CONCEPT OF

INSURANCE
 LAWS GOVERNING INSURANCE

• Insurance Code
• Civil Code
• Special Laws
CONTRACT OF INSURANCE

• It is an agreement whereby one undertakes for a consideration to

indemnify another against the loss, damage or liability arising from an
unknown or contingent event [IC, Sec. 2(a)]
• A contract of insurance, to be binding from the date of application, must
have been a completed contract.
“DOING AN INSURANCE BUSINESS” OR “TRANSACTING
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
as merely incidental to any other legitimate business or activity of the surety;
• Doing any kind of business, including a Reinsurance business, specifically recognized as
constituting the doing of an insurance business.
• Doing or proposing to do Any business in substance equivalent to any of the foregoing in
a manner designed to evade the provisions of the Insurance Code.
ILLUSTRATIVE CASE

• Q: Philippine Health Care Providers, Inc. is engaged in operating a prepaid group practice
health care delivery system or a health maintenance organization (HMO) to take care of
the sick and disabled persons enrolled in the health care plan. Individuals enrolled in its
health care programs pay an annual membership fee and are entitled to various 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 operated or accredited by it. Is Philippine Health Care Providers, Inc. a health
maintenance organization or an insurance company?
 RULING

• A: HMOs are not insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are
merely incidental to its business. If these are the principal objectives, the business is that of
insurance. But if they are merely incidental and service is the principal purpose, then the
business is not insurance.
• Philippine Health Care Providers appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. The "insurance-like" aspect of
Philippine Health Care Providers’ business is miniscule compared to its noninsurance
activities.
• Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance
business (Philippine Health Care Providers, Inc., v. CIR, G.R. No. 167330,
September 18, 2009).
THE FIELDS OF INSURANCE

• Social (government) insurance

• Voluntary
a. Commercial insurance
b. Cooperative Insurance
c. Voluntary Government Insurance
INSURANCE AS AN UBERRIMAE FIDES
CONTRACT
• The contract of insurance is one of perfect good faith not for the insured alone, but
equally so for the insurer.
• It requires the parties to the contract to communicate that which a party knows and ought
to communicate, that is, the duty to disclose in good faith all facts material to the contract.
INSURANCE AS CONTRACTS OF ADHESION

• An illustration of a contract of adhesion is when the insurer used “fine

print” letters in conditions stated in a contract of insurance.
CONSTRUCTION AND INTERPRETATION OF
INSURANCE CONTRACT

• GR: If the terms of the contract clearly show the intention of the
parties, there shall be no room for interpretation.
ILLUSTRATIVE CASE

• Where the automobile liability policy provided that the insurer would not be liable for
more than P150 if the insured undertook repairs of the car subject of the insurance
without the knowledge of the insurer, the latter is not liable to pay a greater amount to the
insured who had actually spent P307.27 for repairs due to an accident covered by the
policy but which were authorized without first notifying the insurer.
(Misamis Lumber Corporation v. Capital Dev. & Surety Co., 17 SCRA 228)
ILLUSTRATIVE CASE

• Facts: While the insured car was in the custody of a repair shop, it was taken out for a
joyride by a “resident” of the shop and several other persons. The car met an accident and
was extensively damaged. The Insurance Commission ruled that the accident did not fall
within the “authorized driver” clause or under the theft coverage.

• ISSUE: Is the ruling correct?

RULING:

• No. (1) Purpose of authorized driver clause- A car owner who entrusts his car to an
established car service and repair shop necessarily entrusts his car key to the shop owner
and employees who are presumed to have the insured’s permission to drive the car for
legitimate purposes of checking or road testing the car. The mere instance that the employee
of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in
violation to the trust reposed by the owner does not mean that the ‘authorized driver’ clause
has been violated such as to bar recovery provided that such employee is duly qualified to
drive under a valid driver’s license.
( Villacorta vs. Insurance Commission and Empire Insurance Company, 100 SCRA 467)
PARTIES TO THE CONTRACT OF INSURANCE

• INSURER
• INSURED
• ASSURED/BENEFICIARY
PERSONS WHO MAY BE INSURED

• Anyone except a public enemy may be insured

(IC, Sec. 7).
SUBJECT MATTER OF A CONTRACT OF INSURANCE

• Anything having an appreciable pecuniary value, which is

subject to loss or deterioration, or of which one may be deprived
so that his pecuniary interest is or may be prejudiced.
EVENT OR PERIL INSURED AGAINST

• It is any contingent or unknown event, whether past or future,

which may damnify a person having an insurable interest, or
create a liability against him subject to the provisions of Chapter
I of the Insurance Code (IC, Sec. 3).
CONSENT OF SPOUSE NOT NECESSARY

• The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children (IC, Sec. 3).
GAMES OF CHANCES CANNOT BE INSURED

• An insurance for or against the drawing of any lottery, or

for or against any chance or ticket in a lottery drawing a
prize is not authorized (IC, Sec. 4).
ELEMENTS OF AN INSURANCE CONTRACT

• Existence of an insurable interest

• Risk of loss
• Assumption of Risk
• General Scheme to Distribute Loss
• Premium
CHARACTERISTICS/NATURE OF INSURANCE CONTRACTS

• Consensual
• Voluntary
• Aleatory
• Unilateral
• Conditional
CHARACTERISTICS/NATURE OF INSURANCE
CONTRACTS
• Contract of indemnity
• XPN: The principle is not applicable to life and accident insurance where the result is
death because life is not capable of pecuniary estimation.
• Personal
• Risk-distributing device
• Onerous