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INSURANCE LAW

University of Mindanao
College of Legal Education

Atty. Philip John L. Pojas


Insurance Code of 2013
• REPUBLIC ACT NO. 10607

• AN ACT STRENGTHENING THE INSURANCE


INDUSTRY, FURTHER AMENDING PRESIDENTIAL
DECREE NO. 612, OTHERWISE KNOWN AS "THE
INSURANCE CODE", AS AMENDED BY PRESIDENTIAL
DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981,
AND BATAS PAMBANSA BLG. 874, AND FOR OTHER
PURPOSES
Framework

General Non-Life
Non-Life
Life Insurance
Concepts Insurance

Summary of
Payment of Grounds for
Amendments in
Proceeds Rescission
Insurance Code

PDIC Law
Insurance Code
• General principles

• Life Insurance

• Non-Life Insurance

• Payment of Proceeds

• Rescission of insurance contracts


IMPORTANT CONCEPTS

• Differences between life and non-life insurance


• What is insurable interest
• No-fault Indemnity Clause
• Special rules in Industrial Life
• Incontestability Clause
• Unfair Settlement Practices Act
• Illegal Acts in Collecting Claims
IMPORTANT CONCEPTS
• Coverage under PDIC Law
• Cash and Carry Rule
• Effect of grace period
• Cover notes Test of Materiality
• Double Insurance
• Rule in case of suicide
• Ratable return of premiums
PART ONE:
GENERAL
PRINCIPLES
Concept

• An agreement whereby one undertakes for a


consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event.

• A contract of suretyship is deemed an insurance


contract only if made by a surety who or which is
doing an insurance business as a vocation.
History of Insurance in the Philippines
• THE first insurance law in the country was
incorporated in the Spanish Code of
Commerce (Codigo de Comercio), or the Royal
Decree of August 22, 1885 (Real Decreto de 22
de Agosto de 1885), which was then extended
to the Philippines by the Royal Decree of 1888.
History of Insurance in the Philippines
• The provisions in the Spanish Code of Commerce
concerning insurance can be found in Title VIII (“On
insurance contracts”) (repealed by the Spanish Act
50/1980, dated October 8) of Book II and Section III
(“On maritime insurance”) of Title III (“On special
maritime commerce contracts”) of Book III.
However, all these provisions pertained solely to
maritime insurance. In addition, while Chapters II and
IV of Title XII of Book IV of the Spanish Civil Code of
1889 related to life annuities, they did not relate
directly to insurance.
History of Insurance in the Philippines
• During the Philippine Commonwealth period, the
legislature enacted Act 1459, or the Corporation law,
on March 1, 1906. Sections 147 to 153 thereof
pertained to “Domestic insurance corporations”. This
law allowed the creation of life and nonlife insurance
companies. These provisions were expressly repealed
by Act 2427, or the Insurance Act, on December 11,
1914. This act took effect on July 1, 1915, and also
repealed the provisions of the Spanish Code of
Commerce on insurance.
History of Insurance in the Philippines
• Under the Insurance Act, the insular treasurer, in
addition to his official title, was designated as the
insurance commissioner ex-officio. This made then-
Insular Treasurer Jeremiah L. Manning the first
insurance commissioner, albeit in an ex-officio capacity,
until he retired on June 11, 1916. The government agency
that supervised insurance business in the country was
the Insurance Division of the Bureau of the Treasury
(BTr). By 1918 60 insurance companies were doing
business in the Philippines. Of this number, nine were
local companies, 12 were American and the rest were
from other nations, mainly the United Kingdom. Most of
the coverages were fire, marine and life.
History of Insurance in the Philippines
Typhoon and earthquake coverage were provided
by the British Traders Insurance Co. and the Union
Insurance Co. of Canton, both based in Hong Kong.
The only Philippine company offering these coverages
was the Fidelity and Surety Co. of the Philippines. On
March 10, 1917 Act 2711 (Chapter 15) amended the
Administrative Code to provide for the provisions on
Public Bonding law.

• In 1939 the Union Insurance Society of Canton


appointed Russel & Surgis as its agent in Manila,
transacting business limited to nonlife insurance.
History of Insurance in the Philippines
• BTr and attached to the Bureau of Banking. After the
war, the division was returned to the treasury
bureau. In 1947 the Insurance Division was merged
with the banking bureau.
• On January 3, 1949, along with the formal opening of
the Central Bank of the Philippines, the banking
bureau was renamed as the Office of the Insurance
Commissioner, by virtue of Republic Act (RA) 275.
Likewise, the bank commissioner and assistant bank
commissioner were renamed as insurance
commissioner and assistant insurance commissioner,
respectively.
History of Insurance in the Philippines
• On December 18, 1974, Presidential Decree (PD) 612
was promulgated, ordaining and instituting the
Insurance Code of the Philippines, thereby repealing
Act 2427. PD 63, 123 and 317 were issued, amending
PD 612. Among other things, PD 63 provided that the
Office of the Insurance Commissioner be renamed as
the Insurance Commission (IC). Finally, on June 11,
1976, PD 1460 took effect and consolidated all
insurance laws into a single code, resulting in what
we know now as the Insurance Code of 1978.
History of Insurance in the Philippines
• Due to the series of failures in the preneed industry,
there was a need to provide a stricter regulatory
framework. On July 27, 2009, RA 9829, or the Preneed
Code of the Philippines, was enacted. By virtue of this
code, the regulation and supervision of all preneed
companies conducting business in the country was
vested in the IC.
• On August 15, 2013, RA 10607, or the Amended
Insurance Code, was signed by President Aquino. One of
the amendments included in this law is the progressive
increase of capital requirements for life and nonlife
insurance companies every three years until 2022.
History of Insurance in the Philippines
• The revisions embodied in the Amended Insurance
Code are intended to reinforce the provisions of the
previous code, so as to further strengthen the
insurance industry and ensure the economic viability
and financial stability of companies operating in the
country, to the end that each and every Filipino is
amply protected and secured.
• Dennis B. Funa is the Insurance Commission’s deputy
commissioner for legal services.
Elements

•The insured has insurable interest or


interest of some kind susceptible of
pecuniary estimation

•The insured is subject to a risk of loss


caused by the happening of the
designated perils;
Elements
• The insurer assumes the risk of loss;
• Assumption is part of a general scheme to
distribute actual losses among a large group
of persons bearing somewhat similar risks;
• As consideration for the insurer’s promise,
the insured pays the premium
Philippine HealthCare v. CIR
• ISSUE: Is a healthcare agreement in the nature of a
contract of insurance?

• FACTS: Individuals enrolled in its health care programs


pay an annual membership fee.
• They are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical
staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or
accredited by it.
Philippine HealthCare v. CIR

• The DST under Section 185 of the 1997 Tax Code is imposed
on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance),
bond or obligation in the nature of indemnity for loss,
damage, or liability.

• RULING: The health care agreement is primarily a contract


of indemnity. A health care agreement is in the nature of a
non-life insurance policy.
Principle of Subrogation

•Process of legal substitution

•The insurer, after paying the amount


covered by the policy, steps into the
shoes of the insured
Principle of Subrogation

•Insurer avails of the rights of the


insured against the wrongdoer

•Insured CANNOT recover from


offender what was paid by insured
but can recover any deficiency.
Principle of Subrogation

•Applicable only in non-life


insurance (Philamgen v. CA)
Nature and Characteristics
• Aleatory
• Contract of indemnity for non-life and an
investment for life insurance
• Personal
• Executory and conditional on the part of
the insurer
• Uberrimae fides
• Adhesion
Rule of Construction

• Doubts are resolved in favor of the insured

• Since a contract of insurance is a contract of


adhesion, any obscure word or stipulation in the
insurance policy shall be resolved against the
insurance company which drafted the terms
thereof (AMERICAN HOME V. TANTUCO, OCTOBER
8, 2001)
Statute of Limitations

•General Rule: 10 YEARS from the


time the cause of action accrues.

•Exception: Period may be increased


or decreased BUT
Statute of Limitations

•In industrial life: cannot be shorter


than SIX YEARS

•in all other kinds of insurance:


cannot be shorter than ONE YEAR.
“Right of Action Accrues”

•Period is reckoned from the time of the


denial of the claim by the insurer (Vda de
Gabriel v. CA)

•If there was no denial of the claim, right


of action does not accrue
“Doing an Insurance Business”
• making or proposing to make, as insurer, any
insurance contract;

• making or proposing to make, as surety, any


contract of suretyship as a vocation and not
merely incidental to any other legitimate
business or activity of the surety.
“Doing an Insurance Business”
• doing any kind of business, including a reinsurance
business, specifically recognized as doing insurance
business

• doing or proposing to do any business in substance


equivalent to any of the foregoing

• An entity can still be deemed engaged even if he


does not derive any profit from the activity
NEW
MICROINSURANCE
•Section 187. Microinsurance is a financial
product or service that meets the risk
protection needs of the poor where:

•(a) The amount of contributions, premiums,


fees or charges, computed on a daily basis, does
not exceed seven and a half percent (7.5%) of
the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
NEW
MICROINSURANCE
•(b) The maximum sum of guaranteed benefits is
not more than one thousand (1,000) times of the
current daily minimum wage rate for
nonagricultural workers in Metro Manila.
•Section 188. No insurance company or mutual
benefit association shall engage in the business
of microinsurance unless it possesses all the
requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such
rules and regulations governing microinsurance.
Regulation of the Insurance Business
•Insurance business is impressed with
public interest.

•The public must be protected against


insolvency or unfair treatment by
insurers.
Regulation of the Insurance Business

•Insurance Commission is tasked to


regulate the conduct of insurance
business through licensing, examination,
investigation and revocation
NEW
Regulation of the Insurance Business

The Commission is authorized to issue a certificate


of authority which shall expire on the last day of
December, 3 years following its date of issuance,

This shall be renewable every 3 years thereafter,


subject to the company’s continuing compliance
with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
NEW
No LGU interference
• "No insurance company issued with a valid certificate of authority to
transact insurance business anywhere in the Philippines by the
Insurance Commissioner, shall be barred, prevented, or
disenfranchised from issuing any insurance policy or from
transacting any insurance business within the scope or coverage of
its certificate of authority, anywhere in the Philippines,

• by any local government unit or authority, for whatever guise or


reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local
government unit regulatory issuance imposing such restriction or
disenfranchisement on any insurance company shall be deemed null
and void ab initio.
NEW
FINANCIAL REPORTING FRAMEWORK
• All companies regulated by the Commission, should
comply with the financial reporting frameworks
adopted by the Commission for purposes of creating
the statutory financial reports and the annual
statements to be submitted to the Commission.
• “Financial reporting framework” means a set of
accounting and reporting principles, standards,
interpretations and pronouncements that must be
adopted in the preparation and submission of the
statutory financial statements and reports required
by the Commission.
• Not the same as financial reporting framework used
NEW
FINANCIAL REPORTING FRAMEWORK
• Main purpose of the statutory statements: to present
important information about the level of risk and solvency
situation of insurers.
• In prescribing the applicable statutory financial reporting
framework, the Commissioner shall take into account
international standards concerning solvency and insurance
company reporting as well as generally accepted actuarial
principles concerning financial reporting promulgated by the
Actuarial Society of the Philippines.
• The assets and investments discussed in Sections 204 to 215
shall be accounted for in accordance with this section.
• "The valuation of reserves shall be accounted for in
accordance with Title 5 of this Code.
NEW
Regulation of Bancassurance
• Section 375. The term bancassurance shall mean 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 Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate.

• To engage in bancassurance arrangement, a bank is not


required to have equity ownership of the insurance company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may
be prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.
NEW
Regulation of Bancinsurer
• No insurance product under this section, whether life or non-life,
shall be issued or delivered unless in the form previously approved
by the Commissioner.

• Section 376. Personnel tasked to present and sell insurance


products within the bank premises shall be duly licensed by the
Commissioner and shall be subject to the rules and regulations of
this Act.

• "Section 377. The Commissioner and the Bangko Sentral ng Pilipinas


shall promulgate rules and regulations to effectively supervise the
business of bancassurance.
NEW
Regulation of Insurance-Related Entities
• The Commissioner shall have the power to register as a self-
regulatory organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the
insurance market such as, but not limited to, associations of
insurance companies, whether life or non-life, reinsurers,
actuaries, agents, brokers, dealers, mutual benefit
associations, trusts, rating agencies, and other persons
regulated by the Commissioner, which are engaged in the
business regulated by this Code.
NEW
Regulation of Insurance-Related Entities
• "The Commissioner may prescribe rules and
regulations which are necessary or appropriate in the
public interest or for the protection of investors to
govern self-regulatory organizations and other
organizations licensed or regulated pursuant to the
authority granted hereunder including, but not
limited to, the requirement of cooperation within and
among all participants in the insurance market to
ensure transparency and facilitate exchange of
information.
NEW
Regulation of Insurance-Related Entities
Section 431. An association cannot be registered as a self-regulatory organization unless the
Commissioner determines that:
(a) The association is so organized and has the capacity to be able to carry out the purposes
of this Code and to comply with, and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code, the rules and regulations
thereunder, and the rules of the association.

(b) The rules of the association, notwithstanding anything in the Corporation Code to the
contrary, provide the following:

(1) Qualifications and the disqualifications on membership of the association;


(2) A fair representation of its members to serve on the board of directors of the association
and the administration of its affairs, and that any natural person associated with a juridical
entity that is a member shall also be deemed to be a member for this purpose;
(3) Fair procedure for the disciplining of members and persons associated with members; and
(4) The prohibition or limitation of access to services offered by the association or a member
thereof.
NEW
Regulation of Insurance-Related Entities
(5) The president of the association and at least two (2) independent
directors as members of the board of directors of the association;

(6) Equitable allocation of reasonable dues, fees, and other charges


among members and other persons using any facility or system which the
association operates or controls;

(7) The prevention of fraudulent and manipulative acts and practices to


protect the insuring public and the promotion of just and equitable
principles of business;

(8) Members and persons associated with its members subject to


discipline for violation of any provision of this Code, the rules or
regulations thereunder, or the rules of the association;
NEW
Regulation of Insurance-Related Entities
Section 432. A self-regulatory organization may examine
and verify the qualifications of an applicant to become a
member in accordance with procedures established by the
rules of the association.
A self-regulatory organization shall deny membership or
condition the membership of an entity, if it does not meet
the standards of financial responsibility, operational
capability, training, experience, or competence that are
prescribed by the rules of the association; or has engaged,
and there is a reasonable likelihood it will again engage, in
acts or practices inconsistent with just and equitable
principles of fair trade.
NEW
Regulation of Insurance-Related Entities
• A self-regulatory organization may deny membership to an entity
not engaged in a type of business in which the rules of the
association require members to be engaged.
NEW
CAPITALIZATION
SECTION 194

PAID-UP CAPITAL FOR NEW domestic life or non-life insurance


company shall, in a stock corporation: One billion pesos;
(P1,000,000,000.00): Provided,

Domestic insurance company already doing business in the


Philippines;
net worth by June 30, 2013- P250 Million
by December 31, 2016- an P300 Million worth
By December 31, 2019- an additional P350 Million worth
By December 31, 2022- an additional P400 Million worth
NEW
CAPITALIZATION
• Pre-licensing requirement of a new insurance
company, in addition to the paid-up capital stock,
require the stockholders to pay in cash to the
company in proportion to their subscription interests
a contributed surplus fund of not less than P100
Million

• May also require such company to submit to him a


business plan showing the company’s estimated
receipts and disbursements, as well as the basis
therefor, for the next succeeding (3) years.
NEW
CAPITALIZATION
SECTION 197 Foreign Corporations

Unimpaired capital or assets and reserve: P1 Billion nor


until it shall have deposited with the Commissioner for
the benefit and security of the policyholders and
creditors of such company in the Philippines, securities
satisfactory to the Commissioner consisting of good
securities of the Philippines, including new issues of
stock of "registered enterprises” as this term is defined
in E.O. 226 of 1987, as amended, to the actual market
value of not less than the amount herein required
NEW
CAPITALIZATION
Section 289.

Any partnership, association, or corporation authorized to


transact solely reinsurance business must have a
capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty
percent (50%) is paid-up and the remaining portion
thereof is contributed surplus, which in no case shall be
less than Four hundred million pesos, (P400,000,000.00)
or such capitalization as may be determined by the
Secretary of Finance, upon the recommendation of the
Commissioner:
NEW
CAPITALIZATION

Provided , That (25%) of the paid-up capital must be invested in


securities satisfactory to the Commissioner, consisting of bonds or
other instruments of debt of the Government of the Philippines or
its political subdivisions or instrumentalities, or of government-
owned or -controlled corporations… Provided, That aforesaid
capital requirement is without prejudice to other
requirements to be imposed under any risk-based capital
method that may be adopted by the Commissioner: Provided,
finally, That the provisions of this chapter applicable to insurance
companies shall as far as practicable be likewise applicable to
professional reinsurers.
NEW
CAPITALIZATION
No mutual benefit association shall be
issued a license to operate as such unless it
has constituted and established a Guaranty
Fund by depositing with the Commissioner
an initial minimum amount of Five million
pesos (P5,000,000.00) in cash, or in
government securities with a total value
equal to such amount, to answer for any
valid benefit claim of any of its members.
What may be insured against

DAMNIFY A PERSON OR CREATE


LIABILITY AGAINST HIM

CONTINGENT UNKNOWN
EVENT EVENT
Contingent Event

• An event which may or may not happen

• Example: Fire, accident, sinking of a ship,


theft
Unknown event

• An event which is certain to happen

• Aspect of being unknown is WHEN it will happen

• Example: Death
Damnify v. Create a liability

•Damnify - direct loss of a person

•Create a liability - expose the person to


liability to third persons. E.g. third party
liability insurance
NEW

Insurance by a married person

•May take out an insurance on his/her life


or that of her children or that of his/her
spouse without the consent of his/her
spouse
Insurance by a minor
(Sec. 3)

• Any minor may


• contract for life, health and accident insurance, with
any insurance company duly authorized to do
business in the Philippines
• provided the insurance is taken on his own life and
• the beneficiary appointed is the minor's estate or
the minor's father, mother, husband, wife, child,
brother or sister.
NEW
Rights of minor under life insurance policies
• When there is a contract of life, health, or accident insurance involving a
minor

• The minor’s judicial guardian, father, or in the latter’s absence or


incapacity, the mother

• In the absence of parents and grandparents, the eldest brother or sister at


least eighteen (18) years of age, or any relative who has actual custody of
the minor insured or beneficiary

• May obtain a policy loan, surrendering the policy, receiving the proceeds of
the policy, and giving the minor's consent to any transaction on the policy

• If the amount does not exceed P500,000.00


Insurance by a minor

•A property insurance taken by a minor is


voidable or valid until annulled (1390)

•If contract is not disaffirmed, insurer


cannot invoke minority to escape
liability.
Gambling
•Sec. 4. 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.
Contract of Insurance vs Wagering
Contract
Insurance Contract Wagering Contract
Parties seek to distribute loss by reason Parties contemplate gain through mere
of mischance chance or the occurrence of a
contingent event.

Insured avoids misfortune. Gambler courts fortune

Tends to equalize fortune. Tends to increase the inequality of


fortune.

What one insured gains is not at the Essence is whatever one person wins
expense of another insured. The entire from a wager is lost by the other
group of insureds provides through the wagering party.
premiums paid, the funds which make
possible the payment of all claims;

Purchase of insurance does not create a As soon as a party makes a wager, he


new and non-existing risk of loss to the creates a risk of loss to himself where no
purchaser. In purchasing insurance, the such risk existed previously.
insurer faces an already existing risk of
economic loss.
Gambling
•Elements of Gambling
•The three essential elements of a lottery
are: First, consideration; second, prize;
and third. Chance.
•Thus, for gambling (i.e. lottery) to exist,
three elements must concur, namely:
consideration, prize, and chance. (Uy vs
Palomar, 27 SCRA 287)
Life Individual

Group

Industrial
Insurance
Marine

Casualty

Fire
Non-Life
Suretyship
NEW
Life Insurance

• Insurance on human lives and insurance appertaining


thereto or connected therewith

• Every contract or undertaking for the payment of annuities


including contracts for the payment of lump sums under a
retirement program where a life insurance company
manages or acts as a trustee for such retirement program
shall be considered a life insurance contract for purposes
of this Code.
Classes
1. Individual – protection is based on individual
application.
2. Group – unit of selection is the group rather
than the individual, blanket policy covering a
number of individuals
3. Industrial – premiums are payable either
monthly or oftener if the face amount of insurance
is not more than 500 times the current statutory
minimum wage in Metro Manila.
Non-Life

•Property insurance or insurance


whose object is other than a
person’s life or where the covered
peril is something other than death
Types: Fire

•Includes insurance against loss by fire,


lightning, windstorm, tornado or
earthquake and other allied risks, when
such risks are covered by extension to
fire insurance policies or under separate
policies
Types: Casualty

•Covers loss or liability arising from


accident or mishap, excluding certain
types of loss which by law or custom are
considered as falling exclusively within
the scope of other types of insurance
such as fire, marine.
Types: Casualty

• Includes but is not limited to employers’


liability insurance, workmen’s compensation
insurance, public liability insurance, motor
vehicle liability insurance, plate glass
insurance, burglary and theft insurance,
personal accident and health insurance written
by non-life companies.
Casualty: Compulsory Motor Vehicle
Liability OR Third Party Liability
• Insurance against passenger and third party
liability for death or bodily injuries arising
from motor vehicle accidents
• Required before an owner or operator can
use his vehicle
• Required in registration or renewal of
registration
Compulsory Motor Vehicle Liability OR Third
Party Liability
Land transportation operator, the insurance guaranty in cash or surety bond shall
cover liability for death or bodily injuries of third-parties and/or passengers arising
out of the use of such vehicle in the amount not less than Twelve thousand pesos
(P12,000.00) per passenger or third -party and an amount, for each of such
categories, in any one accident of not less than that set forth in the following scale :
• (1) Motor vehicles with an authorized capacity of twenty-six (26) or more
passengers: Fifty thousand pesos; (P50,000.00);

• (2) Motor vehicles with an authorized capacity of from twelve (12) to twenty-five
(25) passengers: Forty thousand pesos; (P40,000.00);

• (3) Motor vehicles with an authorized capacity of from six (6) to eleven (11)
passengers: Thirty thousand pesos; (P30,000.00);

• (4) Motor vehicles with an authorized capacity of five (5) or less passengers: Five
thousand pesos (P5,000.00) multiplied by the authorized capacity.
Compulsory Motor Vehicle Liability OR Third
Party Liability
• (1) Private Cars

• (i) Bantam: Twenty thousand pesos (P20,000.00);

• (ii) Light: Twenty thousand pesos (P20,000.00); and

• (iii) Heavy: Thirty thousand pesos (P30,000.00).


Compulsory Motor Vehicle Liability OR Third
Party Liability
• (2) Other Private Vehicles
• (i) Tricycles, motorcycles and scooters: Twelve
thousand pesos (P12,000.00);
• (ii) Vehicles with an unladen weight of 2,600 kilos
or less: Twenty thousand pesos (P20,000.00);
• (iii) Vehicles with an unladen weight of between
2,601 kilos and 3,930 kilos: Thirty thousand pesos
(P30,000.00); and
• (iv) Vehicles with an unladen weight over 3,930
kilos: Fifty thousand pesos (P50,000.00).
Types: Marine

• vessels, craft, aircraft, vehicles, goods, freights, cargoes,


merchandise, effects, bottomry, respondentia interests

• person or property in connection with or appertaining to


marine, inland marine, transit or transportation insurance but
excludes life insurance or surety bonds or insurance against loss
by reason of bodily injury to any person who arising out of
ownership, maintenance or use of automobiles
Types: Marine

• precious stones, jewels, jewelry, precious metals,


whether in the course of transportation OR otherwise

• bridges, tunnels and other instrumentalities of


transportation and communication (excluding
buildings, furniture and furnishings fixed contents
and supplies held in storage), piers, wharves, docks
and slips other aids of navigation, dru docks, marine
railways, dams
Types: Suretyship
• An agreement whereby a party called the
surety guarantees the performance of
another party called the principal or obligor of
an obligation or undertaking in favor of a
third party called the obligee.

• Includes official recognizances, stipulations,


bonds or undertakings issued by any company
At a glance
• In an insurance contract, a person indemnifies
another person for his loss, damage or liability

• Any contingent or unknown event which may


damnify a person or create a liability against him
may be insured

• The two main kinds of insurance are life and non-


life insurance
At a glance

• A person can sue based on an insurance contract within 10


years from the time the right of action accrues

• 10-year period may be longer or shorter but generally, cannot


be shorter than one year and in industrial life, cannot be
shorter than 6 years

• Doubts in interpreting insurance contracts are resolved in


favor of the insured
Framework

General Non-Life
Life Insurance
Concepts Insurance

Summary
Summary of
of
Payment of Grounds for
Amendments
Amendments in in
Proceeds Rescission
Insurance
Insurance Code
Code

PDIC
PDIC Law
Law
PART TWO:
LIFE INSURANCE
Procedure

Agent offers a person a life insurance


policy
1
The person files an application for a policy.
He is required to pay the first premium when
he applies
2
Insurance company approves the application and issues a policy
in favor of the person. In case of disapproval, the premium is
returned to the person
Procedure

In case the contingency happens, either the policyholder


or his designated beneficiaries claim from the policy
3
The claim is either granted or denied
by the insurance company
4
If denied, the claimant may file a case either in the insurance
commission or the regular courts depending on the amount of
the claim
Topics in Stages 1 and 2
•What may be insured against
•Rule in case of death by suicide
•Insurable Interest
•Parties
•Kinds of life insurance
•Kinds of life insurance policies
Concept

•Life Insurance - insurance on


human lives and insurance
appertaining thereto or
connected therewith
NEW
Concept
• Every contract or undertaking for the payment
of annuities including contracts for the
payment of lump sums under a retirement
program where a life insurance company
manages or acts as a trustee for such
retirement program shall be considered a life
insurance contract for purposes of this Code.
Classes
1. Individual – protection is based on individual
application.
2. Group – unit of selection is the group rather
than the individual, blanket policy covering a
number of individuals
3. Industrial – premiums are payable either
monthly or oftener if the face amount of insurance
is not more than 500 times the current statutory
minimum wage in Metro Manila.
Contingencies

• death

• survival of a specific period

• continuance or cessation of life


What may be insured against?

•Actual death

•Living death

•Retirement death
Actual Death

Cessation of life

Best proof of death: death certificate

Policy matures upon the death of the


insured
Living Death

•When the insured suffers from


disability due to disease or accident
which prevents him from engaging in
any lawful occupation

•Partakes the nature of health and


disability benefits
Living Death:
Accident and Health

Health, accident and disability


insurance are deemed as both life
and non-life insurance and such
may be issued by either life or
non-life insurance companies (Sec.
193, 9th par).
Living Death:
Accident and Health

Deemed life insurance when


death is one of the risks
insured against (Gallardo v.
Morales)
Accident

An event which happens without any


human agency or, if happening through
human agency, an event which under the
circumstances, is unusual and not expected
by the person to whom it happens by
reason of some violence or casualty to the
insured without his design, consent or
voluntary cooperation (Sun Insurance v. CA)
Death by suicide: compensable?

• General Rule: NO.


• BASIS:
• Sec. 89 which provides that an insurer is not liable if
loss is caused by willful act or connivance of the
insured; and

• the Rules of Court which provides that a person is


presumed to intend the consequences of his
voluntary acts
When is suicide compensable?
Section 183
• If insured was not in his right mind/insane at the
time of suicide

• If insured committed suicide after the policy has


been effective for at least 2 years from issuance or
last reinstatement

• Note: The 2-year period can be shortened but not


lengthened
Retirement Death

Life Annuity – debtor binds himself to pay


annual pension or income during the life of
one or more determinate persons in
consideration of a capital consisting of
money or other property, whose ownership
is transferred to him at once with the
burden of income (Art. 2021, Civil Code)
Dynamics in Life Annuity

Insurer
•• Annuitant
Annuitant gives
gives • Death of annuitant
money
money to
to insurer
insurer or appointed
• Insurer becomes the persons
debtor extinguishes
• Insurer must give obligation to give
pension to pension
annuitant or
End of
Annuitant designated person
obligation
Retirement Death

Annuitant gives money or property to the insurer

Insurer now becomes the debtor, and has the obligation


to give annual pension or income to either the annuitant
or another person

The obligation of insurer to give pension stops upon the


death of the annuitant
INSURABLE INTEREST
Insurable Interest in Life
• A person cannot insure just anyone he wants

• One has to establish that he stands to suffer some


loss because of the death of a person

• Insurable interest ensures that a person can


only get a policy on the life of someone
whose death will produce loss
Concept

• Relation between the insured and a


particular event such that the happening
of the event will damnify or cause loss to
the person

• PURPOSE FOR THE CONCEPT:


• To avoid wagering
• To avoid temptation of bringing about the
event
On whose life does a person have
insurable interest?
•himself, spouse, children

•person on whom he depends wholly or


in part for education or support or in
whom he has a pecuniary interest
On whose life does a person have
insurable interest?
• any person who is under legal obligation to
him for payment of money or respecting
property or services of which illness or
death might delay or prevent performance

• any person upon whose life any estate or


interest vested in him depends
Section 10(a)

•Every person has unlimited insurable


interest in his own life

•One also had insurable interest in the


life of his spouse and children on the
basis of love and affection
Section 10(b)
Obligation to give support
Article 195, Family Code
• Spouses, legitimate ascendants and descendants
• parents and their legitimate children and
legitimate or illegitimate children of the latter
• parents and their illegitimate children and
legitimate or illegitimate children of the latter
• legitimate brothers and sisters whether of the
full or half blood
Section 10(b)
Obligation to give support:
Article 196, Family Code
• Brothers and sisters not legitimately
related,whether of the full or half blood,
are likewise bound to support each other
EXCEPT only when the need for support
of the brother or sister, being of age, is
due to a cause imputable to the
claimant’s fault or negligence .
Blood relationship, affinity: enough?
•In cases not falling under 195 and 196,
mere blood relationship or affinity does
not create insurable interest

•Examples: uncle, aunt, nephew, niece,


cousins, son-in-law, brother-in-law,
stepchildren
Section 10©
Pecuniary Interest

•Debtor-Creditor

•Employer-Employee - El Oriente v.
Posadas

•Business partners
Section 10(d)
Person in whose estate an interest is
dependent
•Person is given the right to use a
house

•Right ceases when the owner dies


and another person becomes the
owner
Measure of Recovery of Proceeds

•GENERAL RULE: Face value of the policy

•Except: pecuniary estimation is possible


[10©]
Special Rule on Insurable Interest in
Industrial Life

• Usual rules re insurable interest are


generally not made applicable in industrial
life because:

• Proceeds are small, little danger to induce a


person to kill
Special Rule on Insurable Interest in
Industrial Life
• Investigation of presence of insurable
interest will nullify speedy payment of
proceeds under the facility of payment
clause

• The costs to prove insurable interest will


destroy the purpose for this type of
insurance
PARTIES
Cestui Que
Beneficiary
Vie

Insurer

Insured
NEW

Insurer: Section 6

•Every corporation, partnership, or


association, duly authorized to transact
insurance business as elsewhere
provided in this Code, may be an insurer
Insurer

• Insurance corporations- corporations formed


or organized to save any person or persons or
other corporations harmless from any loss,
damage or liability arising from any unknown
or contingent event, or to indemnify or
compensate for such loss, damage or liability
or to guarantee performance with
contractual obligations or payment of debts
Mutualization and Demutualization

• Mutualization – A a shareholder-owned company is


converted into a mutual organization, typically
through takeover by an existing mutual organization.
A mutual organization is customer-owned.

• Demutualization -customer-owned mutual


organization or cooperative changes form to a joint,
stock company, sometimes called stocking for
privatization.
NEW
Demutualization

• Section 280. A domestic mutual life insurance company


doing business in the Philippines may convert itself into
an incorporated stock life insurance company by
demutualization. To that end, it may provide and carry out
a plan for the conversion by complying with the
requirements of this title.

• "The conversion of a domestic mutual life insurance


company to an incorporated stock life insurance company
shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.
NEW
Demutualization
• "The Commissioner shall promulgate such rules and
regulations as he or she may deem necessary to carry out the
provisions of this title, after due consultation with
representatives of the insurance industry.

• "All converted insurers under the provisions of this title shall


be subject to all other applicable provisions of this Code. The
provisions of the Corporation Code shall apply in a suppletory
manner.
Insured: Section 7

•Anyone except a public enemy may


be insured.

•Public enemy - citizen or national of


any country with which the
Philippines is at war
Insured
The person who must have insurable interest

The person who pays the premiums

Commonly referred to as the policyholder

Not necessarily whose life is used to


constitute the insurance policy
Insured: Rights

•Right to borrow on the policy 227(g)

•Right to dividends if participating


policy 227(e); 230(e)
Insured: Rights

• Right to reinstatement 227(j); 230(j)


• 3 years from date of default in individual
• 2 years from date of default in industrial
• payment of overdue premiums
• evidence of insurability
Insured: Rights

•Right to transfer/bequeath-pass by
transfer, will or succession to any
person whether he has insurable
interest or not; notice to insurer not
required
Cestui Que Vie

•Person on whose life the insurance


contract is constituted

•Can be any of those enumerated


under Section 10
NEW
Beneficiary

• One who receives benefits


• GENERAL RULE: Designation may be changed
by insured
• EXCEPTION: insured has expressly waived his
right to change
• BUT, if there was no change of beneficiary,
designation is IRREVOCABLE
Disqualified Beneficiaries
• Article 2012 in relation to Article 739 of the Civil
Code

• those made between persons who were guilty of


concubinage at the time of donation

• those made between persons found guilty of the


same criminal offense in consideration thereof

• those made to a public officer or his spouse,


descendants and ascendants by reason of his
office
Beneficiary

•Insular Life v. Ebrado, 80 SCRA 181 -


The designation of a common law
wife is void. This need only be proved
by preponderance of evidence, no
previous conviction is required
Beneficiary
• Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides:
• The following donations shall be void:
• 1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
• 2. Those made between persons found guilty of the same criminal
offense, in consideration thereof;
• 3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
• In the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilt of
the donee may be proved by preponderance of evidence in the same
action.
If the beneficiary is disqualified

•The estate of the insured will


be entitled to the proceeds of
the life insurance policy.
NEW

If beneficiary willfully causes death of insured


If beneficiary WILLFULLY causes the death of the
insured/cestui:

• The share forfeited shall pass on to the other beneficiaries,


unless otherwise disqualified.
• In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract.
• If the policy contract is silent, the proceeds shall be paid to
the estate of the insured.
If beneficiary dies before insured
•If beneficiary dies ahead of the
insured/cestui, the estate of the
insured will get the proceeds
If no beneficiary

•If beneficiary is not designated,


insured’s estate will get the
proceeds
NOTE!!!

Only the insured or policyholder in life insurance is


required to have insurable interest on the life of the
cestui.

The beneficiary may or may not have insurable interest


on the life of the cestui. What is vital is that the
beneficiary is not disqualified under the law to get the
proceeds.
LIFE INSURANCE POLICY
NEW
Form
• GENERAL RULE: printed form
• EXCEPTIONS: The policy may be in electronic
form subject to the pertinent provisions of
Republic Act No. 8792, otherwise known as the
‘Electronic Commerce Act’ and to such rules and
regulations as may be prescribed by the
Commissioner.
• Contains blanks where word, phrase, clause,
mark, sign necessary to complete the policy are
placed
Contents
• Parties

• amount to be insured

• premium

• life insured

• risks
Required Provisions

• Grace period provision – provision which gives


the insured additional time to pay his premiums
from the due date

• Clarifies the right to collect if death happens


within the grace period

• Individual life – 30 days/1 month


• Group life – 30 days/1 month
• Industrial life – 4 weeks or if payable monthly –
30 days/1 month
Required Provisions
•Entire contract provision – The
policy shall constitute the entire
contract between the parties
Required Provisions

•Misstatement of age provision – if the


age of the insured is misstated, the
amount payable shall be as such
premium would have purchased at the
correct age
Required Provisions
• Reinstatement provision – clarifies the
requirements for restoring a policy to
premium-paying status after it has lapsed.
• Individual – within 3 years from default
• Group – no reinstatement
• Industrial – within 2 years from default
Special Features
• Loan privilege – based on the cash
surrender value, the insured may obtain
a loan by pledging the policy

• Policy dividend options – if the policy is


participating, the policyholder is entitled
to a share of the surplus.
Special Features
• Exemption from claims of creditors – protection
against execution

• Income tax treatment – proceeds of life insurance


policies are generally tax exempt. However,
endowment proceeds and cash surrender values
are treated as income and are taxable.
Special Features

•Surrender options/NON-DEFAULT
OPTIONS – if the policyholder cannot
continue paying the premiums, he has
some options which will not put to
waste what he has paid. However,
these options are available only upon
payment of at least 3 annual
premiums
Non-Default/Surrender Options
• Cash Surrender Value 227(f); 230(f) and
(g)
• payment of at least 3 annual premiums
• not less than the reserve on the policy

• Extended Insurance
• At least three annual premiums
• limited time, same face value
Non-Default/Surrender Options
• Paid-Up Insurance
• At least three annual premiums
• same period, lower proceeds

• Automatic Premium Loan


• Parties agree that in case of default
insurer advances the premium not subject
to repayment
Kinds of Policies

1. Ordinary Life – payment of


premiums is annually or at more
frequent intervals throughout
life and the beneficiary is
entitled to receive payment only
after the death of the insured.
Kinds of Policies

2 . Limited Payment Life – premiums


are payable only during a limited
period of years (10,15,20 years).
After the period, the insurance is
deemed fully paid. Proceeds are
payable upon death of insured.
Kinds of Policies

3. Term Insurance – provides coverage


only if the insured dies during a
limited period.
If the insured dies within the
period, the beneficiary gets the
proceeds. If the insured survives
the period, the contract is
terminated.
Kinds of Policies

4. Endowment Policy – insured


gets a sum of money if he
survives a specified period. If
insured dies within the period,
the beneficiary gets the
proceeds.
Kinds of Policies
5. Life Annuity – debtor binds himself to
pay an annual pension or income
during the life of one or more
determinate persons in
consideration of a capital consisting
of money or other property, whose
ownership is transferred to him at
once with the burden of income.
Kinds of Policies

6. Accident Insurance – may be life


or non-life insurance.

* If death is one of the risks insured


against, it is classified as life
insurance.
WHEN IS AN
INSURANCE
CONTRACT
PERFECTED?
Procedure

Agent offers a person a life insurance


policy
?
The person files an application for a policy.
He is required to pay the first premium when
he applies
?
Insurance
Insurance company
company approves
approves the
the application
application and
and issues
issues aa policy
policy
in
in favor
favor of
of the
the person.
person. In
In case
case of
of disapproval,
disapproval, the
the premium
premium is is
returned
returned to
to the
the person
person
When is the insurance contract
perfected?

•At the time the insured-applicant has


knowledge of the approval of his
application.

•Even if the application has been


approved if the applicant-insured does
not know about approval, there is NO
perfected contract yet
When is the insurance contract
perfected?

•Since the insured is the one making


the offer, the submission of the
application WITHOUT the approval of
the policy does not result in a
perfected contract of insurance
(Grepalife v. CA)
When is the insurance contract
perfected?

•De Lim v. Sun Life – the applicant paid


the premium upon filing of application
but he dies before the approval

•HOLDING: NO perfected contract of


insurance
When is the insurance contract
perfected?

•If insured died during the period of


provisional policy which is conditioned
upon approval of application,
beneficiary is NOT entitled to
proceeds.
When is the insurance contract
perfected?

•Even if the insurer has approved the


application via a letter, there is no
perfected contract if there is no
evidence that the applicant knew of
the approval (Enriquez v. SunLife, 41
Phil 629)
When is the insurance contract perfected?

•The insured is presumed to have


understood the application and the
contract of insurance (Tang v. CA, 90
SCRA 236)
Cover Notes v. Binding Receipt

• COVER NOTE: Temporary insurance policies


intended to cover the insured while
application is being evaluated
Cover Note v. Binding receipt

• BINDING RECEIPT: acknowledgment of


receipt of premium and application subject
to evaluation. NOT the same as cover note
(Great Pacific v. CA, 89 SCRA 543)
Cover note is a valid insurance K IF:
• Issued and renewed with prior approval of IC

• Valid and binding for not more than 60 days,


unless the insurance commission has approved
an extension based on valid grounds

• No separate premium is required for the cover


note (Pacific Timber v. CA)
Cover note is a valid insurance K IF:

•7-day notice to the other party is


required to cancel the cover note
•Policy must be issued within 60 days
from issuance of cover notes
Cover note is a valid insurance K IF:

• 60-day period may be extended upon


written approval of IC
• Written approval is dispensed when
president, VP or general manager that the
renewal is not to circumvent the insurance
code (Ins. Memo Circular 3-75)
PREMIUM
Concept

• Agreed price for assuming the risk

• The right to premium arises the moment the


property/object is exposed to risk

• Cash and carry basis - based on section 77 which


provides that the moment the thing insured is
exposed to the peril, the insurer has the right to
payment of premium.
When is non-payment excused?

• insolvent insurer
• insurer’s negligence or fault
• insurer waives the right to
payment
When is non-payment excused?

•war does not suspend the policy and


does not excuse non-payment of
premiums
•Constantino vs. Asia Life, 87 Phil 248
Premium

•If insured fails to pay 1st premium, insurer


cannot ask for specific performance but
can only rescind the contract since there is
no creditor-debtor relationship
Special Rule in Industrial Life if
premiums are not paid

•If insured failed to pay because the


insurance agent did not collect in the
address provided in the policy – policy
will NOT lapse
Special Rule in Industrial Life if
premiums are not paid
• Except: if 12 weeks or 3 months have
lapsed from end of grace period
At a glance
Only the insured must have insurable interest on
the life if the cestui

Suicide is generally not compensable unless:


mentally ill or committed after the policy has
existed for more than two years from issuance
At a glance

• If the beneficiary is disqualified because he


participated in the death of the cestui, the
other beneficiaries will get his share. If there
are no other beneficiaries or also disqualified,
the terms of the policy will be followed.
Otherwise, the estate will recover.
• In all other cases, it is the estate of the insured
which can recover
At a glance

If the cestui dies during the grace period, there can be
recovery

If the cestui dies during the duration of the cover notes,
there can be recovery

The measure of recovery in life insurance is the face


value of the policy. Except when insurable interest is
capable of pecuniary estimation
Framework

General Non-Life
Non-Life
Life
Life Insurance
Insurance
Concepts Insurance

Summary of
Payment of Grounds for
Amendments in
Proceeds Rescission
Insurance Code

PDIC Law
PART THREE

NON-LIFE INSURANCE
Topics
•What may be insured against

•Insurable interest

•Non-life insurance policy


Topics
• Premiums

• Parties

• Double insurance v reinsurance

• Different kinds of non-life insurance


WHAT MAY BE
INSURED AGAINST
Unknown
Contingent
Event- time
Event- may or
of
may not
occurrence is
happen
unknown
Which will
damnify a person
OR
create a liability
against him
Requirement for recovery

• Peril insured against must be the PROXIMATE CAUSE of the loss


or damage (sec. 86)

• NO liability if insured risk is only a remote cause or if proximate


cause is an excepted peril

• Concept of loss - injury, damage, liability, loss of income or


profits sustained by the insured in consequence of the
happening of one or more perils insured against (Bonifacio Bros.
V. Mora, 20 SCRA 261)
Proximate Cause
• That which in the natural and continuous sequence,
unbroken by any NEW INDEPENDENT cause,
produces an event without which the event would
not have occurred.

• Also called the EFFICIENT CAUSE, or one that sets


the others in motion

• NOT equivalent to IMMEDIATE CAUSE


Proximate Cause: Examples

• Fire causes an explosion which results in


loss. Fire is the proximate cause of the loss.
If fire is a covered peril, the insurer is
liable.

• A house is insured against fire. The house is


destroyed due to the falling of a wall. The
wall fell due to fire. The insurer is liable
Immediate Cause v. Proximate Cause

Immediate cause – cause or peril which


appears closest in time to the loss

Immediate cause is NOT necessarily the


proximate cause and vice versa
Hostile v. Friendly Fire
• Friendly - fire burns in a place where it is
intended to burn

• Hostile - occurs outside the confines or begins


as a friendly fire and becomes hostile by
escaping from the place where it ought to be

• Hostile fire is the one covered by fire insurance


Section 87:
Loss in the course of rescue

•Insurer is liable if the thing is rescued


from peril insured against if in the
course of rescue, the thing is exposed
to a peril not insured against
Illustration
• An owner gets fire insurance for his house and all
furniture inside.

• In the course of rescuing the furniture from fire,


the furniture is damaged due to water.

• The insurer is liable to the owner although the


damage is not due to fire since it was in the
course of rescuing the furniture from fire that it
suffered some damage.
If loss due to willful act or connivance
of insured
•Section 89 - insurer is not liable if
insured, through his willful act or
connivance caused the loss

•Ex. Arson, owner hiring other people


to rob his property
If loss due to willful act or connivance of
insured
• Section 89 - if loss is through SIMPLE negligence
of insured or his agents, insurer is STILL LIABLE

• Insurer is NOT liable if loss is caused by GROSS


negligence of insured
INSURABLE INTEREST
Concept, Section 13
Every interest in property, whether real or
personal (owner)

Any relation thereto (lessee, agent)

Liability in respect of property (carrier,


depositary)

Which will directly damnify the insured when a


contemplated peril happens
Forms, Sec. 14

Existing interest (owner)

Inchoate interest founded on an existing interest


(shareholder)

Expectancy coupled with an existing interest


(usufructuary, expected profit)
Factual Expectation

• Mere factual expectation of loss not arising from


any legal right or duty in connection with the SM
does NOT constitute an insurable interest.

• NOTE: Factual expectation is enough basis in life


insurance.
Beneficiary is required to have insurable
interest
Insurable interest is required
before a person can benefit from a
property insurance (Sec. 18)
Insurable interest in a
mortgaged property (Sec. 8)

• Both the mortgagor and the mortgagee have


insurable interest on the mortgaged property

• The II of the mortgagor is to the full value of the SM

• The II of the mortgagee is only up to the extent of


the indebtedness
Measure

Measure of insurable interest is the extent the


insured might be damnified by loss or injury
(Sec. 17)

Section 25: Void stipulations – payment of loss


whether insured has insurable interest or not or
that policy shall be proof of interest
INSURABLE INTEREST:
jurisprudence

• Fire insurance taken on a property belonging to


another is VOID, although the insurer had full
knowledge of fact of ownership and even if
insured subsequently acquired insurable interest
(Cha v. CA, 277 SCRA 690)
INSURABLE INTEREST:
jurisprudence
• Where the real intention of insured was to
insure his goods for P15,000 but insurer
mistakenly insured the building where the
goods were contained and not owned by
insured, in case of loss of goods insured
was allowed to recover (Garcia v.
Hongkong, 45 Phil 122)
When insurable interest must exist in
property insurance

Time the insurance takes effect


and when the loss occurs, but
NEED NOT exist in the meantime
Change of ownership of property

Section 20 and 58: A change of interest in any


part of a thing insured unaccompanied by a
corresponding change of interest suspends the
insurance until the interest in the thing and
interest in the insurance are vested on the
same person
Illustration
•A owns a car which is insured against theft

•A sells the car to B. The policy was not included in the sale.

•If the car is carnapped, neither A nor B can recover under the
policy.

•A cannot recover because he does not own the car at the


time of the theft.

•B cannot recover because he does not own the policy


Transfer of property
by succession

When the insured dies, and the subject


matter is transferred by succession, the
new owner of the thing will also own the
insurance. (Sec. 23)
Illustration

•A owns a car which has theft insurance


•A bequeath the car to B under his will
•A dies
•B now owns the car, together with the
insurance policy
POLICY
NEW
KINDS

Open – Value of thing is not agreed


upon but is to be ascertained at time of
loss. The amount of the insurance
merely represents the insurer’s
maximum liability.
KINDS
Valued – expresses on its face an
agreement that the thing shall be valued
at a specific sum

Running – successive insurances


TWO KINDS OF VALUES
•Face value – maximum amount which
may be recovered under the policy

•Valuation- value of the subject matter


agreed on by the parties
Open v. Valued
•Open - has a face value but has NO
valuation of the thing. Valuation is
done after the loss

•Valued - has both face value and


valuation of the thing
Illustration: Open

Value of the building: to be


determined at time of loss
Face Value: P10 Million
If the valuation is more than the face
value, recovery is limited to the face
value
Illustration: Valued
Valuation of the car : P15
Million
Face Value : P 10
Million
GENERAL RULE: Recovery
will be based on valuation
EXCEPTION: If valuation is
obtained through fraud or
misrepresentation.
Recovery is limited to the
face value or insurer may
deny the claim
Illustration: Running

As of June 1, 2014 – value of goods – P1


Million
As of June 10, 2014 - value of goods –
P500,000
PREMIUM
PREMIUM
• Cash and carry basis rule is followed

• Section 77 - insurer is entitled to premium


as soon as the thing insured is exposed to
the peril insured against

• Premium - is the agreed price for assuming


and carrying the risk
PREMIUM
General Rule: Cash and carry basis – nonpayment
of the first premium prevents the contract from
becoming binding

Premium must be paid in cash as a condition


precedent for non-life insurance policy to be valid
and binding
PREMIUM
• In Suretyship, payment of premium is also
necessary for the contract to be binding

• EXCEPT: if obligee has accepted the bond,


suretyship is binding even if premium has
not been paid, subject to the right of the
insurer to recover the premium from its
principal (SEC. 177)
NEW

Exceptions to Cash and Carry Basis, Sec. 77


• Life/industrial life when the grace period
applies
• whenever under the broker and agency
agreements with duly licensed
intermediaries, a ninety (90)-day credit
extension is given. No credit extension to
a duly licensed intermediary should
exceed ninety (90) days from date of
issuance of the policy.
Exceptions to Cash and Carry Basis, Sec. 77
• An acknowledgment in a policy or contract of insurance
or the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid.

• When the parties have agreed on installment payment


(Makati Tuscany case)

• When the insurer has renewed the insurance over the


years under a clear credit term arrangement (UCPB case)
Exceptions to Cash and Carry Basis, Sec. 77

•In Suretyship where the obligee


accepts the bond even if premium has
not been paid (Sec. 177)
When there is a credit scheme

• UCPB v. Masagana April 4, 2001 - insured is entitled to


proceeds even if he has not fully paid premiums
when:

• for years, insurer has been issuing fire insurance


policies to insured and the policies were renewed

• insurer has been granting 60-90 day credit extension


When there is a credit scheme

• no valid notice of non-renewal

• premium was paid by insured within credit


extension period
Premium by installment:
Makati Tuscany v. CA

•Makati and American Assurance agreed


that premiums will be paid via three
installments
•Makati paid premiums for 3 consecutive
years in three installments
•On the 4th year, Makati paid only the 1st
2 installments.
Premium by installment:
Makati Tuscany v. CA
•American collected the 3 rd installment

•Makati’s defense: Section 77 provides


that no policy will be effective unless
the premium has been paid. Since
premiums were paid on installments,
there was no valid policy.
Premium by installment:
Makati Tuscany v. CA
• Makati and American Assurance agreed that
premiums will be paid on three installments

• After paying premiums for 3 consecutive years,


Makati refused to pay the third installment on the
4th year

• American sought to collect the balance from


Makati
Premium by installment:
Makati Tuscany v. CA

• SC: 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
When is insured
entitled to return of premium?
Whole premium – if object was never exposed
to peril, unless it is an indivisible policy

E.g. insured pays in advance the annual


premium, loss occurs before date of effectivity.
Insured is entitled to reimbursement of whole
premium
When is insured
entitled to return of premium?
Pro- rated premium – surrender policy before
period is up

E.g. A insures his house for 1 year but returns


the policy after 3 months. A is entitled to ¾ of
the premiums.
NEW
When is insured
entitled to return of premium?
If the contract is voidable and subsequently
annulled under the provisions of the Civil Code
or on account of fraud / misrepresentation of
insure/agent, facts insured was ignorant of,
default of insured other than fraud

E.g. Agent represents that A can be insured


even if his age disqualifies him. Insured is
entitled to return of premium.
NEW
When is insured
entitled to return of premium?

Over – insurance by several insurers,


other than life

ratable return of premium


NEW
ADDITIONAL PREMIUMS
• Section 84. An insurer may contract and
accept payments, in addition to regular
premium, for the purpose of paying future
premiums on the policy or to increase the
benefits thereof.
NEW
NOTE!
•A person insured is not entitled to a
return of premium if the policy is
annulled, rescinded or if a claim is denied
by reason of fraud.
RATABLE RETURN OF PREMIUM IN CASE
OF OVERINSURANCE
• Sec. 82 – premiums to be returned when
there is over insurance by several
insurers shall be proportioned to the
amount by which the aggregate sum
insured in all policies exceeds the
insurable value of the thing at risk
Illustration: P1.5M house

Insurer Amount of Premiums


insurance Paid

A company P1,200,000.00 P24,000.00

B company P600,000.00 P12,000.00

TOTAL P1,800,000.00 P36,000.00


How to compute:

• STEP 1: Determine amount overinsured

Amount overinsured =
Amount of insurance – value of property

• P1.8 – P1.5M = P300,000


How to compute
• Get the ratio of overinsurance with the total
amount of insurance

P300,000/P1,800,000.00

= 1/6
Ratable Return

•STEP 3: Multiply the ratio to the


amount of premium paid to every
insurer

A= 1/6 of P24,000 = P4,000 from A Company

B= 1/6 of P12,000 = P2,000 from B Company


PARTIES
Insurer

Insured Beneficiary
The beneficiary

•Section 18 - no contract or policy on


property shall be enforceable except
for the benefit of some person having
an insurable interest in the property
insured
Compare with Life Insurance
• Where the beneficiary is not required to
have insurable interest over the cestui que
vie

• It is only the insured who must have


insurable interest over the cestui que vie
NEW
Insurer
• Before issuing such certificate of authority, the
Commissioner must be satisfied that the name
of the company is not that of any other known
company transacting a similar business in the
Philippines, or a name so similar as to be
calculated to mislead the public. The
Commissioner may issue rules and regulations
on the use of names of insurance companies
and other supervised persons or entities.
NEW
Insurer- Bancassurance
• Section 375. The term bancassurance shall mean 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 Bangko Sentral ng Pilipinas or any of its
branches under such rules and regulations which the Commissioner
and the Bangko Sentral ng Pilipinas may promulgate.

• To engage in bancassurance arrangement, a bank is not required to


have equity ownership of the insurance company. No insurance
company shall enter into a bancassurance arrangement unless it
possesses all the requirements as may be prescribed by the
Commissioner and the Bangko Sentral ng Pilipinas.
NEW
Insurer
• No insurance product under this section, whether life or non-life,
shall be issued or delivered unless in the form previously approved
by the Commissioner.

• Section 376. Personnel tasked to present and sell insurance


products within the bank premises shall be duly licensed by the
Commissioner and shall be subject to the rules and regulations of
this Act.

• "Section 377. The Commissioner and the Bangko Sentral ng Pilipinas


shall promulgate rules and regulations to effectively supervise the
business of bancassurance.
Double Insurance v. Over-insurance
Double Insurance

Same person is insured by several


insurers in respect of the same
subject and interest (Sec. 95)
Double Insurance
Requisites:
1. insured is the same
2. two or more insurers insuring separately
3. same subject matter
4. interest insured is the same
5. risk or peril insured against is the same
Over-insurance
•OVER- INSURANCE – amount of
insurance is beyond the value of
insured’s insurable interest
How to collect in case of over-insurance by
double insurance, Sec. 96

• The insured, unless the policy otherwise


provides, 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;
How to collect in case of over-insurance by
double insurance, Sec. 96
• 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;

• Unvalued Policy- any sum received by him under


any policy shall be deducted against the full
insurable value, for any sum received by him
under any policy;
How to collect in case of over-insurance by double
insurance, Sec. 96
Policy is unvalued, determine actual loss and collect
from insurance in such order as he may select

If insured receives amount more than loss, hold sum


in trust according to the right of contribution

Each insurer must contribute ratably to the loss in


proportion to the amount for which he is liable
Reinsurance
•Contract by which an insurer procures
a third person to insure him against
loss or liability by reason of an
original insurance
Illustration
• A gets B to insure his building against fire for P10
Million.

• B (insurer) can get C (reinsurer) to reinsure him


for P5 Million out of the P10 Million insurance in
favor of A. Thus, B’s liability shall be limited to P5
Million. While C, the reinsurer has to give the
insurer the other P5 M.
Reinsurance v. Double Insurance
insurer becomes the Insurer remains the
insured insurer

subject of insurance subject of insurance


is the original is property
insurer’s risk
Reinsurance v. Double Insurance
insurance of a insurance of the
different interest same interest

original insured is insured is the party


not a party in interest in all
contracts
Reinsurance v. Double Insurance

consent of original Insured has to give


insured is not his consent
necessary
Kinds of Non-Life Insurance
MARINE
Marine
• Sections 99 and 100 – concept

• Peril covered – perils of the sea or perils of navigation –


casualties due to unusual violence or extraordinary action of
wind and wave or other extraordinary causes connected with
navigation – must be the PROXIMATE CAUSE

• Peril of the ship is NOT covered


Peril of the Ship v. Peril of the Sea
• Roque v. IAC – sinking of barge without extra-
ordinary circumstances (SHIP)

• Go Tiaco v. Union – loss results from natural and


inevitable action of the sea, from the ordinary wear
and tear of the ship or from negligence of owner to
provide with proper equipment (SHIP)

• Cathay v. CA – rusting of steel pipes in the course of


the voyage in view of the toll on cargo of wind, water
and salt conditions (SEA)
Is ship owner’s insurer liable in case of loss
if:
• vessel is chartered (Sec. 102)
• YES. liable only for part of the loss which insured cannot
recover from charterer

• Insurance of owner – full value of property but recovery


shall be limited to amount not paid by charterer

• Insurance of charterer – extent of his liability in case of


loss
Illustration
• A and B enter into a charter agreement.
• A's vessel is valued at P1 Million.
• Per agreement, B’s insurer shall be liable up to
P500,000 in case of loss. A has an insurance of P1
M.

• In case of loss:
• A’s insurer = P500,000
• B’s insurer = P500,000
Can ship owner get insurance for:
• Expected freightage (Sec. 105)
• Expected freightage which in the ordinary and probably
course of things he would have earned but for the
intervention of the peril insured against

• Important that insured must have an inchoate right to


freightage which cannot be defeated

• Expected profits (Sec. 107) – YES.


Fire
Fire Insurance
• insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other
allied risks, when such risks are covered by
extension to fire insurance policies or under
separate policies

• Fire must be the proximate cause, and must be


hostile in nature
Measure of Indemnity

• If there is a valuation – shall be conclusive


as between parties in adjusting partial or
total loss in the absence of FRAUD
Measure of Indemnity
• If there is NO valuation - the expense it
would be to the insured to REPLACE the
thing lost or injured in the condition in
which it was at the time of injury
Measure of Indemnity
• Loss and its amount may be determined on
the basis of such proof as may be offered
by insured which need not be of such
persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo)
How valuation is made
•Sec. 174 – independent appraiser
examines the property and fixes the
value

•Valuation shall be inserted in the policy


How valuation is made
• GENERAL RULE: Valuation shall be the basis
for indemnity in case of total loss

• EXCEPT: If there is a change increasing the


risk without the consent of insurer or if
there's fraud on the part of insured.
How valuation is made
• Partial loss – full amount of the partial loss

• Parties may agree that instead of payment,


insurer may repair, rebuild or replace
property
Illustration
• Subject matter is a house

• Independent appraiser
values it at P10 Million

• The valuation is attached


to the policy
Illustration
•If house is totally destroyed by fire,
the valuation of P10 M will be given

•If the house is half-destroyed, the


indemnity will be half of P10 Million or
P5 M.
Illustration
• If the valuation is based on some fraud on
the part of the insured, e.g. adding fixtures
which are not part of the house OR there is
an alteration increasing the hazard such as
converting in to an ammunition factory, the
valuation is not used.
Illustration
• Parties may agree that instead of paying
the amount, insurer will rebuild the house.
Casualty Insurance
Casualty Insurance
•Sec. 176 – insurance covering loss or
liability arising from accident or
mishap excluding certain types of loss
which fall exclusively within the scope
of other types of insurance such as fire
or marine
Motor Vehicle Liability Insurance

•Motor vehicle – any vehicle propelled


by any power other than muscular
power using the public highways, with
certain exceptions
Motor Vehicle Liability Insurance
•Section 387 – unlawful for any land
transportation owner or operator to
operate the same in public highways
unless there is a policy of insurance or
guaranty in cash or bond to indemnify
the death or bodily injury of a third
party or passenger
At a glance

• Insurable interest is property insurance must exist at


the time of the issuance and at the time of the loss
although it need not exist in between these times

• A beneficiary in property insurance must have


insurable interest over the property
At a glance
• It is possible that two or more persons may have
insurable interest over the same object. As in the
case of owner and lessee, mortgagor and
mortgagee.

• In such cases, two or more separate insurance


policies may be obtained. This is not double
insurance since they don’t have the same insured and
they have different interests.
At a glance
• The covered peril must be the proximate
cause before there can be recovery under the
policy.

• Instances when there can be return of


premiums.
At a glance
• Payment of premiums must be on cash and
carry basis.

• Important exceptions to cash and carry: credit


extension and installment payment
At a glance
• Marine insurance covers only perils of the sea
and NOT perils of the ship.

• In marine, the following persons can get


insurance policies: owner, charterer, for
freightage, for expected profits.
At a glance
•Fire insurance covers hostile fire

•Failure to give written notice of loss in


fire with unreasonable delay will
exonerate the insurer.

•Indemnity in fire may either be based on


valuation OR payment of cost to restore
the object at the time of loss
Framework

General Non-Life
Non-Life
Life
Life Insurance
Insurance
Concepts Insurance

Summary of
Payment of Grounds for
Amendments in
Proceeds Rescission
Insurance Code

PDIC Law
PART FOUR:
PAYMENT OF PROCEEDS
AND FILING OF CLAIMS
Basic Rule in Recovery
•Sec. 89. An insurer is not liable for a
loss caused by the willful act or
through the connivance of the
insured; but he is not exonerated by
the negligence of the insured, or of
the insurance agents or others.
In Life Insurance
WHEN
General Rule: Paid immediately upon maturity of
the policy (death, survival, cessation or
continuance of life)

Exceptions:
proceeds are payable in installments

annuity
If maturity is due to death
Proceeds are paid within 60 days from
presentation of the claim and proof of
death

Delay = interest unless due to


fraudulent claim
Proof of death v. Notice of Death
•Notice of death is not enough, there
must be proof of death

•Proof of death - death certificate


TO WHOM
General rule: paid to designated
beneficiaries

Exception: Facility of payment clause


in group life and industrial life
Facility of Payment :
Group Life

There is no designated beneficiary


pay not exceeding P500.00
to any person equitably entitled for
incurring funeral or other expenses
incident to the last illness or death of
the insured
Facility of Payment: Industrial
If beneficiary:
 does not surrender policy with proof of
death during period stated in the policy OR
 is the estate of insured OR
 is a minor OR
 dies before the insured OR
 is legally incompetent to give valid release
Facility of Payment: Industrial
proceeds may be given to:
the executor or administrator of insured
OR

any of insured’s relative by blood as legal


adoption or by marriage OR

any person who incurred expenses for


maintenance, medical attention or burial
NON-LIFE INSURANCE
WHEN
•within 30 days after proof of loss is
received by insurer and ascertainment
of loss is made
Ascertainment of loss
made either by agreement between
parties or by arbitration
WHEN
• If no ascertainment is made or can be had
within 60 days from receipt of proof of loss,
insurer must pay within 90 days after receipt
of proof

Refusal to pay within period unless due to a


fraudulent claim = interest
ILLUSTRATION
•A presents proof of loss of car by theft
and insurer ascertains amount of loss
on January 1, 2000

•Proceeds must be paid 30 days after


January 1, 2000. Otherwise, interest
must be paid.
ILLUSTRATION

•A presents proof of theft on January 1,


2000 but parties cannot agree on
amount of loss by March 1, 2000 (within
60 days from Jan.1).

•Proceeds must be paid within 90 days


from January 1, 2000. Otherwise,
interest will accrue.
MOTOR VEHICLE LIABILITY
Procedure for filing claims
• Within six months, file written notice of claim.
• Filed after six months = waived claim
• Notice must contain nature, extent, duration of injuries certified by a licensed
Accident
Accident physician

• Ascertain nature and truth of claim


Insurer
Insurer gets
gets • If parties agree, pay claim within 5 calendar days
notice
notice

•Insurer must pay under no-fault indemnity clause


IfIf no
no agreement
agreement
isis reached
reached
No fault Indemnity Clause:
Section 391
death or injury of 3rd party

without necessity of proving


fault or negligence of any kind

if total indemnity of one


person shall not exceed
P15,000.
No fault Indemnity Clause

Proofs of loss are submitted under


oath.
police report of accident ; and
Death certificate and evidence to
establish payee OR medical report
and evidence of medical and
hospital disbursement.
No fault Indemnity Clause

Claim against one motor vehicle only


if occupant of a vehicle, claim
against insurance of vehicle
otherwise, claim against offending
vehicle
Delay, Proof, Subrogation
Reasonable Delay
in Payment
delay due to investigation to ascertain
the truth of information it received that
insured was not insurable at time of
application (Chuy v. Philamlife)
delay caused by determination of actual
beneficiary and claims of creditors (RCBC
v. CA)
Preliminary Proof of Loss

•best evidence which insured has


 not evidence in ordinary courts
 purpose : Apprise insurer of loss and make
proper investigation while evidence is still
fresh and to prevent further loss
NOTICE OF LOSS IN FIRE

• Must be written

• Must be given without unnecessary delay

• Otherwise, the insurer is exonerated


NEW
NOTICE IN OTHER NON-LIFE POLICIES
•The Commissioner may specify the
period for the submission of the
notice of loss.
Subrogation
• when insurer pays for the loss
• payment to insured operates as an
equitable assignment to the insurer of all
remedies which insured may have for the
recovery
• subrogation is limited to the amount
recoverable by the insured
Marine
What may be insured against
• Only covers loss due to perils of the sea and
not perils of the ship

• In case there is a bottomry, insurable


interest of the ship owner is limited to
excess of its value over the amount secured
by bottomry.
Who can insure?
• Freightage – all benefits derived by the owner
either from chartering the ship or its employment
for the carriage of his own goods or those of
others (102)

• Charterer of the ship has insurable interest on the


ship to the extent that he is damnified by the loss
(106)
Average
•General – insurer is liable for proportion
of the loss assessed (136)

•Particular – insurer is liable unless there


is a stipulation exempting the insurer
(136)
Casualty Insurance
• Employers liability

• Motor Vehicle Liability

• Plate glass insurance

• Burglary and theft insurance

• Personal accident and health insurance (when


death is NOT one of the risks insured against)
General Average
•Goods of A valued at 1 M are disposed
•Disposition saves the goods of B (1 M)
and C (1 M)
•The 1 M loss of A will be shared by B and
C in proportion to the value of the
goods belonging to them which are
saved. The 1 M loss will be divided by
three
Particular Average

• If the goods of A are disposed


• But disposition did not inure to the common
benefit of other owners of goods
• Only A and his insurer will suffer the loss
• Other owners and their insurers will not
contribute in A’s loss
Reshipment

•Insured peril prevents a ship from


completing voyage at an intermediate
port, liability of the marine insurer
continues after reshipment without
prejudice to insurer's right to collect
more premiums (133)
Reshipment

•In case of reshipment, the insurer of


goods is liable for damages,
expenses of discharging, storage,
reshipment and other expenses
(134)
Kinds of loss in marine

Loss in
marine

Total Partial

Actual Constructive
Total v Partial Loss
• Every loss which is not total is partial (128)

• Total loss may either be actual or constructive

• Actual loss may be presumed from the continued absence of a


ship without being heard of (132)
Actual Loss, 130
• total destruction of the thing
• irretrievable loss of thing by sinking or being
broken up
• damage which renders thing valueless for
the purpose it is held
• other event which effectively deprives
owner of possession of the thing at the port
of destination
Constructive Total Loss, 133

•Also called technical total loss

•Loss which gives the person the right


to abandon under Section 141
When there can be abandonment -
SECTION 141

•>3/4 of the value is actually lost or


would have to be spent to recover it
from peril

•If the vessel is injured to such an


extent as to reduce its value to >3/4
When there can be abandonment -
SECTION 141
• If the thing is a ship, and the voyage cannot be
performed without incurring either expense to the
insured of >3/4 the value of the thing abandoned or
a risk which a prudent man would not take under
the circumstances

• If the thing is cargo or freightage, voyage cannot


be performed, nor another ship be procured within
a reasonable time and with reasonable diligence to
forward the cargo, without incurring like expenses
or risk >3/4 of the value of the vessel.
Abandonment
• Neither partial nor conditional (140)

• Must be made within a reasonable time


after receipt of reliable information of loss
(141)

• If information on loss is incorrect or thing is


restored and there is no total loss,
abandonment is ineffectual (141)
Abandonment
• It is made orally or in writing. If orally,
written notice shall be submitted within 7
days from oral notice (143)

• Has the effect of transferring by the insured


of his interest, to the insurer with all chances
of recovery and indemnity (146)
Abandonment

• If insurer pays for loss as if there was


actual total loss
• BUT there was no formal abandonment
• Insurer is entitled to whatever may
remain of the thing insured or its
proceeds of salvage (147)
Who is entitled to freightage in case of
abandonment?
• freightage earned before the loss belongs to
the insurer of the freightage

• Freightage earned after the loss belongs to


the insurer of the ship
Insurer refuses valid abandonment
• the rights of the insured are not prejudiced
by refusal of insurer to accept abandonment

• Insurer is still liable for actual total loss


deducting any amount given to the insured

• Acceptance of abandonment may be


express or implied. Mere silence is
acceptance
Insured refuses to abandon

• If insured fails to abandon, he can recover actual


loss
Illustration
•A insures a vessel with B for P1 Million

•The vessel's value is reduced to


P200,000 due to a peril of the SEA

•TWO CHOICES OF A: Abandon or claim


actual loss
If A abandons

•A must immediately give a written notice


of abandonment to B

•If B accepts the abandonment, it must


give A P1 Million
If A abandons
•B now has all the right with respect to the
vessel

•HOWEVER, freightage earned before loss


will belong to the insurer of the goods

•Freightage earned after the loss will


belong to the insurer of the vessel
If A does not abandon BUT

•B still gives A P1 Million

•B will now have the right over the vessel,


what remains of it and proceeds of
salvage
If A does not abandon

•A can recover ACTUAL loss or P800,000


since the vessel is reduced to 20% of its
former value of P1 Million
>3/4 rule
Constructive
Insured must
abandon to get
Total full amount

Actual Insured gets full


amount
Measure of Indemnity
• Valuation is conclusive between parties in
determining total or partial loss EXCEPT if
there is fraud

• Marine insurer is liable for partial loss only


for such proportion of the amount insured
by him as the loss bears to the value of the
whole interest.
How to estimate loss in open policy
(161)
•Value of the ship – value at the
beginning of risk including articles
which adds to its value or to
prepare it for the voyage
How to estimate loss in open
policy(161)
•Value of the cargo – actual cost to
insured when laden on board OR
market value at the time and place
of lading
How to estimate loss in case of open
policy (161)
•Value of the freightage is the gross
freightage, exclusive of primage

•Cost of insurance shall be added to the


estimated value
Effect of an Other Insurance Policy Clause
•Generally allowed

•Only subject to possible stipulation that


insurer must be informed or must
consent to additional insurance policies
on the same property
Litigation of Claims
Powers of the Commissioner

Administrative
Adjudicatory
NEW
Insurance Commissioner
• Section 437. The Insurance Commissioner shall
be appointed by the President of the Republic
of the Philippines for a term of six (6) years
without reappointment and who shall serve as
such until the successor shall have been
appointed and qualified. If the Insurance
Commissioner is removed before the
expiration of his term of office, the reason for
the removal must be published.
NEW

Adjudicatory Powers

•Single claims of P5 Million or below


(excluding cost, attorney’s fees and
interest)

•This jurisdiction is concurrent with


the regular courts
NEW

Adjudicatory Powers

does not cover the relationship between


the insurance company and its
agents/brokers but is limited to
adjudicating claims and complaints filed
by the insured against the insurance
company.
NEW

Administrative Powers

To see that all laws relating to insurance,


insurance companies and other insurance
matters, mutual benefit associations, and
trusts for charitable uses are faithfully
executed and to perform the duties imposed
upon him by this Code
NEW

Administrative Powers

has sole and exclusive authority to regulate


the issuance and sale of variable contracts as
defined in Section 238 hereof and to provide
for the licensing of persons selling such
contracts, and to issue such reasonable rules
and regulations governing the same.
NEW

Administrative Powers

Issue such rulings, instructions, circulars,


orders and decisions as may be deemed
necessary to secure the enforcement of the
provisions of this Code to ensure the
efficient regulation of the insurance industry
in accordance with global best practices and
to protect the insuring public. Except as
otherwise specified, decisions made by the
Commissioner shall be appealable to the
Administrative Powers
• (a) Formulate policies and recommendations on
issues concerning the insurance industry, advise
Congress and other government agencies on all
aspects of the insurance industry and propose
legislation and amendments thereto;

• (b) Approve, reject, suspend or revoke licenses or


certificates of registration provided for by this
Code;
Administrative Powers
(c) Impose sanctions for the violation of laws and
the rules, regulations and orders issued pursuant
thereto;
• (d) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions and
provide guidance on and supervise compliance
with such rules, regulations and orders;
• (e) Enlist the aid and support of, and/or deputize
any and all enforcement agencies of the
government in the implementation of its powers
and functions under this Code;
Administrative Powers
• (f) Issue cease and desist orders to prevent fraud
or injury to the insuring public;
• (g) Punish for contempt of the Commissioner, both
direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by
the Rules of Court;
• (h) Compel the officers of any registered insurance
corporation or association to call meetings of
stockholders or members thereof under its
supervision;
Administrative Powers
• (i) Issue subpoena duces tecum and summon
witnesses to appear in any proceeding of the
Commission and, in appropriate cases, order the
examination, search and seizure of all documents,
papers, files and records, tax returns, and books of
accounts of any entity or person under
investigation as may be necessary for the proper
disposition of the cases before it, subject to the
provisions of existing laws;
• (j) Suspend or revoke, after proper notice and
hearing, the license or certificate of authority of
any entity or person under its regulation, upon any
of the grounds provided by law;
Administrative Powers
• (k) Conduct an examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by
appropriate rules and regulations;
• (l) Investigate not oftener than once a year from
the last date of examination to determine whether
an institution is conducting its business on a safe
and sound basis: Provided, That, the
deficiencies/irregularities found by or discovered
by an audit shall be immediately addressed;
Administrative Powers
• (m) Inquire into the solvency and liquidity of the
institutions under its supervision and enforce prompt
corrective action;
• (n) To retain and utilize, in addition to its annual budget, all
fees, charges and other income derived from the
regulation of insurance companies and other supervised
persons or entities;
• (o) To fix and assess fees, charges and penalties as the
Commissioner may find reasonable in the exercise of
regulation; and
• (p) Exercise such other powers as may be provided by law
as well as those which may be implied from, or which are
necessary or incidental to the express powers granted the
Commission to achieve the objectives and purposes of this
Code.
Administrative Powers
• To impose penalties on insurers:
• Fines not less than Five thousand pesos a
(P5,000.00) and not more than Two hundred
thousand pesos (P200,000.00); and
• Suspension, or after due hearing, removal of
directors and/or officers and/or agents.
Administrative Powers

• At least once a year to examine the affairs,


financial condition and method of business of
insurers
To issue
licenses/registrations/authority to
the ff:

•Domestic or foreign insurer (247)


•Reinsurance Broker (license) (Sec.
310)
•Insurance Agent and Broker
(license) (Sec. 299)
To issue
licenses/registrations/authority to
the ff:
•Resident agent of a foreign insurer
(certificate of registration)
•Non-life company underwriter
(certificate of registration)
•Adjusters Actuary
Grounds to revoke agent’s license
• Has willfully violated any provision of this
Code; or
• Has intentionally made a material
misstatement in the application to qualify for
such license; or
• Has obtained or attempted to obtain a license
by fraud or misrepresentation; or
• Has been guilty of fraudulent or dishonest
practices; or
Grounds to revoke agent’s license
• Has misappropriated or converted to his own use or
illegally withheld moneys required to be held in a
fiduciary capacity; or
• Has not demonstrated trustworthiness and
competence to transact business as an insurance
agent or insurance broker in such manner as to
safeguard the public; or
• Has materially misrepresented the terms and
conditions of policies or contracts of insurance which
he seeks to sell or has sold; or
Grounds to revoke agent’s license
• Has failed to pass the written examination
prescribed, if not otherwise exempt from taking the
same.
• "In addition to the foregoing causes, no license to act
as insurance agent or insurance broker shall be
renewed if the holder thereof has not been actively
engaged as such agent or broker in accordance with
such rules as the Commissioner may prescribe.
Administrative Powers

•Suspension or Revocation of certificate


of authority on the ff grounds:
•Insurer is in an unsound condition
•Insurer failed to comply with the
provisions of law or regulations
obligatory upon it
Administrative Powers

• Insurer's condition or method of business is


hazardous to the public or its policyholders
• Insurer's paid up capital or available assets or
security deposits is impaired or is deficient
• Margin of solvency is deficient
• Commission of any of unfair settlement
practices
Unfair Claims Settlement Practices
Knowingly misrepresenting to claimants
pertinent facts or policy provisions relating
to coverage at issue

Failing to acknowledge with reasonable


promptness pertinent communications
with respect to claims arising under its
policies
Unfair Claims Settlement Practices

Failing to adopt and implement


reasonable standards for the prompt
investigation of claims arising under its
policies
Unfair Claims Settlement Practices

Not attempting in good faith to effectuate


prompt, fair and equitable settlement of
claims submitted in which liability has
become reasonably clean; or
Unfair Claims Settlement Practices

Compelling policyholders to institute


suit to recover amounts due under its
policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits brought by
them
NEW
Unlawful Claims
SECTION 251. It is unlawful to:

(a) Present or cause to be presented any fraudulent claim for


the payment of a loss under a contract of insurance; and

(b) Fraudulently prepare, make or subscribe any writing with


intent to present or use the same, or to allow it to be
presented in support of any such claim. Any person who
violates this section shall be punished by a fine not exceeding
twice the amount claimed or imprisonment of two (2) years, or
both, at the discretion of the court.
Appeal of Insurance Commission cases
• If Administrative functions- File a
Memorandum of Appeal within 15 days to the
Secretary of Finance (Rule IX, Section 1 of
Insurance Memorandum Circular 1-93)

• If Adjudicatory functions- Court of Appeals


(depending on mode of appeal)
At a glance
Period to pay claims in life and non-
life (60 days; 30-60-90 rule)

Facility of payment clause

Notice of loss in fire insurance


At a glance
•Actual loss

•Constructive loss- >¾ rule on


abandonment
At a glance
Jurisdiction of the insurance
commissioner

Jurisdiction of regular courts

Unfair claims settlement practices


Framework

General Non-Life
Non-Life
Life
Life Insurance
Insurance
Concepts Insurance

Summary
Summary of
of
Payment of Grounds
Grounds for
for Amendments
Amendments in in
Proceeds Rescission
Rescission Insurance
Insurance Code
Code

PDIC Law
PART FIVE

GROUNDS FOR RESCISSION


PDIC LAW
GROUNDS
•Concealment

•Misrepresentation

•Breach of warranty, express or


implied

•Other grounds - Section 64-65


CONCEALMENT
NEW
CONCEALMENT
neglect to communicate that
which a party knows and ought
to communicate.

May be intentional or
unintentional
Requisites of Concealment
(a)party knows the fact which he
neglects to communicate or
disclose

(b) party concealing is duty


bound to disclose such fact
to the other
Requisites of Concealment
a) party concealing makes no
warranty as to concealed fact

b)other party has no means of


ascertaining the fact
concealed
WHAT MUST BE COMMUNICATED
All facts within his knowledge
Material to the contract
Other party has no means of
ascertaining
He makes no warranty
Information which prove or tend to
prove falsity of warranty
WHAT NEED NOT BE COMMUNICATED

Those which the other knows

Those which, in the exercise of


ordinary case, the other ought to
know and which the other has no
reason to suppose him ignorant
WHAT NEED NOT BE COMMUNICATED
Those of which the other waives communication

Those which prove or tend to prove the


existence of a risk excluded by a warranty, and
which are not otherwise material; and

Those which relate to a risk excepted from the


policy, and which are not otherwise material
What need not be communicated
General causes open to his inquiry
which may affect the political or
material perils contemplated (32)

General usages of trade (32)


What need not be communicated
Nature or amount of interest,
except in answer to an inquiry (34)

Information of his own judgment


(35)
TEST OF MATERIALITY

Determined not by event

Probable and reasonable influence of


facts upon the party to whom
communication is due in forming his
estimate of the disadvantages of the
proposed contract OR in making his
inquiries
TEST OF MATERIALITY
Assessment of risk, in
making/omitting further inquiries,
cause him to reject the risk or accept
it at higher premium rate/different
terms
Materiality
•Sunlife v. CA, 245 SCRA 268 - where the
applicant concealed prior medical
history and he died in a plane crash,
there was still concealment
notwithstanding the apparent lack of
relation between the fact concealed
and the cause of death
WAIVER OF RIGHT TO
INFORMATION
By terms of insurance OR

Neglect to make inquiries

concealment entitles the unguilty


party to rescind
CONCEALMENT
In Marine Insurance
 in addition to Section 28

 all information he possesses material to


the risk except those in Section 30
CONCEALMENT
In Marine Insurance
state exact and whole truth in relation
to all matters that he represents

information of belief or expectation of


a third person as to a material fact is
MATERIAL

insured is presumed to know prior loss


at time of insuring
Concealment in Marine Insurance
•General Rule: Concealment
entitles the innocent party to
rescind

•Exception: Section 110


Section 110

Concealment as to following does NOT


vitiate the entire contract but
exonerates the insurer from loss
resulting from risk concealed.
(a) national character of insured
(b) liability of thing insured to capture
and detention
Section 110
c) liability to seizure from breach of
foreign laws of trade
(d) the want of necessary document
(e) the use of false and simulated
papers
INCONTESTABILITY CLAUSE IN
LIFE INSURANCE
Section 48, 2nd par – if life insurance has been in
force during the lifetime of the insured for a
period of 2 years from DATE OF ISSUE or LAST
REINSTATEMENT
the insurer cannot prove that the policy is void ab
initio or is rescindible
by reason of fraudulent concealment or
misrepresentation of the insured or his agent.
Illustration
• A is issued a life insurance policy on April 2, 2000
• He conceals the fact that he has tuberculosis
• A dies on April 3, 2002.
• Insurance company must pay. Although there was
concealment, the policy has been in force during
the lifetime of A for 2 years from April 2, 2000.
When Incontestability Clause DOES
NOT apply
• Person has no insurable interest

• Cause of death is an excepted peril

• Premiums have not been paid

• Conditions of the policy relating to military or naval service


have been violated
When Incontestability Clause
DOES NOT apply
• Fraud of a vicious type is present when policy was taken out

• Beneficiary failed to furnish proof of death or to comply with


any condition imposed by the policy after the loss has
happened

• That the action was not brought within time specified


MISREPRESENTATION
MISREPRESENTATION
Representations – factual
statements made by the insured
at the time of, or prior to the
issuance of the policy
MISREPRESENTATION
Statement
(a) as a fact of something which is untrue
(b) which the insured stated with knowledge
that it is untrue and with an intent to
deceive, or which he states positively as true
without knowing it to be true and which has a
tendency to mislead, and
(c) where such fact in either case is material to
the risk
Test of Falsity & Materiality

Sec. 44 – when the facts fail to


correspond with its assertion
or stipulations

Sec. 45 – materiality is
determined using the same test
in concealment (Sec. 31)
Misrepresentation as a ground to
rescind
 entitled to rescind from the time the
representation becomes false

 right to rescind by insurer is waived by


acceptance of premiums despite
knowledge of ground to rescind
Misrepresentations as to Age
in Life Insurance
 no rescission

 proceeds shall be such as the


premium would have purchased
at the correct age
Misrepresentation
in Marine Insurance
entitles the insurer to rescind

 eventual falsity of a
representation as to
expectation without fraud,
does NOT avoid a marine
insurance contract
Breach of Warranty
Warranty
•Either express or implied

•May relate to the past, present or


future
Implied Warranties in Marine
Insurance
Seaworthiness - 113

Nationality or neutrality – 120

Improper deviation -121

Illegal ventures
Bar 2000
•What warranties are implied in marine
insurance? (2%)
Seaworthiness
•Section 114 - a ship is
seaworthy if reasonable fit to
perform the service, and to
encounter the ordinary perils
of the voyage contemplated
by the parties to the policy
Seaworthiness
• Section 116 - extends not only to the
seaworthiness of the ship itself but
requires that it be properly laden,
provided with competent master,
sufficient number of competent officers
and seamen, requisite appurtenances and
equipment and other implements for the
voyage
Improper Deviation
•Section 123 - deviation is a departure
from the course of the voyage
insured or unreasonable delay in
pursuing the voyage or the
commencement of an entirely
different voyage
Proper Deviation, 124
•caused by circumstances outside the
control of the master or owner

•when necessary to comply with a


warranty or to avoid peril
Proper Deviation, 124
•when made in good faith upon
reasonable grounds to avoid a peril

•in good faith to save human life or to


relieve another vessel
Nationality
•Section 120 - where the nationality or
neutrality of the ship is expressly
warranted, it is impliedly warrantied
that the ship will carry the requisite
documents to show such nationality
or neutrality and it will not carry any
document which will cast suspicion
thereon.
Other Ground for Rescission in
non – life insurance
non- payment of premium

conviction of a crime arising out of


acts increasing the hazard insured
against

discovery of fraud / material


misrepresentation
NEWOther Ground for Rescission in non –
life insurance
discovery of willful or reckless acts or omissions increasing
the hazard insured against
physical changes in the property becoming uninsurable
Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured

determination by Insurance Commissioner that continuation


of the policy would violate or would place the insurer in
violation of the Insurance Code
NEW
Notice of Cancellation
In writing
Mailed or delivered to named
insured at address shown in the
policy OR
or to his broker provided the
broker is authorized in writing by
the policy owner to receive the
notice of cancellation on his behalf
Notice of Cancellation
Shall state
 grounds relied on
 upon written request, insurer will
furnish fact on which cancellation is
based
Rescission must be exercised
 Before the commencement of any action on the contract

 In which motor vehicle liability insurance notice of


cancellation must be sent to the land transportation
owner/operator and the LTO at least 15 days before date
of effectivity
Framework

General Non-Life
Non-Life
Life
Life Insurance
Insurance
Concepts Insurance

Summary of
Payment of Grounds
Grounds for
for Amendments in
Proceeds Rescission
Rescission Insurance Code

PDIC Law
REPUBLIC ACT NO. 9576
April 29, 2009

An Act increasing the maximum deposit insurance


coverage, Amending RA 3591,
Insured Deposit, Concept

•“deposit" means the unpaid balance of


money or its equivalent received by a
bank in the usual course of business
and for which it has given or is obliged
to give credit to a commercial,
checking, savings, time or thrift
account, or issued in accordance with
Bangko Sentral rules and regulations
and other applicable laws
EXCLUDED IN THE CONCEPT
• any obligation of a bank which is payable at
the office of the bank located outside of the
Philippines shall not be a deposit for any of
the purposes of this Act or included as part of
the total deposits or of insured deposits:

• Subject to the approval of the Board of


Directors, any insured bank which is
incorporated under the laws of the Philippines
which maintains a branch outside the
Philippines may elect to include for insurance
its deposit obligations payable only at such
branch.
EXCLUDED IN THE CONCEPT
• The corporation shall not pay deposit insurance for
the following accounts or transactions, whether
denominated, documented, recorded or booked as
deposit by the bank:
• (1) Investment products such as bonds and securities,
trust accounts, and other similar instruments;
• (2) Deposit accounts or transactions which are
unfunded, or that are fictitious or fraudulent ;
EXCLUDED IN THE CONCEPT
• (3)Deposits accounts or transactions constituting,
and/or emanating from, unsage and unsound banking
practice/s, as determined by the Corporation, in
consultation with the BSP, after due notice and
hearing, and publication of a cease and desist order
issued by the Corporation against such deposit
accounts or transactions; and
EXCLUDED IN THE CONCEPT
• (4) Deposits that are determined to be the
proceeds of an unlawful activity as defined
under RA 9160, as amended.

• RA 9160- Anti Money Laundering Act


What to do with PDIC Exclusions?
• Exclusions of transactions from coverage is final and executory

• may not be restrained or set aside by the court

• except on appropriate petition for certiorari


What to do with PDIC Exclusions?
• Grounds for Petition for Certiorari: excess of jurisdiction or with such
grave abuse of discretion as to amount to a lack or excess of
jurisdiction.

• petition for certiorari may only be filed within thirty (30) days from
notice of denial of claim for deposit insurance.
INSURED DEPOSITS
•amount due to any bona fide depositor
for legitimate deposits in an insured bank
net of any obligation of the depositor to
the insured bank as of date of closure,
but not to exceed Five hundred thousand
pesos (P500,000.00).
INSURED DEPOSIT
•add together all deposits in the bank
maintained in the same right and
capacity for his benefits either in his
own name or in the name of others .
INSURED DEPOSIT
• A joint account regardless of whether the
conjunction 'and,' 'or,' 'and/or' is used, shall be
insured separately from any individually-owned
deposit account:

• Provided, That (1) If the account is held jointly by two


or more natural persons, or by two or more juridical
persons or entities, the maximum insured deposit
shall be divided into as many equal shares as there
are individuals, juridical persons or entities, unless a
different sharing is stipulated in the document of
deposit, and
Joint Account

Account # Account Holder Balance

#1 Pedro & Maria P800,000

#2 Juan &/or Pedro P900,000


Joint Account
Account Number Insured Share Uninsured

Pedro - #1 P250,000 P150,000

Pedro - #2 P250,000 P200,000

Total deposits P500,000 Total: P350,000

Insured deposits P500,000

Maria - #2 P250,000 P150,000

Juan - #2 P250,000 P200,000


INSURED DEPOSIT
• If the account is held by a juridical person or
entity jointly with one or more natural
persons, the maximum insured deposits shall
be presumed to belong entirely to such
juridical person or entity
Institutional Account
Account No. Account Holder Balance

#1 ABC Co. P600,000

#2 ABC Co. &/or P800,000


Pedro Cruz
ABC Co. #1 P600,000

ABC Co. #2 P800,00

Pedro Cruz NONE NONE

Total for ABC Insured: P500,000


Total balance: for both accounts
P1.4 Million already
Institutional Account
• Joint accounts held by a juridical person
with natural person will be presumed to
belong to the juridical person. Thus,
Accounts #1 and #2 will be consolidated in
the name of ABC Co. Total amount of
insured deposits will be P500,000.
Who will pay P500,000
• 1st 3 years of RA 9576, P250,000 shall be paid by PDIC,
P250,000 by the national government

• Congress shall annually appropriate the necessary


funding to reimburse the Corporation for any
payment to insured depositors paid in excess of
P250,000.00.

• After 3 years, solely by PDIC


Right to examine PDIC members
•PDIC may examine banks with prior
approval of the Monetary Board

•No examination can be conducted


within twelve months from the last
examination date
In case of threated or impending closure of bank

•PDIC, in coordination with the


Bangko Sentral, may conduct a
special examination as the Board of
Directors, by an affirmative vote of a
majority of all of its members
In case of unsafe or unsound banking practice

•PDIC and/or Bangko Sentral may


inquire into or examine deposit
accounts and all information related
thereto
Sanctions against unsafe and unsound bank
practices
When insured bank or its directors have committed or are
committing or about to commit unsafe practices in
conducting the business of the bank, or have violated or
about to violate the provisions of any law to which the bank if
subject

Board of Directors of PDIC shall submit the report to


the monetary board for purposes of corrective action
Sanctions against unsafe and unsound bank
practices
If no corrective action by monetary board within 45
days from submission of report, PDIC board shall take
corrective action

PDIC Board may issue cease and desist order and


correct practices within 45 days, may impose fine

If practice will cause insolvency or dissipate assets,


period to correct is 15 days
Role of PDIC in closed banks
•Shall act as receiver

•Shall control, manage and administer the


affairs of the closed bank.
Role of PDIC in closed banks
• Effective immediately upon takeover as receiver of such bank, the
powers, functions and duties, as well as all allowances,
remunerations and perquisites of the directors, officers, and
stockholders of such bank are suspended, and the relevant
provisions of the Articles of Incorporation and By-laws of the closed
bank are likewise deemed suspended
Role of PDIC in closed banks
• The assets of the closed bank under receivership shall be deemed in
custodia legis in the hands of the receiver.

• Assets shall not be subject to attachment, garnishment, execution,


levy or any other court processes
Role of PDIC in closed banks
• A judge, officer of the court or any person who shall issue, order,
process or cause the issuance or implementation of the writ of
garnishment, levy, attachment or execution shall be liable under
Section 21 hereof.
PDIC directors and officers have NO liability
• PDIC, its directors, officers, employees and agents
are held free and harmless to the fullest extent
permitted by law from any liability

• They shall be indemnified for any and all liabilities,


losses, claims, demands, damages, deficiencies, costs
and expenses of whatsoever kind and nature that
may arise in connection with the performance of
their functions, without prejudice to any criminal
liability under existing laws.
PDIC directors and officers have NO liability
•EXCEPTION: If the actions of PDIC or
any of its officers and employees are
found to be in willful violation of this
Act, performed in bad faith, with
malice and/or gross negligence,
Tax obligations of PDIC
• All tax obligations of PDIC for a period of five (5) years reckoned
from the date of effectivity of this Act shall be chargeable to the
Tax Expenditure Fund (TEF) in the annual General Appropriation Act
• On the 6th year and thereafter - exempted from income tax, final
withholding tax, value-added tax on assessments collected from
member banks and local taxes
Splitting of Deposits
• A deposit account with an outstanding balance of more that the
statutory maximum amount of insured deposit maintained under
the name of natural or juridical persons is broken down and
transferred into two (2) or more accounts in the name/s of natural
or juridical persons or entities who have no beneficial ownership on
transferred deposits in their names
Splitting of Deposits
• Transfer is made within 120 days immediately preceding or during a
bank-declared bank holiday, or immediately preceding a closure
order issued by the Monetary Board of the Bangko Sentral ng
Pilipinas for the purpose of availing of the maximum deposit
insurance coverage.
MAY GOD BLESS YOU ALL!!!
NEW

Insurer-Mutual Benefit Association and Trusts for Charitable Uses

• Section 403. Any society, association or corporation, without capital


stock, formed or organized not for profit but mainly for the purpose of
paying sick benefits to members, or of furnishing financial support to
members while out of employment, or of paying to relatives of
deceased members of fixed or any sum of money, irrespective of
whether such aim or purpose is carried out by means of fixed dues or
assessments collected regularly from the members, or of providing, by
the issuance of certificates of insurance, payment of its members of
accident or life insurance benefits out of such fixed and regular dues or
assessments, but in no case shall include any society, association, or
corporation with such mutual benefit features and which shall be
carried out purely from voluntary contributions collected not regularly
and /or no fixed amount from whomsoever may contribute, shall be
known as a mutual benefit association within the intent of this Code.
Mutualization and Demutualization
• Mutualization – A a shareholder-owned company is
converted into a mutual organization, typically
through takeover by an existing mutual organization.
A mutual organization is customer-owned.

• Demutualization -customer-owned mutual


organization or cooperative changes form to a joint,
stock company, sometimes called stocking for
privatization.
NEW
Mutualization
• Section 280. A domestic mutual life insurance company doing
business in the Philippines may convert itself into an incorporated
stock life insurance company by demutualization. To that end, it may
provide and carry out a plan for the conversion by complying with the
requirements of this title.
• "The conversion of a domestic mutual life insurance company to an
incorporated stock life insurance company shall be carried out
pursuant to a conversion plan duly approved by the Commissioner.
• "The Commissioner shall promulgate such rules and regulations as he
or she may deem necessary to carry out the provisions of this title,
after due consultation with representatives of the insurance industry.
• "All converted insurers under the provisions of this title shall be
subject to all other applicable provisions of this Code. The provisions
of the Corporation Code shall apply in a suppletory manner.
NEW
Mutual Benefit Association
• Section 408. "A mutual benefit association shall only maintain free
and unassigned surplus of not more than twenty percent (20%) of
its total liabilities as verified by the Commissioner. Any amount in
excess shall be returned to the members by way of dividends,
enhancing the equity value or providing benefits in kind and other
relevant services. In addition, subject to the approval of the
Commissioner, a mutual benefit association may allocate a portion
for capacity building and research and development such as
developing new products and services, upgrading and improving
operating systems and equipment and continuing member
education.
NEW
Trust Business
• TRUST BUSINESS IN GENERAL
• "Section 429. An insurance company may engage in limited trust
business, consisting of managing funds pertaining only to
retirement and pre-need plans, provided it has secured a license to
do so from the Bangko Sentral ng Pilipinas. This trust business shall
be separate and distinct from the general business of the insurance
company and shall be subject to rules and regulations as may be
promulgated by the Bangko Sentral ng Pilipinas in consultation with
the Commissioner.
NEW
Self-Regulatory Organizations
• CHAPTER IX REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS
• Section 430. The Commissioner shall have the power to
register as a self-regulatory organization, or otherwise
grant licenses, and to regulate, supervise, examine,
suspend or otherwise discontinue, as a condition for the
operation of organizations whose operations are related to
or connected with the insurance market such as, but not
limited to, associations of insurance companies, whether life
or non-life, reinsurers, actuaries, agents, brokers, dealers,
mutual benefit associations, trusts, rating agencies, and
other persons regulated by the Commissioner, which are
engaged in the business regulated by this Code.
NEW

Self-Regulatory Organizations

• The Commissioner may prescribe rules and


regulations which are necessary or appropriate in
the public interest or for the protection of
investors to govern self-regulatory organizations
and other organizations licensed or regulated
pursuant to the authority granted hereunder
including, but not limited to, the requirement of
cooperation within and among all participants in
the insurance market to ensure transparency and
facilitate exchange of information.