STUDY GUIDE ON THE INSURANCE CODE OF 1978

Presidential Decree No. 1460 (1978), as amended by PD 1814 (1981) and BP 874 (1985)

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1.1 Concepts (a) Concept of risk (i) (ii) (b) 1.2 (a) (b) (c) 1.3 1.4 Kinds

BACKGROUND

Methods of handling risks

Concepts of peril, hazard and loss By type of coverage By type of ownership By type of demand

Classification of insurance industry in the Philippines

Laws applicable to insurance contracts Statute of Limitations (Art. 1144, Civil Code; Sec. 63, 231[d])
(a)

Case: Sun Insurance vs. CA, G.R. 89741, March 13, 1991

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2.1 Concepts defined (a) Contract of insurance (i) (ii) (iii) (iv)

INSURANCE

IN

GENERAL

Defined (Sec.2 [1]) Elements Contract of suretyship (Sec.2 [1]) Interpretation Case (insurance on book debts): Gaisano Cagayan, Inc. vs. Insurance Company of
North America, G.R. No. 147839, June 08, 2006

(b) 2.2 2.3 2.4 2.5 2.6

Doing or transacting an insurance business (Sec. 2[2])

Nature of insurance contracts Classes of insurance What may be insured (Sec.3) What cannot be insured against (Sec. 4) Parties to an insurance contract (a) Immediate parties (i) (ii) (b) (i) The insurer (Sec.6) The insured (Sec. 7) The beneficiary (Sec. 53) Case (illegitimate children as beneficiaries): Heirs of Loreto Maramag vs. Eva Verna de Guzman, et al., G.R. 181132, June 5, 2009 (ii) Mortgagor and mortgagee

Other parties affected by contract

2.7

Insurable interest (a) Insurable interest defined

Prepared by Prof. Tristan A. Catindig as of May 24, 2010. All rights reserved.
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(b) (c) (d) 2.8 (a)

Insurable interest in life insurance and in property insurance compared Insurable interest in life Insurable interest in property (except marine insurance) Concealment (i) (ii) Defined (Sec. 26); effect (Secs. 27, 29) Elements Cases:
i. ii. iii.

Devices to delimit subject matter of insurance

Ng Gan Zee vs. Asian Crusader Life, G.R. L-30685, May 30, 1983; 207 Phil. 401 Vda. de Canilang vs. CA, G.R. 92492, June 17, 1993; 223 SCRA 443 Sunlife Assurance vs., CA and Spouses Bacani, G.R. 105135, June 22, 1995

(iii)

Consequences of concealment (Sec. 27) a. Exceptions i. ii. Incontestability clause (Sec. 48) Insurance, G.R. 48049, June 29, 1989 Certain concealments in marine insurance

Case: Tan, et al. vs. CA and Philippine American Life (b) Representation (i) (ii) (iii) (iv) (v) (vi) (vii) (c) (i) (ii) (iii) (iv) (v) (vi)
(vii)

Defined (Sec. 37; note: Sec. 227[d]) When may representation be made? (Secs. 37 and 47) Kinds Differentiated from warranty Note Secs 38-44, and 47 Test of materiality (Sec. 46) Consequences of misrepresentation (Sec. 45) Defined Kinds (Sec. 67) Time to which warranty refers (Sec. 68) No particular form of words (Sec. 69) When omission to fulfill the warranty does not avoid the policy (Sec. Effect of breach of warranty (Secs. 74-76) Case (meaning of warranty condition Classed and Class Maintained):
Prudential Guarantee and Assurance, Inc. vs. Trans-Asia Shipping Lines, Inc., 151890, June 20, 2006 G.R.

Warranty

73)

2.9

The policy of insurance (a) (b) (c) Defined (Sec. 49) Form of the policy (Sec. 50) Contents of the policy (Sec. 51) (i)
(ii)

Void stipulations in an insurance contract (Sec. 25) Particular stipulations interpreted; interpretation of insurance contracts (Sun Insurance vs. CA, G.R. 89741, March 13, 1991, citing Pacific Banking vs. CA, 168 SCRA 1[1988])
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(d)

Unilateral cancellation of non-life policies (i) By the insurer a. Grounds (Secs. 64-65) b. Prescriptive period (ii)
a. b.

By the insured: short period rate scale (Sec. 79) Effectivity date of cancellation from date of notice; insurer need not reply (Paulino vs. Capital Insurance, 105 Phil 1315[1959[) Premium not a debt or obligation; insurer cannot compel insured to pay if he wants to let policy lapse (Constantino vs. Asia Life, 87 Phil 248[1950])

(iii)
(e) (f)

Non-renewal by insurer (Sec. 66)

Binding receipt (Great Pacific Life vs. CA, 89 SCRA 543 [1979]) Cover notes (Sec. 52; Insurance Memorandum Circular No. 3-75, September 29, 1975; Pacific Timber Export vs. CA, 112 SCRA 199[1982]) Kinds of policies (Sec. 59) (i) (ii) (iii) Open (Sec. 60) Valued (Sec. 61) Running or successive insurance (Sec. 62)

(g)

(h) (i)

Effect of transfer of thing insured (Sec. 58) The premium (i) (ii) (iii) Premium defined Duty to pay premium (Sec. 77) Effect of payment of premium/Effectivity of policy a. General rule (Sec. 77) b. Exceptions i. ii.
iii.

Life and industrial life policy Written acknowledgment of the receipt of premium by insurer (Sec. 78) Payment in installments of the premium (Makati Tuscany Condominium Corporation vs. CA, G.R. 95546, November 6, 1992) Credit extension for the payment of the premium Estoppel

iv. v. (iv) (v) (vi) (vii) (viii)

Effect of non-payment Effect of partial payment Payment by check Payment through agent Return of premiums a. When right to return exists (Secs. 79, 81-82) i. Cases:

Philippine Phoenix Surety vs. Woodworks, Inc., G.R. L-22684, August 31, 1967 Edillon vs. Manila Bankers Life, et al., G.R. L-34200, September 30, 1982; 202 Phil. 508 Malayan Insurance vs. Arnaldo, et al, G.R. L-67835, October 12, 1987 Great Pacific Life vs. CA and Teodoro Cortez, G.R. L-57308, April 23, 1990 Lumibao vs. IAC, et al., G.R. 64677, September 13, 1990

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Makati Tuscany vs. CA, G.R. 95546, November 6, 1992 Areola vs. CA, G.R. 95641, September 22, 1994 South Sea Surety vs. CA, G.R. 102253, June 2, 1995 Tibay, et al. vs. CA, G.R. 119655, May 24, 1996 UCPB General Insurance vs. Masagana Telemart, Inc., G.R. 137172, June 15, 1999 American Home Assurance vs. Chua, G.R. 130421, June 28, 1999 b. No right to return of premiums (Sec. 80) 2.10 Loss (a) Terms defined (i) (ii) (b) (i) (ii) (iii) (iv) (c) Loss Proximate cause Loss the proximate cause of which is the peril insured against (Sec. 84); Loss the immediate cause of which is the peril insured against except the proximate cause is an excepted peril; Loss through the negligence of the insured (Sec. 87); and Loss caused by efforts to rescue the thing from the peril insured against (Sec. 85). Loss by the insureds willful act (Sec. 87); Loss due to connivance of the insured (Sec. 87); and Loss where the excepted peril is the proximate cause (Sec. 86). Notice of loss (Sec. 88); Proof of loss (Sec. 89). Waiver of defects in notice or proof of loss (Sec. 90) Waiver of delay in presentation of notice or proof (Sec. 91) Effect of failure to secure certificate or testimony of third persons (Sec. 92) where

Loss for which insurer liable

Loss for which insurer not liable (i) (ii) (iii)

(d)

Prerequisite to recovery for loss in insurance against fire (i) (ii) (iii) (iv) (v)

(e) (f)

Transfer of claim (Sec. 83) Payment of claims (i) In life insurance a. Where insured outlives maturity due b. Where policy matures by insureds death (Secs. 242 and 243) (ii) In property a. If amount of loss determined by agreement or arbitration b. If ascertainment of loss not made within 60 days (iii) (iv)
(v)

Right of beneficiary to be paid directly by insurer (Secs. 378, 384 and Right of subrogation of Insurer who pays (Art. 2207, Civil Code) Case (payment of double interest and attorneys fees by offending insurer): Prudential Guarantee and Assurance, Inc. vs. Trans-Asia Shipping Lines, Inc., G.R. 151890, June 20, 2006

385)

(g) (a)

Liability of insurance company for delay in payment of insurance proceeds Double Insurance
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2.11 Double Insurance and Reinsurance

(i) (ii) (iii) (b)

Defined (Sec. 93) Differentiated from reinsurance Rules of payment of claims where the insured is overinsured by double insurance (Sec. 94) Defined (Sec. 95) Distinguished from co-insurance Reinsurance treaty (Phil Am vs. Auditor, 22 SCRA Duty of insurer to disclose (Sec. 96) 135)

Reinsurance (i) (ii)

(iii)

(iv)

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3.1 3.2 3.3 3.4 Definition

MARINE INSURANCE

Coverage of marine insurance (Sec. 99) Perils of the sea vs. perils of the ship Special marine insurance contracts (a) (b) Insurance against all risks Inchmaree clause Shipowner (Sec. 100, 101, 102, 103, 104)
(i)

3.5

Insurable interest in marine insurance (a) Case: Filipino Merchants Insurance vs. CA, G.R. 85141, November 28, 1989

(b) (c) 3.6 (a)

Cargo owner (Secs. 15, 105) Charterer of a ship (Sec. 106) Defined (Sec. 107 in relation to Sec. 28) (i) (ii) (iii) Stricter duty to communicate (Sec. 107) Opinions or expectations of third persons is material (Sec. 108) Presumptive knowledge of loss (Sec. 109) When concealment dos not vitiate the entire contract (Sec. 110) Effect of false representation (Sec. 111) Effect of eventual falsity as to expectation (Sec. 112)

Concealment and representation

(b)

Effects of concealment (i) (ii) (iii)

3.7

Warranties (a) Classes in marine insurance: (i) Implied warranty a. of seaworthiness (Sec. 113, 114, 115, 116, 117, 118, 119)

Cases: Roque, et al. vs. IAC, et al., G.R. L-66935, November 11, 1985; Philippine American General Insurance vs. CA and Felman Shipping Lines, G.R. 116940, June 11, 1997 b. that vessel will not deviate from agreed voyage (121, 122, 123, 124, 126) c. Where nationality or neutrality of a ship or cargo is expressly warranted (Sec. 120) (ii) 3.8 Loss
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Express warranty

(a)

Kinds of losses (Sec. 127) (i) Total (Sec. 129) a. Actual (Sec. 130, 132, 137)
i.

Case: Pan Malayan Insurance vs. CA and Food and Agricultural Organization, G.R. 95070, September 5, 1991

b. Constructive (Sec. 131) (ii) (b) (c) 3.9 (a) (b) (c) (d) (e) (f) (g) (h) (i) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Partial (Sec. 128) Extended liability of insurer in case of reshipment (Sec. 133) Liability of insured as to averages (Sec. 136) Defined (Sec. 138) Requirements of valid abandonment (Secs. 138-144)
(i)

Abandonment

Case: Oriental Assurance vs. CA, G.R. 94052, August 9, 1991

Effects of valid abandonment (Sec. 145) Rights of a marine insurer who pays for a loss as if it were an actual total loss (Sec. 147) Insurer liable for acts of insureds agents (Sec. 148) Refusal of insurer to accept abandonment (Sec. 149) Form and effect of acceptance of abandonment (Sec. 150, 151, 153) Effect of refusal to accept valid abandonment (Sec. 154) Recovery of actual loss upon omission to abandon (Sec. 155) Valued policy (Sec. 156) Insured co-insurer in marine insurance (Sec. 157) Where profits are separately insured in a contract of marine insurance (Sec. 158) When only part of the cargo exposed to risk (Sec. 159) Presumption of loss of profits (Sec. 160) Rules in estimating a loss under an open policy of marine insurance (Sec. 161) Where cargo insured against partial loss (Sec. 162) Liability of insurer for expenses of repair and recovery (Sec. 163) Rights of insured in case of general average loss (Sec. 164) Right of insured to claim whole loss from insurer (Sec. 165) Liability of insurer in the case of a partial loss of ship or its equipment (Sec. 166)

3.10 Measure of Indemnity

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4.1 Fire (a) (b) (c)

FIRE

AND

OTHER TYPES

OF

INSURANCE

Defined (Sec. 167) Cash and carry provision payment of premium necessary for validity of the policy Alteration resulting in use or condition (i)
a.

Alteration resulting in rescission (Sec. 168) Case: Development Insurance vs. IAC, et al., G.R. L-71360, July 16, 1986 Alteration not resulting in rescission (Sec. 169)

(ii)

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(d)

Measure of indemnity (Sec. 171) (i) (ii) Open policies Valued policies

(e) (f) (g)

Valuation of building for fire insurance (Sec. 172) Pledge or transfer of fire insurance to insurer (Sec. 173) Other insurance clause (i)
a. b.

Cases: New Life Enterprises, et al. vs. CA, et al., G.R. 94071, March 31, 1992 Geagonia vs. CA, et al., G.R. 114427, February 6, 1995; 241 SCRA 152

4.2

Casualty insurance (a) (b) Defined (Sec. 174) Examples: (i) (ii) (iii) (iv) (v)
(c)

Employers liability insurance Workmens compensation insurance Public liability insurance Burglary, robbery or theft insurance Motor vehicle liability insurance

Case: Fortune Insurance vs. CA and Producers Bank, G.R. 115278, May 23, 1995. Compulsory motor vehicle liability (i) (ii) (iii) Method of coverage (Sec. 374): Vehicles covered No-fault clause (Sec. 378) a. Period of filing claim and action to recover damages (Sec. 384) b. Applicability c. Expired drivers license as affecting recovery d. Effect of insurance paid to injured passenger e. Cases:
i. ii.

(d)

Case: Travellers Insurance vs., CA, G.R. 82036, May 22, 1997 LPerla Compania de Seguros vs. Ancheta, et al., G.R. 49699, August 8, 1988

(iv) (v) (vi)

Comprehensive motor vehicle insurance Nature of liability of insurer (Sec. 385, 386) Authorized driver clause a. Cases:
i. ii. iii.

Villacorta vs. Insurance Commission, et al., G.R. L-54171, October 28, 1980 Palermo vs. Pyramid Insurance, G.R. L-36480, May 31, 1988 Perla Compania de Seguros vs. CA, G.R. 96452, May 7, 1992

(vii)
a.

Subrogation cases: Manila Mahogany vs. CA, G.R. L-52756, October 12, 1987

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b. c. d.

Malayan Insurance vs. CA, Martin Vallejos, et al., G.R. L-36413, September 26, 1988 Pan Malayan Insurance vs., CA and Fabie, G.R. 81026, April 3, 1990
Danzas Corporation, et al. vs. Abrogar, et al., G.R. No. 141462, December 15, 2005

(viii)
a.

Third party suit against insurer Case: First Integrated Bonding vs. Hernando, et al., G.R. 51221, July 31, 1991

4.3

Suretyship (a) (b) (c) Defined (Secs. 2, 175) Nature of suretys undertaking (Sec. 176) Payment of premium (Sec. 177) Defined (Sec. 179) When payable (Sec. 180) Kinds of life insurance contracts Kinds of life insurance coverage Transfer of policy; notice (Secs. 181-182) Measure of indemnity (Sec. 183) Importance of cash surrender value Effect of death of insured through (i) (ii) (iii) Suicide (Sec. 180-A) Death at the hands of the law Killing of insured by beneficiary (Sec. 12)

4.4

Life insurance (a) (b) (c) (d) (e) (f) (g) (h)

4.5

Group insurance (Pineda, et al. vs. CA, et al., G.R. 105562, September 27, 1993; 226 SCRA 754) Life annuity (Arts. 2021- 2026, Civil Code)

4.6

5
5.1 5.2

THE BUSINESS

OF

INSURANCE

Insurance corporations, defined (Sec. 185) Provisions designed to assure solvency of insurance companies and to protect policy holders/ limitations or restrictions on insurance companies (Secs. 187-188, 194-198, 210, 215-216, 223, 226) Mandatory provisions in individual life and endowment contracts (Sec. 227) Industrial life insurance defined (Sec. 229) Variable contracts, defined (Sec. 232[2]) Payment of life insurance proceeds (Sec. 242) Payment by insurer for any loss or damage under a non-life policy (Sec. 243) Mutualization (Secs. 262, et seq.) and demutualization

5.3 5.4 5.5 5.6

5.7 5.8

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6.1 6.2

AGENTS

AND

OTHER SERVICE PROVIDERS

Insurance agent and broker, defined (Secs. 300-301) Resident agent (Sec. 314)
(a)

Settling agent: Smith Bell vs. CA, et al., G.R. 110668, February 6, 1997

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6.3 6.4
6.5 6.6 6.7

Reinsurance broker (Sec. 310) Kinds of insurance adjusters (Sec. 324) Actuary (Secs. 335, et seq.) Rating organization (Sec. 339) Security Fund, defined (Sec. 365)

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7.1

MUTUAL BENEFIT ASSOCIATION

Mutual benefit association defined (Sec. 390, 392-393)

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8.1 8.2

THE INSURANCE COMMISSIONER

Administrative functions (Secs. 187, 414, 415;PD 1141)) Adjudicative function (Sec. 416)
(a) (b)

Philippine American Life, et al. vs., Ansaldo, et al., G.R. 76452, July 26, 1994; 234 SCRA 509 Almendras Mining Corporation vs. Office of the Insurance Commissioner, G.R. L72878, April 15, 1988; 160 SCRA 656

8.3 8.4

Jurisdiction (Sec. 416; Sec. 9[3] BP 129) Binding effect of decision, order or ruling (Secs. 1, 4, 416; Rule 43 Rules of Court)
-o-

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