Insurance Notes : Suretyship

8/6/2019 Insurance Notes : Suretyship

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Sec. 175. A contract of suretyship isan agreement whereby a party calledthe surety guarantees theperformance by another party calledthe principal or obligor of an obligationor undertaking in favor of a third party

called the obligee. It includes officialrecognizances, stipulations, bonds orundertakings issued by any companyby virtue of and under the provisionsof Act No. 536, as amended by Act No.2206.

Sec. 176. The liability of the surety orsureties shall be joint and several withthe obligor and shall be limited to theamount of the bond. It is determinedstrictly by the terms of the contract of

suretyship in relation to the principalcontract between the obligor and theobligee. (As amended by PresidentialDecree No. 1455).

Sec. 177. The surety is entitled topayment of the premium as soon asthe contract of suretyship or bond isperfected and delivered to the obligor.No contract of suretyship or bondingshall be valid and binding unless anduntil the premium therefor has beenpaid, except where the obligee hasaccepted the bond, in which case thebond becomes valid and enforceableirrespective of whether or not thepremium has been paid by the obligorto the surety: Provided, That if thecontract of suretyship or bond is notaccepted by, or filed with the obligee,the surety shall collect onlyreasonable amount, not exceedingfifty per centum of the premium duethereon as service fee plus the cost ofstamps or other taxes imposed for theissuance of the contract or bond:

Provided, however, That if the non-acceptance of the bond be due to thefault or negligence of the surety, nosuch service fee, stamps or taxes shallbe collected.

In the case of a continuing bond, theobligor shall pay the subsequentannual premium as it falls due untilthe contract of suretyship is cancelledby the obligee or by the Commissioneror by a court of competent jurisdiction,as the case may be.Sec. 178. Pertinent provisions of theCivil Code of the Philippines shall beapplied in a suppletory characterwhenever necessary in interpretingthe provisions of a contract of

suretyship.

SURETYSHIP

By suretyship a person known assurety binds himself solidarily to thecreditor to fulfill the obligation of theprincipal debtor.

Sec. 175. A contract of suretyship isan agreement whereby a party calledthe surety guarantees theperformance by another party calledthe principal or obligor of an obligationor undertaking in favor of a third partycalled the obligee. It includes officialrecognizances, stipulations, bonds orundertakings issued by any companyby virtue of and under the provisionsof Act No. 536, as amended by Act No.2206.

DISTINGUISHED FROM INSURANCECONTRACTS

1 Cram notes Notes on Suretyship: From Timoteo Aquinos Insurance Laws

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May be entered into as an isolatedtransaction. If a person is engaged inthe business of acting as surety thenthat person is engaged in insurancebusiness.

SURETYSHIP INSURANCEThree Parties.Principal, Obligee,and surety.

Two parties,Insurer andinsured

The surety, intheory expects noloss

Insurer expectsloss to occur andin some cases, theloss is a certainty

Surety has right ofreimbursement

Does not have theright ofreimbursement

SuretyGuaranteesqualities that arewithin the controlof the insured,that is theinsuredsCharacter,honesty andintegrity toperform theobligation

Insurance coverslosses that arebeyond thecontrol of theinsured

THREE Cs

Before the issuance of a bond, thesurety undertakes investigations, todetermine if the principal can and willperform its obligations.

1. Character If the principalindicates that he is of good

character and that he will befaithful to the obligation or tothe trust reposed on him. Does

the bond applicant possess thetraits of integrity, reliability andleadership to drive necessary toaccomplish goals in spite ofdifficulties?

2. Capacity The surety will

determine if the principal hasthe necessary, skill, experienceand knowledge essential to theperformance of the obligation.Does the bond applicant havethe technical or professionalability to meet commitmentsnecessary to perform theobligation to be carried out

3. Capital If the principal isfinancially capable ofperforming the obligation. Does

the principal have sufficientresources, financial strength,and credit standing to performthe obligation to be secured bythe bond?

DISTINGUISHED FROM GUARANTY

SURETY GUARANTY Surety insures thedebt

Guarantor insuressolvency of debtor

Surety is primarilyliable

Guarantorsecondary liable

Not entitled tobenefit ofexcussion

Entitled to benefitof excussion.

PARTIES

1. Principal Is the person whoseobligation is secured by thebond or suretyship. Person whoagrees to perform certain acts

2. Obligee is the person inwhose favor the bond is issuedor the undertaking of the surety


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is made. He will be paid orreimbursed if the principal failsto perform his obligation. Inrelation to the obligation of theprincipal and the surety, theoblige is the creditor or the

active subject3. Surety is the party who

answers for the debt, default orobligation of the principal. Theliability of the surety or suretiesshall be joint and several withthe obligor and shall be limitedto the amount fixed in theagreement. Undertakes that thedebt shall be paid and thisundertaking is in the form of abond most of the time.

PREMIUM

The surety may be liable even ifthe bond is already accepted bythe oblige. An accepted bond isvalid and binding whether or notthe premium has been paid by theprincipal.

Sec. 177. The surety is entitled topayment of the premium as soon

as the contract of suretyship orbond is perfected and delivered tothe obligor. No contract ofsuretyship or bonding shall bevalid and binding unless anduntil the premium therefor hasbeen paid, except where theobligee has accepted the bond,in which case the bondbecomes valid and enforceableirrespective of whether or notthe premium has been paid bythe obligor to the surety:Provided, That if the contract of

suretyship or bond is not acceptedby, or filed with the obligee, thesurety shall collect only reasonableamount, not exceeding fifty percentum of the premium duethereon as service fee plus the cost

of stamps or other taxes imposedfor the issuance of the contract orbond: Provided, however, That ifthe non-acceptance of the bond bedue to the fault or negligence ofthe surety, no such service fee,stamps or taxes shall be collected.

In the case of a continuing bond,the obligor shall pay thesubsequent annual premium as itfalls due until the contract of

suretyship is cancelled by theobligee or by the Commissioner orby a court of competent

jurisdiction, as the case may be.

INTERPRETATION.Obligation of surety is strictly bythe terms of the contract ofsuretyship in relation to theprincipal contract between theobligor and oblige. Surety may bindhimself for less but not for more

than the principal both as regardsthe amount and the onerous natureof the conditions. The liability ofthe surety cannot be extended byimplication.

- NCC. Suretyship not effectivewithout a valid obligation. Butmay guarantee a voidable orunenforceable contract.

- Pertinent provisions of the NCCshall be applied suppletorilywhenever necessary in


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interpreting the provisions of acontract of suretyship.

- Also a contract of adhesion.Suretyship agreements orbonds must be construedstrictly against surety.

- Cannot be presumed, and mustbe express and cannot beextended to what is stipulated.

- Strict interpretation must belimited to gratuitousguarantees. There is no reasonfor favoring those who makeguaranty a profession and whocharge premiums for the riskthey run, besides demanding acounter guaranty that protectsthem from all loss.

KINDS OF BONDS.Traditional.Fidelity Bonds and Surety Bonds.

Fidelity Bond- Bond that answers forthe loss of an employer who is theobligee for the dishonesty of theemployee.

Surety Bond may further beclassified as

1. Contract bond Guaranteescontractual obligations

a. Bid bond Assurance ofowner of project the goodfaith of the bidder andthat the bidder will enterinto a contract with theproject owner should hisproposal be accepted.

b. Performance bond Secures, that thecontractor will faithfullycomply with therequirements of the

contract awarded to thecontractor and makegood damages sustainedby the project owner incase of contractorsfailure to do so.

c. Payment bond Secures that thepayments of bills for thelabor and materials usedin building a project

d. Maintenance bond Bond answers fro breachof warranties in a buildingproject, the principalagrees to correct poorworkmanship and toreplace defective

materials.2. Legal bonds Bonds

submitted in virtue of aprovision of law. Includeslicense and permit bondsimposed by law to guaranteethat the persons concerned willcomply with the provisions ofthe license or permit issued.Bond with POEA.

3. Judicial Bonds Issued byvirtue of judicial orders and or

pursuant to RoC. Eg.a. Replevinb. Injunctionc. Attachment bondd. Supersedeas in

ejectmente. Administrators bondf. Bail bond

4. Classification of theinsurance commission

a. Judicial Civil Bondsb. Judicial Criminal Bondsc. Firearms bonds


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d. Internal RevenueBonds,

e. Customs Bondsf. Guaranty Bonds,g. Fidelity Bondsh. Promissory Notes,

i. Immigration bonds.

CONTINUING SURETY

By executing such agreement, theprincipal places itself ina a position toenter into the projected series oftransaction with its creditor with suchsuretyship agreement, there would beno need to execute a separate suretycontract or bond for each financing orcredit accommodation extended to the

principal debtor.

In the case of a continuing bond, theobligor shall pay the subsequentannual premium as it falls due untilthe contract of suretyship is cancelledby the obligee or by the Commissioneror by a court of competent jurisdiction,as the case may be. Sec. 177.

REIMBURSEMENT.A surety to who paid the oblige can

recover what he paid from theprincipal. Usually covered by aseparate INDEMNITY AGREEMENTsigned by the principal in favor of thesurety whereby the principal expresslyagrees to reimburse the suretywhatever amount that it will berequired to pay the obligee.

IA May provide indemnity againstpayment or indemnity against liability.Parties may recover upon actualpayment or the moment the liability toprincipal attaches.

IA includes signature of anotherperson who makes himself solidarilyliable with the principal. Incorporations. Signed by officers, or the

Joint and Solidary Signature of the

Officer (JSS) or the signature of the co-indemnitor.

For the protection of insurer, it is moreprudent to obtain a security for theperformance of the obligation like amortgage.

Extinguishment. Obligation of suretyis extinguished at the same time asthat of the principal and for somecauses as all other obligations.

Suretyship is extinguished if there ismaterial alteration of the principalobligation. For example an extensiongranted to the debtor by the creditorwithout the consent of the suretyextinguishes the surety.


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REGULATION OF INSURANCEBUSINESS

SOURCES OF REGULATION1. Law or statute2. Administrative regulation

3. Court decisions

Primary source- insurance code.Others in administrative regulationsissued by insurance commissioner,with administrative authority who isvested under the insurance code withthe power to regulate insurers and thebusiness of insurance.

REASONS AND BASES OFREGULATION

1. It is necessary to maintain thesolvency of insurers

2. Consumer information isinadequate

3. It is necessary to insurereasonable rates

4. It is necessary to makeinsurance available to allpersons who need insurancecoverage

5. It is necessary to ensure thatthe practice of insurance isethical and competent.

AREAS OF REGULATION1. Formation of insurers2. Licensing of insurers3. Financial regulation4. Rate regulation5. Policy forms regulation

6. Licensing of other personsinvolved in insurance businessincluding agents, brokers,underwriters, adjusters,actuaries and the like

7. Regulation of sales practicesand consumer protection

FORMATION AND LICENSING OFINSURERS.

Sec. 184. For purposes of this Code,

the term "insurer" or "insurancecompany" shall include all individuals,partnerships, associations, orcorporations, including government-owned or controlled corporations orentities, engaged as principals in theinsurance business, excepting mutualbenefit associations. Unless thecontext otherwise requires, the termsshall also include professionalreinsurers defined in section twohundred eighty. "Domestic company"

shall include companies formed,organized or existing under the laws ofthe Philippines. "Foreign company"when used without limitation shallinclude companies formed, organized,or existing under any laws other thanthose of the Philippines.

Sec. 185. Corporations formed ororganized to save any person orpersons or other corporationsharmless from loss, damage, orliability arising from any unknown orfuture or contingent event, or to


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indemnify or to compensate anyperson or persons or othercorporations for any such loss,damage, or liability, or to guaranteethe performance of or compliance withcontractual obligations or the payment

of debt of others shall be known as"insurance corporations".

APPLICABLE LAW. With respect tocorporations. The provisions of theCorporation Code apply unless theprovisions of the Insurance Codeprovides otherwise.

BASIC REQUIREMENTS

1. Insurance corp. must possess

the capital and assets requiredof an insurance coporationdoing the same kind of businessin the philippins and invested inthe same manner and theInsurance Commissioner hadgranted a certificate to thateffect

2. It must have obtained acertificate of authority totransact business from theinsurance commissioner.

WHEN ISSUANCE OF CERTIFICATECAN BE REFUSED.

Sec. 187. No insurance companyshall transact any insurancebusiness in the Philippines untilafter it shall have obtained acertificate of authority for thatpurpose from the Commissioner

upon application therefor andpayment by the companyconcerned of the fees hereinafterprescribed.

The Commissioner may refuse to

issue a certificate of authority toany insurance company if, in his

judgment, such refusal will bestpromote the interest of thepeople of this country. No suchcertificate of authority shall begranted to any such companyuntil the Commissioner shall havesatisfied himself by suchexamination as he may make andsuch evidence as he may requirethat such company is qualified by

the laws of the Philippines totransact business therein, thatthe grant of such authorityappears to be justified in the lightof economic requirements, andthat the direction andadministration, as well as theintegrity and responsibility of theorganizers and administrators,the financial organization and theamount of capital,notwithstanding the provisions ofsection one hundred eighty-eight,reasonably assure the safety ofthe interests of the policyholdersand the public.

In order to maintain the quality ofthe management of the insurancecompanies and afford betterprotection to policyholders andthe public in general, any personof good moral character,unquestioned integrity andrecognized competence may beelected or appointed director or


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officer of insurance companies.The Commissioner shall prescribethe qualifications of the executiveofficers and other key officials ofinsurance companies for purposesof this section.

No person shall concurrently be adirector and/or officer of aninsurance company and anadjustment company.

Incumbent directors and/orofficers affected by the aboveprovisions are hereby allowed tohold on to their positions until theend of their terms or two yearsfrom the effectivity of this decree,

whichever is shorter.

Before issuing such certificate ofauthority, the Commissioner mustbe satisfied that the name of thecompany is not that of any otherknown company transacting asimilar business in thePhilippines, or a name so similaras to be calculated to mislead thepublic.

Such certificate of authority shallexpire on the last day of June ofeach year and shall be renewedannually if the company iscontinuing to comply with theprovisions of this Code or thecirculars, instructions, rulings ordecisions of the Commissioner.Every company receiving any suchcertificates of authority shall besubject to the provisions of thisCode and other related laws andto the jurisdiction and supervisionof the Commissioner.

No insurance company may beauthorized to transact in thePhilippines the business of lifeand non-life insuranceconcurrently unless specifically

authorized to do so: Provided,That the terms "life" and "non-life" insurance shall be deemed toinclude health, accident anddisability insurance.

No insurance company shall haveequity in an adjustment companyand neither shall an adjustmentcompany have an equity in aninsurance company.

Insurance companies andadjustment companies presentlyaffected by the above provisionshall have two years from theeffectivity of this Decree withinwhich to divest of theirstockholdings. (As amended byPresidential Decree No. 1455).

1. Refusal will best promote theinterest of the people

2. Commissioner has not satisfiedhimself upon examination thatsuch company is qualified bythe laws of the Philippines totransact business therein

3. Commissioner is not satisfiedthat the grant of suct authorityappears to be justified in thelight of economic requirements


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4. If commissioner not satisfiedthat the direction andadministration as well as theintegrity and responsibility oforganizaers and administrators,the financial organization and

amount of capital, reasonablyassure the safety of theinterests of the policy holdersand the public

5. If the commissioner notsatisfied, that the name of thecompany is not that of anyother known companytransacting a similar business inthe Philippines, or name maymislead the public

Sec. 188. Except as provided insection two hundred eighty-one, nodomestic insurance company shall, ina stock corporation, engage inbusiness in the Philippines unlesspossessed of a paid-up capital stockequal to at least five million pesos:Provided, That a domestic insurancecompany already doing business inthe Philippines with a paid-up capitalstock which is less than five millionpesos shall have a paid-up capital

stock of at least three million pesos byDecember thirty-one, nineteenhundred seventy-eight, four millionpesos by December thirty-one,nineteen hundred seventy-nine andfive million pesos by December thirty-one, nineteen hundred eighty:Provided, further, that the Secretary ofFinance may, upon recommendationof the Insurance Commissioner,increase such minimum paid-upcapital stock requirement, under suchterms and conditions as he mayimpose, to an amount which, in his

opinion, would reasonably assure thesafety of the interests of thepolicyholders and the public.chanrobles virtual law library

The Commissioner may, as a pre-

licensing requirement of a newinsurance company, in addition to thepaid-up capital stock, require thestockholders to pay in cash to thecompany in proportion to theirsubscription interests a contributedsurplus fund of not less than onemillion pesos, in the case of a lifeinsurance company, or not less thanfive hundred thousand pesos, in thecase of an insurance company otherthan life. He may also require such

company to submit to him a businessplan showing the company'sestimated receipts and disbursements,as well as the basis therefor, for thenext succeeding three years.

If organized as a mutual company, inlieu of such capital stock, it must haveavailable cash assets of at least fivemillion pesos above all liabilities forlosses reported, expenses, taxes, legalreserve, and reinsurance of all

outstanding risks, and the contributedsurplus fund equal to the amountsrequired of stock corporations. A stockinsurance company doing business inthe Philippines may, subject to thepertinent law and regulations whichnow are of hereafter may be in force,alter its organization and transformitself into a mutual insurancecompany.

CAPITALIZATION REQUIREMENTS>As of July 1, 2006 by the dept offinance


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1. No new life or non-life insurancecompany shall be allowed to dobusiness in the Philippinesunless it hasa a capitalization ofONE BILLION PESOS. Paid in

cash, of which at least fiftypercent consists of paid upcapital and the remainingportion therof as contributedsurplus which in no case shallbe less than TWO HUNDREDMILLION.

2. No new REINSURANCE Companyshall be allowed to do businessin the Philippines, unless it hasa capitalization of TWO BILLIONPESOS, paid in cash, of which

ate least fifty percent consistsof paid up capital, and theremaining portion therof ascontributed surplus which in nocase shall be less than FOURHUNDRED MILLION.

For existing company. Increasedthe minimum capitalization becausethe current requirements areinadequate relative to

1. The needed business

infrastructures and qualitymanagement team that willensure better service to allstakeholders

2. Adequate allowance forincreased business volatilityand for mitigating marketimperfection.

OTHER ASPECT OF CROPORATEORGANIZATION. Other areasregulated by IC.

1. Consolidation and merger ofinsurance companies

2. Suspension and revocation ofcertificate of authority

3. Mutualization of stock lifeinsurance companies

4. Reinsurance transactions andprofessional reinsurers

5. Holding companies.

FOREIGN COMPANIES. Companiesformed under any laws other thanthose of the Philippines.

There must be an appointment of aresident agent of the foreigncompany, who will receive summonsand legal processes in connection withactions and other legal proceedings.

FINANCIAL REGULATIONS. Financialregulations are imposed on insurancecompanies to help maintain thehealthy financial status of thecompanies. They will help governmentbecause insurance companies are alsofinancial intermediaries.

Asymmetric information andadverse selection.

Asymmetric information arises whenone of the parties has insufficientknowledge about the other party inthe contract that makes it impossibleto make the correct decision beforeentering into the contract. One of theproblems involved in this is that whenthere is asymmetric information, thereis adverse selection under which aperson who is more likely to beunreliable is the more likely to seekout the transaction.


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MARGIN OF SOLVENCY.This marginof insolvency of insurancecorporations shall be an excess of thevalue of its admitted assets exclusiveof its paid up capital, in the case of adomestic company, or an excess of

the value of its admitted assets in thePhilippines.

ADMITTED ASSETS. Admitted assetsare assets that are allowed by the lawto be part of assets that will be part ofthe bases in determining the financialconditions of the insurance company.Non-admitted assets are the assetsthat will not be allowed to be carriedon the balance sheet of the insurancecompany. They are believed to be of

marginal quality or of little liquidity forpolicy holders if the insurer should getinto financial difficulty.

DIVIDEND POLICY>The insurancecode prohibits the declaration ordistribution of dividends if thefollowing are impaired

1. The entire paid up capital stock2. The margin of solvency3. In the case of life insurance

corporation, the legal reserve

fund.4. In the case of corporations

other than life, the legal reservefund

5. A sum sufficient to pay all netlosses reported, or in the courseof settlement, and all liabilitiesfor expenses and taxes.

INVESTMENTS. The type, nature andamounts of investments of insurancecompanies are likewise regulated. TheInsurance Code provides forlimitations on

1. Loans and security therefor2. Purchase or ownership of assets3. Purchase or ownership of

securities includes bonds.

Reportorial requirement.

Sec. 209. It shall be the duty ofthe officers of the insurancecompany to report within the firstfifteen days of every month allsuch investments as may be madeby them during the precedingmonth, and the Commissionermay, if such investments or any ofthem seem injudicious to him,require the sale or disposal of thesame. The report shall also

include a list of investments soldor disposed of by the companyduring the same period.

RESERVES

Not equivalent to surplus but is in factobligations to the insured.

1. In life insurance, reserve is theamount that, together withfuture premiums, interests and

benefit of the survivorship, willbe sufficient, according tovaluation assumptions, to payfuture claims. Under theinsurance code, all valuations ofpolicies are made upon netpremium basis. The aggregatenet value so ascertained of thepolicies of the company shall bedeemed its reserve liabilitywhich shall be provided for byholding funds in secureinvestments equal to such netvalue.


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2. In non life insurance. Theinsurance code provides that,every non-life insurancecompany must maintain areserve for unearned premiumson its policies that are in force

which shall be charged as aliability for the determination ofits financial condition.

EXAMINATIONS AND REPORTS

1. Insurance companies arerequired to have its booksrecords and accounts readilyexamined by the insurancecommissioner to determinesolvence. Examination shall be

done atleast once a year andwhen public interest sodemands

2. IC also provides that insurancecompanies are required tosubimit annual statements

LIMIT OF SINGLE RISK.

Sec. 215. No insurance companyother than life, whether foreign ordomestic, shall retain any risk onany one subject of insurance in anamount exceeding twenty percentum of its net worth. Forpurposes of this section, the term"subject of insurance" shall include allproperties or risks insured by thesame insurer that customarily areconsidered by non-life companyunderwriters to be subject to loss ordamage from the same occurrence ofany hazard insured against.

Reinsurance ceded as authorizedunder the succeeding title shall be

deducted in determining the riskretained. As to surety risk, deductionshall also be made of the amountassumed by any other companyauthorized to transact surety businessand the value of any security

mortgage, pledged, or held subject tothe surety's control and for thesurety's protection

SECURITY DEPOSIT

Sec. 203. Every domestic insurancecompany shall, to the extent of anamount equal in value to twenty-fiveper centum of the minimum paid-upcapital required under section onehundred eighty-eight, invest its funds

only in securities, satisfactory to theCommissioner, consisting of bonds orother evidences of debt of theGovernment of the Philippines or itspolitical subdivisions orinstrumentalities, or of government-owned or controlled corporations andentities, including the Central Bank ofthe Philippines: Provided, That suchinvestments shall at all times bemaintained free from any lien orencumbrance; and Provided, further,

That such securities shall be depositedwith and held by the Commissioner forthe faithful performance by thedepositing insurer of all its obligationsunder its insurance contracts. Theprovisions of section one hundredninety-two shall, so far as practicable,apply to the securities depositedunder this section.

Except as otherwise provided in thisCode, no judgment creditor or otherclaimant shall have the right to levyupon any of the securities of the


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insurer held on deposit under thissection or held on deposit pursuant tothe requirement of the Commissioner.(As amended by Presidential DecreeNo. 1455).

Security deposit shall be.1. Answerable for all obligation sof

the depositing insurer under itsinsurance contracts

2. At all times free from any liensor encumbrance

3. Exempt from levy by anyclaimant.

Republic V. Delmonte motors.

Individual policy holder cannot garnishthe security deposit to satisfy his claim

agains the insurer on his policy. Toallow the garnishment of that depositwould impair the fund by decreasing itto less than the percentage of paid-upcapital that the law requires to bemaintained. Garnishment would alsocreate a preference of credit over theother policy holders and beneficiaries.

Absent insolvency proceedings,the individual insureds intereston the security deposit is merelyinchoate. Being an expectancy, ithas not attribute to property.

CORPORATIONS IN DISTRESS.Corporations in distress may be placedin conservatorship, receivership, ormay be ultimately dissolved andliquidated.

CONSERVATORSHIP.

Conservator, may be appointed if atany time, before, or after, thesuspension or revocation of the

certificate of authority of an insurancecompany, the insurance commissionerfinds that such company is in a stateof continuing inability orunwillingnenss to maintain thecondition of solvency or liquidity

deemed adequate to protect theinterest of policy holders andcreditors.Insurance company is facing financialdifficulaties which requires theappointment of a conservator to takecharge of its assets liabilities andmanagement aimed at preserving itsassents and restoring its viability as agoing business enterprise.

Under Sec 248 of the IC,

conservatorship is in the nature ofrehabilitation proceedings

POWERS OF A CONSERVATOR.

1. Take charge the assets,liabilities, and the managementof the company

2. Collect all moneys and debtsdue said company

3. Exercise all powers necessary topreserve the assets of said

company and restore viability4. Reorganize the management of

the company5. Overrule or revoke the actions

of the previous managementand board of directors of thesaid company, any provision oflaw, or of the articles ofincorporation or by-laws of thecompany, to the contrarynotwithstanding

6. Other powers as thecommissioner shall deemnecessary.


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Retrecnhment of personnel is one ofthe powers of the conservator. Cost-saving device to protect policyholders.

Qualifications and Remunerationsof Conservator.Conservator, may be anotherinsurance company doing business inthe Philippines, by officer or officers ofsuch company, or other competentand qualified persons, firms orcoporations. Remunerations are borneby the insurance company underconservatorship.

Free and Harmless Clause.

Conservator shall not be subject toany action, claim or demand by, orliability to, any person in respect ofanything done or omitted to be donein good faith and in the exercise or inconnection with the exercise of thepowers conferred on the conservator.Does not preclude suit, but applies

only with reference to acts done or leftundone in good faith by the receiveror conservator in discharge of hisfunctions.

Sec. 248. If at any time before, orafter, the suspension or revocation ofthe certificate of authority of aninsurance company as provided in thepreceding title, the Commissionerfinds that such company is in a stateof continuing inability or unwillingnessto maintain a condition of solvency orliquidity deemed adequate to protectthe interest of policy holders andcreditors, he may appoint aconservator to take charge the assets,liabilities, and the management of

such company, collect all moneys anddebts due said company and exerciseall powers necessary to preserve theassets of said company, reorganizethe management thereof, and restoreits viability. The said conservator shall

have the power to overrule or revokethe actions of the previousmanagement and board of directors ofthe said company, any provision oflaw, or of the articles of incorporationor by-laws of the company, to thecontrary notwithstanding, and suchother powers as the Commissionershall deem necessary.

The conservator may be anotherinsurance company doing business in

the Philippines, by officer or officers ofsuch company, or any othercompetent and qualified person, firmor corporation. The remuneration ofthe conservator and other expensesattendant to the conservation shall beborne by the insurance companyconcerned.

The conservator shall not be subject toany action, claim or demand by, orliability to, any person in respect of

anything done or omitted to be donein good faith in the exercise, or inconnection with the exercise, of thepowers conferred on the conservator.

The conservator appointed shall reportand be responsible to theCommissioner until such time as theCommissioner is satisfied that theinsurance company can continue tooperate on its own and theconservatorship shall likewise beterminated should be Commissioner,on the basis of the report of the


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conservator or of his own findings,determine that the continuance inbusiness of the insurance companywould be hazardous to policy holdersand creditors, in which case theprovisions of Title 15 shall apply.

RECEIVERSHIP

Proceedings on insolvency appliesunder these cases.

1. The condition of any insurancecompany doing business in thePhil is one of insolvency.Insolvency shall mean theinability of an insurance

company to pay its lawfulobligations as they fall due inthe usual and ordinary course ofbusiness as may be shown byits failure to maintain themargin of solvency.

2. The continuance in business ofthe insurance company wouldbe hazardous to its policyholders and creditors.

Actions of the Commissioner.1. Order the company to cease

and desist from transactingbusiness in the Philippines anddesignate a receiver

2. Within 30 days fromappointment of a receiver, todetermine whether theinsurance company may bereorganizae or otherwise placedin scuh condition so that it maybe permitted to resumebusiness with safety of its policyholders and creditors.

3. If the insurance company isdetermined to be insolvend orcannot resume business withsafety of policy holders, havethe company liquidated.

4. Appoint a liquidator.

Powers of receiver

1. Take charge of assets andliabilities

2. Collect and gather all the assetsand administer the same for thebenefit of its policy holders andcreditors.

3. Exercise all powers necessaryfor the preceding purposesincluding but not limited to

bringing suits and foreclosingmortgages in the name of theinsurance company.

Functions of the Liquidator1. Take over the functions of

receiver previously designated.2. Reinsure all the outstanding

policies of the company3. Convert the assets of the

insurance company to cash, orsell, assign or otherwise dispose

of the same to thepolicyholders, creditors andother parties for the prupose ofsettling the liabilities or payingthe debts of such company

4. Institute actions in the name ofthe company as may benecessary in the appropriateCourt to collect and recoveraccounts and assets of theinsurance company

5. To do such other acts as may benecessary to complete the


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liquidation as ordered by thecommissioner.

Binding effects of the actions ofthe commissioner.Actions of the commissioner shall befinal and executor and can be set

aside by the court upon petition of thecompany ONLY IF THERE ISCONVINCING PROOF THAT THEACTION IS PLAINLY ARBITRARY ANDMADE IN BAD FAITH.

CAPITALIZATION1. Non-life insurance companies,

may not be rehab. Unless networth is One BILLION. Atleastfifty percent consists of paid upcapital and remaining portion

shall be contributed surpluswhich shall not be less than 200million

2. Reinsurance 2 Billion, 400Million

RATE REGULATION

Sec. 339. Every organization whichnow exists or which may hereafter beformed for the purpose of makingrates to be used by more than oneinsurance company authorized to do

business in the Philippines shall beknown as a "rating organization." Theterm "rate" as used in this titleshall generally mean the ratio ofthe premium to the amountinsured and shall include, as thecontext may require, either theconsideration to be paid orcharged for insurance contracts,including surety bonds, or theelements and factors forming thebasis for the determination orapplication of the same, or both.

** On part of insurer, it is required thatamount of premium is fixed in such away that the amount paid by anindividual combined with payments byother customers must provide for thelosses sustained, the expenses of

operation, profit, and accumulation ofreserve for catastrophies.

PURPOSE. Ensures that the ratesimposed by insurers are adequate,reasonable and not unfairlydiscriminatory.

Basic standards.

1. Rates must be adequate for theclass of business to which they

apply2. Not be unfairly discriminatory3. Not unreasonably excessive.

Sec. 349. Every rating organizationand every insurance company whichmakes and files its own rates, shallmake rates for all risks rated by suchorganization or insurance company inaccordance with the followingprovisions:

(a) Basic classification, manual,minimum, class, or schedule rates orrating plans, shall be made andadopted for all such risks. Anydeparture from such rates shall be inaccordance with schedules, rating


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plans and rules filed with theCommissioner;

(b) Rates shall be reasonable andadequate for the class of risks towhich they apply;

(c) No rate shall discriminateunfairly between risks involvingessentially the same hazards andexpense elements or between risks inthe application of like charges andcredits;

(d) Consideration shall be given tothe past and prospective lossexperience, including theconflagration and catastrophe

hazards, if any, to all factorsreasonably attributable to the class ofrisks, to a reasonable profit, tocommissions paid during the mostrecent annual period and to past andprospective other expenses. In case offire insurance rates, considerationshall be given to the experience of thefire insurance business during a periodof not less than five years nextpreceding the year in which the reviewis made;

(e) Risk may be grouped byclassifications for the establishment ofrates and minimum premiums.Classification rates may be modified toproduce rates for individual risks inaccordance with rating plans whichestablish standards for measuringvariations in hazards or expenseprovisions, or both. Such standardsmay measure any difference amongrisks that can be demonstrated tohave a probable effect upon losses orexpenses.

POWER OF COMMISSIONER.

Sec. 355. If the Commissioner findsthat any rate filings theretofore filedwith him do not comply with the

provisions of this title or that theyprovide rates or rules which areinadequate, excessive, unfairlydiscriminatory or otherwiseunreasonable, he may order the samewithdrawn and at the expiration ofsixty days thereafter the same shallbe deemed no longer on file. Beforemaking any such finding and order,the Commissioner shall give notice,not less than ten days in advance, anda hearing, to the rating organization,

or to the insurer, which filed the same.Such order shall not affect anycontract or policy made or issued priorto the expiration of such sixty dayperiod.

POLICY FORMS.

Sec. 226. No policy, certificate orcontract of insurance shall be issuedor delivered within the Philippinesunless in the form previously approved

by the Commissioner, and noapplication form shall be used with,and no rider, clause, warranty orendorsement shall be attached to,printed or stamped upon such policy,certificate or contract unless the formof such application, rider, clause,warranty or endorsement has beenapproved by the Commissioner.

SALES PRACTICES AND CONSUMERPROTECTION. Regulations designedto protect consumers


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1. A reinsurance broker is onewho, for compensation, notbeing a duly authorized agent,employee or officer of aninsurer in which any reinsuranceis effected, act or aids in any

manner in negotiating contractsof reinsurance, or placing risksof effecting reinsurance, for anyinsurance company authorizedto do business in thePhilippines.

2. Sec. 318. No person shall act,and no company shall employany person, as non-lifecompany underwriter, whoseduty and responsibility it shallbe to select, evaluate and

accept risks for, and todetermine the terms andconditions, including thosepertaining to amounts ofretentions, under which suchrisks are to be accepted by thecompany, unless suchunderwriter is registered assuch with the Commissioner.

3. The term "independentadjuster" means any person,partnership, association or

corporation which, for money,commission or any other thingof value, acts for or on behalf ofan insurer in the adjusting ofclaims arising under insurancecontracts or policies issued bysuch insurer.

The term "public adjuster"means any person, partnership,association or corporationwhich, for money, commissionor any other thing of value, actson behalf of an insured innegotiating for, or effecting, the

settlement of a claim or claimsof the said insured arisingunder insurance contracts orpolicies, or which advertises foror solicits employment as anadjuster of such claims.

4. Actuary a person who makesfinancial calculations for the lifeinsurance company and whowill certify the documents suchas reserved and net due anddeferred premium, valuation ofannuity funds or retirementplans.

5. Rate organization. Everyorganization which now existsor which may hereafter beformend for the purpose of

making rates to be used bymore than one insurancecompany authorized to dobusiness in the Philippines.

PROHIBITIONS.1. Twisting inducing an insured

to drop an existing policy in onecompany for another policy inanother company due tomisrepresentation.

2. Rebate- designed to ensure fair

and equitable treatment of allpolicymakers by preventing oneinsured from obtaining unfairpractice ove another.

Sec. 361. No insurance company doingbusiness in the Philippines or anyagent thereof, no insurance broker,and no employee or otherrepresentative of any such insurancecompany, agent, or broker, shallmake, procure or negotiate anycontract of insurance or agreement asto policy contract, other than is plainly


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expressed in the policy or otherwritten contract issued or to be issuedas evidence thereof, or shall directlyor indirectly, by giving or sharing acommission or in any mannerwhatsoever, pay or allow or offer to

pay or allow to the insured or to anyemployee of such insured, either as aninducement to the making of suchinsurance or after such insurance hasbeen effected, any rebate from thepremium which is specified in thepolicy, or any special favor oradvantage in the dividends or otherbenefits to accrue thereon, or shallgive or offer to give any valuableconsideration or inducement of anykind, directly or indirectly, which is not

specified in such policy or contract ofinsurance; nor shall any suchcompany, or any agent thereof, as toany policy or contract of insuranceissued, make any discriminationagainst any Filipino in the sense thathe is given less advantageous rates,dividends or other policy conditions orprivileges than are accorded to othernationals because of his race.

3. Misrepresentation.

Sec. 362. No insurance company doingbusiness in the Philippines, and noofficer, director, or agent thereof, andno insurance broker or any otherperson, partnership or corporationshall issue or circulate or cause orpermit to be issued or circulated anyliterature, illustration, circular orstatement of any sort misrepresentingthe terms of any policy issued by anyinsurance company of the benefits oradvantages promised thereby, or anymisleading estimate of the dividends

or share of surplus to be receivedthereon, or shall use any name or titleof any policy or class of policiesmisrepresenting the true naturethereof; nor shall any such companyor agent thereof, or any other person,

partnership or corporation make anymisleading representation orincomplete comparison of policies toany person insured in such companyfor the purpose of inducing or tendingto induce such person to lapse, forfeit,or surrender his said insurance.

4. Unfair claims settlement

CORPORATE GOVENANCEMeans the system by which

companies are directed and managed.It influences how objectives of thecompany are set and achieved, howrisk is monitored and assessed, andhow performance is optimized.

ANTI-Money Laundering.

LAYERING. Separation of the criminalproceeds from their source by thecreation of layers of transactionsdesigned to disguise the audit trail

and provide the appearance oflegitimacy.

INSURANCE COMMISSION.The insurance commissioner shallhave the duty to see that all lawsrelating to insurance, insurancecompanies and other insurancematters, mutal benefit associationsand trusts for charitable uses arefaithfully executed and to perform theduties imposed upon him by theinsurance code.


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1. Issue CoA2. Revoke CoA3. Impose penalties

ec. 414. The Insurance Commissionershall have the duty to see that all laws

relating to insurance, insurancecompanies and other insurancematters, mutual benefit associations,and trusts for charitable uses arefaithfully executed and to perform theduties imposed upon him by this Code,and shall, notwithstanding anyexisting laws to the contrary, havesole and exclusive authority toregulate the issuance and sale ofvariable contracts as defined insection two hundred thirty-two and to

provide for the licensing of personsselling such contracts, and to issuesuch reasonable rules and regulationsgoverning the same.

The Commissioner may issue suchrulings, instructions, circulars, ordersand decision as he may deemnecessary to secure the enforcementof the provisions of this Code, subjectto the approval of the Secretary ofFinance. Except as otherwise

specified, decisions made by theCommissioner shall be appealable tothe Secretary of Finance.

Sec. 415. In addition to theadministrative sanctions providedelsewhere in this Code, the InsuranceCommissioner is hereby authorized, athis discretion, to impose upon theinsurance companies, their directorsand/or officers and/or agents, for anywillful failure or refusal to comply with,or violation of any provision of thisCode, or any order, instruction,

regulation, or ruling of the InsuranceCommissioner, or any commission orirregularities, and/or conductingbusiness in an unsafe or unsoundmanner as may be determined by theInsurance Commissioner, the

following:

(a) fines not in excess of fivehundred pesos a day; and

(b) suspension, or after duehearing, removal of directors and/orofficers and/or agents.

Sec. 416. The Commissioner shallhave the power to adjudicate claimsand complaints involving any loss,

damage or liability for which in insurermay be answerable under any kind ofpolicy or contract of insurance, or forwhich such insurer may be liableunder a contract of suretyship, or forwhich a reinsurer may be sued underany contract of reinsurance it mayhave entered into; or for which amutual benefit association may beheld liable under the membershipcertificates it has issued to itsmembers, where the amount of any

such loss, damage or liability,excluding interest, cost and attorney'sfees, being claimed or sued upon anykind of insurance, bond, reinsurancecontract, or membership certificatedoes not exceed in any single claimone hundred thousand pesos.

The insurer or surety may, in the sameaction file a counterclaim against theinsured or the obligee.

The insurer or surety may also file across-claim against a party for anyclaim arising out of the transaction or


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occurrence that is the subject matterof the original action or of acounterclaim therein.

With leave of the Commissioner, aninsurer or surety may file a third-party

complaint against its reinsurers forindemnification, contribution,subrogation or any other relief, inrespect of the transaction that is thesubject matter of the original actionfiled with the Commissioner.

The party filing an action pursuant tothe provisions of this section therebysubmits his person to the jurisdictionof the Commissioner. TheCommissioner shall acquire

jurisdiction over the person of theimpleaded party or parties inaccordance with and pursuant to theprovisions of the Rules of Court.

The authority to adjudicate granted tothe Commissioner under this sectionshall be concurrent with that of thecivil courts, but the filing of acomplaint with the Commissioner shallpreclude the civil courts from takingcognizance of a suit involving the

same subject matter.Any decision, order or ruling renderedby the Commissioner after a hearingshall have the force and effect of a

judgment. Any party may appeal froma final order, ruling or decision of theCommissioner by filing with theCommissioner within thirty days fromreceipt of copy of such order, ruling ordecision a notice of appeal to theIntermediate Appellate Court in themanner provided for in the Rules ofCourt for appeals from the Regional

Trial Court to the Intermediate

Appellate Court. (As amended byBatas Pambansa Blg. 874).

As soon as a decision, order or rulinghas become final and executory, theCommissioner shall motu proprio or on

motion of the interested party, issue awrit of execution requiring the sheriffor the proper officer to whom it isdirected to execute said decision,order or award, pursuant to Rulethirty-nine of the Rules of Court.For the purpose of any proceedingunder this section, the Commissioner,or any officer thereof designated byhim, empowered to administer oathsand affirmation, subpoena witnesses,compel their attendance, take

evidence, and require the productionof any books, papers, documents, orcontracts or other records which arerelevant or material to the inquiry. Incase of contumacy by, or refusal toobey a subpoena issued to anyperson, the Commissioner may invokethe aid of any court of first instancewithin the jurisdiction of which suchproceeding is carried on, where suchperson resides or carries on his ownbusiness, in requiring the attendance

and testimony of witnesses and theproduction of books, papers,documents, contracts or other records.And such court may issue an orderrequiring such person to appearbefore the Commissioner, or officerdesignated by the Commissioner,there to produce records, if so orderedor to give testimony touching thematter in question. Any failure to obeysuch order of the court may bepublished by such court as a contemptthereof.


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A full and complete record shall bekept of all proceedings had before thecommissioner, or the officers thereofdesignated by him, and all testimonyshall be taken down and transcribedby a stenographer appointed by the

Commissioner.

A transcribed copy of the evidenceand proceeding, or any specific partthereof, of any hearing taken by astenographer appointed by theCommissioner, being certified by suchstenographer to be a true and correcttranscript of the testimony on thishearing of a particular witness, or of aspecific proof thereof, carefullycompared by him from his original

notes, and to be a correct statementof evidence and proceeding had insuch hearing so purporting to be takenand subscribed, may be received asevidence by the Commissioner and byany court with the same effect as ifsuch stenographer were present andtestified to the facts so certified. (Asamended by Presidential Decree No.1455).

Quasijudicial function of theInsurance commissioner. Limited toclaims not exceeding 100,000 php.Hence it does not cover therelationship affecting the insurancecompany, its agents, but is its limitedto claims filed by the insured againstthe insurance company.Phil American Life InsuranceCompany v. Ansaldo.

Procedure.The rules that apply inadministrative proceedings before theinsurance commission are. Shall besummary in nature, not necessarily

adhering to technical rules of evidenceobtaining in the courts of law. Rules ofCourt suppletorily when applicable.

Rules of civil procedure. Decisions ofthe insurance commission, appealable

to CA within 15 days from receipt ofdecision.

Decision or interpretation of theInsurance Commissioner, are entitledgreat respect (Admin Law). Since he isthe head of specialized body.Multifarious ekek.


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Insurance Notes : Suretyship

Documents

Transcript of Insurance Notes : Suretyship