ESSENTIALS OF INSURANCE LAW

REVIEWER

Article 2207 of the New Civil Code

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.

Hostile Fire v. Friendly Fire

Hostile fire is one that escapes from the place where it was intended to burn and ought
to be. It can also be a fire that started as friendly fire but escapes from its original place or
it becomes too strong as it becomes out of control. (e.g. Fire from a stove escaping to a
nearby rug)

Friendly fire is one that burns in a place where it was intended to burn and ought to be.
(e.g. Fire in a gas stove or fire place)

Premium

It is the agreed price for assuming and carrying the risk i.e. the consideration paid to an
insurer for undertaking to indemnify the insured against a specified peril.

Beneficiary

He or she is the person designated by the terms of the policy as the one to receive the
proceeds of the insurance.

Insurance Commission/ Commissioner

The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to
the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in section two hundred thirty-two and to provide for the
licensing of persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.

Concealment

It is a neglect to communicate that which a party knows and ought to communicate.

 Requisites (DOCK-T):

1. The party concealing is duty bound to disclose fact which he neglects to

communicate or disclose to the other
2. The other party has no means of ascertaining the fact concealed
3. Such party concealing makes no warranty as to the fact concealed
4. A party knows or ought to know such fact which he neglects to communicate or
disclose to the other party
5. Such concealment must take place at the time the contract is entered into and not
afterwards

PD 612 as amended by RA 10607

This is also called the Insurance Code of the Philippines.

Contract of Suretyship

If a person binds himself solidarily with the principal debtor, the contract is called
Suretyship.

Cover Notes

A concise and temporary written contract issued by the insurer through its duly
authorized agent embodying the principal of an expected policy of insurance. The cover
note is valid for 60 days and can be extended or renewed with the approval of the
Insurance Commissioner.

Incontestability Clause

The defenses are available only during the first two years of a life insurance policy,
provided that after a policy of insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years from the
date of its issue or its last reinstatement, the insurer cannot prove that the policy is void
ab initio or is rescindable by the reason of fraudulent concealment or misrepresentation
of the insured or his agent.

Exception/ Exclusion

It makes more definite the coverage indicated by the general description of the risk by
excluding certain specified risks that otherwise would be included under the general
language describing the risks assumed.

Test of Materiality

It is determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom the communication is due in forming his
estimate of the advantages of the proposed contract or in making his inquires.
Representation

It is an oral or written statement made by the insured at the time of or prior to the
issuance of the policy, relative to the risk to be insured, as to an existing or past fact or
state of facts, or concerning a future happening, to give information to the insurer and
otherwise induce him to enter into the insurance contract.

Policy of Insurance

It is the written instrument in which a contract of insurance is set forth. It is the

written document embodying the terms and stipulations of the contract of insurance
between the insured and the insurer.

Bancassurance

The term Bancassurance shall mean the presentation and sale to bank customers by
an insurance company of its insurance products within the premises of the head office
of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of its branches
under such rules and regulations which the Commissioner and the Bangko Sentral ng
Pilipinas may promulgate.

No Fault Clause

The injured party is given the option to file a claim for death or injury without the
necessity of proving fault or negligence.

Casualty Insurance

It is an insurance covering loss or liability arising from accident or mishap, excluding

those failing under other types of insurance such as fire or marine.

Seaworthiness

A ship is seaworthy if it is able to withstand the rigors of the voyage and that his has
been properly laden, provided with competent crew and equipped with
appurtenances and equipment.

A ship is seaworthy for the purpose of insurance upon the ship may be unseaworthy
for the purpose of the insurance upon the cargo.

Deviation

It is the departure from the course of the voyage insured, or an unreasonable delay in
pursuing the voyage, or the commencement of an entirely different voyage. It is any
unexcused departure from the regular course or route of the insured voyage or any
other act which substantially alters the risk.
Perils of Ship v Perils of the Sea

Perils of the sea include only those casualties due to unusual violence; extraordinary
action of wind and wave; and, other extraordinary cause connected with navigation.
Perils of Ship is loss which in the ordinary course of events, results from the natural and
inevitable action of the sea; ordinary wear and tear of the ship; negligent failure of
the ship’s owner to provide the vessel with proper equipment to c

Other Insurance Clause

It is a provision in an insurance contract which subsists on its own or acts as the

separability clause.

Constructive Total Loss in Marine Insurance

It is one which the thing insured has been reduced to a state or placed in a position by the
perils insured against as to make its total destruction through not inevitable yet highly
imminent and gives the insured a right to abandon in the following cases:

a. Damage reducing by more than ¾ the value of the vessel of the cargo
b. Expense of the transshipment exceeds ¾ of value of cargo
c. Actual loss of more than ¾ of the value of the object
d. The contemplated voyage cannot be performed without incurring an expense of
more than ¾ of the value of the thing abandoned

In case of constructive total loss, the insured may:

a. Abandon goods or vessel to the insurer and claim for whole insured value
b. Without abandoning vessel, claim for actual loss

Barratry

It is the clause which provides that there can be no recovery on the policy in case of
any willful misconduct on the part of the master or crew in pursuance of some
unlawful or fraudulent purpose without consent of owners, and to the prejudice of
the owner’s interest.

Cognition Theory

It is the legal basis found in the New Civil Code supporting the principle of a perfection
of a contract of insurance.

Reinsurance through treaty

It is an agreement between two insurance companies whereby one agrees to cede and
the other to accept reinsurance business pursuant to provisions specified in the treaty.
Professional reinsurer

It shall mean any entity that transacts solely and exclusively reinsurance business in
the Philippines.

Open Policy

It is one in which the value of the thing insured is not agreed upon and the amount of
the insurance merely represents the insurer’s maximum liability. The value of such
thing insured shall be ascertained at the time of the loss.

Running Policy

It is one which contemplates successive insurances and which the object of the policy
may be from time to time defined especially as to the subjects of insurance by
additional statements or endorsements.

Uberrimae Fidae

It is the contract of insurance is one of perfect good faith. Both parties must not only
perform their obligations in good faith but they must also avoid material concealment or
misrepresentation. The caveat emptor rule is generally inapplicable.

Stipulation Pour Autrui

It is a stipulation given to a third-party beneficiary a cause of action against the

promisor for specific performance.

Compulsory Vehicle Insurance

Compulsory motor vehicle liability insurance is a protection coverage that will answer for
legal liability for losses and damages for bodily injuries or property damage that may be
sustained by another arising from the use and operation of a motor vehicle by its
owner.

Authorized Driver Clause

It is a clause, but limits the use of the insured vehicle to the insured himself or any person
who drives on his order or with his permission (Villacorta v. which indemnifies the
insured owner against loss or damage to the car Insurance Commissioner, G.R. No.
54171, October 28, 1980).

Rider

It is a small printed or typed stipulation contained on a slip of paper attached to the

policy and forming an integral part of the policy.
Insurable Interest in Property v Insurable Interest in Life

Insurable Interest in Property Insurable Interest in Life

EXTENT
Insurable Interest is limited to the actual value Insurable interest in life is unlimited (save in
of the interest thereon life insurance effected by a creditor on the life
of the debtor.
EXISTENCE OF INSURABLE INTEREST
It must exist when the insurance takes effect It is enough that interest exists at the time the
and when the loss occurs but need not happen policy takes effect and need not exist at the
in the meantime time of the loss
BASIS OF EXPECTATION
There must be legal basis Expectation of the benefit derived need not
have legal basis
INSURABLE INTEREST OF THE BENEFICIARY
The beneficiary must have an insurable interest If the insured secured the policy, the
over the thing insured. beneficiary need not have insurable interest
over the life of the insured; if secured by the
beneficiary, the latter must have insurable
interest over the life insured.

Loss Payable Clause

It is the act of the mortgagor affecting the mortgagee as the Mortgagor does not cease to
be a party of the contract.

Standard or Union Mortgage Clause

It is the subsequent acts of the mortgagee cannot affect the rights of the assignee. The
reason is it is as if the insurer made a new and independent contract with the mortgagee.

Alteration

Sec. 168. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.

Sec. 169. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy, which does not increase the risk, does not affect a contract of fire
insurance.
Jettison

The act of throwing overboard from a vessel part of the cargo, in case of extreme danger,
to lighten the ship. ... A carrier by water may, when in case of extreme peril it is
necessary for the safety of the ship or cargo, throw overboard, or otherwise sacrifice, any
or all of the cargo or appurtenances of the ship.- Black Definition

Group Life Insurance

Section 234. No policy of group life insurance shall be issued and delivered in the
Philippines unless it contains in substance the following provisions, or provisions which
in the opinion of the Commissioner are more favorable to the persons insured, or at least
as favorable to the persons insured and more favorable to the policyholders:

(a) A provision that the policyholder is entitled to a grace period of either thirty (30) days
or of one (1) month for the payment of any premium due after the first, during which
grace period the death benefit coverage shall continue in force, unless the policyholder
shall have given the insurer written notice of discontinuance in advance of the date of
discontinuance and in accordance with the terms of the policy. The policy may provide
that the policyholder shall be liable for the payment of a pro rata premium for the time
the policy is in force during such grace period;

(b) A provision that the validity of the policy shall not be contested, except for
nonpayment of premiums after it has been in force for two (2) years from its date of
issue; and that no statement made by any insured under the policy relating to his
insurability shall be used in contesting the validity of the insurance with respect to which
such statement was made after such insurance has been in force prior to the contest for a
period of two (2) years during such person’s lifetime nor unless contained in a written
instrument signed by him;

(c) A provision that a copy of the application, if any, of the policyholder shall be attached
to the policy when issued, that all statements made by the policyholder or by persons
insured shall be deemed representations and not warranties, and that no statement made
by any insured shall be used in any contest unless a copy of the instrument containing the
statement is or has been furnished to such person or to his beneficiary;

(d) A provision setting forth the conditions, if any, under which the insurer reserves the
right to require a person eligible for insurance to furnish evidence of individual
insurability satisfactory to the insurer as a condition to part or all of his coverage;

(e) A provision specifying an equitable adjustment of premiums or of benefits or of both

to be made in the event that the age of a person insured has been misstated, such
provision to contain a clear statement of the method of adjustment to be used;

(f) A provision that any sum becoming due by reason of death of the person insured shall
be payable to the beneficiary designated by the insured, subject to the provisions of the
policy in the event that there is no designated beneficiary, as to all or any part of such
sum, living at the death of the insured, and subject to any right reserved by the insurer in
the policy and set forth in the certificate to pay at its option a part of such sum not
exceeding Five hundred pesos (P500.00) to any person appearing to the insurer to be
equitably entitled thereto by reason of having incurred funeral or other expenses incident
to the last illness or, death of the person insured;

(g) A provision that the insurer will issue to the policyholder for delivery to each person
insured a statement as to the insurance protection to which he is entitled, to whom the
insurance benefits are payable, and the rights set forth in paragraphs (h), (i) and (j)
following;

(h) A provision that if the insurance, or any portion of it, on a person covered under the
policy ceases because of termination of employment or of membership in the class or
classes eligible for coverage under the policy, such person shall be entitled to have issued
to him by the insurer, without evidence of insurability, an individual policy of life
insurance without disability or other supplementary benefits, provided application for the
individual policy and payment of the first premium to the insurer shall be made within
thirty (30) days after such termination, and provided further that:

(1) The individual policy shall be on any one of the forms, except term insurance,
then customarily issued by the insurer at the age and for an amount not in excess
of the coverage under the group policy; and

(2) The premium on the individual policy shall be at the insurer’s then customary
rate applicable to the form and amount of the individual policy, to the class of
risk to which such person then belongs, and to his age attained on the effective
date of the individual policy.

(i) A provision that if the group policy terminates or is amended so as to terminate the
insurance of any class of insured persons, every person insured thereunder at the date of
such termination whose insurance terminates and who has been so insured for five (5)
years prior to such termination date shall be entitled to have issued to him by the insurer
an individual policy of life insurance subject to the same limitations as set forth in
paragraph (h), except that the group policy may provide that the amount of such
individual policy shall not exceed the amount of the person’s life insurance protection
ceasing;

(j) A provision that if a person insured under the group policy dies during the thirty (30)-
day period within which he would have been entitled to an individual policy issued to
him in accordance with paragraphs (h) and (i) above and before such individual policy
shall have become effective, the amount of life insurance which he would have been
entitled to have issued to him as an individual policy shall be payable as a claim under
the group policy whether or not application for the individual policy or the payment of
the first premium has been made;
 (k) In the case of a policy issued to a creditor to insure debtors of such creditor, a
provision that the insurer will furnish to the policyholder for delivery to each debtor
insured under the policy a form which will contain a statement that the life of the debtor
is insured under the policy and that any death benefit paid thereunder by reason of his
death shall be applied to reduce or extinguish indebtedness.

The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor to
insure his debtors. If a group life policy is on a plan of insurance other than term, it shall
contain a non-forfeiture provision or provisions which in the opinion of the
Commissioner is or are equitable to the insured or the policyholder: Provided, That
nothing herein contained shall be so construed as to require group life policies to contain
the same non-forfeiture provisions as are required of individual life policies.

General Loss

It may be subdivided into actual total loss or a constructive total loss.

30 days payment of loss

It is the grace period provided in an insurance period.

Grace Period

It is a device which is after the payment of the first premium; the insured is entitled to a
grace period of thirty days within which to pay the succeeding premiums.

6 months of Filing of Claim

It is the period for filing of the notice of claim. As the notice of claim, it is any person
having any claim upon the CMVLI policy shall without unnecessary delay present to the
insurance company concerned a written notice of claim within 6 months from the date of
the accident; otherwise, the claim will be deemed waived.

Automatic Treaty

It refers to the arrangement between two companies, the ceding company and the insurer,
where the latter agrees to take on the transfer of a set of risks even without being given
notice in the future.