JERICKSON A.

REYES
Assignment No. 4

1a.
Under the prevailing rules in Insurance, the Contract of Insurance is an agreement
whereby one undertakes for consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
Thus, it must have all the essential elements:
a. Cause — event or peril insured against
b. Consideration — premium payments paid by the insured
c. Risk of loss or damage being assured by the insurer
d. Risk-distributing scheme — distribution and transfer by the insurer of risk of loss,
damage or liability among persons having similar risks
e. Insurable interest — the insured possesses an interest of some kind, susceptible of
pecuniary estimation, which the event insured against may cause loss or damage;
and
f. A meeting of minds of the parties upon all the foregoing essentials.
1b.
Under the law and jurisprudence, a contract of suretyship is an agreement whereby a
party, called the surety, guarantees the performance by another party, called the principal
or obligor, of an obligation or undertaking in favor of another party, called the obligee. It
shall be deemed to be an insurance contract, within the meaning of this Code, only if made
by a surety who or which, as such, is doing an insurance business as hereinafter provided.
1c.
Under the Insurance Code, Doing or Transacting an Insurance Business means that:
a.) Making or proposing to make, as insurer, any insurance contract;
b.) 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;
c.) 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; and
d.) 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.
In the application of the provisions, 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.
1.c.1.
As decreed in jurisprudence, Mutual Insurance Companies is a protection and indemnity
club is a mutual insurance association, 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.
1.c.2.
Under the law, bancassurance is the presentation and sale to bank customers by an
insurance company of its insurance products within the premises of the head office of
such bank duly licensed by the BSP or any of its branches. The bank itself will not engage
in insurance business because it is prohibited under the General Banking Law to engage
in insurance business.
2.a.
As decreed in jurisprudence, Insurance is a Risk-Distributing Device beacuse it serves to
distribute the risk of economic loss among as many as possible to those who are subject
to the same kind of risk. By paying a pre-determined amount into a general fund out of
which payment will be made for an economic loss of a defined type, each member
contributes to a small degree toward compensation for losses suffered by any member of
the group. This broad sharing of economic risk is the principle of risk-distribution.

2.b.
As held in several Supreme Court decisions, a contract of Insurance is a Contract of
Adhesion or Fine Print Rule since one wherein a party prepares the stipulations in the
contract, which the other party merely affixes his signature or his “adhesion” thereto. This
principle is the very reason why in every doubt or ambiguity in an insurance contract is
resolved in favor of the insured and against the insurer.

2.c.
Under the New Civil Code, Insurance is aleatory because the liability of the insurer
depends upon the happening of some contingent event. An aleatory contract is a contract
where one or both of the parties reciprocally bind themselves to give or do something
upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time.

2.d.
Under the law on Insurance, insurance is a contract of indemnity because the insured is
entitled to recover only the amount of total loss actually sustained. The general rule is that
it applies only to property insurance. The exception is in life insurance, one cannot assign
a price tag on the value of human life. The measure of liability of the insurer is the face
value of the insurance policy. While the exception to the exception is that a creditor may
insure the life of a debtor but only up to the amount of the debt, which is the extent of the
creditor's insurable interest. Insurance contracts are not wagering contracts.

2.e.
Insurance contracts are Uberrimae Fidae Contracts because it is a contract of the highest
degree of good faith. Here, each party is required to:
a. Deal with each other in utmost good faith;
b. Disclose conditions affecting the risk of which he is aware;
c. Disclose any material fact which the applicant knows and ought to know.
Violation of this duty gives the aggrieved party the right to rescind the contract. Where
the aggrieved party is the insured, the bad faith of the insurer will preclude it from
denying liability the policy based on breach of warranty.
2.f.
Under the law, contract of Insurance is a personal contract because it is personal between
the insurer and insured. Each party having in view the character, credit and conduct of
the other. Since insurance is a contract, such is considered a property in legal
contemplation. However, unlike property policies, life insurance policies are generally
assignable like any chose in action.

3.

No, mere hope or expectancy is not insurable. Under the prevailing rules on Insurance, a
mere contingent or expectant interest in anything, not founded on an actual right to the
thing, nor upon any valid contract for it, is not insurable.

4.
Under the law and related jurisprudence, Insurable Interest in Property can be
distinguished from Insurable Interest in Life on the following manner:
As to when must Insurable Interest exist, for Insurable Interest in Property it must exist
twice, i.e., both at the time the policy takes effect and the time of loss but need not exist in
the period in between except for a change in interest in a thing insured, after the
occurrence of an injury which results in a loss, does not affect the right of the insured to
indemnity for the loss. 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. A change
of interest, by will or succession, on the death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the person taking his interest in the thing
insured. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even though
it has been agreed that the insurance shall cease upon an alienation of the thing insured.
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. Whereas, in Insurable Interest in Life it must exist at the time the policy
takes effect and need not exist thereafter.
As to extent, for Insurable Interest in Property it is limited to the actual value of the
property while, in Insurable Interest in Life every person has an unlimited insurable
interest in his own life except where life insurance is taken out by a creditor on the life of
the debtor, insurable interest is limited to the amount of debt.

As to the beneficiary’s interest, for Insurable Interest in Property the beneficiary must
have insurable interest over the thing insured. Insurable interest is an indispensable
requirement. While, in Insurable Interest in Life the beneficiary need not have insurable
interest over the life of the insured if the insured himself secured the policy except
However, if the life insurance was obtained by the beneficiary, the latter must have
insurable interest over the life of the insured.

5.

Under the law and jurisprudence, warranty are statements or promises by the insured set
forth in the policy itself or incorporated in it by proper reference, the untruth or non-
fulfillment of which in any respect, and without reference to whether the insurer was in
fact prejudiced by such untruth or non-fulfillment render the policy voidable by the
insurer. It is executed to eliminate potentially increasing moral or physical hazards which
may either be due to the acts of the insured or to the change of the condition of the
property.

Accordingly, the kinds of warranties are the following:

a. Affirmative warranty – one which relates to matters which exist at or before the
issuance of the policy;
 b. Promissory warranty – one in which the insured undertakes that something shall
be done or omitted after the policy takes effect and during its continuance;

c. Express warranty – a statement in a policy, of a matter relating to the person or

thing insured, or to the risk, as a fact; and

d. Implied warranty – an agreement or stipulation not expressed in the policy but the
existence of which is admitted or presumed from the fact that the contract of
insurance has been executed.

6.

As held in several jurisprudence, the “Incontestability Clause” under Sec. 48 of the

Insurance Code regulates both the actions of the insurers and prospective takers of life
insurance. It gives insurers enough time to inquire whether the policy was obtained by
fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming
individuals that their attempts at insurance fraud would be timely uncovered – thus
deterring them from venturing into such nefarious enterprise. Since after the 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 (2) years from the date of its issue or its last
reinstatement, the insurer cannot prove that the policy is void ab initio (construed as
voidable) or is rescindable by reason of the fraudulent concealment or misrepresentation
of the insured or his agent. Note that the period of two (2) years may be shortened but it
cannot be extended by stipulation.

The requisites of the Incontestability Clause are the following:

1. The insurance is a life insurance policy payable on the death of the insured.

The clause is therefore not applicable to annuity because the annuitant pays lump sum
to the insurer and gets a certain amount from the insurer every year until the
annuitant/insured dies.

2. The policy is in force for at least two (2) years from its date of issue as appearing in
the policy or of its last reinstatement.

The two-year period is not reckoned from date of receipt but from issuance of the policy
or last reinstatement.

Further, the defenses that are not barred by the Incontestability Clause are the following:

i. That the person taking the insurance lacked Insurable interest as required by
law;
ii. That the cause of the death of the insured is an Excepted risk;
iii. That the Premiums have not been paid;
iv. That the Conditions of the policy relating to military or naval service have been
violated;
v. That the Fraud is of a particularly vicious type;
vi. That the beneficiary failed to furnish Proof of death or to comply with any
condition imposed by the policy after the loss has happened; or
vii. That the action was not brought within the Time specified.
7a.

Under the Insurance Code, double insurance exists where the same person is insured by
several insurers separately, in respect to the same subject and interest. It is not contrary
to law and hence, in case of double insurance, the insurers may still be made liable up to
the extent of the value of the thing insured but not to exceed the amount of the policies
issued. Further, a provision in the policy that prohibits double insurance is valid.
However, in the absence of such prohibition, double insurance is allowed.

7b.

As held in jurisprudence, a contract of reinsurance is defined as one by which an insurer

procures a third person (reinsurer) to insure him against loss or liability by reason of such
original insurance. A separate and distinct arrangement from the original contract of
insurance, a reinsurance agreement insures the contracted risk in the original insurance
contract. The reinsurer's contractual relationship is with the direct insurer, not the
original insured, and the latter has no interest in and is generally not privy to the contract
of reinsurance. Plainly, reinsurance is the "insurance of an insurance."

7c.

Under the law and related jurisprudence, co-insurance exists when the insured
undertakes to assume the risk to the extent that is not covered by the insurance. It is a
form of insurance in which the person who insures his property for less than the entire
value is understood to be his own insurer for the difference which exists between the true
value of the property and the amount of insurance.

8.

Under the law and related jurisprudence, the right of subrogation is when the plaintiff's
property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury. The insurer, after paying the amount
covered by the policy, steps into the shoes of the insured, availing himself the latter’s
rights that exist against the wrongdoer at the time of 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.
ENGR. RANULFO C. FELICIANO vs. COMMISSION ON AUDIT, ET.AL.
G.R. No. 147402, January 14, 2004
CARPIO, J.

DOCTRINE:

The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. Section 16, Article XII of the
Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by a

general law applicable to all citizens.9 The purpose of this constitutional provision is to
ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter.
Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can qualify as private
corporations. Under existing laws, that general law is the Corporation Code, except that
the Cooperative Code governs the incorporation of cooperatives.

The Constitution authorizes Congress to create government-owned or controlled

corporations through special charters. Since private corporations cannot have special
charters, it follows that Congress can create corporations with special charters only if
such corporations are government-owned or controlled.

FACTS:

In this case, COA's Special Audit Team audited the accounts of Leyte Metropolitan Water
District (LMWD). LMWD received a letter from COA requesting payment of auditing fees.
LMWD informed COA that it could not pay the fees based on certain provisions of the law.
LMWD also requested a refund of all auditing fees previously paid to COA. COA denied the
requests that prompted Engr. Ranulfo C. Feliciano, General Manager of the LMWD to file
a petition seeking to annul COA's resolution denying his request for the cessation of audit
services and refund of auditing fees.

ISSUE:

Whether a Local Water District is a government-owned or controlled corporation and

subject to COA jurisdiction.

RULING:

Yes, Local Water District is a government-owned or controlled corporation and subject to

COA jurisdiction. The Supreme Court explain that the Constitution recognizes two classes
of corporations. The first refers to private corporations created under a general law. The
second refers to government-owned or controlled corporations created by special
charters. Section 16, Article XII of the Constitution provides:
 Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by a

general law applicable to all citizens.9 The purpose of this constitutional provision is to
ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter.
Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can qualify as private
corporations. Under existing laws, that general law is the Corporation Code, except that
the Cooperative Code governs the incorporation of cooperatives.

The Constitution authorizes Congress to create government-owned or controlled

corporations through special charters. Since private corporations cannot have special
charters, it follows that Congress can create corporations with special charters only if
such corporations are government-owned or controlled.

LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special
charters, LWDs can validly exist only if they are government-owned or controlled. To
claim that LWDs are private corporations with a special charter is to admit that their
existence is constitutionally infirm.

Unlike private corporations, which derive their legal existence and power from the
Corporation Code, LWDs derive their legal existence and power from PD 198. Clearly,
LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs
corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers,
rights and privileges given to private corporations under existing laws." Without PD 198,
LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling
charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and
controlled corporations with a special charter.

The phrase "government-owned and controlled corporations with original charters"

means GOCCs created under special laws and not under the general incorporation law.
There is no difference between the term "original charters" and "special charters."