INSURANCE CODE OF THE PHILIPPINES

Sec. 1

Insurance is based upon the principle of aiding another from a loss caused
by an unfortunate event.

Contract of Insurance
- governed by special laws (Insurance Code)
 amendments: capitalization,
requirements

Insurance – is a contract for consideration undertaken to indemnify another

that he may suffer under contingent or unknown event

Elements:
- consent
- object
- consideration : premium, in case of loss, damage or liability

Insurance elements:
1. insurable interest : 1object, legal binding
2in the absence, bring about the risk

Subrogation – insurer is subrogated of creditors’ rights to go after the

debtor
 right to subrogation applies only to property, and not to
life insurance

2. insured is exposed to a risk

- fidelity insurance
- ex. Cashier, fire, motor vehicle, health, life, burial insurance

3. insurer assumes the risk

4. assumption of risk is a risk distribution scheme

- insurer is just manager of the fund
- ex. Gracia payment – not compensable claim

5. insurer is paid premium

Kinds of Insurance

Life Non-Life
- Accident Insurance - fire, marine, quarantine
 Characteristics of a contract of Insurance
1. Aleatory – based on chance: risk may or may not happen
2. Indemnity – cannot be used to insured or insurer
- extent of your risk
3. Personal
4. Unilateral – part of the insured, complete
5. Conditional – insurer, happening of the risk

What:
1. Contingent
Marine insurance : past and
2. Unknown event
contingent and unknown
3. Past or future

Payment by the insurer to the insured operates as equitable assignment to

the former of all the remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss.
Right of subrogation accrues upon payment of the insurance claim by the
insurer
Insurer cannot defeat the insured’s claim for the indemnity on the ground
that the insured has a right to be indemnified by a third person
Common –law wife is disqualified from becoming the beneficiary of the
insured in view of the prohibition in Art. 2012 in relation to Art. 739 of the Civil
Code

Policy – written insurance contract

Sec. 2

Elements of Contract:
a. Subject matter – refers to the thing insured
b. Consideration – is the premium paid by the insured
- Amount is principally based on the probability of loss and extent of
liability for which the insurer may become liable under the contract
c. Object and purpose
- Principal object and purpose is the transfer and distribution of risk of
loss, damage, or liability arising from an unknown or contingent
event through the payment of a consideration by the insured to the
insurer under a legally binding contract to reimburse the insured for
losses suffered on the happening of the stipulated event.

Characteristics:
a. Consensual – perfected by the meeting of the minds of the parties
b. Voluntary – it is not compulsory and the parties may incorporate such terms
and conditions as they may deem convenient while will be
binding provided they do not contravene any provision of law
and are not opposed to public policy
c. Aleatory – it depends upon some contingent event
d. Unilateral – imposing legal duties only on the insurer who promises to
indemnify in case of loss
 e. Conditional – it is subject to conditions the principal one of which is the
happening of the event insured against
f. Contract of indemnity (except life and accident insurance where the result is
death) – because the promise of the insurer is to make good only
the loss of the insured

- If the insured has no insurable interest, the contract is void and

unenforceable as being contrary to public policy because it affords
a temptation to the insured to wish or bring about the happening of
the loss
g. Personal – between the insurer and the insured each party having in view of
the character, credit and conduct of the other
- Insured cannot assign, before the happening of the loss, his rights
under a property policy to others without the consent of the insurer

- If a person whose property is insured sells it to another, the buyer

cannot be his successor in the contract of insurance unless, of
course, the sale is with the consent of the insurer or unless by express
stipulation of the parties, the contract is made to run with the
property to the transferee
Contracts of insurance are to be construed or interpreted liberally in favor
of the insured and strictly against the insurer resolving all ambiguities against
the latter

What may be Insured

Sec. 3 Requisites of a contract of Insurance

 Subject matter in which the insured has an insurable interest
 Event or peril insured against which he may be any contingent or
unknown event, past or future and a duration for the risk thereof
 A promise to pay or indemnify in a fixed or ascertainable amount
 A consideration for the promise, known as the premium
 Meeting of the minds of the parties upon all the foregoing essentials

 Property – property
 Life, health and accident insurance – person
 Casualty – risk involved in its use
Contract of insurance entered into by a minor is not entirely void but mere
voidable – it is valid until annulled in a proper action in court by the minor or
his legal representative

Sec. 4 Contract of Insurance not a wagering contract

Contract of insurance is a contract of indemnity and is not a wagering or
gambling contract
The very purpose of insurance is the reimbursement of the holder of
insurance for actual loss suffered from specified risks.
In gambling contract, parties contemplate gain through mere chance
Sec. 5
Sec. 6 Every Corporation, partnership, or association duly authorized to transact
business elsewhere provided in this Code, may be an insurer

Parties to a contract of insurance

1. Insurer - the party who assumes or accepts the risk of loss and undertakes for
a consideration to indemnify the insured or to pay him a certain
sum on the happening of a specified contingency or event
2. Insured – or the second party to the contract, the person in whose favor the
contract is operative and who is indemnified against, or is to
receive a certain sum upon the happening of a specified
contingency or event
Insured – the owner of the property insured or the person whose life is the subject
of the contract of insurance

Assured – person for whose benefit the insurance is granted

Beneficiary – the person designated by the terms of the policy as the one to
receive the proceeds of the insurance
- Third party in a contract of life insurance for whose benefit the
policy is issued and to whom the loss is payable

Before a foreign or domestic insurance company or corporation may

transact insurance business in the Phil., it must first obtain a certificate of
authority for that purpose from the Insurance Commissioner who may refuse
to issue such certificate of authority if, in his judgment “such refusal will best
promote the interest of the people of this country”
Any individual may be an insurer, the only requisite being that “he holds a
certificate of authority from the Insurance Commissioner”

Sec. 7 Anyone except a public enemy may be insured

Public enemy – a nation with whom the Philippines is at war and it includes
every citizen or subject of such nation
Insurance policy ceases to be valid and enforceable as soon as an insured
becomes a public enemy

Sec. 8 Insurable interest of mortgagee and mortgagor

Separate insurable interest

Mortgagor and the mortgagee have each an insurable interest in the
property mortgaged and this interest in the property from the other
But, insurance taken by one in his own name only and in his favor alone,
does not inure to the benefit of the other
 Extent of insurable interest of mortgagor
Mortgagor of property, as owner, has an insurable interest therein to the
extent of its value, even though the mortgage debt equals such value
 Reason: loss or destruction of the property insured will not
extinguish his mortgaged debt

Extent of insurable interest of mortgagee

Mortgagee as such has an insurable interest in the mortgaged property to
the extent of the debt secured, since the property is relied upon as security
thereof, and in insuring, he is not insuring the property itself but his interest or
lien thereon
His insurable interest extends only to the value of the debt, not exceeding
the value of the mortgaged property

Where the mortgagee, independently of the mortgagor, insures his own

interest in the mortgaged property, he is entitled to the proceeds of the
policy in case of loss before payment of the mortgage
Mortgagee is not allowed to retain his claim against the mortgagor but it
passes by subrogation to the insurer to the extent of the insurance money
paid
Upon destruction of the property, mortgagee is entitled to receive payment
from the insured but such payment discharges the debt if equal to it, and if
greater than the debt, the mortgagee holds the excess as trustee for the
mortgagor

Sec. 9 If an insurer assents to the transfer of an insurance from a mortgagor to a

mortgagee, and, at the time of his assent, imposes further obligations on the
assignee, making a new contract with him, the acts of the mortgagor cannot
affect the rights of said assignee.
The effect of an assignment or transfer is to substitute the assignee or
transferee in place of the original insured in respect to the right to claim
indemnity or payment for a loss as well as the obligation to perform the
conditions, if any, of the policy.
 Fire policy
- Before it becomes a fixed liability is not subject to
assignment, being strictly a personal contract, in the
absence of provision in the contract or subsequent
consent of the insurer
- Assignment of fire insurance policy by the mortgagor
to the mortgagee with the consent of the insurer does
not convert the contract into one of indemnity to the
mortgagee
- Contract remains to the mortgagor
- Assignment operates merely as an equitable transfer of
the policy so as to enable the mortgagee to recover
the amount due in case of loss subject to the
conditions of the policy
  Marine policy
- Is assignable even without the consent of the insurer
unless required by the terms of the policy
 Casualty policy
- Insurer’s consent is also required
- Commonly involves moral hazards at least as great as
those of fire insurance
 Life policy
- Policy may freely be assigned before or after the loss
occurs, to any person whether he has an insurable
interest or not

Sec. 10 Insurable Interest

- It is that interest which the law requires the owner of an insurance
policy to have in the person or thing insured

A person is deemed to have an insurable interest in the subject matter

insured where he has a relation or connection with or concern in it that he
will derive pecuniary or financial benefit or advantage from its preservation
and will suffer pecuniary loss or damage from its destruction, termination, or
injury by the happening of the event insured against.
Existence of insurable interest is a primary concern in determining the liability
of an insurer under a policy of insurance
An insurable interest is necessary to the validity of an insurance contract
whatever the subject matter of the policy, whether upon property or life
Policy issued to a person without interest in the subject matter insured is void
for illegality

Life Policies:
a. Insurance upon one’s life – those taken out by the insured upon his
own life for the benefit of himself, or of his estate, in case it matures
only at his death, or for the benefit of a third person who may be
designated as beneficiary

b. Insurance upon life of another – policies taken out by the insured

upon the life of another
A person cannot lawfully procure insurance for his own benefit on the life of
another in whose life he has no insurable interest.
When the owner of the policy insures the life of another, and designates a
third party as beneficiary, both the owner and beneficiary must have an
insurable interest in the life of the cestui que vie
Blood or material relationships fit the concept of insurable interest – but,
mere blood or affinity relationship does not constitute an insurable interest,
there must be an expectation of pecuniary benefit in the life of the insured
to sustain the insurance, that is, a risk of actual monetary loss from his death

Creditor may insure his debtor’s life for the purpose of 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
 Creditor may not insure the life of his debtor unless the latter has a legal
obligation to him for the payment of money
Consent of the person insured is not essential for the validity of the policy so
long as it could be proved that the assured has a legal insurable interest at
the inception of the policy, the insurance is valid even without such consent

Sec. 11 The insured shall have the right to change the beneficiary he designated in
the policy, unless he has expressly waived this right in said policy.

In the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.

Beneficiary – person who is named or designated in a contract of life, health

or accident insurance as the one who is to receive the benefits
which become payable, according to the terms of contract,
upon the death of the insureds

A person may take out a policy of insurance on his own life and make it
payable to whomever he pleases, irrespective of the beneficiary’s lack of
insurable interest, provided he acts in good faith and without intent to make
the transaction merely a cover for a forbidden wagering contract

Note: Any person who is forbidden from receiving any donation under Art.
739 of CC cannot be named beneficiary of a life insurance policy by the
person who cannot make any donation to him, according to said article.

Death of insured – beneficiary’s designation shall be deemed irrevocable

If the right to change the beneficiary is expressly waived in the policy, then
the insured has no power to make such change without the consent of the
beneficiary.
Beneficiary acquires an absolute and vested interest to all benefits accruing
to the policy from the date of its issuance and delivery
If beneficiary dies before the insured, his rights so vested should pass to his
representatives
If no beneficiary is designated in the life insurance policy, the proceeds will
go to his legal heirs in accordance with law

Sec. 12 The interest of a beneficiary in a life insurance policy shall be forfeited when
the beneficiary is the principal, accomplice, or accessory willfully bringing about
the death of the insured.

The share forfeited shall pass on to the other beneficiaries, unless otherwise
disqualified.

Sec. 13 Every interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.
 Insurable interest in property
One’s interest is not determined by concept of title, but whether the insured
has substantial economic interest in the property

Sec. 14 An insurable interest in property may consist in:

a. Existing interest
b. Inchoate interest founded on an existing interest
c. Expectancy, coupled with an existing interest that out of which the
expectancy arises

Existing interest – in a property may be a legal title or equitable title

Ex. mortgagor of the property mortgaged, lessor of the property

Inchoate interest – such inchoate interest must be founded on an existing

interest
Ex. a stockholder has an inchoate interest in the property of the
corporation of which he is a stockholder, which is
founded on an existing interest arising from his ownership
of shares in the corporation

Expectancy interest – must be coupled with an existing interest in that out of

which such expectancy arises
Ex. a farmer may insure future crops if they are to be grown on land
owned by him at the time of the issuance of the policy,
provided the crops will belong to him when produced

Sec. 15 A carrier or depository of any kind has an insurable interest in a thing held
by him as such, to the extent of his liability but not to exceed the value thereof.
Reason: the loss of the thing may cause liability to the carrier or depository
to the extent of his value
Sec. 16 A mere contingent or expectant interest in any thing, not founded on an
actual right to the thing, nor upon any valid contract for it, is not insurable.

Mere hope or expectation of benefit which may be frustrated by the

happening of some event uncoupled with any present legal right will not
support a contract of insurance