Insurance 1st Exam Reviewer

INSURANCE CODE OF 2013
Based on the book of De Leon // First Exam Reviewer 1

INSURANCE CODE OF 2013 prevent the insured from receiving a double recovery from the
wrongdoer and the insurer. The insurer is entitled to recover either
General Provisions directly in a suit against the wrongdoer (third party) or as the real
party in interest in a suit brought by the insured. Such rule prevents
Section 1. This Decree shall be known as "The Insurance tortfeasors from being free from liabilities and is thus founded on
Code". considerations of public policy.
Insurance is based upon the principle of aiding another from a Right of subrogation applicable only to property insurance. The
loss caused by an unfortunate event. The practice of insurance is an right of subrogation under Article 2207 applies only to property, and
important agency in promoting commercial and industrial not to life insurance.
transactions.
Such practice is relatively of modern invention. Its origin is found Art. 2207. If the plaintiff's property has been insured, and he
in mutual agreements among merchants of the Italian cities in the has received indemnity from the insurance company for the
early middle ages engaged in common shipping ventures for injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
distributing among the mutual contractors, the loss falling upon any
the rights of the insured against the wrongdoer or the person
one by reason of the perils of navigation (i.e., storms, calamities,
who has violated the contract. If the amount paid by the
hurricane, etc.).
insurance company does not fully cover the injury or loss, the
The law of insurance is derived from the maritime law. aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Development of insurance in the Philippines
The value of human life is regarded as unlimited. No recovery
In 1829, Lloyd’s of London appointed Stracham, Murray & Co., from a third party can be deemed adequate to compensate the
Inc. as its representative in the Philippines. In 1839, the Union insured’s beneficiary. Life insurance contracts are not ordinarily
insurance Society of Canton appointed Russel & Sturgis as its agent contracts of indemnity.
in Manila, transacting non-life insurance. It was in 1898 when life
insurance was introduced in the Philippines with the entry of Sun Life Privity of contract or assignment by insured of claim not
Assurance of Canada. essential. Payment by the insurer to the insured operates as an
equitable assignment to the former of all the remedies which the
Sources of insurance law in the Philippines latter may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation accrues simply upon the
1. Old Civil Code of 1889 payment of the insurance claim by the insurer. The presentation in
2. Act No. 2427 (Insurance Act) evidence of the insurance policy is not indispensable before the
3. R.A. No. 386 (Civil Code of the Philippines) insurer may recover. The subrogation receipt is sufficient to establish
4. Pres. Decree No. 612 (The Insurance Code; organic law) the:
5. Pres. Decree No. 1460 (The Insurance Code of 1978) 1. Relationship of the insurer and the insured, and
6. R.A. No. 10607 (An act Strengthening the Insurance 2. Amount paid to settle the insurance.
Industry, Further Amending Presidential Decree No. 612)
Loss or injury for risk must be covered by the policy. Under
Laws governing insurance Article 2207, the cause of the loss or injury must be a risk covered by
the policy to entitle the insurer to subrogation. Thus, where the
1. Insurance Code of 1978 insurer pays the insured for a loss which is not a risk covered by the
2. Civil Code (Articles 739, 2011-2012, 2021-2027, 2186, and policy, effecting “voluntary payment”, the insurer has no right of
2207) subrogation against the third party liable for the loss. Nevertheless,
3. Special laws and others the insurer may recover from the third party responsible for the
a. The Insurance Code damage to the insured property under Article 1236 of the Civil Code.
b. The Revised Government Service Insurance Act of
1977 Art. 1236. The creditor is not bound to accept payment or
c. The Social Security Act of 1954 performance by a third person who has no interest in the
d. Code of Commerce fulfillment of the obligation, unless there is a stipulation to the
e. R.A. No. 656 (Property Insurance Law) contrary.
f. R.A. No. 4898, providing life, disability, and
accident insurance coverage to barangay officials Right of insured to recover from both insurer and third party.
g. E.O. No. 250, where insurance benefits were The right of subrogation given to the insurer prevents the insured
extended by the GSIS to members of the from obtaining more than the amount of his loss. It is a method of
Sangguniang Panlalawigan, Panlungsod and Bayan implementing the principle of indemnity. The right exists after
h. R.A. No. 3591, which established the Philippine indemnity has been paid by the insurer to the insured who can no
Deposit Insurance Corporation longer go after the third party. The insured can only recover once.
However, if the amount paid by the insurance company does not fully
Right of subrogation of insurer to rights cover the injury or loss, the insured is entitled to recover the
of insured against wrongdoer deficiency from the person responsible for the loss or injury.
Basis. Subrogation is the substitution of one person in place of Right of insured to recover from insurer instead of the third
another with reference to a lawful claim or right. He who is substituted party. The insurer cannot defeat the insured’s claim for indemnity on
succeeds to the rights of the other in relation to a debt or claim, the ground that the insured has a right to be indemnified by a third
including its remedies and securities. It is a process of legal person. This is because the insured has paid premiums to the insurer.
substitution. The insurer, after paying the amount covered by the Hence, the insurer cannot compel him to seek indemnity elsewhere.
insurance policy, steps into the shoes of the insured and may now
avail of the latter’s rights that exist against the wrongdoer at the time Right of insurer against third party limited to amount
of the loss. It has its roots in equity. recoverable from latter by the insured. The insurance company that
Purposes. The principal purpose is to make the person who has paid indemnity shall be subrogated to the rights of the insured
caused the loss, legally responsible for it and at the same time against the wrongdoer or the person who has violated the contract.

The insurer can only recover the amount recoverable by the insured damage, liability, or disability arising from an unknown or contingent
from the party responsible for the loss. It cannot recover in full the event.
amount it paid to the insured if it is greater than that to which the The insurer, for a stipulated consideration, undertakes to
insured could lawfully lay claim against the person causing the loss. compensate the insured for a future loss, damage, or liability on a
specified subject caused by a specified event or peril. A written
Exercise of right of subrogation by insurer discretionary. insurance contract is called a policy.
Whether or not the insurer should exercise the rights of the insured
to which it had been subrogated lies solely within the former’s sound Elements of a contract
discretion.
1. Subject matter, which refers to the thing insured.
Loss of right of subrogation by act of insured or insurer. The 2. Consideration, which is the premium paid by the insured.
right of subrogation has its limitations: Its amount is based on the probability of loss and extent of
1. Both the insurer and the insured are bound by the liability for which the insurer may become liable under the
contractual stipulations under the insurance policy; contract.
2. The insurer can be subrogated only to the rights as the 3. Object and purpose, which is the transfer and distribution
insured may have against the wrongdoer; and of risk of loss, damage or liability arising from an unknown
3. If the insured, after receiving payment from the insurer, or contingent event through the payment of a consideration
release by his own act the wrongdoer, the insurer loses his by the insured to the insurer under a legally binding
rights against the latter. contract to reimburse the insured for the losses suffered on
In the case of no. 3, the insured is under obligation to return to the happening of the stipulated event.
the insurer the amount it paid to the insured. Similarly, where the
insurer pays the insured the value of the lost goods without notifying Nature and characteristics of an insurance contract
the carrier who has in good faith settles the claim for loss of the
insured, the settlement is binding on both the insured and the insurer. 1. Consensual – it is perfected by the meeting of the minds of
The latter cannot bring an action against the carrier on his right of the parties
subrogation. 2. Voluntary – it is not compulsory and the parties may
incorporate such terms and conditions as they may deem
Effect of assignment by insured of its rights against third party convenient
to insurer. Where the insured (shipper/consignee) has assigned his 3. By operation of law
rights against the carrier for damages caused to the cargo shipped to 4. Aleatory – it depends upon some contingent event
the insurer which paid the amount represented by the loss, the case 5. Unilateral – it is only the insurer who promises to indemnify
is between the shipper and the carrier because the insurance in case of loss
company merely stepped into the shoes of the shipper. If the shipper a. Executed on the part of the insured after payment
has a direct cause of action against the carrier, such action can be of the premium
asserted or availed of by the insurer as a subrogee of the insured and b. Executory on the part of the insurer in the sense
the carrier cannot set up as a defense any defect in the insurance that it is not executed until payment for a loss
policy because it is not privy to it. 6. Conditional – it is subject to conditions, such as the
happening of an event
Applicability of the Civil Code Suppletory 7. Contract of indemnity – because of the promise of the
insurer to make good only the loss of the insured
If the insurance code does not specifically provide for a a. If the insured has to insurable interest, the
particular matter in question, the provisions of the Civil Code contract is void and unenforceable.
regarding contracts shall govern. 8. Personal contract – it is between the insurer and the insured
Insurance contracts are governed primarily by the Insurance only
Code, and subsidiarily, by the Civil Code. a. General rule: before the happening of the loss, the
insured cannot assign his rights under a property
Construction of the Insurance Code policy to others without the consent of the insurer.
b. After the loss, it is already a money claim and
Interpretation of the provisions of the Insurance Code is allowed therefore, already assignable.
only if the same are not clear and ambiguous. 9. Property in legal contemplation – life insurance policies are
generally assignable or transferable as they are in the
Section 2. Whenever used in this Code, the following terms nature of property and do not represent a personal
shall have the respective meanings hereinafter set forth or agreement between the insured and the insurer.
indicated, unless the context otherwise requires:
A "contract of insurance" is an agreement whereby one Elements of the contract of insurance
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or 1. The insured possesses an interest of some kind susceptible
contingent event. of pecuniary estimation (insurable interest);
A contract of suretyship shall be deemed to be an 2. The insured is subject to a risk of loss by the happening of
insurance contract, within the meaning of this Code, only if designated perils;
made by a surety who or which, as such, is doing an 3. The insurer assumes that risk of loss;
insurance business as hereinafter provided. 4. Such assumption of risk is part of a general scheme to
xxx distribute actual losses among a large group or substantial
number of persons bearing a similar risk; and
Legal concept of insurance 5. The insured makes a ratable contribution called “premium”
to a general insurance fund.
A contract of insurance is an agreement by which one party
(insurer) for a consideration (premium) paid by the other party Insurance, a risk-distributing device
(insured), promises to pay money or its equivalent or to do some act
valuable to the latter (or his nominee), upon the happening of a loss, Insurance is a risk-sharing or risk-policy device. It serves to
distribute or spread the risk of financial or economic loss faced by

the insured among as many as possible of those who are subject to Construction of insurance contracts
the same or similar kind of risk.
By paying a pre-determined amount or premium into a general As a general rule, contracts of insurance are to be construed or
fund out of which payment will be made for an economic loss of a interpreted liberally in favor of the insured and strictly against the
defined type, each member or insured contributed to a small degree insurer. This is so because a contract of insurance is a contract of
toward compensation for losses suffered by any member of the adhesion. Most of the terms of the contract do not result from mutual
group. This provides protection against absorbing one’s losses alone. negotiation between the parties. The insurer prescribed the final
The characteristic of risk distribution sets insurance contracts printed forms and the insured may either reject or accept the same.
apart from other kinds of contracts. Existing risks are distributed so Thus, where the terms of the contract are clear, the law of
that the losses resulting from them do not fall on one person or a interpreting insurance contracts should not be applied.
small group of persons.
What constitutes doing or transacting
Coping with risk an insurance business
1. Limiting the probability of loss (i.e., building a concrete xxx

house instead of a wooden house); The term "doing an insurance business" or
2. Limiting the effects of loss (i.e., wearing a seat belt to "transacting an insurance business", within the meaning of
mitigate injury); this Code, shall include
3. Self-insurance (i.e., setting up a special or reserve fund of (1) making or proposing to make, as insurer, any
profits designated to pay the loss should it occur); insurance contract;
4. Ignoring risk (i.e., an individual may choose to engage in an (2) making or proposing to make, as surety, any
activity without doing anything further with regard to the contract of suretyship as a vocation and not as merely
risk); and incidental to any other legitimate business or activity of the
5. Transferring risk to another (i.e., transferring or sharing the surety;
risk to someone else by a contractual agreement). (3) doing any kind of business, including a
reinsurance business, specifically recognized as
Value of transferring risk PNA
constituting the doing of an insurance business within the
meaning of this Code;
1. Risk preferring – choosing to forego the certain loss in the (4) doing or proposing to do any business in
hope of incurring no loss, despite the equal probability of substance equivalent to any of the foregoing in a manner
suffering a large loss designed to evade the provisions of this Code.
2. Risk neutral – indifferent to alternatives In the application of the provisions of this Code the fact
3. Risk averse – choosing to lose something with certainty that no profit is derived from the making of insurance
instead of confronting the 50% chance of losing twice as contracts, agreements or transactions or that no separate
much or direct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does
Fields of insurance not constitute the doing or transacting of an insurance
business.
Social (government) insurance is compulsory and designed to As used in this code, the term "Commissioner" means
provide a minimum of economic security for large groups of persons, the "Insurance Commissioner".
particularly those in the lower income groups. It concerns itself with
the unfavorable losses of income and costs resulting from the perils The fact that the contract states that it is not an insurance policy
of accidental injury, sickness, old age, unemployment, and premature is not conclusive to show that the making thereof does not constitute
death of the family earner. the doing or transacting of an insurance business.
Voluntary (private) insurance is sought by the insured to meet a Under the “principal object and purpose test”, if the principal
recognized need for protection. It divides itself into three groups: object and purpose is indemnity, the contract constitutes insurance.
1. Commercial insurance. This refers to insurance business. But if it is service, it is not insurance.
The major classifications of commercial insurance are
personal insurance (life, health, and accident insurance), TITLE 1
and property insurance (fire and marine insurance, casualty What May Be Insured
and surety insurance).
2. Cooperative insurance. This is applied to associations usually Section 3. Any contingent or unknown event, whether past
operating under hospital, medical, fraternal, employee, or or future, which may damnify a person having an insurable
trade-union auspices. interest, or create a liability against him, may be insured
3. Voluntary government insurance. There is no element of against, subject to the provisions of this chapter.
compulsion and is designed to benefit the entire The consent of the spouse is not necessary for the
community but are used only by those persons who wish to validity of an insurance policy taken out by a married
use the available benefits. person on his/her life or that of his/her children.
All rights, title and interest in the policy of insurance
Classifications of contracts of insurance taken out by an original owner on the life or health of the
under the Insurance Code person insured shall automatically vest in the latter upon
the death of the original owner, unless otherwise provided
1. Life insurance contracts for in the policy.
a. Individual life (Secs. 181-186, 233)
b. Group life (Secs. 50, 234) Requisites of a contract of insurance SEM PC
c. Industrial life (Secs. 235-237)
2. Non-life insurance contracts
1. A subject matter in which the insured has an insurable
a. Marine (Secs. 101-168)
interest;
b. Fire (Secs. 169-175)
c. Casualty (Sec. 176)
3. Contracts of suretyship or bonding

2. Event or peril insured against which may be any contingent 2. Prizes; and
or unknown event, past or future, and a duration for the risk 3. Chance.
thereof;
3. A consideration for the promise, known as the “premium”; A contract of insurance is a contract of indemnity and is not a
4. A meeting of minds of the parties upon all the foregoing wagering or gambling contract. While it is based on a contingency, it
essentials. is not a contract of chance and is not used for profit. The very purpose
5. The parties must also be competent to enter in the contract of insurance is the reimbursement of the holder of insurance for
and the contract must not be for a purpose contrary to law actual loss suffered from specified risks.
or public policy. Insurance and gambling are similar in only one respect. In both,
one party promises to pay a given sum to the other upon the
Subject matter of contract of insurance occurrence of a given future event, the promise being conditioned
upon the payment of, or agreement to pay, a stipulated amount by
1. In general. Anything that has an appreciable pecuniary value the other party to the contract.
may be constituted as subject matter of insurance.
2. Property insurance. Both persons and property may be the Section 5. All kinds of insurance are subject to the
subjects of insurance. provisions of this chapter so far as the provisions can apply.
3. Life, health, and accident insurance. The subject matter is the
insured. TITLE 2
4. Casualty insurance. The subject matter is the risks involved Parties To The Contract
in the use of the property, or the insured’s risk of loss or
liability, that he may suffer loss or be compelled to Section 6. Every corporation, partnership, or association,
indemnify for the loss suffered by a third person. duly authorized to transact insurance business as
elsewhere provided in this Code, may be an insurer.
Event or peril insured against
Parties to a contract of insurance
The contingency or unknown event must be such that its
happening will:
1. Insurer – the party who assumes or accepts the risk of loss
1. Damnify or cause loss to a person having an insurable
and undertakes for a consideration to indemnify the insured
interest or
or to pay him a certain sum on the happening of a specified
2. Create a liability against him.
contingency or event
2. Insured – the second party to the contract, the person in
The insurer is liable for a fortuitous event if it is the event or peril
whose favor the contract is operative and who is
insured against and is the proximate cause of the loss.
indemnified against, or is to receive a certain sum upon the
happening of a specified contingency or event
Insurance by married woman or by minor
The relation between the insurer and the insured is that of a
A married woman may take out an insurance on her life or that contingent debtor and creditor, subject to the conditions of the policy
of her children without the consent of her husband, or that of her and not that of trustee and cestui que trust.
husband, she having an insurable interest in the latter. She may also The beneficiary is the person designated by the terms of the
take out insurance on her paraphernal or separate property, or on policy as the one to receive the proceeds of the insurance. He is the
property given to her by her husband. third party in a contract of life insurance for whose benefit the policy
A contract of insurance entered into by a minor is merely is issued and to whom the loss is payable.
voidable. If the contract is not disaffirmed by the minor, the insurer
cannot escape liability by pleading minority as a defense. The minor, Who may be an insurer
also, cannot recover the premiums paid if he cannot return the
benefits received. Hence, the result is that an insurance company
1. Foreign or domestic insurance company or corporation. It
contracting with a minor is bound by the contract; the minor
must first obtain a certificate of authority for the purpose of
ordinarily is not.
being an insurer from the Insurance Commissioner.
2. Individual, partnership, or association. An individual may be
Ownership of life insurance policy
an insurer, provided he holds a certificate of authority from
the Insurance Commissioner.
Ownership of a life insurance policy is divided between the
insured who insured his own life and the beneficiary. The insured is
Section 7. Anyone except a public enemy may be insured.
the owner of its various marketing and sales features and the
beneficiary is the owner of a promise to pay the proceeds at the death
of the insured subject to the insured’s right of revocation. Requisites to be an insured party
One who takes a policy of insurance on his own life becomes a
party to the contract even though the benefits of the insurance are to 1. Must be competent to make a contract;
accrue to someone else known as the beneficiary. 2. Must possess an insurable interest in the subject of the
Upon the death of the original owner of a policy of insurance insurance; and
taken out by him on the life or health of a person, all rights, title and 3. Must not be a public enemy.
interest in the policy shall automatically vest in the latter unless
otherwise provided for in the policy. A public enemy designates a nation with whom the Philippines
is at war and it includes every citizen or subject of such nation.
Section 4. The preceding section does not authorize an During wartime, a private corporation is deemed an enemy
insurance for or against the drawing of any lottery, or for or corporation although organized under Philippine laws if they are
against any chance or ticket in a lottery drawing a prize. controlled by enemy aliens, under the “control test”.
Lottery extends to all schemes for the distribution of prizes by

chance. The essential elements of lottery are:
1. Consideration;

Effect of war on existing insurance contracts Insurance by mortgagor for the benefit of mortgagee,
or policy assigned to mortgagee
All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited. It is inconsistent that The following are the legal effects when the mortgagor of
the subjects of one country should lend their assistance to protect by property effects insurance in his own name while providing that the
insurance the commerce or property of belligerent aliens. loss shall be payable to the mortgagee or assigning the policy of
An insurance policy on property ceases to be valid and insurance to the mortgagee:
enforceable as soon as an insured becomes a public enemy. 1. The contract is deemed to be upon the interest of the
With respect to life insurance, the contract is not merely mortgagor; hence, he does not cease to be party to the
suspended but is abrogated. However, the insured is entitled to the contract;
cash or reserve value of the policy, which is the excess of the 2. Any act of the mortgagor prior to the loss affects the
premiums paid over the actual risk carried during the years when the mortgagee even if the property is in the hands of the
policy had been in force. mortgagee;
The termination of war, however, does not revive the contract 3. Any act which under the contract of insurance is to be
since it has already been abrogated. Consequently, the insurer is not performed by the mortgagor may be performed by the
liable even if the loss is suffered by the insured after the end of the mortgagee with the same effect;
war. 4. In case of loss, the mortgagee is entitled to the proceeds to
the extent of his credit; and
Section 8. Unless the policy otherwise provides, where a 5. Upon recovery by the mortgagee to the extent of his credit,
mortgagor of property effects insurance in his own name the debt is extinguished.
providing that the loss shall be payable to the mortgagee,
or assigns a policy of insurance to a mortgagee, the The rule on subrogation by the insurer to the right of the
insurance is deemed to be upon the interest of the mortgagee does not apply in this case.
mortgagor, who does not cease to be a party to the original
contract, and any act of his, prior to the loss, which would Effect of standard and open clauses
otherwise avoid the insurance, will have the same effect, in fire insurance policy
although the property is in the hands of the mortgagee, but
any act which, under the contract of insurance, is to be If a fire insurance policy contains a standard or union mortgage
performed by the mortgagor, may be performed by the clause, the acts of the mortgagor do not affect the mortgagee. The
mortgagee therein named, with the same effect as if it had purpose of the clause is to make a separate and distinct contract of
been performed by the mortgagor. insurance on the interest of the mortgagee.
An open or loss-payable mortgage clause merely provides for
Insurable interest of mortgagor and mortgagee the payment of loss, if any, to the mortgagee as his interest may
appear and under it, the acts of the mortgagor affect the mortgagee.
The mortgagor and the mortgagee have a separate and distinct The mortgagee is only a beneficiary under the contract but not made
insurable interest in the property mortgaged. Thus, insurance taken a party to the contract itself. Hence, any act of the mortgagor which
by one in his own name only and in his favor alone does not inure to defeats his right will also defeat the right of the mortgagee.
the benefit of the other. There is no double insurance.
The mortgagor, as owner, has an insurable interest to the extent Right of mortgagee under mortgagor’s policy
of the value of the property, even though the mortgage debt equals
such value. Before loss occurs, the mortgagee is a conditional appointee of
The mortgagee, or his assignee, has an insurable interest in the the mortgagor entitled to receive so much of any sum that may
mortgaged property to the extent of the debt secured, since the become due under the policy as does not exceed his interest as
property is relied upon as security thereof, and in insuring, he is not mortgagee. Such right becomes absolute upon the occurrence of the
insuring the property itself but his interest or lien thereof. Such loss.
interest continues until the mortgage debt is extinguished. If the loss happens when the credit is not due, the mortgagee is
The mortgagor cannot recover upon the insurance beyond the entitled to receive the money to apply to the extinguishment of the
full amount of his loss and the mortgagee, in excess of the credit at debt as fast as it becomes due. If the loss happens after the credit
the time of the loss nor the value of the property mortgaged. has matured, the mortgagee may apply the proceeds to the extent of
his credit.
Insurance by mortgagee of his own interest
Section 9. If an insurer assents to the transfer of an
Where the mortgagee insures his own interest in the mortgaged insurance from a mortgagor to a mortgagee, and, at the
property, he is entitled to the proceeds of the policy in case of loss time of his assent, imposes further obligations on the
before payment of the mortgage. In such case, the mortgagee is not assignee, making a new contract with him, the acts of the
allowed to retain his claim against the mortgagor but it passes by mortgagor cannot affect the rights of said assignee.
subrogation to the insurer to the extent of the insurance money paid.
The payment of the insurance to the mortgagee by reason of the The effect of an assignment or transfer is to substitute the
loss does not relieve the mortgagor from his principal obligation but assignee or transferee in place of the original insured in respect to
only changes the creditor. the right to claim indemnity or payment for a loss as well as the
obligation to perform the conditions, if any, of the policy. The
Insurance by mortgagor of his own interest assignee, unless he makes a new contract with the insurer, acquires
no greater right under the insurance than the assignor had, subject
The mortgagor may insure his own interest as owner for his to insurer’s defenses.
benefit. In case of loss, the insurance proceeds do not inure to the A fire policy is not subject to assignment before it becomes a
benefit of the mortgagee who has no greater right than unsecured fixed liability. It is strictly a personal contract.
creditors in the same. A policy of marine insurance is not assignable without the
The mortgagor may take out insurance for the benefit of the consent of the insurer.
mortgagee. The mortgagor pays the insurance premium and makes As to casualty policy, the insurer’s consent is also required.
the loss payable to the mortgagee.

With respect to life policy, the same may freely be assigned The mere fact that two persons are engaged to be married does
before or after the loss occurs, to any person whether he has an not give one an insurable interest in the life of the other.
insurable interest or not. The mere relationship of brother or sister, father or child is
sufficiently close to give either an insurable interest in the life of the
TITLE 3 other. The essential thing is that the policy shall be obtained in good
Insurable Interest faith, and not for the purpose of speculating upon the hazard of a life
in which the insured has no interest.
Section 10. Every person has an insurable interest in the Persons who are obliged to support each other, as in Article 195
life and health: of the Civil Code, have an insurable interest in each other’s life.
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in Art. 105. Subject to the provisions of the succeeding articles,
part for education or support, or in whom he has a the following are obliged to support each other to the whole
pecuniary interest; extent set forth in the preceding article:
(c) Of any person under a legal obligation to him for (1) The spouses;
the payment of money, or respecting property or services, (2) Legitimate ascendants and descendants;
of which death or illness might delay or prevent the (3) Parents and their legitimate children and the
legitimate and illegitimate children of the latter;
performance; and
(4) Parents and their illegitimate children and the
(d) Of any person upon whose life any estate or
legitimate and illegitimate children of the latter; and
interest vested in him depends. (5) Legitimate brothers and sisters, whether of full or
half-blood.
Insurable interest is that interest which the law requires the owner
of an insurance policy to have in the person or thing insured. However, if there is lesser degree of kinship, such as uncle and
A person is deemed to have an insurable interest in the subject aunt, and nephew or niece, mere blood relationship does not create
matter insured where he has a relation or connection with or concern an insurable interest. Also, mere relationship by affinity ordinarily
in it that he will derive pecuniary or financial benefit or advantage does not constitute an insurable interest. There must be an
from its preservation and will suffer pecuniary loss or damage from expectation of pecuniary benefit in the life of the insured to sustain
its destruction, termination, or injury by the happening of the event the insurance, that is, a risk of actual monetary loss from his death.
insured against. In the case of employees, insurable interest is dependent upon
In connection with life insurance, to have an insurable interest in the value of the employee to the business. A business usually has an
connection in the life of a person, the expectation of benefit from the interest in other employees occupying key positions. However, valid
continued life of that person need not necessarily be of a pecuniary insurance may be written when the employee himself applies for the
nature. policy and designates the employer as beneficiary.
A policy issued to a person without interest in the subject matter Any person so related to another, either by contract or
insured is a mere wagering policy or contract and is void for illegality. commercial relation, that a right possessed by him will be
Evidence of a wagering policy is usually found in such facts as: extinguished or impaired by the death or illness of the other may
1. That the original proposal to take out insurance was that of lawfully procure insurance on the other’s life. It must appear that the
the beneficiary; death or illness of the insured person who is under a legal obligation
2. That premiums are paid by the beneficiary; and might delay or prevent its performance.
3. That the beneficiary has no interest, economic or emotional, A creditor may insure his debtor’s life for the purpose of
in the continued life of the insured. protecting his debt but only to the extent of the amount of the debt
and the cost of carrying the insurance on the debtor’s life. The
Two general classes of life policies creditor who insures the life of his debtor does not act as the agent
of the latter. The contract is one purely between the insurer and the
1. Insurance upon one’s life. The insured takes an insurance insuring creditor.
upon his own life for the benefit of himself, or of his estate, The consent of the person whose life is insured is not essential
or for the benefit of a third person who may be designated to the validity of the policy, so long as it could be proved that the
as a beneficiary. This does not usually present an insurable assured has a legal insurable interest at the inception of the policy.
interest question.
2. Insurance upon life of another. The insured takes insurance Section 11. The insured shall have the right to change the
upon the life of another. When one applies for insurance on beneficiary he designated in the policy, unless he has
the life of another for the former’s benefit, he must have an expressly waived this right in said policy. Notwithstanding
insurable interest in the life of that person. the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be
Insurable interest in life of another deemed irrevocable.
1. Insurance for benefit of insured. A person cannot lawfully Beneficiary refers to the person who is named or designated in a
procure insurance for his own benefit on the life of another contract of life, health, or accident insurance as the one who is to
in whose life he has no insurable interest. The insurable receive the benefits which become payable, according to the terms of
interest in the life of another must be a pecuniary one. The the contract, upon the death of the insured. The beneficiary is not a
law, therefore, requires that the assured shall have an party to the contract of insurance between the insured and the
interest to preserve the life of the insured in spite of the insurer.
insurance, rather than destroy it because of the insurance.
2. Insurance for benefit of a third party. When the owner of the Kinds of beneficiary
policy insures the life of another (cestui que vie) and
designates a third party as beneficiary, both the owner and
1. Insured himself. The insured himself may be the person who
beneficiary must have an insurable interest in the life of the
procures the contract and pays the premium necessary to
cestui que vie. If the insurable interest requirement is
maintain it. He is thus an immediate party to the contract
satisfied, a life policy is assignable regardless of whether the
and is ordinarily called the assured.
assignee has an insurable interest in the life of the cestui
2. Third person who paid a consideration. The third person
que vie.
named as beneficiary may have paid a valuable

consideration for his selection as such. The insured may The word “wife” in the description of the beneficiary of life
have taken the policy for the benefit of a creditor or to insurance is generally regarded as description personae, and the fact
secure some other obligation. that one who otherwise answers the description does not have the
3. Third person through mere bounty of insured. The beneficiary legal status of the wife of the insured does not prevent her from taking
may be one who gives no consideration whatsoever for any as beneficiary, as when she is designated by name. However, if the
right that may be acquired in the policy but is designated beneficiary is not named but is designated merely by a status, the
as recipient of the proceeds of the policy through mere legal husband or wife as ascertained at the death of the insured is
bounty of the insured. The beneficiary maybe be the estate entitled to the benefits. But a common-law spouse cannot be named
of the insured or a third party. beneficiary of a life insurance policy by the person who cannot make
any donation to him.
In nos. 2 and 3, the beneficiary is not a party to the contract. In If no beneficiary is designated in the life insurance policy, the
all cases, the proceeds of the life insurance policy become the proceeds thereof will go to his legal heirs in accordance with law.
exclusive property of the beneficiary upon the death of the insured.
Section 12. The interest of a beneficiary in a life insurance
Limitations in the appointment of beneficiary policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing
Art. 2012. Any person who is forbidden from receiving any about the death of the insured. In such a case, the share
donation under Article 739 cannot be named beneficiary of a forfeited shall pass on to the other beneficiaries, unless
life insurance policy by the person who cannot make any otherwise disqualified. In the absence of other
donation to him, according to said article. beneficiaries, the proceeds shall be paid in accordance with
the policy contract. If the policy contract is silent, the
Art. 739. The following donations shall be void: proceeds shall be paid to the estate of the insured.
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
The word interest in Section 12 means the right of the beneficiary
(2) Those made between persons found guilty of the
same criminal offense, in consideration thereof; to receive the proceeds of the life insurance policy. It does not mean
(3) Those made to a public officer or his wife, insurable interest since the beneficiary need not have an insurable
descendants and ascendants, by reason of his office. interest in the life of the insured.
In the case referred to in No. 1, the action for declaration In case the interest of the beneficiary in a life insurance policy is
of nullity may be brought by the spouse of the donor or donee; forfeited, the nearest relatives, not otherwise disqualified, of the
and the guilt of the donor and donee may be proved by insured shall, inherit the proceeds paid to the estate of the insured in
preponderance of evidence in the same action. accordance with the rules on intestate succession.
The nearest relatives of the insured are the following:
A beneficiary is like a donee because from the premiums of the 1. The legitimate children;
policy which the insured pays out of liberality, the beneficiary will 2. The father and mother, if living;
receive the proceeds or profits of said insurance. 3. The grandfather and grandmother, or ascendants nearest
in degree, if living;
Right of insured to change beneficiary 4. The illegitimate children;
in life insurance 5. The surviving spouse; and
6. The collateral relatives, to wit:
Whether or not the policy reserves to the insured the right to a. Brothers and sisters of the full blood;
change the beneficiary, he has the power to change the beneficiary b. Brothers and sisters of the half-blood; and
without the consent of the latter who acquires no vested right but c. Nephews and nieces.
only an expectancy of receiving the proceeds under the insurance. In default of the above, the State shall be entitled to receive the
But the insured’s power to extinguish the beneficiary’s interest insurance proceeds.
ceases at his death, and cannot be exercised by his personal
representatives or assignees. The beneficiary’s designation shall be Death caused by beneficiary
deemed irrevocable then.
However, if the right to change the beneficiary is expressly Where the beneficiary, as principal, accomplice, or accessory,
waived in the policy, then the insured has no power to make such intentionally brings about the death of the insured under such
change without the consent of the beneficiary. The beneficiary then circumstances as to amount to a felony, he cannot receive any benefit
acquires an absolute and vested interest to all benefits accruing to under the contract of insurance. His interest shall be forfeited and the
the policy from the date of its issuance and delivery. Neither can a nearest relative of the insured shall receive the proceeds.
new beneficiary be added to the irrevocable designated beneficiary Thus, where the death of the insured was caused under
for this would in effect reduce the latter’s vested rights. circumstances as do not amount to a felony as when the killing was
accidental or in self-defense, or where the beneficiary was insane, the
Where the beneficiary dies before insured rights of the beneficiary under the policy are not affected.
Where the beneficiary predeceases the insured, the estate of the Section 13. Every interest in property, whether real or
insured should be entitled to the proceeds of the insurance especially personal, or any relation thereto, or liability in respect
where the designation is subject to the express condition to pay the thereof, of such nature that a contemplated peril might
beneficiary if he survives the insured or “if surviving”. directly damnify the insured, is an insurable interest.
Designation of beneficiary Anyone has an insurable interest in property who derives a

benefit from its existence or would suffer loss from its destruction.
The word “children” is broad enough to include an adopted It is not necessary that the interest is such that the event insured
child, an adult child not forming part of the household of the insured against would necessarily subject the insured to loss. It is sufficient
or after-born children even of a marriage subsequently contracted. that it might do so, and that pecuniary injury would be the natural
However, where the children are named individually, other children consequence.
cannot share in the insurance proceeds unless the insured Although a person has no title, legal or equitable, in the property,
subsequently amend his designation to include them. and neither possession nor right to possession, yet he has an

insurable interest if he is so situated with respect to the property that debtor since all personal liability ceases with the death of the debtor.
he will suffer loss as the proximate result of its damage or destruction. Also, an unsecured creditor who obtains a judgment in his favor
Unlike the civil law concept of jus perit domino, where ownership becomes a judgment creditor and has been held to have insurable
is the basis for consideration of who bears the risk of loss, in property interest in the debtor’s property as he has a right to levy on such
insurance, one’s interest is not determined by concept of title, but property as may be necessary to satisfy the judgment. He also has an
whether the insured has substantial economic interest in the insurable interest in the life of his debtor to the extent of the amount
property. of the debt.
Insurable interest in property is not necessarily an interest in
property in the sense of title, but a concern in the preservation of the Section 17. The measure of an insurable interest in
property and such a relation to or connection with it as will property is the extent to which the insured might be
necessarily entail a pecuniary loss in case of its injury or destruction. damnified by loss or injury thereof.
As a general rule, however, the expectation of benefit to be derived
from the continued existence of property must have a basis of legal Any contract of property insurance that gives to the insured
right, although the person insured has no title. more than indemnity against his actual loss that may be suffered by
Such expectation not arising from any legal right or duty in the happening of the event insured against is in the nature of a
connection with the property does not constitute an insurable wagering policy contrary to public policy and is void.
interest. This type of interest is called “factual expectation.”
Section 18. No contract or policy of insurance on property
Section 14. An insurable interest in property may consist shall be enforceable except for the benefit of some person
in: having an insurable interest in the property insured.
(a) An existing interest;
(b) An inchoate interest founded on an existing
Fire insurance taken on property belonging to another is void,
interest; or
although the insurer had full knowledge of the fact of ownership and
(c) An expectancy, coupled with an existing interest
even if the insured subsequently acquired insurable interest. Where
in that out of which the expectancy arises.
the contract of lease provides that any fire insurance policy obtained
by the lessee over his merchandise inside the leased premises
Insurable interest in property need not be an existing interest. It without consent of the lessor is deemed assigned or transferred to
may consist merely of an inchoate interest or an expectancy. the lessor, such assignment is void.
The existing interest in a property may be a legal title or Where the insurance is invalidated on the ground that no
equitable title. An absolute owner of property has an insurable insurable interest exists, the premium is ordinarily returned to the
interest thereon. Where legal title is held in a representative capacity, insured unless he is in pari delicto with the insurer.
as by an executor, administrator, trustee, or receiver, the It is consistent with the principle of indemnity to pay the insured
representative has sufficient insurable interest for the purpose of a benefit in an amount equal to or less than the loss but the principle
taking out insurance on the property under his control, but any is violated if he is paid a benefit more or greater than the loss.
proceeds from such insurance are to be held for the benefit of those The doctrine of waiver or estoppel cannot be invoked since the
for whose benefit the representative is acting. Also, more than one public has an interest in the matter independent of the consent or
insurable interest may exist over the same property. concurrence of the parties. However, there are instances where the
An inchoate interest must be founded on an existing interest. For insured’s lack of insurable interest in property is not sufficient to
example, a stockholder has an inchoate interest in the property of the avoid an insurance, such as when the real intention of the insured
corporation of which he is stockholder, which is founded on an was to insure his goods but through the error or mistake of the
existing interest arising from his ownership of shares in the insurer, the policy was issued for the building in which the goods were
corporation. But a stockholder has neither legal nor equitable title to stored. In such case, the insured can recover.
assets of the corporation. Likewise, a partner has an insurable interest
in the firm property which will support a separate policy for his Measure of indemnity in insurance contracts
benefit.
An expectancy must be coupled with an existing interest in that
Contracts of marine or fire insurance are also contract of
out of which such expectancy arises. For example, a farmer may
indemnity, the amount of insurance being limited by the value of the
insure future crops if they are to be grown on land owned by him at
interest to be protected. This means that the real purpose of the
the time of the issuance of the policy. Also, a workman has an
contract is, in case of loss, to place the insured in the same situation
insurable interest in any building he may have contracted to repair,
in which he was before the loss subject to the terms and conditions
or an artist might insure the structure for the interior decoration of
of the policy. The amount of insurance fixed in the policy of a marine
which he had been employed.
or fire insurance is not the exact measure of indemnity to which the
insured is entitled, but the maximum indemnity which he might
Section 15. A carrier or depository of any kind has an obtain. The insured cannot recover in excess of his actual loss.
insurable interest in a thing held by him as such, to the Liability insurance contracts are considered contracts of
extent of his liability but not to exceed the value thereof. indemnity against liability and not against loss. In this type, the
insurer’s promise is to pay the proceeds of the policy on behalf of the
The reason for this is that the loss of the thing may cause liability insured to a third person to whom the insured is liable.
to the carrier or depository to the extent of its value. Life insurance contracts are not contracts of indemnity. The
amount fixed payable at the death of the insured is not considered
Section 16. A mere contingent or expectant interest in any as the true value of the thing insured because the life of a person is
thing, not founded on an actual right to the thing, nor upon incapable of pecuniary estimation. The same is true for personal
any valid contract for it, is not insurable. accident insurance contracts. However, if a person effects a personal
accident insurance on the life of another person, the amount
A mere hope or expectation of benefit which may be frustrated recoverable is the loss sustained by the person who effected the
by the happening of some event uncoupled with any present legal policy.
right will not support a contract of insurance. Health insurance contracts are also like life insurance contracts.
A father cannot insure his son’s property nor can a son insure They provide a specific periodic income to disabled persons. But
the property that he expects to inherit from his father. those that cover medical expenses are contracts of indemnity and
Nor can an unsecured creditor insure specific property of his only the medical expenses incurred by the insured are paid.
debtor who is alive. But he may insure the property of a deceased

Health care agreements are in the nature of a non-life insurance 7. When there is an express prohibition against alienation in
which is primarily contracts of indemnity. The health care provider the policy, in case of alienation, the contract of insurance is
must pay for the expenses of the member or party who incurred the not merely suspended but is avoided (Art. 1306, CC, Sec.
expenses to the extent agreed upon under the contract. 24).
Section 19. An interest in property insured must exist when Section 21. A change of interest in a thing insured, after the
the insurance takes effect, and when the loss occurs, but occurrence of an injury which results in a loss, does not
need not exist in the meantime; and interest in the life or affect the right of the insured to indemnity for the loss.
health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss After the loss has happened, the liability of the insurer becomes
occurs. fixed. The insured has a right to assign his claim against the insurer
as freely as any other money claim. This right is absolute and cannot
The general rule in Section 19 is applicable only to insurance on be delimited by agreement.
property and not to life insurance except that on the life of the debtor.
Insurable interest in property must exist at two distinct times: Section 22. A change of interest in one or more of several
1. On the date of execution of the contract of insurance, and distinct things, separately insured by one policy, does not
2. On the date of the occurrence of the risk insured against. avoid the insurance as to the others.
Otherwise, the policy is void. This is because property insurance
is indemnity insurance. If the insured has no more interest in the Section 22 depends on whether the contract is divisible or
property at the time of loss, destruction or injury, he has suffered no indivisible. If the contract is divisible such as when things are
loss. separately insured in one policy, a violation of a condition which
In life insurance, the insurable interest requirement is satisfied if avoids the policy with respect to one or more of the things does not
the interest exists at the time the policy is procured or took effect, affect the others. If it is indivisible, such as when the things are
even if it has ceased to exist at the time of the insured’s death. insured under one policy for a gross sum and for an entire premium,
In liability insurance, insurable interest exists when the liability a change of interest in one or more of the things will also avoid the
of the insured to a third party attaches. insurance as to the others.
Section 20. Except in the cases specified in the next four Section 23. A change of interest, by will or succession, on
sections, and in the cases of life, accident, and health the death of the insured, does not avoid an insurance; and
insurance, a change of interest in any part of a thing insured his interest in the insurance passes to the person taking his
unaccompanied by a corresponding change of interest in interest in the thing insured.
the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the
Under this section, the insurance on property passes
insurance are vested in the same person.
automatically, on the death of the insured, to the heir, legatee or
devisee who acquired interest in the thing insured. The rights to the
General rule: The mere transfer of a thing insured does not succession are transmitted from the moment of the death of the
transfer the policy but suspends it until the same person becomes decedent.
the owner of both the policy and the thing insured.
Exceptions: Sections 21-24
Section 24. A transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly insured,
Effect of change of interest
to the others, does not avoid an insurance even though it
has been agreed that the insurance shall cease upon an
Section 20 refers to change of interest in the thing insured alienation of the thing insured.
before loss has occurred.
With regard the general rule, the contract is not rendered void
A transfer of interest in the insured property by a partner, joint
but is merely suspended by a change of interest.
owner, or owner in common, to the others who are jointly insured, will
The object of the provision against alienation or change of
not avoid the insurance. The rule is the same even if there is a
interest or title is ordinarily to provide against changes which might
stipulation that the insurance shall cease upon an alienation of the
supply a motive to destroy the property, or might lessen the interest
thing insured. This is because the transfer does not affect the risk
of the insured in protecting and guarding it.
because no new party is brought into contractual relationship with
The change of interest contemplated under Sections 20-24 is
the insurer.
absolute transfer of the property insured such as the conveyance of
But a policy will be avoided by a sale of an interest in partnership
the property by means of an absolute deed of sale. Consequently, the
property by the partner to one of his co-partners, without the consent
interest in the property insured does not pass by mere execution of
of the insurer and before the loss occurs, where there is a condition
a pledge or mortgage.
in the policy that provides for the same.
Alienation or transfer to a stranger or third person will avoid the
Exceptions to general rule
policy. A sale by a partner of his interest to a stranger ends the
contract of insurance as to him but does not affect the insurance as
1. In life, health, and accident insurance (Sec. 20); to the others.
2. A change of interest in the thing insured after the
occurrence of an injury which results in a loss (Sec. 21);
Section 25. Every stipulation in a policy of insurance for the
3. A change of interest in one or more of several things,
payment of loss whether the person insured has or has not
separately insured by one policy (Sec. 22);
any interest in the property insured, or that the policy shall
4. A change of interest by will or succession on the death of
be received as proof of such interest, and every policy
the insured (Sec. 23);
executed by way of gaming or wagering, is void.
5. A transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly insured, to
the others (Sec. 24); A wager policy is a pretended insurance where the insured has
6. When a policy is so framed that it will inure to the benefit no interest in the thing insured and can sustain no loss by the
of whomsoever, during the continuance of the risk, may happening of the misfortunes insured against.
become the owner of the interest insured (Sec. 57); and

An insurance must not be a mere bet upon a future event. It is a As a rule, failure on the part of the insured to disclose conditions
contract of indemnity and no one should profit from it. affecting the risk, of which he is aware, makes the contract voidable
at the insurer’s option. This is because insurance policies are
TITLE 4 contracts of the utmost good faith and also because the full
Concealment circumstances of the subject matter of insurance are known to the
insured only and the insurer must rely primarily upon the information
Section 26. A neglect to communicate that which a party supplied to him. Hence, it is no defense to plead mistake or
knows and ought to communicate, is called a concealment. forgetfulness.
This duty of disclosure is not required of the insured alone; it is
In making a contract, so highly aleatory as that of insurance, the also imposed with equal stringency upon the insurer and is more on
parties have four primary concerns: the latter since his dominant bargaining position carries with it
1. The correct estimation of the risk which enables the insurer stricter responsibility.
to decide whether he is willing to assume it, and if so, at This duty of utmost good faith is breached by concealment or
what rate of premium; misrepresentation. Section 27 entitles the injured party to rescind a
2. The precise delimitation of the risk which determines the contract of insurance by reason of such, implying that it is optional
extent of the contingent duty to pay undertaken by the on his part whether or not to exercise his right of rescission.
insurer;
3. Such control of the risk after it is assumed as will enable Proof of fraud in concealment
the insurer to guard against the increase of the risk because
of change in conditions; and Under Section 27, the insurer need not prove fraud in order to
4. Determining whether a loss occurred and if so, the amount rescind a contract on the ground of concealment.
of such loss. The duty of communication is independent of the intention and
is violated by the fact of concealment, even when there is no design
Devices for ascertaining and controlling to deceive. Whether the concealment is intentional or unintentional,
risk and loss it entitles the insurer to rescind the contract of insurance. Moreover,
it would be impossible for the insurer to protect itself and its honest
There are devices developed by persons engaged in the policyholders against fraudulent and improper claims.
insurance business to effect the above ends: The basis of the rule vitiating the contract in cases of
1. Concealment and representations. These were originally concealment is that it misleads or deceives the insurer into accepting
developed for the purpose of enabling the insurer to secure the risk, or accepting it at the rate of premium agreed upon.
the same information with respect to the risk that was
possessed by the applicant for insurance, so that he might Section 28. Each party to a contract of insurance must
be equally capable of forming a just estimate of its quality. communicate to the other, in good faith, all facts within his
2. Warranties and conditions. These involve facts the existence knowledge which are material to the contract and as to
of which shows the risk to be greater than that intended to which he makes no warranty, and which the other has not
be assumed and operates to create in the insurer the power the means of ascertaining.
to extinguish, if he so desires, the legal relations already
created. It is the duty of each party to a contract of insurance to
3. Exceptions. These perform similar function in making more communicate in good faith all facts within his knowledge only when:
definite the coverage indicated by the general description 1. They are material to the contract;
of the risk by excluding certain specified risks that otherwise 2. The other has not the means of ascertaining the said
would have been included under the general language facts; and
describing the risks assumed. 3. As to which the party with the duty to communicate
4. Executory warranties and conditions. Undertakings that makes no warranty.
certain conditions should or should not exist in the future The test is: if the applicant is aware of the existence of some
are used to enable the insurer to rescind the contract in circumstances which he knows would influence the insurer in acting
case subsequent events increased the risk to such an extent upon his application, good faith requires him to disclose that
that he is no longer willing to bear. circumstance, though unasked.
5. Conditions precedent. By inserting these conditions The effect of material concealment cannot be avoided by the
precedent, the insurer is protecting himself against allegation that the insurer could have known and discovered the
fraudulent claims of loss. illness or disease which the insured had concealed. The insurance
company has the right to rely on the statements of the insured as to
Concealment material facts for he knows the facts.
Concealment is the neglect to communicate that which a party Section 29. An intentional and fraudulent omission, on the
knows and ought to communicate. It is the intentional withholding by part of one insured, to communicate information of matters
the insured of any fact material to the risk. Hence, the thing concealed proving or tending to prove the falsity of a warranty, entitles
must be material to the contract. the insurer to rescind.
The following are the requisites of concealment:
1. A party (insured) knows the fact which he neglects to Unlike in ordinary concealment under Section 27, the non-
communicate or disclose to the other; disclosure under Section 29 must be intentional and fraudulent in
2. Such party concealing (insured) is duty bound to disclose order that the contract may be rescinded. The omission is on the part
such fact to the other; of the insured and the party entitled to rescind is the insurer.
3. Such party concealing (insured) makes no warranty of
the fact concealed; and Section 30. Neither party to a contract of insurance is bound
4. The other party (insurer) has not the means of to communicate information of the matters following,
ascertaining the fact concealed. except in answer to the inquiries of the other:
(a) Those which the other knows;
Section 27. A concealment whether intentional or (b) Those which, in the exercise of ordinary care, the
unintentional entitles the injured party to rescind a contract other ought to know, and of which the former has no reason
of insurance. to suppose him ignorant;

(c) Those of which the other waives communication; make inquiry as to such facts, where they are distinctly
(d) Those which prove or tend to prove the existence implied in other facts of which information is
of a risk excluded by a warranty, and which are not communicated.
otherwise material; and
(e) Those which relate to a risk excepted from the The right to information may be waived either:
policy and which are not otherwise material. 1. Expressly by the terms of insurance, or
2. Impliedly by neglect to make inquiry as to the facts
Matters made the subject of inquiry must be deemed material, already communicated.
even though otherwise they might not be so regarded and the insured
is required to make full and true disclosure to questions asked. There Section 34. Information of the nature or amount of the
is no concealment if the fact is not material to the contract. interest of one insured need not be communicated unless
The circumstances of the parties to an insurance contract or in answer to an inquiry, except as prescribed by Section 51.
the conditions under which it is executed may be such as to render
it unnecessary, in the absence of questions requiring it, for the Section 51. A policy of insurance must specify:
insured to disclose to the insurer, facts that would otherwise be a. The parties between whom the contract is made;
material. b. The amount to be insured except in the cases of
The insured cannot be penalized for failure to disclose matters open or running policies;
already known to the insurer for in such case, there is no deception. c. The premium, or if the insurance is of a character
The same thing is true to matters ought to be known by the insurer where the exact premium is only determinable upon the
or his agent and which the insurer waives communication for the termination of the contract, a statement of the basis and
insurer is in estoppel. rates upon which the final premium is to be determined;
There is no duty to disclose matters which concern risks d. The property or life insured;
excepted from the policy. e. The interest of the insured in property insured, if
he is not the absolute owner thereof;
Section 31. Materiality is to be determined not by the event, f. The risks insured against; and
but solely by the probable and reasonable influence of the g. The period during which the insurance is to
facts upon the party to whom the communication is due, in continue.
forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries. General rule: There is no need to communicate information of
the nature or amount of the interest insured unless it is in answer to
To be material, a fact need not increase the risk or contribute to an inquiry.
any loss or damage suffered. It is sufficient if the knowledge of it Exception: Those provided under Section 51 must be
would influence the parties in making the contract. communicated to the insurer.
From the standpoint of the insurer, a fact is material if the
knowledge of it would have a probable and reasonable influence upon Section 35. Neither party to a contract of insurance is bound
the insurer in assessing the risk involved and in making or omitting to communicate, even upon inquiry, information of his own
further inquiries, and cause him to either reject the risk or accept it judgment upon the matters in question.
only at a higher premium rate.
Thus, where the applicant concealed a fact that he had been The duty to disclose is confined to facts. Hence, there is no duty
seriously ill, the policy is avoided although the cause of death be to disclose mere opinion, speculation, intention, or expectation.
totally unconnected with the material fact concealed or
misrepresented. TITLE 5
No information possessed by one party can be material, in the Representation
sense of requiring disclosure, unless it is possible that it may
influence the other in the making of the contract. Section 36. A representation may be oral or written.
Where the contract is already complete and binding before the
information in question is acquired, there can be no duty resting upon
Representation is a statement made by the insured at the time
the insured to disclose it, even though the policy is yet to issue. In
of, or prior to, the issuance of the policy, relative to the risk to be
other words, concealment must take place at the time the contract is
insured, as to an existing or past fact or state of facts, or concerning
entered into in order that the policy may be avoided.
a future happening, to give information to the insurer and otherwise
However, if the contract is to be effective only upon the issuance
induce him to enter into the insurance contract. It may also be made
of the policy, an applicant for life insurance is under a duty to disclose
by the insurer.
to the insurer changes in his health occurring between the date of
Misrepresentation in insurance is a statement
submitting his application and the date the policy is delivered.
1. As a fact of something which is untrue,
2. Which the insured stated with knowledge that it is untrue
Section 32. Each party to a contract of insurance is bound and with an intent to deceive, or which he states positively
to know all the general causes which are open to his inquiry, as true without knowing it to be true and which has a
equally with that of the other, and which may affect the tendency to mislead, and
political or material perils contemplated; and all general 3. Where such fact in either case is material to the risk.
usages of trade. Such misrepresentation by the insured renders the insurance
contract voidable at the option of the insurer, even though innocently
Under Section 32, the insured need not communicate public made and without wrongful intent.
events, such as that a nation is at war or the laws and political
conditions in other countries, the sources of his information being Section 37. A representation may be made at the time of,
equally open to the insurer who is, therefore, presumed to know them. or before, issuance of the policy.
The insurer is also charged with the knowledge of the general
trade usages and rules of navigation, kind of seasons, and all the risks
Representation must precede the execution of the contract. The
connected with navigation.
insurer must be induced by the misrepresentation of the applicant
Section 33. The right to information of material facts may for insurance to issue the policy at a specified premium. A
be waived, either by the terms of insurance or by neglect to

representation made after the policy is issued could not have neither case is he responsible for its truth, unless it
influenced either party to enter into the contract. proceeds from an agent of the insured, whose duty it is to
give the information.
Section 38. The language of a representation is to be
interpreted by the same rules as the language of contracts Under this section, the insured is given discretion to
in general. communicate to the insurer what he knows of a matter of which he
has no personal knowledge. If the representation turns out to be false,
Representations are construed liberally in favor of the insured, he is not responsible therefor, provided he gives explanation that he
and are required to be only substantially true. Warranties, by contrast, does so on the information of others.
must be literally true, or the contract will fail. On the other hand, where a party orders insurance, and
afterwards received information material to the risk or has knowledge
Section 39. A representation as to the future is to be of a loss, he ought to communicate it to his agent as soon as it can
deemed a promise, unless it appears that it was merely a be communicated. If he does not do so, the policy is avoided.
statement of belief or expectation.
Section 44. A representation is to be deemed false when
Kinds of representation the facts fail to correspond with its assertions or
stipulations.
1. It may be oral or written.
2. It may be made at the time of issuing the policy or before, Section 44 defines misrepresentation.
and Unlike in warranties, representations are not required to be
3. It may be affirmative or promissory. literally true; they need only be substantially true. In order that a
policy shall be avoided, a representation relied upon must be false in
An affirmative representation is any allegation as to the existence a substantial and material respect.
or non-existence of a fact when the contract begins. A representation is substantially true when it is true in every
A promissory representation is any promise to be fulfilled after the particular material to the risk, or is so far true that the conduct of the
contract has come into existence or any statement concerning what insurer would not have been different if the exact truth had been
is to happen during the existence of the insurance. It may be an oral alleged.
promise made in connection with the insurance but not incorporated However, in marine insurance, substantial truth of
in the policy. representation is not sufficient. The insured is required to state the
A representation of the expectation, intention, belief, opinion or exact and whole truth in relation to all matters that he represents, or
judgment of the insured, although false, will not avoid a policy of upon inquiry discloses or assumes to disclose.
insurance if there is no actual fraud in inducing the acceptance of the
risk or its acceptance at a lower rate of premium. The same is true Section 45. If a representation is false in a material point,
even though the statement is material to the risk. whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
Section 40. A representation cannot qualify an express representation becomes false.
provision in a contract of insurance, but it may qualify an
implied warranty. Fraud or intent to misrepresent facts is not essential to entitles
the injured party to rescind a contract of insurance on the ground of
A representation cannot qualify an express provision or an false representation. It does not matter that the representation relied
express warranty in a contract of insurance. This is because a on by the insurer is made in the honest belief that it is true.
representation is not a part of the contract but only a collateral To be deemed false, it is sufficient if the representation fails to
inducement to it. correspond with the facts in a material point.
A representation may, however, qualify an implied warranty.
Effect of collusion or fraud of agent of insurer
Section 41. A representation may be altered or withdrawn
before the insurance is effected, but not afterwards. Collusion between the agent and the insured in misrepresenting
the facts will vitiate the policy even though the agent is acting within
the apparent scope of his authority. When there is collusion, the agent
A representation is not a part of the contract. Hence, it may be
thereby ceases to represent his principal and represents himself; so
altered or withdrawn before the contract actually takes effect but not
the insurer is not estopped from avoiding the policy.
afterwards.
Section 46. The materiality of a representation is

Section 42. A representation must be presumed to refer to
determined by the same rules as the materiality of a
the date on which the contract goes into effect.
concealment.
Representations refer only to the time of making the contract.
The materiality of the representation is to be determined not by
Statements promissory of conditions to exist subsequent to the
the event, but solely by the probable and reasonable influence of the
completion of the contract may be conditions or warranties, not
facts upon the party to whom the representation is made, in forming
representations.
his estimates of the disadvantages of the proposed contract or in
There is no false representation if it is true at the time the
making inquiries.
contract takes effect although false at the time it was made and vice
versa, there is false representation if it is true at the time it was made
Concealment Misrepresentation
but false at the time the contract takes effect.
Materiality of concealment is determined by the same rules as
applied in cases of misrepresentation.
Section 43. When a person insured has no personal
Concealment of the part of the insured has the same effect as
knowledge of a fact, he may nevertheless repeat
misrepresentation and gives the insurer a right to rescind the
information which he has upon the subject, and which he
contract.
believes to be true, with the explanation that he does so on
the information of others; or he may submit the
information, in its whole extent, to the insurer; and in

Whether intentional or not, the injured party is entitled to rescind Effect when policy becomes incontestable
a contract of insurance on ground of concealment or false
representation. When a policy of life insurance becomes incontestable, the
The rules on concealment and representation apply likewise to the insurer may not refuse to pay the same by claiming that:
insurer. 1. The policy is void ab initio; or
The insured withholds The insured makes erroneous 2. It is rescissible by reason of the fraudulent concealment
information of material facts statements of facts with the of the insured or his agent, no matter how patent or well-
from the insurer intent of inducing the insurer to founded; or
enter into the insurance 3. It is rescissible by reason of the fraudulent
contract misrepresentations of the insured or his agent.
Section 47. The provisions of this chapter apply as well to a Defenses not barred by incontestable clause
modification of a contract of insurance as to its original
formation. The incontestability of a policy under the law is not absolute.
Otherwise, a beneficiary of any person who had procured a life policy
The provisions governing concealment and representations more than two years before his death would automatically be entitled
apply not only to the original formation of the contract but also to a to the proceeds upon that person’s death.
medication of the same during the time it is in force. The insurer may still contest the policy by way of defense to a
suit brought upon the policy or by action to rescind the same, on any
Section 48. Whenever a right to rescind a contract of of the following grounds:
insurance is given to the insurer by any provision of this 1. That the person taking the insurance lacked insurable
chapter, such right must be exercised previous to the interest as required by law;
commencement of an action on the contract. 2. That the cause of the death of the insured is an excepted
After a policy of life insurance made payable on the risk;
death of the insured shall have been in force during the 3. That the premiums have not been paid;
lifetime of the insured for a period of two (2) years from the 4. That the conditions of the policy relating to military or
date of its issue or of its last reinstatement, the insurer naval service have been violated;
cannot prove that the policy is void ab initio or is 5. That the fraud is of a particularly vicious type;
rescindable by reason of the fraudulent concealment or 6. That the beneficiary failed to furnish proof of death or to
misrepresentation of the insured or his agent. comply with any condition imposed by the policy after
the loss has happened; or
7. That the action was not brought within the time specified.
Grounds to rescind a contract of insurance
TITLE 6
1. Concealment; The Policy
2. False representation; and
3. Breach of warranty.
Section 49. The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
An action to rescind a contract, under the first paragraph of
Section 48, is founded upon and presupposes the existence of the
Section 50. The policy shall be in printed form which may
contract, which is rescinded.
contain blank spaces; and any word, phrase, clause, mark,
In non-life policy, in order that the insurer may rescind a contract
sign, symbol, signature, number, or word necessary to
of insurance, such right must be exercised prior to the
complete the contract of insurance shall be written on the
commencement of an action on the contract. In other words, the
blank spaces provided therein.
insurer is no longer entitled to rescind a contract of insurance after
Any rider, clause, warranty, or endorsement purporting
the insured has filed an action to collect the amount of the insurance.
to be part of the contract of insurance and which is pasted
In life policy, the defenses mentioned are available only during
or attached to said policy is not binding on the insured,
the first two years of a life insurance policy.
unless the descriptive title or name of the rider, clause,
warranty, or endorsement is also mentioned and written on
Incontestability of life policies
the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider,
Incontestable clauses, in life insurance policies, stipulating that clause, warranty, or endorsement issued after the original
the policy shall be incontestable after a stated period are in general policy shall be countersigned by the insured or owner,
use. They create a kind of contractual statute of limitations on certain which countersignature shall be taken as his agreement to
defenses that may be raised by the insurer. the contents of such rider, clause, warranty, or
Incontestability means that after the requisites are shown to exist, endorsement.
the insurer shall be estopped from contesting the policy or setting up Notwithstanding the foregoing, the policy may be in
any defense, except as is allowed, on the ground of public policy. electronic form subject to the pertinent provisions of
In order that the insurance shall be incontestable, the following Republic Act No. 8792, otherwise known as the “Electronic
requisites must be present: Commerce Act” and to such rules and regulations as may
1. The policy is a life insurance policy; be prescribed by the Commissioner.
2. It is payable on the death of the insured; and
3. It has been in force during the lifetime of the insured for
A policy of insurance is the written document embodying the
at least two years from its date of issue or of its last
terms and stipulations of the contract of insurance between the
reinstatement.
insured and the insurer.
The period of two years for contesting a life insurance policy by
The policy is signed only by the insurer or his duly authorized
the insurer may be shortened but it cannot be extended by
agent. It need not be signed by the insured except where express
stipulation.
warranties are contained in a separate instrument forming part of the
policy.
It is the policy which controls the terms of the insurance contract.
It constitutes the measure of the insurer’s liability. It is a contract of

“adhesion” – the insurer having superior bargaining power and Rider in a contract of insurance
imposes its choice of terms on the other party.
A rider is a small printed or typed stipulation contained on a slip
Form of contract of insurance of paper attached to the policy and forming an integral part of the
policy.
The policy must be in printed form. Anything necessary to Riders are usually attached to the policy because they constitute
complete the contract of insurance shall be written on the blank additional stipulations between the parties. It is considered as part of
spaces provided in the policy. In case of conflict between the written the contract. Riders are necessary to:
and printed portions of a policy, the written portion prevails. 1. Add a new provision to a policy, or
The policy may also be in electronic form. 2. To modify or waive an existing provision, or
3. To make any desired change in the policy.
Perfection of insurance contract When there is an inconsistency between a rider and the printed
stipulations in the policy, the rider prevails.
A contract of insurance must be assented to by the parties either
in person or by their agents. Attached papers on insurance policy
If an application for insurance by the person seeking insurance
has not been either accepted or rejected by the insurer, there is no As a general rule, a rider, slip or other paper becomes a part of
contract yet as it is merely an offer or proposal. The acceptance of an the contract or policy of insurance if properly and sufficiently
insurance policy must be unconditional but it need not be by formal attached or referred to therein in a manner as to leave no doubt as
act. to the intention of the parties in such respect.
The parties may impose additional conditions precedent to the No rider shall be attached to, printed or stamped upon a policy
validity of the policy as a contract as they see fit. The usual conditions of insurance unless the form of such rider has been approved by the
found in the application for insurance or in the policy are that the Insurance Commissioner.
contract shall not become binding until the policy is delivered and Any rider, clause, warranty, or endorsement purporting to be
the first premium paid. part of the contract of insurance and which is pasted or attached to
said policy is not binding on the insured unless the descriptive title
Importance of delivery of policy or name of the rider, etc. is also mentioned and written on the blank
spaces provided in the policy.
Delivery is the act of putting the insurance policy – the physical An endorsement is any provision added to an insurance contract
document – into the possession of the insured. The delivery of the altering its scope or application. A clause is an agreement between
policy is important in two ways: the insurer and the insured on certain matter relating to the liability
1. As evidence of the making of a contract and of its terms; of the insurer in case of loss. Warranties are inserted or attached to a
and policy to eliminate specific potential increases of hazard during the
2. As communication of the insurer’s acceptance of the policy term owing to actions of the insured or condition of the
insured’s offer. property.
However, the delivery of the policy is not a prerequisite to a valid
contract of insurance. The contract may be completed prior to Effect of lack of signature
delivery of the policy or even without the delivery of the policy
depending on the intention of the parties. As a general rule, where the rider, etc. is physically attached to a
If, however, the application contains a provision that the policy of insurance contemporaneously with its execution and
insurance shall not be effective until the delivery of the policy, delivery delivered to the insured so attached, and sufficient reference is made
is essential to the consummation of the contract. in the policy, the fact that it is without the signature of the insurer or
of the insured will not prevent its inclusion and construction as a part
Modes of delivery of policy of the insurance contract.
But the countersignature of the insured or owner is required to
There can be no contract of insurance unless the minds of the any rider, etc. not applied for by him if issued after the delivery of the
parties have met in agreement. However, actual manual transfer of policy, which countersignature shall be taken as his agreement to the
the policy is not a prerequisite to its validity unless the parties have contents of the matter so attached.
so agreed in clear language. Constructive delivery may be sufficient.
Is delivery to the agent of the insurance company delivery to the Section 51. A policy of insurance must specify:
insured? There are two views. One view holds that the beneficiary a. The parties between whom the contract is made;
cannot recover for the simple reason that the insurance agent is not b. The amount to be insured except in the cases of
his agent. The other view says that the beneficiary can recover on the open or running policies;
theory that the contract is to be deemed complete when the policy c. The premium, or if the insurance is of a character
has been delivered to the insurance agent. where the exact premium is only determinable upon the
termination of the contract, a statement of the basis and
Effect of delivery of policy rates upon which the final premium is to be determined;
d. The property or life insured;
Where there is conditional delivery of an insurance policy, non- e. The interest of the insured in property insured, if
performance of the condition precedent prevents the contract from he is not the absolute owner thereof;
taking effect. Thus, a stipulation that the policy shall not become f. The risks insured against; and
operative unless the applicant is in good health at the time of the g. The period during which the insurance is to
delivery is valid and binding. continue.
The unconditional delivery of an insurance policy
corresponding to the terms of the application ordinarily The inclusion of the above in insurance policies is deemed
consummates the contract, and the policy as delivered becomes the essential to enable the parties to determine easily the nature and
final contract between the parties. effect of the contract entered by them thereby avoiding lawsuits.
1. Names of the parties. The mere fact that the name of the
insured was incorrectly spelled is of no importance,
provided that the identity of the party can be sufficiently
established.

2. Amount of insurance. This is necessary in order to easily and risk, and its occurrence results in loss. It may be covered or excluded
exactly determine the amount of indemnity to be paid the by a policy of insurance. Examples are fires, flood, theft, etc.
insured in case of loss or damage especially if it is only Hazard is the condition or factor, tangible or intangible, which
partial and not total. The sum insured is a basis for may create or increase the chance of loss from a given peril. The sum
calculating the premium. The amount of insurance is the total of the hazards constitutes the perils which cause the risk.
maximum limit on the insurer’s liability for loss or damage
suffered by the insured. However, it need not be specified Requirements for risks to be insurable CANDI
in cases of open or running policies.
3. Premium. This is also essential considering that the Not all risks are insurable. A risk to be considered insurable must
premium represents the consideration of the contract, what substantially meet certain requirements.
the insured pays the insurer to assume the risk of or the 1. Importance. The loss to be insured against should be
value of loss. The rates of the premium are developed on important enough to warrant the existence of an
the basis of the nature and character of the risk assumed insurance contract.
and also on the value of the property or other interest 2. Calculability. The risk must permit a reasonable statistical
insured. The rate or amount increases as the risk of loss estimate of the chance of loss and possible variations
increases. from the estimate.
In life insurance, the premiums are based on the 3. Definiteness of loss. The losses should be fairly definite as
average life span at any given age, predicted from statistical to cause, time, place, and amount, for otherwise,
figures known as mortality tables. estimates of possible loss are difficult.
4. Property or life insured. This constitutes the subject matter 4. No catastrophic loss. When large numbers of people are
of the contract. subject to the same kind of losses at the same time, it is
5. Interest of insured in property. This requirement is especially an obvious deviation from the principle that the losses of
important in fire insurance policies to determine the actual the few are borne by the contributions of the many who
damage suffered by the insured in case of loss of the do not suffer loss.
property covered by the policy if he is not the absolute 5. Accidental nature. Insurable risks must also normally be
owner thereof. accidental in nature. Insurance is intended to cover
6. Risks insured against. This is necessary because the insurer fortuitous or unexpected losses. Intentional losses caused
has the obligation to indemnify the insured for loss, damage by the insured are usually uninsurable because they
or liability caused or created only by the risks insured cannot be reasonably predicted, and payment for them
against. Generally speaking, all foreseeable losses and risks would be against public policy.
may be insured against except those the insurance of which
would be repugnant to public policy. Almost any contingent Section 52. Cover notes may be issued to bind insurance
or unknown event, whether past or future, may be insured temporarily pending the issuance of the policy. Within sixty
against. (60) days after issue of a cover note, a policy shall be issued
7. Term or duration of insurance. The period during which the in lieu thereof, including within its terms the identical
insurance is to continue must also be stated because insurance bound under the cover note and the premium
although the loss suffered by the insured was caused by the therefor.
risk insured against, the insurer would not be liable unless Cover notes may be extended or renewed beyond such
it occurred during such duration of the insurance. sixty (60) days with the written approval of the
The period of time during which the insurer assumes Commissioner if he determines that such extension is not
the risk of loss is known as the life of the policy. Policies contrary to and is not for the purpose of violating any
issued for a term of 12 months are known as annual policies provisions of this Code. The Commissioner may promulgate
while those for a less period are known as short period rules and regulations governing such extensions for the
policies. purpose of preventing such violations and may by such
rules and regulations dispense with the requirement of
Kinds of insurable risks written approval by him in the case of extension in
compliance with such rules and regulations.
1. Personal risks. They are those involving the person. This is
chiefly concerned with the time of death or disability. Cover notes or binders are short-term insurance policies that may
Personal risks are often divided into life and health risks. be issued to afford immediate provisional protection to the insured
2. Property risks. They are those involving loss or damage to until the insurer can inspect or evaluate the risk in question and issue
property. This risk arises from the destruction of property. the proper policy or until the risk is declined and notice thereof given.
Property risks are divided into direct losses (fire, lightning, These are issued to bind insurance temporarily, pending the
flood, etc.) and indirect losses (loss of profits, rents, or issuance of the policy.
favorable leases). There are two kinds of preliminary contract of insurance:
3. Liability risks. They are those involving liability for the injury 1. Preliminary contract of present insurance. The insurer
to the person or property to others. This is occasioned by insures the subject matter usually by what is known as
the operation of the law of liability (tort) and may the “binding slip” or “binder” or “cover note”, the
sometimes be called third party risks. In this case, a third contract to be effective until the formal policy is issued or
party is paid for injuries for which the insured is legally the risk rejected. The binder is actually a temporary
liable. This liability risk includes both bodily injury and contract of insurance and is usually issued after the
property damage risks. applicant pays the first premium.
2. Preliminary executory contract of insurance. The insurer
Risk, peril, and hazards makes a contract to insure the subject matter at some
subsequent time which may be definite or indefinite. The
Risk is the chance of loss, or the possibility of the occurrence of right acquired by the insured is merely to demand the
a loss, based on known and unknown factors. If a loss is absolutely delivery of a policy in accordance with the terms agreed
certain to happen or not to happen, no risk is involved. upon and the obligation assumed by the insurer is to
Peril is the contingent or unknown event which may cause a loss. deliver such policy.
It is a contingency that one insures against. Its existence creates the

Section 53. The insurance proceeds shall be applied Section 59. A policy is either open, valued or running.
exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise Section 60. An open policy is one in which the value of the
specified in the policy. thing insured is not agreed upon, and the amount of the
insurance merely represents the insurer’s maximum
Insurance is a personal contract between the insured and the liability. The value of such thing insured shall be
insurer. ascertained at the time of the loss.
As against the insured, third persons have no right to the
proceeds of the policy unless there be some contract of trust, express Section 61. A valued policy is one which expresses on its
of implied, between the insured and third persons. face an agreement that the thing insured shall be valued at
As against the insurer, a third person, in the absence of any a specific sum.
provision in the policy, has also no right to the proceeds thereof. A
policy of insurance is a distinct and independent contract between Section 62. A running policy is one which contemplates
the insured and the insurer. Only the insured, if still alive, or the successive insurances, and which provides that the object
beneficiary, if the insured is already deceased, is entitled to claim the of the policy may be from time to time defined, especially
insurance proceeds upon the maturation of the policy. as to the subjects of insurance, by additional statements or
indorsements.
Section 54. When an insurance contract is executed with an
agent or trustee as the insured, the fact that his principal or Kinds of policies
beneficiary is the real party in interest may be indicated by
describing the insured as agent or trustee, or by other 1. Open or unvalued policy. It does not predetermine the value
general words in the policy. of the insured property but established a maximum amount
the insurer will pay in case of a total loss of the property
An insurance may be taken by a person personally or through insured. It is one in which a certain agreed sum is written
his agent or trustee. When the insurance is to be applied exclusively on the face of the policy not as the value of the property
to the interest of the person in whose name or for whose benefit it is insured, but as the maximum limit of the insurer’s liability,
made, the agent or trustee when making an insurance contract for or in case of destruction by the peril insured against. The
on behalf of his principal should indicate that he is merely acting in insured must establish the fair market value of the insured
a representative capacity by signing as such agent or trustee, or by property at the time of the loss. If the FMV exceeds the
other general terms in the policy. maximum, the latter will control; if below, the former will
control. Whichever is lower
Section 55. To render an insurance effected by one partner 2. Valued policy. The value of the insured property is
or part-owner, applicable to the interest of his co-partners predetermined and the value is the amount to be used in
or other part-owners, it is necessary that the terms of the case of a total loss. Therefore, it is one in which the insured
policy should be such as are applicable to the joint or and insurer expressly agree in advance on the value of the
common interest. subject matter of the insurance. Thus, there are two values
– the face value of the policy and the value of the thing
insured.
Insurable interest in the property of a partnership exists in both
3. Running policy. This kind of policy is intended to provide
the partnership and the partners. A partner has an insurable interest
indemnity for property which cannot well be covered by a
in the firm property which will support a policy taken out thereon for
valued policy because of its frequent change of location and
his own benefit. But a partner who insures partnership property in
quantity, or for property of such a nature as not to admit of
his own name limits the contract to his individual share unless the
a gross valuation. This policy is one covering by a single
terms of the policy clearly show that the insurance was meant to
amount of insurance the same kind of property at different
cover also the shares of the other partners.
locations or different kinds of property at a single location.
Section 56. When the description of the insured in a policy Advantages of running policy
is so general that it may comprehend any person or any
class of persons, only he who can show that it was intended
1. He is neither underinsured nor overinsured at any time, the
to include him, can claim the benefit of the policy.
premium being based on the monthly values reported;
2. He avoids cancellations that would otherwise be necessary
Section 57. A policy may be so framed that it will inure to
to keep insurance adjusted to value at each location, and
the benefit of whomsoever, during the continuance of the
for which cancellations he would be charged the expensive
risk, may become the owner of the interest insured.
short rate;
3. He is saved the trouble of watching his insurance and the
The insurance policy must specify the parties between whom the danger of being underinsured in spite of his care, through
contract is made. However, it is not essential that the name of the oversight or mistake; and
person insured be inserted in the policy as he may be described in 4. The rate is adjusted to 100% insurance, whereas valued
other ways. In any case, in order that the insurance may be applied policies requiring insurance only to, say 80% of the value,
to the person claiming the benefit of the policy, he must show that he give either a small or no reduction for amounts of insurance
is the person named or described or that he belongs to the class of above this figure.
persons comprehended in the policy.
Section 63. A condition, stipulation, or agreement in any
Section 58. The mere transfer of a thing insured does not policy of insurance, limiting the time for commencing an
transfer the policy, but suspends it until the same person action thereunder to a period of less than one (1) year from
becomes the owner of both the policy and the thing insured. the time when the cause of action accrues, is void.
Since a contract of insurance is a personal contract, it does not General rule. A clause in an insurance policy to the effect that an
attach to or run with the property insured. action upon the policy by the insured must be brought within a
The exceptions to this rule are Sections 20-24, and 57. certain period is valid and will prevail over the general law on
limitations of actions if not contrary to Section 63.
At least one year


If the period fixed is less than one year from the time the cause 3. It must be in writing, mailed or delivered to the named
of action accrues, the stipulation would be void. insured at the address shown in the policy, or to his
authorized broker; and
Nature of condition limiting period for filing claim 4. It must state which of the grounds set forth is relied upon.
The condition in an insurance policy that claims must be It is the duty of the insurer upon written request of the name
presented within a certain period after rejection is not merely a insured to furnish the facts on which the cancellation is based. The
procedural requirement. It is in the nature of a condition precedent premium referred to in Section 64(a) must be a premium subsequent
to the liability of the insurer, or a resolutory cause, the purpose of to the first.
which is to terminate all liabilities in case the action is not filed by the
insured within the period stipulated. This is for the prompt settlement Prior notice of cancellation to insured
of claims.
The purpose of provisions in insurance policies for notice to the
When cause of action accrues insured, is to allow the insured ample opportunity to negotiate for
other insurance in its stead for his own protection.
The right of the insured to the payment of his loss accrues form The notice should be personal to the insured and not to and/or
the happening of the loss. However, the cause of action in an through any unauthorized person by the policy.
insurance contract does not accrue until the insured’s claim is finally The notice need not be delivered personally to the insured. It
rejected by the insurer. This is because before such final rejection, may be mailed.
there is no real necessity for bringing suit.
Section 66. In case of insurance other than life, unless the
Section 64. No policy of insurance other than life shall be insurer at least forty-five (45) days in advance of the end of
cancelled by the insurer except upon prior notice thereof to the policy period mails or delivers to the named insured at
the insured, and no notice of cancellation shall be effective the address shown in the policy notice of its intention not
unless it is based on the occurrence, after the effective date to renew the policy or to condition its renewal upon
of the policy, of one or more of the following: reduction of limits or elimination of coverages, the named
a. Nonpayment of premium; insured shall be entitled to renew the policy upon payment
b. Conviction of a crime arising out of acts increasing of the premium due on the effective date of the renewal.
the hazard insured against; Any policy written for a term of less than one (1) year shall
c. Discovery of fraud or material misrepresentation; be considered as if written for a term of one (1) year. Any
d. Discovery of willful or reckless acts or omissions policy written for a term longer than one (1) year or any
increasing the hazard insured against; policy with no fixed expiration date shall be considered as
e. Physical changes in the property insured which if written for successive policy periods or terms of one (1)
result in the property becoming uninsurable; year.
f. Discovery of other insurance coverage that makes
the total insurance in excess of the value of the property As a general rule, a renewal of insurance by the payment of a
insured; or new premium and the issuance of a receipt therefor where there is
g. A determination by the Commissioner that the no provision in the policy for its renewal, is a new contract on the
continuation of the policy would violate or would place the same terms as the old one. But where the renewal is in pursuance of
insurer in violation of this Code. a provision to that effect, it is not a new contract but an extension of
the old one.
Section 65. All notices of cancellation mentioned in the In case of insurance other than life, the named insured is given
preceding section shall be in writing, mailed or delivered to the right to renew upon the same terms and conditions the original
the named insured at the address shown in the policy, or to policy upon payment of the premium due on the effective date of the
his broker provided the broker is authorized in writing by renewal unless the insurer at least 45 days in advance of the end of
the policy owner to receive the notice of cancellation on his the period mails or delivers to the insured notice of its intention not
behalf, and shall state: to renew the policy or to condition its renewal upon reduction of its
a. Which of the grounds set forth in Section 64 is amount or elimination of some coverages.
relied upon; and Unless the insurer complies with the requirements of Sections
b. That, upon written request of the named insured, 65 and 66, he has to renew the policy whether he likes it or not.
the insurer will furnish the facts on which the cancellation
is based.
Cancellation is regarded as the right to rescind, abandon, or ⚡⚡⚡

cancel a contract of insurance. It is the termination by either the
insurer or the insured of a policy of insurance before its expiration.
The insured can cancel an insurance contract at his election by
surrendering the policy. Such surrender, however, entitles him to the
return of the premiums on the customary short-rate basis. The right
of the insurer to cancellation of a policy of insurance other than life
is covered by Sections 64 and 65.
Form and sufficiency of notice

or cancellation by the insurer
1. There must be prior notice of cancellation to the insured;

2. The notice must be based on the occurrence, after the
effective date of the policy, of one or more of the grounds
mentioned in Section 64;

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INSURANCE CODE OF 2013

Based on the book of De Leon // First Exam Reviewer 1

1. Limiting the probability of loss (i.e., building a concrete xxx

Lottery extends to all schemes for the distribution of prizes by

Designation of beneficiary Anyone has an insurable interest in property who derives a

Section 46. The materiality of a representation is

At least one year

Cancellation is regarded as the right to rescind, abandon, or ⚡⚡⚡

Form and sufficiency of notice

1. There must be prior notice of cancellation to the insured;

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