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NOTES IN INSURANCE CODE (b) Of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;

GENERAL PRINCIPLES AND INSURABLE INTEREST (c) Of any person under a legal obligation to him for the payment of money,
or respecting property or services, of which death or illness might delay or
Q: What is a contract of insurance? prevent the performance; and
A: A "contract of insurance" is an agreement whereby one undertakes for a (d) Of any person upon whose life any estate or interest vested in him depends.
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. On the other hand, insurable interest over the property is explained under sec
14, which provides that An insurable interest in property may consist in:
Q: What are the elements of contract of insurance? (a) An existing interest;
A: The ff are the elements of contract of insurance (IRRAP) (b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the
The insured has Insurable interest expectancy arises.
The insured is subject to a risk of loss by the happening of the designated peril
The insurer assumes the risk Q: What is an existing interest? Give an example.
Such assumption of risk is part of the general scheme to distribute actual losses A: Existing interest means an interest of present and certain value, may be
among a large group of persons bearing a similar risk readily liquidated and demandable.
The insured pays a premium
For example, a due and demandable loan agreement with 10% interest. Here,
Q: When is a contract of suretyship be deemed an insurance contract? the interest is certain, the amount is determinable and both happen at present
A: A contract of suretyship shall be deemed to be an insurance contract, within moment (since the loan is already due and demandable)
the meaning of this Code, only if made by a surety who or which, as such, is
doing an insurance business as hereinafter provided. Q: What is an expectancy interest?
A: An expectancy interest is an interest certain to happen in the future but is
uncertain in amount.
Q: What is an Insurable interest?
A: Insurable interest, as provided under the Insurance Code, either means For example, a farmer will sell his crops with 1% interest profit. Here, the interest
a.Insurable interest over the person or b. insurable interest over the property. is an expectancy because there is a certain interest, but the total amount is
uncertain as it still depends on the number of crops that will be harvested by
Insurable interest over the person is provided under sec. 10, which enumerates the farmer.
that Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;

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A: A member of the MILF or the Abu Sayyaf may be insured with a company
Q: What is an inchoate interest licensed to do business under the Insurance Code of the Philippines. What is
A: An inchoate interest is sure to happen in the future AND also certain in prohibited to be insured is a public enemy. A public enemy is a citizen or
amount. national of a country with which the Philippines is at war. Such member of the
MILF or the Abu Sayyaf is not a citizen or national of another country, but of the
For example, a stock trader buys stocks in an Initial Public Offering of a soon to Philippines.
be constructed hospital in Malolos for 10 pesos per stock with 2% interest rate.
Here, the inchoate interest is both FUTURE and CERTAIN in amount.
Q: Manpower Company obtained a group life insurance policy for its
Q: Differentiate expectancy interest from inchoate interest employees from Phoenix Insurance Company. The master policy issued by
A: As to certainty, expectancy interest is uncertain in amount but inchoate Phoenix on June 1, 1986 contained a provision that eligible employees for
interest is certain insurance coverage were all full time employees of Manpower regularly
As to relationship with existing interest, expectancy interest must be coupled working at least 30 hours per week. The policy had also an incontestable
with existing interest, while inchoate interest need not. (halimbawa, para clause. Beforehand, Phoenix sent enrollment cards to Manpower for distribution
magakaroon ka ng expectancy interest sa profit on future crops, dapat muna to its eligible employees. X filled out the card which contained a printed clause:
may tanim ka. “I request the insurance for which I may become eligible under said Group
Policy.” The cards were then sent to Phoenix and X was among the employees
of Manpower who was issued a certificate of coverage by Phoenix
Q: Determine if the ff is Existing interest, Expectancy interest or Inchoate interest On July 3, 1988, X was killed on the occasion of a robbery in their house. While
Interest in contract of sale processing the claim of X’s beneficiary, Phoenix found out that X was not an
Interest in contract to sell eligible employee as defined in the group policy since he has not been
Interest in future inheritance of a compulsory heir employed 30 hours a week by Manpower. Phoenix refused to pay. May X’s
Interest in future crops with liquiated and projected value beneficiary invoke the incontestability clause against Phoenix? Reasons. (1989
eXpectancy A: The beneficiary of X may validly invoke the incontestability clause. If the
Inchoate incontestability clause can apply even to cases of intentional concealment
Inchoate and misrepresentation, there would be no cogent reason for denying such
application where the insured had not been guilty thereof. When X filled out
Q: May a member of the MILF or its breakaway group, the Abu Sayyaf, be the card containing the printed clause “I request the insurance for which I may
insured with a company licensed to do business under the Insurance Code of become eligible under said Group Policy”, it behooved the insurer to look into
the Philippines? Explain. (2000 Bar) the qualifications of X whether he can thus be covered or not by the group life

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insurance policy. In issuing the certificate of coverage to X, Phoenix may, in
fact, be said to have waived the 30-hour per week requirement Q: Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in
love with each other and got married soon after. They have been cohabiting
Q: The policy of insurance upon his life, with a face value of P100,000, was blissfully as husband and wife, but they did not have any offspring. As the years
assigned by Jose, a married man with 2 legitimate children, to his nephew, Y passed by, Carlo decided to take out an insurance on Bianca’s life for P1M with
as security for a loan of P50,000. He did not give the insurer any written notice him (Carlo) as sole beneficiary, given that he did not have a steady source of
of such assignment despite the explicit provision to that effect in the policy. income and he always depended on Bianca both emotionally and financially.
Jose died. Upon the claim on the policy by the assignee, the insurer refused to During the term of the insurance, Bianca died of what appeared to be a
pay on the ground that it was not notified of the assignment. Upon the other mysterious cause so that Carlo immediately requested for an autopsy to be
hand, the heirs of Jose contended that Y is not entitled to any amount under conducted. It was established that Bianca died of a natural cause. More than
the policy because the assignment without due notice to the insurer was void. that, it was also established that Bianca was a transgender all along—a fact
Resolve the issues. (1991 Bar) unknown to Carlo. Can Carlo claim the insurance benefit? (2014 Bar)

A: A life insurance is assignable. A provision, however, in the policy stating that A:Yes. Carlo can claim the insurance benefit. If a person insures the life or health
written notice of such an assignment should be given to the insurer is valid. The of another person with himself as beneficiary, all his rights, title and interests in
failure of the notice of assignment would thus preclude the assignee from the policy shall automatically vest in the person insured. Carlo, as the husband
claiming rights under the policy. The failure of notice did not, however, avoid of Bianca, has an insurable interest in the life of the latter. Also, every person
the policy; hence, upon the death of Jose, the proceeds would, in the absence has an insurable interest in the life and health of any person on whom he
of a designated beneficiary, go to the estate of the insured. The estate, in turn, depends wholly or in part for support. The insurable interest in the life of the
would be liable for the loan of P50,000 owing in favor of Y. person insured must exist when the insurance takes effect but need not exist
when the loss occurs. Thus, the subsequent knowledge of Carlo, upon the
death of Bianca, that the latter is a transgender does not destroy his insurable
Q: On July 14, 1985, X, a homosexual, took an insurance policy on the life of his interest on the life of the insured.
boyfriend, Y. In the insurance application, X misrepresented that Y was in
perfect health although he knew all the time that Y was afflicted with AIDS. On
October 18, 1987, Y died in a motor accident. Shortly thereafter, X filed his Q: On February 3, 1987, while Jose Palacio was in the hospital preparatory to a
insurance claim. Should the insurer pay? Reasons. (1987 Bar) heart surgery, he called his only son, Boy Palacio, and showed the latter a will
A: The insurer is not obliged to pay. Friendship alone is not the insurable interest naming the son as sole heir to all the father’s estate including the family
contemplated in life insurance. Insurable interest in the life of others (other than mansion in Forbes Park. The following day, Boy Palacio took out a fire insurance
one’s own life, spouses or children) is merely to the extent of the pecuniary policy on the Forbes Park mansion. One week later, the father died. After his
interest in that life. Assuming that such pecuniary interest exist, an insurer would father’s death, Boy Palacio moved his wife and children to the family mansion
be liable despite concealment or misrepresentation if the insurance had been which he inherited. On March 30, 1987, a fire occurred razing the mansion to
in effect for more than 2 years (incontestability clause). the ground. Boy Palacio then proceeded to collect on the fire insurance he

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took earlier on the house.Should the insurance company pay? Reasons. (1987 ETR: 1. In case of valid modification of contract under s. 47
Bar) 2. In case of representation as to future under s. 39
A: In property insurance, insurable interest must exist both at the time of the
taking of the insurance and at the time the risk insured against occurs. The
insurable interest must be an existing interest. The fact alone that Boy Palacio Q: What is representation as to future under s. 39? Give an example.
was the expected sole heir of his father’s estate does not give the prospective A: A representation as to future means either a belief/ expectation or
heir any existing interest prior to the death of the decedent. promissory representation

A representation as to future belief or expectation is rooted on good faith and

Q: Novette entered into a contract for the purchase of certain office supplies. cannot be the subject of rescission. For example, Maria, after entering a
The goods were shipped. While in transit, the goods were insured by Novette. perfected insurance contract answered that she has no Tuberculosis. However,
Does she have an insurable interest over the goods even before delivery of the after working in a cigarette factory, she started experiencing difficulty in
same to her? Explain. (2015 Bar) breathing. Believing in good faith that she may have a lung problem leading
A:Yes, Novette has an insurable interest in the goods. The contract of sale was to TB, she communicated to the Insurer company her situation as to FUTURE
already perfected and Novette acquired interest thereon although the goods BELIEF that she may be diagnosed to TB. In this case, the insurer CANNOT
have yet to be delivered. rescind the insurance contract because a representation as to future belief is
valid under sec 39.

REPRESENTATION (SEC. 36 TO SEC 48) On the other hand, promissory representation is rooted on bad faith. Here,
rescission is a proper remedy. For example, in marine insurance, XYZ ship
Q: What is representation deviated from the route of Luzon-Visayas-Singapore and took instead the route
A: Representation is a collateral statement of material facts NOT inserted in of Luzon-Mindanao-Singapore. Here, the promised route of L-V-S was not
policy of such facts and circumstances relative to proposed contract fulfilled. Even if XYZ ship communicated the change of route to insurer
communicated to underwriter to eliminate risk company, the insurer company may rescind the insurance contract in case an
accident happened in the route not agreed upon by the insurance contract
Q: Is representation a part of the insurance contract?
A: As a general rule, no. Q: Is representation same as warranty?
ETR: If the representation is incorporated in te insurance contract, it will serve as A: No. Representation is only collateral information which is commonly not
a waver written in the contract of insurance, while warranty is always part of the
insurance contract
Q: When is representation made?
A: as a general rule, representation is made at the time or before the perfection Q: What is the effect of representation?
of insurance contract A: It qualifies an implied warranty

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Q: What is cash and carry basis?
Q: What is the duty of the insurer in accepting representation? A: Cash and carry basis means no payment no premium policy. It assures the
A: Insurer has the duty to exercise reasonable prudence and care. Any false prompt payment before issuance of premium
representation will NOT automatically invalidate the insurance contract as the
insurer is expected to exercise reasonable care,, except in cases of INTENDED Q: Are there any exceptions to cash and carry basis?
misrepresentation/ deception A: Yes. The ff are the exceptions to cash and cary basis rule:

A: How do you determine the materiality of misrepresentation? A. In the case of a life or an industrial life policy whenever the grace period
A: used the ff factors: provision applies.(sec 77)
WON the misrepresentation was material to the risk insured against B. when there n acknowledgment in a policy or contract of insurance or
WON misrepresentation would have influenced the insurer in determining the the receipt of premium is conclusive evidence of its payment, so far as
insurance policy to make the policy binding, notwithstanding any stipulation therein that
it shall not be binding until the premium is actually paid. (sec 78)
Q: What is incontestability clause? C. when parties agreed to paymet of premium by installment (Makati
A: A clause that precludes the insurer from raising misrepresentation and Tuscany vs CA)
concealment defenses . Usually, incurance contract provides fro contestability D. when estoppel bars the insurer from nvoking sec 77
period. E. in case of contract of suretyship or bonding, where the oblige has
accepted the bond (sec 177)

Premium (SEC 77 TO SEC 82) Q: is payment by installment of premium valid?

A: yes, provided the insurer so agrees
Q: When is an insurer entitled to premium?
A: n insurer is entitled to payment of the premium as soon as the thing insured Q: what is the effect of acknowledgement of receipt of premium?
is exposed to the peril insured against A: It serves as conclusive evidence of the policy.

Q: Maria insured her house against fire for 1 year. Duing the year, there was no Q: when is return of portion of premium valid?
fire. Can there be a refund for premium paid? A: the return of portion of the premium is valid in the ff instances:
A: No,there can be no refund. The comsideration on the part of the insurer is when the insurance is made for definite period and the insured surrender his
the premium paid by the insured and the comsideration on the part of the policy
insured is the protection, promise orundertaking on part of the insurer to when there is an over insurance by several insurers
ineminity in case of loss.

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Q: when is return of premium not allowed?
A: the return of premium is not allowed in the ff: payment has beenmade at the time of the loss (Makati Tuscany Condominium
a. if a peril insured against has existed, and the insurer has been liable for Corporation v. Court of Appeals, G.R. No. 95546, November 6, 1992)
any period, however short, the insured is not entitled to return of
premiums, so far as that particular risk is concerned. (sec 80)
Q: Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had
b. Where the insurance is made for a definite period of time and the a long-standing insurance relationship with each other; SPMC secures the
insured surrenders his policy, to such portion of the premium as comprehensive fire insurance on its plant and facilities from SIC. The standing
corresponds with the unexpired time, at a pro rata rate, unless a short business practice between them has been to renewal of the policy is to allow
period rate has been agreed upon and appears on the face of the SPMC a credit period of 90 days from the within which to pay the premium.
policy, after deducting from the whole premium any claim for loss or Soon after the new policy was issued and before premium payments could be
damage under the policy which has previously accrued; Provided, That made, a fire gutted the covered plant and facilities to the ground. The day after
no holder of a life insurance policy may avail himself of the privileges of the fire, SPMC issued a manager's check to SIC for the fire insurance premium,
this paragraph without sufficient cause as otherwise provided by law. for which it was issued a receipt; a week later SPMC issued its notice of loss.
(sec 79, b) SIC responded by issuing its own manager's check for the amount of the
premiums SPMC had paid, and denied SPMC's claim on the ground that under
c. A person insured is entitled to return of the premium when the contract the "cash and carry" principle governing fire insurance, no coverage existed at
is voidable, on account of fraud or misrepresentation of the insurer, or the time the fire occurred because the insurance premium had not been paid.
of his agent, or on account of facts, the existence of which the insured Is SPMC entitled to recover for the loss from SIC? (2003, 2013 Bar)
was ignorant without his fault; or when by any default of the insured
other than actual fraud, the insurer never incurred any liability under the
policy. (sec 81) A: St. Peter Manufacturing Company is entitled to recover for the loss from
Stable Insurance Company. Stable Insurance Company granted a credit term
to pay the premiums. This is not against the law, because the standing business
Q: Will an insurance policy be binding even if premium is unpaid? What if practice of allowing St. Peter Manufacturing Company to pay the premiums
partially paid? (2015 Bar) after 60 or 90 days, was relied upon in good faith by SPMC. Stable Insurance
A: As a general rule, the insurance policy is not valid and binding, unless the Company is in estoppel (UCPB General Insurance Company, Inc. v. Masagana
premium thereof has been paid. This is the cash-and-carry rule under the Telemart, Inc., 356 SCRA 307, 2001).
Insurance Code. Premium is the consideration for the undertaking of the insurer
to indemnify the insured against a specified peril. There are exceptions,
however, one of them is, when there is an agreement allowing the insured to Q: The Peninsula Insurance Company offered to insure Francis' brand new car
pay the premium in installments and partial against all risks in the sum of P1 Million for 1 year. The policy was issued with the

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premium fixed at P60,000.00 payable in 6 months. Francis only paid the first two b. Would your answer in a) be the same if it as found that the proximate cause
months installments. Despite demands, he failed to pay the subsequent of the fire was an explosion and that fire was but the immediate cause of the
installments. Five months after the issuance of the policy, the vehicle was loss and there is no excepted peril under the policy?
carnapped. Francis filed with the insurance company a claim for its value. c. If the fire was found to have been caused by Alfredo’s own negligence, can
However, the company denied his claim on the ground that he failed to pay he still recover on the policy? (2007 Bar)
the premium resulting in the cancellation of the policy. Can Francis recover
from the Peninsula Insurance Company? A:
a. Yes, Alfredo may recover on the policy. It is valid to stipulate that the insured
A:Yes. As a general rule, no policy is binding unless the premiums thereof have will be granted credit term for the payment of premium. Payment by means of
been paid. However, one of the exceptions is when there is an agreement a check which was accepted by the insurer, bearing a date prior to the loss,
allowing the insured to pay the premium in installments and partial payment would be sufficient. The subsequent effects of encashment retroact to the date
has been made at the time of loss. In the case at hand Francis already paid of the check.
two installments at the time of the loss and as such may recover on the policy b. Yes, recovery under the insurance contract is allowed if the cause of the loss
(Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, Nov. 6, 1992). was either the proximate or the immediate cause as long as an excepted peril,
Furthermore, the contention of the insurer that the failure to pay premium if any, was not the proximate cause of the loss.
resulted in the cancellation of the policy is not tenable since no policy of c. Yes, mere negligence on the part of the insured will not prevent recovery
insurance shall be cancelled except upon notice thereof to the insured (Sec. under the insurance policy. The law merely prevents recovery when the cause
64, Insurance Code). of loss is the willful act of the insured, alone or in connivance with others.

Q: What is a mutual insurance company or association? (2006 Bar)

A: A mutual insurance company is a cooperative enterprise where the
members are both the insurer and the insured. In it, themembers all contribute,
by a system of premiums or assessments, to the creation of a fund from which
all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion of their interest.

Q: Alfredo took out a policy to insure his commercial building against fire. The
broker for the insurance company agreed to give a 15-day credit within which
to pay the insurance premium. Upon delivery of the policy on May 15, 2006,
Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006,
a fire broke out and destroyed the building owned by Alfredo.
a. May Alfredo recover on the insurance policy?

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