INSURANCE LAW

PD 612, as amended by RA 10607

an agreement whereby one undertakes, for a consideration, to indemnify another against loss, damage, or liability arising from an unknown or contingent event.

an agreement whereby one undertakes, for a consideration, to indemnify another against loss, damage, or liability arising from an unknown or contingent event.

contract of insurance

A contract where a person binds himself solidarily to the creditor to fulfill the obligation of the debtor in case the latter fails to do so

Contract of Suretyship

Characteristics of Insurance Contract

1. Risk-Distributing Device

2. Contract of Adhesion

3. Aleatory

4. Contract of Indemnity (for property insurance)

5. Contract of Utmost Good Faith (Uberrimae Fides)

6. Personal Contract

Risk- Distributing Device

It serves to distribute the risk of economic loss among as many possible to those who are subject to the same kind of risk.

What does 'contract of adhesion' mean in insurance?

It refers to a contract usually prepared by the insurance company, to which the other party merely adheres.

What does it mean for an insurance contract to be 'aleatory'?

It means that the payment of insurance claims is contingent upon the happening of an uncertain event.

Contract of Indemnity

It allows the owner of the property to recover only up to the amount of the actual loss sustained.

What is meant by 'contract of utmost good faith'?

It requires the applicant to make certain disclosures affecting risks of which he may be aware or material facts, which he knows or ought to know.

Elements of Insurance Contract

1. Insurer has an insurable interest

2. Insured is subject to a risk of loss by the happening of the designated peril

3. Insurer assumes the risk;

4. Assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk (Risk Distributing Scheme)

5. In consideration of the insurer’s promise, the insured pays a premium (Payment of Premium)

Classifications of Insurance

1. Life Insurance

   • Individual Life

   • Group Life

   • Industrial Life

2. Non-Life Insurance

   • Marine Insurance

   • Fire Insurance

   • Casualty Insurance

Individual Life

insurance on human lives and insurance appertaining thereto or connected therewith

Group Life

a single insurance contract that provides coverage for many individuals. In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer.

Industrial Life

shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more that five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words industrial policy are printed upon the policy as part of the descriptive matter.

Marine Insurance

insurance against loss or damage to vessels, craft, aircraft, vehicles, goods, cargoes, merchandise, person or property in connection with or appertaining to marine, inland marine, transit or transportation insurance, precious stones, jewelry, bridges, tunnels and other instrumentalities of transportation and communication.

Fire Insurance

shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies.

Casualty Insurance

arising from accident/mishap; excluding marine and fire insurance

What constitutes insurable interest in life insurance?

Every person who has an insurable interest in the life and health.

1. Of himself, of his spouse, and of his children;

2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest.

3. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and

4. Of any person upon whose life, any estate or interest vested in him depends.

Rules on Children

There is no distinction for legitimate and illegitimate. The designation of the illegitimate children as beneficiaries in the deceased father’s insurance policy is valid because there is no legal proscription that exists in naming as beneficiary the children of illicit relationship.

test is whether or not the person is interested in the preservation of the insured life despite the insurance.

Prevailing Test to Determine Insurable Interest in Life Insurance

No Insurable Interest

Art. 739. The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of the donation;

2. Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

Rules on Creditor (3)

1. A creditor may only insure the life of the debtor up to the amount of the debt.

2. Such that if the debt has been paid prior to the death of the debtor, the creditor can no longer recover.

3. However, if the debtor will insure his own life for the benefit of the creditor, upon full payment of the debt, the insurance will inure to the benefit of the debtor’s estate upon death.

Rules on Consent

Consent of the person whose life is insured is not essential to the validity of an insurance taken by another as long as the insured has a legal insurable interest at the inception of the policy

What constitutes insurable interest in Property Insurance?

insurable interest in property is any interest therein, or liability in respect thereof, and it may consist in:

1. An existing interest

2. An inchoate interest founded on an existing interest; or

3. Any expectancy coupled with an existing interest.

In general, pecuniary interest over the property is ALWAYS necessary

Rules on Insurable Interest on Mortgaged Property

For Mortgagor, as owner, has an insurable interest to the extent of the value of the property, even though the mortgage debt equals such value.

For Mortgagee, has an insurable interest in the mortgaged property to the extent of the debt secured, such interest continues until the mortgage debt is extinguished.

Loss Payable Mortgage Clause

Even though the mortgagee is the beneficiary or assignee of the policy, the insurance is still considered to cover the mortgagor’s interest in the property, who does not cease to be a party to the original contract and

1. If the mortgagor commits any act that would void the insurance policy, the insurance can still be voided even though the mortgagee is the beneficiary.

2. Certain actions required of the mortgagor can also be performed by the mortgagee to protect the policy.

What is required for a contract of insurance to be perfected?

1. Meeting of Minds

2. Payment of Premiums

Does the mere submission of an application without the corresponding approval, even if no memorandum or reject as provided, result in a perfected contract?

no

This is the consideration paid by the insured to eh insurer for undertaking the assumption of the risk covered by the insurance contract.

Premiums

General Rule on Premiums

There can be no binding contract of insurance if there is no payment of the premium, considering that it is one of the elements of an insurance contract; any agreement to the contrary is VOID

Can there be a stipulation that the Insurance Contract is valid even though there were no premiums paid?

no, it is void

Exception on the G.R on Premiums

1. grace period provision applies

2. there is an agreement to grant the insured, credit extension of the premium

3. parties intended the policies to be valid despite payment of insurance premium in installment

4. If the insurer granted a credit term for the payment of the premium and loss occurs before the expiration of the term, recover on the policy should be allowed;

5. When the parties are barred by estoppel.

Grace Period on Payment of Premium

either 30 days or one month within which payment of any premium after the first may be made

Effect of non-payment of premium

1. contract not binding, unless waived

2. does not affect the validity of contract unless expressly stipulated that policy in that event be suspended or shall lapse

What is a ground for rescission for a non-life insurance contract?

1. Non-payment of premium.

2. Conviction of a crime arising out of acts

3. Discovery of fraud or material misrepresentation.

4. Discovery of willful or reckless acts or omission increasing the hazard insured against;

5. Physical changes in the property insured which result in the property becoming uninsurable;

6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or

7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code.

Other grounds for Rescission or Cancellation

1. Concealment

2. False Representation

3. Breach of Warranty

Are unintentional concealment entitles the injured party to rescind the contract?

Yes, An intentional, unintentional and fraudulent omission, on the part of one insured, to communicate information or matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.

What should be communicated between the parties?

Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of knowing.

Information that insured have no duties to disclose

1. Those which the other knows, e.g., gender

2. Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant, e.g., soldier, “Do you engage in an activity which will require you to handle firearms?” and you failed to answer

3. Those of which the other waives communication, e.g., “do you smoke?” not answered, and the policy is still issued. If the answer is yes, and how many 36 packs are consumed is asked but not answered but the policy is still issued.

4. Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material, e.g., body part insurance on legs and you failed to answer the question “do you smoke?” – not material; or

5. Those which relate to a risk excepted from the policy and are not material.

What happens if a representation in an insurance policy is false?

The injured party is entitled to rescind the contract from the time the representation becomes false.

False Representations that can be used to rescind a contract are in what format and when were these claims made?

Either oral or written, and may be made at the time of, or before the issuance of the policy.

Breach of Warranty that can be grounds to rescind a contract are in what type and are relating to?

A warranty may be either expressed or implied, and may relate to the past, the present, the future or to any or all of these.

Can immaterial breaches of warranty rescind a contract?

G.R: No
Except: when the parties stipulated that its breach shall rescind the policy regardless of materiality.

When can you claim Life Insurance? (2)

1. If there is a fixed maturity – upon such maturity

2. If the policy matures upon death – within 60 days after presentation of the claim and filing of the proof of the death of the insured.

When can you claim Property Insurance? (2) Its Prescribed Period

1. Ascertainment of loss is either by agreement or by arbitration – within 30 days after proof of loss is received by the insurer and ascertainment of the loss or damage is made;

2. If no ascertainment is made within 60 days after receipt of proof of loss – within 90 days after such receipt

Can insurer refuse payment to the insured?

No, insurer is prohibited from refusing payment without just cause

What if insurer refused or didn’t pay within the prescribed period? requisite for the remedy?

insured/beneficiary may collect interest at twice the legal rate = 12% x 2 = 24%

PROVIDED: it is shown that delay was willful and without reasonable cause

Prescription of Action in which an insured person can file a lawsuit against an insurer

1. In the absence of stipulation, 10 years

2. Agreed shorted period provided it is not less than 1 year from the cause of action accrues

When does the cause of action accrues from the refusal of payment?

from the time of the final rejection of the claim and not from the time of loss. If there is a motion for reconsideration, the 1-year period is to be counted from the date of first denial of the claim and not on the denial of the reconsideration.

What is subrogation in insurance?

Subrogation is the legal right for an insurer to pursue a third party that caused an insurance loss to the insured.

No Right of Subrogation

1. The insured by his own act releases the wrong-doer/third person liable for the loss, e.g. quit claim

2. Where the insurer pays the insured for a loss or risk not covered by the policy

3. In life insurance

4. For recovery of loss in excess of insurance coverage