CHAPTER 1 CONTRACT OF INSURANCE
TITLE 1 WHAT MAY BE INSURED
Section 3
Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against
him, may be insured against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an
insurance policy taken out by a married person on his or her life or that of
his or her children.
All rights, title and interest in the policy of insurance taken out by an
original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner,
unless otherwise provided for in the policy.
Requisites of a contract of insurance
a.) Subject matter insured has an insurable interest
b.) Event or peril insured against ( unknown event, past or future)
& duration of the risk
c.) Promise to pay or indemnify fixed or ascertainable amount
d.) Consideration for the promise PREMIUM
e.) Meeting of the minds of the parties upon all foregoing essentials
Parties must be competent to enter into a contract
Insurance must NOT be contrary to law.
Subject matter of contract of insurance
1.) In General
- Anything that has an appreciable pecuniary value subject
to loss or deterioration or which may be deprived so that his
pecuniary interest may prejudiced
2.) Property Insurance
- Both persons & property may be the subjects of insurance
subject matter ordinarily used in reference to the
insurance of property
- Property covered by policy is regarded the subject matter of
the insurance
- Risk of loss of such property that is primarily involved.
3.) Life, health, & accident insurance
- Person becomes the subject of insurance generally
viewed as one in reference to the insured as a party to the
contract
4.) Casualty insurance
- Insurance against perils which may affect the person or the
insured & give rise to liability on his part to pay damages
- Subject matter is the risk involved in its use or the insureds
risk of loss or liability he may suffer loss or be compelled
to indemnify for the loss suffered by a 3rd person
- Includes:
o Personal accident & health insurance as written
by non-life insurance companies
o Insurance against loss or liability which is NOT
within the scope of the other types of insurance
namely:
Fire
Marine
Suretyship
Life
Event or peril insured against
The contingency or unknown event must be such that its happening will:
a.) Cause loss to a person having an insurable interest
b.) Create liability against him
May be past or future
Insurer is liable for a fortuitous event if it is the event or peril
insured against & is the proximate cause or loss
Insurance by a married woman
- Married woman may take out an insurance on her life or
that of her children WITHOUT the consent of her husband
- Married woman may also take out an insurance of that of
her husband, she having an insurable interest.
- She may also take out an insurance interest on her
paraphernal or separate property or on the property given
to her by her husband.
Ownership of life insurance policy
1.) Interest of person who insured his own life
- Ownership of a modern life insurance policy is divided
between the insured and the beneficiary
Insured Owner of its various marketing & sales features ( loan
& cash surrender values)
Beneficiary Owner of a promise to pay the proceeds at the
death of the insured subject to the insureds right of revocation
One who takes a policy of insurance in his own life becomes a
party to the contract.
CHAPTER 1 CONTRACT OF INSURANCE

- Purpose of insurance Reimbursement of the holder of

insurance for actual loss suffered from specified risks
2.) Interest of beneficiary
- Nature of interest of the beneficiary depends on the terms
of the insurance contract. Gambling Contract Insurance Contract

- Includes:
Parties contemplate Parties seek to distribute possible loss
gain through mere by reason of mischance
o Existing statutes by which the insurer & its policy chance
holders are bound

3.) Transfer of rights to minor insured upon death of original owner

Gambler courts Insure seeks to avoid misfortune
of policy fortune
- Death of the original owner of a policy all rights, title and
interest in the policy shall automatically vest in the minor

Section 4 Increase the Equalize fortune

inequality of fortune
The preceding section does not authorize an
insurance for or against the drawing of any lottery,
or for or against any chance or ticket in a lottery
drawing a prize.
Whatever one person One insured gains is NOT at the
wins from a wager is expense of another insured
lost by the other
wagering party
Concept of lottery

Lottery Party makes a wager Purchase of insurance does NOT

creates a risk of create a new & non-existing risk of
Extends to all schemes for the distribution of prizes by chance, loss to himself where loss to the purchase
no such risk existed
such as:
previously - Purchaser faces an
o policy playing already existing risk
o gift exhibition of economic loss
o Prize concerts
o Raffles at fairs
Similarity between insurance and gambling
3 essential elements of lottery:
o Consideration - One party promises to pay a given sum to the other upon
Appears that the prizes offered by the occurrence of a given future event
whatever name may be called came out of o The promise being conditioned upon the
the fund raised by the sale of chances payment or agreement to pay a stipulated
among the participants amount by the other party to the contract

Prizes DO NOT come out of the fund by the

participants, NO consideration has been Section5
paid & there is NO lottery
o Prizes All kinds of insurance are subject to the
o Chance provisions of this chapter so far as the
provisions can apply.

Failure to win a prize would NOT damnify or create a liability

against him

Contract of insurance not a wagering contract

Applicability of provisions of chapter 1

- Contract of insurance is a contract of indemnity and NOT a

- Applicable also to :
wagering or gambling contract.
o Marine Insurance
o Fire Insurance
- NOT a contract of chance & is NOT used for profit
o Casualty Insurance
o Suretyship
o Life Insurance
CHAPTER 1 CONTRACT OF INSURANCE

same kind of business in the PHIL & invested in some

manner

Insurance Corporation Formed to save any person or other corporations

Section 6 harmless from loss from any unknown or future event or to compensate any
person or guarantee the performance with contractual obligations or
Every corporation, partnership, or payment of debts
association, duly authorized to transact
insurance business as elsewhere provided
in this Code, may be an insurer. Business of insurance affected with public interest

- Subject to regulation and control by the state by virtue of

the exercise of its police power
Parties to a contract of insurance
- Insurance Company gather funds upon the basis of equality
1.) Insurer of risk from a greater number of persons
- Party who accepts the risk of loss & undertakes for a
consideration to indemnify the insured or to pay him a
certain sum on the happening of a specified contingency or
event

2.) Insured
- Second party to the contract, person in whose favor the
contract is operative & who is indemnified against or to
receive a certain sum upon the happening of a specified
contingency

- Loss is the occasion for the payment of the insurance

proceeds by the insurer

Insured is NOT always the person to whom the proceeds are paid

Relation between the insurer and the insured is that of a

contingent debtor & creditor

Terms used

1.) Insured owner of the property insured or person whose life is

the subject of the contract of insurance

2.) Assured person for whose benefit the insurance is granted

3.) Beneficiary (3rd party in a contract of life insurance) person

designated by the terms of policy as the one to receive the
proceeds of the insurance

Who may be an insurer

1.) Foreign or domestic insurance company or corporation

- First obtain a CERTIFICATE OF AUTHORITY

o Purpose from the insurance commissioner who
may refuse to issue such certificate, if such
refusal will best promote the interest of the
people of this country

2.) Individual, partnership or association

- If be given a certificate of authority if they possessed of the
capital assets required of an insurance corporation doing the