I.
Introduction/Preliminaries
A. History of Insurance Law in the Philippines
Insurance is based on the principle of aiding another from a loss caused by
an unfortunate event.
The origin of present day insurance is attributed to merchants of Italian
cities.
o Mutual agreements among merchants of the Italian cities in the
early middle ages engaged in common shipping ventures for
distributing among the mutual contractors. The loss falling upon
any one by reason of the perils of navigation.
o In its early forms, law of insurance was derived from the maritime
law and, as such, was part of the general law merchant, and
international in its character.
12th Century
The Lombards1 founded trading houses in London and brought with them
the custom of insuring against hazards of trade.
o All questions of insurance were determined in accordance with
the custom of merchants, and by merchant courts, rather, the
custom of submitting all contracts involing mercantile rights to
courts of merchants established among themselves.
Middle of 18th Century
Common law courts of England began to take adequate cognizance of
insurance cases with the passage of in 1601 of the first English Insurance
Act by which a special court was established for the trial of marine
insurance controversies.
Lord Mansfield Father of English Commercial Laws
o Due to him, essential principles of the law merchant were
incorporated into the common-law system of England and the
common-law courts thereby rendered competent to determine all
questions involving insurance.
Development of Insurance in the Philippines
Pre-Spanish Times
When the political unit was the family, if a member of the family died or
suffered any misfortune, it was borne by the family.
Present Times
The practice of furnishing some form of assistance to bereaved members
of the family of someone who dies still exists.
Eventually, mutual benefit societies and fraternal associations were
organized for the purpose of rendering assistance, in money or in kind, to
their members.
1829
Insurance was first introduced in the Philippines
Business transacted is only Non-life Insurance
1
Italian merchants coming from the flourishing commercial centers in Northern Italy
1898
Life Insurance was introduced in this country with the entr of Sun Life
Assurance of Canada in the local insurance market.
1. Laws governing the contract of insurance
a. Insurance Code (PD 612 as amended by RA 10607)
The insurance code primarily governs the different types of insurance
contracts and those engaged in insurance business in the Philippines.
b. Also Articles 739, 2011-2017, 2186 , 2207 of the New Civil Code; Articles
43(4), 50 and 64 Family Code; GSIS (PD1146 as amended by RA 8291) and SSS (RA
1161 as amended by RA 8282) laws; Insurance Benefits of LGU Officials (EO250
dated July 25, 1987; RA 5756); Pre-Need Code (RA 9829); Insurance Corps under
Section 185, par (2) of IC; PDIC Law (RA 3591).
NCC
o Arts. 739 and 2012 concerns Void Donations
o Art. 2012 applicability of the Civil Code
o Arts. 2021-2027 with respect to life annuity contracts
o Art. 2186 on compulsory motor vehicle liability insurance
o Art. 2207 on insurers right of subrogation
NOTE: insurance contracts are primarily governed by the Insurance Code but if it does
not specifically provide for a particular manner in question, the provisions of the Civil
Code on contracts and other special laws shall govern.
Special Laws
o Insurance Code (P.D. No. 612, as amended)
o Revised Government Insurance Act insurance of government
employees
o The Social Security Act of 1954 (SSS Law) R.A. No. 1161, as amended
insurance of employees in private employment.
o R.A. 5756 providing life, disability and accident insurance coverage to
barangay officials.
o E.O. No. 250 increases, integrates and rationalizes the insurance
benefits of barangay officials under R.A. No. 4898 and members of
Sangguniang Panlalawigan, Sangguniang Panlungsod, and Sangguniang
Bayan under Pres. Decree No. 1147.
o PDIC Law R.A. 3591 establishes the Philippine Deposit Insurance
Corporation which insures the deposits of all banks which are entitled to
the benefits of insurance under the Act.
New Civil Code
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;
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 (3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
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. (n)
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. (n)
CHAPTER 2 Gambling
Article 2013. A game of chance is that which depends more on chance or
hazard than or skill or ability. For the purposes of the following articles, in
case of doubt a game is deemed to be one of chance. (n)
Article 2014. No action can be maintained by the winner for the collection
of what he has won in a game of chance. But any loser in a game of chance
may recover his loss from the winner, with legal interest from the time he
paid the amount lost, and subsidiarily from the operator or manager of the
gambling house. (1799a)
Article 2015. If cheating or deceit is committed by the winner, he, and
subsidiarily the operator or manager of the gambling house, shall pay by
way of exemplary damages, not less than the equivalent of the sum lost, in
addition to the latter amount. If both the winner and the loser have
perpetrated fraud, no action for recovery can be brought by either. (n)
Article 2016. If the loser refuses or neglects to bring an action to recover
what has been lost, his or her creditors, spouse, descendants or other
persons entitled to be supported by the loser may institute the action. The
sum thereby obtained shall be applied to the creditors' claims, or to the
support of the spouse or relatives, as the case may be. (n)
Article 2017. The provisions of article 2014 and 2016 apply when two or
more persons bet in a game of chance, although they take no active part in
the game itself. (1799a)
Article 2186. Every owner of a motor vehicle shall file with the proper
government office a bond executed by a government-controlled
corporation or office, to answer for damages to third persons. The amount
of the bond and other terms shall be fixed by the competent public official.
(n)
Article 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the
2
Art. 41 refers to marriage contracted by any person during the subsistence of a previous marriage.
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.
Family Code
Art. 43(4). The termination of the subsequent marriage referred to in the
preceding Article2 shall produce the following effects:
(4) The innocent spouse may revoke the designation of the other
spouse who acted in bad faith as beneficiary in any insurance
policy, even if such designation be stipulated as irrevocable.
Art. 50. The effects provided for by paragraphs (2), (3), (4) and (5) of
Article 43 and by Article 44 shall also apply in the proper cases to
marriages which are declared ab initio or annulled by final judgment under
Articles 40 and 45.
The final judgment in such cases shall provide for the liquidation, partition
and distribution of the properties of the spouses, the custody and support
of the common children, and the delivery of third presumptive legitimes,
unless such matters had been adjudicated in previous judicial proceedings.
All creditors of the spouses as well as of the absolute community or the
conjugal partnership shall be notified of the proceedings for liquidation.
In the partition, the conjugal dwelling and the lot on which it is situated,
shall be adjudicated in accordance with the provisions of Articles 102 and
129.
Art. 60. No decree of legal separation shall be based upon a stipulation of
facts or a confession of judgment.
In any case, the Court shall order the prosecuting attorney or fiscal
assigned to it to take steps to prevent collusion between the parties and to
take care that the evidence is not fabricated or suppressed. (101a)
Insurance Code (1974)
Sec. 185. (2). The provisions of the Corporation Law shall apply to all
insurance corporations now or hereafter engaged in business in the
Philippines insofar as they do not conflict with the provisions of this chapter.
[The Insular Life Assurance Company, Ltd., vs. Carponia Ebrado, GR. No. L-44059, October
28, 1977]
Commercial Law; Insurance; Insurance Code; Word interest in Sec. 50 of Insurance Act
which provides that insurance shall be applied exclusively to the proper interest of the
person in whose name it is made refers only to the insured and not to the beneficiary;
contract of insurance personal in character. - Section 50 of the Insurance Act which provides
that (t)he insurance shall be applied exclusively to the proper interest of the person in whose
name it is made cannot be validly seized upon to hold that the same includes the beneficiary.
ATDL + AMF Notes 17 | 2
The word interest highly suggests that the provision refers only to the insured and not the
beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory
laws against illicit relationships especially on property and descent will be rendered nugatory,
as the same could easily be circumvented by modes of insurance.
Same; Same; On matters not otherwise specifically provided for by the Insurance Law, the
contract of life insurance is governed by general rules of civil law. - Rather the general rules
of civil law should be applied to resolve this void in the Insurance Law. 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.
Same; Same; Life Insurance policy no different from civil donation as far as beneficiary is
concerned; Both are founded on liberality; Common-law spouses designated as
beneficiary barred from receiving life insurance proceeds from a legally married person;
Reasons therefor. - 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 wills are interpreted.
Same; Same; Conviction for adultery or concubinage for those barred from receiving
donations or life insurance not required as only preponderance of evidence is necessary.
- We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with regard to the disability on
persons who were guilty of adultery or concubinage at the time of the donation, xxx The
underscored clause neatly conveys that no criminal conviction for the disqualifying offense is a
condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a
criminal prosecution is needed. On the contrary, the law plainly states that the guilt of the party
may be proved in the same action for declaration of nullity of donation. And, it would be
sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The
quantum of proof in criminal cases is not demanded.
Facts: Buenaventura Cristor Ebrado (Buenaventura) and Carponia Ebrado (Carponia) were
living as husband and wife without the benefit of marriage. Beanaventura was issued by the
insular life assurance with a whole life plan with a rider for accidental death benefits placing
Capornia as revocable beneficiary in the policy referring to her as his wife. Buenaventura
died as a result of an accident when he was hit by a falling branch of a tree.
Carponia filed with the insurer a claim for the proceeds of the policy as the designated
beneficiary therein, although admitted that she and Buenaventura were merely living as
H&W w/o benefit of marriage.
As the insurance policy was in force, The Insular Life Assurance Co., Ltd. stands liable to pay
the coverage.
Pascuala Vda. de Ebrado (Real/Legal Wife) also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds, not the common-
law wife, Carponia.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. (Insular Life) commenced an action for Interpleader before the CFI.
TC: declared Carponia disqualified from becoming beneficiary of the insured Buenaventura
and directing the payment of the insurance proceeds to the estate of the deceased insured.
Issue: Can a commonlaw 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: NO, the commonlaw wife may not claim the life insurance policy of a legally married
man even if she has been named as beneficiary of the same.
It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new
Insurance Code (PDNo. 612, as amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the Insurance Act which provides
that (t)he insurance shall be applied exclusively to the proper interest of the person in
whose name it is made cannot be validly seized upon to hold that the same includes the
beneficiary. The word interest highly suggests that the provision refers only to the
insured and not to the beneficiary, since a contract of insurance is personal in character.
Otherwise, the prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be circumvented by modes of
insurance. Rather, the general rules of civil law should be applied to resolve this void in the
Insurance Law. 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;
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.
ATDL + AMF Notes 17 | 3
 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.
2. General Concept of Insurance
a. Definition: Sec 2(1) of IC
Sec. 2. Whenever used in this Code, the following terms shall have the
respective meanings hereinafter set forth or indicated, unless the context
otherwise requires:
(1) A "contract of insurance" is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.
b. Elements: (Sec 2-3, 12-14,77 of IC)
Insurance Code (as amended by R.A. No. 10607)
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.
(3) As used in this code, the term Commissioner means the Insurance
Commissioner.
Chapter 1
THE CONTRACT OF INSURANCE
Title 1
WHAT MAY BE INSURED
Section 3. Any contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest, or create a liability against
him, may be insured against, subject to 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.
Sec. 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 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.
Sec. 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.
Sec. 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 77. An insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies, or whenever under the broker and agency
agreements with duly licensed intermediaries, a ninety (90)-day credit
ATDL + AMF Notes 17 | 4
 extension is given. No credit extension to a duly licensed intermediary should
exceed ninety (90) days from the date of issuance of the policy.
c. Characteristics of Insurance Contract
1. risk-distributing device (1) equitably distributes losses out of general funds contributed
by all; and (2) provides protection against absorbing losses alone.
2. contract of adhesion one of the parties imposes a ready-made contract, which the other
party may accept or reject, but which the latter cannot modify.
3. aleatory (Article 2010 of the New Civil Code)
Article 2010. By an aleatory contract, 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. (1790)
4. contract of indemnity (Section 4, IC)
i. exceptions to indemnity
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.
5. uberrimae fides contract Utmost good faith
[Philamcare Health Systems Inc., vs. Court of Appeals Julita Trinos, GR No. 125678, March
18, 2002]
Insurance; Elements; Words and Phrases; 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. - Section 2 (1) of the Insurance Code defines
a contract of insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent
event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.
Same; Every person has an insurable interest in the life and health of himself. - Section 3
of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
Same; Health Care Agreements; A health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. - In the case at bar, the insurable
interest of respondents husband in obtaining the health care agreement was his own health.
The health care agreement was in the nature of non-life insurance, which is primarily a contract
of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract.
Same; Same; Misrepresentation; Where matters of opinion are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though they are
untrue. - The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact, especially
coming from respondents husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not avoid
a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual
fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and
this is likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in relying
upon such statement, but is obligated to make further inquiry. There is a clear distinction
between such a case and one in which the insured is fraudulently and intentionally states to be
true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his knowledge, since in such case the intent
to deceive the insurer is obvious and amounts to actual fraud.
Same; Same; Concealment; Concealment as a defense for the health care provider or
insurer to avoid liability is an affirmative defense and the duty to establish such defense
by satisfactory and convincing evidence rests upon the provider or insurer; The liability
of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he
has prepaid. - The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care provider or
insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement, petitioner is bound to answer the same
to the extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid.
Same; Same; Same; Rescission; The right to rescind should be exercised previous to the
commencement of an action on the contract. - Under Section 27 of the Insurance Code, a
concealment entitles the injured party to rescind a contract of insurance. The right to rescind
should be exercised previous to the commencement of an action on the contract. In this case, no
rescission was made. Besides, the cancellation of health care agreements as in insurance
ATDL + AMF Notes 17 | 5
policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based.
Same; Same; Contracts; The rule that by reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured, especially to
avoid forfeiture, is equally applicable to Health Care Agreements. - None of the above
preconditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract -
the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage
is to be adopted, and exclusionary clauses of doubtful import should be strictly construed
against the provider.
Same; Same; Since a health care agreement is in the nature of a contract of indemnity,
payment should be made to the party who incurred the expenses. - Petitioner alleges that
respondent was not the legal wife of the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman who was still alive. The
health care agreement is in the nature of a contract of indemnity. Hence, payment should be
made to the party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the deceaseds hospitalization,
medication and the professional fees of the attending physicians.
Facts: Ernani Trinos applied for a health care insurance under the Philamcare Health
Systems, Inc. In the application form, he was asked if he was ever treated for high blood,
heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer, to which he answered
no. His application was approved for a period of one year (1988 to 1989), and the same was
extended twice, from 1989 to 1990.
During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month. The cost of the hospitalization amounted to
P76,000.00. Julita Trinos, wife of Ernani, tried to claim the benefits under the health care
agreement. Petitioner denied the claim of private respondent because the Health Care
Agreement was allegedly void due to the alleged concealment of Ernani that he was not
hypertensive, diabetic, and asthmatic, contrary to his answer in the application form.
Julita then ended up paying the hospital expenses while Ernani eventually died.
On July 24, 1990, Julita sued Philamcare and its president for damages. She asked for
reimbursement of her expenses plus moral damages and attorneys fees.
RTC ruled against petitioners; CA affirmed the decision of the RTC but deleted all awards
and absolved petitioners president.
Petitioners arguments:
A health care agreement is not an insurance contract, hence the incontestability
clause under the Insurance Code does not apply.
The agreement grants living benefits, (medical check-ups and hospitalization)
which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter.
Only medical and hospitalization benefits are given under the agreement without
any indemnification, unlike in an insurance contract where the insured is
indemnified for his loss.
Issues:
1. Whether health care agreements are insurance contracts
2. Whether there was concealment of material facts on the part of Ernani that
rendered the health care agreements void by virtue of the Invalidation of
agreement" contained in the contract
3. Whether or not Philamcare can avoid the health coverage agreement
4. Whether or not the spouse being "not" legal wife can claim
Held: Yes, it is an insurance contract. Section 2 (1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur: (1) The insured has an
insurable interest; (2) The insured is subject to a risk of loss by the happening of the
designated peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part of a
general scheme to distribute actual losses among a large group of persons bearing a
similar risk; and (5) In consideration of the insurers promise, the insured pays a premium.
A health care agreement is in the nature of non-life insurance, which is primarily a contract
of indemnity. In the case at bar, the insurable interest of respondents husband in obtaining
the health care agreement was his own health. Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed upon under the contract.
Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer; the liability of the health care provider
attaches once the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has prepaid. The
fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.
By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture, is equally
applicable to Health Care Agreements. Being a contract of adhesion, the terms of an
ATDL + AMF Notes 17 | 6
 insurance contract are to be construed strictly against the party which prepared the
contractthe insurer.
Since a health care agreement is in the nature of a contract of indemnity, payment should
be made to the party who incurred the expenses. Petitioner alleges that respondent was not
the legal wife of the deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceaseds hospitalization, medication and the professional fees of the
attending physicians.
[Blue Cross Health Care, Inc. vs. Neomi and Danilo Olivares, GR No. 169737,February 12,
2008]
Health Care Agreements; Insurance; The established rule in insurance contracts that when
their terms contain limitations on liability, they should be construed strictly against the
insurer and must equally apply to health care agreements, which is in nature of non-life
insurance. In Philamcare Health Systems, Inc. v. CA, 379 SCRA 356 (2002), we ruled that a
health care agreement is in the nature of a non-life insurance. It is an established rule in
insurance contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer. These are contracts of adhesion the terms of which must
be interpreted and enforced stringently against the insurer which prepared the contract. This
doctrine is equally applicable to health care agreements.
Same; Social Legislation; Philippine Health Insurance System; Limitations of Liability;
Limitations of liability on the part of the insurer or health care provider must be
scrutinized by the courts with extreme jealousy and care and with a jaundiced eye -
mere reliance on a disputable presumption does not meet the strict standard required. -
Limitations of liability on the part of the insurer or health care provider must be construed in
such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized
by the courts with extreme jealousy and care and with a jaundiced eye. Since petitioner
had the burden of proving exception to liability, it should have made its own assessment of
whether respondent Neomi had a pre-existing condition when it failed to obtain the attending
physicians report. It could not just passively wait for Dr. Saniels report to bail it out. The mere
reliance on a disputable presumption does not meet the strict standard required under our
jurisprudence.
Facts: Respondent Neomi Olivares qpplied for a health care program with petitioner Blue
Cross Health Care Inc., for 1 year, she paid premiums in the amount of P11,117. She also
availed the additional service of limitless consultations for an additional amount of P1,000.
She paid these amounts in full on 17 October 2002. Ailments due to pr-existing conditions
were excluded from the coverage.
After 38 days from the effectivity of her health insurance, respondent suffered from a stroke
and was admitted at the Medical City, which was one of the accredited hospitals of
petitioner. Her physician was Dr. Saniel, who informed her that she could be discharge from
the hospital. Respondent incurred expenses amounting to P34,217.20. She then requested
from the representative of petitioner a letter of authorization in order to settle her medical
bills, unfortunately, petitioner refused to issue the letter and suspended the payment
pending the submission of a certificate from her physican at that the strokeshe sufferd was
not caused by a pr-existing condition.
She was discharge on Dec 3, 2002. And on 5 Dec. 2002, she demanded that petitioner pay
her medical bill,but petitioner refused, hence, she and her husband were constrained to
pay/settle the medical bills. Therefore, they filed a complaint for collection of sum of money
against petitioner before the MeTC. Petitioner maintained hat it had nit yet denied
respondents claim as it was waiting for her physicians certificate or medical report.
In a letter executed by Dr. Saniel, the physician wrote to the petitioner that the former cannot
release any medical information since respondent was invoking her patient-physician
confidentiality, hence, without respondents approval, the neurogical exam result cannot be
released to anyone.
MeTC dismissed the complaint for lack of cause of action. On appeal, the RTC versed the
decision of the MeTc. The RTC held that the burden to prove that the stroke suffered by
respondent was not a pr-existing condition.
Upon appeal with the CA, it affirmed the RTCs decision and also denied the motion for
reconsideration.
Issues:
1. Whether or not petitioner was able to prove that respondents stroke was caused
by a pre-existing condition, and if it is, would, therefore, exclude from the
coverage
2. Whether it was liable for moral and exemplary damages and attys fees.
Held: A pre-existing condition is defined as a disability which existed before the
commencement date of membership whose natural history can be clinically determined,
whether or not the member was aware of such illness or condition.
1. No. The burden to prove that such illness is a pre-existing condition rests upon the insurer.
The rule is, if the contact of insurance has limitations on liability, they should be construed
strictly against the insurer. In this case, petitioner never presented any evidence that would
prove respondents stroke was due to pre-existing conditions.
Sec. 3(e) of Rule 131 of the Rules of Court will not apply if
a. The evidence is at the disposal of both parties
b. The suppression was not willful
c. The suppression is an exercise of a privilege
In this case, invoking the patient-physician privileged communication (releasing
the report of the medical exam) is an exercise of privilege. Therefore would not
apply in this case.
2. Yes. Petitioner is liable for damages and attys fees due to its own badfaith by not paying
respondents claim while the latter was still experiencing stroke and was forced to pay the
medical expenses despite being covered by the health care program, thereby suffering from
extreme mental anguish, shock serious anxiety and great stress. And that because petitioner
refused to execute the letter of authorization, and to pay the hospital bills, respondent has
to engage a counsel. Finally, the refusal of petitioner to pay respondents expenses based in
its own perception that the stroke was a pre-existing condition without further investigation
amounts to badfaith.
ATDL + AMF Notes 17 | 7

[Alpha Insurance and Surety Co. vs. Arsenia Sonia Castor, G.R. No. 198174, September 2,
2013]
Insurance Law; In interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood in
common speech. - Contracts of insurance, like other contracts, are to be construed according
to the sense and meaning of the terms which the parties themselves have used. If such terms
are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense. Accordingly, in interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning as understood in
common speech.
Same; Contract of Adhesion; A contract of insurance is a contract of adhesion. So, when
the terms of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his
obligation. - A contract of insurance is a contract of adhesion. So, when the terms of the
insurance contract contain limitations on liability, courts should construe them in such a way
as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens
Memorial Park Corporation v. Philippine American Life Insurance Company, 551 SCRA 1 (2008),
this Court ruled - It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against the insurer in order
to safeguard the latters interest.
Facts: Respondent entered into a contract of insurance with petitioner involving her motor
vehicle (Toyota Revo) said contract obligates the respondent to pay the amount of Php630k.
Thereafter, Respondent instructed her driver (Lanuza) to bring her car to an auto-shop for
a tune-up. Lanuza no longer returned her car and despite diligent efforts to locate the same,
respondents efforts proved futile.
Respondent notified the police and the petitioner for the said loss and demanded payment
of the insurance proceeds. The petitioner denied the insurance claim on the ground that
under the contract of insurance, the company shall not be liable for any malicious damaged
caused by the insured, any member of his family or by a person in the insured services.
Respondent filed a complaint for sum of money with damages against the petitioner. RTC
and CA ruled in favor of the respondent.
On appeal to SC, petitioner contends that the word damage is equivalent to loss as agreed
in the contract of insurance.
Issue: WON the loss of respondents vehicle is excluded under the insurance policy.
Held: NO. An insurance contract should be interpreted as to carry out the purpose for which
the parties entered into the contract which is to insure against risks of loss or damage to the
goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted.
Contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular sense.
Accordingly, in interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood in
common speech.
Adverse to petitioners claim, the words loss and damage mean different things in
common ordinary usage. The word loss refers to the act or fact of losing, or failure to keep
possession, while the word damage means deterioration or injury to property. Therefore,
petitioner cannot exclude the loss of respondents vehicle under the insurance states in the
contract since the same refers only to malicious damage, or more specifically, injury to
the motor vehicle caused by a person under the insureds service. It does not contemplate
loss of property, as what happened in the instant case.
When the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the
parties themselves disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against the insurer.
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
[UCPB General Insurance Co., vs. Masagana Telemart, Inc. G.R. No. 137172 ,April 4, 2001]
Insurance; Premiums; Exceptions to the rule in Section 77 of the Insurance Code of 1978
that there be prepayment of premiums as a condition to the validity of the insurance
contract. - It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But are there
exceptions to Section 77? The answer is in the affirmative. The first exception is provided by
Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period
provision applies. The second is that covered by Section 78 of the Insurance Code, which
provides: SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid. A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court
of Appeals, wherein we ruled that Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss,
x x x Not only that. In Tuscany, we also quoted with approval the following pronouncement of
the Court of Appeals in its Resolution denying the motion for reconsideration of its decision: x
x x By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany
has provided a fourth exception to Section 77, namely, that the insurer may grant credit
extension for the payment of the premium. This simply means that if the insurer has granted
the insured a credit term for the payment of the premium and loss occurs before the expiration
of the term, recovery on the policy should be allowed even though the premium is paid after the
loss but within the credit term.
Same; Same; There is nothing in Section 77 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. - Moreover, there is
nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit
term within which to pay the premiums. That agreement is not against the law, morals, good
customs, public order or public policy. The agreement binds the parties.
ATDL + AMF Notes 17 | 8
Same; Same; Estoppel; Where an insurer had consistently granted a 60- to 90-day credit
term for the payment of premiums despite its full awareness of Section 77, and the
assured had relied in good faith on such practice, estoppel bars it from taking refuge
under said Section. - Finally in the instant case, it would be unjust and inequitable if recovery
on the policy would not be permitted against Petitioner, which had consistently panted a 60- to
90-day credit term for the payment of premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on
such practice. Estoppel then is the fifth exception to Section 77.
VITUG Separate Opinion:
Insurance; An essential characteristic of an insurance is its being synallagmatic, a highly
reciprocal contract where the rights and obligations of the parties correlate and mutually
correspond. - An essential characteristic of an insurance is its being synallagmatic, a highly
reciprocal contract where the rights and obligations of the parties correlate and mutually
correspond. The insurer assumes the risk of loss which an insured might suffer in consideration
of premium payments under a risk distributing device. Such assumption of risk is a component
of a general scheme to distribute actual losses among a group of persons, bearing similar risks,
who make ratable contributions to a fund from which the losses incurred due to exposures to
the peril insured against are assured and compensated.
Same; Estoppel; By weight of authority, estoppel cannot create a contract of insurance,
neither can it be successfully invoked to create a primary liability, nor can it give validity
to what the law so proscribes as a matter of public policy. - By weight of authority, estoppel
cannot create a contract of insurance, neither can it be successfully invoked to create a primary
liability, nor can it give validity to what the law so proscribes as a matter of public policy. So
essential is the premium payment to the creation of the vinculum juris between the insured and
the insurer that it would be doubtful to have that payment validly excused even for a fortuitous
event.
PARDO, Dissenting Opinion:
Insurance; An assureds failure to give notice of the fire immediately upon its occurrence
blatantly showed the fraudulent character of its claim. - Respondent Masagana surreptitiously
tried to pay the overdue premiums before giving written notice to petitioner of the occurrence
of the fire that razed the subject property. This failure to give notice of the fire immediately upon
its occurrence blatantly showed the fraudulent character of its claim. The fire totally destroyed
the property on June 13, 1992; the written notice of loss was given only more than a month
later, on July 14, 1992, the day after respondent surreptitiously paid the overdue premiums.
Respondent very well knew that the policy was not renewed on time. Hence, the surreptitious
attempt to pay overdue premiums. Such act revealed a reprehensible disregard of the principle
that insurance is a contract uberrima fides, the most abundant good faith. Respondent is
required by law and by express terms of the policy to give immediate written notice of loss. This
must be complied with in the utmost good faith.
Same; In insurance practice, amendments or even corrections to a policy are done by written
endorsements or tickets appended to the policy. - It must be stressed that a verbal
understanding of respondent Masagana cannot amend an insurance policy. In insurance
practice, amendments or even corrections to a policy are done by written endorsements or
tickets appended to the policy.
Same; What has been established was the grant of credit to insurance brokers, not to the
assured. - Hence, what has been established was the grant of credit to the insurance brokers,
not to the assured. The insurance company recognized the payment to the insurance brokers as
payment to itself, though the actual remittance of the premium payments to the principal might
be made later. Once payment of premiums is made to the insurance broker, the assured would
be covered by a valid and binding insurance policy, provided the loss occurred after payment to
the broker has been made.
Same; Estoppel; Estoppel can not give validity to an act that is prohibited by law or against
public policy. - Assuming arguendo that the 60 to 90 day-credit-term has been agreed between
the parties, respondent could not still invoke estoppel to back up its claim. Estoppel is
unavailing in this case, thus spoke the Supreme Court through the pen of Justice Hilario G.
Davide, Jr., now Chief Justice. Mutatis mutandi, he may well be speaking of this case. He added
that [E]stoppel an not give validity to an act that is prohibited by law or against public policy.
The actual payment of premiums is a condition precedent to the validity of an insurance
contract other than life insurance policy. Any agreement to the contrary is void as against the
law and public policy.
Same; Same; Under the doctrine of estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon. - An incisive reading of the afore-cited provision would show that the emphasis
was on the conclusiveness of the acknowledgment in the policy of the receipt of premium,
notwithstanding the absence of actual payment of premium, because of estoppel. Under the
doctrine of estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. A party
may not go back on his own acts and representations to the prejudice of the other party who
relied upon them.
Facts: Masagana Telamart, Inc. (Masagana) obtained from UCPB General Insurance Co., Inc.
(UCPB) five (5) insurance policies on its properties in Pasay and Manila Cities.
All five (5) policies reflect on their face the effectivity term: from 4:00 P.M. of 22 May 1991
to 4:00 P.M. of 22 May 1992.
On June 13, 1992, Masaganas properties located at Taft, Pasay CIty were razed by fire.
July 14, 1992, Masagana made a formal demand for indemnification for the burned insured
properties. On the same day, UCPB returned managers checks made by Masagana as
premium payments (made July 12, 1992) stating in a letter that it was rejecting Masaganas
claim for insurance on the following grounds:
a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
earlier; and
c) The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment.
This led Masagana to file a case.
ATDL + AMF Notes 17 | 9

TC and CA: Theres sufficient proof that Masagana, which had procured insurance
coverage from UCPB for a number of years, had been granted a 60 to 90-day credit
term for the renewal of the policies. Such a practice had existed up to the time the
claims were filed.
Issue: WON the fire insurance policies issued by petitioner to the respondent covering the
period from May 22, 1991 to May 22, 1992 . . . had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later date and
after the occurrence of the (fire) risk insured against?
Held: YES, there has been an extension of time.
Although it is stated under Sec. 77 that a contract of insurance is only valid and binding if
the premium has already been paid, it permits exceptions. One of the exceptions is that when
there is a grace period provided, that grace period would be the controlling provision. Thus,
the Court held that it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for
the payment of premiums despite its full awareness of Section 77. Estoppel bars it from
taking refuge under said Section, since Respondent relied in good faith on such practice.
[Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue, GR No.
167330, September 18, 2009]
Health Maintenance Organizations; Various courts in the United States, whose
jurisprudence has a persuasive effect on our decisions, have determined that Health
Maintenance Organizations (HMOs) are not in the insurance business. - Various courts in
the United States, whose jurisprudence has a persuasive effect on our decisions, have
determined that HMOs are not in the insurance business. One test that they have applied is
whether the assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are merely
incidental to its business. If these are the principal objectives, the business is that of insurance.
But if they are merely incidental and service is the principal purpose, then the business is not
insurance. Applying the principal object and purpose test, there is significant American case
law supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.
Insurance Law; Even if petitioner assumes the risk of paying the cost of these services even
if significantly more than what the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business. - The mere presence of risk would
be insufficient to override the primary purpose of the business to provide medical services as
needed, with payment made directly to the provider of these services. In short, even if petitioner
assumes the risk of paying the cost of these services even if significantly more than what the
member has prepaid, it nevertheless cannot be considered as being engaged in the insurance
business.
Administrative Agencies; It is well-settled that the interpretation of an administrative
agency which is tasked to implement a statute is accorded great respect and ordinarily
controls the interpretation of laws by the courts. - It is significant that petitioner, as an HMO,
is not part of the insurance industry. This is evident from the fact that it is not supervised by the
Insurance Commission but by the Department of Health. In fact, in a letter dated September 3,
2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance
business. This determination of the commissioner must be accorded great weight. It is well-
settled that the interpretation of an administrative agency which is tasked to implement a
statute is accorded great respect and ordinarily controls the interpretation of laws by the courts.
The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals, 203
SCRA 504 (1991): The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the administrative agency
charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs, 29 SCRA 617 (1969) the Court stressed that executive officials are
presumed to have familiarized themselves with all the considerations pertinent to the meaning
and purpose of the law, and to have formed an independent, conscientious and competent
expert opinion thereon. The courts give much weight to the government agency officials
charged with the implementation of the law, their competence, expertness, experience and
informed judgment, and the fact that they frequently are the drafters of the law they interpret.
Contracts; Insurance Law; Even if a contract contains all the elements of a contract, if its primary
purpose is the rendering of service; it is not a contract of insurance. - In our jurisdiction, a
commentator of our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of service, it is not a
contract of insurance: It does not necessarily follow however, that a contract containing all the
four elements mentioned above would be an insurance contract. The primary purpose of the
parties in making the contract may negate the existence of an insurance contract. For example,
a law firm which enters into contracts with clients whereby in consideration of periodical
payments, it promises to represent such clients in all suits for or against them, is not engaged
in the insurance business. Its contracts are simply for the purpose of rendering personal
services. On the other hand, a contract by which a corporation, in consideration of a stipulated
amount, agrees at its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as engaged in the business
of insurance. Unlike the lawyerE s retainer contract, the essential purpose of such a contract is
not to render personal services, but to indemnify against loss and damage resulting from the
defense of actions for malpractice.
Same; Same; Although risk is a primary element of an insurance contract, it is not necessarily
true that risk alone is sufficient to establish it. - Although risk is a primary element of an
insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost
anyone who undertakes a contractual obligation always bears a certain degree of financial risk.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner)
from the usual insurance contracts.
[Great Pacific Life Assurance Company vs. Court of Appeals, GR. No. L-31845 April 30, 1979]
Insurance; Binding deposit receipt; Concept and Nature; When binding deposit receipt not
effective. - Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latterE s branch office
ATDL + AMF Notes 17 | 10
had received from the applicant the insurance premium and had accepted the application
subject for processing by the insurance company; and that the latter will either approve or
reject the same on the basis of whether or not the applicant is insurable on standard rates.
Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in force at any time. Upon this premise,
the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional, and is subordinated to the act of the company in
approving or rejecting the application. Thus, in life insurance, a binding slip or binding
receipt does not insure by itself.
Same; Same; No insurance contract between private person and insurance company for non-
acceptance of alternative insurance plan of the company and non-compliance of conditions in
binding deposit receipt; Refund of deposit proper. - It bears repeating that through the intra-
company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age. What it offered instead is another plan
known as the Juvenile Triple Action, which private respondent failed to accept. In the absence
of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over
the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latters one-
year old daughter, and with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance contract duly perfected
between them. Accordingly, the deposit paid by private respondent shall have to be refunded by
Pacific Life.
Same; Same; Completed Contract; Concept Of; Contract of insurance must be completed
contract to be binding. - As held in De Lim vs. Sun Life Assurance Company of Canada, supra, a
contract of insurance, like other contracts, must be asserted to by both parties either in parson
or by their agents. x x x. The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing
to be passed upon, or determined, before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in agreement.
Same; Concealment; Nature and kind of concealment which renders ineffective application for
insurance coverage; Duties required of insurance agents. - Relative to the second issue of alleged
concealment, this Court is of the firm belief that private respondent had deliberately concealed
the state of health and physical condition of his daughter Helen Go. When private respondent
supplied the required essential data for the insurance application form, he was fully aware that
his one-year old daughter is typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith,
withheld the fact material to the risk to be assumed by the insurance company. As an insurance
agent of Pacific Life, he ought to know, as he surely must have known, his duty and responsibility
to supply such a material fact. Had he divulged said significant fact in the insurance application
form. Pacific Life would have verified the same and would have had no choice but to disapprove
the application outright.
Same; Same; Nature and effect of concealment on insurance contract. - The contract of insurance
is one of perfect good faith (uberrima fides meaning good faith; absolute and perfect candor or
openness and honesty; the absence of any concealment or deception, however slight [Blacks
Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer Fieldmans
Insurance Co., Inc. vs. Vda. de Songco, 25 SCRA 70). Concealment is a neglect to communicate
that which a party known and ought to communicate (Section 25, Act No. 2427). Whether
intentional or unintentional, the concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.; Yu Pang Cheng vs. Court of Appeals, et al., 105 Phil. 930; Saturnino
vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears
guilty thereof.
Facts: On March 14, 1957, private Respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company for a 20-year endowment policy in the amount of
P50,000.00 on the life of his 1-year old daughter Helen Go. He paid the annual premium
amounting to P1,077.75 but retained P1,317.00 as his commission for being an authorized
agent of Pacific Life. Upon payment, the binding deposit receipt was issued to private
respondent. Likewise, petitioner Lapulapu Mondragon handwrote at the back of the
application form his strong recommendation for its approval.
On April 30, 1957, Mondragon received a letter from Pacific Life disapproving the
application stating that the 20-year endowment plan is not available for minors below 7
years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, an
advised that if the offer is acceptable, the Juvenile NonMedical Declaration be sent to the
Company.
Mondragon allegedly did not communicate the non-accceptance to Ngo Hing. Instead, he
wrote back Pacific Life again strongly recommending the approval.
On May 28, 1957, Helen Go died of influenza. Ngo Hing sought the payment of the proceeds
of the insurance but failed. Hence, he filed an action for the recovery of the same before the
CFI of Cebu which rendered an adverse decision.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance
in question
2. Whether private respondent Ngo Hing concealed the state of health and physical
condition of Helen Go
Held:
1. NO. It is clearly implied from the conditions written at the back of the deposit receipt that
the same is merely an acknowledgment, on behalf of the company, that the latters branch
office had received from the applicant the insurances premium and had accepted the
application subject for processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is insurable on
standard rates. Since Pacific Life disapproved the insurance application, the binding deposit
receipt in question had never become in force at any time.
It must also be noted that what is offered instead is another plan known as the Juvenile
Triple Action, which Ngo Hing failed to accept. Accordingly, there could have been no
insurance contract duly perfected.
2. YES. Ngo Hing deliberately concealed the state of health and physical condition of his
daughter. When private respondent supplied that essential date for the insurance
application form, he was fully aware that his daughter is typically a mongoloid child.
Nonetheless, Ngo Hing in apparent bad faith, withheld the fact material to the risk to be
assumed by the insurance company.
ATDL + AMF Notes 17 | 11
 The contract of insurance is one of perfect good faith (uberrima fides meaning good faith);
absolute and perfect candor or openness and honesty; the absence of any concealment or
deception, however slight not for the insured alone but equally so for the insurer.
Concealment is a neglect to communicate that which a party knows and ought to
communicate. Whether intentional or unintentional, the concealment entitles the insurer to
rescind the contract of insurance.
d. Subrogation (Art. 2027, NCC)
Article 2027. No annuity shall be claimed without first proving the existence of
the person upon whose life the annuity is constituted. (1808)
o Atty M: Subrogation not always applicable in the contract of insurance.
Exceptions to Subrogation (loadstar case):
1. If the assured by his own act releases the wrongdoer or third party liable for the loss
or damage, from liability, the insurers right of subrogation is defeated.
2. Where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assureds claim for loss, the settlement is
binding on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation.
3. Where the insurer pays the assured for a loss which is not a risk covered by the policy,
thereby effecting voluntary payment, the former has no right of subrogation against
the third party liable for the loss.
[Sulpicio Lines, Inc. vs. First Lepanto-Taisho Insurance Corporation, G.R. No. 140349 , June
29, 2005]
Same; Same; Same; Insurance; Subrogation; Upon respondent- insurers payment of the
alleged amount of loss suffered by the insured (the owner of the goods) the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may have
against the common carrier whose negligence or wrongful act caused the loss; The rights
to which the subrogee succeeds are the same as but not greater than those of the person
for whom he is substituted, that is, he cannot acquire any claim, security or remedy the
subrogor did not have. - Upon respondent-insurers payment of the alleged amount of loss
suffered by the insured (the owner of the goods), the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against the common carrier whose
negligence or wrongful act caused the loss. Subrogation is the substitution of one person in the
place of another with reference to a lawful claim or right, so that he who is substituted succeeds
to the rights of the other in relation to a debt or claim, including its remedies or securities. The
rights to which the subrogee succeeds are the same as, but not greater than, those of the person
for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor
did not have. In other words, a subrogee cannot succeed to a right not possessed by the
subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the
insured likewise could have recovered.
Facts: Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered
into a contract to transport a shipment of goods consisting of three (3) wooden crates of
inductors and LC compound. For the carriage of said shipment from Cebu City to Manila,
Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and
operated by petitioner Sulpicio Lines, Inc. (carrier).
During the unloading of the shipment, one crate dropped and was later found to be unusable
for its intended purpose and thus rejected.
The owner of the goods filed a claim with petitioner-carrier for the recovery of the value of
the rejected cargo, which was refused. Thereafter, the owner of the goods sought payment
from respondent First Lepanto Taisho Insurance Corporation (insurer) under a marine
insurance policy issued to the former. Respondent-insurer paid the claim.
Respondent-insurer subrogated the owner of the goods to whatever right or legal action the
owner may have against Delbros, Inc. and petitioner-carrier.
Respondent-insurer filed a suit for damages against Delbros, Inc. and petitioner-carrier. The
trial court dismissed the complaint for failure of the plaintiff to prove its case. Respondent-
insurer instituted an appeal with the Court of Appeals, which reversed the dismissal of the
trial court. Petitioner-carrier filed its Motion for Reconsideration of the decision of the Court
of Appeals, which was subsequently denied, hence this petition.
Delbros, Inc. filed a manifestation stating that its appeal filed before the Supreme Court had
been dismissed for being filed out of time and thus the case as against it was declared closed
and terminated. As a consequence, it paid in full the amount of the damages awarded by the
appellate court to the respondent-insurer.
Issue: To what extent is Sulpicio Lines, Inc. liable for the damages suffered by the owner of
the goods?
Held: Petitioner-carrier is liable to pay the amount paid by respondent-insurer for the
damages sustained by the owner of the goods.
Upon respondent-insurers payment of the alleged amount of loss suffered by the insured
(the owner of the goods), the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the common carrier whose negligence or
wrongful act caused the loss.
Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities.
However, respondent-insurer had already been paid the full amount granted by the Court of
Appeals, hence, it will be tantamount to unjust enrichment for respondent-insurer to again
recover damages from herein petitioner-carrier.
The rights to which the subrogee succeeds are the same as, but not greater than, those of the
person for whom he is substituted, that is, he cannot acquire any claim, security or remedy
the subrogor did not have. In other words, a subrogee cannot succeed to a right not
possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can
recover only if the insured likewise could have recovered.
[Loadstar Shipping Company Incorporated vs. Malayan Insurance Company Incorporated,
GR. No. 185565, November 26, 2014]
Same; Insurance Law; Right of Subrogation; The right of subrogation is not dependent upon,
ATDL + AMF Notes 17 | 12
nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer. - The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer. The right of
subrogation is however, not absolute. There are a few recognized exceptions to this rule. For
instance, if the assured by his own act releases the wrongdoer or third party liable for the loss
or damage, from liability, the insurers right of subrogation is defeated. x x x Similarly, where the
insurer pays the assured the value of the lost goods without notifying the carrier who has in
good faith settled the assureds claim for loss, the settlement is binding on both the assured and
the insurer, and the latter cannot bring an action against the carrier on his right of subrogation.
x x x And where the insurer pays the assured for a loss which is not a risk covered by the policy,
thereby effecting voluntary payment, the former has no right of subrogation against the third
party liable for the loss x x x.
Same; Same; Same; Words and Phrases; Subrogation is the substitution of one person in the
place of another with reference to a lawful claim or right, so that he who is substituted succeeds
to the rights of the other in relation to a debt or claim, including its remedies or securities. - The
rights of a subrogee cannot be superior to the rights possessed by a subrogor. Subrogation is
the substitution of one person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee succeeds are the same as,
but not greater than, those of the person for whom he is substituted, that is, he cannot acquire
any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the
insured and can recover only if the insured likewise could have recovered.
PASAR sent formal notice of claim in the amount of 37M to loadstar shippin. MALAYAN after
the recommendation of the elite surveryos paid the amount of 32M to PASAR
Malayan wrote loadstar shipping informing the latter of a prospective buyer for the
damaged copper concentrates and the opportunity to nominate other salvage buyers to
PASAR.
Malayan wrote loadstar shippin informing the latter of acceptance of PASAR proposal to take
the damaged copper oncentrates at residual value of 90,000 dollars. On December 9, 2000
loadstar shipping wrote malayan requesting for the reversal of its decision to accept
PASAR's prorsal
PASAR Signed a subrogation receipt in favor of MALAYAN to recover the amount paid and
in exercise the right of subrogation, malayan demanded reimbursement from loadstar
shippin, whish refused to comply
Malayan Filed a complaint for damages against loadstar shipping and loadstar international
LoadStar Shipping and Load Star INternational filed an answer stating among others ( for
INsurance purposes) that the claim had prescribed in accordance with the bill of lading; that
the plaintiff-appellant's claim is excessive, grossly overstated, unreasonable and
unsubstatiated; that their liability if any, should not exceed the CIF value of the lost/damages
cargo.Malayan sold the contaminated copper concentrates to PASAR at a low price then
paid PASAR the total value of the damaged concentrate without deducting anything from the
claim.

Same; Same; Same; An insurer indemnifies the insured based on the loss or injury the latter
actually suffered from. - An insurer indemnifies the insured based on the loss or injury the latter
actually suffered from. If there is no loss or injury, then there is no obligation on the part of the
insurer to indemnify the insured. Should the insurer pay the insured and it turns out that
indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of
not being able to seek recompense from the alleged wrongdoer. This is because the supposed
subrogor did not possess the right to be indemnified and therefore, no right to collect is passed
on to the subrogee.
Facts: Loadstar shippining and PASAR entered into a contract of Affreightment for domestic
bulk transport of latters copper concentrates.
RTC: Dismissed the case
CA: reversed ordered to pag 33M as actual damages less 90k us dollars
Issue: WON the respondents payment PASAR on the basis of the latters fraudulent claim,
entitled respondent automatic right of recovery by virtue of Subrogation?
Held: Yes, respondent is entitled to the automatic right of recovery by virtue fo Subrogation.
Malayans claim against the petitioners is based on subrogation to the rights possessed by
PASAR as consignee of the allegedly damaged goods. The right of subrogation stems from
Article 2207 of the New Civil Code which states:

On septermber 10, 2000, 5k WMT of copper concentractes were loaded in Cargo Holds No.1
and 2 of MV Bobcat marine vessel owned by LoadStar International and operated by loadstar
shipping.
the shipper and consignee under the bill of lading are PHilex and PASAR. The Cargo was
insured with MALAYAN 3rd party liability insurer of Loadstar Shipping.
Mv Bobcat sailed rom San Fernando La Union bound for Leyte. the vesseles cheif officer on
routine inspection found a crack on the starboad side of the main deck which caused the
seawater to enter and wet the cargo inide Cargo Hold 2.
when the vessel arraived at Isabel Leyte, PASAR and Philex's representatives inspected the
vessel and undertook sampling of the copper concentrates. They found out that the Copper
Concentrates were contaminated,consequently PASR rejected some of the portion of cargo.
e.
Art. 2207. If the plaintiffs 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 he 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 The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer. but the claim for damages is not awarded because the actual lost is not proven by
the MALAYAN insurance company therefore cannot claim against loadstar shipping and
Loadstar international.
Winner= Load Star Shipping and LoadStar international
Interpretation of insurance contracts (Art 1377, NCC)

ATDL + AMF Notes 17 | 13


Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. (1288)
[Fortune Medicare, Inc. vs. David Robert Amorin, G.R. No. 195872 , March 12, 2014]
Civil Law; Contracts; Health Care Providers; For purposes of determining the liability of a
health care provider to its members, jurisprudence holds that a health care agreement
is in the nature of nonlife insurance, which is primarily a contract of indemnity. - We
emphasize that for purposes of determining the liability of a health care provider to its
members, jurisprudence holds that a health care agreement is in the nature of nonlife insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Same; Same; Same; Contract of Adhesion; Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the
contract - the insurer; This is equally applicable to Health Care Agreements. - To aid in the
interpretation of health care agreements, the Court laid down the following guidelines in
Philamcare Health Systems v. CA, 379 SCRA 356 (2002): When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract -
the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful import should
be strictly construed against the provider.
Facts: Amorin was a cardholder/member of Fortune Medicare, INC, a corporation engaged
in providing health maintenance services to its members. While on vacation in Honolulu,
Hawaii, he underwent an emergency surgery, appendectomy, at the St. Francis Medical
Center. As a result, Amorin wanted to reimburse from Fortune Care the full amount of his
expenses amounting to US$1,777.79 and US$7,242.35, both for professional and
hospitalization expenses. However, only Php 12,151.36, an amount that was based on the
average cost of appendectomy, net of medicare deduction, if the procedure were performed
in an accredited hospital in Metro Manila, was reimbursed to him by Fortune Medicare
prompting him to file this petition.
Amorin cited Section 3, Article V on Benefits and Coverages of the Health Care Contract,
However, if the emergency confinement occurs in a foreign territory, Fortune Care will be
obligated to reimburse or pay eighty (80%) percent of the approved standard charges
which shall cover the hospitalization costs and professional fees.
Fortune Care denied and argued that the Health Care Contract did not cover hospitalization
costs and professional fees incurred in foreign countries, as the contracts operation was
confined to Philippine territory.
RTC: dismissed Amorins contract, convinced that the parties intended to use the Philippine
standard as basis: 80% of the professional fee which should have been paid, had the
member been treated by an affiliated physician That provision, taken with Article V of
the health program contract, which identifies affiliated hospitals as only those accredited
clinics, hospitals and medical centers located nationwide only point to the Philippine
standard as basis for reimbursement.
CA: granted Amorins appeal. First, health care agreements such as the subject Health Care
Contract, being like insurance contracts, must be liberally construed in favor of the
subscriber. In case its provisions are doubtful or reasonably susceptible of two
interpretations, the construction conferring coverage is to be adopted and exclusionary
clauses of doubtful import should be strictly construed against the provider.
Second, the CA explained that there was nothing under Article V of the Health Care Contract
which provided that the Philippine standard should be used even in the event of an
emergency confinement in a foreign territory.
Issue: Whether or not Fortune Care should be held liable, construing the health care
agreements against it?
Held: Yes, said health care agreements shall be construed against Fortune Care and in favor
of Amorin.
Fortune Cares liability to Amorin under the subject Health Care Contract should be based
on the expenses for hospital and professional fees which he actually incurred, and should
not be limited by the amount that he would have incurred had his emergency treatment
been performed in an accredited hospital in the Philippines.
For purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
To aid in the interpretation of health care agreements, the Court laid down the following
guidelines in Philamcare Health Systems v. CA:
When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from noncompliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract the insurer. By reason
of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally
in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against
the provider.
In the absence of any qualifying word that clearly limited Fortune Cares liability to costs
that are applicable in the Philippines, the amount payable by Fortune Care should not be
limited to the cost of treatment in the Philippines, as to do so would result in the clear
ATDL + AMF Notes 17 | 14
 disadvantage of its member. If, as Fortune Care argued, the premium and other charges in
the Health Care Contract were merely computed on assumption and risk under Philippine
cost and, that the American cost standard or any foreign countrys cost was never
considered, such limitations should have been distinctly specified and clearly reflected in
the extent of coverage which the company voluntarily assumed.
[The Insular Life Assurance Company, Inc. vs. Paz Khu, et al, GR. No. 195176, April 18, 2016]
Insurance Law; Insurance Policy; It is settled that the reinstatement of an insurance policy
should be reckoned from the date when the same was approved by the insurer. - In Lalican
v. The Insular Life Assurance Company, Limited, 597 SCRA 159 (2009), which coincidentally
also involves the herein petitioner, it was there held that the reinstatement of the insureds
policy is to be reckoned from the date when the application was processed and approved by the
insurer. There, we stressed that: To reinstate a policy means to restore the same to premium-
paying status after it has been permitted to lapse. x x x x x x x In the instant case, Eulogios death
rendered impossible full compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and
deposit the amount for payment of his overdue premiums and interests thereon with Malaluan;
but Policy No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogios lifetime and
good health. Thus, it is settled that the reinstatement of an insurance policy should be reckoned
from the date when the same was approved by the insurer.
Facts: Felipe Paz Khu, Sr. applied for a life insurance policy with insular life under the latters
Diamond Jubilee Insurance Plan. Felipe was able to accomplished the required medical
questionnaire wherein he did not declare any illness or adverse medical condition. Insular
life approved his application and thereafter issued him a policy with a face value of
P1,000,000, which took effect on 22 June 1997.
Felipes policy lapsed, on 23 June 1999, due to non-payment of the premium covering from
22 June 1999 - 23 June 2002.
On 7 September 1999, Felipe applied for reinstatement of his policy and paid P25,020 as
premium. All other information submitted by Felipe in his application for reinstatement was
virtually identical, except for the change in his occupation being self-employed to Municipal
Mayor of Binuangan, Misamis Oriental.
Insular life will approve Felipes reinstatement application if the following conditions are
met:
1. Payment of additional premium
2. Cancellation of riders pertaining to premium waiver and accidental death
benefits.
Later, Felipe agreed to the abovementioned conditions. The Insular Life issued Endorsement
letter, stating that extra premium is imposed and the accidental death benefit and waiver of
premium disability are deleted. Further, premium rates are adjusted to P28,000 annually,
P14,843 semi-annually, and P7557 quarterly.
On 23 June 2000, Felipe paid P28,000 covering the period from 22 June 2000 to 22 June
2001. He also paid the same amount covering the period from 22 June 2001 to 22 June 2002.
On 22 Sept. 2000, Felipe died. His death certificate enumerated the following causes of his
death: immediate cause- End stage renal failure, hepatic failure; antecedent cause-
congestive heart failure, diffuse mycordial ischemia; underlying cause- diabetes neuropathy,
alcoholism and pneumonia.
Paz Khu, Felipe Khu Jr., and Frederick Khu filed with the Insular life a claim for benefit under
the reinstated policy, however, denied by the Insular life. Felipes beneficiaries were advised
that the Insular Life had decided to rescind the reinstated policy on the grounds of
concealment and misrepresentation.
Hence, respondents instituted a complaint for specific performance with damages, praying
that the reinstated life insurance policy be declared valid, enforceable and binding, and that
Insular life paythe proceeds of the policy.
Insular lifes answered that Felipe did not discolosethe ailments that he already had prior to
his application for reinstatement.
RTC: ruled in favor of respondents. Stating the case of Malayan Insurance Co. vs. CA, that any
ambiguity in a contract of insurance should be resolved strictly against the insurer upon the
principle thqt an insurance contract is a contract of adhesion. Further, it also held that the
insurance policy had already become incontestable by time Felipe died.
CA: affirmed with modification the decision of RTC, deleting the award of moral damages,
attoryneys fees and litigation expenses
Issue: WON Felipes reinstated insurance policy is already incontestable.
Held: Yes. Felipes reinstated insurance policy is already incontestable.
Sec. 48 regulates both the actions of the insurers and the prospective takers of life insurance.
It gives insurers enough time to inquire whether the policy was obtained by fraud,
misrepresentation, or concealment. While on the other hand, it forewarns scheming
individuals that their attempts at insurqnce fraud would be timely uncovered.
The insurer have the necessary facilities to discover such fraudulent concealment or
misrepresentation within the period of 2 years.
The SC, as held in the case of Lalican vs. The Insular Life Assurance Company Limited, that
the reinstatement of the insureds policy is to be reckoned from the date when application
was processed and approved by the insurer.
The SC, in this case, held that 22 June 1999 is the reckoning date of the reinstated insurance
policy; this finding must upheld not only because it accords evidence but also it is favorable
to the insured who was not responsible for causing ambiguity or obscurity in the insurance
contract.
In the letter of acceptance, the court notes that the reinstatement was conditioned upon
payment of additional premium not only prospective but also retroactively to cover the
period starting 22 June 1999.
As for the Endorsement letter, the obscurity is the phrase effective June 22, 1999. The
construction favorable to the insured will be adopted by the courts. And accordingly, the
insurance policy is deemed reinstated as of 22 June 1999. Hence, the period of contestability
lapsed.
f. The Business of Insurance (Sec 2(2), IC) (1974)
ATDL + AMF Notes 17 | 15
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:
(2) The term "doing an insurance business" or "transacting an insurance
business", within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this
Code.
[White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety Corporation, GR No.
154514, July 28, 2005]
Insurance Law; Section 2(2) of the Insurance Code enumerates what constitutes doing an
insurance business or transacting an insurance business; 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 preclude the existence of
an insurance business. - Section 2(2) of the Insurance Code enumerates what constitutes
doing an insurance business or transacting an insurance business. These are: (a) making or
proposing to make, as insurer, any insurance contract; (b) making, or proposing to make, as
surety, any contract of suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety; (c) doing any kind of business, including a
reinsurance business, specifically recognized as constituting the doing of an insurance business
within the meaning of this Code; (d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. . . .
The same provision also provides, 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 preclude the existence of an insurance business.
Same; Test to determine if a contract is an insurance contract or not. - The test to determine
if a contract is an insurance contract or not, depends on the nature of the promise, the act
required to be performed, and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes requisite. It is not by
what it is called.
Same; An insurance contract is a contract of indemnity basically. - Basically, an insurance
contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.
Same; A marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure. - In particular, a marine insurance
undertakes to indemnify the assured against marine losses, such as the losses incident to a
marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine
insurance.
Same; Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business. - A P & I Club is a form of insurance against third party liability,
where the third party is anyone other than the P & I Club and the members. By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine
insurance business.
Same; To continue doing business here, Steamship Mutual or through its agent Pioneer,
must secure a license from the Insurance Commission. - The records reveal Steamship
Mutual is doing business in the country albeit without the requisite certificate of authority
mandated by Section 187 of the Insurance Code. It maintains a resident agent in the Philippines
to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission. Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer or insurance company is allowed to engage
in the insurance business without a license or a certificate of authority from the Insurance
Commission.
Same; Although Pioneer is already licensed as an insurance company, it needs a separate
license to act as insurance agent for Steamship Mutual. - Pioneer is the resident agent of
Steamship Mutual as evidenced by the certificate of registration issued by the Insurance
Commission. It has been licensed to do or transact insurance business by virtue of the certificate
of authority issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate license to act
as insurance agent for Steamship Mutual.
Facts: Petitioner procured a protection and indemnity coverage for its vessels from
Steamship Mutual (SM) through Pioneer. Petitioner failed to fully pay its accounts hence,
SM refused to renew the coverage. Thereafter, SM filed a case against petitioner for the
collection of sum of money to recover the balance of Petitioner. On the other hand, Petitioner
filed a complaint before the Insurance Commission alleging that SM violated certain
provisions of the Insurance Code which states that SM is engaged into an insurance business
and Pioneer needs to secure a license as an insurance agent.
The Insurance Commission dismissed the complaint of the petitioner against SM on the
ground that the latter is not engaged in the insurance business since it is already a Protection
and Indemnity Club (P&I club). Likewise, Pioneer need not obtain another license as
insurance agent for SM because the latter was not engaged in the insurance business and
that it was already licensed. Hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
CA affirmed the ruling of Insurance Commission and added further that respondent merely
acted as a collection agent of Steamship Mutual.
Issue: WON the respondent (Steamship Mutual) is engaged in the business of insurance?
Held: Yes. Sec 2(2) of the Insurance Code enumerates what constitutes doing an insurance
business or transacting an insurance business. These are:
ATDL + AMF Notes 17 | 16
 (a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning
of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
The same provision also provides, 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 preclude the existence of an insurance business. The test to
determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite
It is not by what it is called. Basically, an insurance contract is a contract of indemnity. In
it, one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure. Relatedly, a mutual insurance company is
a cooperative enterprise where the members are both the insurer and insured. In it, the
members all contribute, by a system of premiums or assessments, to the creation of a fund
from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. Additionally, mutual insurance associations, or
clubs, provide three types of coverage, namely, protection and indemnity, war risks, and
defense costs. A P & I Club is a form of insurance against third party liability, where the
third party is anyone other than the P & I Club and the members. By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine
insurance business.
(Re: obtaining another license) Moreover, Respondent (Pioneer) needs to acquire insurance
license in order to do business in our country. Since a contract of insurance involves public
interest, regulation by the State is necessary. Thus, no insurer or insurance company is
allowed to engage in the insurance business without a license or a certificate of authority
from the Insurance Commission. Pioneer is the resident agent of Steamship Mutual as
evidenced by the certificate of registration issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of authority issued
by the same agency. However, a Certification from the Commission states that Pioneer does
not have a separate license to be an agent/broker of Steamship Mutual. Although Pioneer is
already licensed as an insurance company, it needs a separate license to act as insurance
agent for Steamship Mutual.
[Republic of the Philippines vs. Del Monte Motors, Inc., GR No. 156956, October 9, 2006]
Insurance; Statutes; Statutory Construction; Basic is the statutory construction rule that
provisions of a statute should be construed in accordance with the purpose for which it
was enacted; Thus, a single claimant may not lay stake on the securities to the exclusion
of all others. - Basic is the statutory construction rule that provisions of a statute should be
construed in accordance with the purpose for which it was enacted. That is, the securities are
held as a contingency fund to answer for the claims against the insurance company by all its
policy holders and their beneficiaries. This step is taken in the event that the company becomes
insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not
lay stake on the securities to the exclusion of all others. The other parties may have their own
claims against the insurance company under other insurance contracts it has entered into.
Same; Same; Same; The insurance commissioner has been given a wide latitude of
discretion to regulate the insurance industry so as to protect the insuring public; An
implied trust is created by the law for the benefit of all claimants under subsisting
insurance contracts issued by the insurance company. - The insurance commissioner has
been given a wide latitude of discretion to regulate the insurance industry so as to protect the
insuring public. The law specifically confers custody over the securities upon the commissioner,
with whom these investments are required to be deposited. An implied trust is created by the
law for the benefit of all claimants under subsisting insurance contracts issued by the insurance
company.
Facts: A decision by the RTC was rendered finding Vilfran Liner, inc. and the Villegas jointly
and severally liable to pay Del Monte Motors, Inc. representing the balance of Vilfran Liners
service contracts with Del Monte Motors. For the execution of the decision, the TC ordered
that the decision be executed agains the counterbond posted by VIlfran Liner issued by
CISCO (Capital Insurance and Surety, Co.)
CISCO opposed the Motion for Execution claiming that the latter had no record or document
regarding the alleged issuance of the counterbond; thus, the bond was not valid and
enforceable.
The RTC granted the Motion for Execution and claimed that the Notice of Garnishment on
the insurance commission was valid. The trial court added that the letter and spirit of the
law made the security deposit answerable for contractual obligations incurred by CISCO
under the insurance contracts the latter had entered into.
Insurance Commissioner Malinis refused to obey the order of the Court.
TC: held insurance Commissioner Malinis in contempt for refusal to implement its Order.
Issue: WON the security deposit held by the Insurance Commissioner pursuant to Section
203 of the Insurance Code may be levied or garnished in favor of only one insured?
Commissioner Malinis contends that the partial releases should not be construed
as an abandonment of its stand that security deposits under Section 203 of the
Insurance Code are exempt from levy and garnishment. The Republic claims that
the releases were made pursuant to the commissioner's power of control over
the fund, not to the lower
court's Order of garnishment. Petitioner further invokes the jurisdiction of this
Court to put to rest the principal issue of whether security deposits made with
the Insurance Commission may be levied and garnished.
ATDL + AMF Notes 17 | 17
 At this point, only a portion of Del Monte Motors, Inc.s claim was satisfied.
Held: NO, the security deposit held by the Insurance Commissioner may not be levied or
garnished in favor of only one insured.
Under Art. 203 of the IC, the law expressly and clearly states that the security deposit shall
be (1) answerable for all the obligations of the depositing insurer under its insurance
contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by
any claimant.
Basic is the statutory construction rule that provisions of a statute should be construed in
accordance with the purpose for which it was enacted. That is, the securities are held as a
contingency fund to answer for the claims against the insurance company by all its policy
holders and their beneficiaries. This step is taken in the event that the company becomes
insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not
lay stake on the securities to the exclusion of all others. The other parties may have their
own claims against the insurance company under other insurance contracts it has entered
into.
The right to lay claim on the fund is dependent on the solvency of the insurer and is subject
to all other obligations of the company arising from its insurance contracts. Thus, Del Monte
Motor's interest is merely inchoate. Being a mere expectancy, it has no attribute of property.
At this time, it is nonexistent and may never exist. Hence, it would be premature to make the
security deposit answerable for CISCO's present obligation to Del Monte Motors. Hence, it
would be premature to make the security deposit answerable for CISCOs present obligation
to Del Monte Motors.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance Commission with both
regulatory and adjudicatory authority over insurance matters.
Pursuant to these regulatory powers, the commissioner is authorized to
1. issue (or to refuse to issue) certificates of authority to persons or entities desiring
to engage in insurance business in the Philippines;
2. revoke or suspend these certificates of authority upon finding grounds for the
revocation or suspension;
3. impose upon insurance companies, their directors and/or officers and/or agents
appropriate penalties -- fines, suspension or removal from office -- for failing to
comply with the Code or with any of the commissioner's orders, instructions,
regulations or rulings, or for otherwise a business in an unsafe or unsound
manner.
Included in the above regulatory responsibilities is the duty to hold the security deposits
under Sections 191 and 203 of the Code, for the benefit and security of all policy holders.
Undeniably, the insurance commissioner has been given a wide latitude of discretion to
regulate the insurance industry so as to protect the insuring public. The law specifically
confers custody over the securities upon the commissioner, with whom these
investments are required to be deposited. An implied trust is created by the law for the
benefit of all claimants under subsisting insurance contracts issued by the insurance
company.
Related Laws:
Sec. 203, IC
Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in
value to twenty-five per centum of the minimum paid-up capital required under
section one hundred eighty-eight, invest its funds only in securities, satisfactory to the
Commissioner, consisting of bonds or other evidences of debt of the Government of the
Philippines or its political subdivisions or instrumentalities, or of government-owned
or controlled corporations and entities, including the Central Bank of the Philippines:
Provided, That such investments shall at all times be maintained free from any lien or
encumbrance; and Provided, further, That such securities shall be deposited with and
held by the Commissioner for the faithful performance by the depositing insurer of all
its obligations under its insurance contracts. The provisions of section one hundred
ninety-two shall, so far as practicable, apply to the securities deposited under this
section.
Except as otherwise provided in this Code, no judgment creditor or other claimant
shall have the right to levy upon any of the securities of the insurer held on deposit
pursuant to the requirement of the Commissioner.
Sec. 414, IC
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating
to insurance, insurance companies and other insurance matters, mutual benefit
associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to
the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in section two hundred thirty-two and to provide for the
licensing of persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and
decisions as he may deem necessary to secure the enforcement of the provisions of this
Code, subject to the approval of the Secretary of Finance. Except as otherwise specified,
decisions made by the Commissioner shall be appealable to the Secretary of Finance.
(Emphasis supplied)
Two kinds of powers of the commissioner:
1. Regulatory power
2. Adjudicatory power
II. The Contract of Insurance
1. Requisites of a contract of insurance
1. A subject matter in ehich the insure has an insurable interest;
2. Event or peril insured against which may be any (future) contingent or
unknown event, past or future, and a duration for the risk thereof;
3. A promise to pay ot to indemnify in a fized or ascertainable amount;
4. A consideration for the promise, known as the premium; and
ATDL + AMF Notes 17 | 18
 5. A meeting of minds of the parties upon all the foregoing essentials.
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. (1261)
1.1 Perfection
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.
Cognition theory -
[Virginia Perez vs. Court of Appeals, GR. No. 112329, January 28, 2000]
A contract of insurance, like other contracts, must be assented to by both parties either in person
or by their agents. So long as an application for insurance has not been either accepted or rejected,
it is merely an offer or proposal to make a contract. The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing to be done, nothing to
be completed, nothing to be passed upon, or determined, before it shall take effect. There can be
no contract of insurance unless the minds of the parties have met in agreement.
Facts:
- Primitivo had been isured with BF Lifeman Insurance Corporation since 1980 for 20k
- Sometime on thr year 1987 and agent of said insurance corporation Lalog, visited
Perez and convinced him to apply for additional insurance coverage to avail a
discount which the latter adhered to. Payment was made by his wife for the
amount P2,075.00.
- The receipt issued by Lalog indicated that the payment was a deposit. Unfortunately,
Lalog lost the application form accomplished by Perez so he asked the latter again to
fill up another application fro.
- Thereafter, Perez undergo the medical examination which he passed. After such,
Lalog started to facilitate his application
- Consequrntly, Perez died in an accident as he was riding a banca during a storm.
- Without knowing the death of Perez, the insurance company apporived the
application and issued the corresponding policy of P50k.
- When petitioner Vriginia started claiming the benefits under the insurance polices
she was able to get an amount which is lower as to what she was expecting for.
- The insurance company refused to gave her the amound she expects or P150k the
insurance for 50k had not been perfected at the time of death of his husband.
Issue: WON the contract of insurance was not perfected due to the death of Primitivo?
Ruling: Insurance is a contract whereby, for a stipulated consideration, one party undertakes
to compensate the other for loss on a specified subject by specified perils. A contract, on the
other hand, is a meeting of the minds between two persons whereby one binds himself, with
respect to the other to give something or to render some service. Under Article 1318 of the
Civil Code, 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.
Consent must be 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.
When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of
his medical examination, his application was subject to the acceptance of private respondent
BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the
deceased and respondent corporation was further conditioned upon compliance with the
following requisites stated in the application form:
there shall be no contract of insurance unless and until a policy is issued on this application
and that the said policy shall not take effect until the premium has been paid and the policy
delivered to and accepted by me/us in person while I/We, am/are in good health.
The assent of private respondent BF Lifeman Insurance Corporation therefore was not given
when it merely received the application form and all the requisite supporting papers of the
applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the
abovementioned provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is deemed to have
been perfected.
Consequently, there was absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the applicant at the time
was already dead.
A. What may be insured (Section 3-4, IC)
a) In general anything that has an appreciable pecuniary value.
b) Property insurance
c) Life, health and accident insurance
d) Casualty insurance
1. contingent event
2. unknown event
3. no insurance for or against the drawing of lottery (Sec 4, IC) Elements:
1) Consideration
2) Prizes
3) Chance
Similarity to contract of insurance: promise to pay
B. Parties to insurance contracts
ATDL + AMF Notes 17 | 19
 General rule: Anyone companies. The Commissioner shall prescribe the qualifications of the executive
1. Insurer officers and other key officials of insurance companies for purposes of this
section.
Section 6. Every person, partnership, association, or corporation duly
authorized to transact insurance business as elsewhere provided in this code, No person shall concurrently be a director and/or officer of an insurance
may be an insurer company and an adjustment company.

Section 184. For purposes of this Code, the term "insurer" or "insurance Incumbent directors and/or officers affected by the above provisions are hereby
company" shall include all individuals, partnerships, associations, or allowed to hold on to their positions until the end of their terms or two years
corporations, including government-owned or controlled corporations or entities, from the effectivity of this decree, whichever is shorter.
engaged as principals in the insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the terms shall also include
Before issuing such certificate of authority, the Commissioner must be satisfied
professional reinsurers defined in section two hundred eighty. "Domestic
that the name of the company is not that of any other known company
company" shall include companies formed, organized or existing under the laws
transacting a similar business in the Philippines, or a name so similar as to be
of the Philippines. "Foreign company" when used without limitation shall include
calculated to mislead the public.
companies formed, organized, or existing under any laws other than those of
the Philippines.
Such certificate of authority shall expire on the last day of June of each year and
shall be renewed annually if the company is continuing to comply with the
Section 185 (1). Corporations formed or organized to save any person or
provisions of this Code or the circulars, instructions, rulings or decisions of the
persons or other coporations harmless from loss, damage, or liability arising
Commissioner. Every company receiving any such certificates of authority shall
from any unknown or future or contingent event, or to indemnify or to
be subject to the provisions of this Code and other related laws and to the
compensate any person or persons or other corporations for any such loss,
jurisdiction and supervision of the Commissioner.
damage, or liability, or to guarantee the performance of or compliance with
contractual obligations or the payment of debt of others shall be known as
"insurance corporations". 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; Provided, That the terms "life" and "non-life" insurance shall be deemed
Section 187. No insurance company shall transact any insurance business in
to include health, accident and disability insurance.
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. No insurance company shall have equity in an adjustment company and neither
shall an adjustment company have an equity in an insurance company.
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 Insurance companies and adjustment companies presently affected by the
people of this country. No such certificate of authority shall be granted to any above provision shall have two years from the effectivity of this Decree within
such company until the Commissioner shall have satisfied himself by such which to divest of their stockholdings. (As amended by Presidential Decree No.
examination as he may make and such evidence as he may require that such 1455).
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 economic Section 262. Any domestic stock life insurance company doing business in the
requirements, and that the direction and administration, as well as the integrity Philippines may convert itself into an incorporated mutual life insurer. To that
and responsibility of the organizers and administrators, the financial organization end it may provide and carry out a plan for the acquisition of the outstanding
and the amount of capital, notwithstanding the provisions of section one hundred shares of its capital stock for the benefit of its policyholders, or any class or
eighty-eight, reasonably assure the safety of the interests of the policyholders classes of its policyholders, by complying with the requirements of this chapter.
and the public.

In order to maintain the quality of the management of the insurance companies Section 280. Except as otherwise provided in this Code, no person, partnership,
and afford better protection to policyholders and the public in general, any association or corporation shall transact any business in the Philippines as a
person of good moral character, unquestioned integrity and recognized professional reinsurer until it shall have obtained a certificate of authority for
competence may be elected or appointed director or officer of insurance that purpose from the Commissioner upon the application therefor and payment

ATDL + AMF Notes 17 | 20

by such person, partnership, association or corporation of the fees hereinafter
prescribed. As used in this Code, the term "professional reinsurer" shall mean
any person, partnership, association or corporation that transacts solely and
exclusively reinsurance business in the Philippines.
The Commissioner may refuse to issue a certificate of authority to any such
person, partnership, association or corporation if, in his judgment, such refusal
will best promote public interest. No such certificate of authority shall be granted
to any such person, partnership, association or corporation unless and until the
Commissioner shall have satisfied himself by such examination as he may make
and such evidence as he may require that such person, partnership, association
or corporation is qualified by the laws of the Philippines to transact business
therein as a professional reinsurer.
Before issuing such certificate of authority of 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 June of each year and
shall be renewed annually if such person, partnership, association, or
corporation is continuing to comply with provisions of this Code, or the circulars,
instructions, rulings, or decisions of the Commissioner and such other pertinent
law, rules and regulations.
Every such person, 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.
Section 390. 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 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 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. (As amended by Presidential
Decree No. 1455)
Section 361. 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 362. 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.
2. insured
Section 7. Anyone except a public enemy may be insured.
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
ATDL + AMF Notes 17 | 21
interest may be indicated by describing the insured as agent or trustee, or by
other general words in the policy.
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.
(See also Art 234 of the Family Code)
Art. 234. Emancipation takes place by the attainment of majority. Unless
otherwise provided, majority commences at the age of twenty-one years.
Emancipation also takes place:
(1) By the marriage of the minor; or
(2) By the recording in the Civil Register of an agreement in a public instrument
executed by the parent exercising parental authority and the minor at least
eighteen years of age. Such emancipation shall be irrevocable. (397a, 398a,
400a, 401a)
Exception:
a. public enemy (cannot be insured) Alien Enemy
A public enemy designates a nation with whom the Philippines is at war and it
includes every citizen or subject of nation.
During wartime, a private corporation is deemed an enemy corporation although
organized under Philippines laws if they are controlled by enemy aliens. This is so-
called control test whereby a corporation is deemed to have the same citizenship
as the controlling stockholders in time of war. [Filipinas Conpania de Seguros vs.
Christern Huenefeld and Co., Inc. G.R. No. L-2294 , May 25, 1951]
Effect of war on existing insurance contracts:
1. Where parties rendered enemy aliens it is a question upon which there is a decided
conflict of authority:
a.) With respect to property insurance the ruled adopted in the Philippines is that an
insurance policy ceases to be valid and enforceable as soon as an insured becomes a public
enemy. [Filipinas Conpania de Seguros vs. Christern Huenefeld and Co]
b.) With respect to life insurance the contract is not merely suspended but is abrogated by
reason of nonpayment of premiums, since time of the payments is peculiarly of the essence
of the contract. However, the insured is entitled to cash or reserve value of the policy (if
any), which is the excess of the premiums paid over the actual risk carried during the years
3
Section 93. A double insurance exists where the same person is insured by several insurers
when the policy had been in force.
2. Where loss occurs after end of war the termination of the war does not revive the
contract. The insurer is not liable even if the loss is suffered by the insured after the end
of war.
3. insurable interest of mortgagor/mortgagee
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.
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 obligation on the
assignee, making a new contract with him, the act of the mortgagor cannot
affect the rights of said assignee.
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.
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.
1. Separate insurable interests
The interest of a mortgagor and mortagee on a mortgaged property is separate
and distinct from the other.
In case both of them take out separate insurance policies on the same property,
or one policy covering their respective interests, the same is not open to the
objection that there is double insurane3.
2. Extent of insurable interest of mortgagor
The mortgagor of property, as owner, has an onsurable interest therein to the
extent of its value, even though the mortgage debt equals such value.
3. Extent of of insurable interest of motgagee
The mortagagee (or his assignee) as such has an insurable interest in the
moragaged property to the extent of the debt secured, since the property is
relied upon as secutiry thereof, and in insuring, he is not insuring the property
itself bur his interest or lien thereon.
separately in respect to the same subject and interest.
ATDL + AMF Notes 17 | 22
 His insurable interest is prima facie the value mortgaged and extends only to
the amount of the debt, not exceeding the value of the mortgaged property
interest continues until the mortgage debt is extinguished.
4. Extent of amount of recovery
- The mortgagor cannot recover upon the insurance beyond the full amount of
his loss and the mortgagee, in excess of the credit at the time of the loss not the
value of the property mortgaged.
Insurance by mortgagee of his own interest
1. Right of mortgagee in case of loss
where the morgagee indepenfently of the mortgagor, insures his own interest
in the mortgaged property, he is entitled to the proceeds of the policy in case of
loss before payment of the mortgagee.
2. Subrogation of insurer to the right of insurer
The mortgagee is not allowed to retain his calim against the mortagagor but it
passes by subrogation to the insurer to the extent of the insurance money paid.
3. Change of creditor
The payment of the insurance to the mortgagee by reason of the loss does not
relieve the mortgagor from his principal obligation but only changes the
creditor.
Insurance by mortgagor of his own interest
1. For his own benefit
The mortgagor may insure his own interst as owner for his benefit. In case of
loss, the insurance proceeds do not inure to the benefit of the mortgagee who
has no freater right than unsecured creditors in the same.
2. For the benefit of mortgagee
The mortgagee may be made the beneficial payee in several ways:
a) He may become the assignee of the policy with the consent of the
insurer;
b) He may be the mere pledgee without such consent;
c) A rider making the policy payable to the mortgagee as his interest may
appear may be attached;
d) A standard mortgage clause cointaining a collateral independent
contract between the mortagagee and the insurer may be attached; or
e) The policy, though, by it terms payable absolutely to the mortgagor may
have been procured by a mortgagor under a contract duty to insure for
the mortgagees benefit, in which case the morgagee acquires an
equitable lien upon the proceeds.
Insurance by mortgagor for benefit of mortgagee, or policy assigned to mortgagee
Re: Section 8 where the mortgagor of the property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insrance to the mortgagee the following are the legal effects:
1. The contract is deemed to be upon the interest of the mortgagor; hence, he does nor
cease to be party to the contract;
2. Any act of the mortgagor prior to the loss, which would otherwise avoid the
onsurance affects the mortgagee even if the property is in the hands of the
mortgagee;
3. Any act which under the contract of insurance is to be performed by the mortgagor
(like payment of premium) may be performed by the mortgagee with the same effect;
4. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit;
and
5. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.
o Rule on subrogation is inaaplicable in this case.
Right of mortgagee under mortgagors policy
The contract of indemnity under such policy is primarily with the mortgagor, by the mortgagee
is a third party beneficiary.
1. Before loss occurs, the mortgagee is a conditional appointee of the mortgagor
entitiled to receive so much of any sum that may become due under the policy as does
not exceed his interest as mortgagee. Such right becomes absolute upon the
occurrence of the loss.
2. After loss if the loss happen when the credit is nor due, the mortgagee is entitled to
receive the money to apply to the extinguishment of the debt as fast as it becomes
due.
o If the loss happens after the credit has matured, the mortgagee may apply
the proceeds to the extent of his credit.
Effect of insurance bt mortgagee on behalf of mortgagor
1. discharge of debt
the same rules obtain when the mortgagee himself procures the policy as a
contracting party in accordance with the terms of an agreement by which the
mortgagor is to pay the premiums upon such insurance.
The mortgagee is entitled to receive payment from the insured but such
payment discharges the debt if equal to it, and if greater thatn the debt, the
mortgagee hold the eexcess as trustee for the mortgagor.
2. Right to subrogation
With stipulation (re: subrogation of the insurer for the rights of the mortgagee)
the payment of the policy will not discharge the debt even though the
mortgagee may have procured the policy by arrangement with the mortgagor
Without stipulation the rule on subrogation does not applt except where the
mortgagee insures only his interest.
Effect of assignment or transfer of insurance
the effect is to substitute the assignee or transferee in place of the original
insured in resprect to the right to claim indemnity or payment for a loss as well
as the obligation to perform the conditions, if any, of the policy. The assignee,
unless he makes a new contract with the insurer, acquires no greater right under
the insurance than the assignor had, subject to insurers defenses.
a) As to fire policy - not subject to assignement, being strictly a personal
contract, in the absence if provision in the contract or subsequent consent
ATDL + AMF Notes 17 | 23
 of the insurer.
b) As to marine policy assignable even eithout the consent of the insurer
unless required by the terms of the policy.
c) As to casualty policy The insurers consent is also required. This kind of
insurance (Sec. 174) commonly invloves moral hazards at least as great
as those of fire insurance.
d) As to life policy it may be freely assigned before or after the loss occurs,
to any person whether he has an insurable interest or not. However, if the
assignement is done to a person without an insurable interest, which the
insured majed in bad faith and under cicumstances as where there was a
preconceived agreement that the policy was to be assigned fir the
purpose of accomplishing an illegal purpose, that is, permitting the
assignee of the policy to wager on the length of life of the insured, will not
be upheld
NOTE: a distinction must be made between the assignment or transfer
a) Of the policy itself which transfers the rights to the contract to another
insured
b) Of the proceeds of the policy after a loss happened, which involves a
money claim under, or a right of action on the policy,
c) Subject matter of insurance, such as house insured under fire policy
which has the effecr of suspending the insurance until the same other
production costs, the existence of insurance benefits the consumer
public in terms of reduced prices.
d) As a basis for credit, in the basis of a mortgage upon real estate, no
mortgagee is willing to lend money unless
[Eternal Garden Memorial Park Corp. vs. The Philippine American Life Insurance
Company, GR. No. 166245, April 9, 2008]
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latterE s interest.It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against the insurer in order
to safeguard the latters interest.
The mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract
To characterize the insurer and the insured as contracting parties on equal footing is inaccurate
at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience
in the industry purposefully used to its advantage. More often than not, insurance contracts are
contracts of adhesion containing technical terms and conditions of the industry, confusing if at
all understandable to laypersons, that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that must be considered whenever
the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to
protect the interest of insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same, or otherwise be bound
to honor the application as a valid, binding, and effective insurance contract.
[Great Pacific Life Assurance vs. Court of Appeals, GR. No. 113899, October 13, 1999]
We must consider the insurable interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
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 be 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. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.
The insured may be regarded as the real party in interest, although he has assigned the policy
for the purpose of collection, or has assigned as collateral security any judgment he may obtain.
III. Insurable interest
It is that interest which the law requires the owner of an insurance plocity to have in
the person or thing insured.
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of
money, or respecting property or services, of which death or illness
might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him
depends.
Pecuinary in nature a person of deemed to have an insurable interest in the subject
matter insured where he has a relation or connection with or concern in it that he will
derive pecuniary or financial benefit or advantage from its preservation and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of
the event insured against.
Exception to have an insurable interest in the life of aperson, the expectation of benefit
form the continued life of that person need not necessarily be of a pecuniary nature.
ATDL + AMF Notes 17 | 24
1. insurable interest in life insurance
A. insurance on ones own life
those taken out by the insured upon his own life for the benfit of himself, or his
estate, in case it matures only at his death, or for the benefit of a third person
who may be designated as beneficiary.
a.1) Insurance taken out by insured on his life in favor of another presence of
insurable interest is really required only as evidence of good faith of the parties.
a.2) When the insurance regarded a wagering policy - Exception; evidence of
wagering policy:
(a) that the original proposal to take out insurance was that of the
beneficiary;
(b) that premius are paid by the beneficiary;
(c) that the beneficiary has no interest, economic or emotional, in the
continued life of the insured.
re: husband and wife A life insurance policy taken by spouse on his/her life in
favor of the other takes effect after death of the insured.
B. insurance on anothers life
policies taken out by the insure in the life of another
must be pecuniary (related to money) the policy of the law requires that the
assured shall have an interest to preserve the life insured in spite of the
insurance, rather than destroy it because of the insurance.
For the benefit of a third party when the owner of the policy insures that life
of another the cestui que vie and designates a third party as beneficiary, both
the owner and beneficiary must have an insurable interest in the lide of the
cestui que vie.
o In order that one may have an insurable onterdt in the life of another, iy
must be one of those mentioned in Sec. 10 of the insurance code (a-d) i.e.
the interst is pecuniary or founded upon the close relationship between
parties.
Insurance in life of person whom one depends for education or support in whom
he has a pecuniary interest
Pecuniary benefit is not the only test
Mere relationship should sufficiently be close to give either an insurable
interest in the life of another
Persons obliged to support each other:
a.) The spouses;
b.) Legitimate scendants and descendants;
c.) Parents and their legitimate children and the legitimate or illegitimate
children of the latter;
d.) Parents and their illegitimate children and the legitimate or illegitimate
children of the latter;
e.) Legitimate brothers and sisters, whether of the full or half-blood
When pecuniary benefit essential mere blood relationship (aunt, nephew or
niece and cousins) does not create an insurable interest in lide of another. Also,
mere relationship by affinity ordinarily does not constitute an insurable
interest.
Insurable interest of a person in life of another under a legal obligation to former
Related by contract or commercial relation any person so related to another,
either by contract or commercial relation, that a right possessed by him will be
extinguished or impaired by the death or illness of the other may lawfully
procure insurance on the others life.
Insurable interest of creditor in life of his debtor (Sec. 10 [c])
Extent of interest - A creditor may insure his debtors life for purpose of
protecting his debt but only to the extent of the amount od the debt and the cost
of carrying the insurance on the debtors life.
Right of debtor in insurance taken by creditor the insurance does not inure to
the benefit if the debtor unless, of course, the contrary is expressly stipulated.
Extent of the amount that may be recovered by insuring creditor governed by
principle of idenmnity; the insuring creditor could only recover such amounts
as remained unpaid as the time if the death of the debtor. If the whole debt has
already been paid, then recovery on the policy is no longer permissible.
C. life insurance compared to donation
donation an act of liberality whereby a person disposes gratuitously a thing or right
in favor of another who accepts it.
Similarity both are founded upon the same consideration: liberality
A beneficiary is like a done, 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.
2. beneficiary (Sec 11, 12, 53, 180 IC) (Art. 43(4) in rel to Art 42, 50, 64 of FC) (Art
739 and 2012 of NCC)
refers to a person who is named or designated in a contract of life, health,
or accident insurance as the one who is to receive the benefits which
become payable, according to the terms of the contract upon the death of
the insured.
Insurance Code
Section 11. The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in said policy.
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 which event, the nearest
relative of the insured shall receive the proceeds of said insurance if not
otherwise disqualified.
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 180. An insurance upon life may be made payable on the death of the
person, or on his surviving a specified period, or otherwise contingently on the
continuance or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be
ATDL + AMF Notes 17 | 25
considered a life insurance contract for purpose of this Code
In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother, or any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said
minor, any right under the policy, without necessity of court authority or the
giving of a bond, where the interest of the minor in the particular act involved
does not exceed twenty thousand pesos. Such right may include, but shall not
be limited to, obtaining a policy loan, surrendering the policy, receiving the
proceeds of the policy, and giving the minor's consent to any transaction on the
policy.
Family code
Art. 43. The termination of the subsequent marriage referred to in the preceding
Article shall produce the following effects:
(4) The innocent spouse may revoke the designation of the other spouse who
acted in bad faith as beneficiary in any insurance policy, even if such designation
be stipulated as irrevocable
Art. 42. The subsequent marriage referred to in the preceding Article shall be
automatically terminated by the recording of the affidavit of reappearance of the
absent spouse, unless there is a judgment annulling the previous marriage or
declaring it void ab initio.
A sworn statement of the fact and circumstances of reappearance shall be
recorded in the civil registry of the residence of the parties to the subsequent
marriage at the instance of any interested person, with due notice to the spouses
of the subsequent marriage and without prejudice to the fact of reappearance
being judicially determined in case such fact is disputed. (n)
Art. 50. The effects provided for by paragraphs (2), (3), (4) and (5) of Article
43 and by Article 44 shall also apply in the proper cases to marriages which are
declared ab initio or annulled by final judgment under Articles 40 and 45.
The final judgment in such cases shall provide for the liquidation, partition and
distribution of the properties of the spouses, the custody and support of the
common children, and the delivery of third presumptive legitimes, unless such
matters had been adjudicated in previous judicial proceedings.
All creditors of the spouses as well as of the absolute community or the conjugal
partnership shall be notified of the proceedings for liquidation.
In the partition, the conjugal dwelling and the lot on which it is situated, shall
be adjudicated in accordance with the provisions of Articles 102 and 129.
Art. 60. No decree of legal separation shall be based upon a stipulation of facts
or a confession of judgment.
In any case, the Court shall order the prosecuting attorney or fiscal assigned to
it to take steps to prevent collusion between the parties and to take care that
the evidence is not fabricated or suppressed. (101a)
NCC
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.
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. (n)
a. kinds of beneficiary
i. Insured himself
An immediate party to the contract ordinarily called as the
assured.
He pays the premiums necessary to maintain the contract of
insurance.
ii. Third person who paid a consideration
May have paid a valuable consideration for his selection as
such; that is, the insured may have taken the policy for the
benefit of a creditor or to secure some other obligation.
iii. Third person through mere bounty of insured
Designated as the recipient od the proceeds of the policy. It
may be the estate of the insured or a third party.
NOTE: In ii and iii the beneficiary is not a party to the contract. The proceeds of life
insurance policy became the the exclusive property of the beneficiary upon the
death of the insured.
b. limitations in the appointment of beneficiary
i. Article 2012 of the Civil 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 and donation to him, according to said
article.
ii. Article 739
The following donations shall be void:
(1) those made between persons who were guilty of adultery
or concubonage 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.
iii. a life insurance policy, in essence, is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded under the same
consideration: liberality.
ATDL + AMF Notes 17 | 26
 c. forfeiture of interest of the beneficiary in a life insurance policy
Right of the insured to change the beneficiary in life insurance
GENERAL RULE: Sec. 11 abandons the former ruled that unless
the policy reserves to the insured the right to change the
beneficiary, no such right in the policy of which he cannot be
divested without his consent.
Effect of death insured - the right must be exercised specifically
in the manner provided in the contract. The beneficiarys
designation shall be deemed irrevocable.
Where the right to change is waived - if the right to change the
beneficiary is expressly waived in the policy, then the insured
has no power to make such change without the consent of the
beneficiary.
Where beneficiary dies before insured
His rights so vested should pass to his representatives, and on
the death of the insured, the proceeds of the policy should
belong, not to estate of the insured, but to the representatives
of the beneficiary. (see book pp. 106-107)
Designation of beneficiary pp.107-109
Forfeiture of the interest of the beneficiary in a life insurance policy
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 which event, the nearest
relative of the insured shall receive the proceeds of said insurance if not
otherwise disqualified.
3. insurable interest in property insurance (Sec 13-18, 25, IC)
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.
Anyone has an insurable interst in property who derives a benefit from its existence
or would suffer loss from its destruction.
Section 14. An insurable interest in property may consist in:
a) An existing interest;
b) An inchoate interest founded on an existinf interest; or
c) An expectancy, coupled with an existing interst in that out of which the
expectancy arises
Insurable interest of carrier or depository
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.
Mere contingent oe expectant interst NOT insurable
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.
Measure of an insurable interest in property
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.
Effect of absence of insurable interest in property insured
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.
Principle of indemnity applicable. i.e.:
o Contratcs of marine or fire insurance
o Liability insurance contracts
o Health care agreement (Health Maintenance Organization
HMO)
o NOT considered as contract of indemnity:
- Life insurance contracts
- Personal accident insurance contracts
- Health insurance contracts
Doctrine of waiver or estoppel NOT applicable since the public has an interst in the
matter independent of the consent or concurrence of the parties.
4. when insurable interest must exist (Sec 19-25, IC)
Section 19. An interest in property insured must exist when the
insurance takes effect, and when the loss occurs, but not exist in the
meantime; and interest in the life or health of a person insured must
exist when the insurance takes effect, but need not exist thereafter or
when the loss occurs.
o NOTE: applicable only to insurance on property and NOT to life
insurance EXCEPT that on the life of the debtor.
When insurance takes effect and loss occurs
- On the date of execution of the contract of insurance; and
- On the date of occurrence of the risk insured against, otherwise the policy
is void.
When Insurance takes effect
- Life insurance: it is satisfied if the interest exists at the time the policy is
procured or took effect, even if it has ceased to exist at the time if the
insureds death.
Insurable interest in lide and property distinguished
As to extent of insurable interest
- Life: unlimited
- Property: limited to the actual value of the interest
As to time when insurable interst must exist
ATDL + AMF Notes 17 | 27
 - Life insurance: exists at the time the policy takes effect and need not
exist at the time of the loss.
- Prperty insurance: it is necessary that it must exist when the
insurance takes effect and when the loss occurs, but need not exist in
the meantime.
As to expectation of benefit to be derived
- Life: the expectation of benefit to be derived from the continued
existence of the life need not have nay legal basis whatever. A
reasonable probability is sufficient without more.
- Property: an expectation of benefit , to be derived from the continued
existence of the property insured, however likely and morally certain
of realization it may be, will not afford a sufficient insurable interest
unless that expectation has a basis of legal right. If legal right such
exists an expected benefit, however remote, contitues an insurable
interest.
Effect, in general, of change of interest
Section 20. Except in the cases specified in the next four sections, and
in the cases of life, accident, and health insurance, a change of interest
in any part of a thing insured unaccompanied by a corresponding
change in interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person.
GENERAL RULE 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.
o NOTE: that contract is not rendered void but is merely suspended by a
change of interest
EXCEPTIONS:
1) In life, health and accident insurance (Sec 20);
2) A change of interest in the thing insured after the occurrence of an injury
which results in a loss (Sec 21);
3) A change of interest in one or more of several things, separeatly insured
by one policy (Sec. 22);
4) A change of interest by will oe succession on the death of the insured (Sec.
23);
5) A transfer of interest by one of several partners, joint owners, or owners
in common, who are jointly insured, to the others (Sec. 24);
6) When a policy is so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest
insured (Sec 57); and
7) When there is an express prohibiton against alienation in the policy, in
case of alienation, the contract of insurance is not merely suspended but
is avoided (Art. 1306, Civil Code, Sec. 24 IC).
Change of interest covered by law
Change of interest referred to in Secs. 20-24 means ABSOLUTE TRANSFER
of the property insured such as the conveyance of the property by means
of an absoluted deed of sale.
The interest in the property does not pass by mere execution of a pledge
or mortgage.
Change of interest in a thing insured after loss
Section 21. A change in interest in a thing insured, after the
occurrence of an injury which results in a loss, does not affect the right
of the insured to indemnity for the loss.
Change of interest where several things separately insured by one policy
Section 22. A change of interest in one or more several distinct things,
separately insured by one policy, does not avoid the insurance as to the
others.
Change of interest by death of insured
Section 23. A change on 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.
Transfer of onterest by one of the several partners, etc. jointly 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.
Stipulations prohibited in an insurance policy
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.
[Heirs of Loreto Maramag vs. Eva Verba de Guzman Maramag, GR NO. 181132, June 5, 2009]
Civil Law; Insurance Law; Article 2011 of the Civil Code expressly provides that insurance
contracts shall be governed by special laws; i.e., the Insurance Code; The only persons
entitled to claim the insurance proceeds are either the insured, if still alive or the
beneficiary if the insured is already deceased upon the maturation of the policy; Exception
is where the insurance contract was intended to benefit third persons who are not parties
to the same in the form of favorable stipulations or indemnity.It is evident from the face
of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011
of the Civil Code which expressly provides that insurance contracts shall be governed by special
laws, i.e., the Insurance Code. Section 53 of the Insurance Code statesSECTION 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. Pursuant thereto, it is obvious
that the only persons entitled to claim the insurance proceeds are either the insured, if still alive;
or the beneficiary, if the insured is already deceased, upon the maturation of the policy. The
exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or indemnity. In
such a case, third parties may directly sue and claim from the insurer.
Same; Same; Same; No legal proscription exists in naming as beneficiaries the children of
illicit relationships by the insured.The revocation of Eva as a beneficiary in one policy and
her disqualification as such in another are of no moment considering that the designation of the
ATDL + AMF Notes 17 | 28
illegitimate children as beneficiaries in Loretos insurance policies remains valid. Because no
legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured, the shares of Eva in the insurance proceeds, whether forfeited by the court in view of
the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves
for reasons based on the insurance contracts, must be awarded to the said illegitimate children,
the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured
has not designated any beneficiary, or when the designated beneficiary is disqualified by law to
receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
[Vicente Ong Lim Sing vs. FEB Leasing and Finance Corporation, G.R. No. 168115, June 8,
2007]
Same; Same; Insurance; A lessee has an insurable interest in the equipment and motor
vehicles leased, and the measure of its insurable interest is the extent to which it may be
damnified by loss or injury thereof.The stipulation in Section 14 of the lease contract, that
the equipment shall be insured at the cost and expense of the lessee against loss, damage, or
destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is a
binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment
and motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an
insurable interest in property is the extent to which the insured might be damnified by loss or
injury thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or
destruction of any of the properties leased.
[Gaisano Cagayan Inc. vs. Insurance Company of North America, GR No. 147839, June 8,
2006]
Same; Same; Insurance; Insurable Interest; Kinds; An insurable interest in property may
consist in the following - Section 13 of our Insurance Code defines insurable interest as 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.
Parenthetically, under Section 14 of the same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c)
an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Same; Same; Same; Same; Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction.An insurable interest in
property does not necessarily imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the peril against
which it is insured. Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein, in other words, so
long as he would suffer by its destruction, as where he has a vendors lien. In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the policies.
Same; Same; Subrogation; There is no evidence that respondent has been subrogated to
any right which Levi Strauss (Phils.) Inc. (LSPI) may have against petitioner - There is no
proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in
evidence. Thus, there is no evidence that respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioners case for recovery of the amount of P535,613.00.
[Spouses Nilo Cha and Stella Uy Cha vs. United Insurance Co, Inc. GR No.124520, August 18,
1997]
Same; Insurance; 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. Sec.
18 of the Insurance Code provides: Sec. 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. A non-life insurance policy such as the fire insurance policy taken by
petitionerspouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect and at the time
the loss occurs. The basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance policy on property
upon which he has no insurable interest and collecting the proceeds of said policy in case of loss
of the property. In such a case, the contract of insurance is a mere wager which is void under
Section 25 of the Insurance Code.
Same; Same; Leases; The lessor cannot be validly a beneficiary of a fire insurance policy
taken by a lessee over his merchandise, and the provision in the lease contract providing
for such automatic assignment is void for being contrary to law and/or public policythe
insurer cannot be compelled to pay the proceeds of the policy to a person who has no
insurable interest in the property insured. Therefore, respondent CKS cannot, under the
Insurance Codea special lawbe validly a beneficiary of the fire insurance policy taken by
the petitioner-spouses over their merchandise. This insurable interest over said merchandise
remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under
the provision of the lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo
Cha and Stella Uy-Cha (herein co-petitioners.) The insurer (United) cannot be compelled to pay
the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the
property insured.
IV. Devices for ascertaining and controlling risk and loss
A. Concealment (Sections 26-35, IC)
Definition:
Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Four primary concerns of the parties to an insurance contract
1) The correct estimation of the risk which enables the insurer to decide whether
he is willing to assume it, and of som, as what rate of premium;
2) The precisde delimitation of the risk which determines the extent of the
contingent duty to pay undertaken by the insurer;
3) Such control of the risk aster it is assumed as will enable the insurer to guard
against the increase of the risk because of change in conditions; and
4) Determining whther a loss accured and if so, the amount of such loss.
Devises for ascertaining and controlling risk and loss
1) Concealment and Representations originally developed for the purpose of
enabling the insurer to secure the same information with respect to the risk
ATDL + AMF Notes 17 | 29
 that was possessed by the applicant for insurance, so that he might be equally
capable of forming a just estimate of its equality.
2) Warranties and conditions deals with conditions existing at the inception of
the contract and exceptions are used for the purpose of making more definite
and certain the genral words used to describe the risk the insurer undertook to
bear.
o The general description of the risk concerned has 2 parts:
a) The designation of the specific property interest to be covered; and
b) The specification of such of the perils to which the property interest
would be exposed.
3) Exceptions making more definite the coverage indicated by the general
description of the risk by excluding certain specified risks that otherwise would
have been included under the general language describing the risk assumed.
o Also used for controlling risks.
4) Executory warranties and conditions undertakings that certain conditons
should or should not exist in the future, are used to enable the insurer to rescind
the contract incase, sucsequent events increased the risk to such an extent that
he is no longer willing to bear.
5) Insurer must also protect himself against fraudulent claims of loss; and this he
attempts to do by inserting in the policy various conditions which take the
forms of conditions predent.
1. Requisites of concealment
a) a party knows the fact ehich he neglects to communicate or disclose to the
other;
b) such party concealing is duty bound to disclose such fact to the other;
c) such party concealing makes no warranty of the fact concealed;
d) the other party has not the means of ascertaining the fact concealed.
2. Effect of concealment
Section 27. A concealment entitles the injured party to rescind a contract of
insurance.
1) By the insured makes the contract voidable at the insurers option.
o Reason: contract of issurance are traditionally contracts uberrimae fidae.
2) By the insurer contractural duty of disclosure imposed by utmost good faith is not
required of the insured alone, but is imposed with equal stringency upon the insurer
- since his dominant in bargaining position carries with it stricter responsibility.
Proof of fraud is irrelevant since the insurer may rescinf the contract whether concealment
is intentional or unintentional .
o Reason: it misleads of deceives the insurer into accepting the risk, or
accepting it at the rate of premium agreed upon.
Unlike in United States where they exempt concealment cases in marine insurance,
Philippine law covers any kind of insurance.
o Fraud is not essential in order that the insured may be guilty of
concealment.
3. Matters that must be communicated even in absence of inquiry (Sec 67-76)
Section 28. Each party to a contract of insurance must communicated to the
other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has not the
means of ascertaining.
Title 7
WARRANTIES
Section 67. A warranty is either expressed or implied.
Section 68. A warranty may relate to the past, the present, the
future, or to any or all of these.
Section 69. No particular form of words is necessary to create a
warranty.
Section 70. Without prejudice to section fifty-one, every express
warranty, made at or before the execution of a policy, must be
contained in the policy itself, or in another instrument signed by the
insured and referred to in the policy as making a part of it.
Section 71. A statement in a policy of matter relating to the
person or thing insured, or to the risk, as a fact, is an express
warranty thereof.
Section 72. A statement in a policy which imparts that it is
intended to do or not to do a thing which materially affects the
risk, is a warranty that such act or omission shall take place.
Section 73. When, before the time arrives for the performance
of a warranty relating to the future, a loss insured against
happens, or performance becomes unlawful at the place of the
contract, or impossible, the omission to fulfill the warranty does
not avoid the policy.
Section 74. The violation of a material warranty, or other
material provision of a policy, on the part of either party
thereto, entitles the other to rescind.
Section 75. A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.
Section 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs, or where it
is broken in its inception, prevents the policy from attaching to
the risk.
Facts that both parties must communicated in good faith:
1. they are material to the contract;
2. the other has not the means of ascertaining the said facts;
3. as to which the party with the duty to communicate makes no warranty
TEST if the applicant is aware of the existence of some circumsrances which he
knows would influence the insurer in acting upon his application, good faith requires
ATDL + AMF Notes 17 | 30
 him to disclose that circumstance, though unasked.
Effect of failure of insurer to verify
The insurance company has the right to rely on the statements of the insured as to
material facts such as to his own previous sickness, for he knows the facts, and the
matter is nor one of which disclosure is excuded by the law (De leon vs Crown life).
Falsity of warranty
Section 29. An intentional and fraudulent omission, on the part of one insured,
to communicate information of matters proving or tending to prove the falsity of
a warranty, entitles the insurer to rescind.
The non-disclosure under Sec. 29 must be intentional and fraudulent in order that the
contract may be rescinded.
o the omission is on the part of the insured and the party entitiled to rescind
is the insurer.
4. matters in which there is no duty to make disclosure
Matters known to, or right to be known by insurer, or of which he waives
disclosure.
Risks excepted from the policy.
Nature or amount of insureds interest.
5. Matters made the subject of special inquiries material
Matters made the subject of inquiry must be deemed material, even though
otherwise they might not be so regarded and the insured is required to make
dull and true disclosure to questions asked.
The failure of an apparently complete answer to make full disclosure will avoid
the policy. But an answer incomplete on its face will not defeat the policy in the
absence of bad faith.
[MEMORIZE] Section 30. Neither party to a contract of insurance
is bound to communicate information of the matters following,
except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought
to know, and of which the former has no reason to suppose him
ignorant;
(c) Those of which the other waives communication; lawphi1.net
(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which
are not otherwise material.
6. Determination of materiality
Section 31. Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
TEST OF MATERIALITY the effect which the knowledge of the fact in question
would have one the making of the contract. To be material, a fact need not increase
the risk or contribute to any loss or damage suffered. It is sufficient if the knowledge
of it would unfluence the parties in makinf the contract. The matter, must of course,
be determined ultimately by the court.
A fact is material If the knowledge of it would have a probable and reasonable
influence upon te insurer in assessing the risk involved and in makinf or omitting
further inquiries,a nd cause him either to reject the risk or to accept it only at a higher
premium rate or on different terms though that fact may not even remotely
contribute to the contingency upon ehich the insurer would become liable, any wise
affect the risk.
When concealment regarded as intentional a mans state of mind or subjective
ebelief is not capbel of proof in our judicial process, except through proof of external
acts or failure to act from which interferences as to his subjective belief may be
reasonably drawn.
o The failure of the insured to communicate must have been intentional rather
than inadvertent (Canilang vd CA).
o The insured cannot be guilty of concealment where the fact concealed is
not material.
Time when information acquired
After contract had become effective concealment must take palace at the
time the contract is enetered into in order that the policy may be avoided
and not afterwards. The duty of disclosure ends with the completion and
effectively of the contract.
o The rule is different in reinsurance (Sec. 98).
Before contract becomes effective an applicant for life insurance, is under
a duty to disclose to the insurer, changes in health occurring or coming to
his knowledge between the date of submitting his application after
satisfactory medical examination and the date of the policy is delivered.
Matters each party bound to know
Section 32. Each party to a contract of insurance is bound to know all
the general causes which are open to his inquiry, equally with that of
the other, and which may affect the political or material perils
contemplated; and all general usages of trade.
Right to information may be waived
Section 33. The right to information of material facts may be waived,
either by the terms of the insurance or by neglect to make inquiry as
to such facts, where they are distinctly implied in other facts of which
information is communicated.
Disclosure of nature and extent of interst of isnured
Section 34. Information of the nature or amount of the interest of one
insured need not be communicated unless in answer to an inquiry,
except as prescribed by section fifty-one.
Disclosure of judgement upon the matters in question
Section 35. Neither party to a contract of insurance is bound to
communicate, even upon inquiry, information of his own judgment upon
ATDL + AMF Notes 17 | 31
 the matters in question.
[Ma. Lourdes Florendo vs. Philam Plans, Inc., GR No. 186983, February 22, 2012]
[Sunlife Assurance Company of Canada vs. Court of Appeals,, GR No. 105135, June 22,
1995]
[Thelma Vda de Canilang vs. Court of Appeals, GR. No. 92492 , June 17, 1993]
[Ng Gan Zee vs. Asian Crusader Life Assurance Corp., GR No. 30685, May 30, 1983]
[Regina Edillon vs. Manila Bankers Life Insurance Corp., GR. No. L-34200 , September
30, 1982]
B. Representation (Sections 36-48, IC)
it is a statement made by the insured at the timeof or prior to, thr issuance of
the policy, relative to the risk to be insured, as to an existinf or past fact or state
of fatcs, or concerning a future happening, to give information to the insurer
and otherwise induce him to enter into the insurance contract.
MISREPRESENTATION a statement
(1) As a fact of womething which is untrue,
(2) Which the insured stated with knowledge that it is untrue and with intent
to deceive, or which he states positively as true without knowing it to be
true and which has a tendency to mislead, and
(3) Where such fact in either case is material to the risk.
o A misrepresentation by the insured renders the insurance contract
voidable at the option of the insurer, even though innocently made and
without wrongful intent.
1. Time
Section 37. A representation may be made at the time of, or before,
issuance of the policy.
2. Construction
Section 38. The language of a representation is to be interpreted by
the same rules as the language of contracts in general.
Representations are liberally construed in favor of the insured, and are required
to be only substantially true. Warranties, by contrast, must be literally true, or
the contract will fail.
4. Kinds
Section 39. A representation as to the future is to be deemed a
5.
promise, unless it appears that it was merely a statement of belief or
expectation.
A representation may be:
1) Oral or written (sec. 36);
2) Made at the time of issuing the policy or before (Sec. 37); and
3) Affirmative or promissory (Secs. 39-42)
o Affirmative any allegation as to the existence or non-existence of a
fact when the contract begins.
o Promissory any promise to be fulfilled after the contract has come
into existence or any statement concerning what is to happen during
the txistenc eof the insurance.
Nature:
(1) Used to indicate a parol or oral promise made in
connection with the insurance, but not incorporated
in the policy.
(2) An undertaking by the insured, inserted in the
policy, but not specifically made a warranty, is called
also a promissory representation.
Effect of representation on express provisions of policy
Section 40. A representation cannot qualify an express provision
in a contract of insurance, but it may qualify an implied warranty.
A representation is not a part of the contract but only a collateral
inducement to it.
However, it may qualify an implied warranty.
When representation may be altered or withdrawn
Section 41. A representation may be altered or withdrawn before
the insurance is effected, but not afterwards.
Time to which representation refers
Section 42. A representation must be presumed to refer to the
date on which the contract goes into effect.
Effect where information obtained from third persons
Section 43. When a person insured has no personal knowledge of
a fact, he may nevertheless repeat information which he has upon
the subject, and which he believes to be true, with the explanation
that he does so on the information of others; or he may submit the
information, in its whole extent, to the insurer; and in neither case
is he responsible for its truth, unless it proceeds from an agent of
the insured, whose duty it is to give the information.
When representation deemed false
Section 44. A representation is to be deemed false when the facts
fail to correspond with its assertions or stipulations.
Effect of falsity of representation
Section 45. If a representation is false in a material point, whether
affirmative or promissory, the injured party is entitled to rescind the
contract from the time when the representation becomes false.
Fraud or intent to misrepresent facts is not essential to entitle the injured party
to rescind a contract of insurance on the grounf of false representation
It is immaterial that a false representation of a material fact concerning the risk
relied on by the insurer is made in the honest belief that it is true,
ATDL + AMF Notes 17 | 32
 To be deemed false, it is sufficient if the representation fails to correspond with 2) It is payable on the death of the insured;
the facts in a material point. 3) It has been in force during the lifetime of the insured for at lease two (2) years
from its date of issue or of its last reinstatement
Effect of collusion or fraud of agent of insurer
The agent ceases to represent his principal, and represents b. effect
himself; so the insurer is not estopped from avoiding the 1) the policy is void ab initio; or
policy. 2) it is rescissible by reason of the fraudulent concealment of the insured or his
agent, no matter how patent of well-founded; or
6. Test of materiality of representation 3) It is rescissible by reason of the fraudulent misrepresentation of the insured or
Section 46. The materiality of a representation is determined by the his agent.
same rules as the materiality of a concealment.
c. defenses not barred
Section 31. Materiality is to be determined not by the event, but solely 1) that the person taking the insurance lacked insurable interest as required by
by the probable and reasonable influence of the facts upon the party to law;
whom the communication is due, in forming his estimate of the 2) that the cause of the death of the insured is an excepted risk;
disadvantages of the proposed contract, or in making his inquiries. 3) that the premiums have not been paid;
4) that the conditions of the policy relating to military or naval service have been
Concealment and misrepresentation compared violated;
5) that the fraud is of a particularly vicous type, as where the policy was taken out
The insured withholds information Insured maked erroneous
of furtherance of a scheme to murder the insured, or where the beneficiary
od material facts from the insurer statements of facts with the intent
feloniously kills the insnured;
of inducing the insurer to enter into
6) that the beneficiary failed to furnish proof of death or to comply with any
the insurance contract
condition imposed by the policy after the loss has happened; or
Materialty same rules as applied in same
7) that the action was not brought within the time specified.
misrepresentation
Insured has the right to rescind if Insured has the right to rescind if
[Regina Edillon vs. Manila Bankers Life Insurance Corp., G.R. No. L-34200 , September
theres a concealment theres a misrepresentation
30, 1982]
Whether intentional or not, injured same
party is entitled to rescind a contract [The Insular Life Assurance Co, Ltd. vs. Serafin Feliciano, G.R. No. L-47593, December 29,
of insurance on ground of 1943]
concealment
Rules on concealment applies to the Rules on representation applies to [Tan Chay Heng vs. West Coast Life Insurance Company, G.R. No. L-27541, November 21,
insurer the insurer 1927]

7. Exercise of the right to rescind

Section 47. The provisions of this chapter apply as well to a
modification of a contract of insurance as to its original formation.

Section 48. Whenever a right to rescind a contract of insurance is

given to the insurer by any provision of this chapter, such right must be
exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period
of two years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the
insured or his agent.

7. Incontestibility
a. requisites
1) The policy is a life insurance policy;

ATDL + AMF Notes 17 | 33