benefits of barangay officials. iii. disability and accident insurance coverage to barangay officials. 656 amended by P. but his right to choose his 2 . 3) Exception: A past event may be covered by marine insurance – if the loss of the vessel in the past could not have been known by ordinary means of communication. and b) Non-life insurance. SP. then it could be the subject of marine insurance (Section 109). 4898 (R. E.

particularly in property insurance. then the insurance company is still bound to pay the beneficiary. and the latter in life insurance. An aleatory contract is one where the obligation depends upon the occurrence of an uncertain event or one certain to happen but at an indeterminate time. it is provided that a certain amount is to be paid as premium and it is expressly acknowledged therein that payment of premium has been received. an insurance contract is not consensual in nature because a policy is required to be issued. (Sec. even though the premium has not been actually paid. Characteristics of Insurance Contract: a) Aleatory = there is an element of risk. his parents. 78 (it covers only life insurance): if in a policy. NOTE: as far as fire insurance is concerned. 6809 providing for the age of minority to commerce at the age of 18 years. This particular provision has become obsolete with the promulgation of R. Interpretation of Insurance Contract = Being contracts of adhesion. spouse. the general rule is that insurance contracts are to be construed liberally in favor of the insured and strictly against the insurer resolving all ambiguities against the latter. EXCEPTION: Under Sec. b) Contract of Indemnity = there is an exchange of value for value (quid pro quo).A. 77). e) Formal = As to form. 4.beneficiary is limited to his estate. child. brother or sister. the Insurance Commission uses the term “cash and carry”: payment of premium as a fourth requisite of the insurance contract. (Reason: Estoppel). Insurance Policy 3 . 5. c) Onerous = There is valuable consideration (premium). and the premium must be paid. d) Bilateral = Both parties are bound to do something. The former takes place in a fire insurance. Yet contracts of insurance are to be construed according to the sense and meaning of the terms which the parties themselves have used.

f) Mandatory provision in the Insurance Policy: (Sec. e) Insurance by partner or co-owner . (Sec. 50). 2. 55). c) Cover Note = It is a receipt whereby the company agrees to insure you but good only for 60 days pending the issuance of a regular policy. Three Types if Insurance Contracts: a) Policy = b) Binding Receipt = is merely an acknowledgment on behalf of the company that their branch office had received from applicant the insurance premium and had accepted the application subject to processing by the head office. premium. b) Section 51 provides for the contents of policy – parties. = Policy loan = once the policy has cash surrender value. 52) d) Insurance by agents or trustee – the principal and real party in interest must be indicated (Sec. c) Cover notes permitted not exceeding 60 days unless they have approval of Insurance Commissioner (Sec. It is not a separate policy but integrated to the regular policy subsequently issued. = Reinstatement = within 3 years from date of default. = No separate premium is to be paid on a cover note.1. his heirs can recover but must pay premiums due. 49). property or life insured and insurable interest. must be so indicated (Sec. Specific Code provisions Relating to Policies: a) Riders are permitted in a policy provided specific reference is made to them in the policy. 54). It should always be in writing. (Sec. 4 . 277)) = Grace period of 30 days is mandatory in life insurance.for partnership or co-ownership. amount. If insured dies within 30-day grace period.

64.e.: upon denial of the claim and not upon the happening of the loss. 63) Insurer may provide in its policies that unless insured brings action within one year from time cause of action accrues. Willful or reckless acts increasing the hazard. Notice based on occurrence after effective date of policy of one or more of the grounds mentioned by law. A valid cancellation of policy requires the concurrence of the following conditions: 1. Unilateral Cancellation of Policy (Sec. action will be barred. Conviction of crime increasing hazard. the beneficiary or the third person interested under the insurance policy. 65 and 79) a) By the Insurer: = Upon written notice. Fraud or misrepresentation discovered. The one-year prescriptive period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed therewith by the insured. = stating that it can prove the ground should the insured require it. i. If Insurance Commission decides continuation of policy would violate Code. Under Section 384 of the Insurance Code. the injured must file with the insurance company a written notice of claim within six (6) months from the date of the accident. = stating the grounds for cancellation. Prior notice of cancellation to the insured. c) Prescriptive Period (Sec. 5 .3. and suit for recovery must be brought within one year. Physical changes in property making it uninsurable or increasing hazard. 2. The one (1) year period is reckoned from the date the cause of action accrues. b) Only Grounds for cancellation:       Non-payment of premium.

4. and may ask for the return of the unused part of the premium paid corresponding to the months not yet elapsed in accordance with the short period scale printed in the policy. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. e) Non-renewal of Property Insurance (Sec. if the insurer does not desire to have the policy renewed.3. 6 . a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. Sec. However. Notice must be in writing mailed or delivered to the insured at the address shown in the policy. it is stipulated that the payment of premium is necessary for validity of the policy (also known as “cash and carry” provision). written notice to this effect must be given insured within 45 days before the period for termination of the policy expires. and 4. Insurance Premiums: Under Section 77 of the Insurance Code. Lack of Documentary Stamp on Insurance Policy Life and non-life insurance policies are subject to documentary stamp taxes by their mere issuance. Nature of Insurance: to safeguard the interest of the assured. 66). and the fact that the policies have not become effective for non-payment of the corresponding premium cannot affect the insurance company’s liability for payment of the documentary stamp taxes. 78 provides that the acknowledgment in the policy that premium has been paid is binding on the insurer. 1. In property insurance. The notice must state the grounds relied upon provided in Sec. d) Cancellation by the Insured (sec. RATIONALE for Full Payment of Premium. 79) – Short Period Rate Scale The insured may unilaterally cancel the policy without need of consent of the insurer. for life insurance. 64 of the Insurance Code and upon request of insured. to furnish facts on which cancellation is based. it must not be ignored that the contract of insurance is primarily a risk-distributing device.

6) = 2. the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. 4. and = the insured. partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. and b) When the insurer makes a written acknowledgment of the receipt of premium. INSURED (Sec.Each party therefore takes a risk: = the insurer. without receiving anything therefore in case the contingency does not happen. Effect of Partial Payment of Premium: Partial payment of premium would not make the insurance coverage effective. It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat. Effects of Non-payment of Premium: The payment of premium is a condition precedent to. 2. and essential for. this acknowledgment being declared by law to be then conclusive evidence of the premium payment (Sections 77-78). Effects of Payments of Premium through Agent PARTIES TO THE INSURANCE CONTRACT: 1. INSURER (Sec. To ensure payment of these losses. 3. 6) = 7 . the efficaciousness of the contract of insurance. The only two statutorily provided exceptions are: a) In case the insurance coverage relates to life or industrial (health) insurance when a grace period applies. that of a parting with the amount required as premium. Payment of Premium by Installments 6. that of being compelled upon the happening of the contingency to pay the entire sum agreed. Payment of Premium by Check: 5.

when the insured dies the proceeds of life insurance will not be subject to estate tax. that designation is void and proceeds will be paid to the heirs of the insured. but the insured cannot remove him as beneficiary. Public enemy is a citizen of a country with which the Philippines is at war (Sec. if there is an irrevocable designation of beneficiary. if the beneficiary is designated. no previous conviction is required (Insular Life vs. This need only be proved by preponderance of evidence. But under Sec. This is the general rule: That designation of beneficiary is revocable (Sec. 739 and 2012 of the Civil Code) A public enemy may not be insured. The designation of common law wife as beneficiary is void. b) Section 12 = When an irrevocable beneficiary is designated. c) Section 180: Cash Surrender Value = is only applicable in life insurance. a) In taxation: under the NIRC. If the designation is revocable. Exception : Husband may not designate his concubine. and he commits acts of ingratitude that would disqualify him from inheriting. the proceeds will be subject to estate tax.3.) It would be irrevocable only if there is an express stipulation in the policy to that effect. 12. 80 SCRA 181 (1977) Nature of Beneficiary Designation: The right to designate beneficiary means the right to change the beneficiary at any time. Ebrada. BENEFICIARY (Arts. 11. 8 . 7) Beneficiary Designation: General Rule : Insured may designate anyone he wishes as his beneficiary. Part of the premium paid is set aside in a fund which is mandatory upon life insurance companies. nor may the wife designate her paramour. whether revocable or irrevocable. and subsequently he is found guilty of causing the death of insured.

the insurer will be able to pay all the claims because it has the cash surrender values. the consent of the beneficiary is required. but if the designation of the beneficiary is irrevocable. The insured can also borrow on the cash surrender value.The purpose of the reserve fund is in the event of many deaths and claims. RIGHT OF SUBROGATION – process of legal substitution Purpose: to make the person who caused the loss. legally responsible for it and at the same time prevent the insured from receiving a double recovery from the wrongdoer and the insurer. All these three (3) rights can be availed of by the insured and not by the beneficiary. Applicable only to property insurance. Classes of Insurance – research Parties to insurance Insurable interest in general What are to be insured Concealment Representation in relation to concealment Elements of insurance contract 9 .