102 ESSENTIALS OF INSURANCE LAW (Republic Act No. 10807 with Notet on Pre-Need Act) agent or broker and the imposition of a fine not exceeding Twenty- five Thousand Pesos (P25,000). b. The purpose of these statutes is the prevention of unfair discriminatory practices by insurance companies, agents and brokers in order to ensure that equal terms are fixed for policyholders of the same insurable class and equal expectation of life. In aid and furtherance of this desirable policy, the statutes prohibit such practices involving rebates or preferential treatment with respect to the cost of the policy or the benefits allowed for the premium. It follows that to enforce contracts or agreements directly forbidden under these statutes, thereby allowing recovery thereunder, would be subversive of the very public policy which the law was designed and intended to uphold. While the statutes are addressed to the insursnee companies, agents and brokers, and are enacted for the protection of policyholders, the provisions are for the general body of policyholders who would suffer by the enforcement of the prohibited agreements, and not for those who have entered into Such agreements and are seeking to profit by its terms.» Always beliew in gouotelf : Good lack vith your omy, & fi alle ‘Ins. Co, of Californie, 111 NW 660 (1907); Bernbhum v. Travelers Ins, Co. of Hartford, Connecticut, 108 SW 2d 941 (1987); Chats v. Bloom, 54 NE 24 #89 (1944); Mahone ¥, Hartford Life and Arcident Insurance Company, 561 P 2d 142 (1976). ‘Nora Lumibao v. The Hon. Intermediate Appellate Court and Eugenio ‘Trinidad, ibid, citing Smathers v, Bankers’ Life Ins. Co, 65 SH 746 11909); Riehmond \. Conservative Life Ins. Co, 165 NW 286 (19117), Sovereign Camp v, Wagapmer, 173 So. 424 11937), CHAPTER FIVE , THE POLICY ‘A .cléarly> readable and_understandable insurance policy is important for the protection of the general public. In the early days of fire insurance business, certain insurance companies were notorious for cluttering their pelicias with restrictive pravisiona that. resulted in voluminous contracts that were largely unreadable. A decision in one case contains this Dickensian description of such nefarious practice: “orms of applications and poligies x x x of a most complicated and elaborate structure were prepared, and filled ‘with covenants, exceptions stipulations, provisions, @rules, regulations and conditions rendering the policy void in a great number of sontingencios. Those provision were of such balk and character that they would not be understood by men in general, even if subjected to a careful and laborious study; by men in general, they were sure not to be studied at all. ‘The study of thom was rendered particularly unattractive by a profuse intermixture of discourses on subjects in which @ premium payer would have no interest. This compound, if read by him, ‘would, unless he were an extraordinary man, be en inexplicable riddle, a mare flood of darknase and confusion, some of the most material stipulations were concealed in a mass of rubbish on the back side of the policy and the following page, where few would expect to find anything more than a dull appendix and where seareely any one would think of looking for information x x x. As if it were feared that, notwithstanding these discouraging circumstances, some extremely eccentric person might attempt to examine and understand the meaning of the involved and intricate nat in which he was to be entangled, it was printed in such small type and in lines so long and so crowded that the perusel of it was made physically difficult, painful and injurious. "Delaney v, Rockingham Farmers Mutual Insurance Company, 52 NH. 681, 587 [1873], cited in Huchner, Black & Webb, p. 17. 103104 ESSENTIALS OF INSURANCE LAW (Republic Aet No, 10607 with Notes on Pre-Need Act) a CONSENSUAL. An insurance contract is a consensual ict. It is perfected by mere consent of the parties and no ality is required for its perfection. Hence, the absence of a policy does not bar the contract from coming into existence. . STATUTE OF FRAUDS INAPPLICABLE, A contract ‘g_unenforceable ifthe same does not comply with the Statute of 1uds, Article 1403 of the New Civil Code requires a contract to be in a note or memorandum if it is one of the cases covered by the Statute of Frauds.' These include contracts that eannot be performed within one (1) year after the contract is made. One argument is that insurance contracts (with a term of more than one [1] year) cannot. be performed within one (1) year because the loss may occur after one year. However, insurance contracts can be performed within one (D year although it is contingent upon the happening of an event. For instance, while life insurance contracts may remain in force for decades, the obligation of the insurance company to pay the proceeds may likewise be performed within one (1) year because the future event (death of the insured) may occur within one (1) year. Hence, insuraniee contracts are not covered by the Statute of Frauds. 43. POLICY, Although formalities are not required for the perfection of the contract, it is still mandated by law that written, Policies should be issued by the insurer. A policy of insurance is defined in Section 49 of the Insurance Code as “the written instrument in which a contract of insurance is set forth.” a,,/ Printed Form. Section 50 of the Insurance Code provides that the policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. (2) Before RA No. 10607, Group Insurance and Group Annuity Policies which may be typewritten and need not be in printed form. However, RA No. 10607 removed this exception in Section 50, b. Electronic Document. Section 50 now provides that “the policy may be in electronic form subject to the pertinent provisions of RA No. 8792, otherwise known as the ‘Electronic Commerce ‘Act’ and to such rules and regulations as may be prescribed hy the Commissionor.”* *S0o Article 1408, New Civil Code. Section 50, 1.C., as amended by RA No. 10607. (CHAPTER FIVE 105 "THE POLICY proval of Insurance Commission. All policies isu eve companies are approved by the Insurance Co mn accordance with the first paragraph of Section 252 which provides: SEC. 232. No policy, certificate or contract of insurance shall be issued or delivered within the in the form previously approved by ‘and no application form shall be ith, and no rider, clause, warranty or endorsement shal be attached te, printed or siamped upon such 4. Basie Provisions. The provisions of an insurance con- tract can be classified as follows: (1) declarations, (2) insuring agree- ments, (3) exclusions, and (4) conditions. The policy of Insurance ‘must contain the provisions enumerated in Section 51 which pro- vides: SEC. 51. A policy of insurance must specify: (a) The parties between whom the contract is mad (b) The amount to be insured except in the cases ‘of open or running policies; {c) The premium, or if the insurance Is of a character where the exact premium Is only determinable upon the termination of the contract, a statoment of the basis and rates upon which the final premium is to be determined; (@) The property or life insured; {e) Theinterest of the insured in property insured, ifhe is not the absolute owner thereof, (f) The risks insured against; and (9) The period during which the insurance is to continue.108 ESSENTIALS OF INSURANCE LAW (Republic Act No. 10607 with Notes on Pre-Need Act) @, Declarations. Most of the provisions of Section 51 are part of the declaration. “Declarations identify the insured; describe the property, activity or life insured; state the types of coverage purchased, the applicable policy limits and the term of the. coverage; and indicate the premium paid for each soparate coverage purchases, The purpose of the declarations made by the insured is to give the insurer sufficient information to enable it, with information from othersgources, to issue the desired contract at a proper price” () Insuring Agreements. These provisions: 5 what the insurer promises to do. mS insuring oan praete the characteristics of the events covered under the captract.”: * (2) Exclusions, These provisions limit the covera, s, The age provided under the intsuring agreements. These provisions exchude specified perils, property, sources of liability, persons, losses, locations and time periods.* (3) Conditions. Those provisions define terms used in the other parts of the contract, prescribe conditions that. must be complied before the insurer can be made liable and may describe the basis for computing the premium.’ f. Distinguished from Notes. In marine insurance, the policy should be distinguished from “Marine Risk Notes.” A Marine Risk Note is an acknowledgment or declaration confirming the specific shipment covered by its Marine Open Policy, the evaluation of the cargo, and the chargeable premium. Such nete is not the policy itself. §4. DESIGNATION OF BENEFICIARY. The designation of the beneficiary should be made in unequivocal terms. ‘The Insurance Code provides for rules on designation of beneficiaries as SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose “G. Anbar Willams, J. and Richard M. Hens, ick Management and Ina anc, 1969 th Bp 358 hereinaer referred tons Willams dr and Helm ‘Williams, Jr, and Heins, bic. " - ‘Wiliams, Jr. and Heine, 340, iam tnd Het ‘Abit Siping. Campeny’s. Philippine Amoriean General Insurance Company. GR. No. 7752, Ocuiber 6, 1888, 178 SCRA 357, Main Inara Company, Ine v. Rey Brokerage Corporation, GI No- 112106, Noveter oi Door CHAPTER FIVE 107 ‘THE POLICY name or for whose benefit it is made unless otherwise specified in the policy. §5. IDENTIFICATION OF THE INSURED. Sections 54 and 55 provides for rules on the determination of the real owner of the policy. SEC. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the Insured as agent or trustee, or by other gonoral words in the policy. SEC. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. a. Agent or Trustee. ‘The principal may be damnified by the loss of the property that he owns that is under the care of trustee or agent. On the other hand, the agent or trustee that takes care of the property may also be damnified by the property’s loss. Hence, both the principal and his agent or trustee can insure the property under the latter's care. There may be instances, however, that the principal takes an insurance on the property through the agent or trustee. The policy may not expressly provide that it was the principal who really took the policy but the policy may contain words that will indicate that the principal is the real party in interest. ‘This is an example of the situations that are covered by Section 54 of the Insurance Code. b. Partner or Co-owners. Partners and co-owners may have insurable interest on the property owned by the partnership or owned in common, ‘The insurance can be taken by the managing partner or co-owner on the property for the partnership or the co- ownership. In such easo, the terms of the policy should expressly provided that the insurance are applicable to the joint or common interest. An express provision is necessary because a co-owner and partner also has insurable interest on the property and they may take an insurance for their own benefit. c. Insured Indentified in General Terms. Section 56 of the Insurance Code applies when the insured is not specifically108 ESSENTIALS OF INSURANCE LAW. (Republic Act No. 10607 with Notes on Pre-Neod Act) identified. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim ‘the benefit of the policy. Hence, it is a question of proof if the person. claims that he is one of those described as insured in general terms. SEC. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy. ‘Thus, an insurance over a car may designate the “registered owner” as the insured. In such case, there it can easily be established by presenting the Certificate of Registration of the car. 46. POLICY FORM, The insurer is generally free to provide for the terms and conditions of the policies that it will issue so long as the same provisions are not contrary to law, moral, customs, and public policy. In addition, the forms are subject to the approval of the Insurance Commission. Pursuant to Section 226 of the Insurance Code, the Insurance Commission likewise imposed the minimum requirements for the approval of insuranee plans/forms for policy, certificate or contract of insurance, application, rider, clause, warranty or indorsements for all life insurance companies.* a. In some cases, the Insurance Commission approved standard policies that should be used by insurers. For example, the Insurance Commission approved a Standard Fire Policy in September 1980 and the same was made eflective in January 1981, Similarly, the Insurance Commission likewise approved a Standard Life Insurance Policy dated June 25, 1993," b. However, in certain cases, the law itself provides for man- datory provisions. Thus, the law prescribes minimum mandatory provisions for the following policies: (1) Individual life," (2) Endow- ment Insurance," (3) Group Life, and (4) Industrial Life. lar Letior No, 11-90, July 10, 1990, Circular Lettar No. 14.63, “Section 283, LC. "8a, "Section 224, 1.0, ‘Section 236, 1.C. (CHAPTER FIVE, 109 "THE POLICY Be RIDERS. The cocond and third paragraphs of Section 50 of the Insurance Code provide for the rules regarding riders, clauses, warranties or endorsements that are not part of the original printed form but are merely attached to the policies, viz. “Any rider, clause, warranty or endorsement Purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding ‘on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.” a, _Requisites. Based on Section 50 of the Insurance Code, a rider, clause warranty or endorsement that are not part of the original printed form are binding provided that: () The rider, clause, warranty or endorsement is attached to the policy; (2) The deseriptive title or name of the rider, clause, warranty or endorsement: is mentioned and written on the blank spaces provided in the original printed policy form; and (3) If not applied for by the insured or owner, the rider, clause, warranty or endorsement shall be countersigned by the insured b. An endorsement is a written agreement attached to a policy to add or subtract insurance coverages. A rider is an endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.” If the requirements of Section 50 of the Insurance Code are complied with, “Rubin, p. 168. ‘Rubin, p. 440,0 ESSENTIALS OF INSURANCE LAW (Republic Act No. 10607 with Notes on Pre-Need Act) they take precedence over the original policy provisions. They are deemed integral parts of the original policy.” c. It is a well-settled rule that in case repugnance exists between written and printed portions of a policy, the written portion prevails. There can be no question that as far as any inconsistency exists, a “rider” prevails over the printed clause it covers. When an. instrument consists partly of written words and partly of a printed form and the two are inconsistent, the former controls the latter." 48. CONTRACT OF ADHESION. Insurance policies are contracts of adhesion because only one party (insurer) prepares the written contract while the other party (insured) merely adheres to the contract. Usually, the insured cannot change the written policy imposed by the insurer. It is likewise called contract by adhoren 2, Nevertheless, it does not follow that the insured has not given his consent to the terms and conditions of the insurance contract simply because it is 2 contract of adhesion. A contract of adhesion is as equally binding as any other contract. Evary insured should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted just because what is involved is a contract by adherence. The conformity of the insured to the terms of the policy is implied trom his failure to express any disagreement with what is provided for therein. b. Tt may be true that the majority rule is that injured persons may acept policies without reading them, and that this is not negligence per se. However, the rule is not without any exception, Thus, it is incumbent upon ‘the insured to read the insurance contract if this can be reasonably expected of him considering that he has been a businessman for a long period of timeand the contract. concems indemnity in case of loss in his money-meking trade of “Commicsioner of Internal Revenue v. Linceln Philippine Life Insurance Co, Ime., G.R. No. 119176, March 19, 2002, This case invelver un “Automatic Inerease Clouse” where the date when the aulomaife increase of the value of the policy is Provided for in the attachment, The Supreme Court ruled that there was no need to ontar into a soparats agreement, ‘’Rrancisco Jarque v. Smith Bell & Co, Ltd, etal, G.R, No, L-32986, November 11, 1980, citing Joyce on Insurance, 24 Ed., See. 224, p, 600; Amould on Marine Insurance, Sth Rd., Sec. 79; Marine Byuipment Corporation v. Automobile Insurance o,24 Ped. 2d), 607; and Marine Insurance Company v. MeLahanan, 290 Fed. 685, CHAPTER FIVE an ‘THE POLICY which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.” §9. INTERPRETATION AND PROOF. Since an insurance contract is a contract of adhesion, any doubt should be resolved against the insurer. Conformably, it stands to reason that the doubt should be resolved against the insurer whose lawyer or managers drafted the insurance policy contract” This is consistent with Article 187 of the New Civil Code which provides: Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. a. The Supreme Court ruled in Landicho v. Government Service Insurance System: “This is particularly truo as regards insurance policies, in respact of whieh it is settled that the ‘terms in an insurance policy, which are ambiguous, equivocal, or uncertain xxxare tobe construedstrictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant, purpose of indemnity or payment to the insured, especially where forfeiture is involved,’ and the reason for thie is that tho ‘insured ‘usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selecied with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.” b. In Fieldmen's Insurance Company, Inc.v.Vda. De Songco,* the Supreme Court likewise ruled: “This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopclics, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared ‘agreements’ that the weaker party may not change one whit, his participation in the ‘agreement’ being reduced to the alternative to ‘take it or leave it’ labeled since Raymond Saleilles “New Life Enterprises and Julian Sy v. Hon. Court of Appeals, etal, G.R, No. 071, March 31, 1992. ‘Rizal Surety and Insurance Compeny ¢. Court of Appeals and ‘Transworld Knitting Mills, Inc., G-R. No. 112360, July 18, 2000. "GR. No, 1-28866, March 17, 197%, citing 28 An, Jur. 181 & 44 CJS 1174, G.R. No, 24883, Sep:omber 23, 1968, citing New Civil Code, Article 24; Sent, of Supreme Court of Spain, 13 December 1984, 27 February 1942,