You are on page 1of 51

INSURANCE LAW REVIEWER

“Study ta besh kay dili ta bright”

 Book: Agbayani which is uncertain, or which is to occur at supplied the essential data which petitioner Lapulapu D.
 Have a copy of RA 10607 an indeterminate time” Mondragon, Branch Manager of the Pacific Life in Cebu City
 PD 612- repealed by RA 10607  Insurance Contract wrote on the corresponding form in his own handwriting.
 PD 1460- void law because it has not been published  General Term of Insurance Contract Mondragon finally type-wrote the data on the application form
which was signed by private respondent Ngo Hing. The latter
1. Aleatory Contract
paid the annual premium the sum of P1,077.75 going over to the
 Life Annuity- life savings plan/ endowment fund Company, but he retained the amount of P1,317.00 as his
 Elements of the Insurance Contract commission for being a duly authorized agent of Pacific
Section 1. This Decree shall be known as "The Insurance
Code of 1978. 1. The insured possesses an interest of some kind Life. Upon the payment of the insurance premium, the binding
susceptible of pecuniary estimation, known as deposit receipt was issued to private respondent Ngo Hing.
"insurable interest"; Likewise, petitioner Mondragon handwrote at the bottom of the
History of Insurance Law 2. The insured is subject to a risk of loss back page of the application form his strong recommendation for
the approval of the insurance application. Then on April 30,
through the destruction or impairment of that
1. Mutual insurance as old as society itself. 1957, Mondragon received a letter from Pacific Life disapproving
interest by the happening of designated perils; the insurance application. The letter stated that the said life
a. Benevolent societies organized for the purpose 3. Such assumption of risk is part of a general insurance application for 20-year endowment plan is not
of extending aid to their unfortunate members scheme to distrixbute actual losses among available for minors below seven years old, but Pacific Life can
from a fund contributed by all, have been in a large group or substantial number of persons consider the same under the Juvenile Triple Action Plan, and
existence from the earliest times. bearing a similar risk; advised that if the offer is acceptable, the Juvenile Non-Medical
b. They existed among the Egyptians, the Chinese, Declaration be sent to the company.
4. As consideration for the insurer's promise, the
the Hindus, and the Romans and are known to insured makes a ratable contribution called
have been established among the Greeks as The non-acceptance of the insurance plan by Pacific Life was
"premium," to a general insurance fund allegedly not communicated by petitioner Mondragon to private
early as the third century  Uberrima fides respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
2. Origin of present day insurance attributed to merchants - Perfect good faith both on the part of the insurer wrote back Pacific Life again strongly recommending the
of Italian cities. and the insured approval of the 20-year endowment insurance plan to children,
3. Commercial and International in character o CASE: Great Pacific Life Insurance vs. CA pointing out that since 1954 the customers, especially the
Chinese, were asking for such coverage.
GREAT PACIFIC LIFE ASSURANCE COMPANY vs.
It was when things were in such state that on May 28, 1957
HONORABLE COURT OF APPEALS
 Aleatory contract- Art. 2010 Helen Go died of influenza with complication of
one of the parties or both reciprocally bind bronchopneumonia. Thereupon, private respondent sought the
FACTS: It appears that on March 14, 1957, private respondent
themselves to give or to do something in payment of the proceeds of the insurance, but having failed in
Ngo Hing filed an application with the Great Pacific Life
consideration of what the other shall give his effort, he filed the action for the recovery of the same before
Assurance Company (hereinafter referred to as Pacific Life) for a
the Court of First Instance of Cebu, which rendered the adverse
or do upon the happening of an event twenty-year endowment policy in the amount of P50,000.00 on
decision as earlier referred to against both petitioners.
the life of his one-year old daughter Helen Go. Said respondent

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 1
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

insurance application would not have any adverse effect the same and would have had no choice but to disapprove the
ISSUE: Whether or not the respondent is entitled to the on the allegedly perfected temporary contract In this application outright.
insurance first place, there was no contract perfected between the
parties who had no meeting of their minds. Private - Whether intentional or unintentional the
HELD: No. Since petitioner Pacific Life disapproved the respondent, being an authorized insurance agent of concealment entitles the insurer to rescind the
insurance application of respondent Ngo Hing, the binding Pacific Life at Cebu branch office, is indubitably aware contract of insurance. Private respondent appears
deposit receipt in question had never become in force at any that said company does not offer the life insurance guilty thereof.
time. applied for. When he filed the insurance application in dispute,
private respondent was, therefore, only taking the chance that SC was constrained to hold that no insurance contract was
As held by this Court, where an agreement is made between the Pacific Life will approve the recommendation of Mondragon for perfected between the parties with the noncompliance of the
applicant and the agent, no liability shall attach until the the acceptance and approval of the application in question along conditions provided in the binding receipt, and concealment, as
principal approves the risk and a receipt is given by the agent. with his proposal that the insurance company starts to offer the legally defined, having been combated by herein private
The acceptance is merely conditional and is subordinated to the 20-year endowment insurance plan for children less than seven respondent.
act of the company in approving or rejecting the application. years. Nonetheless, the record discloses that Pacific Life had
Thus, in life insurance, a "binding slip" or "binding receipt" does rejected the proposal and recommendation. Secondly, having an
not insure by itself insurable interest on the life of his one-year old daughter, aside FIELDMEN'S INSURANCE CO., INC., vs. MERCEDES
from being an insurance agent and an offense associate of VARGAS VDA. DE SONGCO, ET AL. and COURT OF
It bears repeating that through the intra-company petitioner Mondragon, private respondent Ngo Hing must have APPEALS
communication of April 30, 1957 Pacific Life disapproved the known and followed the progress on the processing of such G.R. No. L-24833 September 23, 1968
insurance application in question on the ground that it is not application and could not pretend ignorance of the Company's FERNANDO, J.:
offering the twenty-year endowment insurance policy to children rejection of the 20-year endowment life insurance application.
less than seven years of age. What it offered instead is another Facts:
plan known as the Juvenile Triple Action, which private This Court is of the firm belief that private respondent had
respondent failed to accept. In the absence of a meeting of the deliberately concealed the state of health and physical condition Federico Songco, a man of scant education [first grader],
minds between petitioner Pacific Life and private respondent Ngo of his daughter Helen Go. Where private respondent owned a private jeepney. He was induced by Fieldmen's
Hing over the 20-year endowment life insurance in the amount supplied the required essential data for the insurance Insurance Company (FIC) agent Benjamin Sambat to apply for a
of P50,000.00 in favor of the latter's one-year old daughter, and application form, he was fully aware that his one-year Common Carrier's Liability Insurance Policy covering his
with the non-compliance of the above quoted conditions stated old daughter is typically a mongoloid child. Such a motor vehicle. As testified by Songco’s son Amor later, he said
in the disputed binding deposit receipt, there could have been no congenital physical defect could never be ensconced nor that their vehicle is an ‘owner’ private vehicle and not for
insurance contract duly perfected between then Acordingly, the distinguished. Nonetheless, private respondent, in passengers, but agent Sambat said that they can insure
deposit paid by private respondent shall have to be refunded by apparent bad faith, withheld the fact material to the risk whatever kind of vehicle because their company is not owned by
Pacific Life. to be assumed by the insurance company. As an the government, so they could do what they please whenever
insurance agent of Pacific Life, he ought to know, as he they believe a vehicle is insurable. FIC Inc. issued a Common
The Supreme Court held that it is not impressed with surely must have known. his duty and responsibility to Carriers Accident Insurance Policy with a duration of 1 year.
private respondent's contention that failure of petitioner such a material fact. Had he diamond said significant fact in Upon expiration, FIC Inc, the policy was renewed. During the
Mondragon to communicate to him the rejection of the the insurance application form Pacific Life would have verified effectivity of the renewed policy, the insured vehicle while being

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 2
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

driven by Rodolfo Songco, a duly licensed driver and son of … . lt would now rely on the fact that the insured owned a or contingent event.
Federico (the vehicle owner) collided with a car where Federico private vehicle, not a common carrier, something which it knew
and Rodolfo died, while Carlos Songco and his wife Angelita, and all along when not once but twice its agent, no doubt without A contract of suretyship shall be deemed to be an
a family friend sustained physical injuries. The wife filed a any objection in its part, exerted the utmost pressure on the insurance contract, within the meaning of this Code, only
insurance claim. The company denied liability. insured, a man of scant education, to enter into such a contract. if made by a surety who or which, as such, is doing an
insurance business as hereinafter provided.
Issue:
2. Fieldmen’s Insurance incurred legal liability under the 2. The term "doing an insurance business" or
1. Whether Fieldmen’s Insurance Company (FIC) is policy. "transacting an insurance business," within the meaning
estopped from enforcing forfeitures in its favor- YES of this Code, shall include:
2. Whether FIC can escape liability under a common Since some of the conditions contained in the policy issued by a. making or proposing to make, as insurer, any
carrier insurance policy on the pretext that what was the defendant-appellant were impossible to comply with under insurance contract;
insured was a private vehicle and not a common carrier, the existing conditions at the time and 'inconsistent with the b. making or proposing to make, as surety, any
the policy being issued upon the agent’s insistence.- NO known facts,' the insurer 'is estopped from asserting breach of contract of suretyship as a vocation and not as
such conditions.’ Except for the fact, that they were not fare merely incidental to any other legitimate
Ruling: paying passengers, their status as beneficiaries under the policy business or activity of the surety;
is recognized therein. c. doing any kind of business, including a
1. FIC is "estopped from enforcing forfeitures in its favor, in reinsurance business, specifically recognized as
order to forestall fraud or imposition on the insured. Even if it be assumed that there was an ambiguity, ambiguities constituting the doing of an insurance business
or obscurities must be strictly interpreted against the party that within the meaning of this Code;
In Qua Chee Gan v. Law Union and Rock Insurance Co., caused them ( Qua Chee Gan v. Law Union and Rock d. doing or proposing to do any business in
Ltd., It was held that where inequitable conduct is shown by an Insurance Co., Ltd.) substance equivalent to any of the foregoing in
insurance firm, it is "estopped from enforcing forfeitures in its a manner designed to evade the provisions of
favor, in order to forestall fraud or imposition on the insured.” The contract of insurance is one of perfect good faith this Code.
(uberima fides) not for the insured alone, but equally so for the
After petitioner Fieldmen's Insurance Co., Inc. had led the insurer; in fact, it is more so for the latter, since its dominant In the application of the provisions of this
insured Federico Songco to believe that he could qualify under bargaining position carries with it stricter responsibility." Code the fact that no profit is derived from the
the common carrier liability insurance policy, and to enter into making of insurance contracts, agreements or
contract of insurance paying the premiums due, it could not, transactions or that no separate or direct
thereafter, in any litigation arising out of such representation, be Sec. 2. Wherever used in this Code, the following terms shall consideration is received therefor, shall not be
permitted to change its stand to the detriment of the heirs of the have the respective meanings hereinafter set forth or indicated, deemed conclusive to show that the making thereof
insured. As estoppel is primarily based on the doctrine of good unless the context otherwise requires: does not constitute the doing or transacting of an
faith and the avoidance of harm that will befall the innocent insurance business.
party due to its injurious reliance, the failure to apply it in this 1. A "contract of insurance" is an agreement whereby one
case would result in a gross travesty of justice undertakes for a consideration to indemnify another 3. As used in this Code, the term "Commissioner" means
against loss, damage or liability arising from an unknown the "Insurance Commissioner."

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 3
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Sections 302 and 303, thereof. services of Pioneer to act as its agent.
 the term "insurance" covers "assurance."
 Profit is not relevant The Insurance Commission dismissed the complaint. It said that Respondents contend that although Steamship Mutual is a P & I
 It is significant to know whether the insurer is truly there was no need for Steamship Mutual to secure a license Club, it is not engaged in the insurance business in the
engaged in an insurance business in order to determine because it was not engaged in the insurance business. It Philippines. It is merely an association of vessel owners who
if the Insurance Code shall govern and has to be explained that Steamship Mutual was a Protection and Indemnity have come together to provide mutual protection against
complied with. Club (P & I Club). Likewise, Pioneer need not obtain another liabilities incidental to shipowning. Respondents aver Hyopsung
license as insurance agent and/or a broker for Steamship Mutual is inapplicable in this case because the issue in Hyopsung was
Protection and Indemnity Club (P & I Club) because Steamship Mutual was not engaged in the insurance the jurisdiction of the court over Hyopsung.
business. Moreover, Pioneer was already licensed, hence, a
CASE: White Gold Marine Services, Inc. vs. Pioneer Insurance separate license solely as agent/broker of Steamship Mutual was ISSUES:
and Surety Corporation and the Steamship Mutual Underwriting already superfluous. (1) Is Steamship Mutual, a P & I Club, engaged in the insurance
Association (Bermuda) LTD business in the Philippines? - YES
The Court of Appeals affirmed the decision of the Insurance
WHITE GOLD MARINE SERVICES, INC., vs. PIONEER Commissioner. In its decision, the appellate court distinguished (2) Does Pioneer need a license as an insurance agent/broker for
INSURANCE AND SURETY CORPORATION AND THE between P & I Clubs vis-à-vis conventional insurance. The Steamship Mutual? - YES
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION appellate court also held that Pioneer merely acted as a
(BERMUDA) LTD., collection agent of Steamship Mutual. RULING:
G.R. No. 154514. July 28, 2005
CONTENTIONS: The parties admit that 1.) Section 2(2) of the Insurance Code enumerates what
Steamship Mutual is a P & I Club. Steamship Mutual admits it constitutes "doing an insurance business" or "transacting an
FACTS: White Gold Marine Services, Inc. procured a protection does not have a license to do business in the Philippines insurance business". These are:
and indemnity coverage for its vessels from The Steamship although Pioneer is its resident agent. This relationship is
Mutual Underwriting Association (Bermuda) Limited (Steamship reflected in the certifications issued by the Insurance (a) Making or proposing to make, as insurer, any
Mutual) through Pioneer Insurance and Surety Corporation. Commission. insurance contract;
Subsequently, White Gold was issued a Certificate of Entry and (b) Making, or proposing to make, as surety, any
Acceptance. Pioneer also issued receipts evidencing payments Petitioner insists that Steamship Mutual as a P & I Club is contract of suretyship as a vocation and not as
for the coverage. When White Gold failed to fully pay its engaged in the insurance business. To buttress its assertion, it merely incidental to any other legitimate business or
accounts, Steamship Mutual refused to renew the coverage. cites the definition of a P & I Club in Hyopsung Maritime Co., activity of the surety;
Ltd. v. Court of Appeals as "an association composed of (c) Doing any kind of business, including a reinsurance
Steamship Mutual thereafter filed a case against White Gold for shipowners in general who band together for the specific business, specifically recognized as constituting the
collection of sum of money to recover the latter’s unpaid purpose of providing insurance cover on a mutual basis against doing of an insurance business within the meaning
balance. White Gold on the other hand, filed a complaint before liabilities incidental to shipowning that the members incur in of this Code;
the Insurance Commission claiming that Steamship Mutual favor of third parties." It stresses that as a P & I Club, Steamship (d) Doing or proposing to do any business in substance
violated Sections 186 and 187 of the Insurance Code, while Mutual’s primary purpose is to solicit and provide protection and equivalent to any of the foregoing in a manner
Pioneer violated Sections 299, 300 and 301 in relation to indemnity coverage and for this purpose, it has engaged the designed to evade the provisions of this Code.

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 4
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Club and the members." By definition then, Steamship Mutual as insurance, or receive for services in obtaining insurance, any
The same provision also provides, the fact that no profit is a P & I Club is a mutual insurance association engaged in the commission or other compensation from any insurance company
derived from the making of insurance contracts, marine insurance business. doing business in the Philippines or any agent thereof, without
agreements or transactions, or that no separate or direct first procuring a license so to act from the Commissioner, which
consideration is received therefor, shall not preclude the The records reveal Steamship Mutual is doing business in the must be renewed annually on the first day of January, or within
existence of an insurance business. country albeit without the requisite certificate of authority six months thereafter. . .
mandated by Section 187 of the Insurance Code. It maintains a
The test to determine if a contract is an insurance contract or resident agent in the Philippines to solicit insurance and to
not, depends on the nature of the promise, the act collect payments in its behalf. We note that Steamship Mutual Heath Maintenance Organization (HMOs)
required to be performed, and the exact nature of the even renewed its P & I Club cover until it was cancelled due to Q: Are they engaged in insurance business?
agreement in the light of the occurrence, contingency, or non-payment of the calls. Thus, to continue doing business here,
circumstances under which the performance becomes Steamship Mutual or through its agent Pioneer, must secure a
requisite. It is not by what it is called. license from the Insurance Commission. CASE: Philippine Health Care Providers Inc. vs. CIR

Basically, an insurance contract is a contract of indemnity. Since a contract of insurance involves public interest, regulation G.R. No. 167330 (PHILIPPINE HEALTH CARE
In it, one undertakes for a consideration to indemnify by the State is necessary. Thus, no insurer or insurance PROVIDERS, INC v. CIR)
another against loss, damage or liability arising from an company is allowed to engage in the insurance business without
unknown or contingent event. a license or a certificate of authority from the Insurance FACTS:
Commission.
In particular, a marine insurance undertakes to indemnify the On January 27, 2000, Commissioner of Internal Revenue sent
assured against marine losses, such as the losses incident to a 2.) Pioneer is the resident agent of Steamship Mutual as petitioner a formal demand letter and the corresponding
marine adventure. Section 99 of the Insurance Code enumerates evidenced by the certificate of registration issued by the assessment notices demanding the payment of deficiency taxes.
the coverage of marine insurance. Insurance Commission. It has been licensed to do or transact The deficiency DST (documentary stamp tax) assessment was
insurance business by virtue of the certificate of authority issued imposed on petitioner's health care agreement with the
Relatedly, a mutual insurance company is a cooperative by the same agency. However, a Certification from the members of its health care program pursuant to Section 185 of
enterprise where the members are both the insurer and insured. Commission states that Pioneer does not have a separate license the 1997 Tax Code.
In it, the members all contribute, by a system of premiums or to be an agent/broker of Steamship Mutual.
assessments, to the creation of a fund from which all losses and Section 185. Stamp tax on fidelity bonds and other
liabilities are paid, and where the profits are divided among Although Pioneer is already licensed as an insurance company , it insurance policies. - On all policies of insurance or
themselves, in proportion to their interest. Additionally, mutual needs a separate license to act as insurance agent for bonds or obligations of the nature of indemnity for
insurance associations, or clubs, provide three types of Steamship Mutual. Section 299 of the Insurance Code clearly loss, damage, or liability made or renewed by any
coverage, namely, protection and indemnity, war risks, and states: person, association or company or corporation
defense costs. transacting the business of accident, fidelity,
SEC. 299 . . . employer's liability, plate, glass, steam boiler, burglar,
A P & I Club is "a form of insurance against third party No person shall act as an insurance agent or as an insurance elevator, automatic sprinkler, or other branch of
liability, where the third party is anyone other than the P & I broker in the solicitation or procurement of applications for insurance (except life, marine, inland, and fire

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 5
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

insurance), and all bonds, undertakings, or that are not based on loss or damage. Petitioner also insists that actually provide medical or hospital services but merely arranges
recognizances, conditioned for the performance of the it is not engaged in the insurance business. It is a health for the same17 and pays for them up to the stipulated maximum
duties of any office or position, for the doing or not maintenance organization regulated by the Department of amount of coverage. It is also incorrect to say that the health
doing of anything therein specified, and on all Health, not an insurance company under the jurisdiction of the care agreement is not based on loss or damage because, under
obligations guaranteeing the validity or legality of any Insurance Commission. For these reasons, petitioner asserts that the said agreement, petitioner assumes the liability and
bond or other obligations issued by any province, city, the health care agreement is not subject to DST. indemnifies its member for hospital, medical and related
municipality, or other public body or organization, and expenses (such as professional fees of physicians). The term
on all obligations guaranteeing the title to any real ISSUE: "loss or damage" is broad enough to cover the monetary
estate, or guaranteeing any mercantile credits, which expense or liability a member will incur in case of illness or
may be made or renewed by any such person, company Is a health care agreement in the nature of an insurance injury.
or corporation, there shall be collected a documentary contract and therefore subject to the documentary stamp tax
stamp tax of fifty centavos (P0.50) on each four pesos (DST) imposed under Section 185 of Republic Act 8424 (Tax Under the health care agreement, the rendition of hospital,
(P4.00), or fractional part thereof, of the premium Code of 1997)? medical and professional services to the member in case of
charged. (emphasis supplied) sickness, injury or emergency or his availment of so-called "out-
HELD: patient services" (including physical examination, x-ray and
Petitioner protested the assessment in a letter dated February laboratory tests, medical consultations, vaccine administration
23, 2000. As respondent did not act on the protest, petitioner Yes. In particular, the DST under Section 185 of the 1997 Tax and family planning counseling) is the contingent event which
filed a petition for review in the Court of Tax Appeals (CTA) Code is imposed on the privilege of making or renewing any gives rise to liability on the part of the member. In case of
seeking the cancellation of the deficiency VAT and DST policy of insurance (except life, marine, inland and fire exposure of the member to liability, he would be entitled to
assessments. insurance), bond or obligation in the nature of indemnity for indemnification by petitioner.
loss, damage, or liability.
On April 5, 2002, the CTA rendered a decision partially granting Furthermore, the fact that petitioner must relieve its member
the petition for review. Respondent appealed the CTA decision to Under the law, a contract of insurance is an agreement from liability by paying for expenses arising from the stipulated
the CA insofar as it cancelled the DST assessment. He claimed whereby one undertakes for a consideration to indemnify contingencies belies its claim that its services are prepaid. The
that petitioner's health care agreement was a contract of another against loss, damage or liability arising from an expenses to be incurred by each member cannot be predicted
insurance subject to DST under Section 185 of the 1997 Tax unknown or contingent event. The event insured against beforehand, if they can be predicted at all. Petitioner assumes
Code. must be designated in the contract and must either be unknown the risk of paying for the costs of the services even if they are
or contingent. significantly and substantially more than what the member has
On August 16, 2004, the CA rendered its decision. It held that "prepaid." Petitioner does not bear the costs alone but
petitioner's health care agreement was in the nature of a non-life Petitioner's health care agreement is primarily a contract distributes or spreads them out among a large group of persons
insurance contract subject to DST. Petitioner moved for of indemnity. And in the recent case of Blue Cross Healthcare, bearing a similar risk, that is, among all the other members of
reconsideration but the CA denied it. Hence, this petition. Inc. v. Olivares, this Court ruled that a health care agreement the health care program. This is insurance.
is in the nature of a non-life insurance policy.
Petitioner essentially argues that its health care agreement is not Petitioner's contention that it is a health maintenance
a contract of insurance but a contract for the provision on a Contrary to petitioner's claim, its health care agreement is not a organization and not an insurance company is irrelevant.
prepaid basis of medical services, including medical check-up, contract for the provision of medical services. Petitioner does not Contracts between companies like petitioner and the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 6
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

beneficiaries under their plans are treated as insurance approval.


contracts. FACTS: Respondent Neomi T. Olivares applied for a health care
program with petitioner Blue Cross Health Care, Inc., a health MeTC: dismissed the complaint for lack of cause of action. It
Moreover, DST is not a tax on the business transacted but an maintenance firm. From October 16, 2002 to October 15, 2003, held that the best person to determine whether or not the stroke
excise on the privilege, opportunity, or facility offered at she paid the amount of P11,117. She also availed of the she suffered was not caused by "pre-existing conditions" is her
exchanges for the transaction of the business. It is an excise on additional service of limitless consultations for an additional attending physician Dr. Saniel who treated her and conducted
the facilities used in the transaction of the business, separate amount of P1,000. The application was approved on October 22, the test during her confinement.
and apart from the business itself. 2002. In the health care agreement, ailments due to "pre- RTC: reversed MeTC and ordered petitioner to pay
existing conditions" were excluded from the coverage. respondents.The RTC held that it was the burden of petitioner to
What is Documentary Stamp Tax? prove that the stroke of respondent Neomi was excluded from
On November 30, 2002, or barely 38 days from the effectivity of the coverage of the health care program for being caused by a
The DST is levied on the exercise by persons of certain privileges her health insurance, respondent Neomi suffered a stroke and pre-existing condition. It was not able to discharge that burden.
conferred by law for the creation, revision, or termination of was admitted at the Medical City which was one of the hospitals CA: affirmed the decision of the RTC
specific legal relationships through the execution of specific accredited by petitioner. On December 2, 2002, she was
instruments. It is an excise upon the privilege, opportunity, or informed that she could be discharged from the hospital. She Petitioner argues that respondents prevented Dr. Saniel from
facility offered at exchanges for the transaction of the business. incurred hospital expenses amounting to P34,217.20. submitting his report regarding the medical condition of Neomi.
Consequently, she requested from the representative of Hence, it contends that the presumption that evidence willfully
petitioner at Medical City a letter of authorization in order to suppressed would be adverse if produced should apply in its
settle her medical bills. But petitioner refused to issue the letter favor.
CASE: and suspended payment pending the submission of a Respondents counter that the burden was on petitioner to prove
BLUE CROSS HEALTH CARE, INC., vs. NEOMI* and certification from her attending physician that the stroke she that Neomi's stroke was excluded from the coverage of their
DANILO OLIVARES suffered was not caused by a pre-existing condition. agreement because it was due to a pre-existing condition. It
G.R. No. 169737 February 12, 2008 failed to prove this.
CORONA, J. She was discharged from the hospital on December 3, 2002. On
December 5, 2002, she demanded that petitioner pay her ISSUE #1: Whether or not petitioner was able to prove that
QUICK FACTS: Neomi Olivares applied for a health care medical bill. When petitioner still refused, she and her husband, respondent Neomi's stroke was caused by a pre-existing
program with Blue Cross. A month after she applied, she respondent Danilo Olivares, were constrained to settle the bill. condition and therefore was excluded from the coverage of the
suffered from a stroke. Ailments due to “pre-existing conditions” They thereafter filed a complaint for collection of sum of money health care agreement.
were excluded from the coverage. She was confined in Medical against petitioner in the MeTC on January 8, 2003. 11 In its
City and discharged with a bill of P34,217.20. Blue Cross refused answer dated January 24, 2003, petitioner maintained that it had HELD #1: No. We agree with respondents.
to pay unless she had her physician’s certification that she was not yet denied respondents' claim as it was still awaiting Dr.
suffering from a pre-existing condition. When Blue Cross still Saniel's report. In Philamcare Health Systems, Inc. v. CA, we ruled that a health
refused to pay, she filed suit in the MTC. The health care care agreement is in the nature of a non-life insurance. It is an
company rebutted by saying that the physician didn’t disclose Dr. Saniel stated that there was patient-physician confidentiality established rule in insurance contracts that when their terms
the condition due to the patient’s invocation of the doctor-client and as a doctor, she should not release any medical information contain limitations on liability, they should be construed strictly
privilege. concerning her neurologic status to anyone without her against the insurer. These are contracts of adhesion the terms of

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 7
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

which must be interpreted and enforced stringently against the or corporation transacting the business of accident, fidelity,
insurer which prepared the contract. This doctrine is equally ISSUE #2: Whether or not petitioner was liable for moral and employer's liability, plate, glass, steam boiler, burglar, elevator,
applicable to health care agreements. exemplary damages and attorney's fees automatic sprinkler, or other branch of insurance (except life,
Petitioner never presented any evidence to prove that HELD #2: The RTC and CA found that there was a factual basis marine, inland, and fire insurance), and all bonds, undertakings,
respondent Neomi's stroke was due to a pre-existing condition. for the damages adjudged against petitioner. They found that it or recognizances, conditioned for the performance of the duties
It merely speculated that Dr. Saniel's report would be adverse to was guilty of bad faith in denying a claim based merely on its of any office or position, for the doing or not doing of anything
Neomi, based on her invocation of the doctor-patient privilege. own perception that there was a pre-existing condition. therein specified, and on all obligations guaranteeing the validity
This was a disputable presumption at best. or legality of any bond or other obligations issued by any
*Please see full text for the List of Disabilities considered pre- province, city, municipality, or other public body or organization,
Section 3 (e), Rule 131 of the Rules of Court states: existing conditions. * and on all obligations guaranteeing the title to any real estate, or
Sec. 3. Disputable presumptions. ― The following presumptions guaranteeing any mercantile credits, which may be made or
are satisfactory if uncontradicted, but may be contradicted and They were not engaged in the insurance business renewed by any such person, company or corporation, there
overcome by other evidence: shall be collected a documentary stamp tax of fifty centavos
xxx xxx xxx CASE: (P0.50) on each four pesos (P4.00), or fractional part thereof, of
(e) That evidence willfully suppressed would be adverse if the premium charged.
produced. PHILIPPINE HEALTH CARE PROVIDERS, INC., v.
Suffice it to say that this presumption does not apply if (a) the COMMISSIONER OF INTERNAL REVENUE Facts: Petitioner is a domestic corporation whose primary
evidence is at the disposal of both parties; (b) the suppression G.R. No. 167330; June 12, 2008; Corona, J. purpose is "to establish, maintain, conduct and operate a
was not willful; (c) it is merely corroborative or cumulative and prepaid group practice health care delivery system or a health
(d) the suppression is an exercise of a privilege. Here, Note: Contention of Petitioner: Its health care agreement is maintenance organization to take care of the sick and disabled
respondents' refusal to present or allow the presentation of Dr. not a contract of insurance but a contract for the provision on a persons enrolled in the health care plan and to provide for the
Saniel's report was justified. It was privileged communication prepaid basis of medical services, including medical check-up, administrative, legal, and financial responsibilities of the
between physician and patient. that are not based on loss or damage. Petitioner also insists that organization." Individuals enrolled in its health care programs
it is not engaged in the insurance business. It is a health pay an annual membership fee and are entitled to various
Furthermore, as already stated, limitations of liability on the part maintenance organization regulated by the Department of preventive, diagnostic and curative medical services.
of the insurer or health care provider must be construed in such Health, not an insurance company under the jurisdiction of the
a way as to preclude it from evading its obligations. Accordingly, Insurance Commission. For these reasons, petitioner asserts that The deficiency DST assessment was imposed on petitioner's
they should be scrutinized by the courts with "extreme the health care agreement is not subject to DST. health care agreement with the members of its health care
jealousy" and "care" and with a "jaundiced eye." Since program pursuant to Section 185 of the 1997 Tax Code.
petitioner had the burden of proving exception to liability, it Provision Involved: Section 185 of the 1997 Tax Code
should have made its own assessment of whether respondent which provides: Petitioner protested the assessment in a letter. As respondent
Neomi had a pre-existing condition when it failed to obtain the did not act on the protest, petitioner filed a petition for review in
attending physician's report. It could not just passively wait for Section 185. Stamp tax on fidelity bonds and other the Court of Tax Appeals seeking the cancellation of the
Dr. Saniel's report to bail it out. The mere reliance on a insurance policies. - On all policies of insurance or bonds or deficiency VAT and DST assessments.
disputable presumption does not meet the strict standard obligations of the nature of indemnity for loss, damage, or Respondent appealed the CTA decision to the CA. He claimed
required under our jurisprudence. liability made or renewed by any person, association or company that petitioner's health care agreement was a contract of

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 8
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

insurance subject to DST under Section 185 of the 1997 Tax not a contract for the provision of medical services.
Code. Petitioner does not actually provide medical or hospital services Petitioner's contention that it is a health maintenance
but merely arranges for the same and pays for them up organization and not an insurance company is irrelevant.
The CA rendered its decision. It held that petitioner's health care to the stipulated maximum amount of coverage. It is also Contracts between companies like petitioner and the
agreement was in the nature of a non-life insurance contract incorrect to say that the health care agreement is not based on beneficiaries under their plans are treated as insurance
subject to DST. loss or damage because, under the said agreement, petitioner contracts.
assumes the liability and indemnifies its member for hospital,
Petitioner moved for reconsideration but the CA denied it. medical and related expenses.
Hence, this petition. Q: Who may be an insurer?
Furthermore, the fact that petitioner must relieve its member A: Sec. 190, Insurance Code
Issue: Whether the contract is a health care agreement in the from liability by paying for expenses arising from the stipulated
nature of an insurance contract and therefore subject to the contingencies belies its claim that its services are prepaid. The Sec. 190. The Commissioner must require as a condition
documentary stamp tax (DST) imposed under Section 185 of expenses to be incurred by each member cannot be predicted precedent to the transaction of insurance business
Republic Act 8424 Tax Code of 1997? beforehand, if they can be predicted at all. Petitioner assumes in the Philippines by any foreign insurance company,
the risk of paying for the costs of the services even if they are that
Held: Yes, the DST is levied on the exercise by persons of significantly and substantially more than what the member has such company file in his office a written power of
certain privileges conferred by law for the creation, revision, or "prepaid." This is insurance. attorney
termination of specific legal relationships through the execution designating some person who shall be a resident of
of specific instruments. In particular, the DST under Section 185 Petitioner's health care agreement is substantially similar to that the Philippines as its general agent, on whom any notice
of the 1997 Tax Code is imposed on the privilege of making or involved in Philamcare Health Systems, Inc. v. CA. This Court provided by law or by any insurance policy, proof of loss,
renewing any policy of insurance (except life, marine, inland and ruled in Philamcare Health Systems, Inc.: summons and other legal processes may be served in all
fire insurance), bond or obligation in the nature of indemnity for actions or other legal proceedings against such company,
loss, damage, or liability. The insurable interest of the subscriber in obtaining the health and consenting that service upon such general agent
care agreement was his own health. The health care agreement shall
Under the law, a contract of insurance is an agreement whereby was in the nature of non-life insurance, which is primarily a be admitted and held as valid as if served upon the
one undertakes for a consideration to indemnify another against contract of indemnity. Once the member incurs hospital, medical foreign
loss, damage or liability arising from an unknown or contingent or any other expense arising from sickness, injury or other company at its home office. Any such foreign company
event. The event insured against must be designated in the stipulated contingency, the health care provider must pay for the shall, as further condition precedent to the transaction of
contract and must either be unknown or contingent. same to the extent agreed upon under the contract. insurance business in the Philippines, make and file with
the Commissioner an agreement or stipulation, executed
Petitioner's health care agreement is primarily a contract of Similarly, the insurable interest of every member of petitioner's (TIWASA)
indemnity. And in the recent case of Blue Cross Healthcare, Inc. health care program in obtaining the health care agreement is
v. Olivares, this Court ruled that a health care agreement is in his own health. Under the agreement, petitioner is bound to WHAT MAY BE INSURED
the nature of a non-life insurance policy. indemnify any member who incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated Sec. 3. Any contingent or unknown event, whether past
Contrary to petitioner's claim, its health care agreement is contingency to the extent agreed upon under the contract. or future, which may damnify a person having an

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 9
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

insurable interest, or create a liability against him, may of this chapter so far as the provisions can apply. organized by Philippine laws) when the policy was issued on
be insured against, subject to the provisions of this October 1, 1941. The petitioner, however, paid to the
chapter. The consent of the husband is not necessary for respondent the sum of P92,650 on April 19, 1943 under orders
the validity of an insurance policy taken out by a married PARTIES TO THE CONTRACT from the military government.
woman on her life or that of her children.
Sec. 6. Every person, partnership, association, or The insurer filed for a suit to recover the sum. The contention
Any minor of the age of eighteen years or more, may, corporation duly authorized to transact insurance was that the policy ceased to be effective because of the
notwithstanding such minority, contract for life, health business outbreak of the war and that the payment made by the
and accident insurance, with any insurance company as elsewhere provided in this Code, may be an insurer, petitioner to the respondent corporation during the Japanese
duly authorized to do business in the Philippines, (a) military occupation was under pressure.
provided the insurance is taken on his own life and the
beneficiary appointed is the minor's estate or the minor's The trial and the appellate courts dismissed the action.
father, mother, husband, wife, child, brother or sister.
The Court of Appeals overruled the contention of the petitioner
The married woman or the minor herein allowed to take Sec. 7. Anyone except a public enemy may be insured. that the respondent corporation became an enemy when the
out an insurance policy may exercise all the rights and United States declared war against Germany, relying on English
privileges of an owner under a policy. CASE: and American cases which held that a corporation is a citizen of
the country or state by and under the laws of which it was
All rights, title and interest in the policy of insurance G.R. No. L-2294 May 25, 1951 created or organized. It rejected the theory that nationality of
taken out by an original owner on the life or health of a private corporation is determine by the character or citizenship
minor shall automatically vest in the minor upon the FILIPINAS COMPAÑIA DE SEGUROS, petitioner, of its controlling stockholders.
death of the original owner, unless otherwise provided vs.
for in the policy, (a) CHRISTERN, HUENEFELD and CO., INC., respondent. Issue: Whether or not the insurance policy became
ineffective upon the declaration of the war?
 Marital consent is not required Facts: Respondent Christern obtained from Filipinas a fire
insurance policy of P1000,000, covering merchandise contained Held: YES. The Philippine Insurance Law (Act No. 2427, as
in a building located at Binondo. During the Japanese military amended,) in section 8, provides that "anyone except a public
occupation, the building and insured merchandise were burned. enemy may be insured." It stands to reason that an insurance
The respondent its claim under the policy. The total loss suffered policy ceases to be allowable as soon as an insured becomes a
Sec. 4. The preceding section does not authorize an by the respondent was fixed at P92,650. public enemy.
insurance for or against the drawing of any lottery, or for
or against any chance or ticket in a lottery drawing a The petitioner refused to pay the claim on the ground that the There is no question that majority of the stockholders of the
prize policy in favor of the respondent had ceased to be in force on respondent corporation were German subjects. This being so,
the date the U.S. declared war on Germany with the respondent said respondent became an enemy corporation upon the
Sec. 5. All kinds of insurance are subject to the Corporation being controlled by German subjects and the outbreak of the war between the United States and Germany.
provisions petitioner being a company under American jurisdiction (though

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 10
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

The respondent having become an enemy corporation on INSURABLE INTEREST


December 10, 1941, the insurance policy issued in its favor on
October 1, 1941, by the petitioner (a Philippine corporation) had Sec. 10. Every person has an insurable interest in the life
ceased to be valid and enforcible, and since the insured goods and health: Sec. 12. The interest of a beneficiary in a life insurance
were burned after December 10, 1941, and during the war, the a) Of himself, of his spouse and of his children; policy shall be forfeited when the beneficiary is the
respondent was not entitled to any indemnity under said policy b) Of any person on whom he depends wholly or in part for principal, accomplice, or accessory in willfully bringing
from the petitioner. education or support, or in whom he has a pecuniary about the death of the insured; in which event, the
interest; nearest relative of the insured shall receive the proceeds
However, elementary rules of justice (in the absence of specific c) Of any person under a legal obligation to him for the of said insurance if not otherwise disqualified, (n)
provision in the Insurance Law) require that the premium paid payment of money, or respecting property or services, of
by the respondent for the period covered by its policy from which death or illness might delay or prevent the
December 11, 1941, should be returned by the petitioner. performance; and Sec. 13. Every interest in property, whether real or
d) Of any person upon whose life any estate or interest personal, or any relation thereto, or liability in respect
EFFECTS OF WAR (Base on the case) vested in him depends, (a) thereof, of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.

Sec. 8. Unless the policy otherwise provides, where a mortgagor INSURABLE INTEREST
of property effects insurance in his own name providing that the
loss shall be payable to the mortgagee, or assigns a policy of  One of the most basic of all requirements in insurance. Sec. 14. An insurable interest in property may consist in:
insurance to a mortgagee, the insurance is deemed to be upon  It is that interest which the law requires the owner of an
the interest of the mortgagor, who does not cease to be a party insurance policy to have in the person or thing insured. (a) An existing interest;
to the original contract, and any act of his, prior to the loss (b) An inchoate interest founded on an existing interest;
which would otherwise avoid the insurance, will have the same or
effect, although the property is in the hands of the mortgagee, Definition of Insurable Interest (c) An expectancy, coupled with an existing interest in
but any act which, under the contract of insurance, is to be CASE: ARMANDO GEAGONIA v. COURT OF APPEALS and that out of which the expectancy arises.
performed by the mortgagor, may be performed by the COUNTRY BANKERS INSURANCE CORPORATION
mortgagee therein named, with the same effect as if it had been (Check Fulltext) (1) An existing interest. — The existing interest in a
performed by the mortgagor. property may be a legal title or equitable title.
Undoubtedly, the absolute owner of property has an
insurable interest thereon.
Sec. 9. If an insurer assents to the transfer of an insurance from Art. 105, FC
a mortgagor to a mortgagee, and, at the time of his assent, (2) An inchoate interest. — Such inchoate interest must
imposes further obligations on the assignee, making a new be founded on an existing interest.
contract with him, the acts of the mortgagor cannot affect the Sec. 11. The insured shall have the right to change the
rights of said assignee. beneficiary he designated in the policy, unless he has
expressly waived this right in said policy, (n)

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 11
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

(3) An expectancy. — The expectancy must be coupled Sec. 16. A mere contingent or expectant interest in the insurer had full knowledge of the
with an existing interest in that out of which such anything, not founded on an actual right to the thing, nor fact of ownership and even if the
expectancy arises. upon any valid contract for it, is not insurable. insured subsequently acquired insurable
interest.
 A farmer may insure future crops if they are to be grown  In a case, the contract of lease provides
on land owned by him at the time of the issuance of the Sec. 17. The measure of an insurable interest in property that any fire insurance policy obtained
policy, or although the crops are to be raised by him on is the extent to which the insured might be damnified by by the lessee over his merchandise
the land of another, provided the crops will belong to loss or injury thereof. inside the leased premises without the
him when produced. consent of the lessor is deemed
 An owner of a business can insure against a contingency  a contract of insurance is one of indemnity. assigned or transferred to the lessor. It
which may cause loss of profits resulting from the  Any contract of property insurance that gives to the held that such automatic assignment
cessation or interruption of his business insured more than indemnity against his actual loss that is void for being contrary to law
 Any binding contract giving rights which will be may be suffered by the happening of the event insured and public policy, hence, the
injuriously affected by the destruction of any designated against is in the nature of a wagering policy contrary to insurer cannot be compelled to pay
property will also afford an insurable interest in such public policy and void. the proceeds of the policy to the
property even though the insured may have neither  A mortgagor has an insurable interest equal to the value lessor who has no interest in the
interest in the property nor specific lien upon it. So, a of the mortgaged property and a mortgagee, only to the property insured.
workman has an insurable interest in any building he extent of the credit secured by the mortgage CASE:
may have contracted to repair, or an artist might insure  The purpose of property insurance is to indemnify a
the structure for the interior decoration of which he had person against actual loss, and not to wager on the Spouses NILO CHA and STELLA UY CHA, and UNITED
been employed. happening of the event. INSURANCE CO., INC., petitioners, vs. COURT OF
APPEALS and CKS DEVELOPMENT CORPORATION,
respondents.
Sec. 18. No contract or policy of insurance on property G.R. No. 124520. August 18, 1997
shall be enforceable except for the benefit of some
Sec. 15. A carrier or depository of any kind has an person having an insurable interest in the property FACTS: Petitioner-spouses Nilo Cha and Stella Uy-Cha, as
insurable interest in a thing held by him as such, to the insured lessees, entered into a lease contract with private respondent
extent of his liability but not to exceed the value thereof. CKS Development Corporation, as lessor, on 5 October 1988.
Effect of Absence of Insurable Interest in Property
Insured One of the stipulations of the one (1) year lease contract states:
1. Principle of Indemnity applicable
o an 18. x x x. The LESSEE shall not insure against fire the chattels,
o Insurance taken out by a person on property in merchandise, textiles, goods and effects placed at any stall or
which he has no insurable interest is void. store or space in the leased premises without first obtaining the
 Fire insurance taken on property written consent and approval of the LESSOR. If the LESSEE
belonging to another is void, although obtain(s) the insurance thereof without the consent of the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 12
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

LESSOR then the policy is deemed assigned and transferred to NO. It is, of course, basic in the law on contracts that the property is the extent to which the insured might be
the LESSOR for its own benefit; x x x stipulations contained in a contract cannot be contrary to law, damnified by loss of injury thereof."
morals, good customs, public order or public policy.
Notwithstanding the above stipulation in the lease contract, the Therefore, respondent CKS cannot, under the Insurance
Cha spouses insured against loss by fire their merchandise inside Sec. 18 of the Insurance Code provides: Code a special law be validly a beneficiary of the fire
the leased premises for Five Hundred Thousand (P500,000.00) Sec. 18. No contract or policy of insurance on property insurance policy taken by the petitioner-spouses over
with the United Insurance Co., Inc. (without the written consent shall be enforceable except for the benefit of some their merchandise. This insurable interest over said
of private respondents CKS. person having an insurable interest in the property merchandise remains with the insured, the Cha spouses. The
insured. automatic assignment of the policy to CKS under the provision of
On the day that the lease contract was to expire, fire broke out the lease contract previously quoted is void for being contrary to
inside the leased premises.When CKS learned of the insurance A non-life insurance policy such as the fire insurance law and/or public policy. The proceeds of the fire insurance
earlier procured by the Cha spouses (without its consent), it policy taken by petitioner-spouses over their policy thus rightfully belong to the spouses Nilo Cha and Stella
wrote the insurer (United) a demand letter asking that the merchandise is primarily a contract of indemnity. Uy-Cha (herein co-petitioners). The insurer (United) cannot
proceeds of the insurance contract (between the Cha spouses Insurable interest in the property insured must exist at be compelled to pay the proceeds of the fire insurance
and United) be paid directly to CKS, based on its lease contract the time the insurance takes effect and at the time the policy to a person (CKS) who has no insurable interest in
with Cha spouses. loss occurs. The basis of such requirement of insurable interest the property insured.
in property insured is based on sound public policy: to prevent a
United refused to pay CKS. Hence, the latter filed a complaint person from taking out an insurance policy on property upon The liability of the Cha spouses to CKS for violating their lease
against the Cha spouses and United. which he has no insurable interest and collecting the proceeds of contract in that Cha spouses obtained a fire insurance policy
said policy in case of loss of the property. In such a case, the over their own merchandise, without the consent of CKS, is a
RTC: ordered defendant United to pay CKS the amount of contract of insurance is a mere wager which is void under separate and distinct issue which we do not resolve in this case.
P335,063.11 and defendant Cha spouses to pay P50,000.00 as Section 25 of the Insurance Code, which provides:
exemplary damages, P20,000.00 as attorney’s fees and costs of  Where the insurance is invalidated on the ground that
suit. SECTION 25. Every stipulation in a policy of no insurable interest exists, the premium is ordinarily
Insurance for the payment of loss, whether the person returned to the insured unless he is in pari delicto with
CA: affirmed the trial court decision, deleting however the insured has or has not any interest in the property the insurer.
awards for exemplary damages and attorney’s fees. insured, or that the policy shall be received as proof of o Consistent with the principle of indemnity to pay
such interest, and every policy executed by way of the insured a benefit in an amount equal to or
ISSUE: Whether or not the paragraph 18 of the lease contract gaming or wagering, is void. less than the loss but the principle is violated if
entered into between CKS and the Cha spouses is valid insofar he is paid a benefit more or greater than the
as it provides that any fire insurance policy obtained by the In the present case, it cannot be denied that CKS has no loss
lessee (Cha spouses) over their merchandise inside the leased insurable interest in the goods and merchandise inside
premises is deemed assigned or transferred to the lessor (CKS) if the leased premises under the provisions of Section 17 of Q: When does insurable interest exist?
said policy is obtained without the prior written of the latter. the Insurance Code which provide. A:

HELD: Section 17. The measure of an insurable interest in a. Insurance on Life

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 13
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

i. destroyed due to fortuities event or force majeure


b. Insurance on property Under Section 13 of our Insurance Code defines insurable
i. Sec. 19. An interest in property insured - RTC held that IMC and LSPI retained ownership of the interest as "every interest in property, whether real or
must exist when the insurance takes delivered goods until fully paid, it must bear the loss (res perit personal, or any relation thereto, or liability in respect
effect, and when the loss occurs, but domino) while the CA: Reversed - sales invoices is an exception thereof, of such nature that a contemplated peril might
need not exist in the meantime; and under Article 1504 (1) of the Civil Code to res perit domino directly damnify the insured." Parenthetically, under Section
interest in the life or health of a person 14 of the same Code, an insurable interest in property may
insured must exist when the insurance ISSUE: WON Insurance Company of North America can claim consist in: (a) an existing interest; (b) an inchoate interest
takes effect, but need not exist against Gaisano Cagayan for the debt that was insured founded on existing interest; or (c) an expectancy, coupled
thereafter or when the loss occurs (a) with an existing interest in that out of which the expectancy
HELD: YES. It was partly granted and the order to pay P535,613 arises. Anyone has an insurable interest in property who
CASE: is DELETED. The Insurance policy is clear that the subject of the derives a benefit from its existence or would suffer loss from
insurance is the book debts and NOT goods sold and delivered to its destruction. It is sufficient that the insured is so situated
GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF the customers and dealers of the insured with reference to the property that he would be liable to loss
NORTH AMERICA should it be injured or destroyed by the peril against which it
G.R. No. 147839 June 8, 2006; AUSTRIA- Under ART. 1504. Unless otherwise agreed, the goods remain at is insured an insurable interest in property does not
MARTINEZ, J.: the seller's risk until the ownership therein is transferred to the necessarily imply a property interest in, or a lien upon, or
buyer, but when the ownership therein is transferred to the possession of, the subject matter of the insurance, and
FACTS: Intercapitol Marketing Corporation (IMC) is the maker of buyer the goods are at the buyer's risk whether actual delivery neither the title nor a beneficial interest is requisite to the
Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the has been made or not, except that: existence of such an interest insurance in this case is not for
local distributor of products bearing trademarks owned by Levi loss of goods by fire but for petitioner's accounts with IMC
Strauss & Co. IMC and LSPI separately obtained from Insurance (1) Where delivery of the goods has been made to the buyer and LSPI that remained unpaid 45 days after the fire the
Company of North America fire insurance policies for their book or to a bailee for the buyer, in pursuance of the contract and obligation is pecuniary in nature obligor should be held
debt endorsements related to their ready-made clothing the ownership in the goods has been retained by the seller exempt from liability when the loss occurs thru a fortuitous
materials which have been sold or delivered to various merely to secure performance by the buyer of his obligations event only holds true when the obligation consists in the
customers and dealers of the Insured anywhere in the under the contract, the goods are at the buyer's risk from delivery of a determinate thing and there is no stipulation
Philippines which are unpaid 45 days after the time of the loss. the time of such delivery; holding him liable even in case of fortuitous event.
On February 25, 1991, Gaisano Superstore Complex in Cagayan
de Oro City, owned by Gaisano Cagayan, Inc., containing the Here, IMC and LSPI did not lose complete interest over Under Article 1263 of the Civil Code in an obligation to
ready-made clothing materials sold and delivered by IMC and the goods. They have an insurable interest until full deliver a generic thing, the loss or destruction of anything of
LSPI was consumed by fire and On February 4, 1992 Insurance payment of the value of the delivered goods. Unlike the the same kind does not extinguish the obligation (Genus
Company of North America filed a complaint for damages against civil law concept of res perit domino, where ownership is the nunquan perit) The subrogation receipt, by itself, is sufficient
Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their basis for consideration of who bears the risk of loss, in property to establish not only the relationship of respondent as insurer
claims under their respective fire insurance policies which it paid insurance, one's interest is not determined by concept of title, and IMC as the insured, but also the amount paid to settle
thus it was subrogated to their rights. Gaisano Cagayan, Inc but whether insured has substantial economic interest in the the insurance claim.
alleged that they should not be held liable because it was property

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 14
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Under Art. 2207. If the plaintiff's property has been insured, insurable interest insurable interest insurable interest 4. A change of interest by will or succession on the death
and he has received indemnity from the insurance company must exist exists at the time “must exist when of the insured (Sec. 23.);
for the injury or loss arising out of the wrong or breach of the policy takes the insurance takes 5. A transfer of interest by one of several partners, joint
contract complained of, the insurance company shall be effect and need not effect and when the owners, or owners in common, who are jointly insured,
subrogated to the rights of the insured against the exist at the time of loss occurs, but to the others (Sec. 24.);
wrongdoer or the person who has violated the contract. the loss need not exist in 6. When a policy is so framed that it will inure to the
Here, as to LSPI, no subrogation receipt was offered in the meantime.” benefit of whomsoever, during the continuance of the
evidence. As to expectation of The expectation of risk, may become the owner of the interest insured (Sec.
benefit to be benefit to be 57.); and
Failure to substantiate the claim of subrogation is fatal to derived derived from the 7. When there is an express prohibition against alienation
petitioner's case for recovery of the amount of P535,613. continued existence in the policy, in case of alienation, the contract of
of life need not insurance is not merely suspended but is avoided. (Art.
- Read fulltext have any legal basis 1306, Civil Code; see Sec. 24.)

Sec. 19. An interest in property insured must exist when Sec. 21. A change of interest in a thing insured, after the
the insurance takes effect, and when the loss occurs, but Sec. 20. Except in the cases specified in the next four occurrence of an injury which results in a loss, does not affect
need not exist in the meantime; and interest in the life or sections, and in the cases of life, accident, and health the right of the insured to indemnity for the loss.
health of a person insured must exist when the insurance, a change of interest in any part of a thing
insurance takes effect, but need not exist thereafter or insured
when the loss occurs, unaccompanied by a corresponding change of interest in Sec. 22. A change of interest in one or more of several distinct
the insurance, suspends the insurance to an equivalent things, separately insured by one policy, does not
- Applicable only to insurance on property and not to extent, until the interests in the thing and the interest in avoid the insurance as to the others
life insurance except that on the life of the debtor the insurance are vested in the same person.
In connection with the above section, it is important to make a
INSURABLE INTEREST IN LIFE and INSURABLE INTEREST IN  distinction between a divisible contract and an indivisible
PROPERTY contract:
EXCEPTIONS TO GENERAL RULE
Ins. Interest in Life Ins. Interest in 1. Effect dependent on divisibility of contract. — In the
Property The rule that change of interest suspends the insurance former, the cause or consideration is made up of several
As to extent of Unlimited Limited to the is subject to exceptions, to wit: parts while in the latter, it is entire and single. If the
insurable interest actual value of the 1. In life, health, and accident insurance (Sec. 20.); things are "separately insured in one policy" the contract
Save that Life interest thereon 2. A change of interest in the thing insured after the is divisible and the violation of a condition which avoids
insurance effected occurrence of an injury which results in a loss (Sec. 21.); the policy with respect to one or more of the things does
by creditor on life 3. A change of interest in one or more of several things, not affect the others. On the other hand, if the things
of debtor separately insured by one policy (Sec. 22.); are insured under one policy for a gross sum and for an
As to time when It is enough that It is necessary that entire premium, the contract is indivisible so that a

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 15
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

change of interest in one or more of the things will also Sec. 25. Every stipulation in a policy of insurance for the 1. The devices of concealment (see Sec. 26.) and
avoid the insurance as to the others. payment of loss whether the person insured has or has representations (see Sec. 36.) were originally developed
not any interest in the property insured, or that the for the purpose of enabling the insurer to secure the
2. Divisibility of contract, a question of intention. — policy shall be received as proof of such interest, and same information with respect to the risk that was
Whether a contract is entire or severable is a question of every policy executed by way of gaming or wagering, is possessed by the applicant for insurance, so that he
intention to be determined by the language employed by void, might be equally capable of forming a just estimate of
the parties. Where only one premium was paid for the its quality.
entire shipment of goods, the insurance contract is
indivisible and the fact that the goods (which are not 2. Warranties (see Sees. 67, 68.) and conditions so far as
separately valued) are loaded on two different vessels CONCEALMENT they are affirmative, that is, dealing with conditions
does not make the contract several and divisible as to existing at the inception of the contract, and exceptions
the items insured. (Oriental Assurance Corp. vs. Court of Sec. 26. A neglect to communicate that which a party knows and are used for the purpose of making more definite and
Appeals, 200 SCRA 459 [1991].) (discussed by Atty. ought to communicate, is called a concealment. certain the general words used to describe the risk the
Lavares) insurer undertook to bear.

It has been held that where the amount of the insurance What is CONCEALMENT?
agreed upon was merely apportioned among the various - a neglect to communicate that which a party knows The general description of the risk concerned has two
items insured to limit the extent of the risk of the insurer and ought to communicate parts:
as regards each item, the contract of insurance is still
indivisible. (Piatt vs. Minnesota F. Ins. Co., 23 Minn. Four primary concerns of the parties to an insurance First, the designation of the specific property interest to
479.) contract: be covered; and

1. The correct estimation of the risk which enables the Secondly, the specification of such of the perils to which
Sec. 23. A change of interest, by will or succession, on the death insurer to decide whether he is willing to assume it, and that property interest would be exposed.
of the insured, does not avoid an insurance; and his interest in if so, at what rate of premium;
the insurance passes to the person taking his interest in the 2. The precise delimitation of the risk which determines the 3. Exceptions perform a similar function in making more
thing insured. extent of the contingent duty to pay undertaken by the definite the coverage indicated by the general
insurer; description of the risk by excluding certain specified risks
3. Such control of the risk after it is assumed as will enable that otherwise would have been included under the
Sec. 24. A transfer of interest by one of several partners, joint the insurer to guard against the increase of the risk general language describing the risks assumed. The
owners, or owners in common, who are jointly insured, to the because of change in conditions; and exception may be of certain property or of certain peril
others, does not avoid an insurance, even though it has been 4. Determining whether a loss occurred and if so, the within the general coverage
agreed that the insurance shall cease amount of such loss.
upon an alienation of the thing insured. 4. Executory warranties (Sec. 68.) and conditions, that is,
Devices for ascertaining and controlling risk and loss undertakings that certain conditions should or should not
exist in the future, are used to enable the insurer to
rescind the contract in case subsequent events increased

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 16
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

the risk to such an extent that he is no longer willing to 1. By the insured  "falsity of a warranty”
bear. o Failure on the party of the insured to disclose 
conditions affecting the risk, of which he is
5. The insurer must also protect himself against fraudulent aware, makes the contract voidable at the Sec. 30. Neither party to a contract of insurance is bound
claims of loss; and this he attempts to do by inserting in insurer's option. to communicate information of the matters following,
the policy various conditions which take the form of o Insurance policies are traditionally contracts except in answer to the inquiries of the other:
conditions precedent. For instance, there are conditions uberrimae fidae
requiring immediate notice of loss or injury and detailed  Contracts of the utmost good faith a) Those which the other knows;
proofs of loss within a limited period (see Sees. 88, 89.); b) Those which, in the exercise of ordinary care, the
and in a great many policies, there is found a condition 2. By the insurer other ought to know, and of which the former has
requiring that any action thereon shall be brought within o The contractual duty of disclosure imposed by no reason to suppose him ignorant;
a limited time, (see Sec. 63.) utmost good faith is not required of the insured c) Those of which the other waives communication;
alone, but is imposed with equal stringency d) Those which prove or tend to prove the existence
upon the insurer; in fact, it is more upon the of a risk excluded by a warranty, and which are
latter, since his dominant bargaining position not otherwise material; and
REQUISITES OF CONCEALMENT carries with it stricter responsibility. e) Those which relate to a risk excepted from the
o The duty of utmost good faith is breached by policy, and which are not otherwise material.
1. A party knows the fact which he neglects to concealment or misrepresentation Sec. 31. Materiality is to be determined not by the event,
communicate or disclose to the other; o Section 27 "entitles" the injured party to rescind but solely by the probable and reasonable influence of
2. Such party concealing is duty bound to disclose such fact a contract of insurance by reason of the facts upon the party to whom the communication is
to the other; concealment, implying that it is optional on his due, in forming his estimate of the disadvantages of the
3. Such party concealing makes no warranty of the fact part whether or not to exercise his right of proposed contract, or in making his inquiries.
concealed; and rescission.
4. The other party has not the means of ascertaining the Q: Why is it biased towards the insured because”
fact concealed. Sec. 28. Each party to a contract of insurance must A: It is the insured ______________________________-
communicate to the other, in good faith, all facts within
CASE: Great Pacific Life case his knowledge which are material to the contract, and The principal question, therefore, must be: "Was the insurer
which the other has not the means of ascertaining, and misled or deceived into entering a contract obligation or in fixing
Sec. 27. A concealment whether intentional or as to which he makes no warranty. the premium of insurance by a withholding of material
unintentional information or facts within the assured's knowledge or presumed
entitles the injured party to rescind a contract of knowledge?"
insurance, Sec. 29. An intentional and fraudulent omission, on the
(as amended by B.P. Big. 874.) part of one insured, to communicate information of
matters proving or tending to prove the falsity of a
EFFECT OF CONCEALMENT warranty, entitles the insurer to rescind.
Sec. 32. Each party to a contract of insurance is bound to know

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 17
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

all the general causes which is open to his inquiry, equally with - You’re opinion of the insured upon the matters in Section 39. A representation as to the future is to be
that of the other, any which templated; and all general usages of question is not important; deemed a promise, unless it appears that it was merely a
trade. - It must be based on facts; not on judgment statement of belief or expectation.
- Check the provision
Section 40. A representation cannot qualify an express
 This provision talks about provision in a contract of insurance, but it may qualify an
TITLE V implied warranty.
Sec. 33. The right to information of material facts may be REPRESENTATION
waived, either by the terms of insurance or by neglect to Section 41. A representation may be altered or
make inquiries as to such facts where they are distinctly Representation is a statement made by the insured at the time withdrawn before the insurance is effected, but not
implied in other facts of which information is of, or prior to, the issuance of the policy (Sec. 37.), as to an afterwards.
communicated. existing or past fact or state of facts, or concerning a future
happening, to give information to the insurer and otherwise Section 42. A representation must be presumed to refer
 The right to information of material facts may be induce him to enter into the insurance contract. to the date on which the contract goes into effect.
waived:
o Expressly ( By the terms of insurance); or Misrepresentation in insurance is a statement: Section 43. When a person insured has no personal
o Impliedly (By neglect to make inquiry as to (1) as a fact of something which is untrue, knowledge of a fact, he may nevertheless repeat
the facts already communicated. (2) which the insured stated with knowledge that it information which he has upon the subject, and which he
 If the applicant has answered the questions asked in the is untrue and with an intent to deceive, or which believes to be true, with the explanation that he does so
application, he is justified in assuming that no further he states positively as true without knowing it to on the information of others; or he may submit the
information is desired. be true and which has a tendency to mislead, information, in its whole extent, to the insurer; and in
 A waiver is a type of estoppel and neither case is he responsible for its truth, unless it
(3) where such fact in either case is material to the proceeds from an agent of the insured, whose duty it is
risk. to give the information.
Sec. 34. Information of the nature or amount of the
interest of one insured need not be communicated unless Section 36. A representation may be oral or written. Section 44. A representation is to be deemed false when
in answer to an inquiry, except as prescribed by Section the facts fail to correspond with its assertions or
fifty-one. stipulations.

Section 37. A representation may be made at the time of,


or before, issuance of the policy.
Section 45. If a representation is false in a material
point, whether affirmative or promissory, the injured
Sec. 35. Neither party to a contract of insurance is bound Section 38. The language of a representation is to be party is entitled to rescind the contract from the time
to communicate, even upon inquiry, information of his interpreted by the same rules as the language of when the representation becomes false.
own judgment upon the matters in question. contracts in general.
Section 46. The materiality of a representation is

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 18
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

determined by the same rules as the materiality of a On June 23, 1999, Felipe's policy lapsed due to non-payment reinstatement, the insurer cannot prove that the
concealment. of the premium covering the period from June 22, 1999 to policy is void ab initio or is rescindible by reason
June 23, 2000 of the fraudulent concealment or
Section 47. The provisions of this chapter apply as well misrepresentation of the insured or his agent.]
to a modification of a contract of insurance as to its On September 7, 1999, Felipe applied for the reinstatement of
original formation. his policy and paid P25,020.00 as premium Respondents’ Arguments: the phrase “effective June 22,
1999” found in both the Letter of Acceptance and in the
Section 48. Whenever a right to rescind a contract of On October 12, 1999, Insular Life advised Felipe that his Endorsement is unclear whether it refers to the subject
insurance is given to the insurer by any provision of this application for reinstatement may only be considered if he of the sentence, i.e., the “reinstatement of this policy” or
chapter, such right must be exercised previous to the agreed to certain conditions such as payment of additional to the subsequent phrase “changes are made on the
commencement of an action on the contract. premium and the cancellation of the riders pertaining to policy”; that granting that there was any obscurity or
premium waiver and accidental death benefits. Felipe agreed to ambiguity in the insurance policy, the same should be
After a policy of life insurance made payable on the these conditions[8] and on December 27, 1999 paid the agreed laid at the door of Insular Life as it was this insurance
death of the insured shall have been in force during the additional premium of P3,054.50 company that prepared the necessary documents that make up
lifetime of the insured for a period of two (2) years from the same
the date of its issue or of its last reinstatement, the On September 22, 2001, Felipe died
insurer cannot prove that the policy is void ab initio or is ISSUE: Whether Felipe's reinstated life insurance policy is
rescindable by reason of the fraudulent concealment or On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick already incontestable at the time of his death.
misrepresentation of the insured or his agent. Y. Khu (collectively, Felipe's beneficiaries or respondents) filed
with Insular Life a claim for benefit under the reinstated policy. HELD: Yes. It was more than two years had lapsed from the
Q: What happens it there is reinstatement? This claim was denied. time the subject insurance policy was reinstated on June 22,
A: _______ 1999 vis-à-vis Felipe’s death on September 22, 2001. As such,
Petitioner’s Arguments: respondents should not be allowed to the subject insurance policy has already become incontestable at
CASE: recover on the reinstated insurance policy because the two- the time of Felipe’s death.
year contestability period had not yet lapsed inasmuch as
THE INSULAR LIFE ASSURANCE COMPANY, LTD., vs. PAZ the insurance policy was reinstated only on December 27, 1999, In Lalican v. The Insular Life Assurance Company, Limited, 597
Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU whereas Felipe died on September 22, 2001 SCRA 159 (2009), which coincidentally also involves the herein
[ Sec. 48. Of the Insurance Code, Whenever a petitioner, it was there held that the reinstatement of the
FACTS: On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied right to rescind a contract of insurance is given insured’s policy is to be reckoned from the date when the
for a life insurance policy with Insular Life under the to the insurer by any provision of this chapter, application was processed and approved by the insurer. There,
latter's Diamond Jubilee Insurance Plan. Felipe such right must be exercised previous to the we stressed that:
accomplished the required medical questionnaire wherein he did commencement of an action on the contract.
not declare any illness or adverse medical condition. Insular Life After a policy of life insurance made payable on To reinstate a policy means to restore the same to
thereafter issued him Policy Number A000015683 with a face the death of the insured shall have been in force premium-paying status after it has been permitted to lapse. x x x
value of PI million. This took effect on June 22, 1997. during the lifetime of the insured for a period of xxxx
two years from the date of its issue or of its last

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 19
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

In the instant case, Eulogio’s death rendered impossible of adhesion which must be construed liberally in favor of the either accepted or rejected, it is merely a proposal or an offer to
full compliance with the conditions for reinstatement of Policy insured and strictly against the insurer in order to safeguard the make a contract.
No. 9011992. True, Eulogio, before his death, managed to file latter’s interest. Thus, in Malayan Insurance Corporation v. Court
his Application for Reinstatement and deposit the amount for of Appeals, this Court held that: Facts:
payment of his overdue premiums and interests thereon with Indemnity and liability insurance policies are construed in
Malaluan; but Policy No. 9011992 could only be considered accordance with the general rule of resolving any ambiguity Primitivo B. Perez had been insured with the BF Lifeman
reinstated after the Application for Reinstatement had been therein in favor of the insured, where the contract or policy is Insurance Corporation for P20,000.00. Agent Rodolfo Lalog,
processed and approved by Insular Life during Eulogio’s lifetime prepared by the insurer. A contract of insurance, being a convinced him to apply for additional insurance coverage of
and good health. Thus, it is settled that the reinstatement of an contract of adhesion, par excellence, any ambiguity therein P50,000.00, to avail of the ongoing promotional discount of
insurance policy should be reckoned from the date when the should be resolved against the insurer; in other words, it should P400.00 if the premium were paid annually. Primitivo
same was approved by the insurer. be construed liberally in favor of the insured and strictly against accomplished an application form for the additional insurance
the insurer. Limitations of liability should be regarded with coverage of P50,000.00. On the same day, petitioner Virginia A.
it is settled that the reinstatement of an insurance policy should extreme jealousy and must be construed in such a way as to Perez, Primitivo’s wife, paid P2,075.00 to Lalog. The receipt
be reckoned from the date when the same was approved preclude the insurer from noncompliance with its obligations issued by Lalog indicated the amount received was a "deposit."
by the insurer. In this case, the parties differ as to when the Unfortunately, Lalog lost the application form accomplished by
reinstatement was actually approved. Insular Life claims that it Perez and so asked the latter to fill up another application form.
approved the reinstatement only on December 27, 1999. On the TITLE 6
other hand, respondents contend that it was on June 22, 1999 THE POLICY Lalog forwarded the application for additional insurance of Perez,
that the reinstatement took effect. together with all its supporting papers, to the office of BF
Lifeman Insurance Corporation at Gumaca, Quezon which office
The resolution of this issue hinges on the following documents: Q: What is an Insurance Policy? was supposed to forward the papers to the Manila office.
1) Letter of Acceptance; and
2) the Endorsement. Section 49. The written instrument in which a contract of On November 25, 1987, Perez died in an accident. At the time
insurance is set forth, is called a policy of insurance. of his death, his application papers for the additional insurance
The Letter of Acceptance wherein Felipe affixed his signature of P50,000.00 were still with the Gumaca office. So, Lalog he
was actually drafted and prepared by Insular Life. After Felipe Q: How does it differ from a contract of insurance? personally brought the papers to the Manila office of BF Lifeman
accomplished this form, Insular Life, through its Regional A: It is the evidence of the existence of the contract of insurance Insurance Corporation. It was only on November 27, 1987
Administrative Manager, Jesse James R. Toyhorada, issued an that said papers were received in Manila.
Endorsement33 dated January 7, 2000.
VIRGINIA A. PEREZ vs. COURT OF APPEALS and BF LIFEMAN Without knowing that Perez died on November 25, 1987,
This finding must be upheld not only because it accords with INSURANCE CORPORATION, G.R No. 112329, 28 January 2000 BF Lifeman Insurance Corporation approved the application and
the evidence, but also because this is favorable to the YNARES-SANTIAGO, J.: issued the corresponding policy for the P50,000.00 on
insured who was not responsible for causing the December 2, 1987.
ambiguity or obscurity in the insurance contract. Doctrine: A contract of insurance, like all other contracts, must Nc
be assented to by both parties, either in person or through their Petitioner Virginia Perez went to Manila to claim the benefits
It must be remembered that an insurance contract is a contract agents and so long as an application for insurance has not been under the insurance policies of the deceased. She was paid

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 20
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

P40,000.00 under the first insurance policy for P20,000.00 Insurance is a contract whereby, for a stipulated consideration, policy to the applicant. Under the abovementioned
(double indemnity in case of accident) but the insurance one party undertakes to compensate the other for loss on a provision, it is only when the applicant pays the premium
company refused to pay the claim under the additional policy specified subject by specified perils. A contract, on the other and receives and accepts the policy while he is in good
coverage of P50,000.00, the proceeds of which amount to hand, is a meeting of the minds between two persons whereby health that the contract of insurance is deemed to have
P150,000.00 in view of a triple indemnity rider on the insurance one binds himself, with respect to the other to give something or been perfected.
policy. The insurance company maintained that the insurance for to render some service. Under Article 1318 of the Civil Code,
P50,000.00 had not been perfected at the time of the death of there is no contract unless the following requisites concur:
Primitivo Perez. Consequently, the insurance company refunded
the amount of P2,075.00 which Virginia Perez had paid. 1. Consent of the contracting parties; In the case of Enriquez vs. Sun Life Assurance Co. of Canada,
2. Object certain which is the subject matter of the recovery on the life insurance of the deceased was disallowed on
On September 21, 1990, private respondent BF Lifeman contract; the ground that the contract for annuity was not perfected since
Insurance Corporation filed a complaint against Virginia A. Perez 3. Cause of the obligation which is established. it had not been proved satisfactorily that the acceptance of the
seeking the rescission and declaration of nullity of the insurance application ever reached the knowledge of the applicant.
contract in question. Virginia A. Perez averred that the deceased Consent must be manifested by the meeting of the offer and the
had fulfilled all his prestations under the contract and all the acceptance upon the thing and the cause which are to constitute Contention: Petitioner insists that the condition imposed by
elements of a valid contract are present. the contract. The offer must be certain and the acceptance respondent corporation that a policy must have been delivered
absolute. to and accepted by the proposed insured in good health is
RTC: Ruled in favor of petitioner; held that the premium for the potestative being dependent upon the will of the corporation and
additional insurance of P50,000.00 had been fully paid and even When Primitivo filed an application for insurance, paid P2,075.00 is therefore null and void.
if the sum of P2,075.00 were to be considered merely as partial and submitted the results of his medical examination, his
payment, the same does not affect the validity of the policy. The application was subject to the acceptance of private respondent SC: A potestative condition depends upon the exclusive will of
trial court further stated that the deceased had fully complied BF Lifeman Insurance Corporation. The perfection of the one of the parties. For this reason, it is considered void. Article
with the requirements of the insurance company. He paid, contract of insurance between the deceased and respondent 1182 of the New Civil Code states: When the fulfillment of the
signed the application form and passed the medical examination. corporation was further conditioned upon compliance with the condition depends upon the sole will of the debtor, the
He should not be made to suffer the subsequent delay in the following requisites stated in the application form: conditional obligation shall be void.
transmittal of his application form to private respondents head
office since these were no longer within his control. "there shall be no contract of insurance unless and until a policy In the case at bar, the following conditions were imposed by the
is issued on this application and that the said policy shall not respondent company for the perfection of the contract of
CA: Reversed the decision of the RTC; The insurance contract take effect until the premium has been paid and the policy insurance:
for P50,000.00 could not have been perfected since at the time delivered to and accepted by me/us in person while I/We, (a).......a policy must have been issued;
that the policy was issued, Primitivo was already dead. am/are in good health." (b).......the premiums paid; and
(c).......the policy must have been delivered to and accepted by
Issue: Whether there was a perfected Insurance Contract The assent of private respondent BF Lifeman Insurance the applicant while he is in good health.
Corporation therefore was not given when it merely received the
Held: NO. application form and all the requisite supporting papers of the The condition imposed by the corporation that the policy must
applicant. Its assent was given when it issues a corresponding have been delivered to and accepted by the applicant while he is

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 21
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

in good health can hardly be considered as a potestative or processing of applications by respondent corporation normally Unless applied for by the insured or owner, any rider,
facultative condition. On the contrary, the health of the applicant takes two to three weeks, the longest being a month. In this clause, warranty or endorsement issued after the
at the time of the delivery of the policy is beyond the control or case, however, the requisite medical examination was original policy shall be countersigned by the insured or
will of the insurance company. Rather, the condition is a undergone by the deceased on November 1, 1987; the owner, which countersignature shall be taken as his
suspensive one whereby the acquisition of rights depends upon application papers were forwarded to the head office on agreement to the contents of such rider, clause,
the happening of an event which constitutes the condition. In November 27, 1987; and the policy was issued on December 2, warranty or endorsement.
this case, the suspensive condition was the policy must have 1987. Under these circumstances, we hold that the delay
been delivered and accepted by the applicant while he is in good could not be deemed unreasonable so as to constitute Notwithstanding the foregoing, the policy may be in
health. There was non-fulfillment of the condition, however, gross negligence. electronic form subject to the pertinent provisions of
inasmuch as the applicant was already dead at the time the Republic Act No. 8792, otherwise known as the
policy was issued. Hence, the non-fulfillment of the condition ‘Electronic Commerce Act’ and to
resulted in the non-perfection of the contract. As to the rescission of the Insurance Policy 056300 such rules and regulations as may be prescribed by the
so Commissioner.
As stated above, a contract of insurance, like other SC: True, rescission presupposes the existence of a valid  Rider- more likened to freebies
contracts, must be assented to by both parties either in contract. A contract which is null and void is no contract at all o is a small printed or typed stipulation contained
person or by their agents. So long as an application for and hence could not be the subject of rescission. on a slip of paper attached to the policy and
insurance has not been either accepted or rejected, it is forming an integral part of the policy.
merely an offer or proposal to make a contract. The
contract, to be binding from the date of application, must have De Leon:
been a completed contract, one that leaves nothing to be done,  Policy of insurance CASE:
nothing to be completed, nothing to be passed upon, or o It is the written document embodying the terms
determined, before it shall take effect. There can be no contract and stipulations of the contract of insurance GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE
of insurance unless the minds of the parties have met in between the insured and the insurer. CORPORATION, G.R. No. 156167, May 16, 2005
agreement.
Section 50. The policy shall be in printed form which may
Prescinding from the foregoing, respondent corporation contain blank spaces; and any word, phrase, clause,
cannot be held liable for gross negligence. It should be mark, sign, symbol, signature, number, or word Section 51. A policy of insurance must specify:
noted that an application is a mere offer which requires necessary to complete the contract of insurance shall be a) The parties between whom the contract is made;
the overt act of the insurer for it to ripen into a contract. written on the blank spaces provided therein. Any rider, b) The amount to be insured except in the cases of
Delay in acting on the application does not constitute acceptance clause, warranty or endorsement purporting to be part of open or running policies;
even though the insured has forwarded his first premium with the contract of insurance and which is pasted or c) The premium, or if the insurance is of a character
his application. The corporation may not be penalized for attached to said policy is not binding on the insured, where the exact premium is only determinable
the delay in the processing of the application papers. unless the descriptive title or name of the rider, clause, upon the termination of the contract, a statement
Moreover, while it may have taken some time for the application warranty or endorsement is also mentioned and written of the basis and rates upon which the final
papers to reach the main office, in the case at bar, the same was on the blank spaces provided in the policy. premium is to be determined;
acted upon less than a week after it was received. The d) The property or life insured;

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 22
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

e) The interest of the insured in property insured, if 1. PRELIMINARY CONTRACTS OF PRESENT be exported were lost during loading operations in the Diapitan
he is not the absolute owner thereof; INSURANCE Bay.
f) The risks insured against; and  the insurer insures the subject matter usually by what is
g) The period during which the insurance is to known as the "binding slip," or "binder" or "cover note," While the logs were alongside the vessel, bad weather
continue. the contract to be effective until the formal policy is developed resulting in 75 pieces of logs which were rafted
issued or the risk rejected together co break loose from each other. 45 pieces of logs were
 Substantial compliance is sufficient  The binder is actually a temporary contract of insurance salvaged, but 30 pieces were verified to have been lost or
 Read in relation with Section 234. and is usually issued after the applicant pays the first washed away as a result of the accident. Pacific Timber informed
premium. Workmen’s about the loss of 32 pieces of logs during loading of
SS woodlock.
Section 52. Cover notes may be issued to bind insurance 2. PRELIMINARY CONTRACTS OF EXECUTORY
temporarily pending the issuance of the policy. Within INSURANCE. Although dated April 4, 1963, the letter was received in the
sixty (60) days after issue of a cover note, a policy shall office of the defendant only on April 15, 1963. PACIFIC claimed
be issued in lieu thereof, including within its terms the Cover note is good as insurance itself and it binds the for insurance to the value of P19,286.79. Woodmen’s requested
identical insurance bound under the cover note and the insurer an adjustment company (First Philippine Adjustment
premium therefor. Corporation) to assess the damage. It submitted its report,
Q: Is a cover note without any valuable consideration where it found that the loss of 30 pieces of logs is not covered
Cover notes may be extended or renewed beyond such binding/valid? by Policies Nos. 53 HO 1032 and 1033 but within the 1,250,000
sixty (60) days with the written approval of the A: YES. bd. ft. covered by Cover Note 1010 insured for $70,000.00.
Commissioner if he determines that such extension is
not contrary to and is not for the purpose of violating Basis: Pacific Timber Export Corp vs. CA The adjustment company submitted a computation of the
any provisions of this Code. The Commissioner may WORKMEN’S probable liability on the loss sustained by the
promulgate rules and regulations governing such G.R. No. L-38613 February 25, 1982 shipment, in the total amount of P11,042.04.
extensions for the purpose of preventing such violations PACIFIC TIMBER EXPORT CORPORATION, petitioner,
and may by such rules and regulations dispense with the Vs. THE HONORABLE COURT OF APPEALS and WORKMENS wrote PACIFIC denying the latter's claim on the
requirement of written approval by him in the case of WORKMEN'S INSURANCE COMPANY, INC., respondents.; ground they defendant's investigation revealed that the entire
extension in compliance with such rules and regulations. DE CASTRO, J shipment of logs covered by the two marine policies were
received in good order at their point of destination. It was
FACTS: The Pacific Timber Export Corporation secured further stated that the said loss may be considered as covered
temporary insurance from the Workmen's Insurance Company, under Cover Note No. 1010 because the said Note had become
Preliminary contracts of insurance Inc. for its exportation of 1,250,000 board feet of Philippine null and void by virtue of the issuance of Marine Policy Nos. 53
Lauan and Apitong logs to be shipped from Quezon Province to HO 1032 and 1033.
There are two kinds of preliminary contracts of Okinawa and Tokyo, Japan. Workmen’s Insurance issued a cover The denial of the claim by the defendant was brought by the
insurance, note insuring the cargo of the plaintiff subject to its terms and plaintiff to the attention of the Insurance Commissioner. The
namely: conditions. After the issuance of the cover note, but before the Insurance Commissioner ruled in favor of indemnifying Pacific
issuance of the two marine policies, some of the logs intended to Timber. The company added that the cover note is null and void

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 23
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

for lack of valuable consideration. The trial court ruled in no cause for the petitioner to lose what is due it as if there had raised this ground of delay to avoid liability. It did not do so. It
petitioner’s favor while the CA dismissed the case. Hence this been payment of premium, for non-payment by it was not must be because it did not find any delay, as this Court fails to
appeal. chargeable against its fault. Had all the logs been lost during the find a real and substantial sign thereof. But even on the
loading operations, but after the issuance of the Cover Note, assumption that there was delay, this Court is satisfied and
ISSUE #1: Whether or not the cover note was null and void for liability on the note would have already arisen even before convinced that as expressly provided by law, waiver can
lack of valuable consideration payment of premium. This is how the cover note as a “binder” successfully be raised against private respondent.
should legally operate; otherwise, it would serve no practical
HELD #1: A “Cover Note” issued in advance of the issuance of purpose in the realm of commerce, and is supported by the
a marine policy is binding as an insurance contract although no doctrine that where a policy is delivered without requiring CASE:
separate premium was paid therefor. payment of the premium, the presumption is that a credit was
● The fact that no separate premium was paid on the intended and policy is valid. A binding deposit receipt is merely an acknowledgment
Cover Note before the loss insured against occurred,
does not militate against the validity of petitioner’s ISSUE #2: Whether or not the Insurance company was GREAT PACIFIC LIFE ASSURANCE COMPANY v.
contention, for no such premium could have been paid, absolved from responsibility due to unreasonable delay in giving HONORABLE COURT OF APPEALS
since by the nature of the Cover Note, it did not contain, notice of loss. G.R. No. L-31845; April 30, 1979
as all Cover Notes do not contain particulars of the De Castro, J.
shipment that would serve as basis for the computation HELD #2: Delay of insured in reporting the loss must be
of the premiums. As a logical consequence, no separate objected to promptly by insurer. Sending of insurance adjuster NOTE: Conditions by the company to approve life
premiums are intended or required to be paid on a to assess the loss amounts to waiver of delay in giving notice of insurance:
Cover Note. This is a fact admitted by an official of loss. The provisions printed on Exhibit E show that the binding deposit
respondent company, Juan Jose Camacho, in charge of ● The defense of delay as raised by private respondent in receipt is intended to be merely a provisional or temporary
issuing cover notes of the respondent company resisting the claim cannot be sustained. The law requires insurance contract and only upon compliance of the following
this ground of delay to be promptly and specifically conditions: (1) that the company shall be satisfied that the
At any rate, it is not disputed that petitioner paid in full all the asserted when a claim on the insurance agreement is applicant was insurable on standard rates; (2) that if the
premiums as called for by the statement issued by private made. The undisputed facts show that instead of company does not accept the application and offers to issue a
respondent after the issuance of the two regular marine invoking the ground of delay in objecting to petitioner’s policy for a different plan, the insurance contract shall not be
insurance policies, thereby leaving no account unpaid by claim of recovery on the cover note, it took steps clearly binding until the applicant accepts the policy offered; otherwise,
petitioner due on the insurance coverage, which must be indicative that this particular ground for objection to the the deposit shall be refunded; and (3) that if the applicant is not
deemed to include the Cover Note. If the Note is to be treated claim was never in its mind. The nature of this specific able according to the standard rates, and the company
as a separate policy instead of integrating it to the regular ground for resisting a claim places the insurer on duty to disapproves the application, the insurance applied for shall not
policies subsequently issued, the purpose and function of the inquire when the loss took place, so that it could be in force at any time, and the premium paid shall be returned
Cover Note would be set at naught or rendered meaningless, for determine whether delay would be a valid ground upon to the applicant.
it is in a real sense a contract, not a mere application for which to object to a claim against it.
insurance which is a mere offer. FACTS: On March 14, 1957, private respondent Ngo Hing filed
In the proceedings that took place later in the Office of the an application with the Great Pacific Life Assurance Company for
The non-payment of premium on the Cover Note is, therefore, Insurance Commissioner, private respondent should then have a twenty-year endownment policy on the life of his one-

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 24
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

year old daughter Helen Go. Mondragon type-wrote the data on be indicated by describing the insured as agent or
the application form which was signed by private respondent The binding deposit receipt is, merely conditional and does not trustee, or by other general words in the policy.
Ngo Hing. The latter paid the annual premium going over to the insure outright. As held by this Court, where an agreement is
Company, but he retained the amount of P1,317.00 as his made between the applicant and the agent, no liability shall
commission for being a duly authorized agent of Pacific Life. attach until the principal approves the risk and a receipt is given
Then on April 30, 1957, Mondragon received a letter from Pacific by the agent. The acceptance is merely conditional and is Section 55. To render an insurance effected by one
Life disapproving the insurance application. The letter stated that subordinated to the act of the company in approving or rejecting partner or part-owner, applicable to the interest of his
the said life insurance application for 20-year endowment plan is the application. Thus, in life insurance, a "binding slip" or co-partners or other part-owners, it is necessary that the
not available for minors below seven years old, but Pacific Life "binding receipt" does not insure by itself. terms of the policy should be such as are applicable to
can consider the same under the Juvenile Triple Action Plan. the joint or common interest.
As held in De Lim vs. Sun Life Assurance Company of Canada,
The non-acceptance of the insurance plan by Pacific Life was supra, "a contract of insurance, like other contracts, must be
allegedly not communicated by petitioner Mondragon to private assented to by both parties either in person or by their agents ... Sections 56-57
respondent Ngo Hing. Instead, Mondragon wrote back Pacific The contract, to be binding from the date of the application,
Life again strongly recommending the approval of the 20-year must have been a completed contract, one that leaves nothing Section 56. When the description of the insured in a
endowment insurance plan to children. to be done, nothing to be completed, nothing to be passed policy is so general that it may comprehend any person
upon, or determined, before it shall take effect. There can be no or any class of persons, only he who can show that it was
Thereafter, Helen Go died of influenza with complication of contract of insurance unless the minds of the parties have met in intended to include him, can claim the benefit of the
bronchopneumonia. Thereupon, private respondent sought the agreement." policy.
payment of the proceeds of the insurance, but having failed in
his effort, he filed the action for the recovery of the same before Section 57. A policy may be so framed that it will inure to
the Court of First Instance of Cebu. Irrevocable- cannot be changed; may be changed the benefit of whomsoever, during the continuance of
subject to the consent of the beneficiaries the risk, may become the owner of the interest insured.
ISSUE: Whether the binding deposit receipt constituted a
temporary contract of the life insurance in question? Revocable- may be changed by the insurer  The policy of insurance must specify the parties between
whom the contract is made.
HELD: NO, the binding deposit receipt in question is merely an  In any case, in order that the insurance may be applied
acknowledgment, on behalf of the company, that the latter's Section 53. The insurance proceeds shall be applied to the interest of the person claiming the benefit of the
branch office had received from the applicant the insurance exclusively to the proper interest of the person in whose policy, he must show that he is the person named or
premium and had accepted the application subject for processing name or for whose benefit it is made unless otherwise described or that he belongs to the class of persons
by the insurance company; and that the latter will either approve specified in the policy. comprehended in the policy.
or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life Section 58. The mere transfer of a thing insured does not
disapproved the insurance application of respondent Ngo Hing, Section 54. When an insurance contract is executed with transfer the policy, but suspends it until the same person
the binding deposit receipt in question had never become in an agent or trustee as the insured, the fact that his becomes the owner of both the policy and the thing
force at any time. principal or beneficiary is the real party in interest may insured.

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 25
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

insured will receive although the face value of travellers Insurance as the insurer of the truck, but the latter
 Talks about mere transfer of a thing the policy is 1M failed to act on petitioner's claim.
o The amount written in the policy is always the
KINDS OF POLICY limit of recovery, beyond which there is no Then petitioner filed a complaint against the private respondent,
liability upon the insurer the driver and the owner of the truck. The RTC ordered private
Section 59. A policy is either open, valued or running. respondent to pay petitioner the amount paid to PTCI, but
Section 60. An open policy is one in which the value of 2. Valued policy( Sec. 61) dismissed the complaint as against the other two defendants.
the thing insured is not agreed upon, and the amount of a.
the insurance merely represents the insurer’s maximum Nevertheless, the CA dismissed the complaint on the
liability. The value of such thing insured shall be ground that petitioner's cause of action had prescribed
ascertained at the time of the loss. because the complaint was not filed until almost
Section 61. A valued policy is one which expresses on its Section 63. A condition, stipulation, or agreement in any seventeen (17) months after the accident.
face an agreement that the thing insured shall be valued policy of insurance, limiting the time for commencing an
at a specific sum. action thereunder to a period of less than one (1) year Petitioner company contends that the finding of respondent
Section 62. A running policy is one which contemplates from the time when the cause of action accrues, is void. court that its cause of action had prescribed is erroneous since
successive insurances, and which provides that the the one-year prescriptive period under Section 384 of the
object of the policy may be from time to time defined, Insurance Code is counted not from the date of the accident but
especially as to the subjects of insurance, by additional from the date of the rejection of the claim by the insurer.
statements or indorsements. BANKERS INSURANCE CORP. (Formerly Country Bankers Petitioner further argues that even assuming that the one-year
Insurance & Surety Co. Inc.) vs. THE TRAVELLERS INSURANCE prescriptive period should be counted from the date of the
AND SURETY CORP., and THE HONORABLE COURT OF APPEALS, accident, the running of the period of prescription was
KINDS OF POLICIES G.R No. 82509 August 16, 1989 interrupted when petitioner filed a notice of claim with
Jean respondent insurance company since under the Civil Code an
1. Open/Unvalued policy (Sec. 60) extra-judicial demand is sufficient to interrupt the running of the
a. it is one in which a certain agreed sum is written FACTS: prescriptive period.
on the face of the policy not as the value of the A vehicular accident occurred involving a Toyota Land Cruiser
property insured, but as the maximum limit of owned by Philippine Technical Consultants Inc. (PTCI) and an ISSUE:
the insurer's liability Isuzu Cargo Truck registered in the name of Avelino Matundan. Whether or not petitioner's cause of action had prescribed.
b. The value of such thing insured shall be The Toyota Land Cruiser suffered extensive damage so that its
ascertained at the time of the loss. owner declared a total loss and claimed the proceeds of the HELD: No. There is no dispute that respondent insurance
EXAMPLE: insurance policy issued by petitioner Country Bankers Insurance company is liable as the insurer of the Isuzu Cargo Truck and
Corporation. Petitioner paid PTCI the amount of eighty-three should reimburse to petitioner the amount paid by the latter to
 House insured for 1M thousand four hundred seventy pesos (P83,470.00). As subrogee PTCI for the damage sustained by the Toyota Land Cruiser.
o In case the value of the property at the time of to all rights and causes of action of PTCI, petitioner
loss was only 800K, then this is all that the demanded reimbursement from the driver and owner of Whether or not petitioner's cause of action had prescribed.
the Isuzu Cargo truck and from private respondent

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 26
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

To prevent the insurance company from evading its effective date of the policy, of one or more of the
responsibility to the insured through this clever scheme, and to The requirement that any claim or action for recovery of damage following:
protect the insuring public against similar acts by other insurance under an insurance policy must be brought within one year from
companies, the Court held that the one-year period under the date of the accident was intended to ensure that suits be a) Nonpayment of premium;
Section 384 should be counted not from the date of the brought by the insured while evidence as to the origin and cause b) Conviction of a crime arising out of acts
accident but from the date of the rejection of the claim of destruction have not yet disappeared. This is to enable the increasing the hazard insured against;
by the insurer. The Court further held that it is only from the insurance companies to make proper assessment of whether or c) Discovery of fraud or material misrepresentation;
rejection of the claim by the insurer that the insured's not the insured can recover and, if so, to determine the amount d) Discovery of willful or reckless acts or omissions
cause of action accrued since a cause of action does not recoverable. However, where, as in this case, the delay in increasing the hazard insured against;
accrue until the party obligated refuse, expressly or bringing the suit against the insurance company was not e) Physical changes in the property insured which
impliedly, to comply with its duty. caused by the insured or its subrogee but by the result in the property becoming uninsurable;
insurance company itself, it is unfair to penalize the f) Discovery of other insurance coverage that makes
In the instant case, petitioner sent a notice of claim to insured or its subrogee by dismissing its action against the total insurance in excess of the value of the
respondent insurance company as early as July 26, 1979 or two the insurance company on the ground of prescription. property insured; or
months after the accident. This was followed by a letter dated The latter should bear the consequences of its failure to g) A determination by the Commissioner that the
August 3, 1979 urging respondent insurance company to take it act promptly on the insured's claim. Under the law, continuation of the policy would violate or would
appropriate action" on petitioner's claim. However, it was only a insurance companies are duty bound to adopt and place the insurer in violation of this Code.
year later, on August 3, 1980 that respondent replied to implement reasonable standards for the prompt, fair and
petitioner's letter informing it that they could not take equitable settlement of claims [Section 241, Insurance Cancellation
appropriate action on petitioners claim because the attending Code].  The right to rescind, abandon, or cancel a contract of
adjuster was still negotiating the case. Two months later, when insurance BEFORE ITS EXPIRATION
respondent insurance company still failed to act on its claim, Therefore, considering the attendant facts of this case, the Court
petitioner filed the present case in court. During the hearing finds that the doctrine laid down in the Summit case is If variable insurance- the investment portion (interest earned)
before the RTC, respondent insurance company never raised the applicable, and accordingly holds that petitioner's cause of action may cover for your unpaid premiums so that your insurance will
defense of prescription. It was only on appeal that Section 384 has not prescribed. not lapse.
of the Insurance Code was invoked by respondent insurance
company and the CA, relying on the plain language of the law,
dismissed the case on the ground of prescription. Q: Can an insurance policy be cancelled?
A: YES Section 65. All notices of cancellation mentioned in the
In the light of the Court's decision in the Summit case, Q: Who can cancel it? preceding section shall be in writing, mailed or delivered
respondent insurance company can no longer invoke to the named insured at the address shown in the policy,
Section 384 to defeat petitioner's claim. As aforestated, or to his broker provided the broker is authorized in
it was precisely to prevent unscrupulous insurance Section 64. No policy of insurance other than life shall be writing by the policy owner to receive the notice of
companies from using Section 384 in evading their cancelled by the insurer except upon prior notice thereof cancellation on his behalf,
responsibilities that the Court applied Section 384 to the insured, and no notice of cancellation shall be and shall state:
strictly against insurance companies in the Summit case. effective unless it is based on the occurrence, after the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 27
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

a) Which of the grounds set forth in Section 64 is


relied upon; and
b) That, upon written request of the named insured,
the insurer will furnish the facts on which the
cancellation is based.

Q: When should you renew?


A:

Section 66. In case of insurance other than life, unless


the insurer at least forty-five (45) days in advance of the
end of the policy period mails or delivers to the named
insured at the address shown in the policy notice of its
intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew
the policy upon payment of the premium due on the
effective date of the renewal. Any policy written for a
term of less than one (1) year shall be considered as if
written for a term of one (1) year. Any policy written for
a term longer than one (1) year or any policy with no
fixed expiration date shall be considered as if written for
successive policy periods or terms of one (1) year.

--END OF PRELIMS-----

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 28
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

TITLE 7 Section 68. A warranty may relate to the past, the material provision of a policy, on the part of either party
WARRANTIES present, the future, or to any or all of these. thereto, entitles the other to rescind.

Section 67. A warranty is either expressed or implied. Section 69. No particular form of words is necessary to
create a warranty. Section 75. A policy may declare that a violation of
EXAMPLES: specified provisions thereof shall avoid it, otherwise the
- Fire extinguishers breach of an immaterial provision does not avoid the
Q: What is an express warranty? policy.
EXPRESS WARRANTY A:
- It must form part of the contract itself Section 76. A breach of warranty without fraud merely
- If contained in another instrument, it must be signed Section 70. Without prejudice to Section 51, every exonerates an insurer from the time that it occurs, or
by the insured and referred to in the policy as express warranty, made at or before the execution of a where it is broken in its inception, prevents the policy
making part of it policy, must be contained in the policy itself, or in from attaching to the risk.
- Mere reference alone is not sufficient to give this another instrument signed by the insured and referred to
effect in the policy as making a part of it.
TITLE 8
PREMIUM
Warranties vs. Representation Section 71. A statement in a policy, of a matter relating
to the person or thing insured, or to the risk, as fact, is Section 77. An insurer is entitled to payment of the
Warranties Representation an express warranty thereof. premium as soon as the thing insured is exposed to the
Considered parts of the Collateral inducements to it peril insured against. Notwithstanding any agreement to
contract the contrary, no policy or contract of insurance issued by
Always written on the face of May be written in a totally Section 72. A statement in a policy, which imparts that it an insurance company is valid and binding unless and
the policy, actually or by disconnected paper or may be is intended to do or not to do a thing which materially until the premium thereof has been paid, except in the
reference oral affects the risk, is a warranty that such act or omission case of a life or an industrial life policy whenever the
Must be strictly complied with Substantial truth only is shall take place. grace period provision applies, or whenever under the
required broker and agency agreements with duly licensed
The falsity or nonfulfillment of Falsity of a representation intermediaries, a ninety (90)-day credit extension is
a warranty operated as a renders the policy void on the given. No credit extension to a duly licensed
breach of contract ground of fraud Section 73. When, before the time arrives for the intermediary should exceed ninety (90) days from date
Presumed material The insurer must show the performance of a warranty relating to the future, a loss of issuance of the policy.
materiality of a representation insured against happens, or performance becomes
in order to defeat an action on unlawful at the place of the contract, or impossible, the Section 78. Employees of the Republic of the Philippines,
the policy omission to fulfill the warranty does not avoid the policy. including its political subdivisions and instrumentalities,
and government-owned or -controlled corporations, may
Section 74. The violation of a material warranty, or other pay their insurance premiums and loan obligations

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 29
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

through salary deduction: Provided, That the treasurer, LOSS


cashier, paymaster or official of the entity employing the
government employee is authorized, notwithstanding Section 81. If a peril insured against has existed, and the
the provisions of any existing law, rules and regulations insurer has been liable for any period, however short, the Section 85. An agreement not to transfer the claim of the
to the contrary, to make deductions from the salary, insured is not entitled to return of premiums, so far as insured against the insurer after the loss has happened,
wage or income of the latter pursuant to the agreement that particular risk is concerned. is void if made before the loss except as otherwise
between the insurer and the government employee and provided in the case of life insurance.
to remit such deductions to the insurer concerned, and
collect such reasonable fee for its services. Section 82. A person insured is entitled to a return of the
premium when the contract is voidable, and Section 86. Unless otherwise provided by the policy, an
subsequently annulled under the provisions of the Civil insurer is liable for a loss of which a peril insured against
Section 79. An acknowledgment in a policy or contract of Code; or on account of the fraud or misrepresentation of was the proximate cause, although a peril not
insurance or the receipt of premium is conclusive the insurer, or of his agent, or on account of facts, or the contemplated by the contract may have been a remote
evidence of its payment, so far as to make the policy existence of which the insured was ignorant of without cause of the loss; but he is not liable for a loss of which
binding, notwithstanding any stipulation therein that it his fault; or when by any default of the insured other the peril insured against was only a remote cause.
shall not be binding until the premium is actually paid. than actual fraud, the insurer never incurred any liability
under the policy.

A person insured is not entitled to a return of premium if


Section 80. A person insured is entitled to a return of the policy is annulled, rescinded or if a claim is denied by Section 87. An insurer is liable where the thing insured is
premium, as follows: reason of fraud. rescued from a peril insured against that would
a) To the whole premium if no part of his interest in otherwise have caused a loss, if, in the course of such
the thing insured be exposed to any of the perils rescue, the thing is exposed to a peril not insured
insured against; Section 83. In case of an over insurance by several against, which permanently deprives the insured of its
b) Where the insurance is made for a definite period insurers other than life, the insured is entitled to a possession, in whole or in part; or where a loss is caused
of time and the insured surrenders his policy, to ratable return of the premium, proportioned to the by efforts to rescue the thing insured from a peril
such portion of the premium as corresponds with amount by which the aggregate sum insured in all the insured against.
the unexpired time, at a pro rata rate, unless a policies exceeds the insurable value of the thing at risk.
short period rate has been agreed upon and
appears on the face of the policy, after deducting
from the whole premium any claim for loss or Section 84. An insurer may contract and accept Section 88. Where a peril is especially excepted in a
damage under the policy which has previously payments, in addition to regular premium, for the contract of insurance, a loss, which would not have
accrued: Provided, That no holder of a life purpose of paying future premiums on the policy or to occurred but for such peril, is thereby excepted although
insurance policy may avail himself of the increase the benefits thereof. the immediate cause of the loss was a peril which was
privileges of this paragraph without sufficient not excepted.
cause as otherwise provided by law. TITLE 9

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 30
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

any act of him, or if he omits to take objection promptly in trust for the insurers, according to their right of
and specifically upon that ground. contribution among themselves;
Section 89. An insurer is not liable for a loss caused by Section 94. If the policy requires, by way of preliminary (e) Each insurer is bound, as between himself and the
the willful act or through the connivance of the insured; proof of loss, the certificate or testimony of other insurers, to contribute ratably
but he is not exonerated by the negligence of the a person other than the insured, it is sufficient for the to the loss in proportion to the amount for which he is
insured, or of the insurance agents or others. insured to use reasonable diligence to procure liable under his contract.
it, and in case of the refusal of such person to give it, TITLE 12
then to furnish reasonable evidence to the REINSURANCE
TITLE 10 insurer that such refusal was not induced by any just Section 97. A contract of reinsurance is one by which an
NOTICE OF LOSS grounds of disbelief in the facts necessary to insurer procures a third person to insure
be certified or testified. him against loss or liability by reason of such original
Section 90. In case of loss upon an insurance against TITLE 11 insurance.
fire, an insurer is exonerated, if written notice thereof be DOUBLE INSURANCE Section 98. Where an insurer obtains reinsurance, except
not given to him by an insured, or some person entitled Section 95. A double insurance exists where the same under automatic reinsurance treaties,
to the benefit of the insurance, without unnecessary person is insured by several insurers he must communicate all the representations of the
delay. For other non-life insurance, the Commissioner separately in respect to the same subject and interest. original insured, and also all the knowledge
may specify the period for the submission of the notice Section 96. Where the insured in a policy other than life and information he possesses, whether previously or
of loss. is over insured by double insurance: subsequently acquired, which are material
(a) The insured, unless the policy otherwise provides, to the risk.
may claim payment from the insurers Section 99. A reinsurance is presumed to be a contract of
in such order as he may select, up to the amount for indemnity against liability, and not merely
which the insurers are severally liable against damage.
Section 91. When a preliminary proof of loss is required under their respective contracts; Section 100. The original insured has no interest in a
by a policy, the insured is not bound to (b) Where the policy under which the insured claims is a contract of reinsurance.
give such proof as would be necessary in a court of valued policy, any sum received www.insurance.gov.ph
justice; but it is sufficient for him to give the by him under any other policy shall be deducted from the CHAPTER II
best evidence which he has in his power at the time. value of the policy without regard CLASSES OF INSURANCE
www.insurance.gov.ph to the actual value of the subject matter insured; TITLE I
Section 92. All defects in a notice of loss, or in (c) Where the policy under which the insured claims is MARINE INSURANCE
preliminary proof thereof, which the insured might an unvalued policy, any sum SUB-TITLE 1-A
remedy, and which the insurer omits to specify to him, received by him under any policy shall be deducted DEFINITION
without unnecessary delay, as grounds of against the full insurable value, for any Section 101. Marine Insurance includes:
objection, are waived. sum received by him under any policy; (a) Insurance against loss of or damage to:
Section 93. Delay in the presentation to an insurer of (d) Where the insured receives any sum in excess of the (1) Vessels, craft, aircraft, vehicles, goods, freights,
notice or proof of loss is waived if caused by valuation in the case of valued cargoes, merchandise, effects,
policies, or of the insurable value in the case of unvalued disbursements, profits, moneys, securities, choses in
policies, he must hold such sum action, instruments of debts,

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 31
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

valuable papers, bottomry, and respondentia interests (b) Marine protection and indemnity insurance, meaning ship has broken ground on the chartered voyage. If a
and all other kinds of insurance against, or against legal price is to be paid for the carriage of goods
property and interests therein, in respect to, liability of the insured for loss, damage, or expense it exists when they are actually on board, or there is
appertaining to or in connection with incident to ownership, operation, some contract for putting them on board, and
any and all risks or perils of navigation, transit or chartering, maintenance, use, repair, or construction of both ship and goods are ready for the specified voyage.
transportation, or while being any vessel, craft or instrumentality Section 107. One who has an interest in the thing from
assembled, packed, crated, baled, compressed or in use of ocean or inland waterways, including liability of which profits are expected to proceed has
similarly prepared for shipment the insured for personal injury, an insurable interest in the profits.
or while awaiting shipment, or during any delays, illness or death or for loss of or damage to the property Section 108. The charterer of a ship has an insurable
storage, transhipment, or of another person. interest in it, to the extent that he is liable to
reshipment incident thereto, including war risks, marine SUB-TITLE 1-B be damnified by its loss.
builder’s risks, and all INSURABLE INTEREST SUB-TITLE 1-C
personal property floater risks; Section 102. The owner of a ship has in all cases an CONCEALMENT
(2) Person or property in connection with or insurable interest in it, even when it has been Section 109. In marine insurance, each party is bound to
appertaining to a marine, inland chartered by one who covenants to pay him its value in communicate, in addition to what is
marine, transit or transportation insurance, including case of loss: Provided, That in this case required by Section 28, all the information which he
liability for loss of or damage the insurer shall be liable for only that part of the loss possesses, material to the risk, except such
arising out of or in connection with the construction, which the insured cannot recover from the as is mentioned in Section 30, and to state the exact and
repair, operation, maintenance charterer. whole truth in relation to all matters that
or use of the subject matter of such insurance (but not www.insurance.gov.ph he represents, or upon inquiry discloses or assumes to
including life insurance or Section 103. The insurable interest of the owner of the disclose.
surety bonds nor insurance against loss by reason of ship hypothecated by bottomry is only the Section 110. In marine insurance, information of the
bodily injury to any person excess of its value over the amount secured by bottomry. belief or expectation of a third person, in
arising out of ownership, maintenance, or use of Section 104. Freightage, in the sense of a policy of reference to a material fact, is material.
automobiles); marine insurance, signifies all the benefits Section 111. A person insured by a contract of marine
(3) Precious stones, jewels, jewelry, precious metals, derived by the owner, either from the chartering of the insurance is presumed to have knowledge,
whether in course of ship or its employment for the carriage of at the time of insuring, of a prior loss, if the information
transportation or otherwise; and his own goods or those of others. might possibly have reached him in the
(4) Bridges, tunnels and other instrumentalities of Section 105. The owner of a ship has an insurable usual mode of transmission and at the usual rate of
transportation and interest in expected freightage which according communication.
communication (excluding buildings, their furniture and to the ordinary and probable course of things he would Section 112. A concealment in a marine insurance, in
furnishings, fixed contents have earned but for the intervention of a respect to any of the following matters, does
and supplies held in storage); piers, wharves, docks and peril insured against or other peril incident to the not vitiate the entire contract, but merely exonerates the
slips, and other aids to voyage. insurer from a loss resulting from the risk
navigation and transportation, including dry docks and Section 106. The interest mentioned in the last section concealed:
marine railways, dams and exists, in case of a charter party, when the (a) The national character of the insured;
appurtenant facilities for the control of waterways.

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 32
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

(b) The liability of the thing insured to capture and (b) When the insurance is upon the cargo which, by the implied that the ship will carry the requisite documents
detention; terms of the policy, description of to show such nationality or neutrality and
(c) The liability to seizure from breach of foreign laws of the voyage, or established custom of the trade, is to be that it will not carry any documents which cast
trade; transhipped at an intermediate reasonable suspicion thereon.
(d) The want of necessary documents; and port, the implied warranty is not complied with unless www.insurance.gov.ph
(e) The use of false and simulated papers. each vessel upon which the cargo is SUB-TITLE 1-F
www.insurance.gov.ph shipped, or transhipped, be seaworthy at the THE VOYAGE AND DEVIATION
SUB-TITLE 1-D commencement of each particular voyage. Section 123. When the voyage contemplated by a marine
REPRESENTATION Section 118. A warranty of seaworthiness extends not insurance policy is described by the
Section 113. If a representation by a person insured by a only to the condition of the structure of the places of beginning and ending, the voyage insured is
contract of marine insurance, is ship itself, but requires that it be properly laden, and one which conforms to the course of sailing
intentionally false in any material respect, or in respect provided with a competent master, a sufficient fixed by mercantile usage between those places.
of any fact on which the character and number of competent officers and seamen, and the Section 124. If the course of sailing is not fixed by
nature of the risk depends, the insurer may rescind the requisite appurtenances and equipment, such mercantile usage, the voyage insured by a
entire contract. as ballasts, cables and anchors, cordage and sails, food, marine insurance policy is that way between the places
Section 114. The eventual falsity of a representation as water, fuel and lights, and other specified, which to a master of ordinary
to expectation does not, in the absence of necessary or proper stores and implements for the skill and discretion, would mean the most natural, direct
fraud, avoid a contract of marine insurance. voyage. and advantageous.
SUB-TITLE 1-E Section 119. Where different portions of the voyage Section 125. Deviation is a departure from the course of
IMPLIED WARRANTIES contemplated by a policy differ in respect to the voyage insured, mentioned in the last
Section 115. In every marine insurance upon a ship or the things requisite to make the ship seaworthy therefor, two (2) sections, or an unreasonable delay in pursuing
freight, or freightage, or upon any thing a warranty of seaworthiness is complied the voyage or the commencement of an
which is the subject of marine insurance, a warranty is with if, at the commencement of each portion, the ship is entirely different voyage.
implied that the ship is seaworthy. seaworthy with reference to that portion. Section 126. A deviation is proper:
Section 116. A ship is seaworthy when reasonably fit to Section 120. When the ship becomes unseaworthy (a) When caused by circumstances over which neither
perform the service and to encounter the during the voyage to which an insurance the master nor the owner of the
ordinary perils of the voyage contemplated by the relates, an unreasonable delay in repairing the defect ship has any control;
parties to the policy. exonerates the insurer on ship or (b) When necessary to comply with a warranty, or to
Section 117. An implied warranty of seaworthiness is shipowner’s interest from liability from any loss arising avoid a peril, whether or not the peril
complied with if the ship be seaworthy at the therefrom. is insured against;
time of the commencement of the risk, except in the Section 121. A ship which is seaworthy for the purpose (c) When made in good faith, and upon reasonable
following cases: of an insurance upon the ship may, grounds of belief in its necessity to
(a) When the insurance is made for a specified length of nevertheless, by reason of being unfitted to receive the avoid a peril; or
time, the implied warranty is not cargo, be unseaworthy for the purpose of (d) When made in good faith, for the purpose of saving
complied with unless the ship be seaworthy at the insurance upon the cargo. human life or relieving another
commencement of every voyage it Section 122. Where the nationality or neutrality of a ship vessel in distress.
undertakes during that time; or cargo is expressly warranted, it is

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 33
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Section 127. Every deviation not specified in the last be increased by this extension of liability. Section 141. A person insured by a contract of marine
section is improper. Section 136. In addition to the liability mentioned in the insurance may abandon the thing insured,
Section 128. An insurer is not liable for any loss last section, a marine insurer is bound for or any particular portion thereof separately valued by
happening to the thing insured subsequent to an damages, expenses of discharging, storage, reshipment, the policy, or otherwise separately insured,
improper deviation. extra freightage, and all other expenses and recover for a total loss thereof, when the cause of
SUB-TITLE 1-G incurred in saving cargo reshipped pursuant to the last the loss is a peril insured against:
LOSS section, up to the amount insured. (a) If more than three-fourths (¾) thereof in value is
Section 129. A loss may be either total or partial. Nothing in this or in the preceding section shall render a actually lost, or would have to be
Section 130. Every loss which is not total is partial. marine insurer liable for any amount in expended to recover it from the peril;
Section 131. A total loss may be either actual or excess of the insured value or, if there be none, of the (b) If it is injured to such an extent as to reduce its value
constructive. insurable value. more than three-fourths (¾);
Section 132. An actual total loss is caused by: Section 137. Upon an actual total loss, a person insured (c) If the thing insured is a ship, and the contemplated
(a) A total destruction of the thing insured; is entitled to payment without notice of voyage cannot be lawfully performed
(b) The irretrievable loss of the thing by sinking, or by abandonment. without incurring either an expense to the insured of
being broken up; Section 138. Where it has been agreed that an insurance more than three-fourths (¾) the value
(c) Any damage to the thing which renders it valueless to upon a particular thing, or class of things, of the thing abandoned or a risk which a prudent man
the owner for the purpose for shall be free from particular average, a marine insurer is would not take under the
which he held it; or not liable for any particular average loss circumstances; or
(d) Any other event which effectively deprives the owner not depriving the insured of the possession, at the port www.insurance.gov.ph
of the possession, at the port of of destination, of the whole of such thing, (d) If the thing insured, being cargo or freightage, and
destination, of the thing insured. or class of things, even though it becomes entirely the voyage cannot be performed,
www.insurance.gov.ph worthless; but such insurer is liable for his nor another ship procured by the master, within a
Section 133. A constructive total loss is one which gives proportion of all general average loss assessed upon the reasonable time and with reasonable
to a person insured a right to abandon, thing insured. diligence, to forward the cargo, without incurring the
under Section 141. Section 139. An insurance confined in terms to an actual like expense or risk mentioned in the
Section 134. An actual loss may be presumed from the loss does not cover a constructive total preceding subparagraph. But freightage cannot in any
continued absence of a ship without being loss, but covers any loss, which necessarily results in case be abandoned unless the ship
heard of. The length of time which is sufficient to raise depriving the insured of the possession, at is also abandoned.
this presumption depends on the the port of destination, of the entire thing insured. Section 142. An abandonment must be neither partial
circumstances of the case. SUB-TITLE 1-H nor conditional.
Section 135. When a ship is prevented, at an ABANDONMENT Section 143. An abandonment must be made within a
intermediate port, from completing the voyage, by Section 140. Abandonment, in marine insurance, is the reasonable time after receipt of reliable
the perils insured against, the liability of a marine act of the insured by which, after a information of the loss, but where the information is of a
insurer on the cargo continues after they are thus constructive total loss, he declares the relinquishment to doubtful character, the insured is entitled
reshipped. the insurer of his interest in the thing to a reasonable time to make inquiry.
Nothing in this section shall prevent an insurer from insured. Section 144. Where the information upon which an
requiring an additional premium if the hazard abandonment has been made proves incorrect,

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 34
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

or the thing insured was so far restored when the conduct of the insurer. The mere silence of the insurer Section 159. A marine insurer is liable upon a partial
abandonment was made that there was then in for an unreasonable length of time after loss, only for such proportion of the amount
fact no total loss, the abandonment becomes ineffectual. notice shall be construed as an acceptance. insured by him as the loss bears to the value of the
Section 145. Abandonment is made by giving notice Section 153. The acceptance of an abandonment, whole interest of the insured in the property
thereof to the insurer, which may be done whether express or implied, is conclusive upon insured.
orally, or in writing: Provided, That if the notice be done the parties, and admits the loss and the sufficiency of the Section 160. Where profits are separately insured in a
orally, a written notice of such abandonment. contract of marine insurance, the insured is
abandonment shall be submitted within seven (7) days Section 154. An abandonment once made and accepted entitled to recover, in case of loss, a proportion of such
from such oral notice. is irrevocable, unless the ground upon profits equivalent to the proportion which
Section 146. A notice of abandonment must be explicit, which it was made proves to be unfounded. the value of the property lost bears to the value of the
and must specify the particular cause of Section 155. On an accepted abandonment of a ship, whole.
the abandonment, but need state only enough to show freightage earned previous to the loss Section 161. In case of a valued policy of marine
that there is probable cause therefor, and belongs to the insurer of said freightage; but freightage insurance on freightage or cargo, if a part only of
need not be accompanied with proof of interest or of subsequently earned belongs to the insurer the subject is exposed to risk, the valuation applies only
loss. of the ship. in proportion to such part.
Section 147. An abandonment can be sustained only www.insurance.gov.ph Section 162. When profits are valued and insured by a
upon the cause specified in the notice Section 156. If an insurer refuses to accept a valid contract of marine insurance, a loss of them
thereof. abandonment, he is liable as upon an actual is conclusively presumed from a loss of the property out
Section 148. An abandonment is equivalent to a transfer total loss, deducting from the amount any proceeds of of which they are expected to arise, and
by the insured of his interest to the insurer, the thing insured which may have come to the valuation fixes their amount.
with all the chances of recovery and indemnity. the hands of the insured. Section 163. In estimating a loss under an open policy of
Section 149. If a marine insurer pays for a loss as if it Section 157. If a person insured omits to abandon, he marine insurance the following rules are
were an actual total loss, he is entitled to may nevertheless recover his actual loss. to be observed:
whatever may remain of the thing insured, or its SUB-TITLE 1-I (a) The value of a ship is its value at the beginning of the
proceeds or salvage, as if there had been a formal MEASURE OF INDEMNITY risk, including all articles or
abandonment. Section 158. A valuation in a policy of marine insurance charges which add to its permanent value or which are
Section 150. Upon an abandonment, acts done in good is conclusive between the parties thereto necessary to prepare it for the
faith by those who were agents of the in the adjustment of either a partial or total loss, if the voyage insured;
insured in respect to the thing insured, subsequent to insured has some interest at risk, and there (b) The value of the cargo is its actual cost to the
the loss, are at the risk of the insurer, and is no fraud on his part; except that when a thing has insured, when laden on board, or where
for his benefit. been hypothecated by bottomry or the cost cannot be ascertained, its market value at the
Section 151. Where notice of abandonment is properly respondentia, before its insurance, and without the time and place of lading, adding the
given, the rights of the insured are not knowledge of the person actually procuring the charges incurred in purchasing and placing it on board,
prejudiced by the fact that the insurer refuses to accept insurance, he may show the real value. But a valuation but without reference to any loss
the abandonment. fraudulent in fact, entitles the insurer to incurred in raising money for its purchase, or to any
Section 152. The acceptance of an abandonment may be rescind the contract. drawback on its exportation, or to the
either express or implied from the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 35
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

fluctuation of the market at the port of destination, or to right to contribution. But no such claim can be made Section 173. If there is no valuation in the policy, the
expenses incurred on the way or upon the insurer after the separation of the measure of indemnity in an insurance against
on arrival; interests liable to contribution, nor when the insured, fire is the expense it would be to the insured at the time
(c) The value of freightage is the gross freightage, having the right and opportunity to enforce of the commencement of the fire to replace
exclusive of primage, without reference contribution from others, has neglected or waived the the thing lost or injured in the condition in which it was
to the cost of earning it; and exercise of that right. at the time of the injury; but if there is a
(d) The cost of insurance is in each case to be added to Section 168. In the case of a partial loss of ship or its valuation in a policy of fire insurance, the effect shall be
the value thus estimated. equipment, the old materials are to be applied the same as in a policy of marine insurance.
Section 164. If cargo insured against partial loss arrives towards payment for the new. Unless otherwise Section 174. Whenever the insured desires to have a
at the port of destination in a stipulated in the policy, a marine insurer is liable valuation named in his policy, insuring any
damaged condition, the loss of the insured is deemed to for only two-thirds (2/3) of the remaining cost of repairs building or structure against fire, he may require such
be the same proportion of the after such deduction, except that anchors building or structure to be examined by an
value which the market price at that port, of the thing so must be paid in full. independent appraiser and the value of the insured’s
damaged, bears to the market TITLE 2 interest therein may then be fixed as between
price it would have brought if sound. FIRE INSURANCE the insurer and the insured. The cost of such
www.insurance.gov.ph Section 169. As used in this Code, the term fire insurance examination shall be paid for by the insured. A clause
Section 165. A marine insurer is liable for all the shall include insurance against loss by shall be inserted in such policy stating substantially that
expenses attendant upon a loss which forces the fire, lightning, windstorm, tornado or earthquake and the value of the insured’s interest in such
ship into port to be repaired; and where it is stipulated in other allied risks, when such risks are covered building or structure has been thus fixed. In the absence
the policy that the insured shall labor for by extension to fire insurance policies or under separate of any change increasing the risk without
the recovery of the property, the insurer is liable for the policies. the consent of the insurer or of fraud on the part of the
expense incurred thereby, such expense, Section 170. An alteration in the use or condition of a insured, then in case of a total loss under
in either case, being in addition to a total loss, if that thing insured from that to which it is limited such policy, the whole amount so insured upon the
afterwards occurs. by the policy made without the consent of the insurer, by insured’s interest in such building or structure,
Section 166. A marine insurer is liable for a loss falling means within the control of the insured, as stated in the policy upon which the insurers have
upon the insured, through a contribution in and increasing the risks, entitles an insurer to rescind a received a premium, shall be paid, and in case
respect to the thing insured, required to be made by him contract of fire insurance. of a partial loss the full amount of the partial loss shall
towards a general average loss called for Section 171. An alteration in the use or condition of a be so paid, and in case there are two (2) or
by a peril insured against: Provided, That the liability of thing insured from that to which it is limited more policies covering the insured’s interest therein,
the insurer shall be limited to the proportion by the policy, which does not increase the risk, does not each policy shall contribute pro rata to the
of contribution attaching to his policy value where this is affect a contract of fire insurance. www.insurance.gov.ph
less than the contributing value of the Section 172. A contract of fire insurance is not affected payment of such whole or partial loss. But in no case
thing insured. by any act of the insured subsequent to shall the insurer be required to pay more
Section 167. When a person insured by a contract of the execution of the policy, which does not violate its than the amount thus stated in such policy. This section
marine insurance has a demand against provisions, even though it increases the risk shall not prevent the parties from
others for contribution, he may claim the whole loss and is the cause of the loss. stipulating in such policies concerning the repairing,
from the insurer, subrogating him to his own rebuilding or replacing of buildings or

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 36
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

structures wholly or partially damaged or destroyed. suretyship in relation to the principal contract between Every contract or undertaking for the payment of
Section 175. No policy of fire insurance shall be pledged, the obligor and the obligee. annuities including contracts for the payment of
hypothecated, or transferred to any Section 179. The surety is entitled to payment of the lump sums under a retirement program where a life
person, firm or company who acts as agent for or premium as soon as the contract of suretyship insurance company manages or acts as a
otherwise represents the issuing company, and or bond is perfected and delivered to the obligor. No trustee for such retirement program shall be considered
any such pledge, hypothecation, or transfer hereafter contract of suretyship or bonding shall be a life insurance contract for purposes of
made shall be void and of no effect insofar valid and binding unless and until the premium therefor this Code.
as it may affect other creditors of the insured. has been paid, except where the obligee Section 182. An insurance upon life may be made
TITLE 3 has accepted the bond, in which case the bond becomes payable on the death of the person, or on his
CASUALTY INSURANCE valid and enforceable irrespective of surviving a specified period, or otherwise contingently
Section 176. Casualty insurance is insurance covering whether or not the premium has been paid by the obligor on the continuance or cessation of life.
loss or liability arising from accident or to the surety: Provided, That if the Every contract or pledge for the payment of endowments
mishap, excluding certain types of loss which by law or contract of suretyship or bond is not accepted by, or filed or annuities shall be considered a life
custom are considered as falling exclusively with the obligee, the surety shall collect insurance contract for purposes of this Code.
within the scope of other types of insurance such as fire only a reasonable amount, not exceeding fifty percent In the absence of a judicial guardian, the father, or in the
or marine. It includes, but is not limited to, (50%) of the premium due thereon as service latter’s absence or incapacity, the mother,
employer’s liability insurance, motor vehicle liability fee plus the cost of stamps or other taxes imposed for of any minor, who is an insured or a beneficiary under a
insurance, plate glass insurance, burglary and the issuance of the contract or contract of life, health, or accident
theft insurance, personal accident and health insurance bond: Provided, however, That if the nonacceptance of insurance, may exercise, in behalf of said minor, any
as written by non-life insurance the bond be due to the fault or negligence right under the policy, without necessity of
companies, and other substantially similar kinds of of the surety, no such service fee, stamps or taxes shall court authority or the giving of a bond, where the
insurance. be collected. interest of the minor in the particular act involved
TITLE 4 In the case of a continuing bond, the obligor shall pay does not exceed Five hundred thousand pesos
SURETYSHIP the subsequent annual premium as it falls (P500,000.00) or in such reasonable amount as
Section 177. A contract of suretyship is an agreement due until the contract of suretyship is cancelled by the may be determined by the Commissioner. Such right may
whereby a party called the surety guarantees obligee or by the Commissioner or by a include, but shall not be limited to,
the performance by another party called the principal or court of competent jurisdiction, as the case may be. obtaining a policy loan, surrendering the policy,
obligor of an obligation or undertaking in Section 180. Pertinent provisions of the Civil Code of the receiving the proceeds of the Policy, and giving
favor of a third party called the obligee. It includes Philippines shall be applied in a the minor’s consent to any transaction on the policy.
official recognizances, stipulations, bonds or suppletory character whenever necessary in interpreting In the absence or in case of the incapacity of the father
undertakings issued by any company by virtue of and the provisions of a contract of suretyship. or mother, the grandparent, the eldest
under the provisions of Act No. 536, as www.insurance.gov.ph brother or sister at least eighteen (18) years of age, or
amended by Act No. 2206. TITLE 5 any relative who has actual custody of the
Section 178. The liability of the surety or sureties shall LIFE INSURANCE minor insured or beneficiary, shall act as a guardian
be joint and several with the obligor and Section 181. Life insurance is insurance on human lives without need of a court order or judicial
shall be limited to the amount of the bond. It is and insurance appertaining thereto or appointment as such guardian, as long as such person is
determined strictly by the terms of the contract of connected therewith. not otherwise disqualified or

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 37
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

incapacitated. Payment made by the insurer pursuant to (b) The maximum sum of guaranteed benefits is not financial reporting promulgated by the Actuarial Society
this section shall relieve such insurer of more than one thousand (1,000) times of the Philippines.
any liability under the contract. of the current daily minimum wage rate for The assets and investments discussed in Sections 204 to
Section 183. The insurer in a life insurance contract shall nonagricultural workers in Metro Manila. 215 shall be accounted for in accordance
be liable in case of suicide only when it Section 188. No insurance company or mutual benefit with this section.
is committed after the policy has been in force for a association shall engage in the business of The valuation of reserves shall be accounted for in
period of two (2) years from the date of its microinsurance unless it possesses all the requirements accordance with Title 5 of this Code.
issue or of its last reinstatement, unless the policy as may be prescribed by the CHAPTER III
provides a shorter period: Provided, however, Commissioner. The Commissioner shall issue such rules THE BUSINESS OF INSURANCE
That suicide committed in the state of insanity shall be and regulations governing TITLE 1
compensable regardless of the date of microinsurance. INSURANCE COMPANIES, ORGANIZATION,
commission. CHAPTER II-A CAPITALIZATION AND AUTHORIZATION
Section 184. A policy of insurance upon life or health FINANCIAL REPORTING FRAMEWORK Section 190. For purposes of this Code, the term insurer
may pass by transfer, will or succession to Section 189. All companies regulated by the Commission, or insurance company shall include all
any person, whether he has an insurable interest or not, unless otherwise required by law, should partnerships, associations, cooperatives or corporations,
and such person may recover upon it comply with the financial reporting frameworks adopted including government-owned or -
whatever the insured might have recovered. by the Commission for purposes of controlled corporations or entities, engaged as principals
Section 185. Notice to an insurer of a transfer or bequest creating the statutory financial reports and the annual in the insurance business, excepting
thereof is not necessary to preserve the statements to be submitted to the mutual benefit associations. Unless the context
validity of a policy of insurance upon life or health, Commission. Financial reporting framework means a set otherwise requires, the term shall also include
unless thereby expressly required. of accounting and reporting principles, professional reinsurers defined in Section 288. Domestic
Section 186. Unless the interest of a person insured is standards, interpretations and pronouncements that companyshall include companies
susceptible of exact pecuniary must be adopted in the preparation and formed, organized or existing under the laws of the
measurement, the measure of indemnity under a policy submission of the statutory financial statements and Philippines. Foreign company when used
of insurance upon life or health is the sum reports required by the Commission. This without limitation shall include companies formed,
fixed in the policy. financial reporting framework is not the same as the organized, or existing under any laws other than
www.insurance.gov.ph financial reporting framework used to prepare those of the Philippines.
TITLE 6 the financial statements that the Securities and www.insurance.gov.ph
MICROINSURANCE Exchange Commission may require. The main Section 191. The provisions of the Corporation Code, as
Section 187. Microinsurance is a financial product or purpose of the statutory statements is to present amended, shall apply to all insurance
service that meets the risk protection needs important information about the level of risk and corporations now or hereafter engaged in business in the
of the poor where: solvency situation of insurers. In prescribing the Philippines insofar as they do not conflict
(a) The amount of contributions, premiums, fees or applicable statutory financial reporting framework, with the provisions of this chapter.
charges, computed on a daily basis, the Commissioner shall take into account international Section 192. No corporation, partnership, or association
does not exceed seven and a half percent (7.5%) of the standards concerning solvency and of persons shall transact any insurance
current daily minimum wage rate insurance company reporting as well as generally business in the Philippines except as agent of a
for nonagricultural workers in Metro Manila; and accepted actuarial principles concerning corporation, partnership or association authorized

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 38
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

to do the business of insurance in the Philippines, unless protection to policyholders and the public in general, any non-life insurance concurrently, unless specifically
possessed of the capital and assets person of good moral character, authorized to do so by the
required of an insurance corporation doing the same unquestioned integrity and recognized competence may www.insurance.gov.ph
kind of business in the Philippines and be elected or appointed director or officer Commissioner: Provided, That the terms life and non-
invested in the same manner; unless the Commissioner of insurance companies in accordance with the pertinent lifeinsurance shall be deemed to include
shall have granted it a certificate to the provisions contained in the corporate health, accident and disability insurance.
effect that it has complied with all the provisions of this governance circulars prescribed by the Commissioner. In No insurance company shall have equity in an
Code. addition hereto, the Commissioner shall adjustment company and neither shall an
Every entity receiving any such certificate of authority prescribe the qualifications of directors, executive adjustment company have equity in an insurance
shall be subject to the insurance and other officers and other key officials of insurance company.
applicable laws of the Philippines and to the jurisdiction companies for purposes of this section. No insurance company issued with a valid certificate of
and supervision of the Commissioner. No person shall concurrently be a Director and/or Officer authority to transact insurance business
Section 193. No insurance company shall transact any of an insurance company and an anywhere in the Philippines by the Insurance
insurance business in the Philippines until adjustment company. Commissioner, shall be barred, prevented, or
after it shall have obtained a certificate of authority for Before issuing such certificate of authority, the disenfranchised from issuing any insurance policy or
that purpose from the Commissioner upon Commissioner must be satisfied that the name of from transacting any insurance business
application therefor and payment by the company the company is not that of any other known company within the scope or coverage of its certificate of
concerned of the fees hereinafter prescribed. transacting a similar business in the authority, anywhere in the Philippines, by any local
The Commissioner may refuse to issue a certificate of Philippines, or a name so similar as to be calculated to government unit or authority, for whatever guise or
authority to any insurance company if, in mislead the public. The Commissioner may reason whatsoever, including under any kind
his judgment, such refusal will best promote the interest issue rules and regulations on the use of names of of ordinance, accreditation system, or scheme. Any local
of the people of this country. No such insurance companies and other supervised ordinance or local government unit
certificate of authority shall be granted to any such persons or entities. regulatory issuance imposing such restriction or
company until the Commissioner shall have The certificate of authority issued by the Commissioner disenfranchisement on any insurance company
satisfied himself by such examination as he may make shall expire on the last day of December, shall be deemed null and void ab initio.
and such evidence as he may require that three (3) years following its date of issuance, and shall Section 194. Except as provided in Section 289, no new
such company is qualified by the laws of the Philippines be renewable every three (3) years domestic life or non-life insurance
to transact business therein, that the grant thereafter, subject to the company’s continuing company shall, in a stock corporation, engage in
of such authority appears to be justified in the light of compliance with the provisions of this Code, business in the Philippines unless possessed of
local economic requirements, and that the circulars, instructions, rulings or decisions of the a paid-up capital equal to at least One billion pesos
direction and administration, as well as the integrity and Commission. (P1,000,000,000.00): Provided, That a
responsibility of the organizers and Every company receiving any such certificates of domestic insurance company already doing business in
administrators, the financial organization and the authority shall be subject to the provisions of this the Philippines shall have a net worth by
amount of capital, reasonably assure the safety Code and other related laws and to the jurisdiction and June 30, 2013 of Two hundred fifty million pesos
of the interests of the policyholders and the public. supervision of the Commissioner. (P250,000,000.00). Furthermore, said company
In order to maintain the quality of the management of No insurance company may be authorized to transact in must have by December 31, 2016, an additional Three
the insurance companies and afford better the Philippines the business of life and hundred million pesos (P300,000,000.00)

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 39
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

in net worth; by December 31, 2019, an additional Three remain unimpaired for the continuance of the license. (a) A certified copy of the last annual statement or a
hundred fifty million pesos The Commissioner may require the adoption verified financial statement exhibiting
(P350,000,000.00) in net worth; and by December 31, of the risk-based capital approach and other the condition and affairs of such company;
2022, an additional Four hundred million internationally accepted forms of capital framework. (b) If incorporated under the laws of the Philippines, a
pesos (P400,000,000.00) in net worth. For the purpose of this section, net worth shall consist copy of the articles of incorporation
The Commissioner may, as a pre-licensing requirement of: and bylaws, and any amendments to either, certified by
of a new insurance company, in addition (a) Paid-up capital; the Securities and Exchange
to the paid-up capital stock, require the stockholders to (b) Retained earnings; Commission to be a copy of that which is filed in its
pay in cash to the company in proportion (c) Unimpaired surplus; and Office;
to their subscription interests a contributed surplus fund (d) Revaluation of assets as may be approved by the (c) If incorporated under any laws other than those of
of not less than One hundred million pesos Commissioner. the Philippines, a certificate from the
(P100,000,000.00). He may also require such company www.insurance.gov.ph Securities and Exchange Commission showing that it is
to submit to him a business plan showing The Commission may adopt for purposes of compliance duly registered in the mercantile
the company’s estimated receipts and disbursements, as with capital build up requirement under registry of that Commission in accordance with the
well as the basis therefor, for the next this Code the recognition as part of the capital account, Corporation Code. A copy of the articles
succeeding three (3) years. capital notes or debentures which are of incorporation and bylaws, and any amendments to
If organized as a mutual company, in lieu of such net subordinate to all credits and senior only to common either, if organized or formed under
worth, it must have available total members capital stocks. any law requiring such to be filed, duly certified by the
equity in an amount to be determined by the Insurance The President of the Philippines may order a periodic officer having the custody of same,
Commission above all liabilities for losses review every two (2) years the capital or if not so organized, a copy of the law, charter or deed
reported; expenses, taxes, legal reserve, and reinsurance structure set out above to determine the capital of settlement under which the
of all outstanding risks, and the adequacy of the local insurance industry from and deed of organization is made, duly certified by the proper
contributed surplus fund equal to the amounts required after the integration and liberalization of the financial custodian thereof, or proved by
of stock corporations. A stock insurance services, including insurance, in the ASEAN affidavit to be a copy; also, a certificate under the hand
company doing business in the Philippines may, subject Region. For this purpose, a review committee consisting and seal of the proper officer of
to the pertinent law and regulation which of representatives from the Department such state or country having supervision of insurance
now or hereafter may be in force, alter its organization of Finance (DOF), the Insurance Commission (IC), the business therein, if any there be,
and transform itself into a mutual insurance National Economic and Development that such corporation or company is organized under the
company. Authority (NEDA), the Securities and Exchange laws of such state or country,
The Secretary of Finance may, upon recommendation of Commission (SEC) and other agencies which the with the amount of capital stock or assets and legal
the Commissioner, increase such President may designate shall conduct the review and reserve required by this Code;
minimum paid-up capital stock or cash assets may recommend to the President to adopt (d) If not incorporated and of foreign domicile, aside
requirement under such terms and conditions as he for implementation the necessary capital adjustment. from the certificate mentioned in
may impose, to an amount which, in his opinion, would Section 195. Every company must, before engaging in paragraph (c) of this section, a certificate setting forth
reasonably assure the safety of the interests the business of insurance in the Philippines, the nature and character of the
of the policyholders and the public. The minimum paid- file with the Commissioner the following: business, the location of the principal office, the name of
up capital and net worth requirement must the individual or names of the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 40
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

persons composing the partnership or association, the any agent in the Philippines on whom any notice, proof percent (50%) of such securities shall consist of bonds
amount of actual capital employed of loss, summons, or legal process may be or other instruments of debt of the
or to be employed therein, and the names of all officers served, then in any action or proceeding arising out of Government of the Philippines, its political subdivisions
and persons by whom the business any business or transaction which occurred and instrumentalities, or of governmentowned
is or may be managed. in the Philippines, service of any notice provided by law, or -controlled corporations and entities, including the
The certificate must be verified by the affidavit of the or insurance policy, proof of loss, Bangko Sentral ng
chief officer, secretary, agent, or manager of summons, or other legal process may be made upon the Pilipinas: Provided, further, That the total investment of
the company; and if there are any written articles of Insurance Commissioner, and that such a foreign insurance company in any
agreement of the company, a copy thereof service upon the Insurance Commissioner shall have the registered enterprise shall not exceed twenty percent
must accompany such certificate. same force and effect as if made upon (20%) of the net worth of said foreign
Section 196. The Commissioner must require as a the company. insurance company nor twenty percent (20%) of the
condition precedent to the transaction of Whenever such service of notice, proof of loss, summons, capital of the registered enterprise, unless
insurance business in the Philippines by any foreign or other legal process shall be made previously authorized in writing by the Commissioner.
insurance company, that such company file upon the Commissioner, he must, within ten (10) days The Commissioner may, as a pre-licensing requirement
in his office a written power of attorney designating thereafter, transmit by mail, postage paid, of a new branch office of a foreign
some person who shall be a resident of the a copy of such notice, proof of loss, summons, or other insurance company, in addition to the required asset or
Philippines as its general agent, on whom any notice legal process to the company at its home net worth, require the company to have an
provided by law or by any insurance policy, or principal office. The sending of such copy by the additional surplus fund in an amount to be determined
proof of loss, summons and other legal processes may be Commissioner shall be a necessary part of the by the Insurance Commission.
served in all actions or other legal service of the notice, proof of loss, or other legal process. For purposes of this Code, the net worth of a foreign
proceedings against such company, and consenting that Section 197. No insurance company organized or insurance company shall refer only to its net
service upon such general agent shall be existing under the government or laws other worth in the Philippines.
admitted and held as valid as if served upon the foreign than those of the Philippines shall engage in business in Section 198. The Commissioner shall hold the securities,
company at its home office. Any such the Philippines unless possessed of deposited as required in the immediately
foreign company shall, as further condition precedent to unimpaired capital or assets and reserve of not less than preceding section, for the benefit and security of all the
the transaction of insurance business in One billion pesos (P1,000,000,000.00), policyholders and creditors of the company
the Philippines, make and file with the Commissioner an nor until it shall have deposited with the Commissioner depositing the same: Provided, That the Commissioner
agreement or stipulation, executed by the for the benefit and security of the may as long as the company is solvent,
proper authorities of said company in form and policyholders and creditors of such company in the permit the company to collect the interest or dividends
substance as follows: Philippines, securities satisfactory to the on the securities so deposited, and, from
www.insurance.gov.ph Commissioner consisting of good securities of the time to time, with his assent, to withdraw any of such
The (name of company) does hereby stipulate and agree Philippines, including new issues of stock of securities, upon depositing with said
in consideration of the permission registered enterprises, as this term is defined in Commissioner other like securities, the market value of
granted by the Insurance Commissioner to transact Executive Order No. 226 of 1987, as amended, to which shall be equal to the market value
business in the Philippines, that if at any time the actual market value of not less than the amount of such as may be withdrawn. In the event of any
said company shall leave the Philippines, or cease to herein required: Provided, That at least fifty company ceasing to do business in the
transact business therein, or shall be without

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 41
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Philippines, the securities deposited as aforesaid shall be Whenever the aforementioned requirement be found to (d) In the case of corporations other than life, the legal
returned to the company upon the be less than that herein required to be reserve fund required by Section
Commissioner’s written approval and only after the maintained, the Commissioner shall forthwith direct the 219; and
company has duly proven in its application company to make good any such (e) A sum sufficient to pay all net losses reported, or in
therefor that it has no further liability whatsoever under deficiency by cash, to be contributed by all stockholders the course of settlement, and all
any of its policies nor to any of its creditors of record in proportion to their respective liabilities for expenses and taxes.
in the Philippines. interests, and paid to the treasurer of the company, Any dividend declared or distributed under the preceding
Section 199. Every foreign company doing business in within fifteen (15) days from receipt of the paragraph shall be reported to the
the Philippines shall set aside an amount order: Provided, That the company in the interim shall Commissioner within thirty (30) days after such
corresponding to the legal reserves of the policies not be permitted to take any new risk of any declaration or distribution.
written in the Philippines and invest and keep kind or character unless and until it make good any such If the Commissioner finds that any such corporation has
the same therein in accordance with the provisions of deficiency: Provided; further, That a declared or distributed any such dividend
this section. The legal reserve therein stockholder who aside from paying the contribution due in violation of this section, he may order such
required to be set aside shall be invested only in the from him, pays the contribution due from corporation to cease and desist from doing business
classes of Philippine securities described in another stockholder by reason of the failure or refusal of until the amount of such dividend or the portion thereof
Section 206: Provided, however, That no investment in the latter to do so, shall have a lien on in excess of the amount allowed under this
stocks or bonds of any single entity shall, the certificates of stock of the insurance company section has been restored to said corporation.
www.insurance.gov.ph concerned appearing in its books in the name The Commissioner shall prescribe solvency requirements
in the aggregate exceed twenty percent (20%) of the of the defaulting stockholder on the date of default, as for branches of foreign insurance
net worth of the investing company or twenty well as on any interests or dividends that companies operating in the Philippines.
percent (20%) of the capital of the issuing company, have accrued or will accrue to the said certificates of www.insurance.gov.ph
whichever is the lesser, unless otherwise stock, until the corresponding payment or TITLE 3
approved in writing by the Commissioner. The securities reimbursement is made by the defaulting stockholder. ASSETS
purchased and kept in the Philippines Section 201. No domestic insurance corporation shall Section 202. In any determination of the financial
under this section, shall not be sent out of the territorial declare or distribute any dividend on its condition of any insurance company doing
jurisdiction of the Philippines without the outstanding stocks unless it has met the minimum paid- business in the Philippines, there shall be allowed and
written consent of the Commissioner. up capital and net worth requirements admitted as assets only such assets legally
TITLE 2 under Section 194 and except from profits attested in a or beneficially owned by the insurance company
SOLVENCY sworn statement to the Commissioner by concerned as determined by the Commissioner
Section 200. An insurance company doing business in the the president or treasurer of the corporation to be which consist of:
Philippines shall at all times maintain remaining on hand after retaining unimpaired: (a) Cash in the possession of the insurance company or
the minimum paid-up capital, and net worth (a) The entire paid-up capital stock; in transit under its control, and the
requirements as prescribed by the Commissioner. (b) The solvency requirements defined by Section 200; true and duly verified balance of any deposit of such
Such solvency requirements shall be based on (c) In the case of life insurance corporations, the legal company in a financially sound bank
internationally accepted solvency frameworks and reserve fund required by Section or trust company duly authorized by the Bangko Sentral
adopted only after due consultation with the insurance 217; ng Pilipinas.
industry associations.

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 42
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

(b) Investments in securities, including money market loss and unearned premium reserves, for reinsurance Section 203. In addition to such assets as the
instruments, and in real property recoverable from an insurer Commissioner may from time to time determine to
acquired or held in accordance with and subject to the not authorized in this country but which presents be non-admitted assets of insurance companies doing
applicable provisions of this Code satisfactory evidence that it meets business in the Philippines, the following
and the income realized therefrom or accrued thereon. the applicable standards of solvency required in this assets shall in no case be allowed as admitted assets of
(c) Loans granted by the insurance company concerned country. an insurance company doing business in
to the extent of that portion thereof (g) Funds withheld by a ceding insurer under a the Philippines, in any determination of its financial
adequately secured by non-speculative assets with reinsurance treaty, provided reserves for condition:
readily realizable values in accordance unpaid losses and unearned premiums are adequately (a) Goodwill, trade names, and other like intangible
with and subject to the limitations imposed by applicable provided. assets.
provisions of this Code. (h) Deposits or amounts recoverable from underwriting (b) Prepaid or deferred charges for expenses and
(d) Policy loans and other policy assets and liens on associations, syndicates and commissions paid by such insurance
policies, contracts or certificates of a reinsurance funds, or from any suspended banking company.
life insurance company, in an amount not exceeding institution, to the extent deemed by the (c) Advances to officers (other than policy loans), which
legal reserves and other policy Commissioner to be available for the payment of losses are not adequately secured and
liabilities carried on each individual life insurance policy, and claims and values to be which are not previously authorized by the
contract or certificate. determined by him. Commissioner, as well as advances to
(e) The net amount of uncollected and deferred (i) Electronic data processing machines, as may be employees, agents, and other persons on mere personal
premiums and annuity considerations in authorized by the Commissioner to be security.
the case of a life insurance company which carries the acquired by the insurance company concerned, the (d) Shares of stock of such insurance company, owned
full mean tabular reserve liability. acquisition cost of which to be by it, or any equity therein as well
(f) Reinsurance recoverable by the ceding insurer: amortized in equal annual amounts within a period of as loans secured thereby, or any proportionate interest
(1) From an insurer authorized to transact business in five (5) years from the date of in such shares of stock through the
this country, the full amount acquisition thereof. ownership by such insurance company of an interest in
thereof; or www.insurance.gov.ph another corporation or business
(2) From an insurer not authorized in this country, in an (j) Investments in mutual funds, real estate investment unit.
amount not exceeding the trusts, salary loans, unit investment (e) Furniture, furnishing, fixtures, safes, equipment,
liabilities carried by the ceding insurer for amounts trust funds and special deposit accounts, subject to the library, stationery, literature, and
withheld under a reinsurance conditions as may be provided for supplies.
treaty with such unauthorized insurer as security for the by the Commissioner. (f) Items of bank credits representing checks, drafts or
payment of obligations (k) Other assets, not inconsistent with the provisions of notes returned unpaid after the date
thereunder if such funds are held subject to withdrawal paragraphs (a) to (j) hereof, which of statement.
by, and under the control are deemed by the Commissioner to be readily realizable (g) The amount, if any, by which the aggregate value of
of, the ceding insurer. The Commissioner may prescribe and available for the payment of investments as carried in the ledger
the conditions under losses and claims at values to be determined by him in a assets of such insurance company exceeds the aggregate
which a ceding insurer may be allowed credit, as an circular, rule or regulation. value thereof as determined in
asset or as a deduction from

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 43
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

accordance with the provisions of this Code and/or the of the Philippines or its political subdivisions authorized not exceed seventy percent (70%) of its appraised
rules of the Commissioner. by law to incur such obligations or value, and in the case of a loan secured
All non-admitted assets and all other assets of doubtful issue such guarantees or of government-owned or - by a real estate mortgage over an agricultural land, the
value or character included as ledger or controlled corporations and amount of loan shall not exceed
non-ledger assets in any statement submitted by an instrumentalities including the Bangko Sentral ng forty percent (40%) of its market value: Provided, That,
insurance company to the Commissioner, or Pilipinas; or in no case shall such loan have a
in any insurance examiner’s report to him, shall also be (e) Obligations issued or guaranteed by universal banks, maturity period in excess of twenty-five (25) years;
reported, to the extent of the value commercial banks, offshore (2) Unless approved by the Commissioner, no loan may
disallowed as deductions from the gross assets of such banking units, investment houses or other financial be granted upon the security of a
insurance company, except where the intermediaries duly registered with the mortgage on improved real estate if the improvements
Commissioner permits a reserve to be carried among the Bangko Sentral ng Pilipinas; or thereon do not belong to the owner
liabilities of such insurance company in (f) Obligations issued or guaranteed by foreign banks or of the land, and the owner of the improvements does not
lieu of any such deduction. corporations, each of which shall sign the deed of mortgage.
TITLE 4 have total net worth of at least One hundred fifty million However, if the owner of the land is the Government of
INVESTMENTS US dollars ($US150,000,000.00) the Philippines or any of its political
Section 204. A life insurance company may lend to any of or such other higher net worth as may be prescribed by subdivisions and a long-term lease has been executed in
its policyholders upon the security of the the Insurance Commission, as favor of the owner of the
value of its policy such sum as may be determined shown in their financial statements as of the improvements, the owner of the land need not be a party
pursuant to the provisions of the policy. immediately preceding fiscal year; or to the deed of mortgage. The
www.insurance.gov.ph (g) Assignments of monetary instruments such as cash expiration date of the lease shall not, however, precede
No insurance company shall loan any of its money or deposits, deposit certificates or the maturity of the loan. The phrase
deposits to any person, corporation or other similar instruments of universal banks, commercial ‘improved real estate’ as used herein shall mean land
association, except upon the security of any of the banks, investment houses or with permanent building or buildings
following: other financial intermediaries duly registered with the erected thereon;
(a) First mortgage or deeds of trust of registered, Bangko Sentral ng Pilipinas; or www.insurance.gov.ph
unencumbered, improved or unimproved (h) Pledges of shares of stock, bonds or other (3) Lease-agreements or similar securities received on
real estate, including condominiums; instruments of indebtedness specified in the sale of real estate property shall
(b) First mortgages or deeds of trust of actually Section 209; or not exceed one hundred percent (100%) of the selling
cultivated, improved and unencumbered (i) Chattel mortgages over equipment not more than price of said property, or one
agricultural lands in the Philippines; three (3) years old; and hundred percent (100%) of its market value at the time
(c) Purchase money mortgages, lease purchase (j) Such other security as may be approved by the of its disposition, whichever amount
agreements or similar securities executed Commissioner. is lower. However, in no case shall such agreement have
or received by it on account of the sale or exchange of The loans provided in the preceding subsection shall be a maturity period not exceeding
real property acquired pursuant to subject to the following conditions: thirty (30) years;
Sections 206 and 208; (1) The amount of loan secured by real estate mortgage (4) Loans secured by shares of stock of solvent
(d) Bonds or other instruments of indebtedness issued or over a non-agricultural land shall corporations or institutions shall not exceed
guaranteed by the Government fifty percent (50%) of:

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 44
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

(i) The weighted average market price for the one (1) Real properties which serve as its main place of insurance company shall invest in or loan upon the
hundred eighty (180) days business and/or branch obligations of any one institution
preceding the approval of the loan for shares listed in the offices: Provided, That such investment shall not in the in the kinds permitted under this subsection an amount
stock exchange; and overall exceed twenty percent in excess of twenty-five
(ii) For unlisted shares, the adjusted book value of such (20%) of its net worth as shown by its latest financial percent (25%) of the total admitted assets of such
shares. statement approved by the insurer as of December thirtyfirst
(5) Loans secured by the chattel mortgages over Commissioner. next preceding the date of such investment.
equipment shall not exceed seventy (2) Bonds or other instruments of indebtedness of the As used in this subsection the term net earnings
percent (70%) of the market value of said equipment. Government of the Philippines or its available for fixed charges shall mean net
Section 205. No loan by any insurance company on the political subdivisions authorized by law to issue bonds at income after deducting operating and maintenance
security of real estate shall be made unless the reasonable market value expenses, taxes other than income
the title to such real estate shall have first been thereof. taxes, depreciation and depletion; but excluding
registered in accordance with the existing Land (3) Bonds or other instruments of debt of government- extraordinary nonrecurring items of
Registration Act, or shall have been previously registered owned or -controlled corporations income or expense appearing in the regular financial
under the provisions of the existing and entities, including the Bangko Sentral ng Pilipinas. statement of the issuing, assuming
Mortgage Law and the lien or interest of the insurance (4) Bonds, debentures or other instruments of or guaranteeing institution. The term fixed charges shall
company as mortgagee has been registered. indebtedness of any solvent corporation or include interest on funded and
Section 206. (a) An insurance company may purchase, institution created or existing under the laws of the unfunded debt, amortization of debt discount, and
hold, own and convey such property, real Philippines: rentals for leased properties.
and personal, as may have been mortgaged, pledged, or Provided, however, That the issuing, assuming or (5) Preferred or guaranteed stocks of any solvent
conveyed to it in good faith in trust for its guaranteeing entity or its corporation or institution created or
benefit by reason of money loaned by it in pursuance of predecessors shall not have defaulted in the payment of existing under the laws of the Philippines: Provided, That
the regular business of the company, and interest on any of its if the stocks are guaranteed, the
such real or personal property as may have been securities and that during each of any three (3) including amount of stocks so guaranteed is not in excess of fifty
purchased by it at sales under pledges, the last two (2) of the five percent (50%) of the amount of the
mortgages or deeds of trust for its benefit on account of (5) fiscal years next preceding the date of acquisition by preferred or common stocks, as the case may be, of the
money loaned by it; and such real and such insurance company guaranteeing
personal property as may have been conveyed to it by of such bonds, debentures, or other instruments of corporation: Provided, finally, That no life insurance
borrowers in satisfaction and discharge of indebtedness, the net earnings company shall invest in or loan upon
loans made by the company in payment or by reason of of the issuing, assuming or guaranteeing institution obligations of any one institution in the kinds permitted
any loan made by the company in payment available for its fixed charges, under this subsection an amount in
or by reason of any loan made by it shall be sold by the www.insurance.gov.ph excess of ten percent (10%) of the total admitted assets
company within twenty (20) years after the as hereinafter defined, shall have been not less than one of such insurer as of December
title thereto has been vested in it. and one-quarter (1¼) thirty-first next preceding the date of such investment.
(b) An insurance company may purchase, hold, and own times the total of its fixed charges for such year: (6) Common stocks of any solvent corporation or
the following: Provided, further, That no life institution created or existing under the

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 45
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

laws of the Philippines: Provided, however, That no life (10) Any obligation of any corporation or institution (a) Acquire or construct housing projects and, in
insurance company shall invest in created or existing under the laws of connection with any such project, may
or loan upon the obligations of any one corporation or the Philippines which is, on the date of acquisition by the acquire land or any interest therein by purchase, lease or
institution in the kinds permitted insurer, adequately secured and otherwise, or use land acquired
under this subsection an amount in excess of ten percent has qualities and characteristics wherein the speculative pursuant to any other provision of this Code. Such
(10%) of the total admitted assets elements are not predominant. company may thereafter own, maintain,
of such insurer as of December thirty-first next (11) Such other securities as may be approved by the manage, collect or receive income from, or sell and
preceding the date of such investment. Commissioner. convey, any land or interest therein so
(7) Securities issued by a registered enterprise, as this (c) Any domestic insurer which has outstanding acquired and any improvements thereon. The aggregate
term is defined in Executive Order insurance, annuity or reinsurance contracts in book value of the investments of
No. 226, otherwise known as the Omnibus Investments currencies other than the national currency of the any such company in all such projects shall not exceed at
Code of 1987, as Philippines may invest in, or otherwise acquire the time of such investments
amended: Provided, That the total investment of a www.insurance.gov.ph twenty-five percent (25%) of the total admitted assets
domestic non-life insurance company or loan upon securities and investments in such currency of such company on the thirty-first
in any registered enterprise shall not exceed twenty which are substantially of the same kinds, day of December next preceding: Provided, That the
percent (20%) of the net worth of said classes and investment grades as those eligible for funds of the company for the payment
insurance company as shown by its aforesaid financial investment under the foregoing subdivisions of pending claims and obligations shall not be used for
statement unless previously of this section; but the aggregate amount of such such investments.
authorized by the Commissioner. investments and of such cash in such currency (b) Acquire real property, other than property to be used
(8) Certificates, notes and other obligations issued by which is at any time held by such insurer shall not primarily for providing housing
the trustees or receivers of any exceed one and one-half (1½) times the amount and property for accommodation of its own business, as
institution created or existing under the laws of the of its reserves and other obligations under such an investment for the production
Philippines which, or the assets of contracts or the amount which such insurer is of income, or may acquire real property to be improved
which, are being administered under the direction of any required by the law of any country or possession outside or developed for such investment
court having the Republic of the Philippines to be purpose pursuant to a program therefor, subject to the
jurisdiction: Provided, however, That such certificates, invested in such country or possession, whichever shall condition that the cost of each parcel
notes or other obligations are be greater. of real property so acquired under the authority of this
adequately secured as to principal and interests. Section 207. An insurance company may: paragraph (b), including the
(9) Equipment trust obligations or certificates which are (1) Invest in equities of other financial institutions; and estimated cost to the company of the improvement or
adequately secured or other (2) Engage in the buying and selling of long-term debt development thereof, when added
adequately secured instruments evidencing an interest instruments: Provided, That any or to the book value of all other real property held by it
in equipment wholly or in part within all of such investments shall be with the prior approval pursuant to this paragraph (b), shall
the Philippines: Provided, however, That there is a right of the Commissioner. Insurance not exceed twenty-five percent (25%) of its admitted
to receive determined portions of companies may, however, invest in listed equities of assets as of the thirty-first day of
rental, purchase or other fixed obligatory payments for other financial institutions without December next preceding.
the use or purchase of such need of prior approval by the Commissioner. Section 209. Every domestic insurance company shall, to
equipment. Section 208. Any life insurance company may: the extent of an amount equal in value

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 46
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

to twenty-five percent (25%) of the minimum net worth (a) No more than twenty percent (20%) of the net worth otherwise approved by the Commissioner.
required under Section 194, invest its funds of such company as shown by its Section 212. After satisfying the minimum capital
only in securities, satisfactory to the Commissioner, latest financial statement approved by the Commissioner investment required in Section 209, any life
consisting of bonds or other instruments of shall be invested in the lot and insurance company may invest its legal policy reserve, as
debt of the Government of the Philippines or its political building in which the insurance company conducts its provided in Section 217 or in Section
subdivisions or instrumentalities, or of business; and 218, in any of the classes of securities or types of
government-owned or -controlled corporations and (b) The total investment of an insurance company in any investments described in Sections 204, 206, 207
entities, including the Bangko Sentral ng registered enterprise shall not and 208, subject to the limitations therein contained,
Pilipinas: Provided, That such investments shall at all exceed twenty percent (20%) of the net worth of said and in any securities issued by any registered
times be maintained free from any lien or insurance company as shown by its enterprise mentioned in Section 210, free from any lien
encumbrance: Provided, further, That such securities aforesaid financial statement nor twenty percent (20%) or encumbrance, in such amounts as may
shall be deposited with and held by the of the paid-up capital of the be approved by the Commissioner. Such company may
Commissioner for the faithful performance by the registered enterprise excluding the intended investment, likewise invest any portion of its earned
depositing insurer of all its obligations under its unless previously authorized by surplus in the aforesaid securities or investments subject
insurance contracts. The provisions of Section 198 shall, the Commissioner: Provided, further, That such to the aforesaid limitations.
so far as practicable, apply to the investments, free from any lien or Section 213. Any investment made in violation of the
securities deposited under this section. encumbrance, shall be at least equal in amount to the applicable provisions of this title shall be
Except as otherwise provided in this Code, no judgment aggregate amount of: (1) its legal considered non-admitted assets.
creditor or other claimant shall have the reserve, as provided in Section 219, and (2) its reserve Section 214. (a) All bonds or other instruments of
right to levy upon any of the securities of the insurer fund held for reinsurance as indebtedness having a fixed term and rate of
held on deposit under this section or held on provided for in the pertinent treaty provision in the case interest and held by any life insurance company
deposit pursuant to the requirement of the of reinsurance ceded to authorized authorized to do business in this country, if amply
Commissioner. insurers. secured and if not in default as to principal or interest,
Section 210. After satisfying the requirements contained Section 211. After satisfying the requirements contained shall be valued based on their amortized
in the preceding section, any domestic in Sections 197, 199, 209 and 210, any cost using effective interest method less impairment and
non-life insurance company, shall invest, to an amount non-life insurance company may invest any portion of its unrecoverable amount based on
prescribed below, its funds in, or otherwise, funds representing earned surplus in any appropriate measurement methods which are generally
www.insurance.gov.ph of the investments described in Sections 204, 206 and accepted in the industry and accepted by
acquire or loan upon, only the classes of investments 207, or in any securities issued by a the Commissioner. The Commissioner shall have the
described in Section 206, including securities registered enterprise mentioned in the preceding power to determine the eligibility of any such
issued by any registered enterprise, as this term is sections: Provided, That no investment in stocks investments for valuation on the basis of amortization,
defined in Executive Order No. 226, otherwise or bonds of any single entity shall in the aggregate, and may by regulation prescribe or limit the
known as ‘The Omnibus Investments Code of 1987′ and exceed twenty percent (20%) of the net worth classes of securities so eligible for amortization. All
such other classes of investments as may of the insurance company as shown in its latest financial bonds or other instruments of indebtedness
be authorized by the Commissioner for purposes of this statement approved by the Commissioner which in the judgment of the Commissioner are not
section: Provided, That: or twenty percent (20%) of the paid-up capital of the amply secured shall not be eligible for
issuing company, whichever is lesser, unless

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 47
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

amortization and shall be valued in accordance with provided in appropriate circulars issued by the appraisal deemed by the Commissioner to be reliable,
paragraph two. The Commissioner may, if he Commissioner. shall not be valued at an amount greater
finds that the interest of policyholders so permit or (c) Investments in equity of an insurance company shall than the unpaid principal of the defaulted loan at the
require, by official regulation permit or require be valued as follows: date of such foreclosure or deed, together
any class or classes of insurers, other than life insurance (1) Listed stocks shall be valued at market value and with any taxes and expenses paid or incurred by such
companies authorized to do business in periodically adjusted to reflect market insurer at such time in connection with such
this country, to value their bonds or other instruments of changes through a special valuation account to reflect acquisition, and the cost of additions or improvements
indebtedness in accordance with the their realizable value when sold; thereafter paid by such insurer and any
foregoing rule. (2) Unlisted stocks shall be valued at adjusted book amount or amounts thereafter paid by such insurer or
(b) The investments of all insurers authorized to do value based on the latest unqualified any assessments levied for improvements
business in this country, except securities audited financial statements of the company which in connection with the property.
subject to amortization and except as otherwise issued such stocks; and (f) Purchase money mortgages received on dispositions
provided in this chapter, shall be valued, in the (3) Stocks of a corporation under the control of the of real property held pursuant to Section
www.insurance.gov.ph insurer shall be valued using the equity 208 shall be valued in an amount equivalent to ninety
discretion of the Commissioner, at their amortized cost method which is the cost plus or minus the share of the percent (90%) of the value of such real
using effective interest method less controlling company in the earnings property. Purchase money mortgages received on
impairment and unrecoverable amount or at valuation or losses of the controlled company after acquisition of disposition of real property otherwise held shall
representing their fair market value. If the such stocks. be valued in an amount not exceeding ninety percent
Commissioner finds that in view of the character of (d) The stock of an insurance company shall be valued at (90%) of the value of such real property as
investments of any insurer authorized to do the lesser of its market value or its book determined by an appraisal made by an appraiser at or
business in this country it would be prudent for such value as shown by its last approved audited financial about the time of disposition of such real
insurer to establish a special reserve for statement or the last report on examination, property.
possible losses or fluctuations in the values of its whichever is more recent. The book value of a share of (g) The stock of a subsidiary of an insurer shall be valued
investments, he may require such insurer to common stock of an insurance company on the basis of the greater of:
establish such reserve, reasonable in amount, and shall be ascertained by dividing (1) the amount of its (1) The value of only such of the assets of such
include a report thereon in any statement or capital and surplus less the value of all of its subsidiary as would constitute lawful
report of the financial condition of such insurer. The preferred stock, if any, outstanding, by (2) the number of investments for the insurer if acquired or held directly by
Commissioner may, in connection with any shares of its common stock issued and the insurer; or
examination or required financial statement of an outstanding. www.insurance.gov.ph
authorized insurer, require such insurer to furnish Notwithstanding the foregoing provisions, an insurer (2) Such other value determined pursuant to standards
him complete financial statements and audited report of may, at its option, value its holdings of stock and cumulative limitations,
the financial condition of any corporation in a subsidiary insurance company in an amount not less contained in a regulation to be promulgated by the
of which the securities are owned wholly or partly by than acquisition cost if such acquisition Commissioner.
such insurer and may cause an examination cost is less than the value determined as hereinbefore (h) Notwithstanding any provision contained in this
to be made of any subsidiary or affiliate of such insurer provided. section or elsewhere in this chapter, if the
as appropriate to specific investments as (e) Real estate acquired by foreclosure or by deed in lieu Commissioner finds that the interests of policyholders so
thereof, in the absence of a recent permit or require, he may permit or

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 48
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

require any class or classes of insurers authorized to do stating the methods and assumptions used in arriving at any of its officers shall be permitted to use any part of
business in this country to value their the values reported. such apportioned surplus fund for any
investments or any class or classes thereof as of any Section 217. The aggregate net value so ascertained of purpose whatsoever other than for the express purpose
date heretofore or hereafter in accordance the policies of such company shall be for which the same was accumulated.
with any applicable valuation or method. deemed its reserve liability, to provide for which it shall www.insurance.gov.ph
Section 215. It shall be the duty of the officers of the hold funds in secure investments equal to Section 219. Every insurance company, other than life,
insurance company to report within the first such net value, above all its other liabilities; and it shall shall maintain a reserve for unearned
fifteen (15) days of every month all such investments as be the duty of the Commissioner, after premiums on its policies in force, which shall be charged
may be made by them during the having verified, to such an extent as he may deem as a liability in any determination of its
preceding month, and the Commissioner may, if such necessary, the valuation of all policies in force, financial condition. Such reserve shall be calculated
investments or any of them seem injudicious to satisfy himself that the company has such amount in based on the twenty-fourth (24th) method.
to him, require the sale or disposal of the same. The safe legal securities after all other debts Section 220. In addition to its liabilities and reserves on
report shall also include a list of investments and claims against it have been provided for. contracts of insurance issued by it, every
sold or disposed of by the company during the same The reserve liability for variable contracts defined in insurance company shall be charged with the estimated
period. Section 238 shall be established in accordance amount of all of its other liabilities,
TITLE 5 with actuarial procedures that recognize the variable including taxes, expenses and other obligations due or
RESERVES nature of the benefits provided, and shall be accrued at the date of statement, and
Section 216. Every life insurance company, doing approved by the Commissioner. including any special reserves required by the
business in the Philippines, shall annually make Section 218. Every life insurance company, conducted on Commissioner pursuant to the provisions of this
a valuation of all policies, additions thereto, unpaid the mutual plan or a plan in which Code.
dividends, and all other obligations outstanding policyholders are by the terms of their policies entitled to TITLE 6
on the thirty-first day of December of the preceding year. share in the profits or surplus shall, on all LIMIT OF SINGLE RISK
All such valuations shall be made policies of life insurance heretofore or hereafter issued, Section 221. No insurance company other than life,
according to the standard adopted by the company, as under the conditions of which the whether foreign or domestic, shall retain any
prescribed by the Commissioner in distribution of surplus is deferred to a fixed or specified risk on any one subject of insurance in an amount
accordance with internationally accepted actuarial time and contingent upon the policy being exceeding twenty percent (20%) of its net worth.
standards, which standard shall be stated in its in force and the insured living at that time, annually For purposes of this section, the term subject of
annual report. ascertain the amount of the surplus to which insurance shall include all properties or risks
Such standard of valuations shall be according to a all such policies as a separate class are entitled, and insured by the same insurer that customarily are
standard table of mortality with interest to be shall annually apportion to such policies as considered by non-life company underwriters to
determined by the Insurance Commissioner. When the a class the amount of the surplus so ascertained, and be subject to loss or damage from the same occurrence
preliminary term basis is used, the term carry the amount of such apportioned of any hazard insured against.
insurance shall be limited to the first policy year. surplus, plus the actual interest earnings and accretions The Commissioner may issue regulations providing for a
The results of such valuations shall be reported to the to such fund, as a distinct and separate maximum limit on the overall retained
Commissioner on or before the thirtieth day liability to such class of policies on and for which the risks of insurers to serve as a catastrophe cover
of April of each year accompanied by a sworn statement same was accumulated, and no company or requirement for the same.
of a designated company officer and

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 49
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

Reinsurance ceded as authorized under the succeeding the Philippines in such amounts and under such reinsurance the liability for such reinsurance is assumed
title shall be deducted in determining the arrangements as would be consistent with sound by the assuming insurer or insurers as of
risk retained. As to surety risk, deduction shall also be underwriting practices before they enter into the same effective date; nor unless the reinsurance
made of the amount assumed by any other reinsurance arrangements with unauthorized foreign agreement provides that payments by the
company authorized to transact surety business and the insurers. assuming insurer shall be made directly to the ceding
value of any security mortgaged, pledged, Section 225. Any insurance company doing business in insurer or to its liquidator, receiver, or
or held subject to the surety’s control and for the the Philippines desiring to cede their statutory successor except:
surety’s protection. excess risks to foreign insurance or reinsurance (a) Where the contract specifically provides another
TITLE 7 companies not authorized to transact business in payee of such reinsurance in the event
REINSURANCE TRANSACTIONS the Philippines may do so under such terms and of the insolvency of the ceding insurer; and
Section 222. An insurance company doing business in the conditions which the Commissioner may (b) Where the assuming insurer with the consent of the
Philippines may accept reinsurances prescribe. direct insured or insureds has
only of such risks, and retain risk thereon within such www.insurance.gov.ph assumed such policy obligations of the ceding insurer as
limits, as it is otherwise authorized to insure. Should any reinsurance agreement be for any reason direct obligations of the assuming
Section 223. No insurance company doing business in cancelled or terminated, the ceding company insurer to the payees under such policies and in
the Philippines shall cede all or part of any concerned shall inform the Commissioner in writing of substitution for the obligations of the
risks situated in the Philippines by way of reinsurance such cancellation or termination within thirty ceding insurer to such payees.
directly to any foreign insurer not authorized (30) days from the date of such cancellation or Section 228. No life insurance company doing business in
to do business in the Philippines unless such foreign termination or from the date notice or information the Philippines shall reinsure its whole
insurer or, if the services of a nonresident of such cancellation or termination is received by such risk on any individual life or joint lives, or substantially
broker are utilized, such nonresident broker is company as the case may be. all of its insurance in force, without having
represented in the Philippines by a resident agent Section 226. Every insurance company authorized to do first obtained the written permission of the
duly registered with the Commissioner as required in this business in the Philippines shall report to Commissioner.
Code. the Commissioner on forms prescribed by him the TITLE
The resident agent of such unauthorized foreign insurer particulars of reinsurance treaties or any new ANNUAL STATEMENT
or nonresident broker shall immediately treaties or changes in existing treaties within three (3) Section 229. Every insurance company doing business in
upon registration furnish the Commissioner with the months from their effectivity. the Philippines shall terminate its fiscal
annual statement of such insurer, or of such Section 227. No credit shall be allowed as an admitted period on the thirty-first day of December every year,
company or companies where such broker may place asset or as a deduction from liability, to any and shall annually on or before the thirtieth
Philippine business as of the year preceding ceding insurer for reinsurance made, ceded, renewed, or day of April of each year render to the Commissioner a
such registration, and annually thereafter as soon as otherwise becoming effective after statement signed and sworn to by the chief
available. January 1, 1975, unless the reinsurance shall be payable officer of such company showing, in such form and
Section 224. All insurance companies, both life and non- by the assuming insurer on the basis of details as may be prescribed by the
life, authorized to do business in the the liability of the ceding insurer under the contract or Commissioner, the exact condition of its affairs on the
Philippines shall cede their excess risks to other contracts reinsured without diminution preceding thirty-first day of December.
companies similarly authorized to do business in because of the insolvency of the ceding insurer nor The annual statement shall be prepared in accordance
unless under the contract or contracts of with the financial reporting framework as

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 50
INSURANCE LAW REVIEWER
“Study ta besh kay dili ta bright”

determined by the Commissioner. In addition, the accounting, technical and trade terms used in this Code:
Commissioner may require other relevant Provided, That such shall be in
information. The form and details of such other relevant accordance with internationally accepted accounting
information shall be prescribed by the standards. Among other things, the
Commissioner and shall form part of the supplementary Commissioner may prescribe the form or forms in which
schedules to the annual statement. required information shall be set forth, the
Any entry in the statement which is found to be false items or details to be shown in the balance sheet and
shall constitute a misdemeanor and the officer income statement, and the methods to be
signing such statement shall be subject to the penalty followed in the preparation of accounts, appraisal or
provided for under Section 442. valuation of assets and liabilities,
Section 230. Every insurance company authorized under determination of recurring and nonrecurring income,
Title 10 of this chapter to issue, deliver differentiation of investment and operating
or use variable contracts shall annually file with the income, and in the preparation, where the Commissioner
Commissioner separate annual statement of deems it necessary or desirable, of
its separate variable accounts. Such statement shall be consolidated balance sheets or income accounts of any
on a form prescribed or approved by the person directly or indirectly controlling or
Commissioner and shall include details as to all of the controlled by the insurance company.
income, disbursements, assets and liability
items of and associated with the said separate variable
accounts. Said statement shall be under
oath of two (2) officers of the company and shall be filed
simultaneously with the annual statement
required by the preceding section.
www.insurance.gov.ph
Section 231. Within thirty (30) days after receipt of the
annual statement approved by the
Commissioner, every insurance company doing business
in the Philippines shall publish in a
newspaper of general circulation, a full synopsis of its
annual financial statement showing fully the
conditions of its business, and setting forth its resources
and liabilities in accordance with such
form prescribed by the Commissioner.
The Commissioner shall have the authority to make,
amend, and rescind such accounting rules
and regulations as may be necessary to carry out the
provisions of this Code, and define

Prepared and Arranged by: Migrio Vina O. Cagampang; Cases from Team Dreamworks; Notes from the Book of De Leon
Jose Maria College, College of Law 51

You might also like