INSURANCE CODE OF THE PHILIPPINES REVIEWER
INSURANCE CODE Classifications
Insurance Contract – 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.
Elements
(1) The insured possesses an interest of some kind
susceptible of pecuniary estimation [insurable interest]
(2) The insured is subject to risk of loss through the
destruction or impairment of the interest by the
happening of designated perils;
(3) The insurer assumes the risk of loss;
(4) Such assumption of risk is part of a general scheme to
distribute actual losses among large group of substantial
number of persons bearing a similar risk;
(5) As consideration for the insurer’s promise, the insured
makes a ratable contribution called a “premium” to a
general insurance fund.
Function: equitably distributes losses out of a general fund
contributed by all. It is a risk-distributing device.
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, then the arrangement is
not insurance and therefore, not subject to laws regulating
insurance.
Philippine Healthcare Provider vs CIR
600 SCRA 413, G.R. No. 167330 September 18, 2009
HMOs are not in the insurance business. One test that they
have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the
organization or whether they are merely incidental to its
business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service
is the principal purpose, then the business is not insurance.
a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a
group with health services, is not engaged in the insurance
business.
Insurance Law; Even if petitioner assumes the risk of paying
the cost of these services even if significantly more than what
the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business.—
The mere presence of risk would be insufficient to override the
primary purpose of the business to provide medical services
as needed, with payment made directly to the provider of
these services. In short, even if petitioner assumes the risk of
paying the cost of these services even if significantly more
than what the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business.
Based on Insurance Code Annotated by Hector S. de Leon
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/Bonding
Construction of Insurance Contracts
1. Various stipulations in the policy are to be
interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken
jointly
2. Construed liberally in favor of the insured and vs the
insurer since most insurance contracts are
contracts of adhesion, that is, most of the terms
of the contracts do not result from mutual
negotiation between the parties as the yare
prescribed by the insurer in final printed forms
which the insured may reject or adhere. Hence, any
ambiguity in the insurance contract should,
therefore, be resolved in favor of the beneficiary.
Subrogation – substitution of one person in place of another
with reference to a lawful claim or right, so that he who has
substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies and securities.
 The insurer, after paying the amount covered by the
insurance policy, steps into the shoes of the insured
and can avail of the latter’s rights that exist against
the wrongdoer at the time of the loss.
Purpose:
1. To make the person who caused the loss, legally
responsible for it and
2. At the same time, to prevent the insured from receiving
double recovery from the wrongdoer and the insurer.
Equitable Assignment – payment by the insurer to the
insured operates as an equitable assignment to the former of
all the remedies which the latter may have against the 3rd party
whose negligence or wrongful act caused the loss.
Subrogation Receipt – the presentation in evidence of the
insurance policy is not indispensable before the insurer may
recover. Subrogation receipt, by itself, is sufficient to establish
1. The relationship of the insurer and the insured, and
2. The amount paid to settle the insurance
Loss/Risk must be covered by the Policy
An insurer can only acquire its right to subrogate the insured
to whatever rights he has against the person liable for the loss
if such loss/risk is covered by the insurance. However, the
insurer may still recover whatever he has paid under article
1236 of the Civil Code
1
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor. (1158a)
NB: if the amount paid by the insurance company does not
fully cover the injury or loss, it is the aggrieved party, who is
entitled to recover the deficiency from the person responsible
for the loss or injury.
(1) 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.
(2) The term "doing an insurance business" or
"transacting an insurance business", within the
meaning of this Code, shall include
(a) making or proposing to make, as insurer, any
insurance contract
(b) 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;
(c) 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; (d)
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,
II.
shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of
an insurance business.
(3) As used in this code, the term "Commissioner" means
the "Insurance Commissioner".
I. WHAT MAY BE INSURED
1. Any contingent or unknown event, whether
past or future, which may damnify a person
having insurable interest, or create a liability
against him, may be insured against, subject
to the provisions of this chapter.
Based on Insurance Code Annotated by Hector S. de Leon
The consent of the spouse is
not necessary for the validity of an insurance
policy taken out by a married parson on his/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.
2. However, PD 612 does not authorize an
insurance
(1) For or against the drawing of any lottery,
or
(2) For or against any chance or ticket in a
lottery drawing a prize
INSURANCE GAMBLING
Parties seek to The parties
distribute possible loss contemplate gain
by reason of through mere chance
mischance
Insured seeks to avoid Gambler courts
misfortune fortune
Tends to equalize Inequality of fortune
fortune
One party promises to pay the other a given sum
upon the occurrence of a given future event
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 consideration for the promise, known as the
“premium”;
4. A meeting of minds of the parties upon all the
foregoing essentials.
5. The parties must also be competent to enter in
the contract and the contract must not be for a
purpose contrary to law or public policy.
PARTIES TO THE INSURANCE CONTRACT
1. Insurer
Every corporation, partnership, or association
duly authorized to transact insurance
business, as elsewhere provided in this Code,
may be an insurer.
2. Insured
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
a. Not always the person to whom the
proceeds are paid
i. [it could be another person called
third-party beneficiary]
2
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
ii. Or a person to whom the insured
assigned the proceeds like a creditor
b. Requirements
i. Must be competent to make a
contract
ii. Must possess insurable interest in
the subject of insurance
iii. Must not be a public enemy – a
person who is a subject of a foreign
country or nation with whom the
Philippines is at war
 Contingent Debtor and Creditor – the
relation between the insurer and insured is
that of a contingent debtor and creditor,
subject to the conditions of the policy and not
that of trustee and cestui que trust.
Insurable Interest of Mortgagee and Mortgagor
Unless the policy otherwise provides, Where a
mortgagor of property effect insurance
1. in his own name providing that the loss shall
be payable to the mortgagee; or
2. assigns a policy of insurance to a mortgagee,
Effects:
a. 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
b. 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
c. 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.
d. In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit
e. Upon recovery by the mortgagee to the extent
of his credit, the debt is extinguished
o but , there is no extinguishment of the
mortgage debt if the mortgagee himself
procured an insurance of his own interest,
o there is merely a change of creditor. The
insurer is subrogated to the rights of the
original mortgagee.
Separate Insurable Interests
(1) Mortgagor – to the extent of the value of the
property because the loss or destruction of the
property insured will not extinguish his
mortgage debt
1
A life insurance policy taken by a spouse on his or her life in favor
of the other takes effect after the death of the insured. Hence, not
covered under Art. 87, FC proscription
2 Persons obliged to give support; spouses, legitimate ascendants
and descendants; parents and their legitimate/illegitimate children
Based on Insurance Code Annotated by Hector S. de Leon
(2) Mortgagee – to the extent of
the debt secured, as the creditor/mortgagee
merely insures his interest or lien thereon.
Effect of Standard and Open Clauses in Fire
Insurance Policy
1. Standard Union Mortgage Clause – the acts
of the mortgagor do not affect the mortgagee.
The purpose of the clause is to make a
separate and distinct contract of insurance on
the interest of the mortgagee.
2. Open or Loss-Payable mortgage clause –
for the payment of the loss, if any, to the
mortgagee as his interest may appear and
under it, the acts of the mortgagor affect the
mortgagee the latter being merely a
beneficiary to the contract but not made a
party to it.
Assignment or Transfer of Insurance Policy
1. if an insurer assents to the transfer of an
insurance
2. form a mortgagor to a mortgagee, and
3. at the time of his assent, imposes further
obligations on the assignee making a new
contract with him,
4. the acts of the mortgagor cannot affect the
rights of said assignee
there is a novation in effect, of the original contract.
III. INSURABLE INTEREST
Insurable Interest – a person is 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 preservation and will
suffer pecuniary loss or damage from its
destruction, termination, or injury by the happening
of the event insured against. [Lalican vs Insular Life]
A. In Life Insurance Policies
1. Upon one’s life [10a]
2. Upon the life of another [10 a, b, c, d]
if the policy is applied for and owned by
someone other than the insured, the
applicant-owner must have an insurable
interest in the life of the insured.
a. person as to his spouse1, or to his
children
b. or of any person on whom he depends
wholly or in part for education or
support2, or in whom he has pecuniary
interest
and their children; legitimate siblings whether full or half blood;
illegitimate siblings as well, save to few instances.
3
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
c. of any person under legal obligation to
him for the payment of money, or
respecting property or services3, of which
death or illness might delay or prevent
performance, and
d. of any person upon whose life any estate
or interest vested in him depends
Life Insurance Policy vs Civil Donation
Both are grounded upon acts of liberality whereby
a person, in a donation, disposes of a thing or right
gratuitously in favor of another who accepts it. Like
a done, a beneficiary will receive the proceeds or
profits of insurance out of liberality. As such, the
proscriptions under Art. 87 of FC on donations
equally operates under a Life Insurance Policy.
Art. 87, FC: Every donation or grant of gratuitous
advantage, direct or indirect, between the spouses
during the marriage shall be void xxx the
prohibition shall apply also to persons living
together as husband and wife without a valid
marriage.
Beneficiary – the person who is named or
designated in a contract of life, health, or accident
insurance who will receive the benefits which
become payable according to the terms of the
contract upon the happening of a contemplated
peril.
GR: Insured shall have the right to change the
beneficiary designated in the policy.
EXN:
1. unless he has expressly waived this right in
the policy; or
2. insured does not change the beneficiary
during his lifetime, in which case the
designation shall be deemed irrevocable
Effects of Waiver of Right to Revoke
1. the insured has no power to make such
change without the consent of the beneficiary
2. the beneficiary acquires absolute and vested
interests to all benefits accruing to the policy
from the date of its issuance and delivery,
including that of obtaining a policy loan to the
extent stated in the schedule of values
attached to the policy [vested property right]
3. neither can there be a new beneficiary added
to the irrevocably designated beneficiary for
this would in effect reduce the latter’s vested
rights
4. the insured does not even retain the power to
destroy the contract by refusing to pay
premiums for the beneficiary can protect his
interest by paying the premiums
Limitations in the Appointment of Beneficiary
3 Where the debtor in good faith insures his life for the benefit of
the creditor, full payment of the debt, does not invalidate the policy,
but inures to the estate of the debtor.
Based on Insurance Code Annotated by Hector S. de Leon
A person may take out policy
insurance on his own life and make it payable to
whomever he pleases, irrespective of the
beneficiary’s lack of insurable interest, provided he
acts in good faith and without intent to make the
transaction merely a cover for a forbidden wagering
contract. However, there are certain limitations
1. Art. 2012 of the Civil Code: the following
persons forbidden from receiving any donation
cannot aldo be named beneficiary in a life
insurance policy by the person who cannot
make a donation to him
a. Those made between persons
guilty of adultery or concubinage at
the time of donation
b. Those made between persons
found guilty of the same criminal
offense, in consideration thereof;
c. Those made to a public officer or his
wife, descendants, and ascendants
by reason of office.
Beneficiary dies ahead of the insured
Where the beneficiary predeceases the insured, the
estate of the insured should be entitled to the
proceeds of the insurance especially where the
designation is subject to the express condition to
pay the beneficiary if he survives the insured or “if
surviving”.
Forfeiture of the Interest of the Beneficiary in a life
insurance policy
 When the beneficiary in a life insurance policy is the
principal, accomplice, or accessory in willfully
bringing about the death of the insured
 Order of Forfeiture – the share forfeited shall pass
on
1. The other beneficiaries
2. In accordance with the policy of the contract
3. Estate of the Insured
Liability of the Insurer on death of Insured
1. Legal execution – liable in the absence of a valid
exception
2. Self-destruction – not covered unless insured is not
of sound mind at the time of committing suicide
3. Self-defense of the Beneficiary – covered
4. Death caused by violation of law – covered
B. In Property Insurance
Every interest in property4 whether real or personal, or
any relation thereto5, or liability in respect thereof6, of
4 ownership
5 Trustee or commission agent
6
Interest of a carrier or depository of goods
4
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.
General Principle: anyone who may derive benefit from
the property’s existence or would suffer a loss from its
destruction has an insurable interest over such property.
- One’s interest is not determined by concept of title
but the existence of substantial economic interest.
It may consist in:
1. Existing interest
a. Legal title – trustee, mortgagor, lessor,
assignee
b. Equitable title – purchaser of property
before delivery, mortgagee, mortgagor
before redemption but after foreclosure,
beneficiary under deed of trust, creditors
under deed of assignment
2. Inchoate interest founded on an existing
interest
a. Stockholder’s interest is founded on an
existing interest arising from his
ownership of shares in the corporation
b. Partner over firm properties
3. Expectancy, coupled with an existing interest in
that out of which the expectancy arises
a. Farmer to his future crops
b. Businessman as to possible loss of
profits resulting from interruption or
cessation of business
Insurable Interest of Carrier or Depository
A carrier or depository of any kind has an insurable
interest in a thing held by him as such, to the extent
of his liability but not to exceed the value thereof.
Reason: Loss of the thing may cause liability to the
carrier or depository to the extent of its value.
Mere contingent or expectant interest in any
thing, is not insurable when it is
1. not founded on an actual right to the thing,
2. nor upon any valid contract for it.
Ex: A general or unsecured creditor cannot insure
a specific property of his debtor who is alive even
though destruction of such property would render
worthless any judgment he might obtain.
But if the debtor is dead, an unsecured creditor may
insure the property of deceased debtor since all
personal liability ceases with the death of the
debtor.
Measure of Insurable Interest in Property
-the extent to which the insured might be damnified
by loss or injury thereof.
The purpose of property insurance is to indemnify a
person vs actual loss, and not wager on the
happening of the event.
Based on Insurance Code Annotated by Hector S. de Leon
Effect of absence of insurable
interest in property insured
No contract or policy of insurance on property shall
be enforceable except for the benefit of some
person having an insurable interest in the property
insured.
When the insurance is invalidated on the ground
that no insurable interest exists, the premium is
ordinarily returned to the insured, unless he is in
pari delicto with the insurer.
CHA vs CA 277 SCRA 690 [1997]
The contract of lease provides that any fire
insurance policy obtained by the lessee over his
merchandise inside the leased premises without
the consent of the lessor is deemed assigned or
transferred to the lessor. SC: such automatic
assignment is void for being contrary to law and
public policy, hence, the insurer cannot be
compelled to pay the proceeds of the policy to the
lessor who has no interest in the property insured.
Measure of Indemnity
(1) Contracts of Marine or Fire Insurance
GR: the amount of insurance fixed in the policy
of a marine or fire insurance is not the exact
measure of indemnity to which the insured is
entitled, but the MAXimum which he might
obtain. The insured cannot recover in excess
of his actual loss
(2) Liability Insurance Contracts
(3) Life Insurance Contracts – not contract of
indemnity as life and limb are not susceptible
to exact or uniform valuation.
(4) Personal Accident Insurance –
(5) Health Insurance -
(6) Health Care Agreement
In the nature of non-life insurance which is
primarily a contract of indemnity. Being a
contract of indemnity, payment should be
made to the party who incurred the expenses.
Hence, the fact that the one who paid all the
hospital and medical expenses was not the
legal wife of the deceased member is of no
moment. She is entitled to reimbursement.
Time when Insurable Interest must exist
1. An interest in property insured must exist
a. When the insurance takes effect &
b. When the loss occurs
c. But need not exist in the meantime
2. Interest in the Life or Health of a person
insured must exist
a. When the insurance takes effect
b. But need not exist thereafter or
when the loss occurs
INSURABLE INTEREST
Life Insurance Property Insurance
Unlimited, save in life Actual value of the interest
insurance effected by thereon
creditor on life of debtor
5
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
Must exist at the time the Must exist when the
policy takes effect and insurance takes effect and
need not exist at the time of when the loss occurs, but
loss need not exist in the
meantime
Continued existence of life Must be based on a legal
need not have any legal right
basis, but it is sufficient that
there is reasonable ground
for believing that support
will be continued
Change of Interest, effects
GR: Change of interest in any part of a thing insured,
unaccompanied by a corresponding change of interest in
insurance, suspends the insurance to an equivalent
extent, until the interests in the thing and the interest in
the insurance are vested in the same person.
It does not transfer the policy or renders the contract
void, but it merely suspends it until the same person
becomes the owner of both policy and the thing insured.
EXN: in the following cases, any change of interest will
not avoid the insurance contract
1. Life, health, and accident insurance
2. A change of interest in the thing insured after the
occurrence of an injury which results in a loss
3. A change of interest in one or more of several things
separately insured by one policy
4. A change of interest by will or succession on the
death of the insured
5. A transfer of interest by one of several partners,
joint owners, or owners in common who are jointly
insured to the others7
6. When the policy is so framed that it will inure to the
benefit of whomsoever, during the continuance of
the risk, may become the owner of the interest
insured
7. When there is an express prohibition vs alienation
in the policy, in case of alienation, the contract of
insurance is not merely suspended, but it is
avoided.
Prohibited Stipulations
Every stipulation in a policy of insurance for the payment
of loss
a. Whether the person insured has or has not any
interest in the property insured, or
b. That the policy shall be received as proof of such
interest, and
c. Every policy executed by way of gaming or
wagering, is void.
Wager Policy- pretended insurance where the insured
has no interest in the thing insured and can sustain no
loss by the happening of the misfortunes insured against.
7Each partner is interested in the whole property and the hazard is
not increased because the purchasing partner has acquired a
greater interest in the property by a transfer of his co-partner’s
share. But if there is a stipulation, the insurer’s consent must first
Based on Insurance Code Annotated by Hector S. de Leon
IV. CONCEALMENT
Concealment is defined as the neglect to
communicate that which a party knows and ought
to communicate. It could be Intentional or
unintentional
4 primary concerns of the parties to an
insurance contract
1. Correct Estimation of Risk – enables the
insurer to decide whether he is willing to
assume it and if so, at what rate of premium
2. Delimitation of Risk – extent of duty to pay
3. Control of the Risk after it is assumed
4. Determining if a Loss occurred and the
amount of the loss
Concealment and Representations were
originally developed to enable the insurers to
secure the same information with respect to the risk
that was possessed by the applicant for insurance,
so that he may be equally capable of forming a just
estimate of its quality.
Requisites:
1. Knowledge of the facts which the party
neglects to communicate or disclose to the
other
2. Legal duty to disclose the material facts
3. Concealing party made no warranty of the fact
concealed
4. Other party has no means of ascertaining such
fact.
Effects - A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance.
1. Concealment by the Insured – voidable at the
insurer’s option. Since such contract must be
entered into with utmost good faith. The
insurer in deciding whether or not to accept a
risk, must rely primarily upon the information
supplied to him by the applicant.
2. Concealment by the Insurer – rescindable at
the injured party’s discretion
GR: Proof of Fraud, not required – the duty of
communication is violated by the FACT of
concealment even when there is no design to
deceive. It is sufficient that It misleads or deceives
the insurer into accepting the risk, or accepting it at
the rate of the premium agreed upon
EXN: Matters proving or tending to prove the
falsity of a warranty, entitles the insurer to rescind.
be obtained before any undivided interest pertaining to a partner
may be transferred. If sold to a stranger, the policy is voided as to
him but not as to the other partners
6
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
MATTERS THAT MUST BE COMMUNICATED
EVEN IN THE ABSENCE OF INQUIRY
Each party to a contract of insurance must
communicate to the other, in good faith,
1. All facts within his knowledge
2. which are material to the contract and
 Materiality – to be determined not
by the vent but solely by the
probable and reasonable influence
of the facts upon the party to whim
the communication is due, in
forming his estimate of the
disadvantages of the proposed
contract, or in making his inquiries.
3. which the other has not the means of
ascertaining, and as to
4. which he makes no warranty.
NO DUTY TO MAKE THE FOLLOWING
DISCLOSURES IN THE ABSENCE OF INQUIRY
1. Those which the other knows
2. Which, in the exercise of ordinary care, the
other ought to know, and which the former has
no reason to suppose him ignorant
3. Those of which the other waives
communication
4. Those which prove or tend to prove the
existence of a risk excluded by a warranty, and
which are not otherwise material
5. Those which relate to a risk excepted from the
policy and which are not otherwise material
6. Nature and Amount of Interest UNLESS the
applicant is not the absolute owner of the
property to be insured
EXN:
 Even with inquiry, neither party to the
contract of insurance is bound to
communicate information of his own
judgment upon the matters in question.
MATTERS EACH PARTY IS BOUND TO KNOW
1. General causes open to his inquiry which may
affect political or material perils contemplated
2. General usages of trade and rules of
navigation
Waiver of the right to be Informed
1. By the terms of the insurance or
2. by the neglect to make inquiry as to such facts
where they are distinctly implied in other facts
of which information is communicated.
V. REPRESENTATION
Representation – is a statement made by the
insured at the time of, or prior to, the issuance of
the policy, relative to the risk to be insured, as to an
existing or past fact, or state of facts, or concerning
a future happening, to give information to the
insurer and otherwise induce him to enter into the
insurance contract.
Misrepresentation – in insurance is a statement
Based on Insurance Code Annotated by Hector S. de Leon
1. As a fact of something which is
untrue
a. Which the insured stated with
knowledge that it is untrue and with
an intent to deceive, or
b. which he states positively as true
without knowing it to be true and
which has a tendency to mislead,
and
2. Where such fact in either case is material to
the risk
3. Which representation renders the contract
voidable at the option of the insurer, even
though innocently made and without wrongful
intent
- It is an affirmative defense on the part of the insurer
which it must establish by satisfactory and
convincing evidence.
- It may be viewed as an active form of concealment
- It may be oral or written, however communicated,
the information thus given forms the basis of the
contract as made.
- It is considered as a collateral inducement to the
contract which may be communicated in any
intelligible manner and need not form part of the
contract as expressly made.
Construction of Representation
- The language of the representation is to be
interpreted by the same rules as the language of
contracts in general
- Construed liberally in favor of the insured and are
required only to be substantially true
o Warranties , by contrast, must be literally
true, or the contract will fail.
Kinds of Representations
1. Oral or Written
2. At the time of or before, the issuance of the Policy
3. Affirmative or Promissory
 Affirmative representation – any allegation
as to the existence or non-existence of a fact
when the contract begins.
 Promissory representation – any promise to
be fulfilled after the contract has come into
existence or any statement concerning what is
to happen during the existence of insurance
Effect on Policy of Opinion or Expression
1. Although false, will not avoid the insurance if there
is no actual fraud in inducing the acceptance of the
risk, or its acceptance at a lower rate of premium
2. To avoid liability, the insurer must show that it was
material, and was made with intent to deceive.
3. If the representation is one of fact, then intent to
deceive is presumed and the insurer only needs to
prove falsity and materiality.
Effect on Express Provisions of Policy
7
 INSURANCE CODE OF THE PHILIPPINES REVIEWER
- A representation cannot qualify an express
provision in a contract of insurance, but it may
qualify an implied warranty
- Reason: a representation is NOT part of the
contract, but merely a collateral inducement to it.
Time to which representation refers
1. There is no false representation if it is true at the
time the insurance takes effect, although false at
the time the insurance was made
2. there is false representation if it is true at the time
the insurance is made but false at the time the
insurance is to take effect
Effect when information is obtained from 3rd persons
1. When the person insured has no personal
knowledge of a fact,
2. He may nevertheless repeat information which he
has upon the subject, and
3. Which he believes to be true,
a. With the explanation that he does so on
the information of others; or
b. He may submit the information, in its
whole extent to the insurer; and
c. In neither case is he responsible for its
truth, UNLESS it proceeds from an agent
of the insured, whose duty it is to given
the information.
When representation deemed false
A representation is deemed false when the facts fail to
correspond with its assertions or stipulations in the policy
of insurance.
Effect of Falsity of Representation Proof of Fraud is
not essential for there to be rescission on the ground of
false representation
Effect of Collusion or Fraud of Agent of Insurer – it
will vitiate the policy even though the agent is acting
within the apparent scope of his authority. When there is
collusion, the agent thereby ceases to represent his
principal, and represents himself; so the insurer is not
estopped from avoiding the policy.
. comply with any condition imposed by the policy
CONCEALMENT REPRESENTATION
S. 26-35 S. 36-48
Insured withholds Insured makes erroneous
information of material statements of facts with
facts from the insurer the intent of inducing the
insurer to enter into the
contract
Test of Materiality (in representation or
concealment) – is determined not by the event, but
solely by the probable and reasonable influence of
the facts upon the party to whom the representation
is made, in forming his estimates of the
disadvantages of the proposed contract or in making
his inquiries
Both entitles the injured party for the rescission of the
contract whether concealment or representation is
intentional or not
Based on Insurance Code Annotated by Hector S. de Leon
Right to Rescind
1. Non-life Insurance Contracts
The insurer’s right to rescind the non-life insurance
contract on the ground of concealment, false
representation, or breach of warranty should be
exercised before the commencement of an action
to the contract.
In other words, the insurer is barred from rescinding
the contract of non-life insurance after the insured
has filed an action to collect the proceeds of the
insurance.
 NB! Insurer’s tender of premiums and
notice that the policy s cancelled
BEFORE the commencement of the suit
thereon operates to rescind the contract
of insurance.
2. Life Insurance Contracts, incontestable
The insurer who has reasonable opportunity to
investigate the statements made by the applicant in
procuring the policy cannot be made to question the
validity of the policy either by an affirmative action
or by defense to a suit brought on the life policy of
the beneficiary.
Requisites:
a. The policy is a life insurance policy;
b. It is payable on the death of the insured;
c. it has been in force during the lifetime of the
insured for atleast 2 years from its date of
issue or its last reinstatement
Incontestability, not absolute
The insurer may still contest the policy by way of other
defenses in a suit brought upon the policy or by action to
rescind the same on the following grounds:
1. lack of insurable interest
2. Failure to pay premiums
3. Violation of the conditions of the policy relating to
military or naval service
4. Cause of death of the insured is an excepted risk
5. Fraud is of a particularly vicious type
6. Beneficiary failed to furnish proof of death or
after the loss has happened
7. Prescription
8