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Policy of Insurance negotiated by parties with roughly avoided if it is possible to construe the

It is the written document embodying the equivalent bargaining power. However, this policy in a manner which would permit
terms and stipulations of the contract of classical model is far removed from the recovery. o This rule that insurance
insurance between the insured and the reality of the insurance business. o contracts are to be construed liberally in
insurer. Insurance contracts are drafted with the favor of the insured and strictly against the
aid of skillful and highly paid legal talent, insurer applies to suretyship agreements.
Signature of the parties from which no deviation desired by an
• General Rule: The policy of insurance is applicant will be permitted. o Except for • If the terms of the contract are clear and
signed only by the insurer or his duly riders which may later be inserted, the unambiguous, there is no room for
authorized agent. insured sees the contract in its final form construction and such terms cannot be
Exception: Where express warranties are and has had no voice in the selection or enlarged or diminished by judicial
contained in a separate instrument arrangement of the words employed construction. o The courts will only rule
forming part of the policy, the law requires therein. o The insured cannot negotiate out blind adherence to terms where facts
that the instrument must be signed by the the substance of the contract with the and circumstances will show that they are
insured. insurer. The provisions are normally basically one-sided.
drafted by industry experts.
Policy controls terms of insurance Contents of the policy
contract • Since the parties do not bargain on equal
footing, the weaker party’s participation is • Names of the parties are essential. But
• The terms of the insurance policy reduced to the alternative “to take it or the mere fact that the name of the insured
constitute the measure of the insurer’s leave it.” Consequently, where the was incorrectly spelled is of no importance
liability. In order to recover, the insured language use in an insurance contract or whatever, provided that the identity of the
must show himself within the terms. application is such as to create ambiguity, party can be sufficiently established.
• In the absence of fraud or mistake, a the same should be resolved liberally in
policy of insurance, upon acceptance, favor of the insured and strictly against the • Amount of insurance is necessary in
constitutes a valid and binding contract, party responsible therefor. The reason order to easily and exactly determine the
superseding all preliminary agreements being, to afford the greatest protection to amount of indemnity to be paid the
and negotiations. the insured. o Construe contracts as to insured in case of loss or damage
preclude the insurer from evading especially if it is only partial and not total.
Policy a contract of “adhesion” (Fine Print compliance with its just obligations. o The sum insured is the basis for calculating
Rule) Forfeitures are not favored and that any the premium. However, it need not be
construction which would result in the stated in the case of open or running
• The terms are drafted and imposed by forfeiture of the policy benefits for the policies.
the insurer. Ordinarily, contracts are freely person claiming thereunder will be
 The amount of insurance is the the property or other interest was caused by the risk insured against, the
maximum limit on the insurer’s insured. insurer would not be liable unless it
liability for loss or damage. occurred during such duration of the
 Such amount is not necessarily the • The property or life insured constitutes insurance.
value of the property insured nor the subject matter of the contract.  It may be expressed in terms of
the extent of liability of the insurer  It has been suggested that the time, distance or voyage.
in the event of loss unless it is proper phrase to use is “thing  The period of time during which
otherwise stipulated. insured” because insurable the insurer assumes the risk of loss
 In life, health, accidental, and interest may be in liability and not is known as the life of the policy.
injury insurance, a fixed sum is in life or property. (12 mos. – annual policy; <12 mos.
payable. – short period policies)
 In workmen’s compensation • The requirement of interest insured in
insurance, the amount is not property is especially important in fire Attached papers on insurance policy
specified in the policy but by the insurance policies to determine the actual
law imposing liability upon the damage suffered by the insured in case of • Generally, the rider, slip or other paper
employer, which is, by reference, loss of the property covered by the policy becomes a part of a contract or policy of
made part of the contract. if he is not the absolute owner thereof. insurance if properly and sufficiently
 The amount insured is the amount attached or referred to therein in a
fixed in the policy • The risks insured against must be stated manner as to leave no doubt as to the
 The deductible is the stated because the insurer’s undertaking is to intention of the parties in such respect.
amount to be deducted from any indemnify the insured for loss, damage or
loss, which is shouldered by the liability caused or created only by the risks • Section 226: no rider shall be attached
insured making the insurer liable insured against. to, printed, or stamped upon a policy of
only for the excess of said amount.  Almost any contingent or unknown insurance unless the form of such rider has
event, whether past or future, may been approved by the Insurance
• The premium is also essential because it be insured against except those Commissioner.
represents the consideration of the repugnant to public policy,
contract. This is what the insured pays the positively prohibited, or those • A rider, clause, warranty or endorsement
insurer to assume the risk of or the value occasioned by the insured’s own is not binding on the insured unless the
of the loss. fraud or misconduct. descriptive title or name of the rider, etc. is
 The rates of premium are also mentioned and written on the blank
developed on the basis of the • The period during which the insurance is spaces provided in the policy.
nature and character of the risk to continue must also be stated because  Warranties are inserted or
assumed and also on the value of although the loss suffered by the insured attached to a policy to eliminate
specific potential increases of o Same rule as above if the o If the FMV is less than the
hazard owing to (1) actions of the rider, although issued maximum, the insurer will
insured or (2) condition of the after the original policy, pay the FMV.
property. was applied for by the
 A clause is an agreement between insured or owner. • A valued policy is one where the value of
the insurer and the insured on Exception: The countersignature of the the property is predetermined
certain matter relating to the insured or owner is required to any rider, and the value is the amount to be used in
liability of the insurer in case of etc. not applied for by him if issued after case of a total loss.
loss.  There are 2 values, the face value
the delivery of the policy. The
 An endorsement is any provision and the value of the thing insured.
countersignature shall be taken as his
added to an insurance contract In the absence of fraud or mistake,
altering its scope or application. agreement to the contents of the matter the agreed value of the thing
(Like extending the perils covered) so attached. insured will be paid in case of total
o An endorsement may be in loss of the property.
the nature of a permit Kinds of policies  In life insurance, the liability of the
such as one authorizing insurer is measured by the face
the removal of the insured • An open or unvalued policy does not value of the policy.
property and providing for predetermine the value of the insured  Example: A policy insuring a ship
coverage in another property but establishes a maximum “valued at P50 million” is a valued
location. amount the insurer will pay in case of a policy.
total loss of the property insured.
• As to the lack of signature  It is one in which a certain agreed • A running policy is intended to provide
 General Rule: If the rider is sum is written on the face of the indemnity for property which cannot well
physically attached to a policy of policy NOT as the value of the be covered by a valued policy because of
insurance contemporaneously property insured, but as the its frequent change of location and
with its execution and delivered to maximum limit of the insurer’s quantity, or for property of such a nature
the insured so attached, and liability. as not to admit of a gross valuation.
sufficient reference is made in the  The insured must establish the  Here the risk is shifting,
policy, the fact that it is without FMV of the property at the time of fluctuating, or varying, and which
the signature of the insurer or of the loss. covers a class of property rather
the insured will not prevent its o If the FMV exceeds the than any particular thing.
inclusion and construction as a maximum, the insurer will  In some cases, the nature of the
part of the insurance contract. pay the maximum. property insured or the
circumstances are such as to make
it impossible to designate the an agreement to pay whatever
subject matter of insurance with rate may be fixed. • If the cover note is NOT cancelled, within
certainty or particularity. These  Cover notes do not contain 60 days after its issuance, a policy of
policies are usually known as particulars that would serve as insurance shall be issued in lieu thereof.
“floating,” “running,” or “blanket.” basis for the computation of the
 A blanket policy (in the US) is one premiums and consequently, no o This policy will include an identical
covering by a single amount of separate premiums are intended insurance bond and premium
insurance the same kind of or required to be paid therefor. provided under the cover note.
property at different locations or  A cover note is integrated with the
different kinds of property at a regular policy to be subsequently • A cover note may be extended or
single location. issued. renewed beyond the period of 60 days
 Running policies are in reality with the written approval of the Insurance
open policies. Rules on cover notes Commission. The written approval may be
 When the goods change location dispensed with upon the certification of
frequently so as to make it difficult • Insurance companies doing business in the president, vice-president, or general
to insure its whole value, the the Philippines may issue cover notes to manager of the insurance company
remedy is a contract that has no bind insurance temporarily, pending the concerned that the risks involved, the
fixed face value, the face value issuance of the policy. values of such risks, and the premiums
adjusting itself to the changing therefor have not as yet been determined
value at one specified location or • A cover note shall be deemed to be a or established and that such extension is
at each of several locations. contract of insurance within the meaning not for the purpose of violating any
of Section 1(1) of the Code. provisions of the Insurance Code or any
Issuance and renewal of cover notes rulings, instructions, circulars, orders or
• No cover note shall be issued or renewed decisions of the Insurance Commissioner.
• Cover notes are short-term insurance unless in the form previously approved by
policies that may be issued to afford the Insurance Commission. • Insurance companies may impose on
immediate provisional protection to the cover notes a deposit premium equivalent
insured until the insurer can inspect or • A cover note shall be valid and binding to at least 25% of the estimated premium
evaluate the risk in question and issue the for a period not exceeding 60 days from coverage but in no case less than P500.
proper policy or until the risk is declined the date of its issuance, whether or not
and notice thereof given. the premium therefor has been paid. The SEC. 64. No policy of insurance other than
 It is sufficient that the cover note cover not may be cancelled by either party life shall be cancelled by the insurer except
shows, by necessary implication, upon at least 7 days notice to the other upon prior notice thereof to the insured,
party. and no notice of cancellation shall be
effective unless it is based on the insured, the insurer will furnish the facts shown in the policy, or to his authorized
occurrence, after the effective date of the on which the cancellation is based. broker; and
policy, of one or more of the following: • It must state which of the grounds set
Cancellation of non-life insurance policy forth is relied upon.
(a) Non-payment of premium; o It is the duty of the insurer upon
(b) Conviction of a crime arising out of • Cancellation is broadly regarded as the written request of the named
acts increasing the hazard insured against; right to rescind, abandon or cancel a insured to furnish the facts on
(c) Discovery of fraud or material contract of insurance. which the cancellation is based.
misrepresentation; • It is the termination by either the insurer
(d) Discovery of willful or reckless acts or or the insured of a policy of insurance Prior notice of cancellation to insured
omissions increasing the hazard insured before its expiration.
against; • The insured can cancel an insurance • The purpose for notice to the insured is
(e) Physical changes in the property contract at his election by surrendering the to prevent the cancellation of the policy
insured which result in the property policy. Such surrender, however, entitles without allowing the insured ample
becoming uninsurable; or him to the return of the premiums on the opportunity to negotiate for other
(f) Discovery of other insurance coverage customary short-rate basis. insurance in its stead for his own
that makes the total insurance in excess of protection.
the value of the property insured; or Form and sufficiency of notice of • Notice given to insured himself. – The
(g) A determination by the Commissioner cancellation by the Insurer notice should be personal to the insured
that the continuation of the policy would and not to and/or through any
violate or would place the insurer in • There must be prior notice of unauthorized person by the policy.
violation of this Code. cancellation to the insured; • Notice delivered personally or sent by
• The notice must be based on the mail. – There must be proof that it was
SEC. 65. All notice of cancellation occurrence, after the effective date of the actually sent by mail.
mentioned in the preceding section shall policy, of one or more of the grounds
be in writing, mailed or delivered to the mentioned (Sec 64); SEC. 63. A condition, stipulation, or
named insured at the address shown in  The premium referred to in Sec agreement, in any policy of insurance,
the policy or to his broker provided the 64(a) must be a premium limiting the time for commencing an
broker is authorized in writing by the subsequent to the first, because it action thereunder to a period of less than
policy owner to receive the notice of speaks of non-payment “after the one (1) year from the time when the cause
cancellation on his behalf, and shall state effective date of the policy.” of action accrues, is void.
(a) Which of the grounds set forth in • It must be in writing, mailed or delivered
Section 64 is relied upon and (b) That, to the named insured at the address Validity of agreement limiting time for
upon written request of the named commencing action
such stipulation is repugnant to
• General rule. – A clause in the policy When cause of action accrues Section 63.
providing that an action must be brought o In effect, it reduces the
within a certain period is valid if not • The right of the insured to the payment period allowed the insured
contrary to Section 63. of his loss accrues from the happening of
for bringing his action to
• Period limitation. – If the period fixed is the loss.
less than 1 year, it is void. • However, the cause of action in an less than 1 year.
 EXCEPT: In a policy of industrial life insurance contract does not accrue until o Obviously, compliance
insurance, the period cannot be the insured’s claim is finally rejected by the with the terms and
less than six (6) years after the insurer. conditions would require
cause of action accrues. o Before such final rejection, there is some time and that will
no real necessity for Bringing suit. shorten the period for
Nature of condition limiting period for bringing the suit.
filing claim • The period for commencing an action o As the stipulation is upon
under a policy of insurance under Section
a written contract, the
• The condition is an important matter, not 63 is to be computed not from the time
merely a procedural requirement, essential time limit is 10 years from
when the loss actually occurs but from the
to prompt settlement of claims against the time the cause of
insurance companies. time when the insured has a right to bring
action accrues.
• It demands that insurance suits be an action against the insurer.
brought by the insured while the evidence Where the policy provided that if a claim
as to the origin and cause of the loss or • Examples:
be made and rejected, an “action or suit”
destruction has not yet disappeared. should be commenced within 12 months
 Where the policy provided that no
• It is a resolutory cause, the purpose of after such rejection otherwise the claim
which is to terminate all liabilities in case such suit or action thereon “for
the recovery of any claim shall be would prescribe, it has been held that such
the action is not filed by the insured within
the period stipulated. sustainable in any court of law or a stipulation is valid.
equity unless the insured shall Where a fidelity bond requires action to be
Where action brought against insurer’s have fully complied with all the
agent filed within 1 year from the filing of the
terms and conditions of the policy claim of loss, such condition contradicts
• The bringing of such action against the nor unless commenced within 12 Section 63.
agent cannot have any legal effect except months next after the happening
that of notifying the agent of the claim. of the loss,” it has been held that
o A fidelity bond is in the nature of a
contract of insurance against loss
from misconduct.

Contractual limitations contained in

insurance policies are regarded with
extreme jealousy by courts and will be
strictly construed against the insurer.

The new Insurance Code empowers the

Insurance Commissioner to adjudicate
disputes relating to an insurance
company’s liability to an insured. Hence, a
complaint or claim filed by the insured
with the Office of the Insurance
Commissioner would now be considered
an “action” or “suit” the filing of which
would have the effect of tolling or
suspending the running of the prescriptive