American courts have pointed out that the main difference between an HMO and an insurance

company is that HMOs undertake to provide or arrange for the provision of medical services through
participating physicians while insurance companies simply undertake to indemnify the insured for
medical expenses incurred up to a pre-agreed limit.

The basic distinction between medical service corporations and ordinary health and accident insurers is
that the former undertakes to provide prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only undertake to indemnify an
insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.

HMO’s objective is to provide medical services at reduced cost, not to distribute risk like an insurer.

The policy is not necessary for the perfection of the contract.

Insurance shall be deemed reinstated upon the approval of the insurance policy of the application for
reinstatement.

Microinsurance products offer coverage to low-income households or to individuals who have little
savings. It is tailored specifically for lower valued assets and compensation for illness, injury, or death.

When one insures his own life, he may designate any person as the beneficiary, whether or not the
beneficiary has an insurable interest in the life of the insured. Conviction is not a condition precedent.

If a person will insure the life of another payable to himself, he must have insurable interest on the life
of the person whose life he is insuring.

The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing about the death of the insured.

The designation of the illegitimate children as beneficiaries in the deceased father’s insurance policy is
valid because no legal proscription exists in naming as beneficiaries the children of illicit relationships by
the insured.

The insurance policy proceeds shall redound to the benefit of the estate of the insured, that is, the
estate will get the proceeds of the life insurance policy in the following cases:

1. Where the insured has not designated any beneficiary;

2. When the designated beneficiary is disqualified by law to receive the proceeds;
3. When the policy expressly provides that the proceeds will redound to the benefit of the estate;
4. When the beneficiary’s right is contingent and the contingency that entitles him to the proceeds
did not materialize; or
5. If the beneficiary is a creditor and the debt is already fully paid when the insured died.

A decree of legal separation does not remove the insurable interest of a spouse over the other. Section
10 of the Insurance Code does not distinguish.

Insurable Interest – is that interest which a person is deemed to have in the subject matter of the
insured where he has a relation or connection to it such that the person will derive pecuniary benefit or
advantage from the preservation of the subject matter or will suffer pecuniary loss or damage from its
destruction, termination or injury by the happening of the event insured against it.
An heir has NO INSURABLE interest over properties that he will inherit. That is pure expectancy. In other
words, the heirs cannot insure the property of the person from whom they expect to inherit if such
person is still alive—this is pure expectancy.

A stockholder can insure the property of the corporation up to the extent of his proportionate share.

The perfected contract of sale, even without delivery, vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.

The transfer of the property does not include the transfer of the insurance policy.

A creditor’s insurable interest extends only up to the amount of the credit.

Risk insured against

General Rule: A future event is the only event that can be covered by an insurance contract.

Exception: A past event may be covered by a marine insurance – if the loss of the vessel in the past
could not have been known by ordinary means of communication.

Actuarial Risk – is the risk that the cost of insurance claims might be higher than the premiums paid.

(Manila Tuscany Condominium vs. CA; GSIS vs. Prudential Guarantee)

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the
validity of the contract, we are not prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in
effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
Effect of Payment of the Premium by a Postdated Check

The payment of a premium by a postdated check at a stated maturity SUBSEQUENT to the loss is
insufficient to put the insurance into effect if there is NO CREDIT AGREEMENT.

However, even if there is NO CREDIT AGREEMENT, payment by means of a check or a note, accepted by
the insurer, bearing a date PRIOR TO THE LOSS, assuming an availability of the funds thereof, would be
sufficient even if it remains unencashed at the time of the loss. The subsequent effects of encashment
would retroact to the date of the instrument and its acceptance by the creditor.

Transfer of Policy

Life insurance policy can be transferred without the consent of the insurer.

However, property insurance policy cannot be transferred without the consent of the insurer because
the insurer approved the policy based on the personal qualification and the insurable interest of the
insured.

Devices used by the insurer for ascertaining and controlling risks and loss are:

1. Concealment
2. Representation
3. Warranty
4. Condition
5. Exemption or exclusions

Concealment

The matters concealed or misrepresented refer to those facts occurring at or before the time the policy
becomes effective not thereafter. For instance, matters relating to the health of the insured are material
and relevant.

The fact that the matter concealed had no bearing to the cause of death of the insured is not important
because it is well-settled that the insured need not die of the disease he had failed to disclose to the
insurer.

Matters relating to health would affect the insurer either by approving it with the corresponding
adjustment for a higher premium or rejecting the same.

Effects of concealment: It vitiates the contract and entitles the insurer to rescind, even if the death or
loss is due to cause not related to the concealed matter.

Good Faith is NOT A DEFENSE in CONCEALMENT. “The concealment whether intentional or

unintentional entitles the injured party to rescind a contract of insurance.”

An insurer may be deemed estopped from raising concealment as a defense if it accepts the premium
payments and issued the policy even if the insured already supplied the insurer such facts or
information which could hardly be overlooked in the application form considering its prominence and
its materiality to the coverage applied for.

Matters relating to the health of the insured are material and relevant.
Effects of Misrepresentation

The injured party is entitled to rescind from the time when the representation becomes false. However,
it is necessary in representation that there is proof of fraudulent intent.

Acceptance of the premium will not estop the insurer from rescinding the policy on the ground of
misrepresentation.

Effect of breach of warranty – gives the insurer the right to rescind

Immaterial provisions do not avoid the policy

Other Insurance clause – a clause in the policy provides that the policy shall be void if the insured
procures additional insurance without the consent of the insurer. The purpose is to prevent over-
insurance and thus avert the possibility of perpetration of fraud.

There is a ground to rescind the policy in property insurance upon “discovery of other insurance
coverage that makes the total insurance in excess of the value of the property insured.”

INCONTESTABILITY CLAUSE – after a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two years from the date of its
issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Requisites

1. The insurance is a life insurance policy payable on the death of the insured
2. It has been in force during the lifetime of the insured for at least two years from its date of issue
or of its last reinstatement.

Double Insurance – it exists where the same person is insured by several insurers separately in respect
to the same subject and interest. It is NOT PROHIBITED by law, but it may be prohibited by “other
insurance clause”

Reinsurance – it is a contract through which the insurer procures a third person to insure him against
loss or liability by reason of an original insurance. In every reinsurance, the original contract of insurance
and the contract of reinsurance are separate and distinct from each other and covered by separate
policies.

No privity between the original insured and the reinsurer.

Collateral source rule - is a law that states that parties who are being sued for damages will still owe the
damages if the plaintiff wins the case, even if the plaintiff is receiving compensation for the losses from
other sources such as an insurance policy.
Right of Subrogation – it inures to the insurer without any formal assignment or any express stipulation
to that effect in the policy. Payment to the insured makes the insurer an assignee in equity.

It is a legal effect of payment.

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the assured, will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the
third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer.

Perils of the sea or perils of navigation – include only those casualties due to the unusual violence or
extraordinary causes connected with navigation as distinguished from the ordinary wear and tear of
the voyage and from injuries suffered by the vessel in consequence of her not being unseaworthy.

Perils of the ship – refer to loss which in the ordinary course of events, result:

1. From the ordinary, natural and inevitable action of the sea;

2. Wear and tear of the ship;
3. From the negligent failure of the ship’s owner to provide the vessel with the proper equipment
to convey the cargo under ordinary conditions.

In the absence of stipulation, the risks insured against are only perils of the sea.

FIRE INSURANCE – a contract of indemnity by which the insurer agrees to indemnify the insured against
loss of, or damage to, property by FIRE, but may include loss by LIGHTNING, WINDSTORM, TORNADO, or
EARTHQUAKE and other allied risks.

Compulsory Motor Vehicle Liability Insurance

The Insurance Code makes it unlawful for any land transportation operator or owner of a motor vehicle
to operate the same in public highways, unless there is an insurance or guaranty to indemnify the death
or bodily injury of a third party or passenger arising from the use thereof. Registration of any vehicle
will not be made or renewed without complying with the requirement.

No Fault Clause – the injured third party or passenger is given the option to file a claim for death or
injury without the necessity of proving fault or negligence of any kind.

Authorized Driver Clause – this is a stipulation in a motor vehicle insurance which provides that the
driver, other than the insured owner, must be duly licensed to drive the motor vehicle, otherwise the
insurer is excused from liability.
The insured need not prove that he has a driver’s license at the time of the accident if he was the driver.

Theft Clause – the risk insured against in the policy may include theft. If there is such a provision and the
vehicle was unlawfully taken, the insurer is liable under the theft clause and the authorized driver clause
does not apply.

Effect of Death of Insured through Suicide

The insurer in a life insurance contract shall be liable in case of suicide by the insured if:

1. Suicide was committed after the policy has been in force for a period of 2 years from the date of
its issue or its last reinstatement, unless the policy provides a shorter period;
2. Suicide is committed in a state of insanity; it shall make the insurer liable regardless of the date
of the commission of the suicide.