FEU INSTITUTE OF LAW

Insurance Law
Schedule : Thursdays 1700-1900hrs

JOSE VENER C.IBARRA, AB, JD.

I. Introduction
PART ONE : INSURANCE IN RELATION TO OTHER LAWS
II. Insurance as Special Contracts
a. Requisites of a valid contract. (Art. 1318 CCP)
a.1. Consent (Art. 1319, 1320-1326)
a. 1.1. Persons who cannot give consent to a contract of insurance (see Art .1327) (see
also Art. 1328 CCP).
a.1.2. Mistake, Violence, Intimidation, undue influence ( Art. 1330-1339 CCP)
a.2. Object (See Art. 1347-1349 CCP) - In relation to insurable interest
a.2. Cause/ Consideration (See Art 1350 CCP)-Payment of insurance premium

b. Defective Contracts and Insurance Law-

b.1. Voidable Contracts and Voidable Contracts of Insurance

b.2. Unenforceable Contracts and Unenforceable contracts of insurance
b.3. Void contracts and void contracts of insurance
b.4. Rescisible contracts of insurance?

III. Characteristics
a. Aleatory contract - Element of risk. An aleatory contract is one which is dependent on the
occurence of an uncertain event or one which is certain to happen but the time is unknown.
nb. An aleatory contract contains elements of both a conditional obligation and an obligation subject
to a period.
b. Onerous - There is valuable consideration.
c. Bilateral
d. Form - It is a formal contract.
IV. Concepts and term used a. Type of Insurance-

a.1. Life Insurance

i. Individual life
ii. Group Life
iii. Industrial Life
a.2. Non-Life Insurance
i. Marine
ii. Fire
iii Casualty
a.3. Suretyship
V. Applicable Law a. New Insurance Code (RA 10607)
b. Civil Code provisions on contracts and Art. 2011 and other related articles.
c. Family Code
d. Other special laws.
PART TWO: THE INSURANCE CODE OF THE PHILIPPINES.
VI.
VII

Insurance defined - Sec. 2. I.C.

What may be insured in a contract of insurancea. Future, Contingent or past event may be insured. (Sec. 3. I.C.)
b. Insurance on Lottery (Sec. 4, I.C.)

VIII. Parties to a Contract of Insurancea. Who can be an Insurer (Sec. 6, I.C.)a.1. Kinds of Insurers
a.1.1 Insurance Companies and Reinsurance Companiesa.1.2. Partnerships, persons, associations etc.
a.1.3. Mutual Benefits Association- (Sec. 184 IC)
a.1.4. Mutual Insurance Companies (sec. 268 IC)
a.1.5. Cooperative and Cooperative Insurance Societies (Sec. 190 IC, in relation
to Arts. 105-109 Philippine Cooperative Code)
a.2. Basic Qualification of Insurer (Sec. 192 IC)
a.3. Certificate of Authority, Jurisdiction of Insurance Commission (Sec. 193, IC)
b. Who may be insured ?
b.1. Definition of Insured / Contrast with definition of assured.

b.2. Capacity of Insured to contract. (See Art. 1327 and 1390 CCP)

b.3. General Rule : Anyone except a public enemy may be insured (Sec. 7)
- Transfer of insurance from one mortgagor to another (Sec. 8 and 9)
b.3.1. Spouses may enter into a contract of insurance on their own (Sec.
3. IC, in relation to Section 73 and other relevant provision of the Family
Code)
b.3.2. Minors cannot enter into contracts of insurance- (nb. RA 10607
removed the right of minors to enter into contracts of insurance, this
was previously allowed under the old Insurance Code).
b.3.3. Effect of death of owner (See Sec.3 , last par) Applicable only to
life insurance. All interest, title and interest in the policy of insurance
taken out by an original owner on the life or health of the person
insured shall automatically vest in the latter upon the death of the
original owner, unless otherwise provided for in the policy
b.3.4. Public Enemy- Definition
c. Beneficiary
c.1. Definition - Sec. 53 IC.
c.2. Persons disqualified to be beneficiaries - See Art 2012 in relation to
Art. 739, CCP.
- Those made between persons who are guilty of adultery or
concubinage at the time of donation.
- Those made between persons guilty of the same offense, in
consideration thereof.
- Those made to public officers, his spouse , his ascendants and
descendants and the donation was made by reason of his office.
Case : Loreto Maramag vs. Eva Verna De Guzman Maramag (GT.
181132 June 5, 2009).

c.3. Designation of Beneficiary is generally revocable. (Sec. 11, IC).

-Exception : See Sec. 64 of the Family Code.

c.4. Forefeiture of the Rights of the Beneficiary (Sec. 12 IC)

-Rule when one beneficiary forfeits a. the forefeited share of the disqualified beneficiary shall pass to
the other beneficiaries.
b. if there are no other beneficiaries, the proceeds shall be paid
according to stipulation in the policy.
c. If there are no other beneficiaries and if the policy is silent, the
proceeds will go to the estate of the deceased insured.
F. Rule when there is no beneficiary or the designation of beneficiary is
ineffectual - Proceed becomes part of the estate of the deceased
insured.
c.5. Use of Community Fund or Conjugal fund to procure insurance-Proceeds of the policy will constitute community property if the
policy was made payable to the deceased's estate. One half will belong
to the estate and the other half to the surviving spouse.
Case : BPI vs. Juan Posadas Sr. (GR No. 34583 Oct. 22, 1931)
Discussion : Is BPI vs. Posadas still good case law in the light of the
Family Code?

c.6. If there is a designated beneficiary, source of funds.

d. Third Party- See case of Heirs of Loreto Maramag vs. Eva Verna De Guzman Maramag
(GT. 181132 June 5, 2009).

e. Trustee or Agent Procuring Insurance - See Sec. 56 IC.

f. Partner procurring Insurance - Sec. 55, IC.
g. Rights of Assignee of Insurance - See Sec. 184, IC. (Life Insurance ),
-Rule in Property Insurance (see Sec. 58 IC).

VIII. Insurable Interest

a. Concept

a.1. In Life Insurance- The relationship of the insured with the one insured, so that
the death, disability or injury of the insured will result in emotional and/or economic
dislocation of the insured. (see also Warnock vs Davis 104 US 775, as discussed in
Aquino, Essentials of Business Law, pg. 57-58).
-There is an interest by the insured in seeing to it that the life, health or
economic capacity of insured is not diminished.
a.2. Property Insurance- Cf. Sec. 13 IC. The interest of the insured over the object
insured so that the person will be economically damnified by the damage or loss of
the object insured.
b. Effect of Lack of Insurable interest cf.Sec. 25 IC. When there is no insurable
interest the policy is akin to a wager in gambling and is void.
c. Insurable Interest in Life Insurance- Cf. Sec. 10 IC- Generally, the persons whose life
he has insurable interest in are:
c.1. His own life. (Sec. 10 a IC)
c.2. Life of persons to whom he has blood relations (namely his spouse, his
children) (Ibid)
Case: Hilario Gercio vs. Sunlife Assurance of Canada (GR No.
23703, Sept. 28, 1925)
Lalican vs. Insular Life Assurance (GR No. 183526, August 25,
2009)
Manila Bankers Life Insurance vs. Aban (G.R. No. 175666 July
29, 2013).
Lalican vs. Insular Life Assurance Co. (G.R. No. 183526 Aug. 25,
2009)

c.3. A person for whom he relies on for support, education or a person to whom
he has pecuniary interest on. (Sec. 10b, IC)
c.3.1. Creditor
c.3.2. Mortgage Redemption Insurance
c.4. Any person upon whose life or estate or interest vested in him the insured
depends. (Sec 10d. IC)
d. Insurable Interest in Property Insurance Cf. Sec. 18 in relation to Sec. 13. I.C.

d.1. Test see Sec. 13 I.C.

d.2. Kinds of insurable interest over property (cf. Sec. 14 I.C.)
d.2.1. An existing interest.
Cases : Gaisano Cagayan vs. Insurance Company of North
America (G.R. No. 147839 June 8, 2006)
Filipino Merchants Insurance vs. CA (G.R. No. 85141, Nov. 28,
1989)
Vicente Ong Lim Sing Jr. vs. FEB Leasing (G.R. No. 168115, June
8, 2007)
d.2.2. An inchoate interestCases : Armando Geagonia vs. CA and Country Bankers (G.R.
No. 114427)

d.2.3. Expectancy
Case :Filipino Merchants Insurance Co. Vs. CA
(G.R. No. 85141, November 28, 1989)
d.2.4. Insurable Interest of Bailee
Case : Armando Geagonia vs.CA
(G.R. No. 114427, February 6, 1995)
d.2.3. Insurable interest of mortgagor See also Sec. 9 I.C.

Case : Great Pacific Life Assurance Corp. vs. Court of Appeals

(G.R. No 113899, October 13, 1999)
Read also : Lost payable clauses Aquino, pg. 72.
d.2.4. Insurable interest of Mortgagor- See also Sec. 9 I.C.
See Geagonia vs. CA (op. cit. )
- See also Sec. 20 I.C., in reference to changes in the interest.

Cases: Spouses NILA CHA and STELLA UY CHA vs. CA (G.R. No. 124520
August 18, 1997)
Manila Bankers Life vs. Aban (G.R. No. 175666 July 29, 2013)

Violeta Lalican vs. Insular Life Assurance (G.R. No. 183526

August 25, 2009)
d.2.5. Transfer of the thing insured, effect on policy and interest (Sec. 58
I.C.)
d.2.6. Effect of change in the thing after injury or loss occurs (Sec. 21)
d.2.7. Change in interest over one or more object separately insured
(Sec. 22 I.C.)
d.2.8. Change of interest by way of succession on the death of insured
(Sec. 23 I.C.)
d.2.10. Transfer of interest by a partner, joint owner, or co-owner (Sec.
24 I.C.)

e. d.2.5 When must insurable interest exist? Cf. Sec. 19 I.C.

-In life insurance the interest must exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.
-In life insurance if a person insures his own life and designates a beneficiary, the
beneficiary need not have insurable interest over the life of the insured. However,
please note that this will be treated as a donation and the prohibition in donations still
exist.

-Beneficiary in life insurance must have insurable interest in the property, otherwise
it will be treated as a wager.
-If a person insures the life of another and designates himself the beneficiary, he
must have insurable interest over that persons life.

-In property insurance , interest must exist when the insurance takes effect and when
the loss occurs, but need not exist in the meantime.

IX . Premium

A.

Rationale- Since insurance is a risk-spreading device, the premium provides a pool of funds that
is used to pay for the claims when the peril arises.

B. General Rule- Premium is required for policy to be binding- (cf. Sec. 77 I.C.). Insurer is entitled to
payment of premium the moment the thing insured is exposed to the peril (ibid)
C. Exception to the rule that Premium is required for the policy to be bindinga. When in cases of life or industrial life policy during the grace period.
b. When there is an acknowledgement in the policy or receipt that the premium has been paid.
(cf. Sec. 79 I.C.)
c. When there is an agreement that the premium will be paid on installment.
d. When credit has been extended. (see Sec. 77 IC)
e. In cases of estoppel.
Cases: UCPB General Insurance vs. Masagana Telamart GR. 137172 April 4, 2001.
Makati Tuscany Condominium vs. CA GR No. 95546 November 6, 1992
South Sea Surety vs. Court of Appeals and Valenzuela Hardwood GR No. 102253 June 2, 1995.

Nb: Grace Period- Usually 30 days from the date the Premium becomes due (cf. Sec. 233, 234,
236 IC)
D. Other schemes to prevent the lapsing of an insurance policy:
a. Automatic policy loan.
b. Application of Dividends.
c. Reinstatement.
E. Return of Premiums - Premiums may be returned when:
a. The thing was not exposed to the peril (Sec. 80 I.C.)
b. In a "time policy" and there is a provision for a pro rata refund (ibid)
c. When the contract is voidable and declared as such (sec. 82 IC)
d. When the contract is annulled due to fraud or misrepresentation of the insurer or of his agent
or on account of facts or the existence of which the insured was ignorant without his fault. (ibid)
e. When by the default of the insured other than actual fraud the insurer never incurred liability
under the policy (ibid)
f. In case of over-insurance by several insurers (Sec. 83 IC).
Note: When insurance claim is denied, insured is not entitled to return of premium (Sec 82 IC).

F. Advanced Payment of premium (cd. Sec. 84 IC)

X. THE POLICY
A.

What is the Policy - It is the written document where the terms of the Insurance Contract is
written. - a. Consensual Contract- Since the Insurance Contract is Consensual, absence of
policy does not bar the contract from existing.
a. As a contract of adhesion (cf. Art. 1377 CCP)
d. Approval needed by the Insurance Commission (cf.Sec. 232 IC)

B. Mandatory Contents (Sec. 51 IC)

C. Designation of beneficiary (Sec. 53 IC).
D. Identification of Insured (Sec. 54, 55 IC) . Designation of Class of Person(Sec. 56 IC)
E.
Riders- Definition are additional clauses to a contract of insurance which are usually
attached to the main policy.
a. Requirements (Sec. 50 IC):
i. Must be attached to policy.
ii. The descriptive title or name of rider is mentioned and written on the blank spaces
provided in the main policy.
iii. If not applied by the insured or owner, rider must be counter-signed by the insured.
F. Cover notes- Nature as temporary policy, requisites (cf. Sec. 52 IC)
a. Must be approved by the insurance commission.
b. Must be valid and binding for no more than 60 days and policy must be issued thereafter.
c, May be cancelled with seven (7) day notice to either party.
G. Cancellation of Property Insurance Policies (cf. Sec 64 IC)
a. Non-payment of premium.
b. Conviction of a crime which will increase the hazard insured against.
c. Discovery of fraud or material misrepresentation.
d. Discovery of wilfull or reckless acts or omissions increasing the hazard.
e. Physical changes in the property which increases the peril or making the object
uninsurable.
f. Over insurance.
g. Determination by the Insurance Commission that the continuation of the policy would
place the insurer in violation of the Insurance Code.
nb. Notice of Cancellation must be in writing (cf. Sec 65 IC).
H. Renewal of non-life insurance (Sec. 66 IC)

XI. ASCERTAINING AND CONTROLLING RISK

A. CONCEALMENT- A neglect to communicate that which a party knows and ought to communicate.
(cf. Sec. 26 IC).
Sec. 28 Each party to a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining it.
Case: MA. LOURDES S. FLORENDO, Petitioner, vs. PHILAM PLANS, INC., G.R. No. 186983
February 22, 2012.
B. Materiality- (cf. Sec. 31 IC)- Test Whether or not the fact will influence the insurer in his
estimation of the risk.
Nb. Matter concealed need not be the cause of the loss .
Case : Florendo vs. Philam Plans Inc. G.R. No. 186983 February 22, 2012
C. Effects of Concealment Whether intentional or unintentional , concealment entitles insurer to
rescind contract of insurance (cf. Sec. 27 IC)
D. When there is no concealment (Cf. Sec. 30, 32-35 IC)
E. Representations Are statements made by a person applying for insurance to induce a potential
insurer to enter into the contract of insurance. It can be made at the time of or before the
issuance of the policy (cf. Sec. 37 IC)
F. Effect of False Representation Insurer is entitled to rescission (cf. Sec. 45 IC).
G. Warranties An affirmation of a fact or a promise to perform an act in a contract of insurance (cf.
Sec. 68 IC).
a. Express Warranty (cf. Sec. 70 IC) vs Implied.
b. AFFIRMATORY or PROMISSORY (cf. Sec. 72, 73 IC)
H. Breach of Warranty by Insured- makes the insured disqualified to receive the benefits of the
insurance contract. Insurer may also seek rescission (Sec. 45 IC).
I.

Breach of Warranty by Insurer also entitled Insured to rescission (Sec. 75, 75 IC).