INSURANCE (MIDTERM EXAM REVIEWER)

I. Introduction
1. Laws governing insurance:
a. The Insurance Code of 1978
b. Civil Code
c. Special Laws (The Insurance Code (PD612, as amended), The Government Service Insurance Act of
1977, Social Security Act of 1954)
d. Others (RA 6565-Property Insurance Law, RA 4898, EO 250, RA 3591)
2. Applicability of the Civil Code – Suppletory, if the Insurance Code does not provide for a particular matter in
question, the provisions of the Civil code on contracts, shall govern.
3. Construction of the Insurance Code – Interpretation is only allowed when the provisions are not clear.
4. Elements of a contract:
a. Subject Matter - thing insured
b. Consideration – premium
c. Object and purpose - transfer and distribution of risk of loss, damage or liability
5. Nature and Characteristics of an insurance contract:
a. Consensual
b. Voluntary
c. Aleatory – one or both of the parties bind themselves to do something in consideration of what the other
shall give or do, upon the happening of an event which is uncertain or which is to occur at an
indeterminate time.
d. As to Execution (in effect, unilateral)
i. Executed – as to the insured after payment of premium
ii. Executory – as to the insurer in the sense that it is not yet performed before payment of the loss.
e. Conditional
f. Contract of indemnity – promise of the insurer to make good the loss of the insured.
g. Personal contract
h. Property in legal contemplation
6. Elements of an Insurance Contract:
a. Insurable Interest
b. Subject to risk of loss of that interest by the happening of designated perils
c. Insurer assumes risk of loss
d. Assumption of risk is part of a general scheme to distribute actual losses
e. Payment of a premium
7. Construction of Insurance Contracts:
a. Should be examined and interpreted in consonance with each other. Taken jointly and as a whole, not
individually.
b. Where there is ambiguity – Construed liberally and in favor of the insured and strictly against the insurer.
i. Contract of Adhesion - a contract where by the terms does not result from mutual negotiation
between parties but are prescribed by one party and the other may adhere if he chooses but
which he cannot change.
8. Requisites of an Insurance Contract:
a. A subject matter in which the insured has an insurable interest
b. Event or peril insured against which may be any contingent or unknown event, past or future.
c. A promise to pay or indemnify in a fixed or ascertainable amount
d. A consideration for the promise, known as the premium
e. A meeting of the minds of the parties
9. What may be insured?
1. Any contingent or unknown event (whether past or future)
2. Which may damnify a person having an insurable interest
3. Or an event creating liability against him
10. Parties to the contract:
a. 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.
b. Insured – in whose favor the contract is operative and who is indemnified against. The person whose loss
is the occasion for payment of insurance proceeds.
c. Beneficiary – a person designated by the terms of the policy as the one to receive the proceeds of the
insurance. (third party to the insurance contract)
11. Insurance by the mortgagor for the benefit of the mortgagee:
a. Effects:
i. The mortgagor remains to be a party in the contract – it is in his interest
ii. Acts of the mortgagor prior to the loss which would avoid the insurance, affects the mortgagee
iii. Acts to be performed by the mortgagor may be performed by the mortgagee and has the same
effect
iv. In case of loss, mortgagee is entitled to the proceeds up to the extent of his credit
v. Upon recovery to the extent of credit, debt is extinguished. No subrogation in favor of insurer
against mortgagor.
12. Insurance of mortgagee for his own interest:
a. There is subrogation of the insurer to the shoes of the mortgagee as against the debtor. He becomes the
new credit to the extent of his credit.
13. Standard mortgage clause – is a clause containing a collateral independent contract between the mortgagee and
the insurer. Where the acts of the insured/mortgagor does not affect the rights of the mortgagee to collect.
14. Insurable Interest – An interest which the law requires the owner of an insurance policy to have in the person or
thing 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 loss upon its destruction.
15. Rights of the insured to change beneficiary:
a. In general – allowed unless right is waived
b. Effect of death of insured – becomes irrevocable
c. If waived, becomes irrevocable
16. When beneficiary dies before the insured: (two views)
a. If irrevocable, the right passes to the heirs of the beneficiary
b. The right passes to the estate of the insured especially where the designation is subject to the condition
that the beneficiary is surviving.
 17. Insurable Interest when required:
a. Property Insurance – must exist at the time the insurance takes effect and when the loss occurs
b. Life or health of the person – must exist at the time the insurance takes effect but need not exist
thereafter or when the loss occurs.
18. Change in interest in the property, without change in the interest of the insurance suspends the contract until the
same person becomes the owner of the policy and the thing insured.
19. Stipulation in a policy of insurance for the payment of loss executed by way of wagering or gaming is void.
II. Concealment – Sec. 26
- The neglect to communicate that which a party knows and ought to communicate.
1. As of what time must the party charged with concealment have knowledge of the facts concealed?

If the applicant is aware of the existence of some circumstances which he knows would influence the insurer in
acting upon his application, good faith requires him to disclose that circumstance, though unasked.

Concealment must take place at the time the contract is entered into in order that the policy be avoided
afterwards. The duty of disclosure ends with the completion and effectivity of the contract (even before delivery of
the insurance policy).

EXCEPTION: Reissuance

- If the contract is to be effective only upon issuance of the policy, the insurer is required to disclose any
changes in health occurring or coming to his knowledge between the date he submitted his application after
satisfactory medical examination, until the date the policy is delivered.

Requisites of Concealment:

a. A party knows the fact which he neglects to communicate or disclose to the other
b. The party concealing is duty bound to disclose such fact to the other
c. The party concealing makes no warranty of the fact concealed
d. The other party (concealed from) has no means of ascertaining the fact concealed
2. Must concealment be intentional to rescind a contract?

No, Sec 27 provides that concealment, whether intentional or unintentional entitles the injured party to rescind the
contract. However, when in communication of matters proving the falsity of a warranty, Sec. 29 provides that the
omission or concealment be fraudulent on the part of the insured, as to entitle the insurer to rescind the contract.

3. How is materiality of concealment determined?

Section 31. Materiality is determined solely by the probable and reasonable influence of the facts upon the party
to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or the
inquiries to be made.

To be material, a fact need not increase the risk but it is sufficient that knowledge of the concealment influence
the parties in making the contract.
Representation – a statement at the time of, or prior to the issuance of the policy, relative to the risk insured, as to an
existing or past event or concerning a future happening, to give information on the insurer and otherwise induce him to
enter into the contract.

Sec. 44: Represenation is deemed false when it does not correspond with its assertions or stipulations.

4. Misrepresentation:
a. Is a statement as a fact of something which is untrue
b. Which the insured stated with knowledge that it is untrue with an intent to deceive or which he states
positively as true without knowing it to be true and which has a tendency to mislead
c. Which such fact in either case is material to the risk
5. When made – at the time of or before issuance of the policy.
6. Kinds:
a. Affirmative representation – any allegation as to the existence or non-existence of a fact when the
contract begins
b. 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 the insurance (substantially a warranty).
7. Representation may be withdrawn or altered before the insurance is effected, but not afterwards.
8. When entitled to rescind: When a representation is false in a material point. Entitled to rescind at the time the
representation becomes false.
 Effect of collusion of agent of insurer and insured – agent ceases to represent the principal, no
estoppel on the part of insurer.
9. Right to rescind – must be exercised prior to the commencement of an action on the contract
10. What are the effects of incontestability?
Requisites of Incontestability:
a. 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 two years from its date of issue or last
reinstatement (2 years may be shortened, but not extended)
 EFFECTS:

The insurer may not refuse to pay the same by claiming that:

1. The insurance was void ab initio

2. It is rescissible by reason of fraudulent concealment if the insured or his agent, no matter how patent or
well-founded.
3. It is rescissible by reason of the fraudulent misrepresentations of the insured or his agent.
Exceptions:
1. Lack of insurable interest
2. Cause of death is an excepted risk
3. Premiums were not paid
4. Conditions have been violated relating to military or naval service
5. Vicious type of fraud
6. Failure to furnish proof of death or to comply with conditions after happening of the loss
7. Action was not brought within the time specified
III. Insurance Policy
1. Cover Notes – issued to bind the insurance temporarily pending the issuance of the policy.
- Are short term insurance policies that may be issued to afford immediate provisional protection to the insured
until the insurer can inspect or evaluate the risk in question and issue the proper policy or until the risk is
declined and notice thereof given.
2. Types of Policies:
a. Open policy – one which the value of the thing insured is not agreed upon and the amount of insurance
merely represents the insurer’s maximum liability. The value of the thing insured shall be ascertained at
the time of the loss.
b. Valued Policy – one which expresses on its face an agreement that the thing insured shall be valued at a
specified sum. (Value of the insured property is predetermined)
i. There are two values:
1. Face value of the Policy
2. Value of the thing insured
c. Running Policy – one which contemplates successive insurances and which provides that the object of
the policy may be from time to time defined, by additional statements or indorsements. (due to frequent
change of location and quantity, ot for property of such a nature as not to admit of a gross valuation)
3. Condition, stipulation, agreement, limiting the period of commencing an action under a policy of insurance for less
than 1 year from the time the cause of action accrues – VOID
 When does the cause of action accrue?
o At the time the insured’s claim has been rejected by the insurer. After the act or omission of a
party in violation of a legal right.
 The right for payment of loss accrues at the time of happening of the loss (different from cause of
action)
4. Stipulation Pour Autrui – Contracts containing a stipulation in favor of a third person. Art 1311 NCC)
5. Requisites for Valid Cancellation of Policy (read Sec 65)
a. There must be prior notice of cancellation to the insured
b. The notice must be based on the occurrence, after the effective date of the policy, of one or more of the
grounds mentioned
c. It must be in writing, mailed or delivered to the named insured at the address shown in the policy, or to his
authorized broker
d. It must state which of the grounds set forth is relied upon.