Insurance Rev Syllabusx

7/28/2019 Insurance Rev Syllabusx

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Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008

INSURANCE

Laws governing insurance1. Insurance Code of 1978 primary application2. Civil Code of the Philippines secondary application

3. Family Code4. Special Laws

a. Revised Government Service Insurance Act

b. Social Security Act5. Other laws

a. Property Insurance lawb. RA 4898 life, disability and accident

insurance for barangay officialsc. EO 250 rationalizes benefits under RA 4898

for members of various Sanggunian

Subrogation in insurance Process of legal substitution The insurer, after paying the amount covered by

the policy, steps into the shoes of the insured

The insurer avails of the rights of the insuredagainst the wrongdoer. Insured CANNOT recoverfrom offender what was paid by insured but can

recover any deficiency. NOTE: this is applicable only in non-life insurance

(Philamgen v. CA)

Rule of Construction In case of doubt, the provision shall be strictly

construed against the insurance company. RIZAL SURETY V. CA Pursuant to Art. 1377 of

the Civil Code, any obscure word or stipulation inthe insurance policy shall be resolved against theinsurance company which drafted the termsthereof.

Regulation of the Insurance Business Insurance business is affected with

public interest The public must be protected against

insolvency or unfair treatment byinsurers

Section 414-416 As part of itsadministrative powers, the insuranceCommission is tasked to regulate theconduct of insurance business throughlicensing, examination, investigation andrevocation.

Statute of Limitations

Any suit based on an insurance policy

should be brought within 10 years fromthe time the cause of action accrues(from the time the claim is denied; If

there was no denial of the claim,right of action does not accrue)

The 10 year period may be lengthenedor shortened BUT

Prescriptive period for industrial life:cannot be shorter than 6 years

In all other kinds of insurance, cannotbe shorter than one year.

Contract of Insurance, concept

Sec. 2. Whenever used in this Code, the following termsshall have the respective meanings hereinafter set forth orindicated, unless the context otherwise requires:

(1) A "contract of insurance" is an agreement whereby

one undertakes for a consideration to indemnify anotheragainst loss, damage or liability arising from an unknownor contingent event.

A contract of suretyship shall be deemed to be aninsurance contract, within the meaning of this Code, onlyif made by a surety who or which, as such, is doing aninsurance business as hereinafter provided.

An agreement whereby one undertakes

for a consideration to indemnify another

against loss, damage or liability arising froman unknown or contingent event.

Contract of suretyship is deemed aninsurance contract only if made by a suretywho or which is doing an insurance

business.

What is Doing an Insurance Business?

(2) The term "doing an insurance business" or "transacting aninsurance business", within the meaning of this Code, shallinclude:

(a) making or proposing to make, as insurer, any insurancecontract;

(b) making or proposing to make, as surety, any contract ofsuretyship as a vocation and not as merely incidental to anyother legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurancebusiness, specifically recognized as constituting the doing ofan insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substanceequivalent to any of the foregoing in a manner designed toevade the provisions of this Code.

In the application of the provisions of this Code the fact thatno profit is derived from the making of insurance contracts,agreements or transactions or that no separate or directconsideration is received therefore, shall not be deemedconclusive to show that the making thereof does notconstitute the doing or transacting of an insurance business.

Elements of an Insurance Contract

The insured possesses an interest of some

kind susceptible of pecuniary estimation,known as insurable interest

The insured is subject to a risk of loss

through the destruction or impairment ofthat interest by the happening of the

designated perils;

The insurer assumes the risk of loss;

Such assumption is part of a generalscheme to distribute actual losses among alarge group of persons bearing somewhatsimilar risks;

As consideration for the insurers promise,

the insured makes a ratable distributioncalled premium to a general insurance

fund.

Nature and Characteristics of an Insurance Contract Aleatory depends upon some contigent

event Contract of indemnity for non-life and an

investment for life insurance Personal Executory and conditional on the part of the

insurer

Uberrimae fides - utmost good faith; all

parties to an insurance contract must dealin good faith, making a full declaration of all

material facts in the insurance proposal. Adhesion most of the terms do not result

from mutual negotiation as they areprescribed by the insurer insured mayreject or adhere.

PHILAMCARE VS. CA

A applied for health care coverage with Philamcare. Under the agreement, A

was entitled to avail of hospitalization benefits, whether ordinary or

emergency. He was also entitled to avail of "out of patient benefits".

Philamcare contentds that the health care agreement is not an insurance

contract.

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Held: Section 2 (1) of the Insurance Code defines a contract of insurance

as an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage or liability arising from an

unknown or contingent event. An insurance contract exists where the

following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the

designated peril;

3. The insurer assumes the risk;4. Such assumption of risk is part of a general scheme to distribute actual

losses among a large group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown

event, whether past or future, which may damnify a person having an

insurable interest against him, may be insured against. In the case at bar,

the insurable interest of respondents husband in obtaining the health

care agreement was his own health. The health care agreement was in

the nature of non-life insurance, which is primarily a contract of

indemnity.

The answer assailed by petitioner was in response to the question

relating to the medical history of the applicant. This largely depends on

opinion rather than fact, especially coming from respondents husbandwho was not a medical doctor. Where matters of opinion or judgment

are called for, answers made in good faith and without intent to deceive

will not avoid a policy even though they are untrue.

Mayer vs. CA

Facts: HK contracted Mayer Steel to manufacture and supply various

steel pipes and fittings. Prior to the shipping, Mayer insured the pipes

with South Sea Surety and Insurance Co. Upon reaching HK, the pipes

were discovered damaged. Mayer then sued the insurance company for

indemnity. The CA held that the action by Mayer is barred under Sec 3(6)

of COGSA since it was filed more than 2 years from the time the goods

were unloaded from the vessel.

Held: The CA erred in applying the provision of COGSA in the instant

case. Under Sec. 3(6), only the carriers liability is extinguished if no suit

is brought within 1 year. BUT the liability of the insurer is not

extinguished because the insurers liability is based not on the contract

of carriage but on the contract of insurance. COGSA governs the

relationship between the carrier on one hand and the shipper,, the

consignee, and/or the insurer on the other hand. It defines the

obligations of the carrier under the contract of carriage without affecting

the relationship between the shipper and the insurer as the latter is

governed by the Insurance Code.

Phil HealthCare vs. CIR

ISSUE: Is a healthcare agreement in the nature of a contract of

insurance?

FACTS: Individuals enrolled in its health care programs pay an annual

membership fee. They are entitled to various preventive, diagnostic and

curative medical services provided by its duly licensed physicians,

specialists and other professional technical staff participating in the

group practice health delivery system at a hospital or clinic owned,

operated or accredited by it.The DST under Section 185 of the 1997 Tax

Code is imposed on the privilege of making or renewing any policy of

insurance (except life, marine, inland and fire insurance), bond or

obligation in the nature of indemnity for loss, damage, or liability.

RULING: The health care agreement is primarily a contract of indemnity.

A health care agreement is in the nature of a non-life insurance policy.

What may be insured against?

Sec. 3. Any contingent or unknown event, whether pastor future, which may damnify a person having aninsurable interest, or create a liability against him, may beinsured against, subject to the provisions of this chapter.

The consent of the husband is not necessary for thevalidity of an insurance policy taken out by a marriedwoman on her life or that of her children.

Any minor of the age of eighteen years or more, may,notwithstanding such minority, contract for life, health and

accident insurance, with any insurance company dulyauthorized to do business in the Philippines, provided theinsurance is taken on his own life and the beneficiaryappointed is the minor's estate or the minor's father, mother,

husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take outan insurance policy may exercise all the rights and privilegesof an owner under a policy.

All rights, title and interest in the policy of insurance takenout by an original owner on the life or health of a minor shallautomatically vest in the minor upon the death of the originalowner, unless otherwise provided for in the policy.

Sec. 84. Unless otherwise provided by the policy, an insureris liable for a loss of which a peril insured against was theproximate cause, although a peril not contemplated by thecontract may have been a remote cause of the loss; but he isnot liable for a loss which the peril insured against was only aremote cause.

Art. 1174, Civil Code: Except in cases expressly specified by

the law, or when it is otherwise declared by stipulation, orwhen the nature of the obligation requires the assumption ofrisk, no person shall be responsible for those events whichcould not be foreseen, or which, though foreseen, wereinevitable.

Contingent event something which may ormay not happen OR

Unknown event something which is

certain to happen but the time ofoccurrence is unknown

Which may damnify a person having

insurable interest or create a liabilityagainst him

Damnify v. Create a liability Damnify direct loss Create a liability expose the person to

liability such as in the case of third party

liability(TPL)

Insurance by a married woman May take out an insurance on her life or

that of her children or that of her husbandwithout the consent of her husband

May take out insurance on paraphernalproperty

Insurance by a minor A property insurance taken by a minor is

voidable until annulled If contract is not disaffirmed, insurer cannot

invoke minority to escape liability

Guingon vs. Del Monte

A owned and operated several jeepneys and insured the same with C against

accidents and TPL. Issue: To whom is C liable to pay

H: The right of the person injured to sue the insurer of the party at fault

(insured), depends on whether the contract of insurance is intended to

benefit third persons also or only the insured. And the test applied has been

this: Where the contract provides for indemnity against liability to third

persons, then third persons to whom the insured is liable, can sue the

insurer.

Where the contract is for indemnity against actual loss or payment, then

third persons cannot proceed against the insurer, the contract being solely to

reimburse the insured for liability actually discharged by him thru payment to

third persons, said third persons' recourse being thus limited to the insured

alone

Bonifacio vs. Mora

H: The appellants are not mentioned in the contract as parties thereto; nor is

there any clause or provision thereof from which we can infer that there is an

obligation on the part of the insurance company to pay the cost of repairs

directly to them. It is fundamental that contracts take effect only between

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the parties thereto, except in some specific instances provided by law

where the contract contains some stipulation in favor of a third person.

a policy of insurance is a distinct and independent contract between the

insured and insurer, and third persons have no right either in a court of

equity, or in a court of law, to the proceeds of it, unless there be some

contract of trust, expressed or implied, by the insured and third person".

In this case, no contract of trust, expressed or implied exists. We,

therefore, agree with the trial court that no cause of action exists in

favor of the appellants in so far as the proceeds of insurance areconcerned.

Insurance for or against drawing of lottery:

Sec. 4. The preceding section does not authorize aninsurance for or against the drawing of any lottery, or foror against any chance or ticket in a lottery drawing aprize.

Sec. 25. Every stipulation in a policy of insurance for thepayment of loss whether the person insured has orhas not any interest in the property insured, orthat the policy shall be received as proof ofsuch interest, and every policy executed by

way of gaming or wagering, is void.

Game of chance v. insurance

Game of chance Insurance

Parties contemplategain by mere chance

Parties seek to distributepossible loss by reason ofmischance

Gambler courts fortune Insured seeks misfortune

Tends to increaseinequality of fortune

Tends to equalize fortune

Whatever one wins islost by another person

What one gains is not at theexpense of another

Gambler creates a riskof loss to himself

Insurance Contract does notcreate a new and non existing

risk of loss

Uy vs. Palomar:

H: The term lottery extends to all schemes for the distribution of prizes

by chance, such as policy playing, gift exhibitions, prize concerts, raffles

at fairs, etc and various forms of gambling. The three essential elements

of lottery are: 1. Consideration; 2. Prize; 3. Chance.

With respect to consideration, the law does not condemn the gratuitous

distribution of property by chance, if no consideration is derived directly

or indirectly from the party receiving the chance, but does condemn as

criminal, schemes in which a valuable consideration of some kind is paid

directly or indirectly for the chance to draw a price.

TWO BASIC KINDS OF INSURANCE

Life insurance sec. 179 insurance on

human lives and insurance appertainingthereto or connected therewith

Non-life insurance property insurance

or insurance whose object is other thana persons life or where the covered perilis something other than death

Life Insurance: Types

1. Individual protection is based on individualapplication.

2. Group unit of selection is the group rather than theindividual; individual underwriting characteristics of eachindividual is not considered in the determination ofinsurable interest. Single policy covering number ofpersons such as employees in a given establishment, but

each individual possessing certificate of insurance.

Note: The employer and/or the agent of the employer isconsidered an agent of the insurance company such thatpayment of premium to the employer is equivalent topayment to the insurance company.

Pineda vs. CA

H: The practice is usual in the group insurance business and is consistent-

with the jurisprudence thereon in the State of California-from whose law our

Insurance Code has been mainly patterned-which holds that the employer-

policyholder is the agent of the insurer. Group insurance, is essentially 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.

The coverage terms for group insurance are usually stated in a masteragreement or policy that is issued by the insurer to a representative of the

group or to an administrator of the insurance program such as a, employer.

The employer acts as a functionary in the collection and payment of

premiums and in performing related duties. Likewise falling within the ambit

of administration of a group policy is the disbursement of insurance

payments by the employer to the employees.

3. Industrial premiums are payable either monthly or

oftener if the face amount of insurance is not more than 500times the current statutory minimum wage in Metro Manila

Non-Life Insurance:

a. Fire Insurance includes insurance against loss by fire,lightning, windstorm, tornado or earthquake and other allied

risks, when such risks are covered by extension to fireinsurance policies or under separate policies

b. Casualty insurance covers loss or liability arising fromaccident or mishap, excluding certain types of loss which bylaw or custom are considered as falling exclusively within thescope of other types of insurance such as fire, marine

Includes but is not limited to employers

liability insurance, workmens compensation

insurance, public liability insurance, motorvehicle liability insurance, plate glassinsurance, burglary and theft insurance,personal accident and health insurancewritten by non-life companies.

b. 1Casualty: Compulsory Motor Vehicle Liability Insurance against passenger and third party

liability for death or bodily injuries arising

from motor vehicle accidents Required before an owner or operator can

use his vehicle Required in registration or renewal of

registration

c. Marine Insurance Vessels, craft, aircraft, vehicles, goods,

freights, cargoes, merchandize, effects,bottomry, respondentia interests

Persons or property in connection with orappertaining to marine, inland marine,transit or transportation insurance butexcludes life insurance or surety bonds orinsurance against loss by reason of bodilyinjury to any person who arising out ofownership, maintenance or use ofautomobiles

Precious stones, jewels, jewelry, preciousmetals, whether in the course oftransportation or otherwise

Bridges, tunnels and other instrumentalitiesof transportation and communication(excluding buildings, furniture and

furnishings fixed contents and supplies heldin storage), piers, wharves, docks and slipsother aids of navigation, dru docks, marinerailways, dams

d. Suretyship An agreement whereby a party called the

surety guarantees the performance ofanother party called the principal or obligorof an obligation or undertaking in favor of a

third party called the oblige.o Includes official recognizances, stipulations,

bonds or undertakings issued by anycompany.

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PART TWO:LIFE INSURANCE

Sec. 179. Life insurance is insurance on

human lives and insurance appertainingthereto or connected therewith.

Sec. 180. An insurance upon life may be made payableon the death of the person, or on his surviving a specifiedperiod, or otherwise contingently on the continuance orcessation of life.

Every contract or pledge for the payment of endowmentsor annuities shall be considered a life insurance contractfor purpose of this Code.

In the absence of a judicial guardian, the father, or in thelatter's absence or incapacity, the mother, or any minor,who is an insured or a beneficiary under a contract of life,

health or accident insurance, may exercise, in behalf of

said minor, any right under the policy, without necessityof court authority or the giving of a bond, where theinterest of the minor in the particular act involved doesnot exceed twenty thousand pesos. Such right mayinclude, but shall not be limited to, obtaining a policy loan,

surrendering the policy, receiving the proceeds of thepolicy, and giving the minor's consent to any transactionon the policy.

Sec. 180-A. The insurer in a life insurance contract shallbe liable in case of suicides only when it is committedafter the policy has been in force for a period of two yearsfrom the date of its issue or of its last reinstatement,unless the policy provides a shorter period: Provided,

however, That suicide committed in the state of insanity

shall be compensable regardless of the date ofcommission. (As amended by Batasang Pambansa Blg.874).

Sec. 181. A policy of insurance upon life or health maypass by transfer, will or succession to any person, whetherhe has an insurable interest or not, and such person mayrecover upon it whatever the insured might have

recovered.

Sec. 182. Notice to an insurer of a transfer or bequest

thereof is not necessary to preserve the validity of a policyof insurance upon life or health, unless thereby expresslyrequired.

Sec. 183. Unless the interest of a person insured issusceptible of exact pecuniary measurement, the measureof indemnity under a policy of insurance upon life orhealth is the sum fixed in the policy.

Section 87. An insurer is not liable for a loss caused bythe willful act or through the connivance of the insured;but he is not exonerated by the negligence of the insured,

or of the insurance agents or others.

Sec. 187, 9th par. No insurance company may beauthorized to transact in the Philippines the business oflife and non-life insurance concurrently unless specificallyauthorized to do so: Provided, That the terms "life" and

"non-life" insurance shall be deemed to include health,accident and disability insurance.

Contingencies insured against:1. Death2. Survival of a specific period

3. Contingently on the continuance or cessation of life

Scope/what may be insured against

Actual death Cessation of life

o Best proof of death: Death certificate

o Policy matures upon the death of the

insured

Living death When the insured suffers

from disability due to disease or accidentwhich prevents him from engaging in anylawful occupation; Partakes the nature of

health and disability benefits. (May be lifeand/or non-life)

Retirement death CF: Life annuity

Annuitant gives money or property to the insurer

Insurer now becomes the debtor, and has theobligation to give annual pension or income to either the

annuitant or another person

The obligation of insurer to give pension stops uponthe death of the annuitant

KINDS OF LILFE INSURANCE:

1. Ordinary Life insured is required to pay premiums

annually or at more frequent intervals throughout life and thebeneficiary is entitled to receive payment only after the deathof the insured.

2. Limited Payment Life premiums are payable onlyduring a limited period of years (10,15,20 years). After theperiod, the insurance is deemed fully paid. Proceeds arepayable upon death of insured.

3. Term insurance provides coverage only if the insureddies during a limited period.If the insured dies within the period, the beneficiary gets theproceeds. If the insured survives the period, the contact isterminated.

4. Endowment Policy insured gets a sum of money if he

survives a specified period. If insured dies within the period,the beneficiary gets the proceeds.

5. Life Annuity debtor binds himself to pay an annualpremium or income during the life of one or more

determinate persons in consideration of a capital consisting ofmoney or other property, whose ownership is transferred tohim at one with the burden of income.

6.Accident Insurance may be life or non-life insurance - If death is one of the risks insured against,

it is classified as life insurance. Accident an event which happens by

chance without intention and which isunexpected, unusual and unforeseen.

Nature of Accident and Health Insurance

Sec. 187-A, 9th par Health, accident and

disability insurance are deemed as both lifeand non-life insurance and such may be

issued by either life or non-life insurancecompanies.

Gallardo v. Morales Accident insurance

may be regarded as life insurance when oneof the risks insured is the death of theinsured by accident

Rule on suicides:

General Rule: Not

compensable

BASES: (1) Sec. 87 which provides that an

insurer is not liable if loss is caused bywillful act or connivance of the insured; and(2) The rules of Court which provides that aperson is presumed to intend theconsequences of his voluntary acts

When is suicide compensable?Section 180-A

If insured was not in his right mind/insane

at the time of suicide compensableregardless of date of commission

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If insured committed suicide after thepolicy has been effective for at least 2years from issuance or lastreinstatement

Note: 2 year period can be shortened

but not lengthened because this isbeneficial to the insured.

SUN INSURANCE VS. CA

During a party, A, believing that a gun was not loaded, pointed the same

to his temple and shot himself dead. There was recovery.

H: The words "accident" and "accidental" have never acquired any

technical signification in law, and when used in an insurance contract are

to be construed and considered according to the ordinary understanding

and common usage and speech of people generally. In substance, the

courts are practically agreed that the words "accident" and "accidental"

mean that which happens by change or fortuitously, without intention or

design, and which is unexpected, unusual, and unforeseen. The

definition that has usually been adopted by the courts is that an accident

is an event that takes place without one's foresight or expectation an

event that proceeds from an unknown cause, or is an unusual effect of a

known case, and therefore not expected.

An accident is an event which happens without any human agency or, if

happening through human agency, an event which, under the

circumstances, is unusual to and not expected by the person to whom it

happens. It has also been defined as an injury which happens by reason

of some violence or casualty to the insured without his design, consent,

or voluntary co-operation.

DELA CRUZ VS. CAPITAL INSURANCE

During a boxing match, insured slipped causing his death. Insurance

company argued that the death of the insured, caused by his

participation in a boxing contest, was not accidental, and therefore, not

covered by the insurance.

H: The generally accepted rule is that, death or injury does not resultfrom accident or accidental means within the terms of an accident-policy

if it is the natural result of the insured's voluntary act, unaccompanied

by anything unforeseen except the death or injury. There is no accident

when a deliberate act is performed unless some additional, unexpected,

independent, and unforeseen happening occurs which produces or

brings about the result of injury or death. In other words, where the

death or injury is not the natural or probable result of the insured's

voluntary act which produces the injury, the resulting death is within the

protection of policies insuring against the death or injury from accident.

In the present case, while the participation of the insured in the boxing

contest is voluntary, the injury was sustained when he slid, giving

occasion to the infliction by his opponent of the blow that threw him to

the ropes of the ring. Without this unfortunate incident, that is, the

unintentional slipping of the deceased, perhaps he could not have

received that blow in the head and would not have died. The fact thatboxing is attended with some risks of external injuries does not make

any injuries received in the course of the game not accidental. In boxing,

as in other equally physically rigorous sports, such as basketball or

baseball, death is not ordinarily anticipated to result. If, therefore, it ever

does, the injury or death can only be accidental or produced by some

unforeseen happening or event as what occurred in this case.

FINMAN VS. CA

Stabbed while waiting for a ride from fiesta; there was recovery

H: In the case at bar, it cannot be pretended that Carlie Surposa died in

the course of an assault or murder as a result of his voluntary act

considering the very nature of these crimes. In the first place, the

insured and his companion were on their way home from attending afestival. They were confronted by unidentified persons. The record is

barren of any circumstance showing how the stab wound was inflicted.

Nor can it be pretended that the malefactor aimed at the insured

precisely because the killer wanted to take his life. In any event, while

the act may not exempt the unknown perpetrator from criminal liability,

the fact remains that the happening was a pure accident on the part of

the victim. The insured died from an event that took place without his

foresight or expectation, an event that proceeded from an unusual

effect of a known cause and, therefore, not expected. Neither can it be

said that there was a capricious desire on the part of the accused to

expose his life to danger considering that he was just going home after

attending a festival.

GALLARDO VS. MORALES

Issue: W/N a personal accident insurance which insures for injuries and/or

death as a result of murder or assault is a life insurance thus exempting it

from execution.

H: Yes. It is not disputed that a life insurance is, generally speaking, distinct

and different from an accident insurance. However, when one of the risks

insured in the latter is the death of the insured by accident, then there are

authorities to the effect that such accident insurance may, also, be regardedas a life insurance.

The exemption there established applies to ordinary life insurance contracts,

as well as to those which, although intended primarily to indemnify for risks

arising from accident, likewise, insure against loss of life due, either to

accidental causes, or to the willful and criminal act of another, which, as

such, is not strictly accidental in nature. Indeed, it has been held that statutes

of this nature seek to enable the bead of the family to secure his widow and

children from becoming a burden upon the community and, accordingly,

should merit a liberal interpretation.

Statutes exempting life insurance are regarded as exemption laws, and not as

part of the insurance law of the state, nor as designed simply to protect

insurer from harassing litigation. Such, statutes should be construed liberally

and in the light of, and to give effect to, their purpose of enabling anindividual to provide a fund a fter his death for his family which will be free

front the claims of creditors. The exemption privilege is created not by

contract but by legislative grant, and grounds for the exemption of the

proceeds of insurance policies must be found in the statutes.

Calanoc vs. CA

Basilio was a watchman of the Manila Auto Supply. He secured a life

insurance policy from the Philippine American Life Insurance Company in the

amount of P2,000 to which was attached a supplementary contract covering

death by accident. In 1951, he died of a gunshot wound on the occasion of a

robbery. It is contended in behalf of the company that Basilio was killed

which "making an arrest as an officer of the law" or as a result of an "assault

or murder" committed in the place and therefore his death was caused by

one of the risks excluded by the supplementary contract which exempts thecompany from liability. This contention was upheld by the CA.

H: There is no proof that the death of Basilio is the result of either crime

because there is no proof of how the fatal shot was fired. Nor can it be said

that the killing was intentional for there is the possibility that the malefactor

had fired the shot merely to scare away the people around for his own

protection and not necessarily to kill or hit the victim. In any event, while the

act may not exempt the triggerman from liability for the damage done, the

fact remains that the happening was a pure accident on the part of the

victim.

While as a general rule "the parties may limit the coverage of the policy to

certain particular accidents and risks or causes of loss, and may expressly

except other risks or causes of loss therefrom" , however, it is to be desired

that the terms and phraseology of the exception clause be clearly expressedso as to be within the easy grasp and understanding of the insured, for if the

terms are doubtful or obscure the same must of necessity be interpreted or

resolved against the one who has caused the obscurity.

BIAGTAN VS. INSULAR

A clause in the insurance policy expressly provided that it would not apply

where death resulted from an injury "intentionally inflicted by another

party."; robbers entered the house and stabbed the insured; no recovery

H: Nine wounds were inflicted upon the deceased, all by means of thrusts

with sharp-pointed instruments wielded by the robbers. This is a physical fact

as to which there is no dispute. So is the fact that five of those wounds

caused the death of the insured. Whether the robbers had the intent to kill

or merely to scare the victim or to ward off any defense he might offer, it

cannot be denied that the act itself of inflicting the injuries was intentional.

Intentional" as used in an accident policy excepting intentional injuries

inflicted by the insured or any other person, etc., implies the exercise of the

reasoning faculties, consciousness and volition. Where a provision of the

policy excludes intentional injury, it is the intention of the person inflicting

the injury that is controlling. If the injuries suffered by the insured clearly

resulted from the intentional act of a third person the insurer is relieved from

liability as stipulated.

INSURABLE INTEREST

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Relation between the insured and a

particular event such that the happeningof the event will damnify or cause lossto the person; link between one personand the insured risk

PURPOSES FOR THE CONCEPT: To avoid wagering To avoid temptation of bringing about

the event

Sec. 10. Every person has an insurable interest in the lifeand health:

(a) Of himself, of his spouse and of his children;

(b) Of any person on whom he depends wholly or in partfor education or support, or in whom he has a pecuniaryinterest;

(c) Of any person under a legal obligation to him for thepayment of money, or respecting property or services, of

which death or illness might delay or prevent theperformance; and

(d) Of any person upon whose life any estate or interestvested in him depends.

Section 10(a) Every person has unlimited insurable

interest in his own life One also has insurable interest in the life

of his spouse and children on the basisof love and affection

Section 10(b) Obligation to give supportArticle 195, Family Code

Spouses, legitimate ascendants and

descendants Parents and their legitimate children and

legitimate or illegitimate children of the

latter Parents and their illegitimate children

and legitimate or illegitimate children of

the latter. Legitimate brothers and sisters whether

of the full or half blood

Article 196, Family Code Brothers and sisters not legitimately

related, whether of the full or half blood,are likewise bound to support each otherEXCEPT only when the need for supportof the brother or sister, being of age, is

due to a cause imputable to theclaimants fault or negligence.

Blood relationship, affinity: enough? In cases not falling under 195 and 196,

mere blood relationship or affinity doesnot create insurable interest

Examples: uncle, aunt, nephew, niece,cousins, son-in-law, brother-in-law,stepchildren

Can a person get a policy on a person under 195 and 196

even if he can support himself? Yes. Factual expectation is enough basis

to get a life insurance policy Even if policyholder can support himself,

factual expectation that he will one dayneed to be supported and 195 and 196are sufficient basis for a policy on thelives of people who are expected tosupport him.

Section 10(c) Pecuniary interest concretizes facevalue of policy; exception to the general rule that no value

can be placed on a persons life

Debtor-creditor - only to the extent of

the amount of the debt because the

creditor stands to lose the chances ofbeing paid of the debtor dies. Upondeath of the debtor, the creditor canonly recover extent of the debt unpaid,unless the debtor takes insurance on hisown life for the benefit of the creditor.

Employer-employee to the extent of the

profit brought by the ER; once therelationship ceases, no recovery.

El Oriente v. Posadas

The Court does not believe that this fact signifies that when the plaintiff

received P104,957.88 from the insurance on the life of its manager, it

thereby realized a net profit in this amount. It is true that the Income Tax

Law, in exempting individual beneficiaries, speaks of the proceeds of lifeinsurance policies as income, but this is a very slight indication of legislative

intention. In reality, what the plaintiff received was in the nature of an

indemnity for the loss which it actually suffered because of the death of its

manager.

Life insurance in such a case is like that of fire and marine insurance,- a

contract of indemnity. he benefit to be gained by death has no periodicity. It

is a substitution of money value for something permanently lost, either in a

house, a ship, or a life.

Business partners to the extent of the

profit the partner brings to the partnership.

Section 10(d) Person in whose estate an interest is

dependent Person is given the right to use a house and

lot Right ceases when the owner dies and

another person becomes the owner

When must insurable interest exist

Sec. 19. An interest in property insured must exist when the

insurance takes effect, and when the loss occurs, but notexist in the meantime; and interest in the life or health of aperson insured must exist when the insurance takes effect,but need not exist thereafter or when the loss occurs.

GENERAL RULE: when the insurance takeseffect, but need not exist thereafter or whenthe loss occurs. Thus, spouses may beannulled but if at the time of the issuance ofthe policy, they were still married, insurableinterest still exists and the policy is notvoided; there may be recovery. (Because

the basis for the policy is love and affection,not a monetary obligation).

Exception: when capable of pecuniary

estimation, in which case, insurable interestmust exist at the time the insurance takeseffect AND when the loss occurs becauseinsurable interest is based on a monetary

consideration.

Sec. 25. Every stipulation in a policy of insurance for thepayment of loss whether the person insured has or has not

any interest in the property insured, or that the policy shallbe received as proof of such interest, and every policyexecuted by way of gaming or wagering, is void.

Sec. 181. A policy of insurance upon life or health may passby transfer, will or succession to any person, whether he hasan insurable interest or not, and such person may recoverupon it whatever the insured might have recovered. (inrelation to)

Sec. 11. The insured shall have the right to change thebeneficiary he designated in the policy, unless he has

expressly waived this right in said policy.

Measure of recovery

Sec. 183. Unless the interest of a person insured issusceptible of exact pecuniary measurement, the measure ofindemnity under a policy of insurance upon life orhealth is the sum fixed in the policy.

GENERAL RULE: Face value ofthe policy

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Except: pecuniary estimation is possible

Special Rule in Insurable Interest for Industrial Life Usual rules re insurable interest are

generally not made applicable inindustrial life because:

o Proceeds are small, little danger to

induce a person to killo Investigation of presence of insurable

interest will nullify speedy payment of

proceeds under the family of paymentclause

o The costs to prove insurable interest will

destroy the purpose for this type ofinsurance

Facility of Payment Clause (Art. 230(m)) Industrial Life if beneficiary does not

surrender policy or Beneficiary is the estate of insured OR Legally incompetent

Payment may be made too The executor or administrator of the

insured oro Any of insureds relative by blood as

legal adoption oro By marriage or

o Any person who incurred expenses for

maintenance, medical attention or burial

LIFE INSURANCE POLICY (See also 226-231)

Sec. 49. The written instrument in which a contract ofinsurance is set forth, is called a policy of insurance.

Sec. 50. The policy shall be in printed form which maycontain blank spaces; and any word, phrase, clause,mark, sign, symbol, signature, number, or word necessaryto complete the contract of insurance shall be written onthe blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting tobe part of the contract of insurance and which is pasted orattached to said policy is not binding on the insured,

unless the descriptive title or name of the rider, clause,warranty or endorsement is also mentioned and writtenon the blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider,clause, warranty or endorsement issued after the originalpolicy shall be countersigned by the insured or owner,which countersignature shall be taken as his agreement tothe contents of such rider, clause, warranty or

endorsement.

Group insurance and group annuity policies, however,

may be typewritten and need not be in printed form.

Sec. 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;

(b) The amount to be insured except in the cases of openor running policies;

(c) The premium, or if the insurance is of a characterwhere the exact premium is only determinable upon thetermination of the contract, a statement of the basis andrates upon which the final premium is to be determined;

(d) The property or life insured;(e) The interest of the insured in property insured, if he isnot the absolute owner thereof;

(f) The risks insured against; and

(g) The period during which the insurance is to continue.

Sec. 52. Cover notes may be issued to bind insurancetemporarily pending the issuance of the policy. Withinsixty days after the issue of the cover note, a policy shallbe issued in lieu thereof, including within its terms theidentical insurance bound under the cover note and thepremium therefor.

Cover notes may be extended or renewed beyond such sixtydays with the written approval of the Commissioner if hedetermines that such extension is not contrary to and is notfor the purpose of violating any provisions of this Code. The

Commissioner may promulgate rules and regulationsgoverning such extensions for the purpose of preventing suchviolations and may by such rules and regulations dispensewith the requirement of written approval by him in the case ofextension in compliance with such rules and regulations.

Sec. 56. When the description of the insured in a policy is sogeneral that it may comprehend any person or any class ofpersons, only he who can show that it was intended to include

him can claim the benefit of the policy.

Form GENERAL RULE: printed form EXCEPTIONS: group life and annuity

contracts which may be typewritten Contains blanks where word, phrase,

clause, mark, sign necessary to completethe policy are placed

FORTUNE VS. CA

The bank was insured by theft and robbery insurance. The insurance policy

contained limitation on the insurers liability in case robbery/theft were

committed by the banks authorized agent. The bank was robbed with the

connivance of the banks driver and security guard. Court held that there was

no recovery.

H: 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. In the absence of statutory

prohibition to the contrary, insurance companies have the same rights as

individuals to limit their liability and to impose whatever conditions they

deem best upon their obligations not inconsistent with public policy.

Contents of Insurance policy

Parties Amount to be insured

Premium Life insured Risks Period of effectivity

What are riders? Riders are printed or typed stipulationscontained on a slip of paper attached to the policy andforming an integral part of the policy.

Rule on inconsistency: The rider prevails as being a moredeliberate expression of the agreement of the contractingparties.

JARQUE VS. SMITH : It is a well settled rule that in case repugnance exists

between written and printed portions of a policy, the written portion

prevails, and there can be no question that as far as any inconsistency exists,

the above-mentioned typed "rider" prevails over the printed clause it covers.

Requisites for validity:1. Descriptive title or name of rider is also mentioned

and written on the blank spaces provided for in thepolicy;

2. The rider must be countersigned by the insured if thesame is issued after the original policy, whichcountersign shall be taken as his agreement to theterms found therein; [unless: applied for by the

insured, no need for countersignature]3. Must be in the prescribed form issued by the

Commissioner.

What are warranties? Warranties are inserted or attachedto a policy to eliminate specific potential increases of hazards

during the policy owing to (1) actions of the insured; or (2)condition of the property. Eliminates potential hazards bypromising to do something or refraining from doingsomething.

What are clauses? Agreements between the insurer and theinsured on certain matters relating to the liability of theinsurer in case of loss, example: the liability of the insurershall not exceed of the damage.

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What are endorsements? Provisions added to aninsurance contract altering its scope and application,example: extending the perils covered, increasing theamount of liability, inclusion or exclusion of suicide.

What are Cover Notes?

Temporary insurance policies intendedto cover the insured while application isbeing evaluated

Effective for not longer than 60 daysunless with written approval ofCommissioner

Binding receipt not the same as cover

note since this only serves asacknowledgement of receipt of premiumand application subject to evaluation

(Great Pacific v. CA)

COVER NOTES VALID IF: Issued and renewed with prior approval of IC Valid and binding for not more than 60 days,

unless the insurance commission has approved

an extension based on valid grounds

No separate premium is required for the cover

note (Pacific Timber v. CA) 7-day notice to the other party is required to

cancel the cover note Policy must be issued within 60 days from

issuance of cover notes 60-day period may be extended upon written

approval of IC

Written approval is dispensed when president, VP

or general manager that the renewal is not tocircumvent the insurance code (Ins. Memo

Circular 3-75)

When is the insurance contract perfected?

1. Delivery of the policy or information as to the

approval of the application for insurance must bemade known to the insured before there can be a

perfected contract. In short, a contract ofinsurance is deemed perfected at the time theinsured-applicant had knowledge of hisapplication.

2. Since the insured is the one making the offer,the submission of the application WITHOUT theapproval of the policy does not result in aperfected contract of insurance (Grepalife v. CA)

3. If the applicant pays the premium upon filing ofapplication but he dies before the approval, thereis no perfected contract of insurance. (De Lim

vs. Sun Life)

4. If the insured died during the period ofprovisional policy which is conditioned upon

approval of application, the beneficiary is notentitled to proceeds;

5. Acceptance of the application by letter shall notbind the insurer except from the time the

approval came to his knowledge; Even if theinsurer has approved the application via a letter,there is no perfected contract of insurance ifthere is no evidence that the applicant knew ofthe approval. (Enriquez vs. Sun Life)

6. The insured is presumed to have understood theapplication and the contract of insurance

DE LIM VS. SUN LIFE

FACTS: On July 6, 1917, Luis Lim made application to the Sun Life

Assurance Company of Canada for a policy of insurance on his life in the

sum of P5,000.The first premium of P433 was paid by Lim, and upon

such payment the company issued what was called a "provisional

policy."

Luis Lim died on August 23, 1917, after the issuance of the provisional policy

but before approval of the application by the home office of the insurance

company.

H: Otherwise stated, the policy for four months is expressly made subject to

the affirmative condition that "the company shall confirm this agreement by

issuing a policy on said application when the same shall be submitted to the

head office in Montreal." To re-enforce the same there follows the negative

condition "Should the company not issue such a policy, then this agreement

shall be null and void ab initio, and the company shall be held not to have

been on the risk."

The so-called provisional policy it amounts to nothing but an

acknowledgment on behalf of the company, that it has received from the

person named therein the sum of money agreed upon as the first year's

premium upon a policy to be issued upon the application, if the application is

accepted by the company.

It is of course a primary rule that a contract of insurance, like other contracts,

must be assented to by both parties either in person or by their agents. So

long as an application for insurance has not been either accepted or rejected,

it is merely an offer or proposal to make a contract. T he contract, to be

binding from the date of the application, must have been a completed

contract, one that leaves nothing to be done, nothing to be completed,

nothing to be passed upon, or determined, before it shall take effect. There

can be no contract of insurance unless the minds of the parties have met in

agreement. Our view is, that a contract of insurance was not here

consummated by the parties.

Badger vs. New York

H: The mere signing of an application for life insurance and payment of first

premium do not bind the insurance company to issue a policy where there is

no evidence of any contract between the insure and the insurance company

that such acts would constitute the contract.

Eniquez vs. Sun Life

Facts: Sept 24, Herrer made an application. Sept. 26, the head office in

Canada office gave notice of acceptance by cable to Manila. On December 4,1917, the policy was issued at Montreal. On December 18, 1917, attorney

Aurelio A. Torres wrote to the Manila office of the company stating that

Herrer desired to withdraw his application. The following day the local office

replied to Mr. Torres, stating that the policy had been issued, and called

attention to the notification of November 26, 1917. This letter was received

by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on

December 20, 1917. The heirs sought to recover from the insurance company

H: We hold that the contract for a life annuity in the case at bar was not

perfected because it has not been proved satisfactorily that the acceptance

of the application ever came to the knowledge of the applicant.

Lucero de Sindayen v. Insular

Facts: A, while with his aunt, applied for insurance with Insular, through itsagent. It was agreed that should the application be approved the insurance

policy should be delivered to his aunt with whom he left the balance to cover

the payment of the first annual premium. Application was approved and the

agent delivered the policy to insureds aunt asking if the insured was in good

health. The aunt answered yes, unaware that the insured got sick and died

pending the approval of his application. The next day, the agent found out of

the insureds death and asked the aunt to return the policy. The insurance

contract argued that there was no perfected contract of insurance.

H: The delivery of the policy to the insured by an agent of the company who

is authorized to make delivery or withhold delivery is the final act which

binds the company (and the insured as well) in the absence of fraud or other

legal ground for rescission. The fact that the agent to whom it has entrusted

this duty (and corporations can only act through agents) is derelict or

negligent or even dishonest in the performance of the duty which has beenentrusted to him would create a liability of the agent to the company but

does not resolve the company's obligation based upon the authorized acts of

the agent toward a third party who was not in collusion with the agent.

GREPALIFE vs. CA

Facts: A filed an application with insurance company for a 20 year

endowment policy on the life of his 1 year old daughter without disclosing

that she was mongoloid. After payment of first premium, a binding receipt

was issued by the agent to A, at the bottom of which was written the agents

strong advise for the approval of the application. Pending action on the

application, the child died. The application was denied.

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H: The binding deposit receipt is intended to be merely provisional or

temporary insurance contract subject to the compliance of conditions

imposed by the insurance company. It is merely an acknowledgment, on

behalf of the insurance company, that the latters branch office had

received from the applicant the insurance premium and had accepted

the application subject for processing by the insurance company. Since

petitioner Pacific Life disapproved the insurance application of

respondent Ngo Hing, the binding deposit receipt in question had never

become in force at any time.

Tang vs. CA

Facts: A, illiterate Chinese who spoke only the same, applied for

insurance stating that she was in good health and naming her son to be

the beneficiary. The application was approved. Sometime after, A died of

lung cancer. Her son sought to claim the proceeds of the insurance

policy but the company refused on the ground of material

misrepresentation in the application. The son alleged that the insured

could not have been guilty of misrepresentation applying Art. 1332 of

the Civil Code considering that the insurer had not fully explained the

terms of the contract to the insured.

H: The obligation to show that the terms of the contract had been fully

explained to the party who is unable to read or understand the languageof the contract, when fraud or mistake is alleged, devolves on the party

seeking to enforce it. Here the insurance company is not seeking to

enforce the contracts; on the contrary, it is seeking to avoid their

performance. It is petitioner who is seeking to enforce them even as

fraud or mistake is not alleged. Accordingly, respondent company was

under no obligation to prove that the terms of the insurance contracts

were fully explained to the other party.

Required Provisions

Sec. 227. In the case of individual life or endowmentinsurance, the policy shall contain in substance thefollowing conditions:

(a) A provision that the policyholder is entitled to a graceperiod either of thirty days or of one month within whichthe payment of any premium after the first may be made,subject at the option of the insurer to an interest chargenot in excess of six per centum per annum for the numberof days of grace elapsing before the payment of thepremium, during which period of grace the policy shallcontinue in full force, but in case the policy becomes aclaim during the said period of grace before the overduepremium is paid, the amount of such premium withinterest may de deducted from the amount payable underthe policy in settlement;

Grace period provision provision

which gives the insured additional timeto pay his premiums from the due date

Clarifies the right to collect if death

happens within the grace period ifcontingency happens during the graceperiod, there can be recovery.

Individual life 30 days/1

month Group life 30 days/1 month Industrial life- 4 weeks or if

payable monthly 30 days/1month

(c) A provision that the policy shall constitute the entire

contract between the parties, but if the company desiresto make the application a part of the contract it may do so

provided a copy of such application shall be indorsed uponor attached to the policy when issued, and in such casethe policy shall contain a provision that the policy and theapplication therefore shall constitute the entire contractbetween the parties;

Entire contract provision the policy

shall constitute the entire contractbetween the parties

(d) A provision that if the age of the insured is considered indetermining the premium and the benefits accruing under thepolicy, and the age of the insured has been misstated, theamount payable under the policy shall be such as the

premium would have purchased at the correct age;

Misstatement of age provision if the

age of the insured is misstated, the amountpayable shall be as such premium wouldhave purchased at the correct age; an

exception to the general rule thatmisrepresentations in contract of insuranceis a ground to rescind.

(j) A provision that the policyholder shall be entitled to havethe policy reinstated at any time within three years from thedate of default of premium payment unless the cashsurrender value has been duly paid, or the extension periodhas expired, upon production of evidence of insurability

satisfactory to the company and upon payment of all overduepremiums and any indebtedness to the company upon saidpolicy, with interest rate not exceeding that which would havebeen applicable to said premiums and indebtedness in thepolicy years prior to reinstatement.

Reinstatement provision clarifies the

requirements for restoring a policy topremium-paying status after it has lapsed.

Individual 3 years Group no reinstatement Industrial 2 years

Special Features

Loan Privilege based on the cash

surrender value, the insured may obtain aloan by pledging the policy

Policy dividend options if the policy is

participating, the policyholder is entitled toa share of the surplus.

Exemption from claims of creditors

protection against execution

Income tax treatment proceeds of life

insurance policies are generally tax exempt.

However, endowment proceeds and cashsurrender values are treated as income andare taxable.

Surrender options if the policyholder

cannot continue paying the premiums, hehas some options which will not put towaste what he has paid. However, theseoptions are available only upon payment of

at least 3 annual premiums.

Surrender Options/Special rights of insured in case ofdefault/Non Forfeiture clauses

1. Cash Surrender Value 227(f); 230(f) and (g) It isthe amount the insured, in case of default, after payment ofat least three annual premiums, is entitled to receive if he

surrenders the policy and releases his claim upon it; notavailable in group insurance.Requirements:

Payment of at least 3 annualpremiums

Not less than the reserve on thepolicy

Illustration: 10 years to pay annual premium of 20,000Premium rate is uniform although for the first 5 years, 10,000may be enough to cover the risk. The excess amount is calledthe reserve and this is the source of the cash surrender value

Manufacturers Life vs. Meer (1951)

F: ML is an insurance company licensed to engage in the insurance business

in the Phil. Because of the war, it temporarily closed its business in the

Philippines. The insurance policies it issued contained non-forfeiture clauses

such as automatic premium loan which it applied to the payment of

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premiums of its insured during the closure of its business in the

Philippines. The Phil. Govt taxed the application of these premiums as

income tax.

H: Suppose that 'A', 30 years of age, secures a 20-year endowment policy

for P5,000 from plaintiff-appellant Company and pays an annual

premium of P250. 'A' pays the first ten yearly premiums amounting to

P2,500 and on this amount plaintiff-appellant pays the corresponding

taxes under section 255 of the National Internal Revenue Code. Suppose

also that the cash value of said policy after the payment of the 10thannual premium amounts to P1,000." When on the eleventh year the

annual premium fell due and the insured remitted no money within the

month's grace, the insurer treated the premium then over due as paid

from the cash value, the amount being a loan to the policyholder ( 1 )

who could discharge it at any time with interest at 6 per cent. The

insurance contract, therefore, continued in force for the eleventh year.

Under the circumstances described, did the insurer collect the amount

of P250 as the annual premium for the eleventh year on the said policy?

The plaintiff says no; but the defendant and the lower court say yes. The

latter have, in our opinion, the correct view. In effect the Manufacturers

Life Insurance Co. loaned to "A" on the eleventh year, the sum of P250

and the latter in turn paid with that sum the annual premium on his

policy. The Company therefore collected the premium for the eleventh

year.

"How could there be such a collection" plaintiff argues "when as a result

thereof, insurer becomes a creditor, acquires a lien on the policy and is

entitled to collect interest on the amount of the unpaid premiums?"

Wittingly or unwittingly, the "premium" and the "loan" have been

interchanged in the argument. The insurer "became a creditor" of the

loan, but not of the premium that had already been paid. And it is

entitled to collect interest on the loan, not on the premium.

In other words, "A" paid the premium for the eleventh year; but in turn

he became a debtor of the company for the sum of P250. This debt he

could repay either by later remitting the money to the insurer or by

letting the cash value compensate for it. The debt may also be deducted

from the amount of the policy should "A" die thereafter during the

continuance of the policy.

Proceeding along the same line of argument counsel for plaintiff

observes "that there is no change, much less an increase, in the amount

of the assets of plaintiff-appellant after the application of the automatic

premium loan clause. Its assets remain exactly the same after making

the advances in question. It being so, there could have been no

collection of premium . . .." We cannot assent to this view, because

there was an increase. There was the new credit for the advances made.

True, the plaintiff could not sue the insured to enforce that credit. But it

has means of satisfaction out of the cash surrender value.

Here again it may be urged that if the credit is paid out of the cash

surrender value, there were no new funds added to the company's

assets. Cash surrender value "as applied to a life insurance policy, is the

amount of money the company agrees to pay to the holder of the policy

if he surrenders it and releases his claims upon it. The more premiums

the insured has paid the greater will be the surrender value; but the

surrender value is always a lesser sum than the total amount of

premiums paid."

The cash value or cash surrender value is therefore an amount which the

insurance company holds in trust 2 for the insured to be delivered to him

upon demand. It is therefore a liability of the company to the insured.

Now then, when the company's credit for advances is paid out of the

cash value or cash surrender value, that value and the company's liability

is thereby diminished pro tanto. Consequently, the net assets of the

insurance company

increased correspondingly; for it is plain mathematics that the decrease

of a person's liabilities means a corresponding increase in his net assets.

Nevertheless let us grant for the nonce that the operation of the

automatic loan provision contributed no additional cash to the funds of

the insurer. Yet it must be admitted that the insurer agreed to consider

the premium paid on the strength of the automatic loan. The premium

was therefore paid by means of a "note" or "credit" or "other substitute

for money" and the tax is due because section 255 above quoted levies

taxes according to the total premiums collected by the insurer "whether

such premiums are paid in money, notes, credits or any substitute for

money.

2. Extended insurance The insured is given the right,upon default, after the payment of at least three fullannual premiums, to have the policy continued in force

from the date of default for a time either stated or equal tothe amount as the net value of the policy taken as a singlepremium, will purchase. In case of death within the extendedterm, he may recover the face value of the policy. In short,

the insured will purchase a new policy using the cashsurrender value. The amount of recovery is the same, but theperiod of coverage is shorter.Requirements:

At least 3 annual premiums Limited time, same face value

Illustration ORIGINAL POLICY covered until age 70, withface value of P1 million; Extended insurance covered untilage 60 only but face value is still P1 million

3. Paid-Up InsuranceAt least 3 annual premiumsSame period, lower proceeds

Illustration ORIGINAL POLICY: P1 million covered

until age 70 PAID-UP INSURANCE: P500,000

covered until age 70

4. Automatic Premium Loan

Parties agree that in case ofdefault insurer advances thepremium not subject torepayment

REMIUMS

Agreed price for assuming the risk

The right to premium arises the moment

the property/object is exposed to risk; Seealso Sec. 227(a); 228(a); 230(a) withrespect to grace period.

Cash and carry basis - based on section 77which provides that the moment the thing

insured is exposed to the peril, the insurerhas the right to payment of premium.

Sec. 77. An insurer is entitled to payment of the premium assoon as the thing insured is exposed to the peril insuredagainst. Notwithstanding any agreement to the contrary, nopolicy or contract of insurance issued by an insurancecompany is valid and binding unless and until the premiumthereof has been paid, except in the case of a life or an

industrial life policy whenever the grace period provisionapplies. (

Sec. 78. An acknowledgment in a policy or contract ofinsurance 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 bebinding until the premium is actually paid.

Instances when non-payment of premium is excused[WIN]

Insurer waives the right to payment

Insolvent insured

Insurers negligence or fault

Aleja vs. GSIS

F: The deceased Rosauro Aleja was appointed as temporary classroom

teacher in the Bureau of Public Schools. A compulsory term insurance policywas issued in his name to take effect February 1, 1959. On January 29, 1959,

Aleja died of a gunshot wound inflicted by his own gun. Plaintiffs, as

beneficiaries, filed a claim with GSIS to collect the proceeds of the policy.

The claim was denied allegedly because at the time of Alejas death, the

policy was not yet effective and therefore, Aleja was not covered by the

insurance.

H: It appears that the policy issued and accepted by Aleja during his lifetime

specifically provides that the effective date of the insurance contract is

February 1, 1959. It is not denied that the first premium on said insurance

contract was deducted from Alejas salary only on January 31, 1959 or after

his death. At the time of said death, there was no existing contract between

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him and GSIS, there being no consideration for the risk sought to be

enforced against the insurance system.

Constantino vs. Asia Life War does not suspend the policy and does not

excuse non-payment of premiums

F: In consideration of the sum of P176.0 as annual premium duly paid to

it, Asia Life Insurance Company issued on September 27, 1941 its Policy

whereby it insured the life of Arcadio Constantino for a term of 20 years.

After the first payment, no further premiums were paid. The insureddied on Sept 22, 1944. It is admitted that Asia Life Insurance, being an

American corporation, had to close its branch office in Manila by reason

of the Japanese occupation from January 2, 1942 until the year 1945.

H: US Rule: It declares that the contract is not merely suspended, but is

abrogated by reason of non-payment of premiums, since the time of the

payments is peculiarly of the essence of the contract. It additionally

holds that it would be unjust to allow the insurer to retain the reserve

value of the policy, which is the excess of the premiums paid over the

actual risk carried during the years when the policy had been in force.

Promptness of payment is essential in the business of life insurance;

there must be power to cut off unprofitable members, or the success of

the whole scheme is endangered

Connecticut Rule- the payment of premiums is a condition precedent,the non-performance of which, even when performance would be

illegal, necessarily defeats the right to renew the contract

New York Rule- war between states in which the parties reside merely

suspends the contracts of life insurance, and that, upon tender of all

premiums due by the insured or his representative after the war has

terminated, the contract revives and becomes fully operative

After perusing the Insurance Act, we are firmly persuaded that the non-

payment of premiums is such a v ital defense of insurance companies that

since the very beginning, said Act No. 2427 expressly preserved it, by

providing that after the policy shall have been in force for two years, it

shall become incontestable (i. e. the insurer shall have no defense)

except for fraud, non-payment of premiums, and military or naval

service in time of war (sec. 184 [b], Insurance Act). And when Congressrecently amended this section (Rep. Act No. 171), the defense of fraud

was eliminated, while the defense of nonpayment of premiums was

preserved. Thus the fundamental character of the undertaking to pay

premiums and the high importance of the defense of non-payment

thereof, was specifically recognized.

In keeping with such legislative policy, we feel no hesitation to adopt the

United States Rule, which is in effect a variation of the Connecticut rule

for the sake of equity. In this connection, it appears that the first policy

had no reserve value, and that the equitable values of the second had

been practically returned to the insured in the form of loan and advance

for premium.

Ocampo vs. GSIS

F: Andres Gomez had served the provincial government of Pampanga asappraiser for a continuous period of 25 years form August 8, 1914 until

his death on February 28, 1938; his appointment was as a temporary

employee. He filled up Information for Membership insurance form

with his wife Adelaida as beneficiary. The Treasurer of the provincial

government deducted from the salary of Gomez the amount of P2.70 as

part of the first premium. The Provincial Treasurer submitted to GSIS a

claim for the amount of the policy of insurance in the sum pf P1,052 in

the name of Adelaida Ocampo. GSIS Board refused to pay on the ground

that Gomez was a temporary employee and therefore was not insurable

when he died.

H: It was established that Andres Gomez had taken the Civil Service

exam on October 16, 1937 and passed the same, although it was not

announced before his death. The effect of his passing retroacts to the

date of examination; hence his passing the exam made him eligible and

qualified automatically for a regular and permanent appointment from

the date of such examination. Besides, the GSIS Board accepted the first

premium paid and issued the receipt therefore; so estopped.

Insular Life vs. Suva

F: The applicant Benito Patrocinio Suva was examined by Dr Ocampo,

one of the physicians of the company and by Dr Llora, another physician

of the company. In reply to the question in the printed application, Are

you in good health? he replied Yes.. The insured died of pulmonary

tuberculosis on September 23, 1933. The plaintiff asserts that the

statements made by the insured in his applications were false and that

the applicant was not in good health at the time he presented his

applications or on the date when said policies were delivered

H: If two qualified physicians, not selected by him, independently examine a

man with critical attention and in the interest of their employer, the

insurance company, and they pronounce him to be in good health, we should

said he believed the same thing himself. The applicant was in good health

when the policies were delivered and that it is not proved that he made any

material false statements in his said applications for insurance. "Good

health" is a relative term. A person with sound body may honestly believehimself to be in "good health" although at the moment he may have a terrific

headache, or a running cold, or an attack of diarrhea, or indigestion, or any

other of a host of minor common ailments which may possibly develop later

into a serious illness.

Rule as to failure to pay 1st premium:

If insured fails to pay 1st premium, insurer cannot ask for

specific performance but can only rescind the contract sincethere is no creditor-debtor relationship. As compared withnon-life insurance, failure to pay first premium may bedemanded by specific performance (cash and carry basis)

Special Rule in Industrial Life if Premiums are Not Paid

Sec. 229. The term "industrial life insurance" as used in thisCode shall mean that form of life insurance under which the

premiums are payable either monthly or oftener, if the faceamount of insurance provided in any policy is not more thanfive hundred times that of the current statutory minimumdaily wage in the City of Manila, and if the words "industrialpolicy" are printed upon the policy as part of the descriptivematter.

An industrial life policy shall not lapse for non-payment ofpremium if such non-payment was due to the failure of thecompany to send its representative or agent to the insured atthe residence of the insured or at some other place indicatedby him for the purpose of collecting such premium: Provided,

That the provisions of this paragraph shall not apply when thepremium on the policy remains unpaid for a period of threemonths or twelve weeks after the grace period has expired.

Policy will not lapse if failure to pay is dueto fact that agent did not collect in theaddress provided in the policy

Except: if 12 weeks or 3 months have

lapsed from end of grace period. (4 monthsall in all)

PARTIES to the CONTRACT IN LIFE

INSURANCE:

INSURER:

Sec. 6. Every person, partnership, association, orcorporation duly authorized to transact insurancebusiness as elsewhere provided in this code, may be an

insurer.

Sec. 184. For purposes of this Code, the term "insurer" or"insurance company" shall include all individuals,partnerships, associations, or corporations, includinggovernment-owned or controlled corporations or entities,engaged as principals in the insurance business, exceptingmutual benefit associations. Unless the context otherwiserequires, the terms shall also include professional reinsurersdefined in section two hundred eighty. "Domestic company"

shall include companies formed, organized or existing underthe laws of the Philippines. "Foreign company" when usedwithout limitation shall include companies formed, organized,or existing under any laws other than those of the Philippines.

Sec. 185. Corporations formed or organized to save anyperson or persons or other corporations harmless from loss,damage, or liability arising from any unknown or future orcontingent event, or to indemnify or to compensate anyperson or persons or other corporations for any such loss,damage, or liability, or to guarantee the performance of orcompliance with contractual obligations or the payment ofdebt of others shall be known as "insurance corporations".

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Sec. 186. No person, partnership, or association ofpersons shall transact any insurance business in thePhilippines except as agent of a person or corporation

authorized to do the business of insurance in thePhilippines, unless possessed of the capital and assetsrequired of an insurance corporation doing the same kindof business in the Philippines and invested in the samemanner; nor unless the Commissioner shall have grantedto him or them a certificate to the effect that he or they

have complied with all the provisions of law which aninsurance corporation doing business in the Philippines isrequired to observe.

Every person, partnership, or association receiving anysuch certificate of authority shall be subject to theinsurance laws

of the Philippines and to the jurisdiction and supervision ofthe Commissioner in the same manner as if an insurancecorporation authorized by the laws of the Philippines toengage in the business of insurance specified in thecertificate.

Sec. 187. No insurance company shall transact anyinsurance business in the Philippines until after it shall

have obtained a certificate of authority for that purposefrom the Commissioner upon application therefor andpayment by the company concerned of the feeshereinafter prescribed.

The Commissioner may refuse to issue a certificate ofauthority to any insurance company if, in his judgment,such refusal will best promote the interest of the people of

this country. No such certificate of authority shall begranted to any such company until the Commissioner shallhave satisfied himself by such examination as he maymake and such evidence as he may require that suchcompany is qualified by the laws of the Philippines totransact business therein, that the grant of such authority

appears to be justified in the light of economicrequirements, and that the direction and administration,as well as the integrity and responsibility of the organizersand administrators, the financial organization and theamount of capital, notwithstanding the provisions ofsection one hundred eighty-eight, reasonably assure thesafety of the interests of the policyholders and the public.

In order to maintain the quality of the management of theinsurance companies and afford better protection topolicyholders and the public in general, any person ofgood moral character, unquestioned integrity andrecognized competence may be elected or appointeddirector or officer of insurance companies. The

Commissioner shall prescribe the qualifications of the

executive officers and other key officials of insurancecompanies for purposes of this section.

No person shall concurrently be a director and/or officer ofan insurance company and an adjustment company.

Incumbent directors and/or officers affected by the above

provisions are hereby allowed to hold on to their positionsuntil the end of their terms or two years from theeffectivity of this decree, whichever is shorter.

Before issuing such certificate of authority, theCommissioner must be satisfied that the name of thecompany is not that of any other known companytransacting a similar business in the Philippines, or a

name so similar as to be calculated to mislead the public.

Such certificate of authority shall expire on the last day ofJune of each year and shall be renewed annually if thecompany is continuing to comply with the provisions ofthis Code or the circulars, instructions, rulings or decisionsof the Commissioner. Every company receiving any suchcertificates of authority shall be subject to the provisions

of this Code and other related laws and to the jurisdictionand supervision of the Commissioner.

No insurance company may be authorized to transact inthe Philippines the business of life and non-life insurance

concurrently unless specifically authorized to do so: Provided,That the terms "life" and "non-life" insurance shall be deemedto include health, accident and disability insurance.

No insurance company shall have equity in an adjustmentcompany and neither shall an adjustment company have anequity in an insurance company.

Insurance companies and adjustment companies presently

affected by the above provision shall have two years from theeffectivity of this Decree within which to divest of theirstockholdings.

Insurance corporations section 185 corporationsformed or organized to save any person or persons or othercorporations harmless from any loss, damage or liabilityarising from any unknown or contingent event, or toindemnify or compensate for such loss, damage or liability orto guarantee performance with contractual obligations orpayment of debts Shall include all individuals, partnerships, associations orcorporations, including GOCCs or entities, engaged asprincipals in the insurance business

Excludes mutual benefit associations

REQUIREMENTS BEFORE DOING INSURANCE BUSINESS:1. It must possess the capital and assets required; and2. It must obtain a certificate of authority from the InsuranceCommissioner.

INSURED

Anyone except a public enemy may beinsured. (Sec 7)

Public enemy citizen or national of anycountry with which the Philippines is at war.

Filipinas vs. Huenefeld

The respondent corporation, Christern, Huenefeld & Co. Inc., after paymentof corresponding premium, obtained from the petitioner, Filipinas Cia de

Seguros, fire policy covering merchandise contained in a building. During the

Japanese military occupation, the building and insured merchandise were

burned. The respondent submitted to the petitioner its claim under the

policy. The petitioner refused the claim on the ground that the policy in favor

of the respondent had ceased to be in force on the date the United States

declared war against Germany, the respondent corporation being controlled

by German subjects and the petitioner being under the American jurisdiction.

The petitioner however paid to the respondent the sum of P92,650.

H: CHCI became a public enemy thus absolving insurer from liability. The

nationality of a private corporation is determined by the character or

citizenship of its controlling stockholders (control test).

The Philippine Insurance Law as amended provides that anyone except apublic enemy may be insured. It stands to reason that an insurance policy

ceases to be allowable as soon as an insured becomes a public enemy.

By the law of nations, all intercourse between citizens or belligerent powers

which is inconsistent with a state of war is prohibited. The purpose of which

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