INSURANCE by RIANO (Book Summary)

Insurance Code of the Philippines

GENERAL PROVISIONS
Section 1. This Decree shall be known as The Insurance Code.

Historical Origin of insurance.

1. Mutual insurance is as old as society. It is based upon the principle of aiding
another from a loss caused by an unfortunate event.
2. Origin of present day insurance attributed to merchants of Italian cities in
common shipping ventures for distributing among the mutual contractors,
the loss falling upon any one by reason of the perils of navigation.
3. Development of insurance in England. Lombards founded trading houses in
London in the 12th century and brought with them the custom of insuraing
against hazards of trade. In the middle of the 18 th century, the common
law courts of England began to take cognizance of insurance cases where
Lord Mansfield was appointed as Chief Justice and was later on called as
the Father of English Commercial Law.
4. Development of insurance in US. It has followed the same lines in England
but the English practices has little influence to that of the US.
5. Development of insurance in Philippines.
a) Pre-spanish times- barangays started developing a form of assistance to
bereaved members of the family of someone who dies which was the
foundation of mutual benefit societies and fraternal associations.
b) Present-day concept. In 1829, Lloyds of London appointed Stracham,
Murray & Co., Inc. as its representative in Philippines. The first domestic
non-life insurance company, Yek Ting Lin Fire and Marine Insurance
Company, was organized on June 8, 1906; the first domestic life
insurance, the Insurance Life Assurance Co., Ltd., was organized in 1910.
c) Social insurance. It was established in 1936 with the enactment of CA No.
186, which created the Government Service Insurance System.

Sources of insurance law in the Philippines.

1. Act No. 2427, Insurance Act
2. RA No. 386, Civil Code of the Philippines
3. PD No. 612, The Insurance Code
4. PD No. 1460, The Insurance Code of 1978
5. RA No. 10607, An Act Strengthening the Insurance Industry, Further
Amending PD No. 612

Laws governing insurance.

1. Insurance Code of 1978.
2. Civil Code (Right of Subrogation Article 2207; applies suppletorily or
subsidiarily)
3. Special Laws (Insurance Code, Revised Government Insurance Act of 1977,
Social Security Act of 1954)
4. Others (Property Insurance Law, RA No. 4898 providing life, disability and
accident insurance to barangay officials, EO No. 250 insurance benefits of
barangay officials, RA No. 3591 which established Philippine Deposit
Insurance Corporation)

Right of subrogation of insurer to rights of insured against wrongdoer.

Subrogation- the substitution of one person in place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies and securities.

Article 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.

1. Purposes of subrogation condition in policy

a) To make the person who caused the loss legally responsible for it.
b) To prevent insured from receiving double recovery from wrongdoer and
insurer.
2. It is only applicable to property insurance.
3. It is not dependent upon any privity of contract or upon written assignment
of claim; it accrues upon payment of insurance claim by the insurer.
Payment may be evidenced by showing of subrogation receipt.
4. The loss or injury must be covered by the policy.
5. Insurer cannot defeat the insureds claim by the mere fact that insured has
the right to be indemnified by a third person.
6. The amount insurer can claim is limited to the amount recoverable from the
latter by the insured.
7. Exercise of right of subrogation by insurer is discretionary.
8. Should the insured releases the wrongdoer or third party of its obligation,
the insurer loses his rights against the latter; hence, insured shall return to
the insurer the amount paid thereby.

Section 2. Wherever 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 the
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 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 activity of the surety;
(3) Doing any kind of 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.

Legal concept of insurance.

Contract of insurance- is an agreement by which one party (insurer) for a
consideration (premium) paid by the other party (insured), promises to pay money
or its equivalent or to do some act valuable to the latter (or his nominee), upon
the happening of a loss, damage, liability or disability arising from an unknown or
contingent event.

Policy- a written insurance contract

Definition of insurance from other viewpoints.

1. Economic- a method which reduces risk by a transfer and combination of
uncertainty in regard to financial loss.
2. Business- a plan by which large numbers of people associate themselves
and transfer to the shoulders of all, risks that attach to individuals.
3. Mathematical- application of certain actuarial principles to calculate the
chance of loss.
4. Social- social device whereby the uncertain risks may be combined in a
group and thus made more certain with small periodic contributions by
providing a fund out of which those who suffer losses may be reimbursed.

Determination of the existence of a contract.

1. Nature of the contract- determined by the exact nature of the contract actually
entered into, whatever form it takes or by whatever name it may be called

2. Elements of the contract

a) Subject Matter- the thing insured
b) Consideration- premium
c) Object and Purpose- transfer and distribution of risk of loss, damage or
liability
d) Offer and Acceptance

Nature and characteristics of an insurance contract.

1. Consensual- occurs by meeting of the minds of parties
2. Voluntary- but it may be required by law in certain instances or may arise
from the operation of law
3. Aleatory- depends upon some contingent event
4. Executed as to insured and executory on the part of the insurer
5. Conditional- subject to conditions like the happening of event insured
against
6. Contract of indemnity- promise of insurer is to make good only the loss of
the insured
7. Personal contract- between the insurer and the insured
8. Property in legal contemplation

Distinguishing elements of the contract of insurance.

1. Insured possesses an insurable interest (susceptible of pecuniary
estimation)
2. Insured is subject to a risk of loss
3. Insurer assumes that risk of loss
4. Such assumption of risk is a part of a general scheme to distribute actual
losses among a large group of substantial number of persons bearing a
similar risk
5. Insured makes a ratable contribution as a condition for the insurers
promise, called premium

Insurance, a risk-distributing device.

1. Equitably distributes losses out of a general fund contributed by all.
2. Provides protection against absorbing ones losses alone.

Coping with risk.

 1. Limiting the probability of loss.
Example: A builder might choose to use masonry rather than wood in a given
structure or install loss prevention devices to limit probability of loss.
2. Limiting effects of loss.
Example: Many building owners choose to install sprinkler systems to prevent fire.
Also, diversification of investment is one way to limit effect of loss.
3. Self-insurance or self-financing
Example: A restaurant owner, cognizant of the possibility that a patron may
contract food poisoning is likely to set aside a portion of a years profit or
establish a special reserve fund to pay when loss occurs.
4. Ignoring risk
5. Transferring risk to another
Example: Contractual arrangement, Insurance

The value of transferring risk.

An individuals attitude towards risk is influenced by several factors including the
probability of loss, the potential magnitude of the loss, and the persons ability to
absorb the loss.
1. Risk preferring- choose to forego the certain loss in the hope of incurring no
loss
2. Risk neutral- indifferent to alternatives
3. Risk averse- choose to lose P500 with certainty instead of confronting the
50% chance of losing twice as much
a) As the potential magnitude of loss increases, most people becomes more
risk averse.
b) Risk averse people are usually willing to pay someone else to assume the
risk.

Economic effects of the transfer and distribution of risk.

1. Benefit to society as a whole- since satisfaction of insurer and insured would
be improved, society as a whole would be better off if a large number of
similar, mutually beneficial transactions would occur
2. Undesirable side effects
Moral hazard- existence of insurance could increase the probability of loss when
the insured feels that he would not suffer inconvenience if the contingent event
occurs
3. Problem regarding measurement of amount of risk transferred
4. Sharing by insured of some responsibility for the risk
a) Deductible- insured bears any loss up to some stated amount with the
insurer bearing the rest.
b) Coinsurance- insured bears some stated percentage of the loss regardless
of its amount, with the insurer bearing the rest
5. Problem regarding computation of premium to be charged
6. Classification of risks- because of impracticability of individual rating,
insurers group similar risks together and charge each member of the group
the same premium
7. Sub-classification of risks
Adverse selection- within the same group, some insureds will be better risks than
others, even though all members of the group pay the same premium

The fields of insurance.

1. In general
a) Social (government) insurance and Voluntary (private) insurance
b) Multiple lines insurance and All lines insurance
2. Social (government) insurance- compulsory and is designed to provide a
minimum of economic security for large groups of persons, particularly
those in the lower income groups
3. Voluntary (private) insurance- sought by the insured to meet a recognized
need for protection
 a) Commercial insurance- receives motivating force from the profit idea
i. Personal insurance (life insurance, annuities, health and accident
insurance)
ii. Property insurance (indemnities in event of loss or damage to ones
own property; or pays damages for which insured is legally liable, the
consequences of negligent acts that result in injuries to other persons
or damage to their property)
b) Cooperative insurance- associations are organized without regard to the
profit motive and represent, in fact, an effort to accomplish the ends of
social insurance by private enterprise
c) Voluntary government insurance- various plans offered are designed to
benefit the entire community but are used only by those persons who
wish to use the available benefits

Classifications of contracts of insurance.

1. Three main classifications
a) Insurance against loss or impairment of property interests (which may
either be in existence or merely expected; that is, present rights or profits
yet to accrue)
b) Insurance against loss of earning power (life insurance)
c) Insurance against contingent liability to make payment to another
(workmens compensation insurance, motor vehicle liability insurance)
2. Modernized classification
a) Marine, Property, Personal, Liability
b) Property insurance, Personal insurance

Classification by interests protected.

1. First-party versus third-party insurance
First party insurance- contract is designed to indemnify the insured for a loss
suffered directly by the insured
a) Property insurance- first-party insurance, damage to property is an
immediate, direct diminution of the insureds assets
b) Liability insurance- third-party insurance because the interests protected
by the contract are ultimately those of third parties injured by the
insureds conduct
c) All insurance except liability can be though of as FIRST-PARTY insurance
d) In life insurance, even if another person is designated to receive the
proceeds, it is not a third-party insurance.
e) No-fault insurance- substitution of first-party insurance to tort liability;
victim recovers for his loss from his own insurer, without regard to the
fault of the third party or his own contributory fault
2. All-risk versus Specified risk
All risk- reimburses the insured for damage to the subject matter of the policy
from all causes except thos specifically excepted in the policy
Specified risk- covers damage to the subject matter of the policy only if it results
from specifically identified causes listed in the policy
a) Jewelers block insurance- (history of all-risk) developed to provide
jewelers with coverage regardless of the cause
b) Burden of proof- under specified risk, burden is on insured to prove that it
comes within the policys provisions; under all-risk, once insured
establishes that loss occurred through some event other than inherent
defect or normal depreciation, insurer has the burden to prove that loss
falls within the exceptions
c) Advantages of All-risk:
i. Simpler to understand
ii. Duplication of coverages and premiums from separate, specified-risk
policies is avoided
iii. Pressures toward adverse selection are minimized
iv. Policies are easier and less expensive for the insurer to administer
Classifications under the Code.
1. Life insurance contracts:
a) Individual life
b) Group life
c) Industrial life
2. Non-life insurance contracts
a) Marine
b) Fire
c) Casualty
3. Contracts of suretyship or bonding

Contracts written by guaranty or surety companies.

A class of contracts written by guaranty or surety companies and generally
designated as guaranty insurance, comprises principally fidelity, title, bond, and
security guaranty. Contracts of this kind are regarded as those of insurance where
the underwriter engages in the business for profit, especially since the terms of
such contracts usually closely resemble the essential elements of insurance
contracts.

Construction of insurance contracts.

The policy cannot be construed piece-meal and should be examined and
interpreted in consonance with each other.
1. Where there is ambiguity or doubt. It should be interpreted as to carry out
the purpose for which the parties entered into the contract.
- A policy of insurance is a contract of adhesion. Accordingly, an insurance policy
which contains exceptions or conditions tending to work a forfeiture of the policy
shall be interpreted against whom they are intended to operate and most strictly
against the insurance company or party for whose benefit they are inserted.
----------------- (See Book for Illustrations) ------------------

2. Where terms are clear. The court is bound to adhere to the insurance
contract as the authentic expression of the intention of the parties, and it
must be construed and enforced according to the sense and meaning of
the terms which the parties themselves have used.
----------------- (See Book for Illustrations) ------------------

3. Where contract is silent with respect to a particular matter. Any doubt that
may arise for failure of the contract to provide with respect to a particular
matter should be resolved against the insurer.

What constitutes doing or transacting an insurance business.

1. Name or designation by insurer not controlling. It is what the law defines it
to be.
2. Acts deemed included by law. (Sec. 2. [2])
a) A newspaper which in order to increase its circulation, promises to pay a
certain amount to the heirs of one who meets death by accident while
pursuing his ordinary avocation, provided a copy of the paper or a coupon
taken from it is found in his possession at the time of the accident, carries
an accident insurance business which is unauthorized under a charter
empowering it to publish newspaper. (Commonwealth v. Philadelphia
Inquirer)
b) A contract for the payment of burial or funeral expenses at the death of
the holder is a contract of life insurance subject to the insurance laws.
c) An agreement to service and repair, at a flat monthly fee, any burned out
and defective parts of fluorescent fixtures has been held not to constitute
an insurance contract since any element of warranty or guaranty in the
agreement is merely incidental to the servicing business.
3. Principal object and purpose test to determine the nature of contract.
Principal object and purpose test- if the principal object and purpose is
indemnity, the contract constitutes insurance, but if it is service, risk transfer
and distribution being merely incidental, the arrangement is not insurance.
Are Health Maintenance Organizations (HMOs) engaged in insurance business?
- Even if they assume the risk of paying cost of health services that may be more
than a member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business because any indemnification resulting from the
payment for services even if rendered in case of emergency would still be
incidental to main purpose of providing and arranging for health care services.

Functions of insurance.
1. Principal Function. (risk-bearing)
Example: In a fire insurance policy, the loss is borne not by the insurer but
proportionally by all those who contributed premiums.
2. Subsidiary Functions.
a) Stimulates business enterprise.
b) Encourages business efficiency and enterprise.
c) Promotes loss-prevention.
d) Encourages savings.
e) Solves social problems.
3. Indirect functions.
a) Investment of funds.
b) Use of reserve funds.
c) Effect on prices.
d) As a basis of credit.

CHAPTER I
THE CONTRACT OF INSURANCE

Title 1
WHAT MAY BE INSURED

Section 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 provisions of
this chapter.

The consent of the spouse is not necessary for the validity of an

insurance policy taken out by married person on his/her life or that of
his/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. (a)

Requisites of a contract of insurance.

1. A subject matter in which the insured has an insurable interest.
2. Event or peril insured against which may be any contingent or unknown
event, past or future, and a duration for the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration for the promise, known as premium.
5. A meeting of the minds of the parties upon all the foregoing essentials.
- Parties must be competent to enter into the contract.

Subject matter of contract of insurance.

1. In general- Anything which has an appreciable pecuniary value, which is
subject to loss or deterioration or of which one may be deprived so that his
pecuniary interest is or may be prejudiced
 2. Property insurance- risk of loss of such property that is primarily involved
3. Life, health, and accident insurance- it is generally viewed as one in
reference to the insured as a party to the contract
4. Casualty insurance- risks involved in its use, or the insureds risk of loss or
liability, that he may suffer loss or be compelled to indemnify for the loss
suffered by a third person

Event or peril insured against.

Happening will:
1. Damnify or cause loss to a person having an insurable interest; or
2. Create liability against him.

Insurance by married woman.

- even without consent of husband

Insurance by minor.
- If not disaffirmed by minor, insurer cannot escape liability pleading minority as a
defense because persons who are capable cannot allege the incapacity of those
with whom they contracted.

Ownership of insurance.
1. Ownership divided between insured and beneficiaries.- Insured, being the
owner of its various marketing and sales features; beneficiary being the
owner of a promise to pay the proceeds at the death of the insured subject
to the insureds right of revocation.
2. Interest of insured and beneficiary.- Insured, is the party to the contract;
beneficiary, depends on the terms of the insurance contract, including
existing statutes by which the insurer and its policyholders are bound.
3. Transfer of rights to minor insured upon death of original owner. - Upon the
death of the original owner of a policy of insurance taken out by him on the
life or health of a person, all rights, title and interest shall automatically
vest in latter unless otherwise provided for in the policy.

Section 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.

Concept of lottery.
- extends to all schemes for the distribution of prizes by chance, such as policy
playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of
gambling.
- no suffering of loss of the prize

Contract of insurance not a wagering contract.

Gambling Insurance
Gain through mere chance Seek to distribute loss by reason of
mischance
Gambler courts fortune Seeks to avoid misfortune
Increase inequality of fortune Tends to equalize fortune
Whatever one wins is lost by wagering What insured gains is not at the
party expense of another insured
He creates loss to himself where no risk Does not create a new and non-existing
existed previously risk of loss to purchaser

Similarity between insurance and gambling.

- One party promises to pay a given sum to the other upon the occurrence of a
given future event, the promise being conditioned upon the payment of, or
agreement to pay, a stipulated amount by the other party to the contract.
Section 5. All kinds of insurance are subject to the provisions of this
chapter so far as the provisions can apply.

Title 2
PARTIES TO THE CONTRACT
Section 6. Every corporation, partnership, or association duly authorized
to transact insurance business as elsewhere provided in this Code, may
be an insurer.

Parties to a contract of insurance

1. Insurer. - the party who assumes or accepts the risk of loss and undertakes
for a consideration to indemnify the insured or to pay him a certain sum on
the happening of a specified contingency or event.
2. Insured. - the second party to the contract, the person in whose favor the
contract is operative and who is indemnified against, or is to receive a
certain sum upon the happening of a specified contingency or event.
Note: Relationship between the two is that of a contingent debtor and creditor,
subject to the conditions of the policy.

Terms used.
1. Assurer or underwriter- synonymous to insurer
2. Assured- person for whose benefit the insurance is granted; beneficiary,
person designated by the terms of the policy as the one to receive the
proceeds of the insurance.

Who may be insurer.

1. Foreign or domestic insurance company or corporation. (Certificate of
Authority)
2. Individual, partnership, or association. (Certificate of Authority and Capital
Assets Requirement)
Insurance corporation- one formed or organized to save any person or persons or
other corporations harmless from loss, damage, or liability arising from any
unknown or future or contingent event, or to indemnify or to compensate any
person or persons or other corporations for any such loss, damage or liability, or
to guarantee the performance of or compliance with contractual obligations or the
payment of debts of others

Business of insurance affected with public interest.

- subject to regulation and control by the state by virtue of the exercise of its
police power or in the interest of public convenience and general good of the
people

Section 7. Anyone except a public enemy may be insured.

Capacity of party insured.
1. Natural person:
a) Competent to make a contract
b) Must possess an insurable interest in the subject of the insurance
2. Juridical person- on property owned by it

Meaning of public enemy.

Public enemy- a nation with whom the Philippines is at war and it includes every
citizen or subject of such nation; for corporations, control test is used to know
nationality

Effect of war on existing insurance contracts.

1. Where parties rendered enemy aliens. - All intercourse between citizens of
belligerent powers which is inconsistent with a state of war is prohibited.
a) With respect to property insurance. - the insurance policy ceases to be
valid and enforceable
 b) With respect to life insurance. - (United States Rule) contract is merely
suspended but is abrogated by reason of nonpayment of premiums since
the time of payments is peculiarly of the essence of the contract;
however, the insured is entitled to the cash or reserve value of the policy
(if any), which is the excess of the premiums paid over the actual risk
carried during the years when the policy had been in force.
2. Where loss occurs after end of war. - termination of the war does not revive
the contract.

Section 8. Unless the policy otherwise provides, where a mortgagor of

property effects insurance in his own name providing that the loss shall
be payable to the mortgagee, or assigns a policy of insurance to the
mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract,
and any act of his, prior to the loss which would otherwise avoid the
insurance, will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be performed by
the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.

Insurable interest of mortgagee and mortgagor.

1. Separate insurable interest.
2. Extent of insurable interest of mortgagor. - to the extent of its value, even
though the mortgage debt equals such value
3. Extent of insurable interest of mortgagee. - extent of the debt secured, not
exceeding the value of the property
4. Extent of amount of recovery. - mortgagor cannot recover upon the
insurance beyond the full amount of his loss and the mortgagee, in excess
of the credit at the time of the loss nor the value of the property
mortgaged

Insurance by mortgagee of his own interest.

1. Right of mortgagee in case of loss. - if he independently insured the
property, he is entitled to the proceeds of the policy in case of loss before
payment of the mortgage
2. Subrogation of insurer to right of mortgagee. - passes by subrogation to the
extent of insurance money paid
3. Change of creditor.- it will not relieve mortgagor from his principal obligation
but only changes the creditor.

Insurance by mortgagor of his own interest.

1. For his own benefit.
2. For benefit of mortgagee.
a) Assignee of policy with consent of insurer
b) Mere pledgee wihtout such consent
c) Rider
d) Standard mortgage clause

Insurance by mortgagor for benefit of mortgagee, or policy assigned to

mortgagee.
1. Contract is deemed to be upon interest of mortgagor, so he is still party.
2. Act of mortgagor affects the mortgagee.
3. Any act to be performed by mortgagor may be performed by mortgagee
with the same effect.
4. In case of loss, mortgagee is entitled to proceeds to extent of his credit.
5. Upon recovery to extent of credit, the debt is extinguished.

Effect of standard and open clauses in fire insurance policy.

 1. Standard or union mortgage clause.- purpose is to make a separate and
distinct contract of insurance on the interest of the mortgagee.
2. Open or loss-payable clause. - mortgagee is only a beneficiary and
recognized as such by insurer but not made party to the contract itself.

Right of mortgagor under mortgagors policy.

1. Before loss. - mortgagee is conditional appointee of the mortgagor;
becomes absolute upon occurrence of loss
2. After loss. - if loss happens when credit is not due, mortgagee is entitled to
receive the money to apply to the extinguishment of the debt as fast as it
becomes due; if loss happens after credit has matured, mortgagee may
apply the proceeds to the extent of credit.

Effect of insurance by mortgagee on behalf of mortgagor.

1. Discharge of debt. - payment of insurance money discharges the debt equal
of it, and if greater than the debt, the mortgagee holds the excess as
trustee for the mortgagor.
2. Right of subrogation. - If there is such stipulation, payment of policy will not
discharge the debt

Section 9. If an insurer assents to the transfer of an insurance from a

mortgagor to a mortgagee, and, at the time of his assent, imposes
further obligations on the assignee, making a new contract with him, the
acts of the mortgagor cannot affect the rights of said assignee.

Assignment or transfer of insurance policy.

1. As to fire policy.- before it becomes a fixed liability is not subject to
assignment, in the absence of provision in the contract or subsequent
consent of the insurer
2. As to marine policy.- not assignable without the consent of the insurer
unless required by the terms of the policy.
3. As to casualty policy.- insurers consent is also required
4. As to life policy.- may freely be assigned before or after the loss occurs, to
any person whether he has an insurable interest or not; but such should
not be made in bad faith.
Note: Assignment or transfer may be: (a) of the policy, (b) of the proceeds of the
policy, and (c) of the subject matter of the insurance.

Right of mortgagor to assign insurance policy to mortgagee. (Sec. 8)

Effect of new contract between insurer and mortgagee-assignee.

- operates merely as an equitable transfer of the policy so as to enable the
mortgagee to recover the amount due in case of loss subject to the conditions of
the policy
- BUT where a new and distinct consideration passes from the mortgagee to the
insurer, a new contract is created between them.

Title 3
INSURABLE INTEREST
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary 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 prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in
him depends.
Insurable interest in general.
Insurable interest- that interest which the law requires the owner of an insurance
policy to have in the person or thing insured.
General Rule: A person deemed to have an insurable interest in the subject
matter insured where he has a relation or connection with or concern in it that he
will derive pecuniary or financial benefit or advantage from its destruction,
termination, or injury by the happening of the event insured against.
Exception: Life insurance where expectation of benefit need not necessarily be
of pecuniary nature.

Necessity of insurable interest.

1. Legal right to insure. - Without such, person insuring will only be gambling.
2. Validity of the contract. - Without it, mere wagering contract and is void.

Requirement, a matter of public policy.

1. As deterrence to the insured.
2. As a measure of limit recovery.

Two general classes of life policies.

1. Insurance upon ones own life. (unlimited insurable interest)
a) Insurance taken our by insured on his life for the benefit of another.
b) When the insurance regarded wagering policy.
i. Original proposal to take out insurance was that of the beneficiary;
ii. Premiums are paid by the beneficiary;
iii. Beneficiary has no interest, economic or emotional, in the continued
life of the insured.
2. Insurance upon the life of another.
a) Insurance for the benefit of insured. (must be pecuniary one)
b) Insurance for the benefit of third party. (both owner and beneficiary must
have an insurable interest in the life of cestui que vie)

Similarity between a life insurance policy and a civil donation.

- both are founded on liberality.

Insurable interest in life of person upon whom one depends for

education or support or in whom he has pecuniary interest.
1. When mere blood relationship sufficient. - because of natural affection;
essential thing is: policy shall be obtained in good faith, and not for the
purpose of speculating upon the hazard of a life in which the insured has
no interest.
2. Persons obliged to support each other. (Article 195)
a) The spouses;
b) Legitimate ascendants and descendants;
c) Parents and their legitimate children and the legitimate or illegitimate
children of the latter;
d) Parents and their illegitimate children and the legitimate or illegitimate
children of the latter;
e) Legitimate brothers and sisters, whether full or half-blood. (except when
being of age, because of claimants fault)
3. When pecuniary benefit essential.- relationship by affinity, less degree of
kinship
a) Assumption of parental relations when man sends girl to school
(sufficient)
b) Woman takes a girl from orphan asylum and gives her home (sufficient)
c) Corporation to life of officer (sufficient)
d) Employers to employees (sufficient)

Insurable interest of a person in life of another under a legal obligation

to former.
 1. Related by contract or commercial relation.- when a right possessed by a
person will be extinguished or impaired by the death or illness of the other
may lawfully procure insurance on the others life (Ex: employer, of
employee and vv; furety, of principal)
2. Risk that performance of obligation might be delayed or prevented.
Insurable interest of creditor in life of his debtor.
1. Extent of interest.- for the purpose of protecting his debt but only to the
extent of the amount of the debt and the cost of carrying the insurance on
the debtors life.
2. Right of debtor in insurance taken by creditor.- debtor is not a party and it
does not inure to benefit of debtor unless expressly stipulated.
3. Extent of the amount that may be recovered by insuring creditor.- only such
amounts as remain unpaid at the time of the death of the debtor.
4. Where insurance taken by debtor for the benefits of creditor.- full payment
of debt does not invalidate the policy; the proceeds should go to the estate
of the debtor
5. Where debt becomes legally unenforceable.- creditor may not insure the life
of his debtor unless the latter has a legal obligation to him for the payment
of money

Insurable interest in life of person upon which an estate or interest

depends.
- one may insure the life of a person where the continuation of the estate or
interest vested in hiim who takes the insurance depends upon the life insured.

Consent of person whose life is insured.

1. Essential to validity of policy.
2. Not essential to validity of policy. (followed under our law)- so long as there
is insurable interest

Section 11. The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in
said policy. Notwithstanding the foregoing, in the event the insured does
not change the beneficiary during his lifetime, the designation shall be
deemed irrevocable.

Beneficiary, defined.
- the person who is named or designated in a contract of life, health, or accident
insurance as the one who is to receive the benefits which become payable,
according to the terms of the contract, upon the death of the insured.

Kinds of beneficiary.
1. Insured himself
2. Third person who paid a consideration
3. Third person through mere bounty of insured

Note: Where insured, before dying, was judicially declared insolvent, the proceeds
should be paid to the beneficiary and not to the assignee in insolvency.

Limitations in the appointment of beneficiary.

1. Article 2012- person who is forbidden from receiving any donation under
Article 739
2. Article 739-
a) Between persons who are guilty of adultery or concubinage at the time of
the donation;
b) Between persons found guilty of the same criminal offense, in
consideration thereof;
c) Made to a public officer of his wife, descendants and ascendants, by
reason of his office.
Right of insured to change beneficiary.
General rule: Whether or not the policy reserves to the insured the right to
change the beneficiary, he has the power to so change the beneficiary without the
consent of the latter who acquires no vested right but only an expectancy of
receiving the proceeds under the insurance.
Exceptions:
1. Effect of death of insured.- right to change beneficiary ceases
2. Where the right to change is waived.- insured has no power to make such
change without the consent of the beneficiary; neither can insured add
new beneficiary which would reduce the latters vested rights; beneficiary
can protect his interest by fulfilling an obligation which the insured failed to
do

Measurement of vested interest of the beneficiary in the policy.

- should be measured on its full face value and not on its cash surrender value for
in case of death of the insured, said beneficiary is paid on basis of its face value.

Where beneficiary dies before insured. (only when irrevocable or right

has been waived)
1. View that beneficiarys representative is entitled to insurance proceeds.
2. View that the estate of the insured is entitled to insurance proceeds.

Designation of beneficiary.
1. Children- includes adopted, adult child not forming part of household,
after-born child; where children are named individually, other children
cannot share in the insurance proceeds unless the insured subsequently
amend his designation to include them
2. Husband, wife or widow- if named, even if not legally the wife will not
prevent one from taking as beneficiary; but if not named and designated
by status, legal wife shall be the beneficiary
3. Husband and children; wife and children- all children, including those
not of same husband or wife; but if wife and their children, to children
with such wife only
4. Family- court will ascertain whether that person was so regarded by the
insured
5. Heirs or legal heirs- class of persons who would take property of the
insured in case he died intestate
6. Estate or legal representatives of deceased- executors or
administrators

Section 12. The interest of a beneficiary in a life insurance policy shall

be forfeited when the beneficiary is the principal, accomplice, or
accessory willfully bringing about the death of the insured. In such a
case, the share forfeited shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid to the estate of the
insured.

Forfeiture of the interest of the beneficiary in a life insurance policy.

Interest- right of the beneficiary to receive the proceeds of the life insurance
policy
1. Other qualified beneficiaries of the insured (Nearest relatives)
2. Nearest relatives of the insured
a) Legitimate children;
b) Father and mother, if living;
c) Grandfather and grandmother, or ascendants nearest in degree, if living;
d) Illegitimate children;
 e) Surviving spouse;
f) Collateral relatives
i. Brothers and sisters of full blood
ii. Brothers and sisters of half-blood
iii. Nephews and nieces
g) In default, State

Liability of insurer on death of insured.

1. Death at the hands of the law.- one of the risks assumed by the insurer
under a life insurance policy in absence of a valid policy exception
2. Death by self-destruction.- exempted risk, if of sound mind
3. Death by suicide while insane.- in absence of express conditions to contrary,
will not discharge insurer from liability
4. Death caused by beneficiary.-if felony, beneficiary cannot benefit from
policy; but if by accident or self-defense, the rights of beneficiary in the
policy are not affected
5. Death caused by violation of law.- would not warrant denial of liability

Section 13. Every interest in property, whether real or personal, or any

relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured, is an insurable
interest.

Insurable interest in property.

1.