REPUBLIC ACT NO. 10607
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Section 1. This Decree shall be known as ‘The Insurance Code’.
Historical origin of insurance.
 Mutual insurance as old as society itself.
Insurance is based upon the principle of aiding another from a
loss caused by an unfortunate event.
 Origin of present day insurance attributed to merchants of
Italian cities
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.
The law of insurance was derived from the maritime law and, as
such, was part of the general law merchant, and international in
its character.
 Development of insurance in England
From Italy, they extended to other maritime States of
Europe
Insurance in Philippines
 In 1829- Insurance was first introduced by Murray & Co., Inc.
It was limited to non-life insurance.
 In 1898 that life insurance was introduced by Sun Life Assurance
of Canada
 On June 8, 1906- first domestic non-life insurance company, the
Yek Tong Lin Fire and Marine Insurance Company,
 On 1910- the first domestic life insurance company, the Insular
Life Assurance Co., Ltd.,
 In 1936- Social insurance was established
 In 1937- Government Service Insurance System (GSIS) started its
operation, this covers government employees
 In 1949- a government agency was formed to handle insurance
affairs, Insular Treasurer was appointed Commissioner ex-
officio.
 In 1950- reinsurance was introduced with Reinsurance Company
of the Orient writing treaties for both life and non-life
 On 1951- The first workmen's compensation Pool
 In 1954- R.A. No. 1161 which provides for the organization of the
Social Security System (SSS) covering employees of the private
sector
Sources of insurance law in the Philippines
 During the Spanish period,Title VII of Book Two and Section III
of Title III of Book Three of the Code of Commerce, and in
Chapters II and IV of Title XII of Book Four of the old Civil
Code of 1889
 When Act No. 2427 (enacted on December 11, 1914.),
otherwise known as the Insurance Act, took effect on July 1,
1915 during the American regime, the provisions of the Code
of Commerce on insurance were expressly repealed.
 Thereafter when R.A. No. 386, otherwise known as the Civil
Code of the Philippines, took effect on August 30, 1950 (Lara
vs. del Rosario, 94 Phil. 778 [1954].), those provisions of the
old Civil Code on insurance (Arts. 1791-1797 and 1802-1808.
were also expressly repealed.
 Presidential Decree No. 612, as amended, which ordained
and instituted the Insurance Code of the Philippines, was
promulgated and became effective on December 18,1974
during the period of martial law. It repealed Act No. 2427, as
amended. Before Presidential Decree No. 612, amendments
to the Act were made by Presidential Decrees No. 63,123,
and 317.
 Presidential Decree No. 1460 consolidated all insurance laws
into a single code known as the Insurance Code of 1978
which was issued and took effect on June 11, 1978. Basically,
it reenacted Presidential Decree No. 612, as amended. It has
been amended by Presidential Decree No. 1814 and Batas
Pambansa Big. 874.
Laws governing insurance
1. Insurance Code of 1978
2. Civil Code
3. Special Laws
 The Insurance Code of 1978 (Pres. Decree
No. 1460.);
 The Revised Government Service
Insurance Act of 1977 (Pres. Decree No.
1146, as amended.), with respect to
insurance of government employees; and
 The Social Security Act of 1954 (R.A. No.
1161, as amended.), with respect to
insurance of employees in private
employment.
4. Others- Insofar as the Civil Code is concerned, the Code
of Commerce is considered a special law.
Applicability of the Civil Code
Accordingly, our Supreme Court has held that:
(1) Where the insurance company's consent to the policy was
vitiated by error (see Arts. 1330,1331, Civil Code.), such fact may
give rise to the nullity of the contract (Lucero Vda. de Sindayen
vs. Insular Life Assurance Co., 62 Phil. 9 [1935].);
(2) The contract for a life annuity was not perfected where the
acceptance of the application by the home office of the insurer
(see Art. 1319, par. 2, Civil Code.) never came to the knowledge
of the applicant who died (Enriquez vs. Sun Life Assur. Co. of
Canada, 41 Phil. 209 [1920].);
(3) An insurance contract is null and void where the
consideration is false or fraudulent (see Art. 1353, Civil Code;
Musngi vs. West Coast Life Insurance Co., supra.);
(4) Since the Insurance Act (now The Insurance Code) has no
provision regarding the amount of recovery in case of rescission
(see Sec. 74.), the rule found in the Civil Code which imposes the
obligation of mutual restitution (see Art. 1385, Civil Code.) should
apply (Filipinas Compania de Seguros vs. Nava, 17 SCRA 210
[1966].);
(5) A common-law wife is disqualified from becoming the
beneficiary of the insured in view of the prohibition in Article
2012 in relation to Article 739 of the Civil Code and the absence
Unless otherwise indicated, refers to Section in Insurance Code.
Sec. 2 GENERAL PROVISIONS 13 of any specific provision in the
Insurance Code on the matter (The Insular Life Assur. Co. vs.
Ebrado, 80 SCRA 181 [1977]; see Sees. 10, 53.); and
(6) The award of moral and exemplary damages in case of
unreasonable delay in the payment of insurance claims (see Sec.
244.), shall be governed by the rules under the Civil Code. (Zenith
Insurance Corporation vs. Court of Appeals, 185 SCRA 398
[1990].)
Right of subrogation of insurer to rights
of insured against wrongdoer.
Doctrine of subrogation – is process of legal substitution;
the insurer, after paying the amount covered by the insurance policy,
stepping into the shoes of the insured, as it were, and availing himself of
the latter's rights that exist against the wrongdoer at the time of the loss.
Purposes of subrogation condition in policy - to make the
person who caused the loss, legally responsible for it and at the
same time prevent the insured from receiving a double recovery
from the wrongdoer and the insurer.
Right of subrogation applicable only to property
insurance- applies only to property, and not to life insurance.
Privity of contract or assignment by insured of
claim not essential
Payment by the insurer to the insured operates as an equitable
assignment to the former of all the remedies which the latter
may have against the third party whose negligence or wrongful
act caused the loss.
Right of insured to recover from insurer instead of the
third party- The insurer cannot defeat the insured's claim
for indemnity
Right of insurer against third party limited to amount
recoverable from latter by the insured- Article 2207
makes it clear that the insurance company that has paid
indemnity "shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract
Exercise of right of subrogation by insurer discretionary.
Loss of right of subrogation by act of insured or insurer
The right of subrogation has its limitations to wit: (a) both
the insurer (of goods covered by a a bill of lading), and
the consignee are bound by the contractual stipulations
under the bill of lading; and (b) the insurer can be
subrogated only to the rights as the insured may have
against the wrongdoer.
Effect of assignment by insured of its rights against third
party to insurer
Where the insured (shipper/consignee of goods) has
assigned its rights against defendant (carrier of goods) for
damages caused to the cargo shipped to the insurer
which paid the amount represented by the loss, the case
is not between the insured and the insurer but one
between the shipper and the carrier because the
insurance company merely stepped into the shoes of the
shipper. And if the shipper has a direct cause of action
against the carrier on account of the damage to cargo,
such action can be asserted or availed of by the insurer as
a subrogee of the insured and the carrier cannot set up as
a defense any defect in the insurance policy because it is
not a privy to it.

Loss or injury for risk must be covered by the

policy- Under Article 2207, the cause of the loss or injury
must be a risk covered by the policy to entitle the insurer
to subrogation.

Right of insured to recover from both insurer

and third party- The right of subrogation given to the
insurer prevents the insured from obtaining more than
the amount of his loss. It is a method of implementing the
principle of indemnity that is at the heart of all insurance.
Section 2. Meaning of Terms  Social. —it is a plan by which the losses of the few are paid out of
(a) Contract of insurance is an agreement whereby one undertakes for a
the contributions of all members of a group.
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
Elements of the contract
"A contract of suretyship is an insurance contract only if made by a surety
who or which is doing an insurance business 1. Subject matter. — This refers to the thing insured.
2. Consideration. — The consideration for an insurance
contract is the premium paid by the insured
3. Object and purpose. — Basically, a contract of insurance is
(b) Doing/transacting an insurance business shall include :
a risk-bearing contract.
"(1) Making or proposing to make, as insurer, any insurance contract;

"(2) Making or proposing to make, as surety, any contract of suretyship as a -TITLE 1-

"WHAT MAY BE INSURED”

vocation and not as merely incidental to any other legitimate business or
activity of the surety;

"(3) Doing any kind of business, including a reinsurance business, Section 3. Any contingent or unknown event, whether past or future, which may damnify a
specifically recognized as constituting the doing of an insurance business
person having an insurable interest, or create a liability against him, may be insured against,
within the meaning of this Code;
subject to the provisions of this chapter.
"(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. The consent of the spouse is not necessary for the validity of an insurance policy taken out by a
married person on his or her life or that of his or her children.
"In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or transactions or All rights, title and interest in the policy of insurance taken out by an original owner on the life or
that no separate or direct consideration is received therefor, shall not be
health of the person insured shall automatically vest in the latter upon the death of the original
deemed conclusive to show that the making thereof does not constitute the
owner , unless otherwise provided for in the policy.
doing or transacting of an insurance business.

Section 4. The preceding section does not authorize an insurance for or against the drawing of
any lottery, or for or against any chance or ticket in a lottery drawing a prize.
(c) Commissioner – the Insurance Commissioner.

Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the
provisions can apply.

-TITLE 2-

“PARTIES TO THE CONTRACT”

CHAPTER I
Section 6. Every corporation, partnership, or association, duly authorized to transact insurance
THE CONTRACT OF INSURANCE- is an agreement by which one party (insurer) forbusiness as elsewhere provided in this Code, may be an insurer.
a consideration (premium) paid by the other party (insured), promises to pay money or its
equivalent or to do some act valuable to the latter (or his nominee), upon the happening  Insurer- those who are duly authorized to transact insurance business
of a loss, damage, liability, or disability arising from an unknown or contingent event.
Section 7. Anyone except a public enemy may be insured.

Nature and characteristics of an insurance contract  Who may be insured?

 Consensual
 Voluntary
 Aleatory in the sense that it depends upon some contingent event
 Unilateral contract- imposing legal duties only on the insurer who promises
to indemnify in case of loss.
 Conditional- it is subject to conditions the principal one of which is the
happening of the event insured against
 Contract of indemnity- because the promise of the insurer is to
make good only the loss of the insured
 Personal contract- each party having in view the character, credit
o Anyone except public enemy.
Section 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 to 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.
 Unless the policy otherwise provides, the insurance is deemed to be upon
the interest of the mortgagor.

and conduct of the other. Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a
 Property in legal contemplation. mortgagee, and, at the time of his assent, imposes further obligations on the assignee, making
a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee.
A definition of insurance may be made from several viewpoints:

 Economic. —reduces risk by a transfer and combination (or

"pooling") of uncertainty in regard to financial loss;
 Business. —a plan by which large numbers of people associate
themselves and transfer to the shoulders of all, risks that attach to
individuals.
 Mathematical. — to calculate the chance of loss, (see Note 10.)
Thus, in life insurance, the principles of probability are applied to
statistical results of past experience represented by a mortality
table.