INSURANCE MIDTERMS – ATTY.

MIGALLOS BALMEO, JAN

 Contract of Insurance
An agreement whereby one undertakes for a
consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event. [Sec 2a]
 Subject Matter – Thing insured
 Consideration – premium
 Object – transfer and distribution of the risk of loss,
damage or liability
other party shall give or do upon the happening of an event
which is uncertain. [ 2010 NCC]
 Executed, Executory – Executed as to the insured,
executory as to insurer until the loss.
 Conditional – subject to conditions which must occur or be
complied with.
 Contract of Indemnity – promise to make good of the loss
 Not as to life or accident insurance
 Personal - between the insurer and insured having in view
the character, credit, conduct of the other.

 Contract of Suretyship shall be deemed an insurance

contract only if made by a surety who is doing an insurance Article 2012
business. Any person who is forbidden from receiving any donation
under article 739 cannot be named beneficiary of a life
ELEMENTS: [MICAR] insurance policy by the person who cannot make any donation
 Insurable Interest to him, according to said article.
 Cause – Peril insured against
 Assumption of risk
 Risk Distributing Scheme COPING WITH RISK
 Consideration- Premium  Limiting the probability of loss
 Meeting of the minds  Limiting effects of loss
 Self-insurance or self-financing
 Ignoring Risk
CHARACTERISTICS:  Transferring risk to another
 Consensual – perfected by the meeting of the minds
 Voluntary – it is not compulsory and the parties may Risk Preferring – Choose to forego certain loss in the hope
incorporate such terms and conditions as they may deem of incurring no loss
convenient. Risk Neutral – indifferent as to alternatives
 Some may arise by law or some provisions may be required Risk Averse – Choose to lose P500 with certainty instead
 Aleatory – one or both of the parties reciprocally bind of losing 50%chance
themselves to give something in consideration of what the
FIELDS OF INSURANCE
INSURANCE MIDTERMS – ATTY. MIGALLOS
1. Social Insurance - compulsory and is designed
to provide minimum of economic security for
large groups of persons.
2. Voluntary or Private – sought by the insured to
meet a recognized need for protection.
 Commercial
 Cooperative
 Voluntary Government
CLASSIFICATIONS UNDER THE CODE
1. Life insurance contracts
 Individual
 Group life
 industrial
2. Non-Life insurance contracts
 Marine
 Fire
 Casualty
3. Contracts of Suretyship
 All provisions of the insurance policy should be
examined in consonance with each other.
 Contract of adhesion; Construed in favor of insured.
DOING INSURANCE BUSINESS [sec2b]
- Making or proposing to make, as insurer any
insurance contract
- Making or proposing to make as surety any contract
of suretyship as a vocation
BALMEO, JAN
- Any kind of business including reinsurance
- Business substantially equivalent to foregoing
 The name or designation by insurer not controlling.
 A company may be found to engage in an insurance
business even though it disclaims any intention to sell
insurance.
 Contract for payment of burial or funeral expenses at
the death of the holder is insurance.
 Fact that no profit is derived from the making of
insurance not proof of not doing business of insurance.
PRINCIPAL OBJECT AND PURPOSE TEST
- If the principal object and purpose is indemnity, the
contract constitutes insurance
- If purpose is service, risk transfer being merely
incidental – not insurance
HMO – undertake to provide prepaid medical services through
participating physicians thus relieving financial burden
- Indemnification is incidental
Health Insurers – undertake to indemnify for medical expenses
up to rates stated in policy.
EVENT/PERIL – such that its happening will:
1. Damnify or cause loss to a person
2. Creates liability upon insurer
INSURANCE MIDTERMS – ATTY. MIGALLOS BALMEO, JAN

 Insurance Contact entered by minor is voidable not

void. Insurer cannot plead minority as defense. Certificate of Authority from Insurance Commissioner
- Requirement for corporations or individuals
 Upon death of the original owner of a policy taken by to engage in insurance
him on the life of a person, all rights, title , interest shall  Business of Insurance is affected with public interest.
automatically vest on the latter.
CAPACITY OF PARTY INSURED
 No insurance for lottery. - Competent to contract
- Insurable interest
GAMBLING INSURANCE - Must not be a public enemy
Gain thru chance Distribute loss
Courts fortune Avoid misfortune Public Enemy
Increase inequality of Equalize fortune - Nation with whom the Philippines is at war and it
fortune citizens.
Whatever one wins is What one insured gains is  Private Corp organized under Phil Laws which is controlled
lost by the other not at expense of another by enemy aliens is deemed an enemy.
Creates risk of loss to Removes the risk
himself United States Rule
- Policy ceases to be valid and enforceable as soon as
SIMILARITY: one promises to pay upon the occurrence of a insured becomes a public enemy.
given future event. - Termination of war does not revive contract.

 Contract of life annuity was not perfected where the  Excess of premiums paid shall be returned [ Filipinas cia de
acceptance of the application by the home office never Seguros v Christern]
came to knowledge of the applicant who died.
[ Enriquez v Sun Life]  Right of subrogation is not dependent on privity of
contract; simply accrues upon payment of the insurance
[ Pan Malayan v CA]
PARTIES TO INSURANCE CONTRACT:
 Insurer – Party who assumes risk and undertakes for
consideration to indemnify the insured
MORTGAGE CONTRACT
 Insured – owner of property insured.
Mortgagor
 Assured/ Beneficiary – person to receive
INSURANCE MIDTERMS – ATTY. MIGALLOS BALMEO, JAN

 as the owner, has an insurable interest therein to the
extent of its value.
 If he insures his own interest, does not insure to the
benefit of the mortgagee.
 He may also designate mortgagee as beneficiary:
1. As assignee with consent of insurer
2. Pledgee
3. Adding a Rider
4. Standard Mortgage Clause
5. Terms payable absolutely to mortgagee
In this case, upon recovery of mortgagee, debt is extinguished.
Mortgagee becomes trustee of proceeds to the excess of debt.
Mortgagee
 has insurable interest to the extent of the debt; he is not
insuring the property but his interest or lien.
 If he insures his own interest independently of the
mortgagor he is entitled to the proceeds in case of loss
BEFORE payment of the mortgage.
- Insurer will be subrogated; mortgagor not
relieved.
 If no stipulation, subrogation does not apply unless
mortgagee insures only his interest.
 If insurer assents with the assignment of insurance
to mortgagee and imposes further obligations, acts
of mortgagor cannot affect rights of mortgagee. -
NOVATION
 Fire insurance- not assignable;
strictly personal
 Marine -assignable even without
consent
 Casualty Policy – not assignable
without consent
 Life – assignable as long as to a
person with interest

STANDARD MORTGAGE LOSS PAYABLE CLAUSE

CLAUSE
Acts of mortgagor do not Acts of m’gor affect
affect mortgagee
Makes separate and distinct M’gee mere beneficiary
the interest of m’gee

 If there’s a stipulation that the insurer shall be

subrogated to the rights of mortgagee, payment of Insurable Interest
policy will not discharge debt. - the interest which the law requires the owner of an
insurance policy to have in the person or thing insured.
INSURANCE MIDTERMS – ATTY. MIGALLOS
- Every interest, relation, liability of such nature that a
contemplated peril might directly damnify the insured.
- To prevent wager policy.
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
(d) Of any person upon whose life, any estate or interest vested
in him depends.
GENERAL CLASSES:
1. Upon own’s life
2. Upon life of another
Evidence of wagering
a. Original proposal from beneficiary
b. Premiums
c. Beneficiary has no interest
 Life insurance is no different from civil donation, both are
founded liberality.
BALMEO, JAN
 LI policy taken by a spouse on his life in favor of the other
takes effect affect the death of the insured.
 Married woman may take out an insurance on her life or
that of her children without husband’s consent [Sec3]
 Interest must be a pecuniary one.
 If owner of the policy insures the life of a friend and
designates a third beneficiary, both of them must have an
insurable interest over the life of the insured.
 GR: beneficiary doesn’t need insurable interest
 EXP: needs interest if the owner is not the insured
 If owner insures his own life for the benefit of his friend –
valid
 A person may take out a policy of insurance on his
own life and make it payable to whomsoever he
pleases.
 EXP: forbidden to receive donations
 If owner insures life of his friend him being the beneficiary
– not valid
 Mere relationship by affinity ordinarily doesn’t constitute
insurable interest, there must be an expectation of
pecuniary benefit.
 Employer may insure the life of the employee and vice
versa.
DEBTOR – CREDITOR RELATIONSHIP
 Debtor who insures his life and made payable to his
creditor
INSURANCE MIDTERMS – ATTY. MIGALLOS
 Full payment of debt does not invalidate
policy , proceeds go to estate of debtor.
 Creditor may insure his debtor’s life for the purpose of
protecting his debt but only to such extent.
 Doesn’t inure to the benefit of debtor unless
stipulated; extra proceeds won’t be given to
debtor
 Could only to recover such amounts as
remain unpaid at the time of death of the
debtor
 When a valid debt becomes subsequently unenforceable by
reason of being barred by prescription does not cut off
insurable interest of creditor.
Insurable interest in life of person upon which estate depends
- Usufruct; A has insurable interest over life
of the owner of the property involved
 Consent of the person insured is not essential.
KINDS OF BENEFICIARY
1. Insured himself / Assured
2. Third person who paid consideration
3. Third person gratuitously
 Owner has the power to change beneficiary without his
consent unless expressly waived in the policy.
BALMEO, JAN
 Insured’s power to extinguish the beneficiary’s interest
ceases at his death
 Vested right should be measured on its full face value not
on its cash surrender value.
 Interest of beneficiary shall be forfeited when the
beneficiary is the principal, accomplice or accessory.
 Death of the insured at the hands of the law is one of the
risks assumed by insurer.
 Suicide will not invalidate if for benefit of another.
 Suicide of insured while insane will not discharge the
insurer from his liability.
 Insured died while committing a felony won’t invalidate
policy.
Section 13. Every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest.
 Although a person has no title, legal or equitable, in the
property, and neither possession nor right to possession is
essential.
E.g. Sold mortgaged property ; still has insurable
interest over that prop
Section 14. An insurable interest in property may consist in:
INSURANCE MIDTERMS – ATTY. MIGALLOS
(a) An existing interest;
- Legal or equitable
(b) An inchoate interest founded on an existing interest; or
- Stockholder has an inchoate interest in the
property of corporation.
- Partner has insurable interest in partnership
property
(c) An expectancy, coupled with an existing interest in that
out of which the expectancy arises.
- Farmer as to his crops
- Owner as to possible cessation of business
 Depository has interest in a thing held by him as to extent
of his liability.
 Mere contingent or expectant interest not insurable
- Son cannot insure property he expects to
inherit
- Beneficiary in will has no interest in
property designated before the testator’s
death
 Any contract of property insurance that gives to the insured
more than indemnity against his actual loss that may be
suffered – wagering policy hence is void.
 Life insurance contracts are not contracts of indemnity.
 Insurable interest in life is unlimited while as to property,
actual value.
WHEN INSURABLE INTEREST MUST EXIST
BALMEO, JAN
PROPERTY LIFE
Date of execution of the Time policy procured
contract
Date of occurrence of risk
 Interest insured need not exist in the meantime [sec 19].
CHANGE OF INTEREST – suspends
Exceptions: [ CPELT]
1. Life, Health and accident insurance
2. Change of interest after occurrence of injury
3. Change in one or more of several things insured
4. Change by will or succession
5. Transfer of interest by one of several partners
6. Policy inure to the benefit of whomsoever
7. Express prohibition against alienation – voids the
policy
 After loss happened the liability of the insurer becomes
fixed.
 When the contract is divisible and the violation of a
condition which avoids the policy with respect to one or
more of the things does not affect the others.
 Insurance passes automatically on the death of insured to
the heirs.
 A transfer of interest by a partner to other partners will not
avoid insurance unless a condition is provided that no
transfer is allowed without consent.
 A sale by a partner of his interest to a stranger ends the
contract of insurance as to him but does not affect the
insurance as to others.
INSURANCE MIDTERMS – ATTY. MIGALLOS BALMEO, JAN

 Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is
not determined by concept of title, but whether insured
has substantial economic interest in the property [ Gaisano
Cagayan v ICNA]
CONCEALMENT
Section 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
 Insurance policies are contracts uberrimae fidae
 Existence of fraud not required
 Sense of impossibility for insurer
Matters that must be communicated:
1. Material information
2. Other has no means of ascertaining
3. No warranty
 The effect of material concealment cannot be avoided
by the allegation that the insurer could have known and
discovered the illness.
 Concealment as to falsity of warranty – fraudulent
intent is necessary in order to be rescinded.

The devices of concealment and representation were originally

developed for the purpose of enabling the insurer to secure the
same information with respect to risk.

Requisites:
1. Party knows the fact
2. Such party is duty bound to disclose such fact
3. No warranty made
4. Other party has no means of ascertaining the fact
concealed.

Section 27. A concealment whether intentional or unintentional

entitles the injured party to rescind a contract of insurance.
Section 30. Neither party to a contract of insurance is bound to
communicate information of the matters following, except in
 Makes contract voidable at the insurer’s option. answer to the inquiries of the other: [POWR]
INSURANCE MIDTERMS – ATTY. MIGALLOS BALMEO, JAN

 Neither party to a contract of insurance is bound to

(a) Those which the other knows; communicate, even upon inquiry, information of his own
judgment upon the matters in question.
(b) Those which, in the exercise of ordinary care, the other
ought to know, and of which the former has no reason to
suppose him ignorant;

(c) Those of which the other waives communication;

(d) Those which prove or tend to prove the existence of a

risk excluded by a warranty, and which are not otherwise
material; and

(e) Those which relate to a risk excepted from the policy and
which are not otherwise material.

Section 31. Materiality is to be 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 disadvantages of the proposed
contract, or in making his inquiries.

 When the contract is already complete and binding there

can be no duty resting upon the insured to disclose.
 For reinsurance , if the contract is to be effective only upon
the issuance of the policy there’s duty to disclose.
 Insured need not communicate public events.
 Right to information of material facts may be waived .