INTRODUCTION GILBERT R. HUFANA Professor, Law 139 Insurance Law WHAT IS THE PRINCIPLE BEHIND INSURANCE? • Insurance is based upon the principle of aiding another from a loss caused by an unfortunate event. • Benevolent societies organized for the purpose of extending aid to their unfortunate members from a fund contributed by all, have been in existence from the earliest times. • They existed among the Egyptians, the Chinese, the Hindus, the Romans, and are known to have been established among the Greeks as early as, believe it or not, 3 B.C. INSURANCE IN THE PHILIPPINES • Pre-Spanish Era - there was no insurance; every loss was borne by the person or the family who suffered the misfortune. • Spanish era – Insurance, in its present concept, was introduced in the Philippines when Lloyd’s of London appointed Strachman, Murray & Co., Inc. as its representative here. DEVELOPMENT OF INSURANCE IN THE PHILIPPINES • 1898 – Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in the local insurance market. • 1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized 1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized • 1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The business transacted the Philippines was then limited to non-life insurance. DEVELOPMENT OF INSURANCE IN THE PHILIPPINES • 1936 – Social insurance was established with the enactment of Commonwealth Act no. 186 which created the Government Service Insurance System (GSIS) which started operations in 1937. The Act covers gov’t employees. • 1949 – Government agency was formed to handle insurance affairs, where the Insular Treasurer was appointed commissioner ex-officio. DEVELOPMENT OF INSURANCE IN THE PHILIPPINES • 1950 – Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties for both life and non life. • 1951 – First workmen’s compensation pool was organized as the Royal Group Incorporated. • 1954 – RA 1161 was enacted which provided for the organization of the Social Security System (SSS) covering employees of the private sector. INSURANCE LAW IN THE PHILIPPINES • During the Spanish Period, the laws on insurance were found in Title VII of Book II and Section III of Title III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book IV of the Spanish Civil Code of 1889 • During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act 2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of Commerce on Insurance. INSURANCE LAW IN THE PHILIPPINES • When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of the Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the Insurance Act was the governing law on insurance in the Philippines. • On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317 were issued, amending PD 612. Finally PD 1460 which took effect on June 11, 1976 consolidated all insurance laws into a single code and this is what we know now as the Insurance Code of 1978. INSURANCE LAW IN THE PHILIPPINES • Recently on August15, 2013, President BENIGNO S. AQUINO III signed into law RA 10607 “An act strengthening the insurance industry, further amending presidential decree no. 612, otherwise known as “the insurance code”, as amended by presidential decree nos. 1141, 1280, 1455, 1460, 1814 and 1981, and batas pambansa blg. 874, and for other purposes” CONTRACT OF INSURANCE SEC 2, IC • A “Contract of Insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. • A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided. CONTRACT OF INSURANCE • According to Vance a “ contract of insurance is an agreement by which one party, for a consideration, promises to pay money or its equivalent, or to do some act valuable to the insured or his nominee, upon the happening of a loss, damage, liability or disability arising from an unknown or contingent event.” “DOING OR TRANSACTING AN INSURANCE BUSINESS” 1. Making or proposing to make, as insurer, any insurance contract; 2. Making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; 3. Doing any kind of business including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; 4. Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this code. CHARACTERISTICS OF AN INSURANCE CONTRACT 1. Consensual – perfected by the meeting of the minds of the parties 2. Voluntary – it is not compulsory and the parties may incorporate such terms and conditions as they may deem convenient which will be binding provided they are not against the law or public policy 3. Aleatory – depends upon some contingent (subject to chance) event 4. Executed – as to the insured after the payment of the premium CHARACTERISTICS OF AN INSURANCE CONTRACT 5. Executory – as to the insurer as it is not executed until payment for a loss 6. Conditional – subject to conditions the principal one of which is the happening of the event insured against 7. Personal – each party in the contract have in view the character, credit and conduct of the other 8. One of perfect good faith (uberrimae fides) • More so on the insurer since its position carries with it a stricter responsibility CHARACTERISTICS OF AN INSURANCE CONTRACT 9. A contract of adhesion • Insurer prepares “agreements” in printed form which the insured may not change • Insured is only limited to “take it or leave it” • Resolve ambiguities in favor of insured, against the insurer to protect the weaker party 10. A contract of insurance is a contract of indemnity and not a wagering, or gambling contract. • Indemnity is compensation for damages or loss, and in the legal sense, it may also refer to an exemption from liability for damages. INSURANCE CONTRACT IS NOT A WAGERING/GAMBLING CONTRACT • A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25) • While it is based on a contingency, it is not a contract of chance and is not used for profit. • If the prizes do not come out of the fund or contributions by the participants, no consideration has been paid and consequent, there is no lottery. INSURANCE FOR OR AGAINST ANY LOTTERY SEC. 4, IC • The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize. • Insurance for or against any lottery is VOID. • “LOTTERY” extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibition, prize concerts, raffles at fair, etc. and various forms of gambling • ELEMENTS: Consideration, prizes and chance INSURANCE CONTRACT VS GAMBLING CONTRACT CLASSIFICATION OF INSURANCE CONTRACTS • Life insurance contracts • Individual (Sections 179-183, 227) • Group Life (Sections 50 and 228) • Industrial Life (Sections 229-231) • Non-Life Insurance Contracts • Marine (Sections 99-166) • Fire (Sections 167-173) • Casualty (Section 174) • Contracts of Suretyship and bonding (Sections 175178) HOW ARE INSURANCE CONTRACTS & THE INSURANCE CODE CONSTRUED? • Ambiguities or obscurities must be strictly interpreted against the party that caused them. • As the insurance policy is prepared solely by the insurer, the ambiguities shall be construed against it and in favor of the insured. (Qua Chee Gan v. Law Union Rock 98 PHIL 85) • Art. 2011, NCC. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code.