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Quiz #1

Definition of Insurance Contract

An insurance contract is an agreement whereby one undertakes, for a
consideration, to indemnify another against loss, damage or liability arising from
a contingent or unknown event
Doing or Transacting an Insurance Business
(1) Making or proposing to make, as an insurer, any insurance contract
(2) Making or proposing to make, as a surety, any contract of suretyship as
a vocation and not merely incidental to the legitimate business or
activity of the surety
(3) 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
(4) 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
Functions of Insurance
(1) Principal function: risk bearing
(2) Subsidiary functions
(a) Stimulates business enterprises
(b) Encourages business efficiency and enterprises
(c) Promotes loss-prevention
(d) Encourages savings
(e) Solves social problems
(3) Indirect functions
(a) Investment of funds
(b) Use of reserve funds
(c) Effect on prices
(d) As a basis of credit
What may be Insured
Sec 3: Any contingent or unknown event, whether past or future, which may
damnify a person having insurable interest, or create a liability against him, may
be insured against, subject to the provisions of this chapter.
The consent of the spouse is to necessary for the validity of an insurance policy
taken out by a married person on his/her life or that of his/her children.
All rights, title and interest in the policy of insurance taken out by an original
owner on the life or health of the person insured shall automatically vest in the
latter upon the death of the original owner, unless otherwise provided for in the
Insurance Taken by a Minor
(Deleted portion) Any minor of age 18 years or more, may, notwithstanding such
minority, contract for life, health, and accident insurance, with any insurance

duly authorized to do business in the Philippines, provided the
insurance is taken on his own life and the beneficiary appointed is the minors
estate or the minors father, mother, wife, child, brother or sister.
The married woman or the minor herein allowed to take out an insurance policy
may exercise all the rights and privileges of an owner under a policy.
Characteristics of an Insurance Contract
(1) Voluntary
(2) Aleatory
(3) Consensual
(4) Conditional
(5) Personal
(6) Contract of indemnity
(7) Property in legal contemplation
(8) Unilateral
Requisites of an Insurance Contract
(1) A subject matter in which the insured has an insurable interest
(2) Event or peril insured against which may be any (future) contingent or
unknown event, past or future, and a duration for the risk thereof
(3) A promise to pay or indemnify in a fixed or ascertainable amount
(4) A consideration for the promise, known as the premium
(5) A meeting of the minds of the parties upon all the foregoing essentials
(6) Competent to enter into a contract
(7) Not contrary to law
(8) Not contrary to public policy
Elements of Insurance Contract
(1) The insured possesses an interest capable of pecuniary estimation
(insurable interest)
(2) The insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated perils
(3) The insurer assumes the risk of loss
(4) Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk
(5) As consideration for the insurers promise, the insured makes a ratable
contribution (premium)
Main Classification of Insurance
(1) Insurance against loss or impairment of property interest
(2) Insurance against loss of earning power due to death, accidental injury,
ill-health, sickness, old age, or any other disability
(3) Insurance to against contingent liability to make payment against
Insurable Interest
Sec 10: Every person has an insurable interests in the life and death:

(1) Of himself, his spouse and of his children

(2) Of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest
(3) Of any person under a legal obligation to him for the payment of money,
respecting property or services, of which death or illness might delay or
prevent the performance
(4) Of any person upon whose life any estate or interest vested in him
General Classes of Life Policies
(1) Insurance upon ones life
(2) Insurance upon life of another
Classification of Insurance Contracts under the Code
(1) Life insurance contracts
(2) Non-life insurance contracts
(3) Contracts of suretyship or bonding
Types of

Life Insurance
Individual life
Group life
Industrial life

Types of

Non-Life Insurance

(2) Insured in whose favor the contract is operative and who is indemnified
Who may be an Insurer
(1) Foreign or domestic insurance company or corporation
(2) Individual, partnership or association
Capacity of Party Insured
(1) Natural person
(a) Must be competent to make a contract
(b) Must possess insurable interest in the subject of insurance
(c) Not a public enemy
(2) Juridical person may take out insurance on property owned by it
Lawyers Oath
I, (state your name), do solemnly swear that I will maintain my allegiance to the
Republic of the Philippines; I will support its Constitution and obey laws as well as
the lawful orders of the duly constituted authorities therein; I will do no falsehood,
nor consent to doing of any in court; I will not wittingly nor willingly promote or
sue any groundless, false, or unlawful suits, or give aid or consent to the same; I
will delay no man for money or malice, and will conduct myself as a lawyer
according to the best of my knowledge and discretion with all good fidelity as well
as to the courts as to my clients; and I impose upon myself this voluntary
obligations without any mental reservation or purpose of evasion. So help me


Obliged to Support Each Other (Art 195 FC)

The spouses
Legitimate ascendants and descendants
Parents and their legitimate children and the legitimate or illegitimate
children of the latter
(4) Parents and their illegitimate children and the legitimate or illegitimate
children of the latter
(5) Legitimate brothers and sisters, whether of full or half-blood

Parties to an Insurance Contract

Sec 6: Every corporation, partnership, or association duly authorized to transact
insurance business as elsewhere provided in this Code, may be an insurer

Quiz #2
Parties in a Contract of Insurance
(1) Insurer assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured on the happening of a specified
contingent event

Right to Change Beneficiary

Sec 11 ICP: The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in said policy.

Notwithstanding the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be deemed irrevocable.
Kinds of

Insured himself
Personal representatives
Someone other than the insured

Relations of the Beneficiary to the Insured

1. Insured himself
2. Third person who paid a consideration
3. Third person through mere bounty of the insured
Limitation in the Appointment of Beneficiary
A. Art 2012 NCC: Any person who is forbidden from receiving any donation
under Art 739 cannot be named beneficiary of a life insurance policy by
the person who cannot make any donation to him, according to said
B. Art 739: The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation
(2) Those made between persons found guilty of the same criminal
offense, in consideration thereof
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office

Requisites of Concealment
1. A party knows the fact which he neglects to communicate or disclose to
the other
2. Such party concealing is duty bound to disclose such fact to the other
3. Such party concealing makes no warranty of the fact concealed; and
4. The other party has not the means of ascertaining the fact concealed
Duty to Disclose to the Other Party
Sec 28 ICP: Each party to a contract of insurance must communicate to the other,
in good faith, all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has not the means of

that must be Communicated Even in the Absence of Inquiry

They are material to the contract
The other has not the means of ascertaining the said facts; and
As to which the party with the duty to communicate makes no warranty

Insurable Interest in Property

Sec 14 ICP: An insurable interests in property may consist in:
(1) An existing interest
(2) An inchoate interest founded on an existing interest (inchoate interest);
(3) An expectancy, coupled with an existing interest in that out of which the
expectancy arises (expectancy)
Sec 25 ICP: Every stipulation in a policy of insurance for the payment of loss
whether the person insured has nor has not any interest in the property insured,
or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
Stipulations Prohibited in an Insurance Policy
(1) Stipulation for the payment of loss whether the person insured has or
has not any interest in the subject matter of insurance
(2) Stipulation that the policy shall be received as proof of insurable interest
(3) policy executed by way of gaming or wagering
Definition of Concealment
Sec 26 ICP: A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.

Quiz #3
Matters which a Party is not bound to Communicate
Sec 30 ICP: Neither party to a contract of insurance is bound to communicate
information of the matters following, except in answer to the inquiries of the

(a) Those which the other knows

(b) Those which, in the exercise of ordinary care, the other ought to know,
and of which the former has no reason to suppose him ignorant
(c) Those of which the other waives communication
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.
Requisites for Incontestability
(1) The policy is a life insurance policy
(2) It is payable on the death of the insured; and
(3) It has been in force during the lifetime of the insured for at least 2 years
from the date of issue or of its last reinstatement
Effect When Policy becomes Incontestable
The insurer may not refuse to pay the insured by claiming that:
(1) The policy is void ab initio
(2) It is rescissible by reason of fraudulent concealment of the insured or his
agent, no matter how patent or well-founded
(3) It is rescissible by reason of the fraudulent misrepresentations of the
insured or his agent

Sec 50: The policy shall be in printed form which may contain blank spaces; and
any word, phrase, clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall be written on the blank
space provided therein.
Any rider, clause, warranty, or endorsement purporting to be part of the contract
of insurance and which is pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank spaces provided in the
Unless applied for by the insured or owner, any rider, clause, warranty, or
endorsement issued after the original policy shall be countersigned by the insured
or owner, which countersignature shall be taken as his agreement to the contents
of such rider, clause, warranty, or endorsement.
Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act 8792, otherwise known as the Electronic
Commerce Act and to such rules and regulations as may be prescribed by the

Defenses not Barred by Incontestable Clause

(1) That the person taking the insurance lacked insurable interest as
required by law (lack of insurable interest)
(2) That the cause of the death of the insured is an excepted risk (death or
loss is not covered by the policy)
(3) That the premiums have not been paid (nonpayment of premiums)
(4) That the conditions relating to military or naval services have been
violated (violation of conditions regarding military or naval services)
(5) That the fraud is of a particularly vicious type, as where the policy was
taken out in furtherance of a scheme to murder the insured, or where
the insured substitutes another person for the medical examination, or
where the beneficiary feloniously kills the insured (fraud of a particularly
vicious type)
(6) That the beneficiary failed to furnish proof of death or to comply with
any condition imposed by the policy after the loss has happened (noncompliance with requirements to prove loss)
(7) That the action was not brought within the time specified (prescription)
Definition of Policy
Sec 49: The written instrument in which a contract of insurance is set forth, is
called a policy of insurance.
Form of Insurance Policy

Quiz #4
Provisions that may void the Policy
(1) Material provision (Sec 74) entitles either party to rescind the policy
(2) Immaterial provision (Sec 75) when expressly stipulated that violated
thereof shall void the policy

Effect of breach of warranty by insured

(1) Fraud not essential for breach (Sec 74) falsity, not fraud is the basis of
liability on warranty
(2) Effect if without fraud Policy is avoided only from time of breach (Sec 76)
(a) Insured is entitled to return of premium paid at pro rata rate from
time of breach (if it occurs after inception of contract(
(b) Insured is entitled to all the premiums if it is broken during the
inception of the contract (void ab initio)

Effect of acknowledgement of receipt of premium in policy

(1) Waiver of condition of prepayment When the policy contains an
acknowledgment of receipt of premium, insurer cannot deny such even if
there was actually no payment (conclusive evidence of payment)
(2) Recovery of premium if unpaid acknowledgment is only prima facie
evidence such payment; insurer may still dispute its acknowledgment but
only for the purpose of recovering the premium due and unpaid

Conditions in insurance policy

Condition an event signifying in its broadest sense either an occurrence or a
non-occurrence that alters the previously existing legal relations of the parties to
the contract
(1) Condition precedent
(2) Condition subsequent

When insured entitled to recover premiums

(1) When no part of the thing insured has been exposed to any of the perils
insured against (Sec 80[a])
(2) When the insurance is for a definite period and the insured surrenders his
policy before the termination thereof (Sec 80[b])
(3) When the contract is voidable and subsequently annulled because of the
fraud or misrepresentations of the insurer or his agent (Sec 82)
(4) When the contract is voidable because of the existence of facts of which
the insured was ignorant without his fault (Sec 82)
(5) When the insurer never incurred any liability under the policy because of
the default of the insured other than actual fraud (Sec 82)
(6) When there is over-insurance (Sec 83); and
(7) When the rescission is granted due to the insurers breach of contract

Sec 77: An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company
is valid and binding unless and until the premium thereof has been paid, except in
the case of a life or an industrial life policy whenever the grace period provision
applies or whenever under the broker and agency agreements with duly licensed
intermediaries, a 90-day credit extension is given. No credit extension to a duly
licensed intermediary should exceed 90 days from date of issuance of the policy
Effect of nonpayment of premium
General Rule: time specified for the payment of premiums is of the essence of the
When policy valid and binding notwithstanding nonpayment of premium
(1) In case of life or industrial life policy whenever the grace period provision
applies (Sec 77)
(2) Whenever under the broker and agency agreements with duly licensed
intermediaries, a 90-day extension is given (Sec 77)
(3) When there is an acknowledgment in a policy or contract of insurance of
receipt of premium even if there is a stipulation therein that it shall not be
binding until the premium is actually paid (Sec 79)
(4) When there is an agreement allowing the insured to pay the premium in
installments and partial payment has been made at the tile of loss (Makati
Tuscany v. CA)
(5) When there is an agreement to grant the insured credit extension for the
payment of the premium, and loss occurs before the expiration of the
credit term; and
(6) When estoppel bars the insurer from invoking Sec 77 to avoid recovery on
a policy providing a credit term for the payment of premiums, as against
the insured who relied in good faith on such extension

Where insured surrenders policy before termination (Sec 80[b] not applicable)
(1) Where the insurance is not for a definite period (Sec 81)
(2) Where a short period rate has been agreed upon; or
(3) Where the policy is a life insurance policy

Quiz #5
Claim -- A demand for the satisfaction of a loss suffered within the purview of an
insureds policy

Sec 85: An agreement not to transfer the claim of the insured against
the insurer after the loss has happened, is void if made before the loss
except as otherwise provided in the case of life insurance

The injury, damage, or liability sustained by the insured in consequence of the

happening of one or more perils against which the insurer, in consideration of the
premium, has undertaken to indemnify the insured

Sec 86: Unless otherwise provided by the policy, an insurer is liable for a
loss of which a peril insured against was the proximate cause, although a
peril not contemplated by the contract may have been the remote
cause of the loss; but he is not liable for a loss of which the peril insured
against was only a remote cause
Proximate cause
That which, in a natural and continuous sequence, unbroken by any new
independent cause, produces an event and without which the event would not
have occurred
Extension of principle of proximate cause
(1) Where the loss took place while being rescued from the peril insured
(2) Where the loss is caused by efforts to rescue the thing insured from a peril
insured against
Loss caused by negligence of insured
(1) Where there is ordinary negligence
(2) Where there is gross negligence
When defects in notice or proof deemed waived
(1) Where the insurer writes to the insured that he considers the policy null
and void as the furnishing of the notice or proof of loss would be vain and
(2) Where the insurer recognizes his liability to pay the claim
(3) Where the insurer denies all liability under the policy
(4) Where the insurer joins in the proceedings for determining the amount of
the loss by arbitration, making no objections on account of notice and
preliminary proof
(5) Where the insurer makes objection on any ground other than a formal
defect in the preliminary proof
Double Insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest (Sec 95)
Requisites of Double Insurance
(1) The person insured is the same
(2) 2 or more insurers insuring separately
(3) There is identity of subject matter

(4) There is identity of interest insured; and

(5) There is identity of risk or peril insured against
Rules for payment of claims where there is over-insurance by double insurance
(Sec 96)
(1) The insured, unless the policy otherwise provides, may claim payment from
the insurers in such order as he may select, up to the amount for which the
insurers are severally liable under their respective contracts;
(2) Where the policy under which the insured claims is a valued policy, any
sum received by him under any other policy shall be deducted from the
value of the policy without regard to the actual value of the subject matter
(3) Where the policy under which the insured claims is an unvalued policy, any
sum received by him under any policy shall be deducted against the full
insurable value, for any sum received by him under any policy;
(4) Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case unvalued policies,
he must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
(5) Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is
liable under his contract
Sec 97: A contract of reinsurance is one by which an insurer procures a third
person to insure him against loss or liability by reason of such original insurance
Reinsurance distinguished from double insurance
(1) In double insurance, the insurer remains as the insurer of the original
insured, while in reinsurance, the insurer becomes the insured, insofar as
the reinsurer is concerned
(2) In double insurance, the subject of the insurance is property, while in
reinsurance, it is the original insurers risk
(3) Double insurance is an insurance of the same interest while reinsurance is
an insurance of a different interest
(4) In double insurance, the insured is the party in interest in all the contracts,
while in reinsurance, the original insured has no interest in the contract of
reinsurance which is the independent of the original contract of insurance
(5) In double insurance, the insured has to give his consent, while in
reinsurance the consent of the original insured is not necessary