REVIEWER:

I.GENERAL PROVISIONS
II.DEFINE INSURANCE CONTRACT
- A contract of insurance is an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or
contingent event.

III.SURETYSHIP AS INSURANCE CONTRACT

- A contract of suretyship shall be deemed to be an insurance contract only if made by
a surety who or which, as such, is doing an insurance business.

IV.INSURANCE BUSINESS
- The term doing an insurance business or transacting an insurance business, within
the meaning of this Code, shall include:
(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 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, specifically
recognized as constituting the doing of an insurance business within the meaning of
this Code;
(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 fact that no profit is derived from the making of insurance contracts, agreements
or transactions or that no separate or direct consideration is received therefor, shall not
be deemed conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.

CASES:
A. MUTUAL INSURANCE
- are entities that are doing an insurance business within the contemplation of the
insurance code. It is a company owned by policy holders. It is designated to promote
the welfare of its members and the money collected from among them is solely for their
own protection.

- mutual insurance company is a cooperative enterprise where the members are

both the insurer and insured. In it, the members all contribute, by a system of
premiums or assessments, to the creation of a fund from which all losses and liabilities
are paid, and where the profits are divided among themselves, in proportion to their
interest. Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs.

B. HMO (Health Maintenance Organizations)

- refer to a juridical entity legally organized to provide or arrange for the provision of
pre-agreed or designated health care services to its enrolled members for a fixed pre-
paid fee for a specified period.

- Principal Object and Purpose Test

 Under the so-called "principal object and purpose test," if the principal object and
purpose is "indemnity the contract constitutes insurance, but if it is "service," risk
transfer and distribution being merely incidental, then the arrangement is not insurance
and, therefore, not subject to laws regulating insurance, (see Jordan vs. Group Health
Association, 107 F. 2D 239; California Physician's Service vs. Garrison, 172 P. 2D 4.)

Applying this test, a corporation such as a health maintenance organization (HMO),

whether or not organized for profit, whose main object is to provide the members of a
group with health care services, rather than the assumption of insurance risk is not
engaged in insurance business. The basic distinction between medical service
corporations and ordinary health and accident insurers is that the former, undertake to
provide prepaid medical services (at reduced cost, not to distribute risk like an insurer)
through participating physicians, thus relieving subscribers of any further financial
burden, while the latter undertake to indemnify an insured for medical expenses up to,
but not beyond, the schedule of rates contrained in the policy. Even if the former
assumes the risk of paying the cost of these services that may be more than a member
has prepaid, it nevertheless cannot be considered as being engaged in the insurance
business because any indemnification resulting from the payment for services even if
rendered in case of emergency would still be incidental to main purpose of providing
and arranging for health care services. (Philippine Health Care Provider, Inc. vs.
Comm. of Internal Revenue, 600 SCRA 413 [2009].)

V.WHAT MAY BE INSURED AGAINST

- Any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest, or create a liability against him, may be insured
against

NOTE:
(1) The consent of the husband is not necessary for the validity of an insurance policy
taken by a MARRIED woman on her life and that of her children. Under Article 145 of
the Family Code, she can also insure her separate property without the consent of the
husband. (2) A minor may take out a contract for life, health and accident insurance
with any company authorized to do business in the Philippines, provided it be taken out
on his own life and the beneficiary named is his estate, father, mother, husband, wife,
child, brother or sister. In so doing, the married woman / minor may exercise all the
rights or privileges under the policy.

VI.WHAT CANNOT BE INSURED

- 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.

VII.CHARACTERISTICS
1. IT IS AN ALEATORY CONTRACT – the liability of the Insurer depends upon the
happening of a contingent event. It is not a wagering contract.
2. IT IS A CONTRACT OF INDEMNITY FOR NON-LIFE – recovery is commensurate
to the loss.
 IT IS AN INVESTMENT IN LIFE INSURANCE – secured by the insured as a measure
of economic security for him during his lifetime and for his beneficiary upon his death
EXCEPT one secured by the creditor on the life of the debtor.
3. IT IS A PERSONAL CONTRACT – an insurer contracts with reference to the
character of the insured and vice versa.
4. IT IS EXECUTORY AND CONDITIONAL ON THE PART OF THE INSURER –
because upon happening of the event or peril insured against, the conditions having
been met, it has the obligation to execute the contract by paying the insured. IT IS
EXECUTED ON THE PART OF THE INSURED after the payment of the premium
5. IT IS ONE OF PERFECT GOOD FAITH for both Insurer and Insured, but more so
for the INSURER, since its dominant bargaining position imposes a stricter
liability/responsibility.
6. IT IS A CONTRACT OF ADHESION – Insurance companies manage to impose
upon the insured prepared contracts which the insured cannot change.

CASE:
Eternal Gardens Memorial Park Corporation v. Philippine American Life
Insurance Company
May the inaction of the insurer on the insurance application be considered as
approval of the application?

Rule: Yes. insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated.
Hence, in order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either deny or
approve the same, or otherwise be bound to honor the application as a valid, binding,
and effective insurance contract.

VIII.ESSENTIAL ELEMENTS (I-R-A-D-P)

I-nsurable Interest

INSURABLE INTEREST:

Is that interest which a person is deemed to have in the subject matter, where he has a
relation or connection with or concern in it, such that the person will derive pecuniary benefit
from the preservation of the subject matter or will suffer pecuniary loss or damage from its
destruction or injury by the happening of the event insured against.

Important:
1. measures the limit of recovery
2. a determination as to the validity of an insurance contract upon consideration of
public policy.

R-isk of Loss
A-ssumption of Risk
D-istribution of Losses
P-remium
 Risk is an element of an insurance contract that the insured is subject to a risk of loss
by the happening of a designated peril.

IX.WHO ARE THE PARTIES TO A CONTRACT OF INSURANCE

1. INSURER – Every person, partnership, association or corporation duly
authorized to transact insurance business as provided in the Code may be an insurer.
It is the party who agrees to indemnify another upon the happening of specified
contingency (Section 6).

2. INSURED – Party to be indemnified in case of a loss (Section 7).

- Anyone except a public enemy may be insured.

PUBLIC ENEMY = Country or citizen which the Philippines has was with (only enemies
at war, thus terrorist may enter into a contract)

- WHY – the purpose of war is to cripple the power and exhaust the resources of the
enemy, and it is inconsistent to destroy it’s resources then pay it the value of what has
been destroyed)

X. INSURANCE IN MORTGAGE
WHO MAY INSURE A MORTGAGED PROPERTY
Both the Mortgagor and Mortgagee may take out separate policies with the same or
different companies. The mortgagor – to the extent of the value of his property, the
mortgagee – to the extent of his credit (Section 8).

WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE

PROPERTY MORTGAGED IN HIS OWN NAME BUT MAKES THE LOSS PAYABLE
TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM.

UNLESS THE POLICY PROVIDES OTHERWISE

a. The insurance is still deemed to be upon the interest of the mortgagor who does not
cease to be a party to the original contract. HENCE, if the policy is canceled, notice
must be given to the mortgagor.

b. Any act of the mortgagor, prior to loss, which would otherwise avoid the policy or
insurance, will have the same effect, although the property is in the hands of the
mortgagee. HENCE, if there is a violation of the policy by the mortgagor, the
mortgagee cannot recover.

c. Any act required to be done by the mortgagor may be performed by the mortgagee
with the same effect as if it has been performed by the mortgagor.

Example: if notice of loss is required, the mortgagee may give it.

d. Upon the occurrence of the loss, the mortgagee is entitled to recover to the
extent of his credit, and the balance, if any, is to be paid to the mortgagor, since
such is for both their benefits.
 e. Upon recovery by the mortgagee, his credit is extinguished.
IF ON THE OTHER HAND, (Section 9), the Insurer assents to the transfer of the
insurance from the mortgagor to the mortgagee, and at the time of his assent, imposes
further qualifications on the assignee, making a new contract with him, the acts of the
MORTGAGOR cannot affect the rights of the assignee – NOTE UNION MORTGAGE
CLAUSE – Creates the relation of insured and insurer between the mortgagee and the
insurer independent of the contract of the mortgagor. In such case, any act of the
mortgagor can no longer affect the

rights of the mortgagee – the insurance contract is now independent of

that with the mortgagor.

XI.WHAT IS THE EFFECT OF INSURANCE PROCURED BY THE MORTGAGEE

WITHOUT REFERENCE TO THE RIGHT OF THE MORTGAGOR.
a. The mortgagee may collect from the insurer upon occurrence of the loss to the
extent of his credit.
b. Unless, otherwise stated, the mortgagor cannot collect the balance of the proceeds,
after the mortgagee is paid.
c. The insurer, after payment to the mortgagee, becomes subrogated to the rights of
the mortgagee against the mortgagor and may collect the debt to the extent paid to the
mortgagee.
d. The mortgagee after payment cannot collect anymore from the mortgagor BUT if he
is unable to collect in full from the insurer, he can recover from the mortgagor.
e. The mortgagor is not released from the debt because the insurer is subrogated in
place of the mortgagee.

XII.BENEFICIARY
BENEFICIARY – the person who receives the benefits of an insurance policy upon its
maturity.

XIII.WHO MAY BE A BENEFICIARIES IN LIFE INSURANCE

- Anyone, except those who are prohibited by law to receive donations from the
insured. Note Article 739 of the Civil Code, hence the following cannot be designated
as beneficiaries (1)Those made between persons guilty of adultery or concubinage at
the time of the designation (2)Those found guilty of the same criminal offense in
consideration thereof (3) Those made to a public officer or his wife, descendants /
ascendants by reason of his office.

- A PRIOR CONVICTION FOR ADULTERY / CONCUBINAGE IS NOT REQUIRED, it

can be proven by a preponderance of evidence in the same action nullifying the
designation. Note the cases of Insular Life vs. Ebrado, 80 SCRA 181, where a
common law wife of the insured who is married could not be named as a beneficiary
and SSS vs. Davac, 17 SCRA 863, where the insured designated his second wife as a
beneficiary was upheld as the latter was not aware of the first marriage.

- The disqualification does not extend to the children of the adultery or concubinage in
view of the express recognition of the successional rights of illegitimate children (Article
287, NCC and Article 176, Family Code).
XIV.MUST THE BENEFICIARY HAVE INSURABLE INTEREST ON THE LIFE OF THE
INSURED
- It is recognized that the insured may name anyone he chooses, except those
disqualified to receive donations, as a beneficiary in his life insurance, even if he is a
stranger and has no insurable interest in the life of the insured. The designation,
however, must be in GOOD FAITH AND WITHOUT FRAUD OR INTENT TO ENTER
INTO A WAGERING CONTRACT.

XV. CAN THE BENEFICIARY BE CHANGED

The insured shall have the right to change the beneficiary he designated – unless he
has expressly waived the right in the policy (Section 11)

- If he has waived the right, the effect is to make the designation as irrevocable.
Note: though that the designation of the guilty spouse as irrevocable beneficiary is
revocable at the instance of the innocent spouse in cases of termination of (1) a
subsequent marriage (2) nullification of marriage (3) annulment of marriage, and (4)
legal separation (Article 43 (4) Family Code)

XVI.WHAT IS THE EXTENT OF THE INTEREST OF THE IRREVOCABLE

BENEFICIARY IN A LIFE INSURANCE CONTRACT
The beneficiary has a vested right that cannot be taken away without his consent. In
fact should the insured discontinue payment of the premium, the beneficiary may
continue paying. Neither can the insured get a loan or obtain the cash surrender value
of the policy without his consent (Nario vs. Philamlife,20 SCRA 434).

Note where the wife and minor children were named Irrevocable beneficiaries, wife
dies, the husband seeks to change the beneficiaries with the consent of the children.
The consent is not valid due to minority (Philamlife vs. Pineda, 170 SCRA 416).

XVII.WHAT IS THE EFFECT OF THE FAILURE TO DESIGNATE OR BENEFICIARY IS

DISQUALIFIED
- The benefits of the policy shall accrue to the estate of the insured.

XVIII.WHO RECOVERS IF BENEFICIARY PREDECEASES THE INSURED

- IF DESIGNATION IS IRREVOCABLE, the legal representatives of the beneficiary
may recover unless it was stipulated that the benefits are payable only “IF LIVING”.

- IF DESIGNATION IS REVOCABLE, and no change is made, the benefits passes to

the estate of the insured. The rule holds also if benefits were payable “only if living” or
“if surviving” and the beneficiary dies before the insured.

XIX.WHAT HAPPENS TO INTEREST OF THE BENEFICIARY IN LIFE INSURANCE

WHERE HE WILLFULLY KILLS THE INSURED

- If the killing is WILLFUL, the interest is forfeited if he is the principal, an accomplice,

or an accessory. The NEAREST RELATIVE OF INSURED GETS THE PROCEEDS IF
NOT OTHERWISE DISQUALIFIED (Section 12). If not willful or felonious, the provision
does not apply.
 LIFE VS NON LIFE INSURANCE
XX.LIFE INSURANCE
“SEC. 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.

XXI.WHAT IS THE BASIS OF INSURABLE INTEREST IN LIFE

- It exists when there is reasonable ground founded on the relation of the parties, either
pecuniary or contractual or by blood, or by affinity to expect some benefit from the
continuance of life of the insured.

XXII.WHEN MUST INSURABLE INTEREST IN LIFE EXIST

- Insurable interest in life must exist at the time of the effectivity of the policy and need
not exist at the time of the death of the insured as life insurance is not a contract of
indemnity.

IT IS MEANT TO GIVE FINANCIAL SECURITY EITHER TO THE INSURED OR HIS

BENEFICIARIES (Section 19).However, insurable interest of a creditor on the life of a
debtor must exist not only at the time of effectivity but also at the time of the death of
the debtor– as in this instance it is a contract of indemnity. HIS INTEREST IS
CAPABLE OF EXACT PECUNIARY MEASUREMENT

XXIII.NON-LIFE INSURANCE
WHAT IS THE TEST OR MEASURE OF INSURABLE INTEREST IN PROPERTY
- Whether one will derive pecuniary benefit or advantage from its preservation or will
suffer pecuniary loss or damage from its destruction. (Section 17)

XXIV.MUST THE BENEFICIARY IN PROPERTY INSURANCE HAVE INSURABLE

INTEREST ON THE PROPERTY INSURED
- YES, as no contract or policy of insurance on property shall be enforceable EXCEPT
for the benefit of some person having insurable interest in the property insured.

XXV.WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST

- Must exist at the time the insurance takes effect and when the loss occurs but need
not exist in the meantime (Sec. 19)

XXVI. CHANGE OF INTEREST

- a change of interest in any port of a thing insured in accompanied by a corresponding
change of interest in the insurance suspends the insurance to an equivalent extent
until interest in the thing and interest in the insurance is vested in the same person.
XXVII.EXEMPTION OF THE CHANGE
1. Life, Health or accident insurance because they are not contracts of indemnity and
insurable interest is not required at the time of loss.
2. A change of interest after occurrence of an injury and results in loss – does not affect
the right of the insured to indemnity – (Sec 21- after loss – the liability of the insurer is
fixed
3. a change of interest in one or more several distinct things, separately insured by one
policy, does not avoid the insurance as to the others. (Sec 22)
4. a change of interest by will or succession on the death of the insured does not avoid
the insurance – his interest passes on the thing insured (Sec 23)
5. a transfer of interest by one or several partners, joint owners, or owners in common,
who are jointly insured – to the others, does not avoid insurance even though it has
been agreed that insurance shall lease upon an allocation of the thing insured. (Sec
24)
6. when notwithstanding a prohibition, the consent of the insurer is obtained
7. when the policy is so fraud that it will insure to the benefit of whomsoever may
become the owner during the continuance of the risk.

XXVIII.INVALID STIPULATION
“SEC. 25. Every stipulation in a policy of insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy executed by way of
gaming or wagering, is void.

The following are void stipulations in property insurance:

A. a stipulation for the payment of the loss whether the person insured has or has not
interest in the property insured – because it is a contract of indemnity.
B. Stipulation that the policy shall be received as proof of such interest – existence of
insurable interest does not depend on the policy
C. every policy issued by way of gaining or wagering shall be void. Those insured
without insurable interest – as they do not suffer a damage from the occurrence of the
event insured against – they vested profit.