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INSURANCE

I. INTRODUCTION

A. Origin and Growth of Insurance

1. Mutual insurance as old as societyitself

Insurance is based upon theprinciple of aiding another from a losscaused by an unfortunate event. Somewriters have maintained that mutualassistance is as old as society itself. Itseems that benevolent societies organizedfor the purpose of extending aid to theirunfortunate members from a fundcontributed by all, have been in existence

from the earliest times. They existed amongthe Egyptians, the Chinese, the Hindus, andthe Romans and are known to have beenestablished among the Greeks as early asthe third century before Christ.

The origin of the modern mercantileinsurance contract appears to have been thetransaction evidenced by the bottomry orrespondentia bond, together with thepractice of general average contribution.In the latter, the owners of cargo benefitedby the deliberate sacrifice of some goods tosave the others from a sea peril, contributedto pay the losses suffered by such sacrifice.In the former, the lender on bottomry was

repaid only if the vessel subject of the loanarrived safely at its destination.

2. Origin of present day insuranceattributed to merchants of Italian cities

The practice of insurance as weknow it today, as an important agency inpromoting commercial and industrialtransactions, is relatively of moderninvention. Its origin is to be found in themutual agreements among merchants of theItalian cities in the early middle agesengaged in common shipping ventures fordistributing among the mutual contractors,the loss falling upon any one by reason ofthe perils of navigation. It is thus apparentthat in its early forms, the law of insurancewas derived from the maritime law and assuch, was part of the general law merchant,and intentional in its character.

3. Development of insurance in England

From Italy, the practice of insuringcommercial ventures against disaster rapidlyextended to other maritime States of Europe.The Italian merchants coming from theflourishing commercial centers in NorthernItaly, and generally known as Lombards,founded trading houses in London in the 12 th

Century and brought with them the custom if

insuring against hazards of trade. Allquestions of insurance, however, weredetermined in accordance with the customs ofmerchants, and by merchant courts, or rather,the custom of submitting all contractsinvolving mercantile rights to courts ofmerchants established among themselves.

It was not until the middle of the 18th

Century that the common law courts ofEngland began to take adequate cognizance ofinsurance cases with the passage in 1601 ofthe first English Insurance Act by which aspecial court was established for the trial ofmarine insurance controversies. In 1756, withthe appointment of Lord Mansfield as Chief

Justice of the Court of Kings Bench, therecame a new era in the common law withreference to questions involving the lawmerchant. In the skillful hands of this greatjudge who is properly called the Father ofEnglish Commercial Law, the essentialprinciples of the law merchant wereincorporated into the common-law system ofEngland and the common-law courts therebyrendered competent to determine all questionsinvolving insurance.

Lloyds of London is known to havetriggered the early development of insurance.It began as a 17th Century coffeehousecatering to merchants, vessel owners, bankers

and the first underwriters. It is known thatLloyds coffeehouse, an inn kept by oneEdward Lloyd on Tower Street in London, was,as early as 1688, a popular resort forseafaring men and merchants engaged inforeign trade.

It became the custom among thosewho gathered at Lloyds to make theirgathering an occasion for arranging theirmutual contracts of insurance against the seaperils to which their ventures were exposed.The method employed in making suchinsurance contracts was for the persondesiring the insurance to pass around among

the company assembled a slip upon which waswritten a description of the vessel and itscargo, with the name of the master and thecharacter of his crew, and the voyagecontemplated. Those desiring to becomeinsurers of the ventures so described wouldwrite beneath the description on this slip theirnames or initials, and opposite thereto the

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design][Bobbie_StaMaria.printing] [Miles Malaya.lectures][Japee_DeLeon.poli_law] [Ascheia_Yumul.rem_law] [Paul_Sorino/Judy_Ripol.civ_law] [Hya_Rafael/Mac_Macapagal.crim_law]

[Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus.legal_ethics] [Lianne_Gervasio.comm_law][Ces_Sicangco/Rowena_Romero.tax_law]

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amount which each was willing to shoulder.The term underwriter was believed to haveoriginated from such a practice.

4. Development of insurance in the

United States

In general, the development of theseveral kinds of insurance has followed the

same lines in the United States as inEngland. However, the insurance industry ofthe United States has grown to such anextent that which the exception of oceanmarine insurance, the English practices andthe English decisions have little influence oninsurance in the United States.

5. Development of insurance in thePhilippines

Insurance in the Philippines is rathera young institution. Prior to the 19th

century, insurance, in its modern sense, didnot exist. During the pre-Spanish times,

when the political unit was then the family, ifa member of the family died or suffered anyother misfortune, it was borne by the family.When communities, such as the barangaysdeveloped, the assistance was extendedaccordingly. Even now, this practice offurnishing some form of assistance tobereaved members of the family of someonewho dies still exists. Eventually, mutualbenefit societies and fraternal associationswere organized for the purpose of renderingassistance, in money or in kind, to theirmembers. It may be that what workedmuch against the early development ofinsurance in the Philippines, aside from

economic reasons, that is, low per capitaincome of the people, was the fatalisticphilosophy behind our oft-quoted expressionbahala na.

Insurance, in its present concept,was first introduced in the Philippinessometime in 1829 when Lloyds of Londonappointed Stracham, Murray & Co., Inc. asits representative here. Sometime in 1939,the Union Insurance Society of Cantonappointed Russell & Sturgis as its agent inManila. The business transacted in thePhilippines then was limited to non-lifeinsurance. It was only in 1898 that lifeinsurance was introduced in this countrywith the entry of Sun Life Assurance ofCanada in the local market.

The first domestic non-life insurancecompany, the Yek Tong Lin Fire and MarineInsurance Company, was organized on June8, 1906, while the first domestic lifeinsurance company, the Insular Life

Assurance Co., Ltd., was organized in 1910.In 1950, reinsurance was introduced withReinsurance Company of the Orient writingtreaties for both life and non-life. The firstworkmens compensation Pool was organizedin 1951 as the Royal Group Incorporated. In1949, a government agency was formed tohandle insurance affairs. The InsularTreasurer was appointed Commissioner ex-

officio.Social insurance was established in

1936 with the enactment of C.A. No. 186which created the Government ServiceInsurance System (GSIS) which startedoperations in 1937. The Act coversgovernment employees. It was followed muchlater in 1954 by R.A. # 1161 which providesfor the organization of the Social SecuritySystem (SSS) covering employees of theprivate sector.

B. Laws on Insurance

1. Sources of Insurance Law in thePhilippines

During the Spanish period, all theprovisions concerning insurance in thePhilippines were found in Title 7 of Book 2and Section 3 of Title 3 of Book 3 of theCode of Commerce, and in Chapters 2 and4 of Title 12 of Book 4 of the old CivilCode of 1889.

When Act # 2427, enacted on December11, 1914, otherwise known as theInsurance Act, took effect on July 1 1915during the American Regime, theprovisions of the Code of Commerce oninsurance were expressly repealed.

Ang Giok vs. SpringfieldsFacts: Ang Giok insured the contents of hiswarehouse with three insurance companies for60K. The warehouse and its contents weredestroyed by fire while the policies were in force.The plaintiff instituted action in the CFI of Manilaagainst one of the insurers to recover aproportional part of the loss coming to P8, 170. 59.Four special defenses were interposed by theinsurer, one being planted on a violation ofwarranty F fixing the amount of hazardous goodswhich might be stored in the insured building.Securely pasted on the left hand margin of the

policy reading in part as follows: It is agreed thatduring the currency of this policy no hazardousgoods be stored in the buildingexceeding in all 3percent of the total value of the whole merchandisecontained in said warehouse.Held: The rider or slip containing said warranty Fattached to the policy in question and referred totherein as making part of the two forms provided in



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said Section 65 of the Insurance Law. The lawsays that every express warranty must becontained in the policy itself. The wordcontained, according to the dictionaries, meansincluded, enclosed, embraced, comprehendedetc. When therefore, the courts speak of a riderattached to the policy, and thus embodiedtherein, or of a warranty incorporated into thepolicy, it is believed that the phrase contained inthe policy itself must necessarily include such

ride and warranty. As to the alternative relatingto another instrument as here used could notmean a mere slip of paper like a rider, butsomething akin to the policy itself. The wordinstrument has a well defined definition inCalifornia, and as used in the Codes invariablymeans some written paper or instrument signedand delivered by one person to another,transferring the title to, or giving a lien, onproperty, or giving a right to debt or duty. Therider, warranty F, is contained in the policy itself,because by the contract agreed to by the partiesis made to form part of the same, but is notanother instrument signed by the insured andreferred to in the policy as forming a part of it.

The rider is therefore valid and binding.

Gercio vs. SunlifeFacts: On January 1910, the Sun Lifeassurance Co., of Canada issued a 20-yearendowment policy on the life of Hilario Gercio.The insurance company agreed to insure the lifeof Gercio for P2, 000, to be paid to him onFebruary 1, 1930, or if the insured should diebefore said date, then to his wife, should shesurvive him; otherwise, to the executors,administrators, or assigns of the insured. Thepolicy did not include any provision reserving tothe insured the right too change the beneficiary.When the policy was issued, Andrea Zialcita was

the lawful wife of Hilario. In 1919, she wasconvicted of adultery. In 1920, a decree ofdivorce was issued in a civil case completelydissolving the bonds of matrimony betweenGercio and Zialcita. In 1922, Fercio formallynotified Sun Life that he had revoked hisdonation in favor of Zialcita, and that he haddesignated in her stead his present wife, AdelaGarcia de Gercio, as the beneficiary of thepolicy. Gercio requested Sun Life to eliminateZialcita as beneficiary. This the insurancecompany has refuse to do and still refuses to do.Held: The Code of Commerce, the Civil Code orthe Insurance Act does not contain any provisioneither permitting or prohibiting the insured tochange the beneficiary. We must perforceconclude that whether the case be considered inthe light of the Code of Commerce, the CivilCode, or the Insurance Act, the deficiencies inthe law will have to be supplemented by thegeneral principles prevailing on the subject. Tothat end, we have gathered the rules whichfollow from the best considered American

authorities. In adopting these rules, we do so withthe purpose of having the Philippine Law ofInsurance conform as nearly as possible to themodern Law of Insurance as found in the UnitedStates. The beneficiary has an absolute vestedinterest in the policy from the date of its issuanceand delivery. So when a policy of life insurance istaken out by the husband in which the wife isnamed the beneficiary, she has a subsistinginterest in the policy.

When RA 386, otherwise known as the CivilCode of the Philippines, took effect on August30, 1950, those provisions of the old Civil Codeon insurance were also expressly repealed.

Presidential Decree # 612, as amended, whichordained and instituted the Insurance Code ofthe Philippines, was promulgated on December18, 1974 during the period of martial law. Itrepealed Act # 2427, as amended. BeforePresidential Decree 612, amendments to the Actwere made by PDs # 63, 123, 317.

Presidential Decree # 1460, consolidated allinsurance laws into a single code known as theInsurance Code of 1978. Basically, it reenactedPresidential Decree # 612, as amended. It hasbeen amended by Presidential Decree # 1814and Batas Pambansa Blg. 874.

2. Laws Governing Insurance

Insurance Code of 1978The law on insurance is contained nowin the Insurance Code of 1978 (PD #1460, as amended) and special lawsand partly, in the pertinent provisionsof the Civil Code.The Insurance Code primarily governsthe different types of insurancecontracts and those engaged ininsurance business in the Philippines.It took effect on June 11, 1978, thedate of its promulgation withoutprejudice, however, to the effectivitydates of various laws, decrees andexecutive orders which have so faramended the provisions of theInsurance Code of the Philippines (PD612)

Civil CodeThe provisions of the Civil Codedealing on insurance are found in

articles 739 and 2012 (voiddonations), Article 2011 (applicabilityof the Civil Code), Articles 2021-2027(life annuity contracts), Article 2186(compulsory motor vehicle liabilityinsurance), and Article 2207 (right ofsubrogation).



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Special lawsI. The Insurance Code of1978 (PD 1460)II. The RevisedGovernment ServiceInsurance Act of 1977 (PD1146, as amended), withrespect to insurance of

government employeesIII. The Social Security Actof 1954 (RA 1161, asamended) with respect toinsurance of employees inprivate employment

Others insofar as the Civil Code isconcerned, the Code of Commerce isconsidered a special law

I. RA 656 (as amended byPD 245), known as the Property Insurance Law,dealing with governmentproperty

II. RA 4898 (as amendedby RA 5756) providing life,disability and accidentinsurance coverage tobarangay officialsIII. EO 250 (July 25, 1987)increases, integrates andrationalizes the insurancebenefits of barangay officialsunder RA 4898 andmembers of SangguniangPanlalawigan, SangguniangPanlungsod, andSangguniang Bayan underPD 1147. The insurancebenefits are extended bythe GSIS.IV. RA 3591 (as amended)establishes the PhilippineDeposit InsuranceCorporation which insuresthe deposits of all bankswhich are entitled to thebenefits of insurance underthis Act

II. THE CONTRACTOF INSURANCE

A. Definitions Section 2, Insurance Code

Sec. 2. Whenever used in this Code, thefollowing terms shall have the respectivemeanings hereinafter set forth or indicated,unless the context otherwise requires:

(1) A "contract of insurance" is anagreement whereby one undertakes for aconsideration to indemnify another againstloss, damage or liability arising from anunknown or contingent event.

A contract of suretyship shall be deemed to bean insurance contract, within the meaning ofthis Code, only if made by a surety who orwhich, as such, is doing an insurance businessas hereinafter provided.

(2) The term "doing an insurancebusiness" or "transacting an insurancebusiness", within the meaning of this Code,shall include (a) making or proposing to make,as insurer, any insurance contract; (b) makingor proposing to make, as surety, any contractof suretyship as a vocation and not as merelyincidental to any other legitimate business oractivity of the surety; (c) doing any kind ofbusiness, including a reinsurance business,specifically recognized as constituting thedoing of an insurance business within themeaning of this Code; (d) doing or proposingto do any business in substance equivalent to

any of the foregoing in a manner designed toevade the provisions of this Code.

In the application of the provisions of thisCode the fact that no profit is derived from themaking of insurance contracts, agreements ortransactions or that no separate or directconsideration is received therefore, shall notbe deemed conclusive to show that themaking thereof does not constitute the doingor transacting of an insurance business.

(3) As used in this code, the term"Commissioner" means the "InsuranceCommissioner".

1. Contract of Insurance

An agreement whereby oneundertakes for a consideration toindemnify another against loss,damages or liability arising from anunknown or contingent event



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2. Doing an Insurance Business

Making or proposing to make, asinsurer, any insurance contract

Making or proposing to make, assurety, any contract of surety shipas a vocation

Doing any king of business,including a reinsurance business,specifically recognized as

constituting the doing of aninsurance business with themeaning of this Code

Doing or proposing to do anybusiness in substance equivalent toany of the foregoing

B. Elements

1. Insurable interest

The insured has an insurableinterest in the thing or the life of theinsured

2. Risk of Loss or Damage / Designated

Peril as Cause

The happening of the designatedevents, either unknown orcontingent, past or future, willsubject such interest to some loss,whether in the form of injury,damage, or liability

3. Consideration: Premium

The insurer undertakes toassume the risk of such a lossfor a consideration called thepremium to be paid by theinsured

4. Risk Distributing Scheme

This assumption of risk is part of ageneral scheme to distribute theloss among a large number ofpersons exposed to similar risks

C. Characteristics/Nature of Insurance

Contracts

1. Consensual

Perfected by the meeting of theminds of the parties If an application for insurance has

not been either accepted orrejected, there is no contract as yet

2. Voluntary

It is not compulsory and the partiesmay incorporate such terms andconditions as they may deemconvenient which will be bindingprovided they do not contravene anyprovision of law and are not opposedto public policy

o Though generally a voluntary

contract, the carrying of

insurance, particularly liabilityinsurance, may be requiredby law in certaincircumstances such as formotor vehicles, or employees(labor Code Art. 168-184) oras a condition to granting alicense to conduct a businessor calling affecting publicsafety or welfare

o Social insurance for members

of GSIS and for employees ofthe private sector covered bythe SSS is also established bylaw

3. Aleatory

Art. 2010. By an aleatory contract, one of theparties or both reciprocally bind themselves togive or to do something in consideration ofwhat the other shall give or do upon thehappening of an event which is uncertain, orwhich is to occur at an indeterminate time.

It depends upon some contingentevent

Not a contract of chance although the

event against the occurrence of whichit is intended to provide may neveroccur

It means one of the parties or bothreciprocally bind themselves to give orto do something in consideration ofwhat the other shall give or do uponthe happening of the event which isuncertain, or which is to occur at anindefinite time

Each party must take a risko Insurer - being compelled

upon the happening of thecontingency, to pay the entiresum agreed upon

o Insured parting with theamount required as premiumwithout receiving anything incase the contingency doesnot happen except what isordinarily termed protection



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which is itself is a valuableconsideration

4. Executory (insurer) and executed(insured)

Executory on the part of the insurerin the sense that it is not executeduntil payment for a loss

It is executed as to the insured after

payment of the premium It is a unilateral contract imposing

legal duties only on the insurer whopromises to indemnify in case of loss

5. Conditional

It is subject to conditions theprincipal one of which is thehappening of the event insuredagainst

The contract usually includes manyother conditions, such as paymentof premium or performance of someother act, which must be compliedwith as precedent to the right of the

insured to claim benefit under it

6. A contract of indemnity (non-lifeinsurance)

The promise of the insurer is tomake good only the loss of theinsured

Any contract that contemplates apossible gain to the insured by thehappening of any event upon whichthe liability of the insurer becomesfixed is contrary to the nature ofinsurance

No person may secure insuranceupon property in which he has nointerest.

If the insured has no insurableinterest, the contract is void andunenforceable as being contrary topublic policy because it affords atemptation to the insured to wish orbring about the happening of theloss

7. An investment (life insurance)

Measure of economic security for theinsured during life, and beneficiaryafter death

Financial assistance during financial

crisis Liability of insurer is face value of

the policy and not the earningcapacity of the insured at the timeof death

8. A personal contract

Each party having in view the credit,character and conduct of another

As a rule, the insured cannot assign,before the happening of the loss, hisrights under a property policy withoutthe consent of the insurer. Theobligation of the insurer to pay doesnot attach or run with the propertywhether it be real property or

personalo If a person whose property is

insured sells it to another, thebuyer cannot be his successorin the contract of insuranceunless, of course, the sale iswith the consent of theinsurer or unless by expressstipulation of the parties, thecontract is made to run withthe property of the transferee

o Where the insurance is on

account of the owner or forwhom it may concern orwhere the loss is payable to

bearer, the subsequenttransferees or ownersbecome by the terms of thecontract, the real parties tothe contract of insurance.

All insurance contracts share acommon trait of personal-ness

o Personal insurance (includes

life, health, accident, anddisability insurance) appliesonly to a particular individual,and it is not possible, forexample, for the insuredunilaterally declaring that his

health insurance policy shallnow be deemed to cover thehealth of someone else

o Liability insurance each

person purchases coveragefor his own (or a group ofrelated persons) potentialliability to others. The insurerprices the coveragedepending on thecharacteristics and traits ofthe particular insured

o Property insurance - the

insurance is on the insuredsinterest in the property, not

on the property itself. It isthe damage to the personalinterest not the property thatis being reimbursed

o Life insurance GENERALLY

ASSIGNABLE as they are inthe nature of property and do



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not represent a personalagreement between insuredand insurer

9. A contract of Adhesion

Policy is presented to the insuredalready in its printed form

Take it or leave it

10. Of highest degree of good faith Each party is enjoined by law to deal

with each other in good faith

Disclosure or the duty to disclose Violation of the duty gives the other

party the right to rescind thecontract

D. Contracts for Contingent Services;Pre-need Plans and SimilarArrangements

1. Contracts for Contingent PersonalServices

It dies not necessarily follow that acontract containing theabovementioned elements would bean insurance contact

The primary purpose of the partiesmaking the contract may negate theexistence of an insurance contracto A law firm which enters into

contracts with clients inconsideration of periodicalpayments, where it promises torepresent such clients in all suitsfor or against them, is notengaged in an insurancebusiness. Its contracts aresimply for the purpose ofrendering personal services

o A contract by which a

consideration of a stipulatedamount, agrees at its ownexpense to defend a physicianagainst all suits for damages formalpractice is one of insurance,and the corporation will bedeemed as engaged in thebusiness of insurance

o Unlike the lawyers retainer

contract, the essential purposeof such a contract is not to

render personal services, but toindemnify against loss ordamage resulting from thedefense of actions formalpractice.

o A corporation which enters into

contracts with car owners and

agrees to engage and pay for theservices of a lawyer to handle anydamage case arising from collisionof their cars, is engaged in theinsurance business and musttherefore comply with the lawsrelative to the transaction ofinsurance business and should belicensed as such before it can

lawfully transact such business Such contracts do not provide for

the payment of any sum directlyto the contractee, but it doesprovide for the relief of thecontractee from the expenses ofemploying an attorney

It would be immaterial that thecontract states on its face that itis not a contract of insurance, forthe nature of the contract cannotbe changed by such a declaration

2. Contracts with Contingent IncidentalBenefit

In the case of Attorney General ex relMonk vs. C.E. Osgood Co., thedefendant company was engaged in thebusiness of selling household furniture onthe installment plan. Under the contractswith its customers, although deliverywould be made at the time of thecontract, title to the furniture would notpass until all payments have beencompleted. Said contracts also providedthat should the buyer die before fullpayment of the agreed price, the unpaidbalance would be remitted to the extent of$500.The Insurance Commissioner, through theAtty. Gen., claiming that this lastprovision made it an insurance contractbrought suit to restrain the defendantfrom pursuing its business without firstsecuring the proper license. The Courtupheld the Attorney Generals contentionand issued an injunction holding that thecontract had all the elements of aninsurance contract. Whether this clause inthe contract is ancillary to defendantschief business or is mainly for advertisingends was held irrelevant in view of theprohibition against the making ofinsurance contracts by companies not

authorized by law.It would seem, however, that the purposeof the stipulation, taken with its effects incase of the death of the buyer, did notwarrant a holding that the furniturecompany should first secure a license toengage in the insurance business.



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Although all the elements of aninsurance contract may seem to bepresent, yet the furniture buyer and/orhis heirs did not, under thecircumstances, need the protectionwhich the law aims to give the insuringpublic by the requirement of a priorlicense.First of all, when the buyer purchased

the furniture, he must have seen andexamined it and must have believed thatit was worth the amount he agreed topay for it. Secondly, the furniture wasdelivered to him at the time of thecontract and used by him thereafter.Upon his death, his heirs continuedenjoying the use of the furniture.Therefore, the buyer and/or his heirsstood to lose nothing by the questionedstipulation, and if at all, stood to gain byit.

3. Pre-need Plans

Philamcare Health Systems vs. CARatio: Section 3 of the Insurance Code states thatany contingent or unknown event, whether past orfuture, which may damnify a person having aninsurable interest against him, may be insuredagainst. Every person has an insurable interest inthe life and health of himself. Section 10 provides:Every person has an insurable interest in the lifeand health (1) for himself, of his spouse and of hischildren; (2) of any person on whom he dependswholly or in part for education or support, or inwhom he has a pecuniary interest; (3) of anyperson under a legal obligation to him for thepayment of the money, respecting property orservice, of which death or illness might delay orprevent the performance; and (4) of any personupon whose life any estate or interest vested in himdepends. In the case at bar, the insurable interestof respondents husband in obtaining the healthcare agreement was on his own health. The healthcare agreement was in the nature of non-lifeinsurance, which is primarily a contract ofindemnity. Once the member incurs hospital,medical or any other expense arising fromsickness, injury or other stipulated contingent, thehealth care provider must pay for the same to theextent agreed upon under the contracts.

E. Classification under the Code

1. Life - defined as a mutual agreement bywhich a party agrees to pay a given sum onthe happening of a particular eventcontingent on the duration of human life, inconsideration of the payment of a smaller

sum immediately, or in periodical payments bythe other party

a) Individual life

Sec. 179. Life insurance is insurance onhuman lives and insurance appertainingthereto or connected therewith.

Sec. 180. An insurance upon l ife maybe made payable on the death of the person,or on his surviving a specified period, orotherwise contingently on the continuance orcessation of life.

Every contract or pledge for the payment ofendowments or annuities shall be considered alife insurance contract for purpose of this Code

In the absence of a judicial guardian, thefather, or in the latter's absence or incapacity,the mother, or any minor, who is an insuredor a beneficiary under a contract of life, health

or accident insurance, may exercise, in behalfof said minor, any right under the policy,without necessity of court authority or thegiving of a bond, where the interest of theminor in the particular act involved does notexceed twenty thousand pesos. Such rightmay include, but shall not be limited to,obtaining a policy loan, surrendering thepolicy, receiving the proceeds of the policy,and giving the minor's consent to anytransaction on the policy.

Sec. 181. A policy of insurance upon lifeor health may pass by transfer, will orsuccession to any person, whether he has aninsurable interest or not, and such person mayrecover upon it whatever the insured mighthave recovered.

Sec. 182. Notice to an insurer of atransfer or bequest thereof is not necessary topreserve the validity of a policy of insuranceupon life or health, unless thereby expresslyrequired.

Sec. 183. Unless the interest of a

person insured is susceptible of exactpecuniary measurement, the measure ofindemnity under a policy of insurance upon lifeor health is the sum fixed in the policy.



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Insurance on human lives andinsurance appertaining thereto orconnected therewith

Made payable on the death of aperson, or on his surviving aspecified period, or otherwisecontingently on the continuance orcessation of life

b) Group life

Sec. 50.The policy shall be in printed formwhich may contain blank spaces; and anyword, phrase, clause, mark, sign, symbol,signature, number, or word necessary tocomplete the contract of insurance shall bewritten on the blank spaces providedtherein.

Any rider, clause, warranty or endorsementpurporting to be part of the contract ofinsurance and which is pasted or attached tosaid policy is not binding on the insured,unless the descriptive title or name of therider, clause, warranty or endorsement isalso mentioned and written on the blankspaces provided in the policy.

Unless applied for by the insured or owner,any rider, clause, warranty or endorsementissued after the original policy shall becountersigned by the insured or owner,which countersignature shall be taken as hisagreement to the contents of such rider,

clause, warranty or endorsement.

Group insurance and group annuity policies,however, may be typewritten and need notbe in printed form.

May be typewritten and need not bein printed form

Members usually a cohesive groupo Pay a uniform premium

o Usually no medical

examinationo Normally requires a

specified number of persons

insured before policy isissued

c) Industrial life

Sec. 229.The term "industrial life insurance" as usedin this Code shall mean that form of life insuranceunder which the premiums are payable eithermonthly or oftener, if the face amount of insuranceprovided in any policy is not more than five hundredtimes that of the current statutory minimum dailywage in the City of Manila, and if the words"industrial policy" are printed upon the policy as partof the descriptive matter.

An industrial life policy shall not lapse for non-payment of premium if such non-payment was dueto the failure of the company to send itsrepresentative or agent to the insured at theresidence of the insured or at some other placeindicated by him for the purpose of collecting suchpremium; Provided, That the provisions of this

paragraph shall not apply when the premium on thepolicy remains unpaid for a period of three monthsor twelve weeks after the grace period has expired.

Form of life insurance under which thepremiums are payable either monthlyor oftener

Face amount of insurance provided in

any policy is not more than fivehundred times that of the currentstatutory minimum daily wage in theCity of Manila

Shall not lapse for non-payment ofpremium if such non-payment wasdue to the failure of the company tosend its representative or agent to theinsured at the residence of theinsured or at some other placeindicated by him for the purpose ofcollecting such premium

o This shall not apply when the

premium on the policyremains unpaid for a period

of three months or twelveweeks after the grace periodhas expired.

2. Non-life include policies covering risksto which property may be exposed, as well asthose which cover the risk of liability to thirdpersons. It covers a specified period of time(not more than 1 year) and has a definiteperiod of coverage.

a) Marine

Sec. 99.Marine Insurance includes:

(1) Insurance against loss of or damage

to:

(a) Vessels, craft, aircraft, vehicles,goods, freights, cargoes, merchandise, effects,disbursements, profits, moneys, securities,choses in action, evidences of debts, valuablepapers, bottomry, and respondentia interests



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and all other kinds of property and intereststherein, in respect to, appertaining to or inconnection with any and all risks or perils ofnavigation, transit or transportation, or whilebeing assembled, packed, crated, baled,compressed or similarly prepared forshipment or while awaiting shipment, orduring any delays, storage, transhipment, or

reshipment incident thereto, including warrisks, marine builder's risks, and all personalproperty floater risks;

(b) Person or property in connectionwith or appertaining to a marine, inlandmarine, transit or transportation insurance,including liability for loss of or damagearising out of or in connection with theconstruction, repair, operation, maintenanceor use of the subject matter of suchinsurance (but not including life insurance orsurety bonds nor insurance against loss byreason of bodily injury to any person arisingout of ownership, maintenance, or use of

automobiles);

(c) Precious stones, jewels, jewelry,precious metals, whether in course oftransportation or otherwise;

(d) Bridges, tunnels and otherinstrumentalities of transportation andcommunication (excluding buildings, theirfurniture and furnishings, fixed contents andsupplies held in storage); piers, wharves,docks and slips, and other aids to navigationand transportation, including dry docks andmarine railways, dams and appurtenantfacilities for the control of waterways.

(2) "Marine protection and indemnityinsurance," meaning insurance against, oragainst legal liability of the insured for loss,damage, or expense incident to ownership,operation, chartering, maintenance, use,repair, or construction of any vessel, craft orinstrumentality in use of ocean or inlandwaterways, including liability of the insuredfor personal injury, illness or death or forloss of or damage to the property of anotherperson.

Ocean marine insurance aninsurance against risk connected

with navigation, to which a ship,cargo, freightage, profits or otherinsurable interest in movableproperty, may be exposed during acertain voyage or a fixed period oftime

Inland marine insurance it is ofcomparatively recent origin andcovers primarily the land or over theland transportation perils of propertyshipped by railroads, motor trucks,airplanes, and other means oftransportation. It also covers risks oflake, river, or other inland waterwaytransportation and other waterborneperils outside of those risks that falldefinitely within the ocean marinecategory

b) Fire

Sec. 167. As used in this Code, theterm "fire insurance" shall include insuranceagainst loss by fire, lightning, windstorm,tornado or earthquake and other allied risks,when such risks are covered by extension tofire insurance policies or under separatepolicies.

Insurance against loss by fire,lightning, windstorm, tornado orearthquake and other allied risks,when such risks are covered byextension to fire insurance policies orunder separate policies

c) Casualty or Liability Insurance

Sec. 174. Casualty insurance isinsurance covering loss or liability arising fromaccident or mishap, excluding certain types ofloss which by law or custom are considered asfalling exclusively within the scope of othertypes of insurance such as fire or marine. It

includes, but is not limited to, employer'sliability insurance, motor vehicle liabilityinsurance, plate glassinsurance, burglary andtheft insurance, personal accident and healthinsurance as written by non-life insurancecompanies, and other substantially similarkinds of insurance.

Insurance covering loss or liabilityarising from accident or mishap,excluding certain types of loss whichby law or custom are considered asfalling exclusively within the scope ofother types of insurance such as fireor marine

Includes, but is not limited to,employers liability insurance, motorvehicle liability insurance, plate glassinsurance, burglary and theftinsurance, personal accident andhealth insurance as written by non-lifeinsurance companies, and other



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substantially similar kinds ofinsurance

d) Suretyship

Sec. 175. A contract of suretyship i san agreement whereby a party called thesurety guarantees the performance byanother party called the principal or obligorof an obligation or undertaking in favor of athird party called the obligee. It includesofficial recognizances, stipulations, bonds orundertakings issued by any company byvirtue of and under the provisions of Act No.536, as amended by Act No. 2206.

Sec. 176. The liability of the surety orsureties shall be joint and several with theobligor and shall be limited to the amount ofthe bond. It is determined strictly by theterms of the contract of suretyship inrelation to the principal contract between the

obligor and the obligee. (As amended byPresidential Decree No. 1455)

Sec. 178. Pertinent provisions o f theCivil Code of the Philippines shall be appliedin a suppletory character whenevernecessary in interpreting the provisions of acontract of suretyship.

An agreement whereby a suretyguarantees the performance by theprincipal or obligor of an obligation

or undertaking in favor of a thirdparty or obligee

Includes official recognizances,stipulations, bonds or undertakingsissued by nay company by virtue ofAct # 536, as amended by Act #2206

A contract of suretyship shall bedeemed to be an insurance contract,only if made by a surety who orwhich is doing an insurance business

3. Variations in Life InsuranceContracts

a) Whole life plan The terms of which the insured is

required to pay a certain fixedpremium annually or at morefrequent intervals throughout lifeand the beneficiary is entitled to

receive payment under the policy onlyafter the death of the insured

The ultimate payment of theinsurance proceeds is as certain asdeath itself

b) Limited payment plan The terms of which the premiums are

payable only during a limited period ofyears, usually ten, fifteen, or twenty

When the specified number ofpremium payments have been made,the insurance is fully paid for

It is like whole life policies in that it ispayable only at the death of theinsured

If the insured should die within thespecified period, his beneficiary isentitled to all the proceeds of thepolicy without any liability for theunpaid premiums

Because of the limited number ofpayments to be made by the insured,the premiums are proportionatelyhigher

c) Term plan One which provides coverage only of

the insured dies during a limitedperiod

It is an insurance for a fixed or aspecific term, such as two, five, or tenyears

If the insured dies within the periodspecified, the policy is paid to thebeneficiary

If he survives the period, the contractterminates

The premium paid is levied during thespecified terms and increases witheach renewal term or the amount ofthe coverage declines, and this isbecause as a person ages, the risk ofdeath increases

The premium is lower than in the caseof whole life policies because of thepossibility that the insurer may not beobliged to pay anything in proceedswhatsoever if the insured survives theterm

d) Pure endowment plan Insured pays premium for a specified

period and should he survive theperiod, the insurance company payshim the face value of the policy

If he should die within the period theinsurance company is released fromany liability and unless provided in thecontract, need not reimburse any partof the premiums paid

e) Endowment plan



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The terms of which the insurer bindshimself to pay a fixed sum to theinsured if he survives for a specifiedperiod (maturity date stated in thepolicy), or if he dies within suchperiod, to some other personindicated

The premium is higher because thecash values of the policy grow more

rapidly. This kind of policy differs from the

limited payment life policy in that inthe case of the latter, the policy ispaid only upon the death of theinsured

The insured stands a chance ofbeing paid the proceeds of the policywhile still alive

The proceeds on maturity can bepaid either in a lump sum or as anannuity

F. Construction / Interpretation ofInsurance Contracts

1. Where there is Ambiguity or Doubt

Insurance is, in its nature, complexand difficult for the layman tounderstand

As a general rule, contracts ofinsurance are to be construedliberally in favor of the insured andstrictly against the insurer resolvingall ambiguities against the latter, soas to effect its dominant purpose ofindemnity or payment to theinsured, especially were a forfeitureis involved

An insurance contract should be sointerpreted as to carry out thepurpose for which the partiesentered into the contract which is toinsure against risk of loss, damageor liability on the part of the insured

A policy of insurance is a contract ofadhesion, that is, most of the termsof the contracts do not result frommutual negotiation between theparties as they are prescribed by theinsurer in final printed forms whichthe insured may reject or to whichhe may adhere if he chooses but

which he cannot change The insurer is under the duty to

make its meaning clear if it desiresto limit or restrict the operation ofthe general provisions of its contractby special proviso, exception orexemption

Any ambiguity in the insurancecontract should, therefore, beresolves in favor of the beneficiary

A policy of insurance which containsexceptions or conditions tending towork a forfeiture of the policy shall beinterpreted most favorably towardthose against whom they are intendedto operate and most strictly against

the insurance company or the partyfor whose benefit they are inserted

Where restrictive provisions are opento two interpretations, that which ismost favorable to the insured isadopted. Limitations of liability mustbe construed in such a way as topreclude the insurer from noncompliance with its obligations

2. Where Terms are Clear

The cardinal principle of insurance lawof interpreting insurance contractsfavorably to the insured is applicableonly in cases of doubt, not when the

intention of the policy is clear or thelanguage is sufficiently clear toconvey the meaning of the parties

The court is bound to adhere to theinsurance contract as the authenticexpression of the intention of theparties, and it must be construed andenforced according to the sense andmeaning of the terms which theparties themselves have used.

If such terms are clear and certain,they must be taken in their plain andordinary sense

The terms of an unambiguousinsurance policy cannot be enlargedor diminished by judicial constructionsince the court cannot make a newcontract for the parties where theythemselves have employed expressand unambiguous words

Obligations arising from contractshave the force of law between thecontracting parties and should becomplied with in good faith

3. Literal or Strict Interpretation

First Quezon City Insurance vs. CAFacts: Del Rosario fell off a De Dios MarikinaTransportation Co. Inc. bus. Del Rosario wasbrought to the hospital and stayed there for 40days. The cost for the hospitalization amounted toP69,444 while unearned salary due to confinementamounted to P7,500. Del Rosario filed a complaintagainst DMTC and its insurance company, FirstQuezon City Insurance Company.



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Held: The insurance companys liability shouldbe limited to P12,000 only. The insurance policyclearly placed the maximum limit of First QuezonCitys liability for damages arising from death orbodily at P12,000 per passenger and itsmaximum liability per accident at P50,000. Thismeans that the insurers maximum liability forany single accident will not exceed 50Kregardless of the number of the passengerskilled or injured.

Ty vs. First NationalFacts: Ty was a mechanic foreman in theBroadway Cotton Factory. A fire broke out whichtotally destroyed the factory. As Ty was fightinghis way out of the factory, he injured his lefthand, causing temporary total disability due tofractures o his index, middle, and fourth fingers.He filed a notice of accident and claim to recoverindemnity from First National Surety $ assuranceCo. Inc., pursuant to his insurance policy whichprovides: the loss of a hand shall mean theloss by amputation through the bones of thewrist The insurance company rejected Tysclaim saying that since there was no severance

by amputation of the hand, the disability sufferedby him was not covered under the policy.Held: The insurance company is not liable toindemnify Ty. We cannot go beyond the clearand express conditions of the insurance policies,all of which define partial disability as loss ofeither hand by amputation through the bones ofthe wrist There was no amputation in this case.The agreement contained in the insurancepolicies is the law between the parties. Aninterpretation that would include the merefracture or other temporary disability not coveredby the policies would certainly be unwarranted.

Misamis Lumber vs. Capital Inc.Facts: Misamis Lumber Corporation, insured its

motor car for the amount of P14,000. Theinsured car, passed over a water whole whichthe driver did not see because an oncoming cardid not dim its lights. The car was later towedand repaired by Morosi Motors at a total cost ofP302.27. Capital Insurance refused to pay forthe total cost of towage and repairs.Held: The insurance company is not liable forthe payment of the repairs in excess of P150.The insurance policy stipulated in paragraph 4that if the insured authorizes the repair, theliability of the insurer is limited to P150. Theliteral meaning of this stipulation must control, itbeing the actual contract, expressly and plainlyprovided for in the policy. The policy is also drewout not only the limits of the insurers liability butalso the mechanics that the insured had to followto be entitled to full indemnity of repairs. Theoption to undertake the repairs is accorded to theinsurance company per paragraph 2. The saidcompany was deprived of the option because theinsured took it upon itself to have the repairsmade, and only notified the insurer when the

repairs were done. As a consequence, paragraph4, which limits the companys liability to P150applies.

Sun Insurance vs. CAFacts: Tan took from Sun Insurance a propertyinsurance worth 300K to insure his interest in theelectrical supply store of his brother housed in abuilding in Iloilo City. Four days after, the buildingwas burned down including the insured store.

When Tan filed a claim with the insurancecompany, the same was denied, after which heasked for reconsideration which was again denied.It is stipulated in the insurance policy that anyaction should be filed with the InsuranceCommission or any court of competent jurisdictionwithin 12 months after receipt by the insured of arejection of his claim and failure to do so wouldconstitute abandonment of claim and can nolonger be recoverable.Held: The 12-month prescriptive periodcommenced upon receipt by Tan of therejection/denial of his claim by Sun Insurance anddoes not stop upon filing of the motion forreconsideration. The words of the provisions in the

insurance policy is clear and free from any doubtor ambiguity whatsoever and thus must be takenand understood in its plain, ordinary and popularsense.

Fortune Insurance vs. CAFacts: An armored car of Producers Bank, whilein the process of transferring cash in the sum of725K, was robbed of the said cash. After aninvestigation by police authorities, the driver andthe guard were charged with Violation of PD 532,the Anti-Highway Robbery Law. Demands weremade by the bank upon the insurance company topay the amount of 725K, but the latter refused topay as the loss is excluded from the coverage ofthe insurance policy which reads: The company

shall not be liable under this policy in respect of . . .any loss caused by any dishonest, fraudulent orcriminal act of the insured or any officer, employee,partner, director, trustee or authorizedrepresentative of the insured whether acting aloneor in conjunction with othersHeld: The insurance company is not liable. It isclear that insofar as Fortune is concerned, it wasits intention to exclude and exempt from protectionand coverage losses arising from dishonest,fraudulent, or criminal acts of persons granted orhaving unrestricted access to the banks money orpayroll. When it used the term employee, it musthave in mind any person who qualifies as such asgenerally and equivocally understood, or

jurisprudentially established in light of thedetermination of the ER-EE relationship. It issettled that the terms of the policy constitute themeasure of the insurers liability. In the absence ofstatutory prohibition to the contrary, insurancecompanies have the same rights as individuals tolimit their liability and to impose whatever



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conditions they deem best upon their obligationsnot inconsistent with public policy

4. Liberal Interpretation; ReasonableExpectations

Fieldmans Inc. vs. Vda. De SongcoFacts: Songco owned a private jeepney. Hewas induced by an agent of FieldmensInsurance to apply for a Common CarriersInsurance Policy, which is applicable to publicutility vehicles. The policy provides: thecompany will, subject to the limits of liability andunder terms of this policy, indemnify the insuredin the event of accident caused by or arising outof the use of motor vehicle against all sumswhich will become liable to pay in respect ofdeath or bodily injury to any fare-payingpassenger. During the effectivity of the policy,the insured vehicle collided with another carkilling Songcos son and wounding his wife.Held: Doctrine of estoppel applies. Afterleading Songco to believe that he could qualifyunder the common carrier policy and to enter intothe contract of insurance paying the premiums

due, Fieldmens cannot be permitted to changeits stand. Also, except for the fact that thevictims were not fare-paying passengers, theirstatus as beneficiaries under the policy isrecognized. Even assuming there was anambiguity, ambiguities or obscurities must bestrictly interpreted against the party that causedthem. This rigid application of the rule ofambiguities has become necessary in view ofcurrent business practices.

Malayan Ins. vs. CAFacts: TKC Marketing Corp. was theowner/consignee of some 3,189.171 metric tonsof soya bean meal which was loaded on boardthe ship MV Al Kaziemah. Said cargo wasinsured against the risk of loss by MalayanInsurance Corporation. While the vessel wasdocked in South Africa on September 1989enroute to Manila, the civil authorities arrestedand detained it because of a lawsuit on aquestion of ownership and possession. TKCnotified the insurance company of the arrest ofthe vessel and made a formal claim for theamount of US$916,886.66. Malayan replied thatthe arrest of the vessel by civil authority was nota peril covered by the policies.Held: Malayan insurance should be held liablefor the payment of the insurance claim. Sincewhat was also excluded in the deleted F.C. & S.Clause was "arrest" occasioned by ordinary

judicial process, logically, such "arrest" wouldnow become a covered risk under subsection 1.1of Section 1 of the Institute War Clauses,regardless of whether or not said "arrest" by civilauthorities occurred in a state of war. It hasbeen held that a strained interpretation which isunnatural and forced, as to lead to an absurdconclusion or to render the policy nonsensical,

should, by all means, be avoided. Likewise, itmust be borne in mind that such contracts areinvariably prepared by the companies and must beaccepted by the insured in the form in which theyare written. Exceptions to the general coverageare construed most strongly against the company.Even an express exception in a policy is to beconstrued against the underwriters by whom thepolicy is framed, and for whose benefit theexception is introduced.

Western Guaranty vs. CAFacts: De Dios Transportation Inc. Figured in anaccident when it struck Rodriguez who wascrossing the pedestrian lane on Airport Road. Thedriver ignored the stop signal given by a trafficenforcer. Rodriguez was thrown to the ground andhit her head and resulted to her face gettingpermanently disfigured. De Dios Transportationfiled a complaint against Western Guaranty sincethey were insured by Western under a MasterPolicy which provided protection against third partyliability.Held: Western Guaranty is liable to pay for thedamage caused to the victim including loss of

earnings, moral damages and attorneys fees. TheSchedule of Indemnities does not purport to limit orexhaustively enumerate the species of bodily injuryto the list found in the Schedule of Indemnitiessince an accident may result to an injury to internalorgans not necessarily to a loss of limb(amputation of the leg, arm, finger, hand) but suchinjuries are certainly covered by the Master Plansince they constituted bodily injuries. Also, theSchedule of Indemnities also does not purport torestrict the kind of damages that may be paid bythe insurer once liability has arisen, under theLiability to Third Party clause, and does not saythat the limit is subject to the list indicated in theSchedule of Indemnities. All other types ofdamages may be awarded against the insurer

once liability is shown to have arisen. A contract ofinsurance is a contract of adhesion and must beconstrued strictly against the party which preparedthe contract.

Qua Chee Gan vs. Law UnionFacts: This case involved a claim on a fireinsurance policy which contained a provision as tothe installation of fire hydrants the number of whichdepended on the height of the external wallperimeter of the bodega that was insured. When itwas determined that the bodega should haveeleven fire hydrants in the compund as required bythe terms of the policy, instead of only two that ithad, the claim under the policy was resisted onthat ground.Held: The said deviation from the terms of thepolicy did not prevent the claim under the same.We are in agreement with the trial Court that theappellant is barred by waiver (or rather estoppel) toclaim violation of the so called fire hydrantswarranty, for the reason that knowing fully that thenumber of hydrants demanded therein never



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existed from the very beginning, the appellantnevertheless issued the policies in questionsubject to such warranty, and received thecorresponding premiums. It would be perilouslyreceived the corresponding premiums. It wouldbe perilously close to conniving at fraud upon theinsured to allow the appellant to claim now asvoid ab initio the policies that it had issue to theplaintiff without warning of their fatal defect, ofwhich it was informed, and after it had misled the

defendant into believing that the policies wereeffective. When the policy contains a conditionwhich renders it voidable at its inception, and thisresult is known to the insurer, it will be presumedto have intended to waive the conditions and toexecute a binding contract, rather than to havedeceived the insured into thinking he is insuredwhen in fact he is not, and to have taken hismoney without consideration. The insurancecompany is liable on the insurance contract.

Del Rosario vs. Equitable InsuranceFacts: The insurer has bound itself under thepolicy to pay P1,000-3,000 as indemnity for thedeath of the insured for bodily injury, the policy

containing specific amounts that may berecovered. The policy, however, does notpositively state any definitive amount that may berecoverable in case of death by drowning,although it is a ground for recovery apart fromdeath for bodily injury.Held: There is an ambiguity in this respect in thepolicy, which ambiguity must be interpreted infavor of the insured and strictly against theinsurer to allow a greater indemnity, that is,P3,000.

Geagonia vs. CAFacts: Geagonia is the owner of Norman's Martlocated in the public market of San Francisco,Agusan del Sur. He obtained from the private

respondent, Country Bankers InsuranceCorporation. The policy contained the followingcondition: 3. The insured shall give notice tothe Company of any insurance or insurancesalready effected, or which may subsequently beeffected, covering any of the property orproperties consisting of stocks in trade Fire ofaccidental origin broke out at the public market ofSan Francisco, Agusan del Sur. Geagoniasinsured stocks-in-trade were completelydestroyed prompting him to file with CBIC aclaim under the policy. The company denied theclaim and the basis of which was the petitioner'salleged violation of Condition 3 of the policy.Held: Geagonia is not precluded fromrecovering from Country Bankers. Condition 3 ofthe policy is a condition which is not proscribedby law. Its incorporation in the policy is allowedby Section 75 of the Insurance Code whichprovides that "[a] policy may declare that aviolation of specified provisions thereof shallavoid it, otherwise the breach of an immaterialprovision does not avoid the policy." Its violation

would thus avoid the policy. However, in order toconstitute a violation, the other insurance must beupon the same subject matter, the same interesttherein, and the same risk. As to a mortgagedproperty, the mortgagor and the mortgagee haveeach an independent insurable interest therein andboth interests may be covered by one policy, oreach may take out a separate policy covering hisinterest, either at the same or at separate times. .It is a cardinal principle of law that forfeitures are

not favored and that any construction which wouldresult in the forfeiture of the policy benefits for theperson claiming, will be avoided, if it is possible toconstrue the policy in a manner which wouldpermit recovery, as, for example, by finding awaiver for such forfeiture. Provisions, conditions orexceptions in policies which tend to work aforfeiture of insurance policies should be construedmost strictly against those for whose benefits theyare inserted, and most favorably toward thoseagainst whom they are intended to operate.

Sun Insurance vs. CAFacts: Sun Insurance issued a Personal AccidentPolicy to Lim with a face value of 200K. Two

months later he was dead with a bullet wound onhis head. Lims death was caused when he wasplaying with his handgun which accidentally fired.His wife sought payment on the policy but herclaim was rejected. The contention of SunInsurance was that Lim willfully exposed himself toneedless peril and thus removed himself from thecoverage of the insurance policy. Under theexceptions clause of the policy, the insurancecompany shall not be liable when the insuredperson attempting to commit suicide or willfullyexposing himself to needless peril except in anattempt to save human life.Held: The cause of Lims death was an accidentwithin the limits set forth in the policy and thereforenot exempt from the liability of the insurer. The

definition of an accident is an event whichhappens without any human agency or, ifhappening through human agency, an event whichunder the circumstances, is unusual to and notexpected by the person to whom it happensContrary to the contention of Sun Insurance, Limdid not intentionally expose himself to danger, astestified by his secretary, he removed themagazine of the gun to ensure that it would not fireand pointed it to his temple in the belief that it issafe to do so.

Rizal Surety vs. CAFacts: Rizal Surety issued a fire insurance policyfor Transworld Knitting Mills. A fire broke out in thecompound of Transworld, razing the middle portionof the four-span building and partly gutting the leftand right sections. It also destroyed the two-storeyannex building where fun and amusementmachines and spare parts were stored.Transworld filed insurance claim with Rizal but tono avail. Rizals contention is that the policycovered only the contents of the four-span building



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which was only partly burned and not thedamage caused to the two-storey annex building.Held: The annex building and the contents arecovered under the policy. The so called annexformed an integral and inseparable part of thefour-span building. It was a [permanent structurewhich adjoined the 4-storey building described inthe policy and consequently, the things storedtherein were covered by the insurer.Considering that the annex was already existing

when the insurance policy was contracted, Rizalshould have specifically excluded it from thecoverage of the fire insurance if it wanted to but itdid not. Doubt should be resolved against Rizalwho drafted the insurance policy contract. Thisis because the insured usually has no voice inthe selection or arrangement of the wordsemployed and that the language of the contractis selected with great care and deliberation byexperts and legal advisers employed by, andacting exclusively in the interest of the insurancecompanies.

III. PERFECTION OF THE CONTRACT OFINSURANCE

A. Offer and Acceptance; consensuality

Applicant usually makes the offer tothe insurer.

Submission of application, even w/payment is a mere offer on the partof the applicant, it does not bind theinsurer.

Approval of the application by theinsurer is necessary to perfectcontract. If made:

- w/ payment of premium policy

becomes effective- w/o payment effective upon

payment of premium

1. Delay in Acceptance; Tort Theory Situation where applicant submits

application for insurance, but due tonegligence of company, w/c takesan unreasonably long time beforeprocessing the application, theapplicant dies before the applicationis processed, thus, the contract isnot perfected.

REMEDY: Insurer liable for

damages (Tort Theory) in theamount of the face value of thepolicy, w/c is given to the estate ofthe deceased applicant. (not tobeneficiary because contract notperfected. Also, no contractualliability also bec. no contact)

Why Tort Theory - because

Insurance business is affected w/public interest. It is thus, the duty ofinsurer, w/c derives its authority toact as such from the State (when itapplies to get license to be in theinsurance business), to act w/reasonable promptness in eitherrejecting or accepting the application.

In case of unreasonable delay andapplicant dies, applicant would havebeen deprived of opportunity tosecure insurance from another source.

2. Delivery of the Policy

Delivery the act of putting the

insurance policy the physicaldocument into the possession of theinsured.

Individual life insurance contractsusually stipulate that:1) Premium be paid and2) Policy be delivered to the insured

while he is alive and in goodhealth. Concurrence of both isnecessary. (see Perez v CA case)

Actual delivery of the policy is notessential unless the parties have soagreed in clear language. Constructivedelivery may be sufficient. (See Vda.De Sindayen case)

WoN policy was delivered after itsissuance depends not upon manualpossession by the insured but ratherupon the intention of the parties asmanifested in their acts oragreements.

WON Delivery to agent is delivery to

insured is a question over w/c therehas been many conflicting opinions.

Effect of Delivery:1) Where delivery is conditional Non-

performance of Condition precedentprevents contract fr taking effect

2) Where delivery is unconditional Delivery corresponding terms ofapplication consummates the contractand policy delivered becomes finalcontract bet the parties

3) Where premium still unpaid afterunconditional delivery Policy willlapse if premium unpaid at time andmanner specified in the policy, in theabsence of any clear agreement thatinsurer will extend credit.

Perez v CAFACTS: Perez, already previously insured with BFLifeman Insurance Co. applied for additional



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coverage. He paid premium and was issued areceipt by the agent of BF Lifeman. However, hedied before his application papers were transmittedto the head office of BF Lifeman.ISSUE: WON the insurance policy was perfectedHELD: No. There was no acceptance of the offer.The perfection of the contract was conditionedupon compliance with the provision in theapplication form w/c stated that perfection only lieswhen the applicant pays and the premium and

receives and accepts the policy while still in goodhealth. Thus, the assent of BF Life was not givenwhen it merely received the application form ofPerez in its provincial office. Also, delivery to Perezwould be impossible as he is already dead. So longas an application for insurance has not beenaccepted or rejected by the insurer, it is merely anoffer or proposal to make a contract. The contractto be binding from date of application must havebeen a completed contract that leaves nothing tobe done, passed upon or determined, before it shalltake effect..

Vda. De Sindayen v Insular Life Assurance Co.

FACTS Dec. 1932 Arturo Sindayen had partiallypaid his agent the first premium for a life insurancepolicy. Agent and Sindayen agreed that policy,when and if issued, should be delivered toSindayens aunt who will complete the payment ofthe first annual premium. Jan. 16, 1933 agentreceived approved policy and delivered it toSindayens aunt on Jan. 18. However, before thepolicy was given to Arturo himself, he died on Jan.19.ISSUE: WON Insular Life assumed the risk coveredby Sindayens policyHELD: YES. Delivery to the insured in person is notnecessary, and may be made by mail or dulyconstituted agent (in this case, Sindayens aunt).Insurance company is bound by the acts of its

agent. In this case, the agent is not a mereautomaton and is vested w/ some discretion indeciding WON the condition as to the health of theapplicant has been complied with. Once he decidesthat it has and delivers the policy, then, in theabsence of fraud, the insurance company isestopped from claiming the policy has no effect.

Enriquez v Sun Life Assurance Co.FACTS: Herrer applied for insurance and paid thepremium, however, he died before he received thenotice of acceptance (of his application) sent bySun Life from its Montreal head office.ISSUE: WON the insurance contract was perfectedw/o the notice of acceptance coming to theknowledge of the applicantHELD: NO. Under the CC, Consent is shown by theconcurrence of offer and acceptance. Anacceptance shall not bind the person making theoffer except from the time it came to his knowledge.

B. Premium Payment

Sec. 77 &78; 64

Sec. 77 An Insurer is entitled to payment ofthe premium as soon as the thing insured isexposed to the peril insured against.Notwithstanding any agreement to thecontrary, no policy or contract of insuranceissued by an insurance company is valid and

binding unless and until the premium thereofhas been paid, except in the case of a life oran industrial life policy whenever the graceperiod provision applies.

Premium the agreed price for

assuming and carrying the risk, that is, theconsideration paid an insurer forundertaking to indemnify the insuredagainst the specified peril.

SIR: WORST SECTION of the

Insurance Code. This is the cash-and-carryprovision (see below for explanation why)

Why it raises several questions(Campos): --Is it intended to apply to allclasses of insurance, or does the wordthing limit it to property insurance? As toexception, it only applies to life policies w/inthe grace period w/c does not support thetheory that it applies only to propertyinsurance.- As to grace period, grace period in lifeinsurance applies only to premiumssubsequent to the first, therefore, how canthis be an exception to the rule?- With respect to non-life policies, the firstsentence gives the insurer the right todemand the payment of the premium assoon as the thing insured is exposed toperil insured against This assumes thecontract is binding even before the paymentof the premium meaning the contract isperfected when the applicants offer isaccepted by the insurer. This assumption isinconsistent w/ the next sentence w/c saysthat no policy can be binding w/o premiumpayment.- Also, Sec. 77 and 78 seem contradictory.- However, Sir says above does not apply tolife insurance because Life Insurance lapsesupon non-payment.

Present provision came from Sec 72

of the old Insurance Code. However, Sec. 77has omitted the portion of Sec. 72 w/cpermitted credit extension of the premiumdue (meaning, extension of period to paythe premium). Apparently, the intention isto put the contract of insurance on a cash-and-carry basis meaning the premium



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must be paid in cash as a conditionprecedent for a non-life insurance policy tobe valid and binding, and an agreement togrant the insured credit extension of thepremium is void. However, Makati Tuscanyv CA and the second UCPBcase saysotherwise. Hence, credit extensionagreements may be valid.

EXCEPTIONS to Sec. 77:

1. In the case of a life or anindustrial policy whenever the graceperiod provision applies (Sec. 77)2. Article 78 (see below)3. Agreement to grant theinsured credit extension for thepayment of the premium

4. When there is an agreementallowing the insured to pay premiumin installment and partial payment hasbeen made at the time of the loss(See Makati Tuscany v CA)

Sec. 78 An acknowledgment in a policy orcontract of insurance of receipt of premiumis conclusive evidence of its payment, so faras to make the policy binding,notwithstanding any stipulation therein thatit shall not be binding until the premium isactually paid

Effect of acknowledgment of receiptof premium in property Insurer cannotdeny the truth of the receipt of thepremium even if it is unpaid.

Law established a legal fiction of

payment (prima facie evidence ofpayment). Thus insurer presumed to havewaived the condition of prepayment.

SC has decided that above is anexception to Sec. 77

Sec. 64 No policy of insurance other thanlife shall be cancelled by the insurer exceptupon prior notice thereof to the insured, andno notice of cancellation shall be effectiveunless it is based on the occurrence, afterthe effective date of the policy, of one ormore of the following:

(a) non-payment of premium;(b) conviction of a crime arising outof acts increasing the hazard insuredagainst;

(c) discovery of fraud or materialmisrepresentation

(d) discovery of willful or recklessacts or omissions increasing the hazardinsured against;

(e) physical changes in the propertyinsured which result in the propertybecoming uninsurable; or

(f) a determination by theCommissioner that the continuation of thepolicy would violate or would place the

insurer in violation of this Code

Cancellation right to rescind, abandon orcancel a contract of insurance, terminationof policy before its expiration.

Premium referred to in 64(a) refers topayment after effective date of the policybecause Sec. 77 ordains that insurancepolicy is valid and binding unless and untilpremium has been paid.

Conditions under w/c above exercised:1) Prior notice of cancellation to insured2) Notice must be based on the occurrence,after the defective date of the policy, of one

or more of the grounds mentioned3) It must be in writing, mailed or deliveredto the named insured at the address shownin the policy4) It must state w/c of the ground set forthis relied upon.

Tibay v CAFACTS Fortune Life issued a fire insurance policyin favor of Tibay on a bldg in Makati, together w/ alltheir personal effects therein. Violeta paid part ofthe total premium. 2 mos. Afer, a fire completelydestroyed the bldg. 2 days after the fire, Tibay paidthe balance of the premium. Fortune deniedTibays claim for violation of Sec77 of InsuranceCode.ISSUE WON a fire insurance policy is alreadyvalid, binding and enforceable upon mere partialpayment of premiumHELD NO Sec. 77 applies. Since acceptance ofpartial payment is not mentioned among theexceptions provided in Sec 77 and 78 of theInsurance Code, no policy of insurance can everpretend to be efficacious until premium has beenfully paid.- The policy contained a condition w/c said thatThe policy including any renewal thereof is not inforce until the premium has been fully paid x x xClearly, the Policy provides for payment ofpremium in full.

DISSENT (IMPT) The insurance coverage shouldbecome effective from the day that the partialpayment is accepted by the insurer, any stipulationin the policy to the contrary notwithstanding. Partialpayment is enough to establish the juridicalrelation between the two parties. The law does notrequire a specific amount of premium payment inorder to create the juridical tie.



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- If the contract is automatically cancelled uponthe non-payment in full by the insured, then theefficacy of the contract will be fully dependent onhis will. This violates the principle of mutuality ofcontracts.

Makati Tuscany v CAFACTS American Home Assurance (AHAC)issued in favor or Makati Tuscany an insurancepolicy on the latters bldg for 1 year. It was

renewed over the course of 3 years. In 1982, thetotal premiums were paid in four installments butin 1983, Tuscany paid only 2 installments andrefused to pay the remaining balance. Reasonfor discontinuation: policy contained areservation wherein Acceptance of payment byAHAC will not waive any of the company rights todeny liability on any claim under the policyarising before such payments or after theexpiration of the credit clause of the policy, andSubject to no loss prior to premium payment. Ifthere be any loss, such is not covered. AHACfiled a suit to recover the remaining balance.Makati Tuscany filed counterclaim for the totalamount of premiums it had paid during the

previous years.ISSUE WON payment by installment ofpremiums due on an insurance policy invalidatesthe contract of insuranceHELD NO The policies are valid even if thepremiums paid in installments because therecords clearly show that the two partiesintended the policies to be binding and effectivenotwithstanding the staggered payment of thepremiums. Te acceptance of the installmentpayments over the period of 3 years speak loudlyof intention of insurer to honor the policies itissued to Makati Tuscany.- Sec 77 merely prohibits the parties fromstipulating that the policy is valid even ifpremiums were not paid, but it does not

expressly prohibit an agreement granting creditextensions. Sec. 78 also allows the insurer towaive the condit ion of full payment byacknowledging in the policy that there has beenreceipt of premium despite the fact that premiumis actually unpaid. If the Code allows a waiverwhen no actual payment has been made, then awaiver should also be allowed in this case wherethe insurer has already acknowledged receipt ofpartial payment.

NOTE: Difference with Tibay case: In Tibay,there was an express stipulation w/c said thatpayment shall be made in full. In this case, the policy was binding because of the prioragreement to allow installment payments, hencefull payment under Sec.77 deemed waived.

Areola v CAActually, I dont know how this case is in any wayremotely connected to Sec. 77 or 78 w/c was notcited in the case so therefore di ko na sasama.

UCPB Gen. Ins. v Masagana TelemartFACTS Masagan Telemart obtained insurancepolicies on its properties from UCPB. The policieshad the effectivity term of May 1991 May 1992.On June 1992, Masagans properties were razedby a fire. On the same day, Masagana tenedered,and UCPB accepted renewal premium payments.The next day, Masagana filed a claim for theburned insured bldgs. UCPB rejected the claimson the ground that the polices exprired on May

1992 and were not renewed for another term andthat the fire took place before the tender ofpremium payment under the renewed policy.(Note: This is a motion for reconsideration fromprevious SC decision declaring that there was norenewal of the policy and that UCPB not liable)ISSUE WON Sec 77 of the Insurance Code mustbe strictly applied despite its practice of granting a60-90 day credit term for payment of premiumHELD NO There are exceptions to Sec 77:a.) The first is provided by Sec. 77 itself and thatis, in case of a life or industrial life policy wheneverthe grace period appliesb.) Sec 78: An acknowledgment in a policy orcontract of insurance of the receipt of premium is

conclusive evidence of its payment, so far as tomake the policy binding, notwithstanding anystipulation therein that it shall not be binding untilpremium is actually paid.c.) Sec. 77may not apply if the parties haveagreed to the payment in installments of thepremium and partial payment has been made atthe time of the loss.d.) The insurer may grant credit extension for thepayment of the premiume.) It would be unjust and inequitable if recoveryon the policy would not be permitted againstUCPB, w/c consistently granted the 60-90 daycredit term for the payment of the premiumsdespite its full awareness of Sec. 77. Estoppel barsit from taking refuge under the action, since

Masagana relied on good faith on such a practice

DISSENT (Vitug):-Estoppel cannot create a contract of insuranceneither can it be invoked to create a PRIMARYLIABILITY. So essential is the premium payment tothe creation of the vinculum juris that it would bedoubtful to have that payment validly excusedeven for a fortuitous event

DISSENT ( Pardo)- Masagana tried to pay the overdue premiumsbefore giving written notice that a fire has razedthe property. This shows the fraudulent characterof the claim. Failure to give notice is was

insurance reviewer_largely based on campos

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