INSURANCE LAW
Atty. Borja
It is a part of commercial law. Primary source is codal. PD 1460, amended by RA 10607.
Another source is jurisprudence.
INSURANCE CODE (P.D. 612, as amended by R.A. No. 10607)
I.
DEFINITIONS AND CONCEPTS (Sections 1-5 Insurance Code, as amended
by R.A. No. 10607)
“SECTION 1. This Decree shall be known as ‘The Insurance Code’.
“SEC. 2. Whenever used in this Code, the following terms shall have the
respective meanings hereinafter set forth or indicated, unless the context
otherwise requires:
“(a) 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.
“(b) The term doing an insurance business or transacting an insurance
business, within the meaning of this Code, shall include:
“(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.
“In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.
“(c) As used in this Code, the term Commissioner means the Insurance
Commissioner.
“SEC. 3. 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 against, subject to the provisions of this chapter.
“The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children.
“All rights, 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.
“SEC. 4. 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.
“SEC. 5. All kinds of insurance are subject to the provisions of this chapter so
far as the provisions can apply.
1. “Contract of Insurance” (Sec. 2)
Philamcare Health Systems vs. CA
Important matters:
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable
interest against him, may be insured against. Every person has an insurable
interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining
the health care agreement was his own health. The health care agreement was
in the nature of non-life insurance, which is primarily a contract of indemnity.
Where matters of opinion or judgment are called for, answers made in good
faith and without intent to deceive will not avoid a policy even though they are
untrue.
Although false, a representation of the expectation, intention, belief, opinion,
or judgment of the insured will not avoid the policy if there is no actual fraud
in inducing the acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the statement is material to
the risk, if the statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. Concealment as a defense for the
health care provider or insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer.
Under Section 27 of the Insurance Code, "a concealment entitles the injured
party to rescind a contract of insurance." The right to rescind should be
exercised previous to the commencement of an action on the contract. In this
case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown
in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based.
None of the above pre-conditions was fulfilled in this case.
Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the
insurer.20 By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture. This is equally applicable to Health Care
Agreements.
The health care agreement is in the nature of a contract of indemnity. Hence,
payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She
is therefore entitled to reimbursement.
2. Events covered by Insurance
“SEC. 3. 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 against, subject to the provisions of this chapter.
“The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children.
“All rights, 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.
3. Characteristics of Insurance Contract
a. Consensual – It is consensual because it is perfected by the meeting of
minds of the parties. (It is also a real & formal contract)
b. Voluntary – It is not compulsory and the parties may incorporate such
terms and conditions as they may deem convenient.
c. Aleatory – It depends upon some contingent event. (It must be uncertain or
which is to occur at an indeterminate time)
d. Executed – As to the insured after the payment of the premium.
e. Executory – On the part of the insurer in the sense that it is not executed
until the payment of loss.
f. Unilateral – It imposes legal duty only on the insurer who promises to
indemnify in case of loss.
g. Conditional – It is subject to the conditions the principal one of which is the
happening of the event insured against.
h. Contract of indemnity – It is because the promise of the insurer is to make
good only the loss of the insured.
i. Personal – It is a personal contract, each, party having in view the character,
credit, and conduct of the other.
j. Property in legal contemplation (for life insurance) – Unlike property
policies, life insurance policies are generally assignable or transferable like
any “chose in action.” (sec. 181) They are in the nature of property and do not
represent a personal agreement between the insurer and insured.
4. Interpretation of Insurance Contracts
Malayan Insurance Corp vs. CA
Rizal Surety vs. CA
American Home Assurance vs. Tantuico Enterprises
DBP Pool vs. Radio Mindanao Network
Gulf Resorts vs. Phil. Charter Insurance
Eternal Gardens Memorial Park vs. PHILAMLIFE
Keppel Cebu Shipyard vs. Pioneer Insurance
Alpha Insurance & Surety vs. Castor
II.
INSURANCE POLICY (Secs 49-66) (Secs. 233-234)
1. Three types of insurance instruments
a. Policy (Sec. 49)
“SEC. 49. The written instrument in which a contract of insurance is set forth,
is called a policy of insurance.
Lucero vs. Insular Life
b. Binding Receipt (Sec. 50)
“SEC. 50. The policy shall be in printed form which may contain blank spaces;
and any word, phrase, clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall be written on the blank
spaces provided therein.
“Any rider, clause, warranty or endorsement purporting to be part of the
contract of insurance and which is pasted or attached to said policy is not
binding on the insured, unless the descriptive title or name of the rider,
clause, warranty or endorsement is also mentioned and written on the blank
spaces provided in the policy.
“Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the
insured or owner, which countersignature shall be taken as his agreement to
the contents of such rider, clause, warranty or endorsement.
“Notwithstanding the foregoing, the policy may be in electronic form subject
to the pertinent provisions of Republic Act No. 8792, otherwise known as the
‘Electronic Commerce Act’ and to such rules and regulations as may be
prescribed by the Commissioner.
c. Cover Note (Sec. 52)
“SEC. 52. Cover notes may be issued to bind insurance temporarily pending
the issuance of the policy. Within sixty (60) days after issue of a cover note, a
policy shall be issued in lieu thereof, including within its terms the identical
insurance bound under the cover note and the premium therefor.
“Cover notes may be extended or renewed beyond such sixty (60) days with
the written approval of the Commissioner if he determines that such
extension is not contrary to and is not for the purpose of violating any
provisions of this Code. The Commissioner may promulgate rules and
regulations governing such extensions for the purpose of preventing such
violations and may by such rules and regulations dispense with the
requirement of written approval by him in the case of extension in compliance
with such rules and regulations.
2. Rules Relating to Policies
a. IC-Approved Forms
b. Effect of blanks (Sec. 50)
c. Mandatory contents of policy (Sec. 51)
d. Mandatory Provisions in Life Insurance Policy (Secs. 233-234)
i) 30-day grace period for payment of premium, mandatory in life
insurance
ii) Incontestability clause
iii) Policy constitutes the entire contract between the parties
iv) Statement of age of insured when necessary to set the premium and the
benefits accruing, and if age stated is false, there will be adjustment of the
premium charge
v) Reinstatement
vi) Policy loan
e. When policy executed with an agent/trustee of insured (Sec. 54)
principal and real-party-in-interest must be indicated
f. Insurance by partner or co-owner (Sec. 55)
g. Policy may be framed to inure to benefit of whomsoever (Sec. 57)
3. Unilateral Cancellation of Non-life policy (Sec. 64)
a. Cancellation by Insurer (Secs. 64-65)
Travellers Insurance vs. CA
Agricultural Credit vs. Alpha Insurance
b. Cancellation by Insured
Paulino vs. Capital Insurance
4. Documentary stamp on insurance policy
5. Variable contracts (Secs. 238-246)