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Chapter 3.

INSURABLE
INTEREST
Insurable Interest such an
interest, arising from the
relation of the party obtaining
the insurance, either as
creditor of or surety for the
assured, or from the ties of
blood or marriage to him, as
will justify a reasonable
expectation of advantage or
benefit from the continuance
of his life.
Insurable Interest in Life
Insurance
Sec. 10. Every person has an
insurable interest in the life
and health:
a. Of himself of his spouse
and of his children;
b. Of any person on whom
he depends wholly or in
part for education or
support, or in whom he
has a pecuniary interest;
c. Of any person under a
legal obligation to him for
the payment of money, or
respecting property or
services, of which death or
illness might delay or
prevent the performance;
and

d. Of any person upon whose


life any estate or interest
vested in him depends.
Classes:
1. Insurable interest in the
insureds own life; and
2. Insurable interest in the
life of another person.
Based on:
2.a relationship by blood;
2.b business relationship;
and
2.c other pecuniary
interest.
** Blood relationship is limited
to insurable interest over the
life of spouse or of ones
children.
** One has insurable interest
on the life of any person on
whom he depends wholly or in
part for education or support.
** In life insurance, insurable
interest need not exist
thereafter or when the loss
occurred.
Insurable Interest in
Property Insurance

Sec. 18. No contract or policy


of insurance on property shall
be enforceable except for the
benefit of some person having
an insurable interest in the
property insured.
** In property insurance,
insurable interest in the
property insured must exist
not only when the insurance
takes effect but also when the
loss occurs.
Sec. 13. Every interest in
property, whether real or
personal, or any relation
thereto, or liability in respect
thereof, of such nature that a
contemplated peril might
directly damnify the insured, is
an insurable interest.
Sec. 14. An insurable interest
in property may consist in:
a. An existing interest;
b. An inchoate interest
founded on an existing
interest; or
c. An expectancy, coupled
with an existing interest in
that out of which the
expectancy arises.
Sec. 16. A mere contingent or
expectant interest in anything,
not founded on an actual right
to the thing, nor upon any

valid contract for it, is not


insurable.
Sec. 17. The measure of an
insurable interest in property is
the extent to which the insured
might be damnified by loss or
injury thereof.
** The test in determining
insurable interest in property is
whether one will derive
pecuniary benefit or
advantage from its
preservation, or will suffer
pecuniary loss or damage from
its destruction, termination,
injury by the happening of the
event insured against.
Kinds:
1. Existing interest
Owner
Lessee
Depositary
Usufructuary
Borrower in
commodatum
** One has insurable interest if
he is so situated with respect
to the property that he will
suffer loss as the proximate
result of its damage or
destruction.
** The vendee or buyer has
insurable interest over the

goods even while the goods


are still in transit.
** Insurable interest in
property exists in any of the
following cases because the
person is so situated that he
will suffer because of the loss
due to a peril insured against:
a. When the insured
possesses a legal title to
the property insured,
whether vested or
contingent, defeasible or
indefeasible;
b. When he has equitable
title of whatever character
and in whatever manner
acquired;
c. When he possesses a
qualified property or
possessory right in the
subject of the insurance;
d. When he has mere
possession or right of
possession; or
e. When he has neither
possession of the property
nor any other legal
interest in it but stands in
such relation with respect
to it that he may suffer
from its destruction, loss
of a legal right dependent
upon its continued
existence.
2. Inchoate interest founded
on an existing interest

must be founded on an
existing interest,
otherwise, the loss of the
property will not directly
damnify the insured.
3. Expectancy, coupled with
an existing interest out of
which the expectancy
arises
Distinctions between insurable
interest in property insurance
and life insurance
Fact Proper
or
ty
Exten Limited
t
up to
the
value of
the
propert
y
Time Time of
when perfecti
it
on of
must the
exist contrac
t and at
the
time of
the loss
Need Expecta
for
tion of
legal benefit
basis must
have
legal

Life
Unlimited
except if
secured by
the creditor

Time of the
perfection
of the
insurance
contract

Expectatio
n of benefit
need not
have legal
basis or
need not

basis

Bene
ficiar
ys
intere
st

Assig
nee

Benefici
ary
must
have
insurabl
e
interest

Can be
transfer
red
even
without
the
consent
of or
notice
to the
insurer

be based
on legally
enforceabl
e
obligation
Insurable
interest is
not
necessary
if the
insured
took out
the policy
on his own
life and
designated
another.
Beneficiary
must have
insurable
interest if
one took
out an
insurance
on the life
of another.
Mere
transfer of
a thing
insured
does not
transfer
the policy,
but
suspends it
until the
same
person
becomes

the owner
of both
policy and
the thing
insured.
Sec. 15. A carrier or
depository of any kind has an
insurable interest in a thing
held by him as such, to the
extent of his liability but not to
exceed the value thereof.
Sec. 8. Unless the policy
otherwise provides, where a
mortgagor of property effects
insurance in his own name
providing that the loss shall be
payable to the mortgagee, or
assigns a policy of insurance a
mortgagee, the insurance is
deemed to be upon the
interest of the mortgagor, who
does not cease to be a party to
the original contract, and any
act of his, prior to the loss,
which would otherwise avoid
the insurance, will have the
same effect, although the
property is in the hands of the
mortgagee, but any act which,
under the contract of
insurance, is to be performed
by the mortgagor, may be
performed by the mortgagee
therein named, with the same
effect as if it had been
performed by the mortgagor.

** The usual practice and


contractual stipulation is for
the mortgagor to take out
insurance for the benefit of the
mortgagee. The mortgagee
may be made the beneficial
payee in several ways:
1. As assignee of the policy
with the benefit of the
insurer;
2. A mere pledge without
such consent, or the
original policy may
contain a mortgage
clause;
3. A rider making the policy
payable to the mortgagee
as his interest may
appear may be attached;
4. Standard Mortgage Clause
containing collateral
independent contract
between the mortgagee
and insurer, may be
attached;
5. The policy, through by its
terms payable absolutely
to the mortgagor, may
have been procured by a
mortgagor under a
contract duty to insure for
the mortgagees benefit,
in which case the
mortgagee acquires an
equitable lien upon the
proceeds; or
6. The policy may provide for
a loss payable clause in

favor of the mortgagee.


(Mortgagee is only a
beneficiary and not a
party to the contract)
**Union Mortgage Clause
there is a transfer of insurance
from the mortgagor to the
mortgagee with the assent of
the insurer.
Sec. 9. If an insurer assents to
the transfer of an insurance
from a mortgagor to a
mortgagee, and, at the time of
his assent, imposes further
obligation on the assignee,
making a new contract with
him, the act of the mortgagor
cannot affect the rights of said
assignee.
** The mortgagee may insure
his interest in the property
independently of the
mortgagor, and in that event,
upon the destruction of the
property the insurance money
paid to the mortgagee will not
inure to the benefit of the
mortgagor, and the amount
due under the mortgage debt
remains unchanged. The
mortgagee, however, is not
allowed to retain his claim
against the mortgagor, but it
passes by subrogation to the
insurer, to the extent of the
insurance money paid.

Change of Interest
Sec. 21. A change in the
interest in a thing insured,
after the occurrence of an
injury which results in a loss,
does not affect the right of the
insured to indemnity for the
loss.

Sec. 22. A change of interest


in one or more several distinct
things, separately insured by
one policy, does not avoid the
insurance as to the others.
Sec. 23. A change on interest,
by will or succession, on the
death of the insured, does not
avoid an insurance; and his
interest in the insurance
passes to the person taking his
interest in the thing insured.
Sec. 24. A transfer of interest
by one of several partners,
joint owners, or owners in
common, who are jointly
insured, to the others, does
not avoid an insurance even
though it has been agreed that
the insurance shall cease upon
an alienation of the thing
insured.

intermediaries, a ninety (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.
** The insurer is entitled to
payment of the premium as
soon as the thing insured is
exposed to the peril insured
against.
General Rule: The obligation
of the insurer is not valid and
binding unless the premiums
have been paid.

Chapter 4. PREMIUM
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

Exception:
1. When the grace period
applies in case of life and
industrial policy;
2. When there is an
acknowledgement in the
policy or receipt that the
premium has been paid;
3. When there is an
agreement that the
premium shall be payable
on instalment;
4. When there is a credit
extension; and
5. When the equitable
doctrine of estoppels
applies.
Sec. 78. Employees of the
Republic of the Philippines,
including its political

subdivisions and
instrumentalities, and
government-owned or
controlled corporations, may
pay their insurance premiums
and loan obligations through
salary deduction; Provided,
that the treasurer, cashier,
paymaster or official of the
entity employing the
government employee is
authorized, notwithstanding
the provisions of any existing
law, rules and regulations to
the contrary, to make
deductions from the salary,
wage or income of the latter
pursuant to the agreement
between the insurer and the
government employee and to
remit such deductions to the
insurer concerned, and collect
such reasonable fee for its
services.
** This is also an exception to
the rule. The insurance policy
is already binding although the
premium is paid through
instalment.
**Surety Another exception
but only with respect to a
suretyship under Section 177
which provides that surety is
already liable even if there is
non-payment of premiums if
the oblige has already
accepted the bond.

Preventing lapse of life


insurance policy:
1. Grace period;
2. Automatic policy loan;
3. Application of dividend;
4. Restatement clause.
Grounds for Return of
Premium:
1. When the thing was not
exposed to the peril
insured against;
2. Time policy when the
policy is surrendered
before the expiration of
the stipulated time (the
refund is pro rata);
3. When the contract is
voidable and subsequently
annulled under the
provisions of the Civil
Code;
4. When the contract is
annulled on account of the
fraud or misrepresentation
of the insurer or of his
agent or on account of
facts, or the existence of
which the insured was
ignorant of without his
fault;
5. When by any default of
the insured other than
actual fraud, the insurer
never incurred liability
under the policy; and

6. When there is overinsurance by several


insurers.
Sec. 84. An insurer may
contract and accept payments,
in addition to regular premium,
for the purpose of paying
*future premiums on the policy
or to increase the benefits
thereof
Chapter 5. THE POLICY
Sec. 49. The written
instrument in which a contract
of insurance is set forth, is
called a policy of insurance.
Policy Form
The insurer is generally free to
provide for the terms and
conditions of the policies that
it will issue so long as the
same provisions are not
contrary to law, moral,
customs, and public policy.
Exceptions: Minimum
mandatory provisions for the
following:
1. Individual life;
2. Endowment insurance;
3. Group life;
4. Industrial life.
Sec. 50. The policy shall be in
printed form which may
contain black 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 spaces provided in
the policy.
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 policy.
Unless applied for by the
insured 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 No.
8792, otherwise known as the
Electronic Commerce Act
and to such rules and

regulations as may be
prescribed by the
Commissioner.
** A rider, clause, warranty or
endorsement that are not part
of the original printed form are
binding PROVIDED that:
1. The rider, clause, warranty
or endorsement is
attached to the policy;
2. The descriptive title or
name of the rider, clause,
warranty or endorsement
is mentioned and written
on the blank spaces
provided in the original
printed policy form;
3. If not applied for by the
insured or owner, the
rider, clause, warranty or
endorsement shall be
countersigned by the
insured.
Endorsement written
agreement attached to a
policy to add or subtract
insurance coverages.
Rider - an endorsement to an
insurance policy that modifies
clauses and provisions of the
policy, including or excluding
coverage.
**In theres a discrepancy
between written and printed

portions the written portion


prevails.
**Partly written vs. Partly
printed partly written prevails
Sec. 51. A policy of insurance
must specify:
a. The parties between
whom the contract is
made;
b. The amount to be insured
except in the cases of
open or running policies;
c. The premium, or if the
insurance is of a character
where the exact premium
is only determinable upon
the termination of the
contract, a statement of
the basis and rates upon
which the final premium is
to be determined;
d. The property or life
insured;
e. The interest of the insured
in property insured, if he is
not the absolute owner
thereof;
f. The risks insured against;
g. The period during which
the insurance is to
continue.
Basic Provisions:
1. Declarations identify the
insured, describe the
property, activity or life
insured; state the types of

coverage purchased, the


applicable policy limits
and the term of the
coverage; and indicate the
premium paid for each
separate coverage
purchases.
2. Insuring Agreements
describe the
characteristics of the
events covered under the
contract
3. Exclusions limit the
coverage under the
insuring agreements
4. Conditions define terms
used in the other parts of
the contract, prescribe
conditions that must be
complied before the
insurer can be made liable
and may describe the
basis for computing the
premium.
Cover Notes - interim or
preparatory contracts of
insurance. An interim coverage
may be necessary because
the insurer may need more
time to process the insurance
application.
Sec. 52. Cover notes may be
issued to bind insurance
temporarily pending the
issuance of the policy. Within
60 days after the issue of the
cover note, a policy shall be

issued in lieu thereof, including


within its terms the identical
insurance bound under the
cover note and the premium
therefor.
Cover notes may be extended
or renewed beyond such 60
days with the written approval
of the Commissioner if he
determines that such
extension is not contrary to
and is not for the purpose of
violating any provisions of this
Code. The Commissioner may
promulgate rules and
regulations governing such
extensions for the purpose of
violating such violations and
may by such rules and
regulations dispense with the
requirement of written
approval by him in the case of
extension in compliance with
such rules and regulations.
Requisites:
1. The cover notes shall be
issued or renewed only
upon prior approval of the
Insurance Commission
(IC);
2. The Cover Note (CN) shall
be valid and binding not
more than 60 days from
the date of its issuance;
3. The CN may be cancelled
by either party upon prior

notice to the other of at


least 7 days;
4. The policy should be
issued within 60 days
after the issuance of the
CN; and
5. The 60 day period may be
extended upon written
approval of the IC.
**Written approval of the IC is
dispensed with upon the
certification of the president,
vice-president or general
manager of the insurer of the
risk involved, the value of such
risks and premium have not
yet been determined or
established and the extension
or renewal is not contrary to or
is not for the purpose of
violating the Insurance Code or
any rule.
Designation of a
Beneficiary
Sec. 53. The insurance
proceeds shall be applied
exclusively to the proper
interest of the person in whose
name or for whose benefit it is
made unless otherwise
specified in the policy.
**The designation of the
beneficiary should be made in
unequivocal terms.

Identification of the
Insured
Sec. 54. When an insurance
contract is executed with an
agent or trustee as the
insured, the fact that his
principal or beneficiary is the
real party in interest may be
indicated by describing the
insured as agent or trustee, or
by other general words in the
policy.
**The principal may be
damnified by the loss of the
property that he owns that is
under the care of a trustee or
agent. On the other hand, the
agent or trustee that takes
care of the property may also
be damnified by the propertys
loss.
Sec. 55. To render an
insurance effected by one
partner or part-owner,
applicable to the interest of his
co-partners or other partowners, it is necessary that the
terms of the policy should be
such as are applicable to the
joint or common interest.
Sec. 56. When the description
of the insured in a policy is so
general that it may
comprehend any person or any
class of persons, only he who
can show that it was intended

to include him can claim the


benefit of the policy.
**Since an insurance is a
contract of adhesion, any
doubt should be resolved
against the insurer.
Property Insurance Policy
Kinds:
Sec. 59. A property insurance
policy is either open, valued or
running.
Sec. 60. An open policy is one
in which the value of the thing
insured is not agreed upon,
and the amount of the
insurance merely represents
the insurers maximum liability.
The value of such thing shall
be ascertained in case of loss.
Sec. 61. A running policy is
one which expresses on its
face an agreement that the
thing insured shall be valued
at a specific time.
Sec. 62. A running policy is
one which contemplates
successive insurance, and
which provides that the object
of the policy may be from time
to time defined, especially as
to the subjects of insurance,
by additional statements or
indorsements.

Cancellation
Sec. 64. No policy of
insurance other than life shall
be cancelled by the insurer
except upon prior notice
thereof to the insured, and no
notice of cancellation shall be
effective unless it is based on
the occurrence, after the
effective date of the policy, of
one or more of the following:
a. Non-payment of premium;
b. Conviction of a crime
arising out of acts
increasing the hazard
insured against;
c. Discovery of fraud or
material
misrepresentation;
d. Discovery of wilful or
reckless acts or omissions
increasing the hazard
insured against;
e. Physical changes in the
property insured which
result in the property
becoming uninsurable;
f. Discovery of other
insurance coverage that
makes the total insurance
in excess of the value of
the property insured; or
g. A determination by the
Commissioner that the
continuation of the policy
would violate or would
place the insurer in
violation of this Code.

Sec. 65. All notices of


cancellation mentioned in the
preceding section shall be in
writing, mailed or delivered to
the named insured at the
address shown in the policy, or
to his broker provided the
broker is authorized in writing
by the policy owner to receive
the notice of cancellation on
his behalf, and shall state:
a. Which of the grounds set
forth in Sec. 64 is relied
upon; and
b. That, upon written request
of the named insured, the
insurer shall furnish the
facts on which the
cancellation is based.
**Actual receipt by the insured
of a notice of cancellation is a
condition precedent to a
cancellation of the policy by
the insurer. Reason: to prevent
the cancellation of the policy
without allowing the insured
ample opportunity to negotiate
for other insurance in its stead.
Requisites:
1. Prior notice of cancellation
to the insured;
2. The notice of cancellation
must be based on the
occurrence after effective
date of the policy of one
or more of the grounds
mentioned in Sec. 64;

3. The notice must be in


writing, mailed or
delivered to the named
insured at the address
shown in the policy or to
his broker is authorized in
writing in the policy owner
to receive the notice of
cancellation;
4. The notice must state the
grounds relied upon
provided in Sec. 64 and
upon request of insured to
furnish facts on which
cancellation is based.
Renewal
The insured has the right to
renew a non-life insurance
policy. He can do so by simply
paying the premium due on
the effective date of the
renewal. However, the insured
will not have any right to
renew if notice of the intention
not to renew is given by the
insurer at least 45 days prior
the expiration of the policy.
Over insurance vs. Double
Insurance (Sec. 83 & Sec.
96)
Sec. 83. In case of an over
insurance by several insurers
other than life, the insured is
entitled to a ratable return of
the premium, proportioned to
the amount by which the
aggregate sum insured in all

the policies exceeds the


insurable value of the thing
risk.
Sec. 96. Where the insured in
a policy other than life is over
insured by double insurance:
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 insured;
3. When 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
of 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.