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INTRODUCTION TO INSURANCE LAW

PRINCIPLE BEHIND INSURANCE: Insurance is based upon the principle of aiding another from a loss
caused by an unfortunate event.

HOW OLD IS THE CONCEPT OF INSURANCE? Very old.

Benevolent societies organized for the purpose of extending aid to their unfortunate members from a
fund contributed by all - have been in existence from the earliest times. They existed among the
Egyptians, the Chinese, the Hindus, the Romans, and are known to have been established among the
Greeks as early as 3 B.C.

ORIGIN & GROWTH of INSURANCE

Considering the hazards of navigation with which maritime commerce was carried on,
and from the extensive practice of BOTTOMRY AND RESPONDENTIA in ancient maritime commerce,
gradually emerged the law of marine insurance – the earliest form of insurance business.

BOTTOMRY
✓ a system of merchant insurance in which a ship is used as security against a loan to finance a
voyage, the lender losing the investment if the ship sinks
✓ an arrangement in which the master of a ship borrows money upon the bottom or keel of it, so as
to forfeit the ship itself to the creditor, if the money with interest is not paid at the time appointed
at the ship's safe return
RESPONDENTIA
✓ a loan upon the goods
✓ The money is to be repaid to the lender, with maritime interest, upon the arrival of the goods

• The origin of the practice of insurance is found in the mutual agreements among merchants of
the Italian cities in the early middle ages engaged in common shipping ventures for distributing
among the mutual contractors the loss falling upon any one by reason of the perils of navigation.

Apparently, insurance appears to have a history that goes back to the Babylonians, but became clearly
established among the town guilds of Europe by the 14th century when every ship owner and merchant in
Italy was required by the state to contribute two percent of the profits of each voyage to a common fund
from which to pay losses when they occurred.
• Eventually, the practice of paying premium in exchange of insurance coverage was conceptualized
by Italian capitalists who were willing to guaranty against losses upon the payment of a small
consideration
• The word “policy” appears to be a testament to the Italian origin of insurance; derived from the
word “poliza” which is Italian for “folded writing”.
• From Italy, the practice of insuring commercial ventures against disaster rapidly extended to other
maritime States of Europe.
• The Italian merchants founded trading houses in London in the 12th Century and brought with
them the custom of insuring against hazards of trade.
• It was not until the middle of the 18th century that the common law courts of England began to
take adequate cognizance of insurance cases with the passage in 1601 of the first English
Insurance Act by which a special court was established for the trial of marine insurance
controversies.
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• The development of the several kinds of insurance has followed the same lines in the United
States as in England.
• However, the insurance industry of the US has grown to such an extent that with exception of
ocean marine insurance, the English practices and English decisions have little influence on
insurance in the US.

Significance of knowing the history and development

➢ Understanding the relevance to current jurisprudence of centuries-old practices and rules
• The merchants who plied the seas had their own laws and they knew that these must be obeyed
and there could be no satisfactory commerce
• Maritime law = a law created by traders not by rulers, yet observed by all
• Examples of principles which has become part of current laws:
• Bottomry and respondentia (types of loans)
– Bottomry = loan made upon the security of the vessel
– Respondentia = loan made upon the security of the cargo
• *both loans depend upon the safe conclusion of the voyage
• Examples of principles which has become part of current laws:
1. General Average
- a device for the limited distribution of loss where there are contributions from owners of other interests
benefited by the sacrifice (ex. Jettison of cargo to save the voyage)
2. Real and hypothecary nature of maritime law
• These had their origins in the conditions of maritime trade and sea voyages which recognized
innumerable hazards and perils.
3. Doctrine of limited liability
To offset against these conditions and to encourage shipbuilding and maritime commerce, it was
deemed necessary to confine or limit the liability of the owner or agent arising from the operation
of a ship only to the vessel, equipment, and freight.

OTHER TYPES OF INSURANCE?

The development of fire, life and accident insurance occurred at a later date and at a much slower pace.
WHY? BEFORE
• Fire Insurance was looked upon with disfavor (Indemnity vs Gain)
• Life Insurance was looked upon with religious underpinnings and was deemed immoral (Money
for Life?)
• Latter part of 19th century
• Fire Insurance, then Life insurance, gradually and eventually gained acceptance.
PRESENTLY
• Insurance Products have multiplied at a remarkable pace
• The number and types of risks that can be insured have grown from the rudiments of marine
insurance to encompass practically every conceivable form or kind of risk that may be
encountered in modern life
• Political risk insurance
• Identity insurance
• Malicious mischief insurance
• Professional liability insurance
• Sabotage and terrorism insurance
• Warranty insurance for the green market
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UNUSUAL / WEIRD / UNIQUE COVERAGES

• UFO abduction insurance
• Fantasy sports insurance
• Cold feet insurance
DYK:
Bette Davis insured her waistline against expansion
Dolly Parton has each breast insured for a rather fulsome $300,000
Tom Jones has his trademark chest hair insured against thinning
Bruce Springsteen’s vocal cords for $6M
Julia Roberts’ smile for $30M
Rihanna’s legs for $1million; Heidi Klum’s for $2M

What INSURANCE does

Affords protection to businesses and individual lives,
As well as security to those who may not actually suffer any loss, the threat of such loss being somehow
tempered by the protection provided by an insurance coverage

MODERN INSURANCE PRODUCTS

Long-term care
Disability
Business Life
Pet
Longevity
Antiques
GROWTH OF INSURANCE IN THE PHILIPPINES – see Insurance Commission Website
How did insurance develop in the Philippines?
• PRE-SPANISH ERA
- there was no insurance; every loss was borne by the person or the family who suffered the misfortune
• SPANISH ERA
• – Marine insurance was introduced in the Philippines when Lloyd’s of London appointed
Strachman, Murray & Co., Inc. as its representatives/agents here.
Before July 1, 1915:
The Spanish Code of Commerce and the Civil Code of 1889 governed insurance transactions in the
Philippines
• During this period, the laws on insurance were found in Title VII of Book II and Section III of Title
III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book IV of
the Spanish Civil Code of 1889
• 1898
– Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in the local
insurance market.
• 1906
First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized
Continues to be in business under the corporate name, Philippine First Insurance Co.
• 1910
Insular Life Assurance Co, Inc. was established as the first domestic life insurance company
• During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act
(Act 2427).
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• This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of
Commerce on Insurance.
• 1936
Social insurance was established with the enactment of Commonwealth Act No. 186 which created the
Government Service Insurance System (GSIS) which started operations in 1937. The Act covers gov’t
employees.
• 1939
– Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The business
transacted the Philippines was then limited to non-life insurance.
Insular Life vs Feliciano, 73 Phil 201 (1941)
“The phenomenal growth of insurance from almost nothing a hundred years ago to its present gigantic
proportion is one of the outstanding marvels of present-day business life. The demand for economic
security, the growing need for social stability, and the clamor for protection against the hazards of cruel-
crippling calamities and sudden economic shocks, have made insurance one of the felt necessities of
modern life.” - JPL
• 1949
– Government agency was formed to handle insurance affairs, where the Insular Treasurer was appointed
commissioner ex-officio
• 1950
– Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties for both
life and non-life.
• When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of
the Spanish Civil Code of 1889 were likewise repealed.
• 1951
– First workmen’s compensation pool was organized as the Royal Group Incorporated
• 1954
– RA 1161 was enacted which provided for the organization of the Social Security System (SSS) covering
employees of the private sector.
• 1974
On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the
Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317 were issued, amending PD 612.
• 1978
PD 1460 which took effect on June 11, 1978 consolidated all insurance laws into a single code - the
Insurance Code of 1978.
• 2009
• Dec. 3, 2009 – RA# 9829 ‘The Pre-Need Code of the Philippines’ was enacted.
• By virtue of the Pre-Need Code, the regulation and supervision of all pre-need companies
conducting business in the country is vested on the Insurance Commission.
• 2015
EO No. 192 (s. 2015) entitled, “TRANSFERRING THE REGULATION AND SUPERVISION OVER HEALTH
MAINTENANCE ORGANIZATIONS FROM THE DEPARTMENT OF HEALTH TO THE INSURANCE COMMISSION,
DIRECTING THE IMPLEMENTATION THEREOF AND FOR OTHER PURPOSES”
• 2013
• August 15, 2013 – RA #10607 “The Insurance Code” was approved amending/strengthening PD
612
• The New Insurance Code which is the legal framework for the supervision of the insurance
industry was signed on August 15, 2013 by the President of the Philippines and took effect on
September 20, 2013.
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• The revisions embodied in the Amended Insurance Code are intended to reinforce the provisions
of the previous code so as to further strengthen the insurance industry and ensure the economic
viability and financial stability of companies operating in the country, to the end that each and
every Filipino is amply protected and secured.
• The amendments and additional provisions incorporated in the New Code which provided new
business opportunities to the insurance industry, included, among other things, the following:
a. Grant of a fixed six-year term to the Insurance Commissioner and a three-year license to the
supervised entities;
b. Increased jurisdictional amount of claims cases from P100,000 to P5million for the Insurance
Commission to adjudicate;
c. Additional types of investment instruments considered admitted assets such as mutual funds, real
estate investment trusts, salary loans, unit investment trust funds and special deposit accounts for
purposes of determining the financial condition of the insurance companies;
d. Additional provisions:
d.1 Prescribing the minimum capitalization requirements for new and existing insurance companies as
follows:

For New Insurance Companies:

o Minimum Paid-Up Capital - P1 billion
o Minimum Contributed Surplus - P100 million
• For Insurance Companies with Existing License:
d.2 Requiring all insurance companies to comply with the Financial reporting framework prescribed by
the Commission for purposes of creating statutory financial reports and the annual statements to be
submitted to the Commission.
d-3 Granting the Commissioner the power to register associations of insurance companies, agents,
brokers and other persons/ entities regulated by the Commissioner as self-regulatory organizations and
to regulate their operations related to or connected with insurance market.
d.4 Establishing MICROINSURANCE as a financial product or service that meets the risk protection needs
of the poor where the daily premium and guaranteed benefits do not exceed 7.5% and 1000 times of the
current daily minimum wage rate for non-agricultural workers in Metro-Manila
d.5 Allowing an insurance company to:
1. enter into a BANCASSURANCE arrangement with a bank;
2. engage in limited trust business consisting of managing funds pertaining only to retirement and pre-
need plans and;
3. payments in addition to regular premium for the purpose of paying future premiums on the policy or
to increase the benefits thereof.

Laws Governing Insurance

• RA 10607: Insurance Code of the Philippines (amending PD 612 as amended)
Insurance Code of 1978 (PD 1460, as amended), now RA 10607
- The Insurance Code primarily governs the different types of insurance contracts and those engaged in
insurance business in the Philippines.
• New Civil Code of the Philippines –
The provisions of the Civil Code dealing on insurance are found in:
1. Arts. 739 and 2012 (void donations),
2. Art. 2011 (applicability of the Civil Code),
3. Arts. 2021-2027 (life annuity contracts),
4. Art. 2186 (compulsory motor vehicle liability insurance), and
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5. Art. 2207 (right of subrogation)

Art. 2011
The contract of insurance is governed by special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code (Civil Code)
• Therefore, the laws applicable to insurance shall be in the following order:
(a) Insurance Code of 1978 (Pres. Decree, 1460, as amended); now RA 10607;
(b) In the absence of applicable provisions in the Insurance Code, the Civil Code;
(c) In the absence of applicable provisions in the Insurance Code and the Civil Code, the general principles
prevailing on the subject in the United States, particularly in the State of California where our Insurance
Code was based (Constantino v. Asia Life Ins. Co., 87 Phil 246)

Art. 2012
Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of
a life insurance policy by a person who cannot make any donation to him.

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.

Art. 2021
The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life
of one or more determinate persons in consideration of a capital consisting of money or other property,
whose ownership is transferred to him at once with the burden of income.

Art. 2022
The annuity may be constituted upon the life of the person who gives the capital, upon that of a third
person, or upon the lives of various persons, all of whom must be living at the time the annuity is
established.
It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered
into, or in favor of another or other persons.

Art. 2023
Life annuity shall be void if constituted upon the life of a person who was already dead at the time the
contract was entered into, or who was at the that time suffering from an illness which caused his death
within twenty days following said date.

Art. 2024
The lack of payment of the income due does not authorize the recipient of the life annuity to demand the
reimbursement of the capital or to retake possession of the property alienated, unless there is a
stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in
arrears and to require a security for the future income, unless there is a stipulation to the contrary.

Art. 2025
The income corresponding to the year in which the person enjoying it dies shall be paid in proportion to
the days during which he lived;
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if the income should be paid by installments in advance, the whole amount of the installment which began
to run during his life shall be paid.

Art. 2026
He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity
is established that the same shall not be subject to execution or attachment on account of the obligations
of the recipient of the annuity.
If the annuity was constituted in fraud of creditors, the latter may ask for execution or attachment of the
property.

Art. 2027
No annuity shall be claimed without first proving the existence of the person upon whose life the annuity
is constituted.

SPECIAL LEGISLATIONS
• National Health Insurance Act of 2013 (RA 10606, amending RA 7875)
- Endeavors to make essential social services available to all people at affordable cost
• Revised Government Service Insurance Act of 1997 (RA 8291) – govern government employees
• Social Security Act (RA 8282) – dealing with employees in the private sector
• Property Insurance Law (RA 656, as amended by PD 245)
- Dealing with government property
• Philippine Deposit Insurance Act of 1963 (RA 3591, as amended)
• Other special laws covering social insurance (crop insurance, cooperative insurance, insurance for
barangay officials, etc.)

The Insurance Commission (Sec. 416, ICP)

• The Insurance Commissioner is the insurance regulator
• The position is the head of the Insurance Commission, a government agency under the
Department of Finance.
• The Commission supervises and regulates the operations of insurance and reinsurance
corporations, mutual benefit associations, health maintenance organizations and rating
organizations, all of which need to be authorized.

ORGANIZATIONAL STRUCTURE
• COMMISSIONER – Atty. Dennis Funa
• 4 Deputy Commissioners (Legal Services, Technical Services, Financial Examination, Management
Support Services)
• 3 District Offices: Baguio, Cebu, Davao

MANDATE
• To regulate and supervise the insurance, pre-need, and HMO industries in accordance with the
provisions of the Insurance Code, as amended, Pre-Need Code of the Philippines, and Executive
Order No. 192 (s. 2015). - Section 437, ICP

INSURANCE COMMISSION
Exercises exclusive administrative supervision over insurance companies, mutual benefit associations and
trusts of charitable uses.
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– Has duty to see that all laws relating to insurance companies and other insurance matters
are faithfully executed.
• Under RA 9829, all pre-need companies are now under the primary and exclusive
supervision and regulation of the Office of the Insurance Commisioner.

FUNCTIONS
1. Promulgation and implementation of policies, rules and regulations governing the operations of
entities engaged in insurance, pre-need, and HMO activities as well as benevolent features
2. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit associations,
trusts for charitable uses, pre-need companies, pre-need intermediaries, and HMO companies
3. Conducting insurance agent’s examinations, as well as processing of reinsurance treaties and
request for investments of insurance companies
4. Examination/verification of the financial condition and methods of doing business of entities
engaged in insurance business, pre-need, mutual benefit associations, trusts for charitable uses,
and HMO companies
5. Evaluation and preparation of statistical reports, studies, researches, annual reports, and position
papers relative to insurance, pre-need matters, and HMO matters
6. Review of premium rates imposed by life and non-life companies, mutual benefit associations;
statistical reports of adjusters to determine compliance with established standards.
7. Adjudication of claims and complaints involving loss, damage or liability incurred by an insurer
under any kind of policy or contract of insurance or suretyship;
8. Review and approval of all life and non-life policies, pre-need, and HMO plans before sale to
prospective clients.