JAMES SHEMRON C.

CORRO
An Outline of the Insurance Code
Republic Act No. 10607 (Amending Presidential Decree 612)

1. Definition of Insurance
Insurance is a kind of contract that does not guarantee that nothing will happen but guarantee
to protect certain things such as indemnification (value of what might be lost).1

Economic Definition- Insurance is a method which reduces risk by a transfer and combination
(or “pooling”) of uncertainty in regard to financial loss;

Business definition- A plan by which large numbers of people associate themselves and transfer
to the shoulders of all, risks that attach to individuals.

Social Definition – A social device whereby the uncertain risks of individuals may be combined in
a group and thus made more certain, with small periodic contributions by the individuals
providing a fund out of which those who suffer losses may be reimbursed.

It is a plan by which the losses of the few are paid out of the contributions of all members of a
group.2

2. The Contract of Insurance

A contract of insurance is an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent
event3

A contract of insurance is an agreement by which one party (insurer) for a consideration

(premium) paid by the other party(insured), promises to pay money or its equivalent to do some
act valuable to the latter (or his nominee), upon the happening of a loss, damage, liability or
disability arising from an unknown or contingent event.4

Aside from the essential requisites of an ordinary contract such as consent, subject matter and
consideration an insurance contract must have the following elements

1. The insured possesses an interest of some kind susceptible of pecuniary estimation, known
as insurable interest
2. The insured is subject to a risk of loss through the destruction or impairment of that
interest by the happening of designated perils
3. The insurer assumes that risk of loss
4. Such assumption is part of a general scheme to distribute actual losses among a large
group of persons bearing somewhat similar risks

1
Notes; June 13, 2018
2
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p. 16
3
Sec. 2 (a) RA 10607
4
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition, p. 15 citing Vance, op. cit,
p.83
 5. As consideration for the insurer’s promise, the insured makes a ratable contribution, called
premium, to a general insurance fund5

Key notes: (CSC – ISAPP)

Consent, Subject Matter, Consideration
1. Insurable Interest
2. Subject to risk (the insured)
3. Assumption of Risk (by insurer)
4. Part of a General scheme (to disperse risk)
5. Payment of Premium

Gercio vs. Sunlife Insurance Co., 48: 53

A person who procures a policy upon his own life, payable to a designated beneficiary,
although he pays the premiums himself, and keeps the policy in his exclusive possession,
has no power to change the beneficiary, unless the policy itself, or the charter of the
insurance company, so provides. Since at the moment of its issuance, the beneficiary
acquires a vested interest which he cannot be deprived of without his consent.

Fieldmen’s Insurance Co., Inc. vs. Vda. De Songco, 25 SCRA 70

Where inequitable conduct is shown by an insurance firm, it is “estopped from
enforcing forfeitures in its favor, in order to forestall fraud or imposition on the
insured.” The contract of insurance is one of perfect good faith (uberrima fides) not for
the insured alone, but equally so for the insurer; in fact, it is more so for the latter, since
its dominant bargaining position carries with it stricter responsibility."

a. What may be insured

“SEC. 3. Any contingent or unknown event, whether past or future, which may damnify
a person having an insurable interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.

“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.

“All rights, title and interest in the policy of insurance taken out by an original owner on
the life or health of the person insured shall automatically vest in the latter upon the
death of the original owner, unless otherwise provided for in the policy.

i. Kinds of insurable risk:

The risks that may be insured may either be:
(a) one that may cause damage to the insurer, or
ex. insurance taken by the owner of house against destruction caused by fire
is an insurance against damage.

(b) one that may create liability against him

5
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6 th ed. 2014, p.20
 ex. insurance taken by the owner of a car against damage and injury he may
cause while operating said car, is an insurance against liability
Said risks may be insured against events which are contingent or unknown,
whether past or future. 6

(1) In general – Anything that has 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, ay properly constitute the subject matter of
insurance.
(2) Property Insurance – Both persons and property may be subjects of insurance,
but the term “subject matter’ is ordinarily used in reference to the insurance
property. The property covered by a policy is regarded the subject matter of the
insurance, but it is apparent that in the last analysis, it is the risk of loss of such
property that is primarily involved.
(3) Life, health and accident insurance – While it is true that in life, health, or
accident insurance the person becomes the subject of insurance, the matter is
generally viewed as one in reference to the insured as a party to the contract.
(4) Casualty Insurance – In Insurance (not following within the scope of the other
types of insurance) against perils which may affect the person and/ or property
of the insured and give rise to liability on his party to pay damages to others,
the subject matter is the risks involved in use, or the insured’s risk of loss or
liability that he may suffer loss or be compelled to indemnify for the loss
suffered by a third person.

Casualty insurance includes personal accident and health insurance as written

by non-life insurance companies and all insurance against loss or liability which
is not within the scope if the other types of insurance, namely, fire, marine,
suretyship and life.7

ii. Insurance by married woman

“The consent of the husband is not necessary for the validity of an insurance
policy taken out by a married woman on her life or that of her children”8

A married woman may take out an insurance on her life or that of her children
without the consent of her husband (sec. 3, par. 2), or that of her husband, she
having an insurable interest in the latter. (see Sec. 10.) She may also take out
insurance on her paraphernal or separate property, or on property given to her
by her husband.910

6
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6th ed. 2014, p.29
7
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.62-63
8
Insurance Code Sec. 3, par.2
9
Harding v. Comm. Union Assurance Co., 38 Phil. 464 [1918]; see Art. 39, Civil Code; Arts. 110, 111, Family Code
[Exec. Order No. 209])
10
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.64
 iii. Insurance by minors
Any minor of the age of eighteen years or more, may notwithstanding such
minority, 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.11

(1) Life, health, or accident insurance- Under Section 3 (par. 3), a minor may enter
into a valid contract of insurance provided that:
(a) He is 18 year of age or over;
(b) The contract is for life, health, or accident insurance
(c) The insurance is taken on his life; and
(d) The beneficiary (the person designated receive the proceeds of
the insurance upon the happening of the vent insured against)
is any of those enumerated.12

(2) Other insurance – A contract of insurance other than life, health, or accident
insurance, such as fire or marine insurance, entered into by a minor is not
entirely void. It is one which is merely voidable , that is, it is valid until annulled
in a proper action in court by the minor or his legal representative (Art. 1390,
Civil Code)

If the contract is not disaffirmed by the minor, the insurer cannot escape liability
by pleading minority as a defense because “persons who are capable cannot
allege the incapacity of those with whom they contracted.” (Art. 1397)

But if the contract is fair and no fraud or undue influence was practiced by the
insurer, the minor cannot recover the premiums paid, if he cannot return the
benefits received (Arts 1385, 1241, par. 1, 1427, ibid.; Johnson vs. Northwester
Mut L. Ins Co. , 59 N.W. 992913

b. Parties to the contract

“Every person, partnership, association, or corporation duty authorized to
transact insurance business as elsewhere provided in this Code, may be an insurer.”14

1. The insurer-a person who undertakes to indemnify another by a contract of

insurance.

2. The insured – a person to be indemnified; and

11
Sec. 3, par. 3 Insurance Code
12
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.64
13
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.65
14
Insurance Code Sec. 6, RA 10607
 3. The beneficiary- one who receives a benefit or advantage or who is entitled to the
benefit of contract; that is, the one to whom the insurance is payable or who is entitled
to the proceeds of the policy on the occurrence of the event designated.15

i. Who may be an insurer

The term insurer or insurance company shall include all partnerships,
associations, cooperatives or corporations, including government-owned or -
controlled corporations or entities, engaged as principals in the insurance
business, excepting mutual benefit associations. Unless the context otherwise
requires, the term shall also include professional reinsurers defined in Section
288. Domestic company shall include companies formed, organized or existing
under the laws of the Philippines. Foreign company when used without limitation
shall include companies formed, organized, or existing under any laws other than
those of the Philippines.16

The term insurer, Is synonymous with the term “assurer” or “underwriter”. The
insurance company is sometimes called “underwriter”.17

The term “insurer” or “insurance company” applies to all individuals,

partnerships, associations, or corporations, including government=owned or
controlled corporations or entities, engaged as principals in the insurance
business, excepting mutual benefit associations. The terms also includes
professional reinsurers.18

Qualifications to engage in the insurance business:

(a) Possess the capital and assets required of an insurance

corporation doing the same of business in the Philippines and
invested in the same manner.
(b) Obtain a certificate from the Insurance Commissioner that
such persons have complied with all the provisions of law which
an insurance corporation doing business in the Philippines is
required to observe.

ii. Who may be insured

The terms “insured” refers to the owner of the property insured or the person
whose life is the subject of the contract of insurance.19

“Anyone except a public enemy may be insured”20

15
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6 th ed. 2014, p.33, citing
Couch 2d. 489.
16
Sec. 190 of the Insurance Code, Republic Act No. 10607
17
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.71
18
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6 th ed. 2014, p. 324
19
De Leon, De Leon Jr., The Insurance Code of the Philippine Annotated, 2010 Edition p.71
20
Insurance Code Sec. 7, RA 10607
 A Public Enemy is a nation at war with the Philippines and also every citizen or
subject of such nation. Such term does not include robbers, thieves and riotous
mobs.21

During wartime, a private corporation is deemed an enemy corporation

although organized under Philippines laws if they are controlled by enemy
aliens. This is the so-called “control test” whereby a corporation is deemed to
have the same citizenship as the controlling stockholders in time of war.22

iii. Insurance by mortgagor and mortgagees

San Miguel Brewer vs. Law Union and Rock Insurance Co., 40:6

The brewery company, as mortgagee of real property, had an insurable

interest but could recover on the policy only to the extent of the credit
secured by the mortgage.

Gonzales La O vs. Yek Tong Lin, 55:396

In cases when the insurance is mortgaged, the insured may be regarded

as 'the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any
judgment he may obtain. In addition, the fact that the
mortgagor(insured) himself presented in evidence the policies
mortgaged gives rise to the presumption that the debt thus secured has
been paid, in accordance with article 1191 of the (old) Civil Code.

Article 1191, now Article 1274: It is presumed that the accessory

obligation of pledge has been remitted when the thing pledged, after its
delivery to the creditor, is found in the possession of the debtor, or of a
third person who owns the thing

Bachrach vs. British American Ass. Co., 17:562

Where the terms of an insurance policy require that notice of loss be

given, a denial of liability by the insurer under the policy operates as a
waiver of notice of loss because if the policy is null and void the
furnishing of such notice would be vain and useless. Immediate notice
means within a reasonable time.

When property is insured any condition upon which the insurer wish to

21
Black’s Law Dictionary, citing State v. Moore, 74 Mo. 417, 41 Am. Rep. 322. Asked VIII(a), 2000 Bar Exams.
22
Filipinas Cia de Seguros vs. Christern Huenfeld & Co., 89 Phil.54 [1951]; S. Winshop vs. Phil. Trust Co., Phil. 744
[1952]
 rely, in order to avoid liability encase of a loss, must be expressed in the
policy.

c. Insurable interest
“SEC. 10. Every person has an insurable interest in the life and health:
“(a) Of himself, of his spouse and of his children;
“(b) Of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;
“(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and
“(d) Of any person upon whose life any estate or interest vested in him depends.23

i. Insurable interest in general

In general, a person has an insurable interest in the subject-matter insured
where he has such a relation or connection with, or concern in, such subject
matter that he derive pecuniary benefit or advantage from its preservation24 or
will suffer pecuniary loss or damage from its destruction, termination or injury
by the happening of the event insured against.25

Filipinas Cia. De Seguros vs. Christian Huenfeld & Co., Inc., G.R. No. L-2294,
May 25, 1951

An insurance policy ceases to be allowable as soon as an insured becomes a

public enemy. When the parties become alien enemies, the contractual tie is
broken and the contractual rights of the parties, so far as not vested, lost.

When the cause of loss happened when the insured is prohibited from being
insured, such as when he became a public enemy, the insured is not entitled to
indemnity.

Where an insurance policy ceases to be effective by reason of war, which has

made the insured an enemy, the premiums paid for the period covered by the
policy from the date war is declared, should be returned.

ii. Insurable interest in life

In life insurance, insurable interest exists when there is reasonable ground,

founded on the relation of the parties, either pecuniary or contractual or by blood
or affinity, to expect some benefit or advantage from the continuance of the life

23
Insurance Code RA10607, Title 3, Sec. 10
24
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6 th ed. 2014, p.43, citing
Sandlin’s Adm’x v. Allen, 90 S.W. 350, 262 Ky. 355. ,
25
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6 th ed. 2014, p.43, citing
Casper’s Amd’r v. Lobus’ Admr’s 90 S.W. 2d 33, 262 Ky 245.
 of the insured. Insurable Interest in life however, must be one in favor of the
continuance of life and not an interest in its loss or destruction.26

El Oriente vs. Posadas, 56: 147

Proceeds of life insurance are not taxable income

The proceeds of insurance taken by a corporation on the life of an

important official to indemnify it against loss in case of his death, are
not taxable as income under the Philippine Income Tax Law. The
indefiniteness of the local law is emphasized.

iii. Insurable interest in property

Every Interest in property, whether real or personal, or any relation thereto, or

liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.27

Test of Insurable Interest in the Property:

The test of insurable interest in property is whether the insured has such a right,
title or interest therein, or relation thereto that he will be benefited y its
preservation and continued existence, or suffer a direct pecuniary loss from its
destruction or injury by the peril insured against.28

PAL vs. Heald Lumber Co., 70 SCRA 323

If a property is insured and the owner receives the indemnity from the
insurer, the insurer is deemed subrogated to the rights of the insured
against the wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. Evidently, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the insured.

Lamparo vs. Jose, 30: 437

Where different persons have different interests in the same property,
the insurance taken by one in his own right and in his own interest does
not in any way insure to the benefit of another. It is well settled that a
policy of insurance is a distinct independent contract between the
insured and insurers, and third person have no right either in a court of
equity, or in a court of law, to the proceeds of it, unless there be some
contract or trust, expressed or implied, between the insured and third
persons.

26
Perez, The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010, 6th ed. 2014, p.44, citing 44
C.J.S. 903; Warnock vs. Davis, 104 US 775; Couch 2d. 226.
27
Insurance Code, Sec. 13 RA10607
28
Formerly Section 80 of the Insurance Act, Perez, The Insurance Code and Financial Rehabilitation and Insolvency
Act of 2010, 6th ed. 2014, p.56
Garcia vs. Hongkong Fire & Marine Ins. Co., 45:122
Garcia wanted insurance upon a stock of goods, which he owned, and
he received and paid for a policy on a building, which he did not own,
and while the policy was in force and effect, both the building, which he
did not own, and the stock of merchandise, which he did own, were
completely destroyed by fire. Under the pleadings and proof, there is
ground for the contention that the plaintiff would be entitled to recover
on the policy for the loss of the building.

Lopez vs. del Rosario and Quiogue, 44: 99

A policy effected by a bailee and covering by its terms his own property
and property held in trust, inures, in the event of a loss, equally and
proportionately to the benefit of all the owners of the property insured.
Even if one secured insurance covering his own goods and goods stored
with him, and even if the owner of the stored goods did not request or
know of the insurance, and did not ratify it before the payment of the
loss, the warehouseman is liable to the owner of such stored goods for
his share.