CHAPTER 2 – THE PARTIES • • • Insurer – the party who promises to pay in case loss results because the peril insured against occurred Insured – owner of the policy whose property or life is insured or who took out the insurance over the life of persons in whom he has insurable interest Beneficiary – person in whose favor the insurance was taken by the insured and who will receive the proceeds of the insurance in case of loss o In strict legal sense, the beneficiary is not a party to the contract unless he is the insured himself INSURED • Under the insurance Code, the insured is the person who applied for and to whom an insurance policy is issued to cover his life, property, or the life of or property of other persons in whose life or property he has insurable interest or liability to other persons • The one who enters into a contract with the insurer • “The person, group, or organization whose property, health, life is covered by an insurance policy” I. Assured and Owner • In life insurance, if a person insures the life of another, the person whose life is insured is call the “insured” while the person who took out an insurance on the former’s life is called the “assured” (some refer to them as “owner”) II. Capacity • (Article 1390 of New Civil Code) a contract is voidable if one of the parties is incapacitated • An insurance contract is voidable if the insured is a minor, an insane person, or is otherwise incapacitated to enter into an insurance contract • A capacitated person can validly enter into an insurance contract insuring the life of an incapacitated person (like a minor) • SPOUSES – married women can enter into insurance contracts without the consent of their husbands in the same manner that the latter can enter into an insurance contract without the consent of his wife for a policy taken out of his or her life or that of his or her children o SECTION 3, Insurance Code: “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” o RA No. 7192 – expressly provides that married women can enter into insurance contracts without the consent of their husbands o Women’s capacity to act is not impaired by marriage because the mandate of the law is on equality. “Art. 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds § Section 14, Article II of the 1987 Constitution o “His or her children” – does not limit the provision to an insurance taken on the common children of the spouses o Implication of Section 3 – consent of the spouse is necessary for the validity of an insurance policy taken out by a married person on the life of other persons other than life of the spouses themselves or his or her children § Apply Family Code § Absolute Community – • taking of insurance can be considered an act of administration, hence should be jointly made by the spouses. • if a spouse takes an insurance policy on his own life and a third person who is totally unrelated to them is made a beneficiary, then it is believed that the taking of the insurance and payment of the premium is in the nature of a donation that should be approved by both spouses. Section 98: “neither spouses may donate any community property without the consent of the other” Minors – minors cannot enter into insurance contracts. New Civil Code; contract entered in to between a minor and capacitated person is considered voidable o RA No. 10607 – removed provision on minors in Section 3; which previously provides that “any minor of the age of 18 years or more may, notwithstanding such minority, contract for life, health, and accident insurance, provided the insurance is taken on his own life and the beneficiary appointed is the minor’s estate or the minor’s father, mother, husband, wife, child, brother, or sister” § • III. Effect of Death of Owner • Section 3, as amended by RA No. 10607 – 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 IV. Public Enemy • Section 7, Insurance Code – “anyone except a public enemy may be insured” o Public Enemy – a State (and citizens thereof) which is at war with the Philippines o Effect of War – if there is no war yet at the time of the taking of the policy but war ensued, the insurance policy is deemed abrogated § “United States Rule” – the contract is not merely suspended, but is abrogated by reason of nonpayment of premiums, since the time of the payment is peculiarly of the essence of the contract (James McGuire v. Manufacturers Life Insurance Company) § SC rejected the New York rule which holds that war between states in which the parties reside suspends the contract of life insurance and that, upon tendering all premiums due by the insured, the contract is revived and becomes fully operative o Based on Section 7 of the Insurance Code, it stands that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy § The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy’s property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful V. Rights of Policyholders • Policyholder – the named owner of the insurance policy who may be the insured or assured in life or non-life insurance policy or a beneficiary as may be applicable (Insurance Commission Circular Letter No. 2016-30) • As part of its effort to protect the public, the Insurance Commission promulgated the Bill of Rights of Policyholders (1) Right to a financially sound and viable insurance company • right to an insurance company that is financially stable and solvent to ensure its ability to honor its contractual obligations to its policyholders. (2) Right to access insurance companies’ official financial information • right to access insurance companies’ audited financial statements and annual reports (3) Right to be informed of the license status of insurance companies, intermediaries and soliciting agents • right to be informed if a particular insurance company, intermediary or soliciting agent is duly licensed to engage in doing insurance business in the Philippines (4) Right to be offered a duly approved insurance product • Only duly approved insurance products in accordance with the Insurance Code and pertinent regulations shall be offered (5) Right to be informed of the benefits, exclusions and other provisions under the policy (6) Right to receive the policy • right to receive the policy within a reasonable period of time after payment of premium (7) Right to confidentiality of information • Policyholders shall be protected from unauthorized disclosure of personal, financial and other confidential information by insurance companies, intermediaries and soliciting agents, except as otherwise allowed by law, regulations or valid court or government order (8) Right to efficient service from insurance companies, intermediaries and soliciting agents • right to timely and prompt delivery of service from insurance companies, intermediaries and soliciting agents (9) Right to prompt and fair settlement of claims • Insurance companies shall process and settle policyholders’ claims with utmost good faith and within a reasonable period. • Policyholders shall have the right to: (i) receive a written acknowledgement of the claim; (ii) prompt payment of valid claims within the period prescribed under the Insurance Code or pertinent regulations; or, (iii) receive a written denial of claim with the stated ground and/or basis thereof. (10) Right to seek assistance from the Insurance Commission • right to seek assistance in settling any controversy between an insurance company, intermediary or soliciting agent and policyholder • Policyholders shall have the right to: (i) report any wrongful act or omission of an insurance company, intermediary or soliciting agent; (ii) file a complaint against any insurance company for unreasonable denial of a valid insurance claim; and (iii) institute action against any erring insurance company, intermediary and soliciting agent for any of the grounds provided under the Insurance Code and other pertinent regulations. INSURER • Section 6, Insurance Code – every person, partnerships, association, or corporation duly authorized to transact insurance business may be an insurer • Every person or corporation engaged in the business of making insurance contracts I. Definition • • “Insurer” or “insurance company” shall include all partnerships, associations, cooperatives or corporations, including GOCCs or entities engaged as principals in the insurance business, excepting mutual benefit associations Old governing provision of Insurance Code included individuals in the term “insurer or “insurance company”. However, individuals are no longer identified as persons who can be an insurer under the present law a) Professional Reinsurer • Section 288 – any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines b) Domestic and Foreign Company • “Domestic Company” include companies formed, organized or existing under the laws of the Philippines • “Foreign Company” include companies formed, organized or existing under any laws other than those of the Philippines c) Mutual Benefit Association • Although excluded from the term “insurer” under Section 190 of the Insurance Code, likewise within the regulatory powers of the Insurance Commission are “mutual benefit associations” • include “any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and/or no fixed amount from whomsoever may contribute. d) Mutual Insurance Companies • Section 268 – any domestic stock life insurance company doing business in the Philippines may convert itself into an incorporated mutual life insurer • It may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of Chapter III, Title 17 of the Insurance Code (MUTUALIZATION OF STOCK LIFE INSURANCE COMPANIES) (1) Procedure for Mutualization – plan for mutualization shall include appropriate proceedings for amending the insurer’s articles of incorporation to give effect to the acquisition, by said insurer, for the benefit of its policyholders or any class or classes thereof, of the outstanding shares of capital stock and the conversion of the insurer from a stock corporation into a non-stock corporation for the benefit of its members. (2) Term Policyholder/policyholders for purposes of mutualization – deemed to mean the person or persons insured under an individual policy of life insurance, or of health and accident insurance, or any combination of life, health, and accident insurance. • they shall also include the person or persons to whom any annuity or pure endowment is presently or prospectively payable by the terms of an individual annuity or pure endowment program, except where the policy pr contract declares some other person to be the owner or holder thereof, in which case such other person shall be deemed policyholder • include employer to whom, or a president, secretary or other executive officer of any corporation or association to which a master group policy has been issued, but exclude the holders of certificates or policies issued under or in connection with a master group policy. • Beneficiaries under unmatured contracts shall not as such be deemed to be policyholders. (3) Demutualization • Reasons for this development: o the need of companies for more funds. It is easier to raise funds if the corporate vehicle is a stock corporation. o to enable the insurance company to diversify its activities and to facilitate payment of certain types of non-cash compensation to its directors and officers • Demutualization is now expressly recognized under Section 280 of the Insurance Code which provides that “a domestic mutual life insurance company doing business in the Philippines may convert itself into an incorporated stock life insurance company by demutualization o “the conversion of a domestic mutual life insurance company shall be carried out pursuant to a conversion plan duly approved by the Commissioner” e) Cooperatives • Section 190 expressly includes cooperatives in the entities included in the terms “insurer” or “insurance company.” In this connection, Articles 105 to 108 of R.A. No. 9520 otherwise known as the Philippine Cooperative Code of 2008 provides that: ART. 105. Cooperative Insurance Societies. — Existing cooperatives may organize themselves into a cooperative insurance entity' for the purpose of engaging in the business of insuring life and property of cooperatives and their members. ART. 106. Types of Insurance Provided. — Under the cooperative insurance program established and formed by the virtue of the provisions of this Code, the cooperative insurance societies shall provide its constituting members different types of insurance coverage consisting of, but not limited to, life insurance with special group coverage, loan protection, retirement plans, endowment, motor vehicle coverage, bonding, crop and livestock protection and equipment insurance. ART. 107. Applicability of Insurance Laws. — The provisions of the Insurance Code and all other laws and regulations relative to the organization and operation of an insurance company shall apply to cooperative insurance entities organized under this Code. The requirements on capitalization, investments and reserves of insurance firms may be liberally modified upon consultation with the Authority and the cooperative sector, but in no case may be requirement to be reduced to less than half of those provided for under the Insurance Code and other related laws. ART. 108. Implementing Rules. — The Insurance Commission and the Authority, in consultation with the concerned cooperative sector, shall issue the appropriate rules and regulations implementing the provisions of this Chapter. II. • Certificate of Authority • Section 193 of the Insurance Code – “no insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the (Insurance) Commissioner upon application therefor and payment by the company concerned of the fees.” • A certificate of authority is required because contracts of insurance involve public interest and regulation thereof by the State is necessary. • Basic Qualifications (Section 192) – (1) possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; (2) nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe. Terms of the Certificate (Section 193) – The certificate of authority issued by the Commissioner shall expire on the last day of December, three (3) years following its date of issuance, and shall be renewable every three (3) years thereafter, subject to the company’s continuing compliance with the provisions of this Code, circulars, instructions, rulings or decisions of the Commission.” III. Grounds for Disapproval of Application (Section 193) a) If such refusal will best promote the interest of the people of this country; b) If there is evidence that the applicant company is not qualified by the laws of the Philippines to transact business therein; c) If the grant of such authority appears to be unjustified in the light of: (1) economic requirements; (2) the direction, administration, integrity and responsibility of the organizers and administrators; (3) the financial organization and the amount of capital; and (4) reasonable assurance of the safety of the interests of the policyholders and the public; and d) The name of the applicant belongs to any other known company transacting a similar business in the Philippines or its name is so similar as to be calculated to mislead the public. IV. Prohibited Acts a) To transact in the Philippines both the business of life and non-life insurance concurrently unless specifically authorized to do so; b) To have equity in an adjustment company (neither shall an adjustment company have an equity in an insurance company); c) To negotiate any contract of insurance other than is plainly expressed in the policy or other written contract issued to or to be issued as evidence thereof; d) To directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of such insured, either as an inducement to the making of such insurance or after such insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon; e) To give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract of insurance; f) To make any discrimination against any Filipino in the sense that he is given less advantageous rates, dividends or other policy conditions or privileges than are accorded to other nationals because of his race; g) To issue or circulate or cause or permit to be issued or circulated any literature, illustration, circular or statement of any sort misrepresenting the terms of any policy issued by any insurance company of the benefits or advantages promised thereby, or any misleading estimate of the dividends or share of surplus to be received thereon; h) To use any name or title of any policy or class of policies misrepresenting the true nature thereof; and i) To make any misleading representation or incomplete comparison of policies to any person insured in such company for the purpose of inducing or tending to induce such person to lapse, forfeit, or surrender his said insurance BENEFICIARY • The beneficiary may be a party to the contract of insurance or a third person (a person who is not a party to the contract). For instance, person having insurable interest over the life of another may obtain an insurance policy and designate himself as the beneficiary. On the other hand, a person may insure his own life or property and designate somebody else or a third person as the beneficiary. The designation of the third party as a beneficiary may be required by a separate agreement as in the case of a mortgagee who is designated by virtue of a stipulation in a mortgage contract. However, the designation of the beneficiary may be based on the sole will of the insured. • Beneficiary Not A Party. Unless he is the insured himself, the beneficiary is not one of the contracting parties. However, a third party beneficiary named in the policy has the right to file an action against the insurer in case of loss. No other party can recover the proceeds other than the beneficiary. o SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.
