Insurance is a kind of contract.
The contract - What are the major
of insurance falls under the mercantile law
rather than the civil law.
A contract of insurance is defined in Section
2 of PD 612 as amended or the Insurance
Code of the Philippines. It is an agreement
whereby one undertakes for a consideration
to indemnify another against loss, damage or
liability arising from an unknown or
contingent event.
Loss – example yong bahay nainsure ng fire
insurance nasunog that’s a loss babayaran ng
Insurer. Yong sasakyan na insured ng on
damage nabangga babayaran ng Insurer.
Liability – example sasakyan din meron
siyang third party liability nakabangga yong
driver ng tao yong tao nahospital nagkasugat
ay babayaran ng Insurer manggaling don sa
third party liability.
Contingent kasi wala naming may gusto,
nagkaroon ng aksidente hindi siya
intentional. Nagkaroon ng bunguan namatay
yong tao hindi siya intentional. Contingent
event lang yon. Nagkaroon ng sunog out of
arson, babayaran ba yon ng insurer? The
answer is no. Bakit? Hindi siya contingent
eh, it is intentional.
In the insurance contract there are two
parties, the insurer and the insured.
The contract of insurance must also comply
with the elements of a contract as general.
What are the elements of a contract of
insurance?
1. Consent
2. Object
3. Consideration
4. The insured must have an insurable
interest.
classifications of insurance?
a. Life insurance
b. Non – life insurance
- When do we say that a person
has an insurable interest? In:
a. life insurance - Insurance on
your life.
b. Property – Insurance on your
property. The owner only.
But if it was mortgage to you,
you have insurable interest.
The deposit of jewelry can be
insured by the depositary.
5. That insurable interest is exposed to
a risk.
Example your life is exposed to
death. That’s why death is a
contingent event.
Take note: if you are not exposed to
a risk then even you ‘reinsure’ the
interest there would be no insurance
contract because there is no risk that
the insurer will assume.
6. The assumption of the risk.
- That risk is assumed by the
insurer.
- Insurer - One person undertakes
the promises to indemnify
another because he is assuming
the risk.
- Example: Due to the exposure of
the insured to the risk he suffered
a loss, damage or liability, the
insurer will shoulder the
indemnity either he will pay the
loss, he will pay the damage or
he will shoulder the liability of
the insured and out of the
assumption of that risk, the
insured must pay a premium.
That’s the consideration.
 - What is the consideration to be
given to the insurer who is
assuming the risk of loss, damage
or liability for the exposure of the
insurable interest to a risk?
- Answer: payment of premium by
the insured.
We have a provision in the insurance code,
Section 77 “… no premium of payment, no
contract. Because the payment of premium
is an element of the contract. If one of the
elements of a contract of insurance is
lacking, and therefore there is no contract.
Merong na issue na policy, wala naming
insurable interest yong insured- the contract
is void.
Merong na iissue na insurance policy, the
insurable interest is not exposed to a risk-
the contract is void.
Exposed to the risk yong insurable interest
but the Insurer does not assume the risk –
there is no contract of insurance, the contract
is void.
There was issued an insurance policy, the
premium was not paid – the contract is void.
Because of the absence of the one element
of the contract of insurance.
Nature of the Contract of Insurance
1. It is an aleatory contract. Why do we
say that it is an aleatory contract?
Answer: Because the obligation of
the insurer to pay depends upon the
happening of the contingent event.
However, it is not a game of chance,
that is why you can find in the law,
particularly in the Section 4 of the
Insurance Code of the Philippines.
For example, tumaya ka ng number sa loto,
loto is a form of gambling, now pwede mo
bang iinsure yang number mo na yan to
make it certain na mananalo ka? The law
specifically provides that its not possible
because gambling is a game of chance. It is
not insurable. What loss will you suffer?
2. It is unilateral. Because the insurer
assumes the risk.
3. It is an executed contract on the part
of the insured. Why? Kasi
pagnakabayad na siya ng premium
wala na siyang gagawin eh.
Hihintayin na lang niya kung
magkakaroon siya ng loss, damage
or liability. But as to the insured
executed na yong contract.
4. It is executory on the part of the
insurer. Saka lang siya mag execute
when the contingent event will
occur. Hindi pa niya pwedeng
iexecute yong kaniyang obligation as
contained in the contract kasi yong
contingent event hindi pa
nangyayari.
5. It is conditional. What is the
condition? Answer: that the
contingent event, the risk, will
happen. If it will not happen then the
obligation will not arise. More
particularly on the part of the insurer.
6. A contract of insurance is a contract
of indemnity. It could not be a way
or a mode to enrich oneself. Anong
ibig niyang sabihin? Only the
amount of loss, only the amount of
damage, only the amount of liability
that the insured will suffer is the
amount that the insurer will pay
except as to life insurance or
accident insurance. The limit of the
amount of insurance that may be
taken out by the insured is limited to
 his insurable interest on the thing isa lang yon insurer. Pagka naging liable
insured. yong insured babayaran ng insurer- that is
loss shifting device. Shinishift lang yong
Life insurance and accident insurance is
liability to pay or the damage or the loss
unlimited amount. Hanggang kaya mong
from the insured to the insurer.
bayaran yong premium.
Paano nagiging loss distribution device/
Indemnity to be paid by the insurer when it
scheme? Yong insurer marami siyang
comes to property is limited only to the
insured. Example, 1000 insured isa lang
insurable interest because insurance is not a
yong nagkaaksidente, kaya yong binayaran
mode of enriching oneself. For example,
ng insurer don sa nadisgrasya nong isang
yong bahay mo is worth 2 million pwede mo
insured ay nanggaling don sa mga premium
lang siya iinsured against fire for 2 million.
ng 1000 insured don manggaling. Kaya in
Yon lang. Pwede mo ba siyang iinsure ng 5
general term, we call the insurer the fund.
million? Pwede, kung babayaran mo yong
Administrator lang siya ng pondo.
premium pero pagnasunog yong bahay mo
ang babayaran lang ng insurer 2 million. Concept of Ex Gratia Payment or payment
Because by its nature a contract of by grace.
insurance, is a contract of indemnity.
8. It is a contract of adhesion. The
Because what will prevent you for asking
insured must adhere to the terms and
someone to burn your house and collect 5
conditions stipulated by the insurer.
million? That’s tempting. “HAHA” that is
If the insured don’t accept the terms
why the law expressly provides that the limit
and conditions, therefore no contract.
of liability is only to the extent of the
insurable interest of the insured. What may be insured? Answer: Any
contingent or unknown event, whether past
7. A contract of insurance is also a loss
or future, which may damnify a person
distribution scheme.
having an insurable interest, or create a
Loss shifting scheme/ device – ay liability against him, may be insured against.
mangyayari halimbawa kung yung insured
Future – example life insurance baka
diba ininsure niya yong kaniyang sasakyan
mamatay or maaksidente.
ng third party liability ng 100,000. Yong
insured while driving his motor vehicle Si insured meron siyang bahay sa
nakabangga siya ng tao naospital yong tao, Tuguegarao, may bahay siya sa sta. ana
gumastos siya ng 80,000. Ipapasa niya yong malapit sa beach. Ininsured niya, at the time
pagbabayad don sa ginastos ng taong the policy was issued sunog na pala yong
naaccident niya ay ipapasa niya sa insurer. bahay. Hindi na icommunicate don sa may
That is not what the insurance contract is. ari pero nainsured ng may ari. Is the contract
valid? No. That past contingent event could
An insurance contract is not a loss shifting
not be insured in fire insurance.
device but it is a loss distribution scheme. Or
a loss distribution device. The rationale behind the past event is
applicable to marine insurance. It is only in
What’s the difference? Pagtitignan mo yong
insurance contract, isa lang yong insured at
marine insurance that past contingent event
could be insured.
Who are parties in the insurance contract?
1. The insurer. Who could be an
insurer? Answer: Any person or
individual, partnership, association
or corporation duly authorized to
transact insurance business.
- If corporation register to SEC
and Insurance commission
- If single proprietor register to
Insurance commission
2. The insured (also called assured).
Who could be insured? Answer:
Anyone, except a public enemy.
- A public enemy is a citizen of a
country with whom the
Philippines is at war.
-The law specifically treats a policy taken up
by a mortgagor and a mortgagee on a
mortgage property. Example, mortgage
property is a house and lot, the house is
valued at 2 million, isinanla nong mortgagor
sa mortgagee. The mortgagor has an
insurable interest in the property. Bakit?
Siya pa rin yong may ari. The mortgage has
also an insurable interest on the property
mortgage. Bakit meron siyang insurable
interest? Hindi naman siya yong may ari?
Being the mortgagee, he has an insurable
interest on the mortgage property? Paano
naman siya nagkaroon ng insurable interest
don? Diba yong real estate mortgage is but a
secondary contract as a security for the
payment of the loan. The real estate
mortgage is a secondary contract to a
promissory note. So, the primary contract
between a mortgagor and a mortgagee is the
promissory note. And the secondary contract
to that is the real estate mortgage in order to
insure the payment of the indebtedness
created in the promissory note. Paano ba
nagkaroon ng insurable interest yong
mortgagee? E papaano kung nasunog, will
the mortgagee suffer a loss? Pagnasunog ba
yong bahay good as paid na yong loan? Ay
hindi. Ibig sabihin babayaran pa rin ng
mortgagor yong utang niya? The answer is
yes. Eh paano nga nagkaroon ng insurable
interest yong mortgagee eh the indebtedness
of the mortgagor will remain? Because one
of the remedies of the mortgagee is to
foreclose the mortgage. That he will loss one
of the remedy available to him, that is the
insurable interest of the mortgagee.
If the mortgagor has an insurable interest in
the house, pwede siyang magtake out ng
insurance contract in his name. Para pagka
nasunog yong bahay, babayaran siya ng
insurer ibabayad niya don sa mortgagee; or
In the name of the mortgagee, ininsure niya
yong bahay not in his name pero in the name
of the mortgagee. Para pagnasunog yong
bahay ang babayaran ng insurer yong
mortgagee para mawala yong utang niya; or
Kukuha ng insurance yong mortgagor, in his
name and then he will assign it to the
mortgagee. So ang kumuha ng insurance
yong mortgagor, pangalan niya, inassign
yong policy don sa mortgagee.
1. Walang consent yong insurer, will
the assignment be effective? Yes. At
pagnakaroon ng sunog, yong
proceeds ng claim ng mortgagor as
insured will go to the mortgagee. The
insured remains to be the mortgagor.
2. Kung may consent yong insurer and
the insurer imposed additional
liabilities on the mortgagee, mag iiba
yong insured. Sino na ngayon yong
magiging insured? Yong mortgagee
na.
-what’s the difference?
If the assignment was without the
consent of the insurer, the mortgagor
remains to be the insured. So, any act of
the mortgagor that will affect the policy
ay siya parin yong insured. So, any act
of the mortgagee that will affect the
policy does not have any effect on the
policy. Kasi yong mortgagee hindi
naman siya yong insured.
If the assignment was with the consent
of the insurer and the mortgagee become
the new insured, any act of the
mortgagor that may affect the policy will
no longer have any legal effect on the
policy. However, if the mortgagee that
will act in such a way that may increase
the risk, then the insurer will have the
right to increase the premium. Because
the insured is already the mortgagee.