Regidor, Maristela Alfafara (JD-IV) modern writers use “assurance” instead of “insurance” to

describe the life insurance business, the former referring to an

III. INSURANCE LAW
event like death, which must happen, and the latter, to a
Insurance Code of the Philippines (Presidential Decree No. contingent, event which may or may not occur.
612, as amended by R.A. No. 10607)
As used in the Code, the term “insurance” covers “assurance”
Take Note:
1. Elements of an Insurance Contract
The law on insurance is contained now in the Insurance Code
In determining the existence of a contract of insurance,
(Presidential Decree 612, as amended by Republic Act No.
it is important to consider the following:
10607). Matters involving insurance not expressly provided
for in the Code, shall be governed by the pertinent provisions  SUBJECT MATTER OF THE CONTACT- It
of the Civil Code and special laws on insurance. refers to the thing insured. In fire insurance and
in marine insurance, the thing insured is
In other words, insurance governed primarily by the Insurance
property; in life, health, or accident insurance, it
Code and suppletory, by other laws insofar only as they are
is the life or health of the person that it is the
applicable, either because they are not inconsistent with the
subject of the contact in liability insurance, it is
Insurance Code, or are especially made applicable by special
the insured’s risk of loss or liability;
law.
A. Basic Concepts  CONSIREDERATION FOR THE
CONTRACT- The consideration for an
SECTION 2. Whenever used in this Code, the following terms insurance contract is the PREMIUM paid by the
shall have the respective meanings hereinafter set forth or insured. (Section 77). Its amount is principally
indicated, unless the context otherwise requires: based on the probability of loss and extent of the
(a) A contract of insurance is an agreement whereby one liability which the insurer may incur the under
undertakes for a consideration to indemnify another the contract; and
against loss, damage or liability arising from an
unknown or contingent event.  OBJECT OR PURPOSE OF THE
CONTRACT- The objective of insurance is the
Note: Section 2 (a) contains the statutory definition of transfer of risk of loss or damage or liability
insurance. The term “assurance” is also used instead of from the insured to the insurer through the
“insurance” although the former is seldom employed. Many
 payment of premium by the former to the latter parties or both reciprocally bind themselves to give
under a legally binding contract. or to do something in consideration of what the
other shall give or to do upon the happening of an
event which is uncertain, or which is to occur at an
indeterminate time.
2. Characteristics/Nature of Insurance Contracts
Broadly speaking, a contract of insurance has the
following characteristics:
(1) It is consensual because it is perfected by the (4) It is executed as to the insured after the payment of
meeting of the minds of the parties (see Article the premium, and executory on the part of the
1319, Civil Code) or their consent or conformity to insurer in the sense that it is not executed until
the contract. So, if application for insurance has not payment for a loss. In other words, it is a unilateral
been either accepted or rejected, there is no contract contract imposing legal duties, only on the insurer
as yet (Section 49-50 of the Insurance Code). who promises to indemnify in case of loss.

(2) It is voluntary in the sense that it is not compulsory (5) It is conditional because it is subject to conditions
and the parties may incorporate such terms and the principal one of which the happening of the
conditions as they may deem convenient (See event insured against. In addition to this main
Article 1306 Civil Code.) which will be binding condition, the contact usually includes many other
(Article 1308 Civil Code) provided they do not conditions (such as payment of premium or
contravene any provisions of law and are not performance of some other act) which must be
opposed to public policy (Article 1306 Civil Code). complied with as precedent to the right of the
It is governed by the rules which govern other insured to claim benefit under it.
contracts.
(6) It is a contract of indemnity (except life and
(3) It is aleatory in the sense that it depends upon some accident insurance where the result is death)
contingent event. But it is not a contract of chance because the promise of the insurer is to make good
(Section 4). Although the event against the only the loss of the insured. Any contract that
occurrence of which it is intended to provide may contemplates a possible gain to the insured by the
never occur. By an aleatory contract, one of the happening of the event upon which the liability of
 the insurer becomes fixed is contrary to the proper  Insured possess an interest of some kind
nature of insurance. Hence, no person may secure of pecuniary estimation, known as
insurance upon property n which he has no interest. insurable interest;
 The insured is subject to a risk of loss
(7) It is personal contract, each party having in view through the destruction or impairment of
the character, credit and conduct of the other. that interest by the happening of
Consequently, the obligation of the insurer to pay designated perils;
does not attach to or rim with the property whether  The insurer assumes that risk of loss;
it be real property or personal. It follows that if  Such assumption is part of a general
person whose property is insured sells it to another, scheme to distribute actual bosses among
the buyer cannot be his successor in the contract of a large group of persons bearing
insurance unless, of course, the sale is with the somewhat similar risks; and
consent of the insurer or unless by express  As consideration for the insurer’s
stipulations of the parties, the contract is made to promise, the insured makes a ratable
run with the property to transferee. Thus, where the contribution called a premium, to a
insurance is “on account of the owner,” or “for general insurance fund.
whom it may concern” or where “the loss is
payable to bearer.” The subsequent transferees or (2) All the elements must be present, otherwise,
owners become by the terms of the contract, the real there can be no contract of insurance, and even
parties to the contract of insurance. if the contract contains all the elements, it is not
an insurance contract within the context of the
ELEMENTS OF THE CONTRACT OF Insurance Code if the primary purpose of the
INSURANCE: parties is the rendering of service and not the
indemnification of a party for loss, damage, or
(1) The contract of insurance made between parties liability incurred by the latter.
usually called the insured and the insurer, is
PARTIES TO THE CONTRACT:
distinguished by the presence of five (5)
elements, namely: SECTION 6. Every corporation, partnership, or
association, duly authorized to transact insurance business
as elsewhere provided in this Code, may be an insurer.
 SECTION 7. Anyone except a public enemy may be will be best promote interest of the people of this
insured. country” (SECTION 193, Insurance Code)
The two parties to a contract of insurance are:
(2) CORPORATION, PARTNERSHIP, OR
(1) The INSURER or party who assumes the risk and ASSOCIATION- Under the Code, the business of
undertakes for a consideration to indemnify the insured insurance may be carried now only by corporations,
or to pay a certain sum on the happening of a specified partnerships, and associations. An individual may not
contingency or event. be an insurer. (SECTION 6, Insurance Code)

Under the Code, the business of insurance may be Any corporation, partnership, or association of persons
carried on by individuals just as much as by may be given a certificate of authority if such
corporations and associations. However, in view of the corporation, partnership, or association is “possessed of
complexity of the business and the big capital involved, the capital assets required of an insurance corporation
today the business of insurance is conducted almost doing the same kind of business in the Philippines and
exclusively by corporations or associations; and invested in the same manner.” (SECTIONS 190-192).
(2) The INSURED or the second party to the contract, the
person in whose favor the contract is issued and who is
indemnified against, or is to received a certain sum CAPACITY OF PARTY INSURED.
upon the happening of a specified contingency or event.
(1) Natural person. – In order that a person may be the
party insured in a contract of insurance, two
WHO MAY BE AN INSURER. essential requisites are necessary, to wit:

(a) He must be competent to make a contract; and

(1) FOREIGN OR DOMESTIC OR CORPRATION-
Before a foreign corporation or domestic insurance (b) He must possess an insurable interest om the
company or corporation may transact insurance subject of insurance.
business n the Philippines, it must first obtain a
certificate of authority for that purpose from the A third requisite applicable also to juridical persons, may
Insurance Commissioner who may refuse to issue such be added that an insured must not be a public enemy.
certificate of authority, if, in his judgment “such refusal
Take Note: Section 3 specifically authorizes minors 18 years subjects or to do anything detrimental to their country’s
or more to take out insurance payable to a limited class of interests.
beneficiaries.
Of course, if the parties are not rendered enemy aliens
(2) Juridical person- A juridical person, like a by the intervention of war, and policy continues to be
partnership or a corporation may take out insurance enforceable according to its terms and the laws governing
on property owned by it. (See Articles 44, 45, New insurance and the general rules regarding contracts.
Civil Code)
3. Classes of Insurance:
WHO IS A PUBLIC ENEMY.
 Marine Insurance
A public enemy designates a nation whom the
Philippines is at war and it includes every citizen or subject of Traditionally, marine insurance includes policies that
such nation. The term may be taken to mean “ALIEN covers risks connected with navigation, to which a ship, cargo,
ENEMY”. freightage, profits or other insurable interest in movable
property, may be exposed during a certain voyage or a fixed
During wartime, a private corporation is deemed an
period of time. However, under the present laws, it covers
enemy corporation although organized under Philippine laws if
inland marine insurance, (Sec. 101, ICP)
they are controlled by enemy aliens. This is the so called
“control test” whereby a corporation is deemed to have the Section 101. Marine Insurance includes:
same citizenship as the controlling stockholders om the time of
(a) Insurance against loss of or damage to:
war.
(1) Vessel, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
EFFECT OF WAR ON EXISTING INSURANCE
disbursement, profits, moneys, securities,
CONTRACTS.
choses in action, instruments of debts,
By the law of nations, all intercourse between citizens valuable papers, bottomry, and respondentia
of belligerent powers which is inconsistent whit a state of war interests and all other kinds of property and
is prohibited. The purpose of war is to cripple the power and interests therein, in respect to, appertaining
exhaust the resources of the enemy. It is inconsistent that the to or in connection with any and all risks or
subjects of one country should lend their assistance to protect perils of navigation, transit or transportation,
by insurance the commerce or property of belligerent alien or while being assembled, packed, crated,
 baled, compressed or similarly prepared for and other aids to navigation and
shipment or while awaiting shipment, or transportation, including dry docks and
during any delays, storage, transshipment, or marine railways, dams and appurtenant
reshipment incident thereto, including war facilities for the control of waterways.
risks, marine builder’s risks , and all
personal property floater risks; (b) Marine protection and indemnity insurance,
meaning insurance against, or against legal
(2) Person or property in connection with or liability of the insured for loss, damage, or
appertaining to a maritime, inland marine, expense incident to ownership, operation,
transit or transportation insurance, including chartering, maintenance, use, repair, or
liability for loss of or damage arising out of in construction of any vessel, craft or
connection with the construction, repair, instrumentality in use of ocean or inland
operation, maintenance or use of the subject waterways, including liability of the insured for
matter of such insurance (but not including personal injury, illness or death or for loss of or
life insurance or surety bonds nor insurance damage to the property or another person.
against loss by reason of bodily injury to any
person arising out of ownership,  Transpiration Insurance is a kind of property insurance
maintenance, or use of automobiles); which is concerned with the perils the perils property in
(or incidental to) transit as opposed to property perils at a
(3) Precious stones, jewels, jewelry, precious generally fixed location.
metals, whether in course of transportation
It is usually known in insurance business as
or otherwise; and
MARINE INSURANCE. It does not include the
normal motor vehicle insurance which is treated
separately by the law.

(4) Bridges, tunnels and other instrumentalities

MAJOR DIVISIONS OF MARINE INSURANCE.
of transportation and communication
(excluding buildings, their furniture and They are as follows:
furnishings, fixed contents and supplies held
in storage); piers, wharves, docks and slips,
(1) Ocean Marine Insurance- it covers primarily sea PERILS OF THE SEA. - The phrase perils of the sea or perils
perils of ships and cargoes; and of navigation includes only those casualties due to the unusual
(2) Inland Marine Insurance- It covers primarily the land violence pr extraordinary action of wind and wave, or to other
or over the land (but sometimes water) transportation extraordinary causes connected with navigation.
perils of property shipped by the railroads, motor
Thus, perils of the sea embrace all kinds of marine casualty
trucks, airplanes, and other means of transportation.
such as shipwreck, foundering, stranding, collision, and every
specie of damage done to the ship or goods at sea by the violent
CLASSES OF INLAND MARINE INSURANCE.
action of the wind and waves or losses occasioned by the
jettisoning of cargo if it is made for voyage, not through the
There are basically four (4) policies, namely:
fault of the captain.
(1) Property in transit- It provides protection to Perils of the sea vs. Perils of the Ship
property frequently exposed to loss while it is in
transportation from one location to another; a. Perils of the sea or perils of navigation include only those
casualties due to unusual violence or extraordinary causes
(2) Bailee Liability- It provides protection to persons connected with navigation. It has been said to include only
who have temporary custody of goods or personal such losses as are of extraordinary nature or arises from some
property of others, like the possession of a common overwhelming power which cannot be guarded against by the
carrier; ordinary exertion of human skill or prudence, as distinguished
from the ordinary wear and tear of the voyage and from the
(3) Fixed transportation property- It provides injuries suffered by the vessel in consequence of her not being
protection to fixed property considered aids to unseaworthy.
movement of property, like bridges and tunnels; and b. Perils of the ship is a loss which in the ordinary course of
events, result:
(4) Floater- It provides protection to personal property
(such as precious stones, jewelry, works of arts, 1. From the ordinary, natural, and inevitable action of the sea;
etc.) wherever it may be located subject always to 2. From ordinary wear and tear of the ship; and
territorial limits of the contract.
3. From the negligent failure of the ship’s owner to provide the
vessel with the proper equipment to convey the cargo under
ordinary condition.
 unworthy during the voyage, not through the fault
of the captain.
SCOPE OF MARINE INSURANCE: (LEGS)
1. Liability (known as “protection and indemnity 2. It extends to barratry in Insurance law which is
insurance) incurred by the owner or any party interested any willful misconduct on the part of the master or
in or responsible for the insured property by reason of crew in pursuance of some unlawful or fraudulent
maritime perils. purpose without the consent of the owners, and to
the prejudice of the owner’s interest.” Barratry
2. Earnings such as freight, passage money, requires a willful and intentional act in its
commissions, or profits commission judgement or mere negligence, unless
3. Goods or cargoes criminally gross, can be barratry.

4. Ships or hull
Perils not covered:
RISKS OR LOSSES COVERED IN OCEAN MARINE
INSURANCE
1. It does not include losses resulting from
GR: Under a marine insurance policy, all risks or losses may ordinary wear and tear and other damage usually
be insured against. incident to the voyage.

EXC: such as are repugnant to public policy or positively SECTION 102. The owner of a ship has in all cases
prohibited. an insurable interest in it, even when it has been
chartered by one who covenants to pay him its
value in case of loss; Provided, that in this case the
Perils covered: insurer shall be liable for only that part of the loss
which the insured cannot recover from the
charterer.
1. It embraces all kinds of marine casualty such as
shipwreck, foundering, stranding collision, and
Insurable Interest of insured in Marine Insurance
every specie of damage done to the ship or goods
at sea by the violent action of the wind and waves
As a general rule, all insurance are valid only if
or losses occasioned by the jettisoning of cargo if it
supported by an insurable interest in the thing insured.
is made for the purpose of saving a vessel rendered
An exception to the general rule is when a marine Sources:
insurance is taken. Here, the insurer binds himself to
the contract even though the insured had nothing to a. the chartering of the ship
insure when the contract was made. b. its employment for the carriage of his own goods
c. its employment for the carriage of the goods of
SECTION 103. The insurable interest of the owner others
of the ship hypothecated by bottomry is only the
excess of its value over the amount secured by
bottomry. CONCEALMENT IN MARINE INSURANCE

Loan on Bottomry SECTION 109. In marine insurance each party is

bound to communicate, an addition to what is
One which is payable only if the vessel completes in required by section twenty-seven, all the
safety the contemplated voyage. The lender is entitled information which he possesses, material to the risk,
for a high rate of interest to compensate the risk except such as is mentioned in section twenty-nine,
assumed and the owner of the vessel receives no and to state the exact and whole truth in relation to
indemnity from his loss but secures immunity from all matters that he represents, or upon inquiry
payment of loan. discloses or assumes to disclose.

SECTION 104. Freightage, in the sense of a policy SECTION 110. In marine insurance, information of
of marine insurance, signifies all the benefits the belief or expectation of a third person, in
derived by the owner, either from the chartering of reference to a material fact, is material.
the ship or its employment for the carriage of his
own goods or those of others. SECTION 111. A person insured by a contract of
marine insurance is presumed to have had
Freightage, defined knowledge, at the time of insuring, of a prior loss, of
the information might possibly have reached him in
It is the benefit which is to accrue to the owner of the vessel the usual mode of transmission, and at the usual
from its use in the voyage contemplated of the benefit rate of communication.
derived from the employment of the ship.
SECTION 112. A concealment in a marine SECTION 115. The eventual falsity of a
insurance, in respect to any of the following representation as to expectation does not, in the
matters, does not vitiate the entire contract, but absence of fraud, avoid a contract of insurance.
merely exonerates the insurer from a loss resulting
from the risk concealed. (a) The national character Effect of false representation by insured (Sec 113,
of the insured; ICP)
(b) The liability of the thing insured to capture and
detention;  Any misrepresentation of a material fact made with
(c) The liability to seizure from breach of foreign fraudulent intent avoids policy.
laws of trade;
 If the misrepresentation is not intentional or fraudulent
(d) The want of necessary documents; and but the fact misrepresented is material to the risk, the
(e) The use of false and simulated papers. insurer may also rescind the contract from the time the
representation becomes false. Section 111 qualifies the
Concealment in Marine Insurance is the failure to general provision in Section 45 under which the injured
disclose any material fact or circumstance which in fact party may rescind the contract only “from the time when
or law is within, or which ought to be within the the representation becomes false” although the
knowledge of one party and of which the other has no representation is intentionally false.
actual or presumptive knowledge.
Materiality of representations (Sec. 113, ICP)
REPRESENTATION
 Representations as to the age, equipment,
SECTION 114. If a representation, by a person earnings and particular condition or rating of a
insured by a contract of marine insurance, is vessel: that she is to be repaired at a certain
intentionally false in any material respect, or in place; that she has arrived at her port of
respect of any fact on which the character and destination, or was at a certain place at a certain
nature of the risk depends the insurer may rescind time; that other underwriter had insured her at a
the entire contract. certain rate; or as to anything which concerns
the state of the vessel at any particular period of
her voyage, have been held to be material.
  But statements of the nature and the amount of of marine insurance, a warranty is implied that the ship is
the cargo, where she was not overloaded or seaworthy.
where the underwriter did not rely thereon,
SECTION 116. A ship is seaworthy, when reasonably fit to
have been held to be immaterial.
perform the services, and to encounter the ordinary perils
of the voyage, contemplated by the parties to the policy.
Effect of falsity of representation as to
expectation (Sec 114, ICP) ‘ SECTION 117. An implied warranty of seaworthiness is
complied with if the ship be seaworthy at the time of the
 Representations of expectation or intention are commencement of the risk except in the following
to be carefully distinguished from promissory
representations. The former are statements of (a) When the insurance is made for a specified length of
future acts or events which are in their nature time, the implied warranty is not complied with unless
contingent and which the insurer is bound to the ship be seaworthy at the commencement of every
know that the insured could not have intended voyage she may undertake during that time; and
to state known facts, but as intentions or
expectations merely. Hence, unless made with
fraudulent intent, their failure of fulfillment is (b) When the insurance is upon the cargo, which, by the
not a ground for recession. terms of the policy, or the description of the voyage, or
the established custom of the trade, is to be
 This rule applies to statements of the time of transshipped at an intermediate port, the implied
the vessel will sail or is expected to sail, the warranty is not complied with, unless each vessel upon
nature of the cargo to be shipped, the number which the cargo is shipped, or transshipped, be
of profits to be expected, the destination of the seaworthy at the commencement of its particular
vessel or that the insured has no doubt that he voyage.
can get insurance effected for a certain VOYAGE AND DEVIATION
premium
SECTION 123. When the voyage contemplated by a policy
is described by the places of beginning and ending, the
IMPLIED WARRANTIES voyage insured is one which conforms to the course of
SECTION 115. In every marine insurance upon a ship or sailing fixed by mercantile usage between those places.
freight, or freightage, or upon anything which is the subject
SECTION 124. If the course of sailing is not fixed by SECTION 130. Every loss which is not total is partial.
mercantile usage, the voyage insured by a policy is the way
SECTION 131. A total loss may be either actual or
between the places specified which, to a master of ordinary
constructive.
skill and discretion, would seem the most natural, direct,
and advantageous. SECTION 132. An actual total loss is caused by (a) A total
destruction of the thing insured; (b) The loss of the thing by
SECTION 125. Deviation is a departure from the course of
sinking, or by being broken up; (c) Any damage to the thing
the voyage insured, mentioned in the last two sections, or an
which renders it valueless to the owner for the purposes for
unreasonable delay in pursuing the voyage, or the
which he held it; or (d) Any other event which entirely
commencement of an entirely different voyage.
deprives the owner of the possession, at the port of
SECTION 126. A deviation is proper: destination, of the thing insured.
(a) When caused by circumstances over which neither the ABONDONMENT
master nor the owner of the ship has any control;
SECTION 140. Abandonment, in marine insurance, is the
(b) When necessary to comply with a warranty, or to avoid act of the insured by which, after a constructive total loss,
a peril whether insured against or not; he declares the relinquishment to the insurer of his interest
in the thing insured.
(c) When made in good faith, and upon reasonable grounds
of belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving SECTION 141. A person insured by a contract of marine
human life, or relieving another vessel in distress. insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy
SECTION 127. Every deviation not specified in the last
or otherwise separately insured, and recover for a total loss
section is improper.
thereof.
SECTION 128. An insurer is not liable for any loss
SECTION 142. Abandonment is nether partial nor
happening to a thing insured subsequently to an improper
conditional
deviation.
SECTION 143. Must be made within a reasonable time
LOSS
after receipt of reliable information of the loss
SECTION 129. Loss may be either total or partial.
SECTION 144. Where information proves to be incorrect RULES REGARDING ACCEPTANCE BY INSURER.
or the thing insured was so far restored when the
SECTION 151. Where notice of abandonment is properly
abandonment was made that there was in fact no total loss,
given, the rights of the insured are not prejudiced by the
the abandonment becomes ineffectual.
fact that the insurer refuses to accept the abandonment
SECTION 145. Notice to insurer either orally or in writing
SECTION 152. The acceptance of an abandonment may be
No form is specified but if done orally, the insured must
either express or implied from the conduct of the insurer.
submit written notice of abandonment to insurer within 7
The mere silence of the insurer for an unreasonable length
days from such notice.
of time after notice shall be construed as an acceptance.
SECTION 146. Notice must be explicit and specify the
SECTION 153. The acceptance of an abandonment,
particular cause of abandonment.
whether express or implied, is conclusive upon the parties,
SECTION 147. If insured assigns an insufficient cause or and admits the loss and the sufficiency of the abandonment.
causes which in fact do not exist, proof of other causes will
SECTION 154. An abandonment once made and accepted
not be admitted in suing for total loss.
is irrevocable, unless the ground upon which it was made
EFFECTS OF ABANDONMENT proves to be unfounded.
SECTION 148. An abandonment is equivalent to a transfer SECTION 155. On an accepted abandonment of a ship,
by the insured of his interest to the insurer, with all the freightage earned previous to the loss belongs to the insurer
chances of recovery and indemnity of said freightage; but freightage subsequently earned
belongs to the insurer of the ship.

SECTION 149. If a marine insurer pays for a loss as if it

were an actual total loss, he is entitled to whatever may SECTION 156. If an insurer refuses to accept a valid
remain of the thing insured, or its proceeds or salvage, as if abandonment, he is liable as upon an actual total loss,
there had been a formal abandonment. deducting from the amount any proceeds of the thing
insured which may have come to the hands of the insured.
SECTION 150. Upon an abandonment, acts done in good
faith by those who were agents of the insured in respect to
the thing insured, subsequent to the loss, are at the risk of  Fire
the insurer, and for his benefit
SECTION 169. As used in this Code, the term fire commencement of the fire to replace the thing lost or
insurance shall include insurance against loss by fire, injured in the condition in which it was at the time of the
lightning, windstorm, tornado or earthquake and other injury; but if there is a valuation in a policy of fire
allied risks, when such risks are covered by extension to fire insurance, the effect shall be the same as in a policy of
insurance policies or under separate policies. marine insurance.

Take Note: A fire insurance is a contract of indemnity SECTION 174. Whenever the insured desires to have a
by which the insurer, for a stipulated premium, agrees to valuation named in his policy, insuring any building or
indemnify the insured against loss of, or damage to, a structure against fire, he may require such building or
property caused by hostile fire located at the place structure to be examined by an independent appraiser and
stated in the policy. the value of the insured’s interest therein may then be fixed
as between the insurer and the insured. The cost of such
SECTION 170. An alteration in the use or condition of a examination shall be paid for by the insured. A clause shall
thing insured from that to which it is limited by the policy be inserted in such policy stating substantially that the
made without the consent of the insurer, by means within value of the insured’s interest in such building or structure
the control of the insured, and increasing the risks, entitles has been thus fixed. In the absence of any change
an insurer to rescind a contract of fire insurance. increasing the risk without the consent of the insurer or of
fraud on the part of the insured, then in case of a total loss
SECTION 171. An alteration in the use or condition of a under such policy, the whole amount so insured upon the
thing insured from that to which it is limited by the policy, insured’s interest in such building or structure, as stated in
which does not increase the risk, does not affect a contract the policy upon which the insurers have received a
of fire insurance. premium, shall be paid, and in case of a partial loss the full
amount of the partial loss shall be so paid, and in case there
are two (2) or more policies covering the insured’s interest
therein, each policy shall contribute pro rata to the payment
SECTION 172. A contract of fire insurance is not affected of such whole or partial loss.
by any act of the insured subsequent to the execution of the
policy, which does not violate its provisions, even though it But in no case shall the insurer be required to pay more
increases the risk and is the cause of the loss. than the amount thus stated in such policy. This section
shall not prevent the parties from stipulating in such
SECTION 173. If there is no valuation in the policy, the policies concerning the repairing, rebuilding or replacing of
measure of indemnity in an insurance against fire is the buildings or structures wholly or partially damaged or
expense it would be to the insured at the time of the destroyed.
SECTION 175. No policy of fire insurance shall be pledged, SECTION 177. A contract of suretyship is an
hypothecated, or transferred to any person, firm or agreement whereby a party called the surety
company who acts as agent for or otherwise represents the guarantees the performance by another party called
issuing company, and any such pledge, hypothecation, or the principal or obligor of an obligation or
transfer hereafter made shall be void and of no effect undertaking in favor of a third party called the
insofar as it may affect other creditors of the insured. oblige. It includes official recognizances, stipulations,
bonds or undertakings issued by any company by
 Casualty Insurance
virtue of and under the provisions of Act No. 536, as
amended by Act No. 2206.
SECTION 176. Casualty insurance is insurance
covering loss or liability arising from accident or
SECTION 178. The liability of the surety or sureties
mishap, excluding certain types of loss which by law shall be joint and several with the obligor and shall
or custom are considered as falling exclusively within be limited to the amount of the bond. It is determined
the scope of other types of insurance such as fire or strictly by the terms of the contract of suretyship in
marine. It includes, but is not limited to, employer’s relation to the principal contract between the obligor
liability insurance, motor vehicle liability insurance, and the oblige.
plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by SECTION 179. The surety is entitled to payment of
non-life insurance companies, and other substantially the premium as soon as the contract of suretyship or
similar kinds of insurance. bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and
An insurance covering loss or liability arising from binding unless and until the premium therefor has
been paid, except where the oblige has accepted the
accident or mishap, excluding certain types of loss
bond, in which case the bond becomes valid and
which by law or custom are considered as falling
enforceable irrespective of whether or not the
exclusively within the scope of other types of insurance premium has been paid by the obligor to the
such as fire or marine. surety: Provided, That if the contract of suretyship or
bond is not accepted by, or filed with the obligee, the
surety shall collect only a reasonable amount, not
 Suretyship exceeding fifty percent (50%) of the premium due
thereon as service fee
 plus, the cost of stamps or other taxes imposed for a specified period, or otherwise contingently on the
the issuance of the contract or bond: Provided, continuance or cessation of life.
however, that if the nonacceptance of the bond be due
to the fault or negligence of the surety, no such Every contract or pledge for the payment of
service fee, stamps or taxes shall be collected. endowments or annuities shall be considered a life
insurance contract for purposes of this Code.
"In the case of a continuing bond, the obligor shall
pay the subsequent annual premium as it falls due In the absence of a judicial guardian, the father, or in
until the contract of suretyship is cancelled by the the latter’s absence or incapacity, the mother, of any
obligee or by the Commissioner or by a court of minor, who is an insured or a beneficiary under a
competent jurisdiction, as the case may be. contract of life, health, or accident insurance, may
exercise, in behalf of said minor, any right under the
SECTION 180. Pertinent provisions of the Civil Code policy, without necessity of court authority or the
of the Philippines shall be applied in a suppletory giving of a bond, where the interest of the minor in the
character whenever necessary in interpreting the particular act involved does not exceed Five hundred
provisions of a contract of suretyship. thousand pesos (P500,000.00) or in such reasonable
amount as may be determined by the Commissioner.
 Life Insurance Such right may include, but shall not be limited to,
obtaining a policy loan, surrendering the policy,
SECTION 181. Life insurance is insurance on human receiving the proceeds of the Policy, and giving the
lives and insurance appertaining thereto or connected minor’s consent to any transaction on the policy.
therewith.
In the absence or in case of the incapacity of the father
"Every contract or undertaking for the payment of or mother, the grandparent, the eldest brother or
annuities including contracts for the payment of lump sister at least eighteen (18) years of age, or any relative
sums under a retirement program where a life who has actual custody of the minor insured or
insurance company manages or acts as a trustee for beneficiary, shall act as a guardian without need of a
such retirement program shall be considered a life court order or judicial appointment as such guardian,
insurance contract for purposes of this Code. as long as such person is not otherwise disqualified or
incapacitated. Payment made by the insurer pursuant
SECTION 182. An insurance upon life may be made to this section shall relieve such insurer of any liability
payable on the death of the person, or on his surviving under the contract.
 SECTION 183. The insurer in a life insurance contract "(a) The amount of contributions, premiums, fees or
shall be liable in case of suicide only when it is charges, computed on a daily basis, does not exceed
committed after the policy has been in force for a seven and a half percent (7.5%) of the current daily
period of two (2) years from the date of its issue or of minimum wage rate for nonagricultural workers in
its last reinstatement, unless the policy provides a Metro Manila; and
shorter period: Provided, however, that suicide
committed in the state of insanity shall be "(b) The maximum sum of guaranteed benefits is
compensable regardless of the date of commission. not more than one thousand (1,000) times of the
current daily minimum wage rate for
SECTION 184. A policy of insurance upon life or nonagricultural workers in Metro Manila.
health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, SECTION 188. No insurance company or mutual benefit
and such person may recover upon it whatever the association shall engage in the business of microinsurance
insured might have recovered. unless it possesses all the requirements as may be
prescribed by the Commissioner. The Commissioner shall
SECTION 185. Notice to an insurer of a transfer or issue such rules and regulations governing microinsurance.
bequest thereof is not necessary to preserve the
validity of a policy of insurance upon life or health,
unless thereby expressly required.  Compulsory Motor Vehicle Liability Insurance-

SECTION 186. Unless the interest of a person insured Motor Vehicle is any vehicle propelled by any
is susceptible of exact pecuniary measurement, the power other than muscular power using the public
measure of indemnity under a policy of insurance highways. However, take note that road rollers, trolley
upon life or health is the sum fixed in the policy.
cars, street-sweepers, sprinkles, lawn mowers, bulldozers,
graders, fork-lifts, amphibian trucks, and cranes if
not used in public highways, vehicles which run only on
 Microinsurance
rails or tracks, and tractors, trailers and traction engines of
SECTION 187. Microinsurance is a financial product or all kinds used exclusively agricultural purposes are
service that meets the risk protection needs of the poor excepted.  For trailers having any number of wheels,
where: when propelled or intended to be propelled by attachment
to a motor vehicle, they are classified as a separate motor
vehicle with no power rating.
 Agency-hired OFWs are those hired through POEA licensed
In simple terms, anyone outside your car or motor vehicle, land-based recruitment or manning agencies.
for example, any unsuspecting pedestrian who is caught in
the accident, is covered by CTPLI. On the other hand, II. Policy Duration and Coverage
those riding with you who aren’t your employees or a
family member within the second degree of consanguinity Pursuant to Section 2, Rule XVI of the Omnibus Rules and
or affinity are also considered third party persons. In this Regulations Implementing Republic Act 8042, as amended by
case, they are covered by the insurance.  Meaning, if the RA 10022, the insurance coverage shall be effective for the
duration of the worker’s employment contract and shall cover
motor vehicle accident is proven to be your fault, CTPLI
the following contingencies, at the minimum:
will give you protection from liabilities arising from the
(a) Accidental Death
accident. (b) Natural Death
(c) Permanent Total Disability
(d) Repatriation Cost
 Compulsory Insurance Coverage for Agency-Hired (e) Subsistence Allowance
Workers (f) Settlement Allowance
(g) Compassionate Visit
Pursuant to Governing Board Resolution No. 8, series of 2010, (h) Medical Evacuation
mandating the implementation of the compulsory insurance (i) Medical Repatriation
coverage of agency-hired overseas Filipino workers provided
under Section 37-A of RA 8042 (The Migrant Workers and
Overseas Filipinos Act of 1995), as amended by Republic Act III. Payment of Insurance Coverage
10022 and Rule XVI of the Omnibus Rules and Regulations
Implementing Republic Act 8042, as amended, the following
The recruitment/manning agency or the foreign
guidelines are hereby issued:
principal/employer shall pay the cost of the insurance coverage.
In no case shall it be charge directly or indirectly to the agency-
I. Overseas Filipino Workers Covered hired OFW.

All agency-hired overseas Filipino workers (OFWs), whether IV. Requirements for the Issuance of the Overseas
land-based or sea-based, shall be covered by a compulsory Employment Certificate (POEA Exit Clearance)
insurance coverage issued by an insurance provider duly
licensed and certified by the Insurance Commission. In addition to the POEA requirements for the issuance of the
overseas employment certificate (POEA exit clearance), the
recruitment/manning agency shall present the following upon Violation by the recruitment/manning agency and/or the
processing of the employment documents of the OFWs: foreign principals of these guidelines shall be a ground for the
imposition of appropriate sanctions under the POEA Rules and
a. For land-based Filipino workers, recruitment agencies shall Regulations and other applicable laws.
present an original copy of the insurance policy for each OFW,
together with a one (1) page document detailing the name of
the worker, the principal, the insurance provider and the
insurance policy number.

In case of group insurance, a Proof of Cover which shall also

be pre-approved by the Insurance Commission shall be issued 4. Insurable Interest
to the individual insured OFW.
Section 10. Every person has an insurable interest in
b. For seafarers, manning agencies whose seafarers will be the life and health:
deployed on board vessels with policies issued by foreign
insurance companies, including entities providing indemnity (a) Of himself, of his spouse and of his children;
cover to the vessel, shall submit a certificate or other proof of
cover signed by its principal. A copy of the standard Certificate (b) Of any person on whom he depends wholly or in
of Cover is attached. part for education or support, or in whom he has
a pecuniary interest;
Manning agencies whose principals’ vessels are not covered by
any indemnity insurance shall secure insurance policies from (c) Of any person under a legal obligation to him for
insurance companies duly licensed and certified/authorized by the payment of money, or respecting property or
the Insurance Commission to underwrite insurance policies for services, of which death or illness might delay or
overseas Filipino workers. prevent the performance; and

c. Agencies whose workers/seafarers were processed through (d) Of any person upon whose life any estate or
the in-house processing scheme shall submit to the POEA the interest vested in him depends.
insurance policies/indemnity cover of their workers prior to the
deployment of the workers. The relation between the insured and the event insured
against such that the occurrence of the event will cause
V. Penal Provision substantial loss or harm of some kind to the insured
 Necessity b. ) or any person on whom he depends wholly or on his part
for education or support or in whom he has a pecuniary interest
The existence of an Insurable interest is a primary
concern in determining the liability of an insurer under c.) of any person under a legal obligation to him for payment
a policy of an insurance of money, or respecting property or service, of which death or
illness might delay or prevent the performance

d.) of any person upon whose life any estate or interest vested
in him depend.

5. Double Insurance and Over insurance

Purposes SECTION 95. A double insurance exists where the same

person is insured by several insurers separately in respect
1. Based upon considerations, which render wager to the same subject and interest.
policies invalid. Without such insurable interest, the
contract would be in effect a mere wager or SECTION 96. Where the insured in a policy other than life
gambling contract which is void. is over insured by double insurance:

2. Measure of the upper limit of his probable loss (a) The insured, unless the policy otherwise
under contract provides, may claim payment from the insurers in
such order as he may select, up to the amount for
INSURABLE INTEREST IN LIFE INSURANCE which the insurers are severally liable under their
respective contracts;
Every person has an insurable interest in the life and health:
(b) Where the policy under which the insured claims
Mere Relationship, Sufficient is a valued policy, any sum received by him under
any other policy shall be deducted from the value of
the policy without regard to the actual value of the
subject matter insured;
Pecuniary Interest
(c) Where the policy under which the insured claims
a.) of himself, of his spouse, and of his children is an unvalued policy, any sum received by him
 under any policy shall be deducted against the full
insurable value, for any sum received by him under
any policy; 6. No Fault, Suicide, and Incontestability Clause
SECTION 183. The insurer in a life insurance contract
(d) Where the insured receives any sum in excess of shall be liable in case of suicide only when it is committed
the valuation in the case of valued policies, or of the
after the policy has been in force for a period of two (2)
insurable value in the case of unvalued policies, he
years from the date of its issue or of its last reinstatement,
must hold such sum in trust for the insurers,
according to their right of contribution among unless the policy provides a shorter period: Provided,
themselves; however, that suicide committed in the state of insanity
shall be compensable regardless of the date of commission.
(e) Each insurer is bound, as between himself and B. Perfection of the Insurance Contract
the other insurers, to contribute ratably to the loss
in proportion to the amount for which he is liable SECTION 2. Whenever used in this Code, the following terms
under his contract. shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
DOUBLE INSURANCE OVER-INSURANCE
1.Several insurers There may be only one (a) A contract of insurance is an agreement whereby one
involved insurance undertakes for a consideration to indemnify another
2. There may be no over- The amount of the against loss, damage or liability arising from an
insurance as when the insurance is beyond the unknown or contingent event.
sum total of the amounts value of the insured’s
Note: Section 2 (a) contains the statutory definition of
of the policies issued insurable interest
does not exceed the insurance. The term “assurance” is also used instead of
insurable interest of the “insurance” although the former is seldom employed. Many
insured modern writers use “assurance” instead of “insurance” to
Take Note: describe the life insurance business, the former referring to an
event like death, which must happen, and the latter, to a
The amount of the insurance is beyond the value of the contingent, event which may or may not occur.
insured’s insurable interest DOUBLE INSURANCE and
OVER-INSURANCE may exist at the same time or neither
may exist at all.
 SECTION 3. Any contingent or unknown event, whether
past or future, which may damnify a person having an
insurable interest, or create a liability against him, may be
C. Rights and Obligations of Parties
insured against, subject to the provisions of this chapter.
1. Insurer - the party who assumes or accepts the risk of
The consent of the spouse is not necessary for the validity
loss and undertakes for a consideration to indemnify the
of an insurance policy taken out by a married person on
insured or to pay him a certain sum on the happening of
his/her life or that of his/her children. All rights, title, and
a specified contingency or event (Section 6, Insurance
interest in the policy of insurance taken out by an original
Code)
owner on the life or health of the person insured shall
WHO MAY BE THE INSURER automatically vest in the latter upon the death of the
original owner, unless otherwise provided for in the policy.
 Corporation – foreign or domestic insurance company
or corporation, before they can transact insurance
business in the Philippines it must first obtain a
WHO IS A PUBLIC ENEMY.
certificate of authority for that purpose the insurance
commissioner who may refuse to issue such certificate A public enemy designates a nation whom the
of authority. Philippines is at war and it includes every citizen or subject of
such nation. The term may be taken to mean “ALIEN
 Individual, partnership, or association – although ENEMY”.
insurance business is ordinarily carried on by
During wartime, a private corporation is deemed an
partnerships and corporations, yet any individual may
enemy corporation although organized under Philippine laws if
be an insurer, the only requisite being that “he holds a
they are controlled by enemy aliens. This is the so called
certificate of authority from the Insurance
“control test” whereby a corporation is deemed to have the
Commissioner”.
same citizenship as the controlling stockholders in the time of
2. Insured - the second party to the contract, the person whose war.
favor the contract is operative and who is indemnified against,
EFFECT OF WAR ON EXISTING INSURANCE
or is to receive a certain sum upon the happening of a specified
CONTRACTS.
contingency or event.
By the law of nations, all intercourse between citizens
WHAT MAY BE INSURED
of belligerent powers which is inconsistent whit a state of war
is prohibited. The purpose of war is to cripple the power and GENERAL RULE- Whether the policy reserves to the insured
exhaust the resources of the enemy. It is inconsistent that the the right to change beneficiary, he has the power to change
subjects of one country should lend their assistance to protect beneficiary without the consent of the latter.
by insurance the commerce or property of belligerent alien
EXCEPTIONS:
subjects or to do anything detrimental to their country’s
interests. 1. The death of the insured ceases the power to change
beneficiary and cannot be exercised by his personal
Of course, if the parties are not rendered enemy aliens
representatives or assignees.
by the intervention of war, and policy continues to be
enforceable according to its terms and the laws governing 2. If such right is waived, the insured has no power to make
insurance and the general rules regarding contracts. such change without the consent of the beneficiary
3. Beneficiary - is the person designated to receive the proceeds of D. Rescission of Insurance Contracts
the policy when the risk attaches. He may be the insured himself in
the property insurance, or the insured or a third person in the life SECTION 26: A neglect to communicate that which a party
insurance. knows and ought to communicate, is called concealment.

Person who is named or designated in a contract of life, health, 1. Concealment - Neglect to communicate that which a
or accident insurance as the one who is to receive the benefits party knows and ought to communicate. It is the
which become payable, according to the terms of the contract, intentional withholding by the insured of any fact
upon death of the insured. material to the risk.

KINDS OF BENEFECIARY:
SECTION 27: A concealment whether intentional or
1. Insured Himself
unintentional entitles the injured party to rescind a
2. Third person who paid as consideration
contract of insurance.
3. Third person through mere bounty of insured.
This Section covers Ordinary Concealment Effect of
LIMITATION- Any person who is forbidden from receiving
concealment:
donation under Article 139 of the Civil Code cannot be named
as beneficiary of a life insurance policy by the person who 1. By the insured – Voidable. As a rule, failure of the
cannot make any donation to him. party of the insured to disclose conditions affecting the
risk, of which he is aware, makes the contract voidable
 at the insurer’s option. Reason: Insurance contracts are
based on uberrimaefidae. SECTION 76. A breach of warranty without fraud
merely exonerates an insurer from the time that it
Note: Pleading mistake or forgetfulness is not a occurs, or where it is broken in its inception,
defense. prevents the policy from attaching the risk.

2. By the insurer – The contractual duty of disclosure EXPLAINATIONS

imposed by utmost good faith is not required of the
insured alone, but is imposed with equal stringency 1. Fraud not essential for breach
upon the insurance
3. Misrepresentation or Omissions – Falsity not fraud is the basis of liability on a
warranty
SECTION 44. A representation is to be deemed false when
the facts fail to correspond with its assertions or
2. Effect if without fraud
stipulations.
SECTION 45. If a representation is false in a material a) return of premium paid at a pro rata rate from
point, whether affirmative or promissory, the injured party the time of the breach
is entitled to rescind the contract from the time when the
representation becomes false. b) all the premiums if it is broken during the
inception of the contract. In the latter case, the
Take Note: Fraud or intent to misrepresent facts is not essential
contract is void ab initio and never becomes
to entitle the injured party to rescind a contract of insurance on
binding.
the ground of false representation. It is immaterial that the false
representation of a material fact concerning the risk relied on
by the insurer is made in the honest belief that it is true. 3.) Effect if with fraud

To be deemed false, it is sufficient if the representation fails to Where there is fraud, the policy is avoided ab
correspond with the facts in a material point. Representations initio and the insured is not entitled to the return
of facts are the foundation of the contract; and if the foundation of the premium paid.
does not exist, the superstructure does not arise.
4. Breach of Warranties