III.
INSURANCE LAW
A. Basic Concepts
What is an Insurance Contract?
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.
Contract of Surety
It should be considered as an insurance
contract only if made by a surety who or which, as
such is doing an insurance business as defined by
the Insurance Code.
Parties to a Contract of Insurance:
1. Insurer – assumes the risk of loss and
undertakes for a consideration to
indemnify the insured upon the happening
of the designated peril.
- every corporation, partnership
or association duly authorized
to transact insurance business
by the Insurance commission
may be an insurer
- a natural person is not allowed
to be an insurer
2. Insured – person whose loss is the
occasion for the payment of the insurance
proceeds by the insurer. Anyone except a
public enemy is insured.
1. Elements of an Insurance Contract
a. Insured has an insurable interest capable of
pecuniary estimation;
b. The insured is subject to a risk or loss by a
happening of a designated peril
c. Insurer assumes the risk of loss
d. Assumption of risk is part of general
scheme to distribute actual losses among a
large group of persons bearing a similar
risk.
e. In consideration of the insurer’s promise,
the insurer pays a premium.
Insurable Interest
Interest which a person is deemed to have
in the subject matter of the insurance where he
has a relation or connection to it.
The person connected to it will derive
pecuniary benefit or advantage from the
preservation of the subject matter or will
suffect pecuniary loss or damage from its
destruction, termination or injury by the
happening of the event insured against it.
**if the person applying for insurance has no
insurable interest on the insurance contract
then the contract is void**
What may be insured against?
1. Any contingent or unknown event, may it
be from the past or future
Examples of Perils:
1. Fire, and the risks allied to it
a. Lightning
b. Windstorm
c. Tornado
d. Earthquake (and other similar
risks)
2. Loss or damage in Marine Insurance
3. Death or Injury
4. Casualty or Liability in case of accident or
mishap
5. Non-performance by the principal debtor
of his obligation to the creditor
Actuarial Risk
- Possibility that the assumption made by the
actuaries, in pricing specific insurance
policies, may prove to be inaccurate or wrong
- Actuaries determine the chances of future
risks, like birth, disability, accidental injury,
fire, damage to property, need for medical
care, or premature death, and calculate the cost
of financing these uncertain events by
insurance or other related means. 
Insurance Premium
- Amount of money a person pays for an
insurance policy in consideration for the
assumption by the insurance of the risk of loss
as a result of the happening of the designated
peril.
2. Characteristics and Nature of Insurance
Contracts
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1. Consensual – perfected by the meeting of
the minds
2. Voluntary – not compulsory, parties may
incorporate terms and conditions
3. Aleatory – depends upon a contingent
event
4. Executory – as to the insurer
5. Risk-distributing – risk of economic loss is
distributed among a large group or
substantial number of persons bearing the
same or similar risk
6. Uberrimae Fides Contract – or one of
perfect good faith
7. A contract of Indemnity – insured is
entitled to recover only the amount of total
loss actually sustained.
**Applicable only to Property
Insurance**
8. Contract of Adhesion – it is a ready-made
contract, other party generally adheres to
the terms and conditions thereof
9. Personal Contract – each party has in mind
the character, qualifications and conduct of
the other.
Additional Characteristics:
a. No contract or policy of insurance on
property shall be enforceable except for
the benefit of some person having an
insurable interest in the property insured
(Section 18, Insurance Code)
b. Rule on Interpretation of Insurance
Contract:
i. In resolving ambiguities in the
provision of the insurance contract,
the same are to be construed
liberally in favor of the insured and
strictly against the insurer who
drafted the insurance policy.
3. Insurable Interest
- An interest which a person is deemed to
have in the subject matter of the insurance
where he has a relation or connection to it
such that the person will either derive
pecuniary benefit from the preservation of the
subject matter or will suffer pecuniary loss or
damage from its destruction.
Insurable Interest in Life/Health
1. Of Himself, of his spouse and of his
children
2. Of any person on whom he depends
wholly or in part for education or support,
or in whom he has a pecuniary interest
3. Of any person under a legal obligation to
him for the payment of money, pr
respecting property or services, of which
death or illness might delay or prevent the
performance
4. Of any person upon whose life any estate
or interest vested in him depends
**In life/Health interest, the beneficiary need not
have an Insurable interest on the life of the
insured.**
Persons specified in Article 739 and as such
cannot be designated beneficiary of the
insured:
1. Persons in illicit relations – adultery or
concubinage (no need for conviction)
2. Persons found guilty of adultery or
concubinage
3. Public Officer or his wife, descendants or
ascendants
**The Donees prohibited in Article 739 of the
Civil Code are also the ones prohibited being
designated as beneficiaries in a life insurance
policy**
- Reason: Life Insurance Policy is the same
from donation in terms where the
beneficiary is concerned. Life Insurance
and Donation are both founded on
liberality. A beneficiary in life insurance is
like a donee because the proceeds from the
premiums of the policy came from the
liberality of the insured to pay the
insurance contract.
Guide to Insurable Interest:
a. Proceeds of a life insurance does not form
part of the estate of the insured
b. Insurance proceeds shall be applied
exclusively to the proper interest of the
person in whose name or for whose benefit
it is made unless otherwise specified in the
policy.
c. A person has no insurable interest on the
life of his parents and other ascendants
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 except when he depends upon them for
education and/or support.
d. A person can take insurance on the life of
another person and designate him as his
beneficiary if he has pecuniary interest on
the person he is insuring.
Examples of persons 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:
a. A mortgagee can insure the life of the
mortgagor up to the extent of the mortgage
debt to the mortgagee
b. A seller may insure the life of the buyer if
the latter has the obligation to deliver a
specified property under a contract to sell.
c. A law firm may procure a keyman
insurance policy on its Managing Partner
d. An employer corporation has an insurable
interest on its manager where the death of
the manager will be detrimental to the
corporation’s operations.
Can an Insured Change his beneficiary?
Yes. An insured has the right to change his
beneficiary he designated in the policy during his
lifetime unless he expressly waived his right in
said policy.
The moment that the insured does not
change the beneficiary during his lifetime, the
designation is irrevocable.
Revocable vs. Irrevocable designation of
beneficiaries:
1. Irrevocable Designation of Beneficiary
- Person that was chosen to be a
beneficiary has certain rights with
regard to the death benefit of the
insured
- A beneficiary you must consent to any
changes an insurer may take in his
insurance policy
- Usually a primary beneficiary
- The beneficiary acquires a vested right
on the life insurance policy
- Any act on the part of the insured which
may impair the interest of the
irrevocable beneficiary is null and void.
2. Revocable Designation of Beneficiary
- A person who can be changed
anytime during the lifetime of
the insured
- In case the insurance policy is
silent on the nature of the
designation, in such case, it will
be deemed to be revocable
**General Rule: If the insured is silent about the
revocation of the beneficiary, then the
beneficiary is deemed to be IRREVOCABLE,
unless he stipulates to the contrary**
Insurable Interest in Property:
An insurable interest in property may consist in:
1. An existing interest
2. An inchoate interest founded on an
existing interest
3. An Expectancy coupled with an existing
interest that out of which expectancy
arises.
Who does not have an insurable interest in
property?
1. A mere contingent or expectant insurable
interest not founded on an actual right to
the thing
**The measure of an insurable interest in
property is the extent to which the insured might
be damnified by loss or injury thereof**
Existing Interest in Property:
1. A carrier or depository of any kind has an
insurable interest in a thing held by him as
such, to the extent of his liability but not to
exceed the value thereof.
2. Both the mortgagor and mortgagee may
insure the mortgaged property against fire.
The mortgagor may insure it up to the
extent of the value while the mortgagee up
to the extent of the mortgage debt.
3. A depositor may insure his deposits in
excess of the PDIC insurance coverage.
Insurable Interest in Property Insurance vs.
Insurable property in Life Insurance
INSURABLE INTEREST
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 Property Life
Insurance Insurance Double Insurance vs. Over-Insurance
As to Value Actual Value of There is no limit Double (or multiple) insurance happens
of Insurance the Interest to the amount of when a single person is insured by 2 or more
therein is the limit insurance that
insurers separately with regard to the same subject
of the insurance may be taken
that can be validly upon life matter and interest.
place thereon (Exception: Over-insurance, on the other hand,
Creditor securing happens when the amount of the insurance is
the life of Debtor) greater than the insured's insurable interest. Both
As to Interest insured Insurable interest double and over-insurance may or may not exist
Existence of must exist at the is enough to exist
Interest time when the at the time when together; it depends on the insured himself.
insurance takes the contract is In case there is over-insurance because of
effect and when made but not double/multiple insurance, the insurers are not
loss occurs necessarily during required to pay for the whole loss. Their
the time of loss obligation is only pro-rata. The insured, on the
As to Beneficiary must Anyone can be a
Beneficiary have insurable beneficiary
other hand, isn't allowed to recover more than his
interest over the (except those insurable interest.
property insured prohibited to
and must be receive donation)
covered by the even though he
insurance policy has no insurable
interest on the life
of the insured

Open Policy and Valued Policy Requisites for Double Insurance

Open Policy a. The person insured is the same

- An insurance policy which the amount
payable in the event of a claim is settled
after the loss or damage has occurred
Valued Policy
- Policy pays a predefined loss amount not
related in any way to the actual incurred
loss
Effect on change of interest in any part of a
thing insured unaccompanied by a
corresponding change of interest in the
insurance
1. Suspends the insurance in an equivalent
extent until the interest in the thing and the
interest in the insurance are vested in the
same person.
4. Double Insurance and Over-Insurance
Double Insurance
- Exists where the same person is insured
by several insurers separately in respect
to the same subject and interest
- Only applies to property insurance
b. Two or more insurers insuring separately
c. There is identity of the subject matter
d. There is identity of interest insured
e. There is identity of the risk or peril insured
against
If an insurance policy prohibits on the property
insured without the insurer’s consent, such
provision being valid and reasonable, a
violation by the insured;
a. Reduces the value of the policy
b. Avoids the policy
c. Offsets the value of the policy with the
additional insurances’ value
d. Forfeits premiums already paid
If insured is Over Insured by double insurance,
the insured is governed by the following rules:
a. The insured may claim payment from the
insurers in such order as he may select, up
to the amount for which the insurers are
severally liable under their respective
contracts, unless the policy otherwise
provides

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 b. If the policy under which the insured
claims is a valued policy, any sum
received by him under any other policy
shall be deducted from the value of the
policy without regard to the actual value of
the subject matter insured
c. If it is under an unvalued policy any sum
received by him under any policy shall be
deducted from the full insurable value for
any sum received by him under any policy
d. If the insured receives any sum exceeding
the value, if it is a valued policy, or if it
exceeds the insurable value if it is under an
unvalued policy, he must hold the excess
sum in trust for the insurers, according to
their right of contribution among
themselves.
e. Each insurer is bound, as between himself
and the other insurers, to contribute ratable
to the loss in proportion to the amount for
which he is liable under his contract. The
insurers, in double insurers are considered
as co-insurers.

Mortgage Redemption Insurance

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