Notes for Insurance Code PDF

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REPUBLIC ACT NO. 10607INSURANCE CODE7.3 Concept of InsuranceContract of Insurance ● An agreement whereby one undertakes for a consideration to indemnify (compensate for harm or loss) another against loss, damage or liability arising from an unknown or contingent event (Secs. 2(1) I.) ● A means by wh...

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REPUBLIC ACT NO. 10607 INSURANCE CODE

7.3.1 Concept of Insurance Contract of Insurance ● An agreement whereby one undertakes for a consideration to indemnify (compensate for harm or loss) another against loss, damage or liability arising from an unknown or contingent event (Secs. 2(1) I.C.) ● A means by which one seeks to be covered against the consequences of an event that may cause loss or damage. The concept is that the premiums that are paid are accumulated in a pool from which payment of claims are to be obtained. ● Insurance is a contract, usually represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses. ● The most common types of insurance policies are auto, health, homeowners, and life. ● A contract of suretyship shall be deemed to be an insurance contract, within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business ○ A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. ● The term ‘doing an insurance business’ or ‘transacting an insurance business’ shall include: ○ Making or proposing to make, as insurer, any insurance contract; ○ Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

○ Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; ○ Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. ○ The fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. ● What may be insured ○ Any contingent or unknown event, whether past or future, which may damnify (cause injury to) a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of the Insurance Code. ● What may not be insured ○ An insurance for or against the drawing of any lottery or for or against any chance or ticket in a lottery drawing a prize may not be insured, because gambling results in profit and insurance only seeks to indemnify the insured against loss. ● Parties in an Insurance contract ○ INSURER ■ Every person, partnership, association or corporation duly authorized to transact insurance business as provided in the Code may be an insurer. ○ INSURED ■ Party to be indemnified in case of a loss. ■ Anyone except a public enemy (is a nation at war with the Philippines and every citizen or subject of such nation) may be insured.

The purpose of war is to cripple the power and

exhaust the resources of the enemy, and it is inconsistent to destroy its resources then pay it the value of what has been destroyed. ○ BENEFICIARY ■ The person who receives the benefits of an insurance policy upon its maturity. ● Functions of insurance ○ Risk-bearing – it is the principal function of insurance. It distributes the losses of the few over the many from the fund contributed by all. ○ Stimulates business enterprise – it enables the businessmen to maximize their capital in the development of their business by paying a fixed contribution in form of a premium, instead of freezing capital to guard against various contingencies. Insurance also serves as a financial security against risks. ○ Encourages efficiency and enterprise – the elimination of risk is an increase in business efficiency. ○ Promotes loss prevention – insurance encourages loss prevention through a system of rating which allows discounts for good features and imposes special conditions where the risk is unsatisfactory. ○ Encourages savings – by protecting the individual against unforeseen events, thus, insurance provides for a climate where savings are enabled ● Policy ○ POLICY – a written instrument in which a contract of insurance is set forth. ○ 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 ○ 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

○ Contents: ■ The parties between whom the contract is made; ■ The amount to be insured except in the cases of open or running policies; ■ The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; ■ The property or life insured; ■ The interest of the insured in property insured, if he is not the absolute owner thereof; ■ The risks insured against; and ■ The period during which the insurance is to continue 7.3.2 Elements of an Insurance Contract An insurance contract exists where the following elements concur: ● Insurable interest ○ INSURABLE INTEREST - Legal right to insure any type of property or any event that may cause a financial loss or create a legal liability ○ SEC. 10. Every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (c) 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 (d) Of any person upon whose life any estate or interest vested in him depends ○ Revocable unless waived

○ Beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured ○ Share forfeited shall pass ■ Other beneficiaries unless otherwise disqualified ■ accordance with the policy contract ■ Estate of the insured ● Risk of loss ○ Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated peril. ● Assumption of risk ○ A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. ● Distribution of losses ○ Such assumption of risk is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk ● Premium ○ An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary ○ An acknowledgment in a policy of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. ■ Except in the case of a life or an industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly

licensed intermediary should exceed ninety (90) days from date of issuance of the policy. ○ A person insured is entitled to a return of premium, as follows: (a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; (b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued: Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law. 7.3.3 Characteristic and Nature of Insurance Contracts A contract of insurance has the following nature and characteristics: ● Personal. ○ Each party having in view the character, credit and conduct of the other ○ The insurer takes into account the character, credit, and conduct of the insured before an agreement takes place. In case of change of ownership over an insured property, the coverage does not automatically transfer to the new owner. The insurer has the option not to extend cover to the said insured property if ever the new owner applies for a continuation of the existing insurance. ● Unilateral ○ A unilateral contract is primarily a one-sided, legally binding agreement where one party agrees to pay for a specified act. Imposes legal duties only on the insurer who promises to indemnify in case of loss ○ Given that unilateral agreements are one-sided, they only require a pre-arranged commitment from the offeror. The terms and conditions of the

insurance did not arise from the meeting of the minds of the insurer and insured. The wordings are solely prepared by the former. It is the reason why in case of doubt in the interpretation of the terms and conditions of the insurance contract, it shall be construed in favor of the latter in case there is ambiguity. ● Contract of Adhesion ○ Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he cannot change. (Rizal Surety and Insurance Co.,vs. CA, 336 SCRA 12) ○ Little opportunity to bargain/alter the terms and conditions set forth by the insurer ● Contract of indemnity ○ Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured ○ An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's liability ○ Insurers pay no more than the actual loss suffered ● Conditional ○ The obligation of the insurer to pay the insured is dependent upon the compliance of the insured with the terms and conditions of the insurance contract such as payment of premium, timely filing of a claim, and submission of proof of loss, among others. ● Consensual. ○ A contract of insurance is a product of the meeting of the minds of the insured and the insurer. The mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance. (Great Pacific Life Assurance Corp. vs. Court of Appeals, 89 SCRA 543)

● Risk Distributing Device ○ Insurance serves to distribute the risk of economic loss among as many as possible of those who are subject to the same kind of loss. ○ An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract where the rights and obligations of the parties correlate and mutually correspond. The insurer assumes the risk of loss which an insured might suffer in consideration of premium payments under a risk-distributing device. Such assumption of risk is a component of general scheme to distribute actual losses among a group of persons, bearing similar risks, who make ratable contributions to a fund from which the losses incurred due to exposures to the peril insured against are assured and compensated (UPCB General Insurance Co. Inc. v. Masagana Telemart Inc., G.R. No. 137172, April 4, 2001) ● Aleatory ○ In an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time ○ The obligation of the insurer to pay the insured is conditioned upon the happening of the contingent event such as the perils of fire or flood ● Principle of Utmost Good Faith ○ An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. ○ Requires the parties to the contract to disclose conditions affecting the risk of which they ought to know. ○ Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health

References Nicolas & De Vega. (n.d.). Frequently Asked Questions on Insurance. Retrieved from https://ndvlaw.com/frequently-asked-questions-faqs-on-insurance/ Presidential Decree No. 1460, The Insurance Code of the Philippines, December 18, 1974. Retrieved from https://www.chanrobles.com/presidentialdecreeno612.htm Republic Act. No. 10607, Amended Insurance Code, July 23, 2012. Retrieved from https://www.insurance.gov.ph/issuances/laws/amended-insurance-code/ Sacluti,C. (n.d.). Insurance 101. Retrieved from https://christopherjaysacluti.weebly.com/introduction.html...