INSURANCE LAW | Atty.
Ibarra
I. INTRODUCTION
PART ONE: INSURANCE IN RELATION TO OTHER LAWS
II. INSURANCE AS SPECIAL CONTRACTS
A. Insurance in relation to civil law
Article 2011 The contract of insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code.
Article 2012 Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said article.
Article 739 The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage
at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense in
consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by
reason of his office.
In the cases referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action.
SOUTHERN LUZON EMPLOYEES’ ASSOCIATION v. GOLPEO
G.R. No. L-6114, 30 October 1954
With the finding of the trial court that the proceeds of the life-insurance policy belongs
exclusively to the defendant as his individual and separate property, we agree. That the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate
of the person whose life was insured, and that such proceeds are the separate and
individual property of the beneficiary, and not of the heirs of the person whose life was
insured, is the doctrine in America. We believe that the same doctrine obtains in these
Islands by virtue of section 428 of the Code of Commerce, which reads:
"The amounts which the underwriter must deliver to the person insured, in
fulfillment of the contract, shall be the property creditors of any kind whatsoever of
the person who effected the insurance in favor of the formers."
xxx
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x x x The contract of life insurance is a special contract and the destination of the proceeds
thereof is determined by special laws which deal exclusively with that subject. The Civil
Code has no provisions which relate directly and specifically to life-insurance contract or to
the destination of life-insurance proceeds. That subject is regulate exclusively by the Code
of Commerce which provides for the terms of the contract, the relations of the parties and
the destination of the proceeds of the policy.
Separate Opinions
REYES, J.B.L., J., concurring:
I concur in the result for the reason that the contract here involved was
perfected before the new Civil Code took effect, and hence its provisions
cannot be made to apply retroactively.
THE INSULAR LIFE ASSURANCE COMPANY, LTD v. EBRADO
G.R. No. L-44059, 28 October 1977
Issue
Can a common-law wife named as beneficiary in the life insurance policy of a legally
married man claim the proceeds thereof in case of death of the latter?
Held/Ruling
No!
x x x Article 2011 of the New Civil Code states: "The contract of insurance is governed
by special laws. Matters not expressly provided for in such special laws shall be
regulated by this Code." When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. And under Article 2012 of the same Code, "any person
who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make a donation to
him. Common-law spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides:
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at
the time of donation;
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof;
INSURANCE LAW | Atty. Ibarra
3. Those made to a public officer or his wife, descendants or ascendants by
reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same action.
In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the
insured pays out of liberality, the beneficiary will receive the proceeds or profits of
said insurance. As a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article 2012 cannot
be laid aside: any person who cannot receive a donation cannot be named as
beneficiary in the life insurance policy of the person who cannot make the donation.
Under American law, a policy of life insurance is considered as a testament and in
construing it, the courts will, so far as possible treat it as a will and determine the
effect of a clause designating the beneficiary by rules under which wins are
interpreted.
B. As a contract
(a) Requisites of a valid contract (Article 1318, NCC)
Article 1318 There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
a.1 Consent (Articles 1319 – 1326, NCC)
Article 1319 Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such
a case, is presumed to have been entered into in the place where the
offer was made.
Article 1320 An acceptance may be express or implied.
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Article 1321 The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
Article 1322 An offer made through an agent is accepted from the time
acceptance is communicated to him.
Article 1323 An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed.
Article 1324 When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
Article 1325 Unless it appears otherwise, business advertisements of things for
sale are not definite offers, but mere invitations to make an offer.
Article 1326 Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears.
a.1.1 Persons who cannot give consent to a contract of insurance (Article 1327 and
Article 1328, NCC)
Article 1327 The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who
do not know how to write.
Article 1328 Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable.
a.1.2 Mistake, Fraud, Violence, Intimidation, Undue Influence (Articles 1330 – 1339,
NCC)
Article 1330 A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable
Article 1331 In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract,
or to those conditions which have principally moved one or
both parties to enter into the contract.
INSURANCE LAW | Atty. Ibarra
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications
have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
Article 1332 When one of the parties is unable to read, or if the contract is in
a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the
terms thereof have been fully explained to the former.
Article 1333 There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
Article 1334 Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent.
Article 1335 There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon
the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent.
Article 1336 Violence or intimidation shall annul the obligation, although it
may have been employed by a third person who did not take
part in the contract.
Article 1337 There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the
latter of a reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact
that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial
distress.
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Article 1338 There is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed
to.
Article 1339 Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations,
constitutes fraud.
a.2 Object (Articles 1347 – 1349, NCC) – In relation to insurable interest
Article 1347 All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are
not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a contract.
Article 1348 Impossible things or services cannot be the object of contracts.
Article 1349 The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties.
Insurable Interest
Concept
It may be stated generally, however, to be such an interest, arising from
the relation of the party obtaining the insurance, either as creditor of or
surety for the assured, or from ties of blood or marriage to him, as will
justify a reasonable expectation of advantage or benefit from the
continuance of his life. It is not necessary that the expectation of
advantage or benefit should always be capable of pecuniary estimation;
for a parent has an insurable interest in the life of his child, and a child in
the life of his parent, a husband in the life of his wife, and a wife in the life
of her husband. The natural affection in cases of this kind is considered as
powerful – as operating more efficaciously – to protect the life of the
insured than any other consideration.
a.3 Cause/Consideration (Article 1350, NCC) – Payment of insurance premium
INSURANCE LAW | Atty. Ibarra Insurance Notes for Midterms

This period shall begin: In cases of intimidation, violence or undue

Article 1350 In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by
the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

Insurance is a risk-spreading device. The insurer pools the premiums paid by all its
Article 1392 Ratification extinguishes the action to annul a voidable contract.
client. In theory, the pool of premiums answers for the losses of each insured.
Indeed, it is no exaggeration to say that premium is the elixir vitae of insurance
business. b.2 Unenforceable Contracts and Unenforceable Contracts of Insurance

Premium required for policy to be binding. At the heart of the statutory rules on
Article 1403 The following contracts are unenforceable, unless they are ratified:
premium is Section 77 of the Insurance Code which provides:
(1) Those entered into in the name of another person by one
Section 77 An insurer is entitled to payment of the premium as soon as the
who has been given no authority or legal representation, or who
thing insured is exposed to the peril insured against.
has acted beyond his powers;
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and
(2) Those that do not comply with the Statute of Frauds as set forth in
binding unless and until the premium thereof has been paid,
this number. In the following cases an agreement hereafter made
except in the case of a life or an industrial life policy whenever the
shall be unenforceable by action, unless the same, or some note or
grace period provision applies or whenever under the broker and
memorandum, thereof, be in writing, and subscribed by the party
agency agreements with duly licensed intermediaries, a ninety
charged, or by his agent; evidence, therefore, of the agreement
(90)-day credit extension is given. No credit extension to a duly
cannot be received without the writing, or a secondary evidence
licensed intermediary should exceed ninety (90) days from date of
of its contents:
issuance of the policy.

(a) An agreement that by its terms is not to be performed within a

(b) Defective Contracts and Insurance Law year from the making thereof;
(b) A special promise to answer for the debt, default, or
b.1 Voidable Contracts and Voidable Contracts of Insurance miscarriage of another;
(c) An agreement made in consideration of marriage, other than a
Article 1390 The following contracts are voidable or annullable, even though there
mutual promise to marry;
may have been no damage to the contracting parties:
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
(1) Those where one of the parties is incapable of giving
buyer accept and receive part of such goods and chattels, or
consent to a contract;
the evidences, or some of them, of such things in action or pay
at the time some part of the purchase money; but when a sale
(2) Those where the consent is vitiated by mistake, violence,
is made by auction and entry is made by the auctioneer in his
intimidation, undue influence or fraud.
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers
These contracts are binding, unless they are annulled by a proper action
and person on whose account the sale is made, it is a sufficient
in court. They are susceptible of ratification.
memorandum;
(e) An agreement for the leasing for a longer period than one
Article 1391 The action for annulment shall be brought within four years.
year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.

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INSURANCE LAW | Atty. Ibarra
(3) Those where both parties are incapable of giving consent to a
contract.
b.3 Void Contracts and Void Contracts of Insurance
Article 1409 The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Article 1410 The action or defense for the declaration of the inexistence of a
contract does not prescribe.
b.4 Rescissible Contracts of Insurance
Article 1380 Contracts validly agreed upon may be rescinded in the cases established
by law.
Article 1381 The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
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Insurance Notes for Midterms
Article 1382 Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible.
Article 1383 The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same.
Article 1384 Rescission shall be only to the extent necessary to cover the damages
caused.
III. CHARACTERISTICS
(a) Aleatory Contract
Element of risk. An aleatory contract is one which is dependent on the occurrence of an
uncertain event or one which is certain to happen but the time is unknown.
An aleatory contract contains elements of both a conditional obligation and an obligation
subject to a period.
Article 2010 of the New Civil Code provides that a contract is aleatory when one of the parties or
both reciprocally bind themselves to give or 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. Insurance is one of the contracts enumerated in the New Civil Code as
falling under this classification of special contracts. It is not a contract of chance but a contract
where some of the rights of the parties of the contract are contingent upon chance events.
(b) Onerous
This is valuable consideration.
You have to give something.
Onerous describes a contract or lease that has more obligations than
advantages. Onerous derives from Middle English, from Old French onereus, from
Latin onerōsus, from onus "burden." In English, an onus is a task or duty that is onerous, or very
difficult.
(c) Bilateral
A bilateral contract is a reciprocal arrangement between two parties where each promises to
perform an act in exchange for the other party's act. Each party is an obligor (a person who is
INSURANCE LAW | Atty. Ibarra Insurance Notes for Midterms

bound to another) to its own promise, and an obligee (a person to whom another is obligated quote Section 101 of the Insurance Code which defines Marine Insurance by
or bound) on the other party's promise. enumeration:

There are two or more contracting parties. Section 101 Marine Insurance includes:

(a) Insurance against loss of or damage to:

(d) Form
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
It is a formal Contract. merchandise, effects, disbursements, profits, moneys,
securities, choses in action, instruments of debts, valuable
papers, bottomry, and respondentia interests and all other
IV. CONCEPTS AND TERM USED kinds of property and interests therein, in respect to,
appertaining to or in connection with any and all risks or
Type of Insurance perils of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly
(a) Life Insurance
prepared for shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment incident
Section 181 of the Insurance Code defines life insurance as an insurance on human lives and
thereto, including war risks, marine builder’s risks, and all
insurance appertaining thereto or connected therewith.
personal property floater risks;
Life insurance is not a contract indemnity. Consistently, the interest of the person insured
in his or another person’s life is generally not susceptible of exact pecuniary measurement. (2) Person or property in connection with or appertaining to a
Hence, the measure of indemnity is whatever is fixed in the policy. marine, inland marine, transit or transportation insurance,
including liability for loss of or damage arising out of or in
Section 186 Unless the interest of a person insured is susceptible of exact pecuniary connection with the construction, repair, operation,
measurement, the measure of indemnity under a policy of insurance maintenance or use of the subject matter of such insurance
upon life or health is the sum fixed in the policy. (but not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to any
person arising out of ownership, maintenance, or use of
i. Individual Life
automobiles);
ii. Group Life
(3) Precious stones, jewels, jewelry, precious metals, whether in
iii. Industrial Life course of transportation or otherwise; and

It is that form of life insurance under which the premiums are payable either monthly
or oftener, if the face amount of insurance provided in any policy is not more than
five hundred times that of the current statutory minimum daily wage in the City of
Manila, and if the words “industrial policy” are printed upon the policy as part of the
descriptive matter.
(b) Non-Life Insurance
(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to
navigation and transportation, including dry docks and
marine railways, dams and appurtenant facilities for the
control of waterways.

i. Marine (b) Marine protection and indemnity insurance, meaning insurance

The term marine insurance cannot be given a simple definition; it has no unified
conception. One might suppose that this type of insurance is limited to insurance
that secures vessels and its cargoes against the perils of navigation. However, the
present law does not limit marine insurance to the risks of navigation. It is well to
against, or against legal liability of the insured for loss, damage, or
expense incident to ownership, operation, chartering,
maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways, including

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liability of the insured for personal injury, illness or death or for
loss of or damage to the property of another person.
Two Basic Types of Marine Insurance
(1) Ocean Marine Insurance
An insurance against risks connected with navigation, to which a ship,
cargo, freightage, profits, or other insurable interest in movable property,
may be exposed during a certain voyage or a fixed period of time.
The different kinds of Ocean Marine Insurance may be grouped into four
(1) Insurance over the vessel, craft and other conveyances;
(2) Insurance for the protection of the carrier against liability to
others for loss or damage to the property of another;
(3) Insurance over cargoes that are being transported; and
(4) Insurance over freight and income.
(2) Inland Marine Insurance
Marine insurance may likewise cover risks that do not relate to navigation
itself or transit of goods and passengers. The growth of transportation
facilities and the expansion of inland business and commerce saw the
need for a new type of insurance that cannot be covered by ocean marine
insurance and ordinary property or life insurance. Inland marine insurance
include insurance over cargoes, infrastructure and floaters.
(3) Aviation Insurance
Section 101 includes insurance over an aircraft as part of Marine Insurance.
This includes different Aircraft Hull Policies which may take different forms
depending on the type of aircraft.
An Aircraft Hull Policy may cover all risks “ground and flight” which means
that all damages both on the ground and in flight are included. It may also
cover insurance over the aircraft while the same is not in motion.
ii. Fire
As used in the Insurance Code, the term “fire insurance” shall include insurance
against loss by: (1) fire, (2) lightning, (3) windstorm, (4) tornado, (5) earthquake, and
(6) other allied risks, when such risks are covered by extension to fire insurance
policies or under separate policies. Thus, fire insurance covers not only damage or
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Insurance Notes for Midterms
loss by fire but also allied risks if they are covered by extensions and separate
policies.
iii. Casualty
Section 176 Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of other
types of insurance such as fire or marine. It includes, but is not limited
to, employer’s liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.
Thus, casualty insurance includes the following
(1) Burglary and theft insurance.
(2) Personal accident and health insurance as written by non-life insurance
companies.
(3) Plate glass insurance.
(4) Employer’s liability insurance.
(5) Motor vehicle liability insurance.
(6) Other substantially similar kinds of insurance.
(c) Suretyship
For regulatory purposes, a contract of suretyship shall be deemed to be an insurance
contract within the meaning of the Insurance Code when made by a surety who or which,
as such, is doing an insurance business.
The contract of suretyship under the New Civil Code is simply defined as an agreement
whereby one binds himself solidarily with the principal debtor.
By suretyship, a person known as surety binds himself solidarily to the creditor to fulfill the
obligation of the principal debtor. On the other hand, Sections 177 and 178 of the Insurance
Code provides:
Section 177 A contract of suretyship is an agreement whereby a party called the
surety guarantees the performance by another party called the principal
or obligor of an obligation or undertaking in favor of a third party called
the obligee. It includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206.
Section 178 The liability of the surety or sureties shall be joint and several with the
obligor and shall be limited to the amount of the bond. It is determined
INSURANCE LAW | Atty. Ibarra Insurance Notes for Midterms

strictly by the terms of the contract of suretyship in relation to the the absence of provisions of the Insurance Code. Article 2011 of the New Civil Code provides
principal contract between the obligor and the obligee. that the contract of insurance is governed by special laws and matters not expressly provided
for in such special laws shall be regulated by the said Code. The New Civil Code likewise provides
Distinguished from Insurance Contract for grounds for disqualification of beneficiaries under Article 2012 thereof.

SURETYSHIP
There are three parties. The principal,
obligee and surety.
The surety, in theory, expects no loss to
occur.
The surety has the right of
reimbursement against the defaulting
principal.
The surety guarantees qualities that are
within the control of the insured, that is,
the insured’s character, honesty, and
integrity to perform the obligation.
INSURANCE
There are two parties, the insurer and
the insured.
The insurer expects loss to occur and in
some cases, like life insurance, the loss is
a certainty.
The insurer does not have the right of
reimbursement from the insured.
Insurance covers losses that are beyond
the control of the insured.
Right of Subrogation. The New Civil Code specifically deals with the right of the insurer to
subrogation. Article 2207 of the New Civil Code provides that “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.
(c) Family Code
(d) Other special laws

V. APPLICABLE LAW

(a) New Insurance Code (Republic Act No. 10607)

The primary law that governs insurance contracts is the Insurance Code of the Philippines that
was originally enacted as Presidential Decree (PD) No. 602. PD No. 602 was previously amended
by PD Nos. 1141, 1280, 1455, 1460, 1814 and 1918, and BP Blg. 874. The previous edition of this
work was based on PD No. 1460 as amended, otherwise known as Insurance Code of 1978

The most recent amendment is RA No. 10607 dated August 15, 2013. RA 10607 was published in a
newspaper of general circulation on September 5, 2013. This law re-enacted PD No. 602 as
amended and introduced new concepts and provisions. For example, the law now includes a
provision on microinsurance, bancassurance, trust operations of insurance companies, and self-
regulatory organizations. The new law strengthened the regulatory provisions of the Code.
These include but are not limited to: (1) increase of the paid-up capital and net worth
requirements for insurers, (2) new requirements for unimpaired capital or assets and reserved,
(3) new provisions on financing report framework, (4) adoption of corporate governance rules,
(5) changes in the provisions on margin of solvency, (6) changes in the provisions on
investments, (7) fixing the term of the Insurance Commissioner to six years, and (8) changes in
the jurisdiction of the Insurance Commission over insurance claims. Other changes merely
expressly adopted prevailing jurisprudence.

(b) Civil Code Provisions on contracts and Article 2011 and other related articles

The New Civil Code provisions govern suppletorily. For instance, the rules on perfection of
contracts under the Title IV of the New Civil Code on obligations and contracts can be applied in

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PART TWO: THE INSURANCE CODE OF THE PHILIPPINES
VI. INSURANCE DEFINED (Section 2, Insurance Code)
Section 2 Whenever used in this Code, the following terms shall have the respective meanings
hereinafter set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within the
meaning of this Code, only if made by a surety who or which, as such, is doing
an insurance business as hereinafter provided.
(b) The term doing an insurance business or transacting an insurance business, within
the meaning of this Code, shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance business.
(c) As used in this Code, the term Commissioner means the Insurance Commissioner.
9 Co, Anne Lorraine Pongos | 高安安
Insurance Notes for Midterms
VII. WHAT MAY BE INSURED IN A CONTRACT OF INSURANCE
(a) Future, Contingent or Past Event May Be Insured (Section 3, Insurance Code)
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 the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance policy
taken out by a married person on his or her life or that of his or her children.
All rights, title and interest in the policy of insurance taken out by an original
owner on the life or health of the person insured shall automatically vest in the
latter upon the death of the original owner, unless otherwise provided for in the
policy.
(b) Insurance on Lottery (Section 4, Insurance Code)
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.
VIII. PARTIES TO A CONTRACT OF INSURANCE
(a) Who can be an insurer? (Section 6, Insurance Code, in relation to Section 190, Insurance Code)
Section 6 Every corporation, partnership, or association, duly authorized to transact
insurance business as elsewhere provided in this Code, may be an insurer.
Section 190 For purposes of this Code, the term insurer or insurance company shall include
all partnerships, associations, cooperatives or corporations, including
government-owned or -controlled corporations or entities, engaged as
principals in the insurance business, excepting mutual benefit associations.
Unless the context otherwise requires, the term shall also include professional
reinsurers defined in Section 288. Domestic company shall include companies
formed, organized or existing under the laws of the Philippines. Foreign
company when used without limitation shall include companies formed,
organized, or existing under any laws other than those of the Philippines.
Section 288 Except as otherwise provided in this Code, no partnership, association or
corporation shall transact any business in the Philippines as a professional
reinsurer until it shall have obtained a certificate of authority for that
purpose from the Commissioner upon application therefor and payment
INSURANCE LAW | Atty. Ibarra
by such entity of the fees hereinafter prescribed. As used in this Code, the
term ‘professional reinsurer’ shall mean any entity that transacts solely
and exclusively reinsurance business in the Philippines.
The Commissioner may refuse to issue a certificate of authority to any
such entity when such refusal will best promote public interest. No such
certificate of authority shall be granted to any such entity unless and until
the Commissioner is satisfied by such examination and such evidence as
may be required that such entity is qualified by the laws of the Philippines
to transact business therein as a professional reinsurer.
Before issuing such certificate of authority, the Commissioner must be
satisfied that the name of the applicant is not that of any other known
company transacting insurance or reinsurance business in the Philippines,
or a name so similar as to be calculated to mislead the public.
Such certificate of authority shall expire on the last day of December the
third year following its issuance unless it is renewed.
Every such partnership, association, or corporation receiving such
certificate of authority shall be subject to the provisions of this Code and
other related laws, and to the jurisdiction and supervision of the
Commissioner.
However, individuals are no longer identified as persons who can be an insurer under the
present law.
i. Basic Qualifications (Sections 192 and 193, Insurance Code)
Section 192 No corporation, partnership, or association of persons shall transact any
insurance business in the Philippines except as agent of a corporation,
partnership or association authorized to do the business of insurance in
the Philippines, unless 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; unless the Commissioner shall have
granted it a certificate to the effect that it has complied with all the
provisions of this Code.
Every entity receiving any such certificate of authority shall be subject to
the insurance and other applicable laws of the Philippines and to the
jurisdiction and supervision of the Commissioner.
Section 193 No insurance company shall transact any insurance business in the
Philippines until after it shall have obtained a certificate of authority for
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Insurance Notes for Midterms
that purpose from the Commissioner upon application therefor and
payment by the company concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority to any
insurance company if, in his judgment, such refusal will best promote the
interest of the people of this country. No such certificate of authority shall
be granted to any such company until the Commissioner shall have
satisfied himself by such examination as he may make and such evidence
as he may require that such company is qualified by the laws of the
Philippines to transact business therein, that the grant of such authority
appears to be justified in the light of local economic requirements, and
that the direction and administration, as well as the integrity and
responsibility of the organizers and administrators, the financial
organization and the amount of capital, reasonably assure the safety of
the interests of the policyholders and the public.
In order to maintain the quality of the management of the insurance
companies and afford better protection to policyholders and the public in
general, any person of good moral character, unquestioned integrity and
recognized competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent provisions
contained in the corporate governance circulars prescribed by the
Commissioner. In addition hereto, the Commissioner shall prescribe the
qualifications of directors, executive officers and other key officials of
insurance companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an insurance
company and an adjustment company.
Before issuing such certificate of authority, the Commissioner must be
satisfied that the name of the company is not that of any other known
company transacting a similar business in the Philippines, or a name so
similar as to be calculated to mislead the public. The Commissioner may
issue rules and regulations on the use of names of insurance companies
and other supervised persons or entities.
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.
Every company receiving any such certificates of authority shall be subject
to the provisions of this Code and other related laws and to the jurisdiction
and supervision of the Commissioner.
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
No insurance company may be authorized to transact in the Philippines
the business of life and non-life insurance concurrently, unless specifically
authorized to do so by the Commissioner: Provided, That the
terms life and non-life insurance shall be deemed to include health,
accident and disability insurance.
No insurance company shall have equity in an adjustment company and
neither shall an adjustment company have equity in an insurance company.
No insurance company issued with a valid certificate of authority to
transact insurance business anywhere in the Philippines by the Insurance
Commissioner, shall be barred, prevented, or disenfranchised from issuing
any insurance policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in the
Philippines, by any local government unit or authority, for whatever guise
or reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local government
unit regulatory issuance imposing such restriction or disenfranchisement
on any insurance company shall be deemed null and void ab initio.
ii. Prohibited acts for an insurer (Section 193, IC, in relation to Section 370 and Section
371, IC)
Section 193 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 Commissioner upon application therefor and
payment by the company concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority to any
insurance company if, in his judgment, such refusal will best promote the
interest of the people of this country. No such certificate of authority shall
be granted to any such company until the Commissioner shall have
satisfied himself by such examination as he may make and such evidence
as he may require that such company is qualified by the laws of the
Philippines to transact business therein, that the grant of such authority
appears to be justified in the light of local economic requirements, and
that the direction and administration, as well as the integrity and
responsibility of the organizers and administrators, the financial
organization and the amount of capital, reasonably assure the safety of
the interests of the policyholders and the public.
In order to maintain the quality of the management of the insurance
companies and afford better protection to policyholders and the public in
general, any person of good moral character, unquestioned integrity and
recognized competence may be elected or appointed director or officer of
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Insurance Notes for Midterms
insurance companies in accordance with the pertinent provisions
contained in the corporate governance circulars prescribed by the
Commissioner. In addition hereto, the Commissioner shall prescribe the
qualifications of directors, executive officers and other key officials of
insurance companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an insurance
company and an adjustment company.
Before issuing such certificate of authority, the Commissioner must be
satisfied that the name of the company is not that of any other known
company transacting a similar business in the Philippines, or a name so
similar as to be calculated to mislead the public. The Commissioner may
issue rules and regulations on the use of names of insurance companies
and other supervised persons or entities.
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.
Every company receiving any such certificates of authority shall be subject
to the provisions of this Code and other related laws and to the jurisdiction
and supervision of the Commissioner.
No insurance company may be authorized to transact in the Philippines
the business of life and non-life insurance concurrently, unless specifically
authorized to do so by the Commissioner: Provided, That the
terms life and non-life insurance shall be deemed to include health,
accident and disability insurance.
No insurance company shall have equity in an adjustment company and
neither shall an adjustment company have equity in an insurance company.
No insurance company issued with a valid certificate of authority to
transact insurance business anywhere in the Philippines by the Insurance
Commissioner, shall be barred, prevented, or disenfranchised from issuing
any insurance policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in the
Philippines, by any local government unit or authority, for whatever guise
or reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local government
unit regulatory issuance imposing such restriction or disenfranchisement
on any insurance company shall be deemed null and void ab initio.
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
Section 370 No insurance company doing business in the Philippines or any agent
thereof, no insurance broker, and no employee or other representative of
any such insurance company, agent, or broker, shall make, procure or
negotiate any contract of insurance or agreement as to policy contract,
other than is plainly expressed in the policy or other written contract
issued or to be issued as evidence thereof, or shall 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, or shall 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; nor shall any such
company, or any agent thereof, as to any policy or contract of insurance
issued, 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.
Section 371 No insurance company doing business in the Philippines, and no officer,
director, or agent thereof, and no insurance broker or any other person,
partnership or corporation shall 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, or shall use any name or title of any policy or class of policies
misrepresenting the true nature thereof; nor shall any such company or
agent thereof, or any other person, partnership or corporation 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.
Mutual benefits association is not an insurer but requires authorization from the insurance
commission (Section 184, Insurance Code)
Section 184 A policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable
interest or not, and such person may recover upon it whatever
the insured might have recovered.
Section 188 No insurance company or mutual benefit association shall
engage in the business of microinsurance unless it possesses
all the requirements as may be prescribed by the
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Insurance Notes for Midterms
Commissioner. The Commissioner shall issue such rules and
regulations governing microinsurance.
Section 190 For purposes of this Code, the term insurer or insurance
company shall include all partnerships, associations,
cooperatives or corporations, including government-owned or
-controlled corporations or entities, engaged as principals in
the insurance business, excepting mutual benefit associations.
Unless the context otherwise requires, the term shall also
include professional reinsurers defined in Section
288. Domestic company shall include companies formed,
organized or existing under the laws of the
Philippines. Foreign company when used without limitation
shall include companies formed, organized, or existing under
any laws other than those of the Philippines.
Mutual Benefit Association. Although excluded from the term “insurer” under
Section 184 of the Insurance Code, likewise within the regulatory powers of the
Insurance Commission are “mutual benefit associations.” They must first secure a
license from the Insurance Commission before they can transact business.
Section 184 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, shall be known as a mutual
benefit association within the intent of this Code.
Any society, association, or corporation principally organized
as a labor union shall be governed by the Labor Code
notwithstanding any mutual benefit feature provisions in its
charter as incident to its organization.
In no case shall a mutual benefit association be organized and
authorized to transact business as a charitable or benevolent
organization, and whenever it has this feature as incident to its
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
existence, the corresponding charter provision shall be revised
to conform with the provision of this section. Mutual benefit
association, already licensed to transact business as such on
the date this Code becomes effective, having charitable or
benevolent feature shall abandon such incidental purpose
upon effectivity of this Code if they desire to continue
operating as such mutual benefit associations.
iii. Cooperatives as Insurance Companies (Section 190, Insurance Code)
Section 190 For purposes of this Code, the term insurer or insurance company shall
include all partnerships, associations, cooperatives or corporations,
including government-owned or -controlled corporations or entities,
engaged as principals in the insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the term shall also
include professional reinsurers defined in Section 288. Domestic
company shall include companies formed, organized or existing under the
laws of the Philippines. Foreign company when used without limitation
shall include companies formed, organized, or existing under any laws
other than those of the Philippines.
(b) Who may be 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 person/s in whose life
or property he has insurable interest or liability to other persons. The insured is the one who
enters into a contract with the insurer.
General Rule: Anyone except a public enemy may be insured. (Section 7, Insurance Code)
A public enemy is a State (and citizens thereof) which is at war with the Philippines
i. Spouses as insured individuals – Spouses can enter into contracts of insurance covering
her life or the life of her children and the consent of the other spouse is not required for its
validity.
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. (Section 3, par. 2, IC)
Article 73, Family Code 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.
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Insurance Notes for Midterms
In case of disagreement, the court shall decide whether or not:
(1) The objection is proper, and
(2) Benefit has accrued to the family prior to the
objection or thereafter. If the benefit accrued prior
to the objection, the resulting obligation shall be
enforced against the separate property of the
spouse who has not obtained consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith.
Common Law Spouses, Unions Without Marriage – Can common-law-spouses and partners
be insured by the other partner? (Article 1409, NCC)
Article 1409 The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
Who owns the insurance policy taken by one spouse? (Arts. 91, 92, 96 & 109, Family Code)
Article 91 Unless otherwise provided in this Chapter or in the marriage
settlements, the community property shall consist of all the property
owned by the spouses at the time of the celebration of the marriage
or acquired therefore
Article 92 The following shall be excluded from the community property:
(1) Property acquired during the marriage by gratuitous title by
either spouse, and the fruits as well as the income thereof, if
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
any, unless it is expressly provided by the donor, testator or
grantor that they shall form part of the community property;
(2) Property from personal and exclusive use of either spouse.
However, jewelry shall form part of the community property;
(3) Property acquired before the marriage by either spouse who
has legitimate descendants by a former marriage, and the fruits
as well as the income, if any, of such property.
Article 93 Property acquired during the marriage is presumed to belong to the
community, unless it is proved that it is one of those excluded
therefrom.
Article 109 The following shall be the exclusive property of each spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires during the marriage by gratuitous
title;
(3) That which is acquired by right of redemption, by barter or by
exchange with property belonging to only one of the spouses;
and
(c)
(4) That which is purchased with exclusive money of the wife or of
the husband.
ii. Minors as procurer of insurance – See changes in Section 3 as per RA 10607. Relate to 1327,
NCC
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 the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children.
All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner,
unless otherwise provided for in the policy.
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Insurance Notes for Midterms
Article 1327 The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know
how to write.
iii. Effect of the death of owner (Section 3, paragraph 3, Insurance Code)
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 the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance
policy taken out by a married person on his or her life or that of his or her
children.
All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner,
unless otherwise provided for in the policy.
Beneficiary
Beneficiary is a party to whom the insurance proceeds will inure when the contingency covered
by the insurance happens. It may be the insured himself or a third party.
The beneficiary may be a third person. 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.
Section 53, Insurance Code
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
When a beneficiary is designated. In life insurance, if there is a named beneficiary and the
designation is not invalid, it is the designated beneficiary who is entitled to receive the proceeds
and not the heirs of the insured. If another person is named the beneficiary, the proceeds of an
insurance policy belong exclusively to the beneficiary and not to the estate of the person whose
life was insured. In other words, the proceeds are the separate and individual property of the
beneficiary, and not of the heirs of the person whose life was insured. At any rate, the heir may
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
also be the beneficiary and the proceeds of the life-insurance policy payable to said heir belongs
to him exclusively and does not form part of the deceased’s estate.
Third Parties. The insurer has no obligation to turn over the proceeds of the insurance to third
persons even if the third persons are immediate relatives if there is a designated beneficiary.
When there is no beneficiary. It is only when there is no designated beneficiary or when the
designation is void, that the laws of succession are applicable. In other words, if there is no
designated beneficiary, the proceeds shall form part of the estate of the deceased insured.
Effect of use of conjugal funds. If the funds of the conjugal partnership of gains are used to pay
for the premium, the proceeds of the policy constitute community property if the policy was
made payable to the deceased’s estate. One-half of said proceeds belongs to the estate and the
other half to the surviving spouse.
ii.
i. Designation of beneficiary generally revocable. However, it may stipulate that the
beneficiary is irrevocable. (Section 11, Insurance Code). However, relate to the provision of
Article 64, Family Code of the Philippines.
As a rule, the designation of the beneficiary is revocable. If the insured wants the
designation to be irrevocable, the irrevocable nature should be provided for in the policy.
Section 11, IC 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.
Article 64, FCP After the finality of the decree of legal separation, the innocent spouse
may revoke the donations made by him or by her in favor of the offending
spouse, as well as the designation of the latter as beneficiary in any
insurance policy, even if such designation be stipulated as irrevocable. The
revocation of the donations shall be recorded in the registries of property
in the places where the properties are located. Alienations, liens and
encumbrances registered in good faith before the recording of the
complaint for revocation in the registries of property shall be respected.
The revocation of or change in the designation of the insurance
beneficiary shall take effect upon written notification thereof to the
insured.
The action to revoke the donation under this Article must be brought
within five years from the time the decree of legal separation become
final.
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Insurance Notes for Midterms
Effect if Irrevocable. As the term implies, an irrevocable beneficiary cannot be replaced.
The irrevocable beneficiary has vested rights over the policy. For example, the rights of the
irrevocable cannot be affected by the subsequent assignment of the insurance policy. In
case there is cash surrender value, it is the irrevocable beneficiary who can take a policy
loan thereon.
Exception. By way of exception, the Family Code provides for revocation of an irrevocable
designation of beneficiary. Article 64 of the Family Code provides that after the finality of
the decree of legal separation, the innocent spouse may revoke the designation as a
beneficiary in any insurance policy, even if such designation is stipulated to be irrevocable.
The revocation of or change in the designation of the insurance beneficiary shall take
effect upon written notification thereof to the insured.
Forfeiture of rights of a beneficiary – Section 12, Insurance Code
Section 12 The interest of a beneficiary in a life insurance policy shall be forfeited
when the beneficiary is the principal, accomplice, or accessory in 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.
Section 12 of the Insurance Code talks about a disqualification that arises after the
perfection of the contract of insurance. The beneficiary does not suffer any disqualification
at the inception of the contract but he becomes disqualified after the contract’s
perfection. The underlying principle is that the beneficiary should not profit from his
misdeed. The disqualification under Section 12 of the Insurance Code arises due to a willful
act of the beneficiary.
RA No. 10607 changed the default rules on beneficiary under Section 12. The Life
Insurance, if a beneficiary is disqualified under Section 12, the proceeds of the insurance
shall be paid in accordance with the following rules:
(1) The forfeited share of the disqualified beneficiary shall pass on to the other
beneficiaries;
(2) If there are no other beneficiaries, the proceeds shall be paid in accordance with
the policy contract;
(3) If there are no other beneficiaries and there is no provision in the policy
contract, the proceeds shall be paid to the estate of the insured.
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
iii. Disqualification of beneficiary – Article 2012, NCC in relation to Art. 739, NCC
Article 2012 Any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy and by the
person who cannot make any donation to him, according to said article.
Article 739 The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal
offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor
and donee may be proved by preponderance of evidence in the same
action.
Grounds for disqualification. See Article 739, NCC. Thus in the cases mentioned in Article
739, NCC, although the insurance contract itself is valid, the designation of beneficiary is
void because they are disqualified as beneficiaries.
While a concubine is disqualified, the illegitimate children of the insured are not
disqualified. No legal prescription exists in naming as beneficiaries the children of illicit
relationships by the insured. If the concubine was disqualified, her shares in the insurance
proceeds must be awarded to the illegitimate children who are also designated as
beneficiaries.
iv. Spouse may be a designated beneficiary of the other spouse
The spouses can designate the other as a beneficiary. While a spouse is prohibited from
making a donation to the other spouse under the New Civil Code and the Family Code, this
prohibition does not apply to insurance contracts. The proceeds of the insurance policy
cannot be considered a donation or gift. “The contract of life insurance is a special
contract and the destination of the proceeds thereof is determined by special laws which
deal exclusively with that subject. The Civil Code (and the Family Code) has no provision
which relate directly and specifically to life-insurance contracts or to the destination of life
insurance proceeds.
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Insurance Notes for Midterms
v. When there is no beneficiary
When there is no beneficiary. It is only when there is no designated beneficiary or when
the designation is void, that the laws of succession are applicable. In other words, if there
is no designated beneficiary, the proceeds shall form part of the estate of the deceased
insured.
In case the insurance was funded by the absolute community and in the absence of a
beneficiary the proceeds become part of the absolute community.
If funds came from the conjugal partnership of gain:
Effect of use of conjugal funds. If the funds of the conjugal partnership of gains are
used to pay for the premium, the proceeds of the policy constitute community
property if the policy was made payable to the deceased’s estate. One-half of said
proceeds belongs to the estate and the other half to the surviving spouse.
If funded from the separate property of one of the spouses, the policy belongs to the
owner.
In a case decided when the New Civil Code provisions on the property regime of the
spouses was still in force, the Supreme Court adopted the following comments of Manresa
in his Commentaries on the Civil Code (Vol. 9, page 589 cited in the Bank of the Philippine
Islands v. Juan Posadas, Jr.):
“The amount of the policy represents the premium to be paid, and the right to it
arises the moment the contract is perfected, for at the moment the power of
disposing of it may be exercised, and if death occurs payment may be demanded. It is
therefore something acquired for a valuable consideration during the marriage,
though the period of its fulfillment, depend upon the death of one of the spouses,
which terminates the partnership. So considered, the question may be said to be
decided by Articles 1396 and 1401: if the premiums are paid with the exclusive
property of husband or wife, the policy belongs to the owner; if with conjugal
property, or if the money cannot be proved as coming from one or the other of the
spouses, the policy is community property.”
vi. General and vague designation of beneficiary – Sections 53 and 54, Insurance Code
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.
Section 54 When an insurance contract is executed with an agent or trustee as the
insured, the fact that his principal or beneficiary is the real party in interest
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
may be indicated by describing the insured as agent or trustee, or by other
general words in the policy.
(d) Insurance Agent – Section 54, Insurance Code in relation to Section 309, Insurance Code. See
also the general provisions of Agency in the Civil Code.
The insurance policy may be obtained by a person through his agent or trustee.
Section 54 When an insurance contract is executed with an agent or trustee as the insured,
the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general
words in the policy.
Section 309 Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application
for a policy or contract of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance shall be an insurance agent
within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
An insurance agent is an independent contractor and not an employee of the
company represented. ‘Insurance agent’ includes an agency leader, agency
manager, or their equivalent.
Since the insurance industry is imbued with public interest, the insurance
companies upon approval of the Commissioner may exercise wide latitude in
supervising the activities of their insurance agents to ensure the protection of
the insuring public.
Section 307 No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in
obtaining insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services
in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines, or any agent thereof,
without first procuring a license so to act from the Commissioner, which must
be renewed every three (3) years thereafter. Such license shall be issued by the
Commissioner only upon the written application of the person desiring it, such
application if for a license to act as insurance agent, being approved or
endorsed by the company such person desires to represent, and shall be upon a
form prescribed by the Commissioner giving such information as he may
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Insurance Notes for Midterms
require, and upon payment of the corresponding fee hereinafter prescribed.
The Commissioner shall satisfy himself as to the competence and
trustworthiness of the applicant and shall have the right to refuse to issue or
renew and to suspend or revoke any such license in his discretion. The license
shall expire after the thirty-first day of December of the third year following the
date of issuance unless it is renewed.
Licenses may be renewed in the case of the company represented by such
agents, and in the case of insurance brokers, upon the application of the said
brokers, themselves.
Section 308 The provisions of Sections 307 and 309 shall apply to an employee who shall be
engaged to sell insurance products by an insurance company.
General Provisions of Agency in the Civil Code
Article 1868 By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the
consent or authority of the latter.
Article 1869 Agency may be express, or implied from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Article 1870 Acceptance by the agent may also be express, or implied from his acts
which carry out the agency, or from his silence or inaction according to the
circumstances.
Article 1871 Between persons who are present, the acceptance of the agency may also
be implied if the principal delivers his power of attorney to the agent and
the latter receives it without any objection.
Article 1872 Between persons who are absent, the acceptance of the agency cannot be
implied from the silence of the agent, except:
(1) When the principal transmits his power of attorney to the agent, who
receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a power of
attorney with respect to the business in which he is habitually
engaged as an agent, and he did not reply to the letter or telegram.
Article 1873 If a person specially informs another or states by public advertisement
that he has given a power of attorney to a third person, the latter thereby
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INSURANCE LAW | Atty. Ibarra
becomes a duly authorized agent, in the former case with respect to the
person who received the special information, and in the latter case with
regard to any person.
The power shall continue to be in full force until the notice is rescinded in
the same manner in which it was given.
Article 1874 When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be
void.
Article 1875 Agency is presumed to be for a compensation, unless there is proof to the
contrary.
Article 187 An agency is either general or special.
The former comprises all the business of the principal. The latter, one or
more specific transactions.
Article 1877 An agency couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that the
agent may execute such acts as he may consider appropriate, or even
though the agency should authorize a general and unlimited management.
Article 1878 Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in
existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the
right to appeal from a judgment, to waive objections to the venue of
an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
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Insurance Notes for Midterms
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion.
Article 1879 A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.
Article 1880 A special power to compromise does not authorize submission to
arbitration.
Article 1881 The agent must act within the scope of his authority. He may do such acts
as may be conducive to the accomplishment of the purpose of the agency.
Article 1882 The limits of the agent's authority shall not be considered exceeded
should it have been performed in a manner more advantageous to the
principal than that specified by him.
Article 1883 If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have
such persons against the principal.
In such case the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own, except when
the contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice
to the actions between the principal and agent.
(e) Insurance for a partner – Section 55, Insurance Code. See Civil Code provisions.
Section 55 To render an insurance effected by one partner or part-owner, applicable to the
interest of his co-partners or other part-owners, it is necessary that the terms of
the policy should be such as are applicable to the joint or common interest.
If the policy is secured for the benefit of a partnership, a change in the name of the partnership
does not avoid the policy. For example, the Supreme Court ruled in one case that when the
partners of a general partnership doing business under the firm name of “Sharruf & Co.”
obtained insurance policies and the latter afterwards changed its name to “Sharruf & Eskenazi”
(which are the names of the same and only partners of said firm “Sharruf & Co.”), but
continuing the same business, the new firm acquires the rights of the former under the same
policies.
Civil Code provisions
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
Article 2011 The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code.
Article 2012 Any person who is forbidden from receiving any donation under article 739
cannot be named beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said article.
Article 1767 By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.
Article 1768 The partnership has a juridical personality separate and distinct from that
of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Article 1769 In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as
to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
Article 1770 A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, without prejudice to the
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Insurance Notes for Midterms
provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime.
Article 1771 A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public
instrument shall be necessary.
Article 1772 Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which
must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirements of the preceding paragraph shall
not affect the liability of the partnership and the members thereof to third
persons.
Article 1773 A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.
Article 1774 Any immovable property or an interest therein may be acquired in the
partnership name. Title so acquired can be conveyed only in the
partnership name.
Article 1775 Associations and societies, whose articles are kept secret among the
members, and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality, and shall be
governed by the provisions relating to co-ownership.
Article 1776 As to its object, a partnership is either universal or particular.
As regards the liability of the partners, a partnership may be general or
limited.
Article 1777 A universal partnership may refer to all the present property or to all the
profits.
Article 1778 A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common
fund, with the intention of dividing the same among themselves, as well as
all the profits which they may acquire therewith.
Article 1779 In a universal partnership of all present property, the property which
belonged to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners, as well as
all the profits which they may acquire therewith.
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INSURANCE LAW | Atty. Ibarra
A stipulation for the common enjoyment of any other profits may also be
made; but the property which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in such stipulation,
except the fruits thereof.
Article 1780 A universal partnership of profits comprises all that the partners may
acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess
at the time of the celebration of the contract shall continue to pertain
exclusively to each, only the usufruct passing to the partnership.
Article 1781 Articles of universal partnership, entered into without specification of its
nature, only constitute a universal partnership of profits.
Article 1782 Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.
Article 1783 A particular partnership has for its object determinate things, their use or
fruits, or a specific undertaking, or the exercise of a profession or
vocation.
(f) Assignee / Transferee of a Life Insurance – Section 184, Insurance Code
A life or health insurance policy can be transferred even without the consent of the insurer.
Section 184 A policy of insurance upon life or health may pass by transfer, will or succession
to any person, whether he has an insurable interest or not, and such person
may recover upon it whatever the insured might have recovered.
How to transfer. No formalities are required for the assignment of life or health insurance
policies. Hence, the provisions of the New Civil Code on assignment of rights should be applied.
For example, the New Civil Code provides as one of the modes of transferring ownership the
delivery of the proof or evidence of the right. Accordingly, delivery of the policy may transfer
ownership of the policy of insurance.
Notice not necessary. Since the right to transfer is conferred by law, notice to the insurer is not
even necessary to validate the transfer. The assignee acquires the right thereon even without
the knowledge of the insurer. Nevertheless, while notice to the insurer is not required, it is more
advantageous to the assignee to give notice to the insurer of such transfer. (Section 185,
Insurance Code)
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Insurance Notes for Midterms
Section 185 Notice to an insurer of a transfer or bequest thereof is not necessary to
preserve the validity of a policy of insurance upon life or health, unless thereby
expressly required.
Double Assignment. There are views in determining who has a better right in case the insured
assigns the life or health insurance policy to two or more persons. One is the “English Rule”
according to which the assignee who first gives notice is the one entitled to the proceeds if he
has no notice of any prior assignment. The other view is known as the “American Rule” which
provides that the assignee under the first assignment has the preferable claim. The “American
Rule” applies in this jurisdiction because in the absence of any specific provision on double sale
or assignment of rights, the applicable principle is prius tempore portior jure – first in time,
stronger in right.
(g) Assignee / Transferee of Property Insurance
Mere transfer of the thing insured does not transfer the policy, but suspends the same till the
new owner becomes the owner of both the property and the policy.
Section 58, Insurance Code
The mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured.
Implicit from this provision is the rule that the policy cannot be transferred so long as the
transferee has insurable interest in the thing insured. Nevertheless, the insurer’s assent is
necessary for the transfer.
Exceptions. There are exceptional cases when the insurer’s consent is not necessary even if
successors-in-interest of the insured substitute the latter. These include cases involving transfer
through will or succession and other instances of transfer by operation of law and in cases
where there is transfer among partners. (Sections 23 and 24, Insurance Code)
Section 23 A change of interest, by will or succession, on the death of the insured, does not
avoid an insurance; and his interest in the insurance passes to the person taking
his interest in the thing insured.
Section 24 A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance
even though it has been agreed that the insurance shall cease upon an
alienation of the thing insured.
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
(h) Insurance Agents – Who are insurance agents? – See Section 309, Insurance Code (Relate to
Labor Code / Statutory “Control Test” in Labor Law.
Section 309 Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application
for a policy or contract of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance shall be an insurance agent
within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
An insurance agent is an independent contractor and not an employee of the
company represented. ‘Insurance agent’ includes an agency leader, agency
manager, or their equivalent.
Since the insurance industry is imbued with public interest, the insurance
companies upon approval of the Commissioner may exercise wide latitude in
supervising the activities of their insurance agents to ensure the protection of
the insuring public.
“Control Test” in Labor Law
The determination of whether employer-employee relation exists between the parties is
very important. For one, entitlement to labor standards benefits such as minimum wages,
hours of work, overtime pay, etc., or to social benefits under laws such as social security
law, workmen’s compensation law, etc., or to termination pay, or to unionism and other
labor relations provisions under the Labor Code, are largely dependent on the existence of
employer-employee relationship between the parties.
Another thing is that the existence of employer-employee relationship between the
parties will determine whether the controversy should fall within the exclusive jurisdiction
of labor agencies or not. If for example the parties are not employer-employee of each
other, respectively, but perhaps partners or associates, then any dispute between them
will be not be covered by the jurisdiction of labor agencies but by regular courts.
There are three test commonly used to determine the existence of employer-employee
relationship:
1. Four-fold test
2. Economic reality test
3. Two-tiered test (or Multi-factor test)
Four-fold test elements
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Insurance Notes for Midterms
The usual test used to determine the existence of employer-employer relationship is
the so-called four-fold test. In applying this test, the following elements are generally
considered:
1. Right to hire or to the selection and engagement of the employee.
2. Payment of wages and salaries for services.
3. Power of dismissal or the power to impose disciplinary actions.
4. Power to control the employee with respect to the means and methods by
which the work is to be accomplished. This is known as the right-of-control
test.
Right of control test is considered as the most important element in determining the
existence of employment relation.
Of the above-mentioned elements, the right of control test is considered as the most
important element in determining the existence of employment relation. The control test
initially found application in the case of Viaña vs. Al-Lagadan and Piga, where the court
held that there is an employer-employee relationship when the person for whom the
services are performed reserves the right to control not only the end achieved but also the
manner and means used to achieve that end.
Control test thus refers to the employer’s power to control the employee’s conduct not
only as to the result of the work to be done but also with respect to the means and
methods by which the work is to be accomplished.
In applying this test, it is the existence of the right, and not the actual exercise thereof,
that is important.
The Supreme Court has laid down in a formidable line of decisions the elements to be
generally considered in determining the existence of an employer-employee relationship,
as follows:
(a) selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer’s power to control the employee with respect to the means and
method by-which the work is to be accomplished (the power to control the
employee’s conduct). This, the control test, is the most important element.
The control test––meaning whether or not the employer controls or has reserved the right
to control the employee not only as to the result of the work to be done but also the
means and methods employed in reaching that end––constitutes the most important
index of the existence of an employer-employee relationship.
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
Applying the control test, that is, whether the employer controls or has reserved the right
to control the employee not only as to the result of the work to be done but also as to the
means and method by which the same is to be accomplished, the question of whether or
not there is an employer-employee relationship for purposes of the Social Security Act has
been settled in this jurisdiction in the case of Investment Planning Corp. vs. SSS, 21 SCRA
924 (1967). In other words, where the element of control is absent; where a person who
works for another does so more or less at his own pleasure and is not subject to definite
hours or conditions of work, and in turn is compensated according to the result of his
effort, the relationship of employer-employee does not exist. (SSS vs. Court of Appeals, 30
SCRA 210 [1969]).
IX. INSURABLE INTEREST
A. Concept
Insurable Interest
Concept
It may be stated generally, however, to be such an interest, arising from the relation
of the party obtaining the insurance, either as creditor of or surety for the assured, or
from ties of blood or marriage to him, as will justify a reasonable expectation of
advantage or benefit from the continuance of his life. It is not necessary that the
expectation of advantage or benefit should always be capable of pecuniary
estimation; for a parent has an insurable interest in the life of his child, and a child in
the life of his parent, a husband in the life of his wife, and a wife in the life of her
husband. The natural affection in cases of this kind is considered as powerful – as
operating more efficaciously – to protect the life of the insured than any other
consideration. But in all cases there must be a reasonable ground, founded upon the
relations of the parties to each other, either pecuniary or of blood or affinity, to
expect some benefit or advantage from the continuance of the life of the assured.
Otherwise, the contract is a mere wager, by which the party taking the policy directly
interested in the early death of the assured. Such policies shall have the tendency to
create a desire for the event. They are, therefore, independently of any statue on the
subject, condemned, as being against public policy.”
The presence of insurable interest has the following purposes:
(1) The presence of insurable interest reduces moral hazards; and
(2) Insurable interest likewise helps in measuring the loss of the insured.
If the insured has no insurable interest over the life or property he insures, the insurance
contract is considered unenforceable. If it can be established that the contract is really a wager,
22
Insurance Notes for Midterms
the same can be considered void for being against public policy. Thus, Section 25 of the
Insurance Code provides:
Section 25 Every stipulation in a policy of insurance for the payment of loss whether
the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering is void.
a.1 In Life Insurance – That circumstances which will allow a person to take on insurance over
the life of another person for reasons that the death, disability or injury of that person will
cause damage to the emotional or economic well being of the one who obtained the
insurance.
a.2 In Property Insurance – See Section 13, Insurance Code
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.
a.3 Effect of lack of insurable interest – Generally unenforceable (Section 18, IC) and will be
considered as a contract of wager.
If the insured has no insurable interest over the life or property he insures, the insurance
contract is considered unenforceable. If it can be established that the contract is really a
wager, the same can be considered void for being against public policy. Thus, Section 25 of
the Insurance Code provides:
Section 25 Every stipulation in a policy of insurance for the payment of loss
whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering is
void.
B. Insurable Interest in Life Insurance
b.1 Insurable interest over the life of another person. The persons in whose life one may have
insurable interest are enumerated in Section 10 of the Insurance Code.
Section 10 Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra
(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.
Classes of Insurable Interest in Life Insurance. Insurance interest may be
(1) insurable interest in the insured’s own life, or
(2) insurable interest in the life of another person
With respect to insurable interest in the life of another person, the same may be
based on
C.
(1) relationship by blood,
(2) business relationship, or
(3) other pecuniary interest,
Blood Relationship. Blood relationship is limited to insurable interest over the life of a
spouse or of one’s children. Blood relationship alone would not suffice in other cases.
Thus, one has no insurable interest over the life of his parents or his brothers and
sisters by the mere fact that they are related to him by blood alone. The basis of
insurable interest is not blood relationship but pecuniary interest.
Education or support. One has insurable interest on the life of any person on whom
he depends wholly or in part for education or support. The law does not require that
the person on whom one depends wholly or in part for education or support is legally
obligated to do so.
Pecuniary Interest. Every person has insurable interest in the life or health of any
person in whom he has a pecuniary interest. Accordingly, one has insurable interest
over the life of his partner or his employee. In both cases, pecuniary benefit is derived
by the person who will take out an insurance policy with the continued preservation
of the life of the partner or employee. In the case of a partner, it is reasonable to
conclude that the continuance of partnership and the life of a partner furnished a
reasonable expectation of advantage to the other partners. Similarly, the loss of the
life of the employee will result in economic loss on the part of the employer because
he will be deprived of the service of the employee.
Creditor. One can insure the life 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.
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Insurance Notes for Midterms
Mortgage Redemption Insurance. Debtors may be insured into a group life insurance
known as “mortgage redemption insurance.” A “mortgage redemption insurance” is
a device for the protection of both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will e applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor under such a
concept so that in the event of death; the mortgage obligation will be extinguished
by the application of the insurance proceeds to the mortgage indebtedness.
b.2 Insurable interest over blood relationship – Limited to Spouse and Children. Parents are
not included unless they all due under Section 10 (b), IC.
Insurable Interest in Property Insurance
The basic rule in property insurance. – Section 18, Insurance Code
Section 18 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.
Other relation provisions. – Section 13, 14, 16 and 17 of the Insurance Code
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.
Section 14 An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of
which the expectancy arises
Section 16 A mere contingent or expectant interest in anything, not founded on an
actual right to the thing, nor upon any valid contract for it, is not insurable.
Section 17 The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
c.1 In general, test of insurable interest in property – Section 13, IC and Section 17, IC
Co, Anne Lorraine Pongos | 高安安
INSURANCE LAW | Atty. Ibarra Insurance Notes for Midterms

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.
Section 17 The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury thereof.
(4) When he has mere possession or right of possession; and
(5) When he has neither possession of the property nor any other legal
interest in it but stands in such relation with respect to it that he may
suffer from its destruction, loss of a legal right dependent upon its
continued existence.

Test. Based on Section 13 of the Insurance Code, the presence of insurable interest in
property can be determined by asking if the insured has 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 said insured.
The test in determining insurable interest in property is whether one will derive
pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or
damage from its destruction, termination, injury by the happening of the event
insured against.
c.2.2 Inchoate Interest. Inchoate interest must be founded on an existing interest,
otherwise, the loss of the property will not directly damnify the insured.
c.2.3 Expectancy. Expectancy must likewise be coupled with an existing interest. For
instance, the interest of an heir over the properties of his successor who is still alive is
a mere expectancy that is not coupled with an existing interest. Hence, the heir does
not have insurable interest over the properties of his successor-in-interest.

Distinctions Between Insurable Interest in Property Insurance and Life Insurance

c.2 Kinds of Insurable Interest in Property – Section 14, IC Insurable Interest in
Insurable Interest in Life
Property
Section 14 An insurable interest in property may consist in: Limited up to the value of Unlimited except if secured
As to extent
the property. by the creditor.
(1) An existing interest; At the time of perfection of
At the time of the
(2) An inchoate interest founded on an existing interest; or Time when it must exist the contract and at the time
perfection of the contract.
(3) An expectancy, coupled with an existing interest in that out of of the loss.
which the expectancy arises Expectation of benefit need
Expectation of benefit must not have legal basis or need
Need for legal basis
have legal basis. not be based on legally
c.2.1 Existing Interest. Existing interest includes the interest of an owner. However, title or enforceable obligation.
ownership is not essential. Thus the following persons have insurable interest over Insurable interest is not
the property even if they are not the owners thereof: (1) lessee, (2) depositary, (3) necessary if the insured
usufructuary, and (4) borrower in commodatum. took out the policy on his
Beneficiary must have own life and designated
Beneficiary’s interest
Insurable interest in property exists in any of the following cases because the person insurable interest. another. Beneficiary must
is so situated that he will suffer because of the loss due to a peril insured against: have insurable interest if
one took out an insurance
(1) When the insured possesses a legal title to the property insured, whether on the life of another.
vested or contingent, defeasible or undefeasible;

(2) When he has equitable title of whatever character and in whatever c.3 Insurable Interest of Bailee – Section 15, IC
manner acquired;
In a contract of carriage, the carrier may be damnified by the loss of the goods because he
(3) When he possesses a qualified property or possessory right in the subject may be obligated to pay the shipper any damage to the property. Similarly, a depositary is
of the insurance; obligated to take care of the thing deposited and he can be made liable if the thing
deposited is damaged. Thus, both the carrier and the depositary have insurable interest

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INSURANCE LAW | Atty. Ibarra
over the property subject to the provisions of Section 15 of the Insurance Code which
provides:
Section 15 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.
Included in insurance policies taken by depositaries are the so-called bailee policies that
are involved in transportation of goods.
c.4 Insurable Interest of Mortgagor and Mortgagee – Section 8, IC
Both the mortgagor and the mortgagee have insurable interest over the mortgage
property. The mortgagor is the owner of the mortgaged property, hence, he has an
existing interest that may be the subject of an insurance. Section 8 governs situations
when the mortgagor takes an insurance on the basis of his own insurable interest:
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 a
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.
As a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be covered by one policy, or each may
take out a separate policy covering his interest, either at the same or at separate times.
The mortgagor’s insurable interest covers the full value of the mortgaged property. The
mortgagee’s insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but his interest or
lien thereon. His insurable interest is prima facie the value of the mortgaged property.
Thus, separate insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee.
The usual practice and contractual stipulation is for mortgagor to take out insurance for
the benefit of the mortgagee. The mortgagee may be made the beneficial payee in several
ways including the following:
(1) He may become the assignee of the policy with the consent of the insurer; or
25
Insurance Notes for Midterms
(2) A mere pledgee without such consent, or the original policy may contain a
mortgage clause; or
(3) A rider making the policy payable to the mortgagee “as his interest may
appear” may be attached; or
(4) A “standard mortgage clause,” containing a collateral independent contract
between the mortgagee and the insurer, may be attached; or
(5) The policy, though by its terms payable absolutely to the mortgagor, may have
been procured by a mortgagor under a contract duty to insure for the
mortgagee’s benefit, in which case the mortgagee acquires an equitable lien
upon the proceeds; or
(6) The policy may provide for a loss payable clause in favor of the mortgagee.
In the policy obtained by the mortgagor with “loss payable clause” in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not made a party to the contract
himself. Hence, any act of the mortgagor which defeats his right will also defeat the right
of the mortgagee. This kind of policy covers only such interest as the mortgagee has at the
issuance of the policy. The typical “loss payable clause” is also known as the “open
mortgage clause.”
A “loss payable clause” should be distinguished from a “union mortgage clause” where
there is a transfer of an insurance from the mortgagor to the mortgagee with the assent
of insurer. The applicable statute is Section 9 of the Insurance Code which provides:
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.
The different variations of “loss payable clauses” were explained by Prof. Vance in this
wise:
“In the first class are those that merely designate the mortgagee as payee, to the
extent of his interest, of such sum as may become payable under the provisions and
conditions of the policy. Under such clause the mortgagee is made merely a
beneficiary under the contract, recognized as such by the insurer, but not made a
party to the contract itself. Any default on the part of the mortgagor, which by the
terms of the policy defeat his rights, will also defeat all rights of the mortgagee under
the contract, even though the latter may not have been in any fault.
In the second class are those clauses, known in their more usual forms, as “standard”
or “union” mortgage clauses, which create collateral independent contracts
between the insurer and mortgagee, and provide that the rights of the mortgagee
shall not be defeated by the acts or defaults of the mortgagor. Under clauses of this
class, we have the general rule that the mortgagee’s rights remain unaffected by any
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INSURANCE LAW | Atty. Ibarra Insurance Notes for Midterms

default or breach of condition by the mortgagor to which the mortgagee is not a

party.”

26 Co, Anne Lorraine Pongos | 高安安