Insurance is risk distributing= the risk to pay the policy amount is

distributed among policy holders. The amount is taken from the premium
paid by each of the policy holders
Example: A, B, and C contracted a fire insurance from X. If C's house
caught fire, X will get an amount from the common fund to pay C

Risk shifting= the risk is shifted into one person

Example: A and B enter into a contract where, if B's house caught fire, A
will pay him out of A's own funds.

CHARACTERISTICS OF A CONTRACT OF INSURANCE

1. Aleatory= liability of insurer depends on the happening of an unknown or
contingent event (what if). It is not a wagering contract. In a wagering
contract, the risk is not distributed, and there is no event subject of the
contract. Wagering is anchored on chance and there is profit. There is no
profit in insurance.
2. Indemnity= nonlife. Indemnity is for actual loss only. It is an Investment
for life insurance. The life insurance is for security since there is no value on
life. If creditor insures the debtor's life, the amount is up to the value of the
debt. But if it is a property insurance, you can only recover what you have
lost.
3. Personal= contracts will depend on the character of the parties. Fraud is
a ground for rescission or cancellation of the contract. The insurer may
want to insure a property if it belongs to one person, but not if another
person owns it. The insured must have insurable interest over the property.
Example: A cannot insure his uncle's building
4. Executory and conditional= when the event happens, the insurer is
obliged to pay the insured. At the time of execution, there is no obligation
to pay. Example: Insurer is obliged to pay when fire consumes a building,
not before.
On the part of the insured, it is already executory upon payment of the
premium.
5. Perfect good faith= Both parties must be in good faith. The insurer is
more observed for good faith than insured. The insurer has stricter liability.
6. Adhesion= terms are prepared by insurer. The client only signs, there is
no negotiation.
7. Consensual= perfected by meeting of minds. The parties talk about how
much premium to pay. Unless otherwise stated, the policy is merely the
evidence of the terms; it is not essential to perfection.
*Cognition Theory= An acceptance made by letter is invalid unless the
insurer knows about it
8. Voluntary= Getting insured is not compulsory, parties may incorporate
provisions in the insurance as long as not contrary to law, morals, and
public policy.
Expns:
a. Employees in a hazardous condition
b. Motor Vehicle= third party liability

9. Unilateral= only the insurer has an obligation

10. Onerous= premium must be paid

CONSTRUCTION OF AMBIGUITIES IN THE CONTRACT

Hierarchy of Rules to Interpret
1. Plain language= if there is no doubt, interpret the contract as is.
2. When there is no doubt, it shall be interpreted with its plain meaning.
However, in case of doubt, it must be construed in the favor of the insured
and against the insurer (Reason: Insurance is a contract of adhesion)
3. The provisions must be read in entirety and not segregated in
determining the parties' intent. Connect the vague provision to the entirety
of the contract.
*Theory of Cognition= acceptance binds offeror only from the time he
knows it. Perfection happens when Insurer knows that the client accepted
the offer.
= meeting of the mind is upon the knowledge of the insured or the
offer of the acceptance of the insurer or the offeree. The law does not
require the consent of the person insured because it is not important
to the validity of the contract.

*Theory of Manifestation= acceptance binds offeror when oferee accepts.

Perfection happens when the client accepts--it does not matter whether or
not the Insurer knows of the acceptance.

ELEMENTS:
1. Existence of insurable interest= insurable interest is capable of pecuniary
estimation (nonlife). Expn: creditor insurer debtor's life. The insured will
suffer loss when the event insured against happens. Without interest, the
insurance is void. Without interest, the insured will not suffer loss.
2. Risk of loss= insured is subject to risk of loss when the designated risk
happens.
3. Assumption of risk by insurer
4. Risk Distributing
5. Payment of premium= insured pays a contribution to the general fund.
The amount depends on the property insured. Higher risk means higher
premium.

PERFECTION OF INSURANCE CONTRACT

Perfection happens at the time of agreement of the object and
consideration. Applying TOC, perfection happens when the Insurer knows
that the oferee accepted

CONSENT REQTS:
Generally, consent of person insured is not required, as long as there is
insurable interest at the beginning.
In life insurance, insurable interest must exist at the beginning. For a
property, insurable interest must exist at the beginning and when the event
happens. The insurable interest may not exist in between that time.
For example: A insured his house then sold it. Then, he repurchased the
house. The house was destroyed by fire. At that point, A has insurable
interest.
The wife does not need hubby's consent to insure her life (or property) or
the kids' life.

NOTE!!!
STOPPED AT: ACCEPTANCE AND OFFER
TO BE DISCUSSED: WHAT IS INSURABLE INTEREST