 Insurance commissioner’s jurisdiction is
Consideration: Premium – ratable
limited to complaints filed by the insured
against the insurance company. Doesn’t
include complaints between the insurance
company and its agents. (PHILAM v Ansaldo)
 Beneficiary is irrevocable and has vested
rights unless the contrary is stipulated; can’t
be changed without consent of beneficiary
(before insurance code)
o Now: insured is presumed to have
the right to change his beneficiary
even if policy is silent on the
matter
o Beneficiary who intentionally kills
insured couldn’t recover proceeds
being contrary to public policy
o Irrevocable beneficiary (I.B.) –
assignee’s rights subordinate to
those of I.B.
o Revocable beneficiary (R.B.)
assignee’s rights prevail over those
of the R.B.
 Health Maintenance Organization is not
an insurance company because its primary
object and purpose is to distribute health
care services. Assumption of risk and
indemnification of loss are only incidental to
its business.
 Insurance contract – agreement
whereby one undertakes for a consideration
to indemnify another against loss, damage or
liability arising from an unknown or
contingent event.
Elements of Insurance
1. Insurable interest – interest in the
life/thing capable of pecuniary estimation.
Pecuniary or financial benefit in its
preservation and pecuniary loss upon its
damage and destruction
2. Risk of loss or damage – insured is
subjected to risk thru the destruction of the
interest by the happening of the designated
peril
3. Designated peril as cause – cause of
damage or loss; must be stated in the
contract
4.
contribution to a general insurance fund
5. Risk distributing scheme – to distribute
actual losses among a large group of person
bearing similar risks
Characteristics/Nature
1. Aleatory – dependent on a contingent
event which is uncertain or though certain is
to occur at some future undetermined time.
2. Executory – insured pays the premium
before the contract can become effective
Conditional – insurer has no obligation to
pay until and unless the peril insured against
takes place
3. Synallagmatic – highly reciprocal contract
where the rights and obligations of the
parties correlate and mutually correspond.
 Insurer assumes the risk of loss
 Insured pays the premium
4. Consensual – perfected by meeting of the
minds of the insurer and insured. Policy not
essential for contract to exist unless
otherwise stipulated
5. Contract of Adhesion – Insured can either
take the policy or leave it. He can’t make the
excuse later on that the contract was unfair if
it was clear and he agreed to it.
 Ambiguity is resolved in favor of the
insured and against the insurer
6. Personal – basically between the insurer
and insured
Highest degree of good faith – good faith of
both the insurer and insured; contract of
uberrima fides (utmost good faith)
7. Indemnity (for non-life and property)
- insured can’t demand from the insurer
more than what he has actually lost or
suffered
-insurer’s liability limited to the extent of the
loss suffered
 For life insurance - investment

 Contract of suretyship – agreement
where the surety guarantees the
performance by the principal/obligor of an
obligation in favor of a third party called the
obligee; liability of sureties is solidary and
limited to amount of bond; merely a
collateral contract; liability to creditor is
direct, primary and absolute
 Pre-need plan – performance of future
services, payment of monetary consideration
or delivery of other benefits at time of actual
need or agreed maturity date with or
without insurance coverage (e.g. life pension,
education and internment plants)
 Trust fund – fund set up from
planholder’s payment to pay for cost of
benefits and services necessary to ensure
delivery of benefits and services to
planholders
General Classification of Insurance
1. Life insurance – on human lives. May be
made payable upon death of person or on his
surviving a specific period
 Individual life
 Group life – uniform premium. Death
of any mem gives rise to insurer’s
liability to pay beneficiary. The
policyholder (employer) is a mere
agent of the insurer. The real parties
in interests are the employees and
their labor is the true source ohjbf
benefits
 Industrial life – to protect the lower
income group. Premiums payable
weekly, bi-weekly, or monthly and
amount is relatively small. The words
industrial policy are printed.
2. Non-life insurance – covers risks to which
property may be exposed (fire, navigation,
typhoon earthquake, etc.) and risk of liability
to third persons (workmen’s compensation
and automobile insurance)
 Marine – Includes vessels, aircraft,
goods, cargoes, freights, precious
stones and jewels (whether in
transpo or not). It is either time or
voyage policies or both
o Voyage – covers only specified
voyage
o Time and voyage – all specified
voyages within time
designated
 Fire - Insurance against loss by fire,
lightning, windstorm, tornado or
earthquake
 Casualty – arising from accident or
mishap excluding losses under other
types of insurance. Includes
employer’s liability insurance, motor
vehicle insurance, plate glass,
burglary and theft, health insurance
First party insurance – the contract being for
the loss which the insured suffered directly
Third party insurance – interest protected is
that of the third party and whose interest
suffers damage or loss caused by insured.
Whole life plan – insured pays premium at
specified regular intervals for as long as he is
alive. Covers only risk of death. Upon death,
face value of policy is paid to the beneficiary
Term plan – insured is covered only for a
specified period of time and with the lapse,
policy expires. Arises upon insured’s death
within agreed term. Can be renewed.
Pure endowment plan – if insured survive
the period, insurer to pay him face value of
policy. If insured died within the period, no
reimbursement of premiums paid
Endowment plan – combo of term and pure;
if insured outlives a designated period,
insurer pays the proceeds to the beneficiary.
Whether insured dies or survives the period,
insurer is liable.
Construction/Interpretation of Insurance
contracts
 If the terms are clear and leave no
doubt upon intention of the parties,
 literal meaning of stipulation shall
control
 If ambiguous, construed strictly
against the insurer and liberally in
favor of the insured.
Arrests from ordinary judicial
processes while not arising from
hostilities or warlike operations are
included among the covered risks.
Mortgagor and mortgagee each have
an independent insurable interest.
Mortgagor’s interest covers the full
value of the policy while the
mortgagee’s is only to the extent of
his debt.
Double insurance – same person is
insured by several insurers
separately in respect to the same
subject and interest; each insurer to
contribute ratably to the loss in
proportion to the amount for w/c he
is liable under his contract
Payment of premium and delivery of
the policy to the insured while he is
alive and in good health must be
complied with for a policy to be
binding and effective. Delivery to
authorized agent or by mail allowed.
o Policies are valid even if
premiums were paid on
installments.
o Credit extension for payment
of premium allowed. Insured
may recover even if premium
is paid after loss but within
credit term
Exception to payment of premium but
still binding:
o stipulated agreement – grace
period in life/industrial
o acknowledgment of receipt of
premium
o insurer is estopped
o nonpayment is caused by the
insurer
Grounds to cancel insurance
o Nonpayment of premium
o Conviction of crime arising out
of acts increasing hazard
insured against
o Discovery of fraud/material
misrepresentation
o Discovery of willful/reckless
acts increasing hazard
o Physical changes in property
insured making property
uninsurable
o Discovery of other insurance
coverage making total
insurance in excess of the
value of property insured
o Continuation of the policy
violates the Code as
determined by Commissioner
Non-Default Options in Life Insurance (after
premium payment of 3 full annual
premiums)
1. Cash Surrender Value – accumulated
premiums minus outstanding accounts; not
an option to continue; payable upon
surrender of policy which shall not be less
than the reserve on policy
2. Extended insurance – contract remains in
force for such period of time only as the cash
surrender value can purchase
3. Paid-up insurance – amount of insurance
as the cash surrender value, applied as single
premium, can purchase
4. Automatic premium loan – failure of
insured to pay premiums. Policy not lapse
for nonpayment of premium after 3 yrs. in
force. Upon default, insurer lends insured
amount necessary to pay his overdue
premium but not to exceed the cash
surrender value
Reinstatement of a lapsed policy of life
insurance
 Made within 3 yrs upon default
 All liabilities, overdue premiums,
debts be paid first
 Insurability satisfactory
Refund of Premiums
1. thing insured not exposed to perils
insured against
2. insurance is for definite period of time and
insured surrenders policy before its
termination
3. contract is voidable and annulled due to
fraud/misrepresentation of insurer
4. contract is voidable due to facts insured
was ignorant of without his fault
5. insurer never incurred liability due to
default of insured other than actual fraud
6. over-insurance
7. rescission granted due to insurer’s breach
of contract
POLICY – written instrument in w/c contract
of insurance is set forth
Contents:
o Parties’ names
o Amount to be insured
o Premium
o Property/life insured
o Interest of insured in property
insured if he’s not the absolute
owner
o Risks insured against
o Period insurance is to continue
Riders – small printed/typed
stipulation contained on slip of paper
attached to policy and forming
integral part; not binding on insured
unless descriptive title of rider,
clause, warranty, endorsement are
also mentioned and written on blank
spaces
Cover notes/Binding receipt – issued
to bind insurance temporarily
pending issuance of policy. After 60
days, policy shall be issued
Types of non-life insurance policies
1. Open – value of thing insured isn’t agreed
upon and amount of insurance merely
represents insurer’s max liability; amount of
loss shall be subject to appraisal at time of
loss and company liable for full amount so
appraised
2. Valued – expresses on its face an
agreement that thing insured shall be valued
at a specified sum
3. Running (floating) – object of policy may
be defined from time to time especially as to
subjects of insurance by additional
statements/ indorsements
Agents and brokers are required to
have a separate license to be an agent
of specific company; not liable for
claims of beneficiaries as they are not
parties in the insurance contract
Public enemy cannot be insured nor
can it be a beneficiary
o A citizen/subject of nation at
war with Phil; doesn’t include
robbers, thieves, etc
Cestui que vie – person on whose life
policy is taken
Rights of Insured
1. Right to assign (change of beneficiary)
2. Right to borrow
3. Right to dividends
4. Right to exercise non-default
5. Right to reinstatement
Rescission of contracts
Concealment – a neglect to communicate
which a party knows or ought to
communicate; one party withholds info
of material facts which would’ve helped
insurer estimate the probable risk to be
assumed; intentional or not, entitles
injured to rescind; fraud not required
 Party knows a fact w/c he neglects to
communicate or disclose to the other
 Party concealing is duty bound to
disclose such fact
 Party concealing makes no warranty
of fact concealed
 Other party has no means of
ascertaining fact concealed
Matters need not be disclosed
 Those which others know
 Known in exercise of ordinary care
 Waiver of disclosure
  Risks excluded by warranty  Fire may not be considered a
 Risks excepted from policy natural disaster/calamity;
 Nature or amount of interest of almost always arises from
insured man’s act
 Info of his own judgment upon No fault clause – claim for death or
matters in question injury to any passenger/3rd party shall
 General clauses and usages of be paid without need of proving fault
trade or negligence of any kind; be made
Misrepresentation (voidable; entitled to against one motor vehicle only; insurer
rescind) – false representation with of vehicle in which occupant is riding is
knowledge that it’s untrue and intended liable and in any other case, against
to deceive insurer into accepting the risk insurer of directly offending vehicle
Incontestability clause in life insurance Reinsurance – an insurer procures a 3rd
 Insurer has the right to rescind person to insure him against loss or
prior to commencement of action liability by reason of original insurance
on the contract
 After 2 yrs of policy being in force
(during insured’s lifetime), insurer
cannot contest anymore
Warranties – statements/promises
made by the insured in the policy; its
falsity makes policy voidable and
operates as breach of contract; written
on the face of the policy; presumed
material; incontestability doesn’t apply
 Implied warranty in marine
that vessel insured is
seaworthy
Proximate cause – that which in a
natural and continuous sequence,
unbroken by any new, independent
cause, produces the event and without
which, that event wouldn’t have
occurred; one that set others in motion
to w/c loss is attributed
Suicide – insurer is liable only if policy
has been in force for 2 years already; if
committed in state of insanity,
compensable regardless of date of
commission unless it’s an excepted risk
Hostile fire – fire occurs outside the
usual confines or begins a friendly fire
and becomes hostile by escaping from
the place where it ought to be to where
it ought not to be; insurer liable
 Friendly fire burns in a place
intended to burn and ought to
be; insurer not liable