INSURANCE LAW

 
WHAT IS AN INSURANCE CONTRACT?
 
PRINCIPAL FUNCTION
 
 A contract of insurance is a risk-bearing
device. The financial loses of the few are
equitably distributed over the many out of a
fund contributed by all.
 
ELEMENTS OF AN INSURANCE CONTRACT
(RAPID):
1. Insurance has an insurable interest;
2. Insured is subject to a risk of loss by the
happening of the designated peril
3. Insurer assumes the risk;
4. Assumption of risk is part of a general scheme
to distribute actual losses among a large group of
persons bearing a similar risk;
5. In consideration of the insurer’s promise, the
insured pays a premium.
 TEST: The test to determine if a contract is a
contract of insurance or not, depends on the
nature of the promise, the act required to be
performed, and the exact nature of the
agreement in the light of the occurrence,
contingency or circumstances under which the
performance becomes requisite. It is not by what
it is called. (White Gold Marine Services, Inc. vs.
Pioneer Insurance and Surety Corporation.
PRINCIPAL PURPOSE or OBJECT TEST
Is an HMO a contract of insurance?
Philamcare is an HMO that provides health
maintenance services to its members.
Under the healthcare agreement, a member
is entitled to avail of hospitalization
benefits. Are the Healthcare Agreements
insurance contracts?
 Yes. The healthcare agreement is in the
nature of non-life insurance which is
primarily a contract of indemnity. Once the
members incurs hospital, medical or any
other expense arising from sickness, injury
or other stipulated contingent, the
healthcare provider must pay for the same
to the same agreed upon under the
contract.
Philippine Healthcare Providers, Inc. (PHCPI)
in an HMO which primarily provides
medical services to its members. Under the
agreement, the member pays PHCPI a
predetermined consideration in exchange
for hospital and medical services rendered
by PHCPI’s physicians. Also, it is PHCPI, not
the members, who pays the physicians for
the services availed by the members.
Does the subject healthcare agreement
qualify as an insurance contract?
No. If the primary purpose or object of an
agreement is the rendering of service, it is
not a contract of insurance but some other
kind of contract (Philippine Healthcare
Providers, Inc. vs. CIR, G.R. No. 167330,
September 18, 2009)
CHARACTERISTICS OF AN INSURANCE
CONTRACT
 CONSENSUAL

Note: Cognition Theory is followed.

 VOLUNTARY.

Exceptions: CMVLI, Employees

Compensation Law and Insurance Contracts
as condition to granting license to conduct a
business or calling affecting the public
safety or welfare.
ALEATORY
UNILATERAL
CONDITIONAL
CONTRACT OF INDEMNITY
PERSONAL
ONEROUS
UBERRIMAE FIDAE (PERFECT GOOD FAITH)
RISK SPREADING DEVICE
FORMAL
AN INSURANCE CONTRACT IS A CONTRACT
OF ADHESION.

Being contracts of adhesion, the general

rule is that insurance contracts are to be
construed liberally in favor of the insured
and strictly against the insurer resolving all
ambiguities against the latter.
 EXCEPTION: Contracts of insurance, like
other contracts, are to be construed
according to the sense and meaning of the
terms which the parties themselves have
used. If such terms are clear and
unambiguous, they must be taken and
understood in their plain, ordinary and
popular sense (Lalican vs. The Insular Life
Assurance Company LTd., G.R. No. 183526,
August 25, 2009)
PARTIES TO AN INSURANCE CONTRACT.
INSURER
INSURED
ASSURED
BENEFICIARY
WHAT MAY BE INSURED?
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 insured.
TERMS ESSENTIAL IN CONSTRUING A
CONTRACT OF INSURANCE
Binding Receipt
Cover Noted (Ad Interim)
Rider
Clauses
Warranty
Endorsements
REQUISITES FOF RCWE TO BE BINDING:
1. The RCWE must be attached to the policy.
2. The descriptive title of name of the rider,
clause, warranty or endorsement is
mentioned and written on the blank spaces
provided in the original printed policy form;
3. If not applied for by the insured or owner,
the RCWE shall be countersigned by the
insured.
WARRANTY vs. REPRESENTATION
 Joanna applied for a non-medical life
insurance. Joanna did not inform the insurer
that one week prior to her application for
insurance, she was examined and confined
at St. Luke’s Hospital where she was
diagnosed for lung cancer. The insured soon
thereafter died in a plane crash. Is the
insurer liable considering that the fact
concealed had no bearing with the cause of
death of the insured? Why?
 
  
No. The concealed fact is material to the 
approval and issuance of the insurance 
policy. It is well settled that the insured 
need not die of the disease she failed to 
disclose to the insurer. It is sufficient 
that his nondisclosure misled the insurer 
in forming his estimate of the risk of the 
proposed insurance policy or in making 
inquiries.
CLASSES OF INSURANCE
 
MARINE INSURANCE. The Insurance Code
does not limit marine insurance to risks of
navigation (Aquino).

Memorize Sec. 1o1 of the Insurance Code

 
TYPES OF MARINE INSURANCE POLICY:
1. All risks policy.
2. Named perils policy.
 
BARRATRY CLAUSE
 
INCHMAREE CLAUSE
 
SUE AND LABOR CLAUSE
 
DELAY CLAUSE
 
PROTECTION AND INDEMNITY CLAUSE
 
RUNNING DOWN CLAUSE
 
INSTITUTE WAR CLAUSE
 
MEMORANDUM CLAUSE
 
GENERAL RULE: Only perils of the sea may
be insured against.
 
ExceptionL In an All Risk Policy, perils of the 
ship may be covered.
GENERAL RULE: Only perils of the sea may
be insured against.
 
Exception: In an All Risk Policy, perils of the 
ship may be covered.
PERILS OF THE SEA PERILS OF THE SHIP
Refers only to fortuitous  A loss which in the ordinary 
accidents. course of events results 
from:
Includes only those: a. Natural and inevitable 
a. Casualties due to  action of the sea;
unusual violence; b. Ordinary wear and tear 
b. Extraordinary action of  of the ship;
wind and wave; c. Failure of the ship’s 
c. Other extraordinary  owner to provde the 
causes connected with  vessel with the proper 
navigation. equipment to convey 
the cargo under ordinary 
conditions.
Other perils which may be insured against:
1. Fire and related perils
2. Jettison
3. Barratry
4. Assailing Thieves
5. All other Perils
 
Implied warranties in Marine Insurance
1. Seaworthiness;
2. The ship has documents of neutrality or
nationality;
3. Against improper deviation;
4. Legality of the voyage.

 
SHIPWORTHINESS vs. CARGOWORTHINESS

 
WHEN IS DEVIATION PROPER?
1. When caused by circumstances where
master or ship has no control.
2. When necessary to comply with a
warranty or to avoid a peril, whether or not
the peril is insured.
3. When made in good faith, and upon
reasonable ground of belief in its necessity
to a void a peril;
4. When made in good faith to save human
life or relieve another vessel in distress. 
KINDS OF LOSS IN MARINE INSURANCE
1. Total
a. Actual Loss which is caused by
i. Total destruction of the thing insured;
ii. Irretrievable loss of the thing by sinking
or being broken up
iii. Damage to the thing which renders it
valueless to the owner for the purpose
for which he held it;
iv. Other event which effectively deprives
the owner of the possession, at the port
of destination, of the thing insured
(Sec. 132, Insurance Code)
KINDS OF LOSS IN MARINE INSURANCE
1. Total
b. Constructive
i. Actual loss of more than ¾ of the value of
the thing or the expense that would be
incurred to recover
ii. Reduction in value by more than ¾
iii. As to the ship, cargo and freightage,
when the voyage cannot be lawfully
performed without incurring an expense 
of more than ¾ of its value, or a risk which
a prudent man would not take under the
circumstances
KINDS OF LOSS IN MARINE INSURANCE
2. Partial
ABANDONMENT
Requisites of Abandonment:
1. Actual relinquishment by the person insured of his
interest in the thing insured (Sec.140)
2. Constructive Total Loss (Sec. 141)
3. Abandonment is neither partial nor conditional (Sec.
142)
4. Made within a reasonable time after receipt of reliable
information of the loss (Sec. 143)
5. Factual (Sec. 14)
6. Notice of abandonment to the insurer, orally or in
writing (Sec. 145)
7. Notice of abandonment must be explicit and specific
as to cause of the abandonment (Sec. 146)
EFFECTS OF ACCEPTANCE/ REFUSAL TO
ACCEPT ABANDONMENT
MEASURE OF INDEMNITY IN MARINE
INSURANCE

1. Valued Policy
2. Open Policy
a. Ship
b. Cargo
c. Freightage
3. Partial Loss
FIRE INSURANCE
 Fire, Lightning, Windstorm, Tornado or
Earthquake, Other Allied Risks, when such
risks are covered by extension to fire
insurance policies or under separate
policies.
HOSTILE FIRE vs. FRIENDLY FIRE
RISKS OR LOSSES COVERED:
1. Direct Losses
2. Indirect (Consequential) Losses
a. Physical Damage
b. Loss of earnings
c. Extra Expenses
EFFECTS OF ALTERATION I THE USE OR
CONDITION OF A THING INSURED
Requisites:
1. The use or condition of the thing insured
is limited or stipulated in the policy;
2. Such use or condition is altered;
3. Alteration is made without the consent of
the insurer;
4. Alteration is within the control of the
insured;
5. Alteration increases the risk.
EFFECT OF SUBSEQUENT ACTS OF THE
INSURED
MEASURE OF INDEMNITY
1. Valued Policy
2. Open Policy
OPTION TO REBUILD CLAUSE
CASUALTY INSURANCE
1. Employer’s liability insurance
2. Motor vehicle liability insurance
3. Plate glass insurance
4. Burglary and theft insurance
5. Personal accident and health insurance as
written by non-life insurance companies
6. Other substantially similar kinds of
insurance
 GOVERNING RULES. Casualty insurance
contracts are governed by the general
provisions applicable to all types of
insurance. Outside of these, the rights and
obligations of the parties must be
determined by the terms of their contract,
taking into consideration its purpose and
always in accordance with the general
principles of insurance law (Fortune
Insurance and Surety Company, Inc. v. CA,
G.R. No. 115278, May 23, 1995)
ACCIDENTAL INTENTIONAL
That which happens by  Implies the exercise of 
chance or fortuitously,  the reasoning faculties, 
without intention or  consciousness and 
design and which is  volition. Where a 
unexpected, unusual or  provision of the policy 
unforeseen (Sun  excludes intentional 
Insurance Office, Ltd., vs.  injury, it is the intention 
CA, G.R. No. 92383, July  of the person inflicting 
17, 1992) the injury that is 
controlling. 
USUAL EXCLUSIONS IN PERSONAL ACCIDENT
AND HEALTH INSURANCE:
1. Willful expose to needless perils
2. Voluntary Acts
BAR: In a course of a voluntary boxing
contest, B who had an accident insurance
policy slid and slipped, enabling his
opponent boxer to hit him with a blow that
threw him to the ropes, hitting his head
against the canvass, causing B’s eventual
death. There is nothing in the insurance
contract appertaining to boxing. Is the
Insurance Company liable?
Yes. The Insurance Company is liable because the
death in this case was an accident within the
meaning of the policy. While the participation of
the insured in boxing is voluntary, the injury was
sustained when he slid, giving occasion to the
infliction by his opponent of the blow that threw
him to the ropes of the ring. Without this
unfortunate incident, B could not have received
that blow in the head and would not have died.
The fact that boxing is attended with some risks
of external injuries does not make injuries in the
course of the game not accidental (Simon dela
Cruz vs. The Capital Insurance).
SUICIDE
DIRECT LIABILITY TO 3rd PARTY
 
NO ACTION CLAUSE
 
SURETYSHIP
 
LIFE INSURANCE. Insurance on human lives
and insurance appertaining thereto or
connected therewith (Sec. 181)
 
NATURE:
1. Liability is absolutely certain;
2. Amount of insurable interest is generally
without limit;
3. Policy is a valued policy;
4. It is not a contract of indemnity;
5. Direct pecuniary loss is not required.
 
Cash Surrender Value
 
RULE ON TRASNFER/ BEQUEST OF LIFE
INSURANCE POLICY:
1. Transfer;
2. Will;
3. Succession.
 
RIGHTS OF THE TRANSFEREE.
 
RULES ON BENEFICIARY IN LIFE INSURANCE:
1. Beneficiary is designated and designation
is valid;
2. No Designated beneficiary or designation
is void.
 
EFFECT OF USE OF CONJUGAL/
EXCLUSIVE FUNDS
RULES ON REVOCABILITY OF DESIGNATION
OF BENEFICIARY
INCONTESTABILITY CLAUSE
COMPULSORY MOTOR VEHICLE INSURANCE.
Refers to a contract of insurance against
passenger and third-party liability for death
or bodily injuries and damage to property
arising from motor vehicle accidents.
NO FAULT INDEMNITY CLAIM
INSURABLE INTEREST
DOUBLE INSURANCE (P2-SIR).
1. Same person insured;
2. Two or more insurers insuring separately;
3. Same subject matter;
4. Same insurable interest;
5. Same risk or peril insured against.
DOUBLE INSURANCE v. OVER INSURANCE
REINSURANCE