INSURANCE REVIEWER

The Contract of Insurance

A. Concept
- Modern insurance originated from the practice of merchants in the 14 th century.
- Justice Laurel: “Demand for economic security, social stability, clamor for protection against hazards of cruel-crippling
calamaties made insurance a necessity of modern life”

1. Definition
- Insurance
o contract whereby one party called the insured, or his beneficiary, upon the happening of the peril insured against,
whereby the party insured or his beneficiary suffers loss or damage or is exposed to liability.

a. Black’s Law
- A contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified
subject by specified perils. The party agreeing to make the compensation is usually called the "insurer" or "underwriter;"
the other, the "insured" or "assured;" the agreed consideration, the "premium;" the written contract, a "policy;" the events
insured against, "risks" or "perils;" and the subject, right, or interest to be protected, the "insurable interest."

b. Elements of Contract:
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
5. The insured pays a premium

c. Contract of Insurance

- RA 10607
Sec. 2 A “contract of insurance” is an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.
- A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business as hereinafter provided.

- The term doing an insurance business or transacting an insurance business, within the meaning of this Code, shall
include:
(a) Making or proposing to make, as insurer, any insurance contract;
(b) Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
(c) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;
(d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
(e) In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance
business.

- GR: An insurance business consists in undertaking, for a consideration, to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
- EX: Those not formally designated as insurance businesses but are deemed “doing or transacting an insurance
business”

2. Origin
Aboitiz v. New India:
- “From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary
diligence over the goods they transport according to all the circumstances of each case. In the event of loss, destruction or
deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss, destruction or
deterioration was brought about by the causes specified in Article 1734 of the Civil Code. In all other cases, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence. Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent
since it is tasked with the maintenance of its vessel. Though this duty can be delegated, still, the shipowner must exercise
close supervision over its men.”

3. Laws Governing Insurance

a. RA 10607 “Insurance Code”

- The primary law that governs insurance contracts is the Insurance Code of the Philippines that was originally enacted as PD
602. The most recent amendment is RA 10607 dated August 15, 2013. Compared to PD 602, RA 10607 now includes a
provision on microinsurance, bancassurance, trust operations of insurance companies and self-regulatory organizations.

b. Civil Code provisions

- The New Civil Code provisions govern suppletorily. Such provisions include life annuities, donations, damages, subrogation,
guarantees and sureties, and insurance provisions repealed.

c. Special Laws
- GSIS (Government Service Insurance System)
The GSIS is mandated to provide and administer the following social security benefits for government employees:
compulsory life insurance, optional life insurance, retirement benefits, disability benefits for work-related contingencies
and death benefits. In addition, the GSIS is entrusted with the administration of the General Insurance Fund by virtue of
RA656 of the Property Insurance Law. It provides insurance coverage to assets and properties which have government
insurable interests.

- SSS (Social Security System)

The SSS is a state-run, social insurance program in the Philippines to workers in the private, professional, and informal
sectors. SSS is established by virtue of Republic Act No.1161, better known as Social Security Act of 1954.

- PDIC (Philippine Deposit Insurance Corporation)

This is a government-run Philippine deposit insurance fund. It was established on June 22, 1963 by Republic Act 3591. It
guarantees deposits up to P500,000. Primary Functions of PDIC is to protect the small investors and depositors; and to build
a strong banking confidence.

- Pre-Need Code
RA 9829, or the Pre-Need Code governs pre-need plans, which are contracts for the benefit of the planholders which
provide for the performance of future services, payment of monetary considerations or delivery of other benefits at the
time of actual need or agreed maturity date in exchange for cash or installment amounts with or without interest or
insurance coverage and includes life, pension, education, interment and other plans.

Gercio v. Sunlife Assurance:

- “The insured - the husband - has no power to change the beneficiary - the former wife - and to name instead his actual
wife, where the insured and the beneficiary have been divorced, and where the policy of insurance does not expressly
reserve to the insured the right to change the beneficiary.”
- As a primary consideration, the Court dealt with which law to be applied among the Code of Commerce and the Civil Code
which were both in force when the policy was taken out in 1910 or the Insurance Act No. 2427, which became effective in
1914, considering that the effort to change the beneficiary was made in 1922.
o Both the Code of Commerce and the Insurance Act were held to have no provision either permitting or prohibition
the insured to change the beneficiary. Meanwhile, the application of Civil Code provisions was deemed
problematic in light of characterizing an insurance policy as a donation, which by virtue of Article 1344, is
prohibited between spouses.
o Therefore, the deficiencies in the law will have to be supplemented by the general principles prevailing on the
subject. In light of this, the Court cited a handful of US cases.
Philippine Health Care Products v. CIR:
- US jurisprudence has held that Health Maintenance Organizations are not in the insurance business.
- One test that they have applied is whether the assumption of risk and indemnification of loss (elements of insurance
business) are the principal object and purpose of the organization or whether they are merely incidental to its business.
- If these are the principal objectives, the business is that of insurance. But if merely incidental and service is the principal
purpose, then the business is not insurance.

Republic v. Del Monte Motors

- Our Insurance Code is patterned after that of California. Thus the ruling of the state’s Supreme Court on a similar concept
as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co. held that the money required to be
deposited by a mutual assessment insurance company with the state treasurer was “a trust fund to be ratably distributed
amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a
creditors’ bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make
equitable distribution of the fund, and appoint a receiver to carry that distribution into effect.”
- The Court held that Del Monte cannot lay claim on the security deposit with the Commissioner. The securities are held as a
contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries.
This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it.

4. Nature of Insurance Contracts

a. Aleatory
- Art. 2010 By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur
at an indeterminate time. (Civil Code)
- It is not a contract of chance but a contract where some of the rights of the parties of the contract are contingent upon
chance events
- This characteristic is what makes an insurance contract a “special contract” under the CC

b. Consensual and voluntary

- Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other,
to give something or to render some service. (1254a)
- Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)
- Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them. (1256a)
- Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
- The contract is perfected by mere consent without the need of delivery or any formality.

c. Unilateral
- The payment of the premium is not traditionally imposed as an obligation but an event that gives the contract obligatory
force. Upon payment of the premium, there is only one party who has the obligation – the insurer’s, to pay the proceeds of
insurance in case of loss.

d. Conditional
- The insurer incurs liability only upon the happening of the event insured against. However, many other conditions are
usually required (such as payment of premium)

e. Contract of Adhesion
- Insurance contracts are already presented to the insured in its printed form on a “take it or leave it” basis. The insured
merely has to agree to its terms.

f. Contract of Indemnity
- The insured who has insurable interest over the property is only entitled to recover the amount of actual loss sustained.
The burden is upon him to establish the amount of such loss.
- GR: Only non-life insurance are contracts of indemnity, because the value of life is immeasurable.
 - EX: where the basis of insurable interest of the policy owner on the life of the insured is a commercial relationship

g. Personal
- The contract is between the insurer and the insured. It is personal in the sense that it is the damage to the personal interest
not the property that is being reimbursed. The insured cannot assign, before the happening of the loss, his rights under a
property policy to others without the consent of the insurer.

h. Uberrimae Fidae (additional… di to kasama sa syllabus actually)

- The contract of insurance is one of perfect good faith. Both parties must not only perform their obligations in good faith but
must also avoid material concealment or misrepresentations.

5. Construction / Interpretation

Civil Code: Interpretation of Contracts

- Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)
- Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (1282)
- Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are
distinct and cases that are different from those upon which the parties intended to agree. (1283)
- Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that
import which is most adequate to render it effectual. (1284)
- Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. (1285)
- Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the
nature and object of the contract. (1286)
- Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract,
and shall fill the omission of stipulations which are ordinarily established. (1287)
- Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. (1288)
- Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the
doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall
prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
- If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have
been the intention or will of the parties, the contract shall be null and void. (1289)

Cebu Shipyard v. William Lines

- The intention of the parties to make each other a co-assured under an insurance policy is to be gleaned principally from the
insurance contract or policy itself and not from any other contract or agreement because the insurance policy denominates
the assured and the beneficiaries of the insurance.
o Thus, when the insurance policy names only one party as the assured thereunder, the claim of another that it is a
co-assured is unfounded.

New Life Enterprises v. CA

- The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any
other insurance and its particulars. The knowledge of the agents is not the “notice” that would estop the insurers from
denying the same.
o When the words and language of documents are clear and plain or readily understandable by an ordinary reader
thereof, there is absolutely no room for interpretation or construction anymore.
o While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in
favor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the parties themselves have used.

First Quezon City Insurance v. CA

- The insurance policy clearly placed the maximum limit of the petitioner's liability for damages arising from death or bodily
injury at P 12,000.00 per passenger and its maximum liability per accident at P50,000.00. Since only one passenger was
injured in the accident, the insurer's liability for the damages suffered by said passenger is pegged to the amount of
 P12,000.00 only. What does the limit of P50,000.00 per accident mean? It means that the insurer's maximum liability for
any single accident will not exceed P50,000.00 regardless of the number of passengers killed or injured therein.
- The bus company may not recover from the insurance company (herein petitioner) more than P12,000.00 per passenger
killed or injured, or fifty thousand (P50,000.00) pesos per accident even if under the judgment of the court, the erring bus
operator will have to pay more than P12,000.00 to each injured passenger. The trial court's interpretation of the insurance
contract was the correct interpretation.

Gaisano Cagayan v. Insurance Co.

- In this case, the questioned insurance policies provide coverage for “book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines;”
and defined book debts as the “unpaid account still appearing in the Book of Account of the Insured 45 days after the time
of the loss covered under this Policy.” Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured. Indeed, when the terms of the
agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the contract.

Rizal Surety v. CA
- Terms in an insurance policy, which are ambiguous, equivocal or uncertain are to be construed strictly and most strongly
against the insurer. Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a
doubt regarding the portions of the building insured thereby. Conformably, it stands to reason that the doubt should be
resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance
policy contract under scrutiny.
- The reason for this is that the “insured usually has no voice in the selection or arrangement of the words employed and that
the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and
acting exclusively in the interest of, the insurance company.”

B. Insurance Contract

1. Parties

a. Insurer
- The insurer assumes or accepts the risk of loss and undertakes for consideration to indemnify the insured or to pay a
certain lump sum on the happening of the event or peril insured against
- An insurer shall include all partnerships, associations, cooperatives or corporations including GOCCs or entities engaged as
principals in the insurance business, excepting mutual benefit associations.
- Individuals no longer identified as insurer under the present law.
- May be a domestic or foreign company.
- Sec 6. Every corporation, partnership, or association, duly authorized to transact insurance business as elsewhere
provided in this Code, may be an insurer.
- Sec 184. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.
- Sec 185. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of
insurance upon life or health, unless thereby expressly required.

- Mutual Benefit Association.

- Section 403. Any society, association or corporation, without capital stock, formed or organized not for profit but
mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out
of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of
whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the
members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life
insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society,
association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary
contributions collected not regularly and/or no fixed amount from whomsoever may contribute, shall be known as a
mutual benefit association within the intent of this Code.
- Still recognized as under the term “insurer” even if excluded from the Sec. 184. They must first secure a license from
the Insurance Commission before they can transact business.

- Mutual Insurance Companies

 - Section 268. Any domestic stock life insurance company doing business in the Philippines may convert itself into an
incorporated mutual life insurer. To that end it may provide and carry out a plan for the acquisition of the
outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders,
by complying with the requirements of this chapter.
- May provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its
policyholders, or any class/es of its policyholders by complying with the requirements of Chapter III, Title 17
“Mutualization of Stock Life Insurance Companies” of the IC

- Certificate of Authority
- Section 192. No corporation, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a corporation, partnership or association authorized to do the business of insurance in
the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind
of business in the Philippines and invested in the same manner; unless the Commissioner shall have granted it a
certificate to the effect that it has complied with all the provisions of this Code. Every entity receiving any such
certificate of authority shall be subject to the insurance and other applicable laws of the Philippines and to the
jurisdiction and supervision of the Commissioner.
- Section 193. No insurance company shall transact any insurance business in the Philippines until after it shall have
obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment
by the company concerned of the fees hereinafter prescribed…
- No person, partnership or association of persons shall transact any insurance business in the PH except as agent / corp
authorized to do so, unless
- Possessed of the capital and assets required of an insurance corporation doing the same kind of business and in
the same manner
- Nor unless the commissioner shall have granted to him a certificate to the effect that he / they have complied with
all provisions of law required to observe by the insurance corporations

- Term of the Certificate (Sec. 193)

- certificate of authority shall expire on the last day of December, 3 years following its date of issuance, and shall be
renewable every 3 years thereafter, subject to the company’s continuing compliance with the provisions of the
code

- Grounds for Disapproval of Application (Sec. 193)

1. If such refusal will best promote the interest of the people
2. If there is evidence that the applicant is not qualified by the laws of the PH to transact business therein
3. If the grant of such authority appears to be unjustified in the light of: economic requirements, direction,
administration and integrity of the organizers and administrators, financial organization and amount of capital, and
reasonable assurance of the safety of the interests of the policyholders
4. The name if the applicant belongs to any other known company transacting a similar business in the PH or similar
to mislead the public

- Prohibited acts (Sec. 193)

1. To transact in the PH both the business of life and non-life insurance concurrently unless specifically authorized to
do so
2. To have equity in an adjustment company and neither shall an adjustment company have equity in an insurance
company.
3. To negotiate any contract of insurance other than is plainly expressed in the policy or other written contract issued
to or to be issued as evidence thereof
4. To directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to
pay or allow to the insured or to any employee of such insured, either as an inducement to the making of such
insurance or after such insurance has been effected, any rebate from the premium which is specified in the policy,
or any special favor or advantage in the dividends to accrue thereon
5. To give / offer to give any valuable consideration or inducement of any kind, which is not specified in such policy
6. To make any discrimination against any Filipino in the sense that he is given less advantageous rates, dividends
because of his race
7. To issue / circulate/ cause or permit to be issued any literature, illustration, circular / statement of any sort
misrepresenting the terms of any policy issued by any insurance company of the benefits promised thereby
8. To use any name or title of any policy or class of policies misrepresenting the true nature
 9. To make any misleading representation or incomplete comparison of policies to any person insured in such
company for the purposes of inducing such person to lapse, forfeit, or surrender his insurance.

White Gold Marine Services, Inc v. Pioneer Insurance and Surety Corp and the Steamship Mutual Underwriting Association
(Bermuda) Ltd
- A P & I Club (Protection and Indemnity Club) is “a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
- The records reveal Steamship Mutual is doing insurance business in the country even without the requisite certificate
of authority mandated by Section 187 of the Insurance Code.
o It maintains a resident agent (Pioneer) in the Philippines to solicit insurance and to collect payments in its
behalf.
 Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the
calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.

Pandiman v. Marine Manning

- Payment for claims arising from the peril insured against, to which the insurer is liable, is definitely not one of the
liabilities of an insurance agent. Thus, there is no legal basis whatsoever for holding petitioner solidarily liable with
insurer OMMIAL for Rosita’s claim for death benefits on account of her husband’s demise while under the employ of
MMMCÊs principal, Fullwin.
- Even under the principle of “relativity of contracts,” petitioner PPI cannot be held liable for the same death benefits
claims. The insurance contract between the insurer and the insured, under Article 1311 of the Civil Code, is binding
only upon the parties (and their assigns and heirs) who execute the same. With the reality, as borne by the records,
that petitioner PPI is not a party to the insurance contract in question, no liability or obligation arising therefrom, may
be imposed upon it.

b. Insured
- This is the person in whose favor the contract is operative and whose loss is the occasion for the payment of the insurance
proceeds by the insurer. The insured is the one who enters into a contract with the insurer.
- An insurance contract is voidable if one of the parties is
1. A minor
2. An insane person
3. Incapacitated to enter into an insurance contract
- Married women can enter into insurance contracts without the consent of their husbands (Sec.3)
- All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of the person
insured shall automatically vest in the latter upon the death of the original owner unless otherwise provided for.
- Example, parents can insure the life of their minor child
- Section 7. Anyone except a public enemy may be insured.
- Public enemy = State at war with the PH
- If there is no war yet at the time of the taking of the policy but war ensues between PH and the country of the
insured, the policy is deemed abrogated.
- Section 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or
beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general
words in the policy.
- Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or
other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common
interest.
- Section 56. When the description of the insured in a policy is so general that it may comprehend any person or any class
of persons, only he who can show that it was intended to include him, can claim the benefit of the policy.
- Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured.

Civil Code:
- Art. 1327. The following cannot give consent to a contract:
- (1) Unemancipated minors;
- (2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
 - Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during
a hypnotic spell are voidable.
- Art. 44. The following are juridical persons:
- The State and its political subdivisions;
- Other corporations, institutions and entities for public interest or purpose, created by law; their personality
begins as soon as they have been constituted according to law;
- Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member. (35a)
- Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or
recognizing them. Private corporations are regulated by laws of general application on the subject. Partnerships and
associations for private interest or purpose are governed by the provisions of this Code concerning partnerships.
- Art. 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or
criminal actions, in conformity with the laws and regulations of their organization.

Filipinas Compania de Seguros vs. Christern, Huenfeld & Co

- The Philippine Insurance Law provides that anyone except a public enemy may be insured.
- The nationality of the private corporation is determined by the citizenship of its controlling stockholders.
- Where majority of the stockholders of the corporation were Germans, the corporation became an enemy corporation
upon the outbreak of the war on 10 December 1941.
- Since the outbreak, the policy ceased to be valid and enforceable.

Great Pacific Life v. CA

- The rationale of a group of insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,”
is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter
into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death, the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage indebtedness. In this type of policy insurance, the mortgagee is
simply an appointee of the insurance fund. Such loss-payable clause does not make the mortgagee a party to the
contract.
- The insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon.
Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of
another person, such as a mortgagee.
- And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he
has an insurable interest or not, and such person may recover it whatever the insured might have recovered - the
widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

c. Beneficiaries
- The beneficiary may be a third person. Unless he is the insured himself, the beneficiary is not one of the contracting parties.
However, a 3rd party beneficiary named in the policy has the right to file an action against the insurer in case of loss. No
other party can recover the proceeds other than the beneficiary.
- In life insurance, if there is a named beneficiary and the designation is not invalid, it is the designated beneficiary who is
entitled to receive the proceeds and not the heirs of the insured.
- The insurer has no obligation to turn over the proceeds of the insurance to 3 rd persons even if the 3rd persons are
immediate relatives if there is a designated beneficiary.
- It is only when there is no designated beneficiary or when such is void, that the laws of succession are applicable.
- If the funds of the conjugal partnership of gains are used to pay for the premium, the proceeds of the policy constitute
community property if the policy was made payable to the deceased’s estate.
- The vested interest or right of the beneficiaries in a life insurance policy should be measured on its full face value and not
on its cash surrender value, for in case of the death of the insured, said beneficiaries are paid on the basis of its face value
and in case the insured should discontinue paying the premiums, the beneficiaries may continue paying it.
- Sec 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly
waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change the beneficiary
during his lifetime, the designation shall be deemed irrevocable.
- The designation of the beneficiary is revocable. If the insured wants it to be irrevocable, he must expressly provide it in
the policy. The irrevocable beneficiary has vested rights in the policy.
 - An irrevocable policy cannot be replaced. However, this rule doesn’t apply after the finality of the decree of legal
separation between spouses since the innocent may revoke the designation as a beneficiary in any insurance policy.
- Sec 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death of the insured. In such a case, the share forfeited shall pass
on to the other beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the policy contract is silent, the proceeds shall be paid to the estate of the
insured.
- This talks about a disqualification that arises after the perfection of the contract of insurance. The underlying principle
is that the beneficiary should not profit from the misdeed.
- In Life Insurance, if a beneficiary is disqualified under Sec. 12, the proceeds of the insurance shall be paid according to
the ff rules:
o The forfeited share of the beneficiaries shall pass on to other beneficiaries
o If there are no other beneficiaries, the proceeds shall be paid in accordance with the policy contract
o If there is neither, the proceeds shall be paid to the estate of the insured

- Grounds for Disqualification of Beneficiaries (designation of beneficiary is void)

1. Those made between persons who were guilty of adultery or concubinage at the time of the donation
2. Those made between persons found guilty of the same criminal offense, in consideration thereof
3. Those made to a public officer or his wife, descendants and ascendants, by reason of his office

Heirs of Loreto Maramag v. Maramag

- Sec. 53 Insurance Code: The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.
- Obviously, the only persons entitled to insurance proceeds are the insured, if alive, the beneficiary, if insured is
dead, upon maturation of the policy.
- Here, the designation of the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. No
legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured.
- It is only in cases where the insured has not designated any beneficiary, or when the designated beneficiary is
disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.

The Insular Life v. Ebrado

- Life Insurance policy no different from civil donation as far as beneficiary is concerned because both are founded on
liberality.
o A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance.
- Common-law spouses designated as beneficiary are barred from receiving life insurance proceeds from a legally
married person. Conviction for adultery or concubinage is not a condition precedent to be barred from receiving
donations or life insurances. Only preponderance of evidence is necessary.
- On matters not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by
general rules of civil law.

Consuegra v. GSIS
- GSIS offers two separate and distinct systems of benefits to its members — one is the life insurance and the other is
the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds that
are maintained by the GSIS (i.e. different beneficiaries).
o In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the
life insurance policy. As in the case of a life insurance provided for in the Insurance Act.
o Retirement insurance is primarily intended for the benefit of the employee — to provide for his old age, or
incapacity, after rendering service in the government for a required number of years. If the employee reaches
the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries
named in his application for retirement insurance.

SSS v. Davac
- Social Security Act; Non-transferability of benefits. Construing Section 15, Republic Act No. 2658, amending Republic
Act No. 1161:
 o If there is a named beneficiary and the designation is not invalid (as it is not so in this case, notwithstanding
the fact that the beneficiary designated appears to be the bigamous wife of the deceased), it is not the heirs of
the employee who are entitled to receive the benefits (unless they are the designated beneficiaries
themselves). It is only when there are no designated beneficiaries or when the designation is void, that the
laws of succession are applicable. And we have already held that the Social Security Act is not a law of
succession.
- Without deciding w/n the naming of a beneficiary of the benefits borne of the membership in the SSS is a donation, it is
enough to state that the disqualification under Art. 739 is not applicable --Candelaria was not guilty of concubinage,
there being no proof that she had knowledge of the previous marriage of her husband ka-Nilo.

d. Others

Assignee of Property Insurance

- Sec 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured.
- It is thus implied that the policy can be transferred so long as the transferee has insurable interest in the thing.
Nevertheless, the insurer’s assent is necessary for the transfer.

Assignee of Life Insurance

- Sec 184. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he
has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.
- No formalities are required for the assignment of life or health policies. Hence, the provisions of CC on assignment of
rights should be applied.
- Since the right to transfer is conferred by law, the notice to the insurer is not even necessary to validate the transfer.
Assignee acquires the right even without the knowledge of the insurer.

Mortgagor

- Section 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance
is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any
act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed
by the mortgagor.
- Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of
his assent, imposes further obligations on the assignee, making a new contract with him, the acts of the mortgagor
cannot affect the rights of said assignee.

Insurance Agent

- Section 309. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a policy or contract of insurance to or from such company
or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this
section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance
agent is subject.
- Such is an independent contractor and not an employee of the company represented. Nevertheless, since it is imbued
with public interest, the insurance companies upon approval of the Commissioner may exercise wide latitude in
supervising the activities of their agents to ensure the protection of the insuring public.
- It shall be unlawful for any person, company or corporation in the PH to act as general agent of any insurance company
unless he is empowered by a written power of attorney duly executed by such insurance company and registered with
the Insurance Commissioner to receive notes, summons and legal processes for and in behalf of the insurance company
concerned in connection with actions or other legal proceedings against said insurance company. (Sec. 308)
- The insured cannot escape the effect of the falsity that the agent committed with his complicity
- The provisions in the policy that specifies and limits the powers and duties of an agent is binding on the insured.

Insurance Broker
 - An insurance broker is any person who for any compensation, commission or other thing of value acts or aids in any
manner in soliciting, negotiating, or procuring the making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself. Thus, while the insurer agent normally represents the insurer, the
insurance broker acts for and in behalf of the insured.
- The premium held by the insurance broker or agent shall be held in a fiduciary capacity and shall not be misappropriated
- The power of the Commissioner does not cover the relationship between the insurance company and its agents/ brokers.
(Sec. 439). However, insurance agents and brokers are under the regulatory powers of the Commissioner, meaning, the
latter can revoke their license in proper cases. Administrative sanctions can be imposed by the Commissioner as well.

2. Premium

a. Payment

- Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements
with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of issuance of the policy.
- The insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against
- The non-payment of premium only prevents the policy from going into force. Thus, the insured cannot be sued for non-
payment.
- Payment may be made to the insurer himself or its agent. (Sec. 315)
- Industrial Life Policy
o Industrial life policy shall not lapse for non-payment of premium if such non-payment was due to the failure of the
company to send its representative or agent to the insured at the residence of the insured or at some other place
indicated by him for the purpose of collecting such premium.
o This rule shall not apply when the premium remains unpaid for 3 months / 12 weeks after the grace period has
expired

Velasco v. Aposto

- Under the old insurance law: “An insurer is entitled to the payment of premium as soon as the thing insured is exposed
to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due.
No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid.”
- The insurance policy in question would be valid and binding notwithstanding the non-payment of the premium if there
was a clear agreement to grant to the insured credit extension. Such agreement may be express or implied.
- Petitioners failed to discharge the burden of proving their allegation of the existence of the purported credit extension
agreement. They failed to point out any other circumstances showing that prepayment of premium was not intended
to be insisted upon.

b. Effect

Non-Payment

- The obligation of the insurer will not become valid and binding if the first premium has not been paid. If the subsequent
premiums have not been paid, the policies issued will be deemed to have lapsed.
- Exceptions:
1. When the grace period applies in case of life and industrial life policy
2. When there is an acknowledgement in the policy or receipt that the premium has been paid
3. When there is an agreement that the premium shall be payable on installment
4. When there is credit extension
5. When the equitable doctrine of estoppel applies

Exception 1: Grace period

- The period after the date of the premium is due during which the premium can be paid with no interest charged and
the policy remaining in force. This presupposes that the insurance policy had already been in force for a certain period.
It cannot apply when the insurance policy is first taken.
 - Section 233. In the case of individual life or endowment insurance, the policy shall contain in substance the following
conditions:
o (a) A provision that the policyholder is entitled to a grace period either of thirty (30) days or of one (1)
month within which the payment of any premium after the first may be made, subject at the option of the
insurer to an interest charge not in excess of six percent (6%) per annum for the number of days of grace
elapsing before the payment of the premium, during which period of grace the policy shall continue in full
force, but in case the policy becomes a claim during the said period of grace before the overdue premium is
paid, the amount of such premium with interest may be deducted from the amount payable under the
policy in settlement;
- Sec. 234 No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in
substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to
the persons insured, or at least as favorable to the persons insured and more favorable to the policyholders:
o (a) A provision that the policyholder is entitled to a grace period of either thirty (30) days or of one (1)
month for the payment of any premium due after the first, during which grace period the death benefit
coverage shall continue in force, unless the policyholder shall have given the insurer written notice of
discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The
policy may provide that the policyholder shall be liable for the payment of a pro rata premium for the time
the policy is in force during such grace period;
- Sec. 236 In the case of industrial life insurance, the policy shall contain in substance the following provisions:
o (a) A provision that the insured is entitled to a grace period of four (4) weeks within which the payment of
any premium after the first may be made, except that where premiums are payable monthly, the period of
grace shall be either one (1) month or thirty (30) days; and that during the period of grace, the policy shall
continue in full force, but if during such grace period the policy becomes a claim, then any overdue and
unpaid premiums may be deducted from any amount payable under the policy in settlement;

Exception 2: Acknowledgement

- Section 79. An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence
of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.
- Even if the insured has not paid yet, the obligation will already be in force if there is an agreement.

Exception 3: Installment

- Jurisprudence allows the insured to pay the premiums on installment basis

Exception 4: Credit Extension

- Under Sec. 77, a 90 day credit extension may be given by the broker and agency agreements with duly licensed
intermediaries. The requisites are as follows:
o The credit extension must be provided for under the broker and agency agreements
o The credit extension to a duly licensed intermediary should exceed 90 days from date of issuance of the policy
- Old Rule: the insurance policy would be valid and binding notwithstanding the non-payment of the premium if there
was a clear agreement to grant to the insured credit extension. This does not apply today. There should not be at least
partial payment of premium to establish the vinculum juris between insurer and insured.

Extension 5: Estoppel

- Estoppel may bar an insurer from taking refuge under Sec. 77 if the insured relied in good faith on a practice that they
have been following with the insurer.

Philippine Phoenix Surety vs. Woodworks

- Non-payment of premium, unless waived, prevents the contract from becoming binding notwithstanding the
acceptance of the application nor the issuance of the policy.
- On April 1, 1960, the Fire Insurance Policy was issued by PPS and delivered to Woodworks, and that on September 22
of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due
thereon. There is, consequently, no doubt that there was not only a perfected contract of insurance but a partially
performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer
to pay the insured the amount for which the policy was issued in case the conditions therefor had been complied with,
 arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the
premium due became demandable.

Partial Payment

Tibay vs. CA

- Where the parties expressly stipulated that the policy is not in force until the premium has been fully paid, the
payment of partial premium by the assured should not be considered the payment required by the law and the
stipulation of the parties rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such
time that the full amount has been tendered and duly receipted for.
- The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer
should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the
insured.

UCPB vs Masagana Telemart

- An insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the
premium. Any agreement to the contrary is void.
- The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider
the policy binding before actual payment.
- Under Sections 77 and 78 of the Insurance Code, until the premium is paid, and the law has not expressly excepted
partial payments, there is no valid and binding contract.

Payment through Agent

- Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized
said agent to receive the premium in its behalf.
- The insurer is bound by its agent’s acknowledgement of receipt of payment of premium.

Malayan Insurance vs. Arnaldo

- What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity
which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been sister companies,
but such fact did not make one an agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with
authority to represent and bind the said insurance company. After the referral, PAP dealt directly with Malayan.
- The respondent overlooked the fact that its counsel stipulated in open court that it was Malayan’s authorized
insurance agent, Rodolfo Talusan, who procured the original policy from Malayan, not RCBC.

South Sea Surety and Insurance Co vs. CA and Valenzuela Hardwood and Industrial Supply, Inc.

- The petitioner insists that Mr. Chua is an administrative assistant for the past ten years and an agent for less than ten
years of the Columbia Insurance Brokers, Ltd. They therefore argue that Chua acted as an agent of the insured under
Section 301 of the Insurance Code which provides as follows:
o “Section 301 (Old IC - now 309). Any person who for any compensation, commission or other thing of value, acts or
aids in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code,
and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance
broker is subject.”
- Mr. Chua testified that the marine cargo insurance policy for the plaintiff’s logs was delivered to him on 21 January
1984 at his office to be delivered to the plaintiff. When South Sea Surety delivered to Mr. Chua the marine cargo
insurance policy for the Valenzuela’s logs, he is deemed to have been authorized by the South Sea Surety to receive the
premium which is due on its behalf.

Salary Deductions for Government Employees

- Sec. 78. Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities, and
government-owned or -controlled corporations, may pay their insurance premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier, paymaster or official of the entity employing the government employee
is authorized, notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make
deductions from the salary, wage or income of the latter pursuant to the agreement between the insurer and the
 government employee and to remit such deductions to the insurer concerned, and collect such reasonable fee for its
services.
- Thus, the insurance policy is already binding although the premium is, in effect, paid through installment by the
government employee. There should still be an agreement between the insurer and government employee authorizing the
salary deduction of the premium.

Surety

- Surety is already liable even if there is non-payment of premium if the obligee has already accepted the bond.
- Surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to
the obligor and no contract of suretyship shall be valid and binding unless the premium has been paid. However, the
exception is when the obligee accepted the bond, in which case the bond becomes valid and enforceable irrespective of
w/n the premium has been paid by the obligor to the surety.

Valid Tender of Payment

- The act of the insurer or his agent in refusing the tender of payment of a premium properly made, will necessarily stop the
insurer from claiming a forfeiture from non-payment.

How to Prevent Lapse of Life-Insurance

- Several devices have been used to prevent the lapse of such. These include:
1. Grace period
2. Automatic Policy Loan
3. Application of Dividend
4. Restatement Clause

Automatic Policy Loan and Cash Surrender

- Cash Surrender Value (CSV) “as applied to 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 such value is always a lesser sum than the total amount of premiums paid.”
- CSV is the amount which the insurance company holds in trust for the insured to be delivered to him upon demand.
- Rationale: the premium is uniform throughout a lifetime, but the risk is varied. Thus the cost of protection is more
expensive during the early years of the policy.
- The right to CSV accrues only after 3 full annual premium payments
- Sec. 233(f):
1. A cash surrender value payable upon surrender of the policy which shall not be less than the reserve on the policy,
the basis of which shall be indicated, for the then current policy year and any dividend additions thereto, reduced by
a surrender charge which shall not be more than one-fifth (1/5) of the entire reserve or two and one-half percent
(2½%) of the amount insured and any dividend additions thereto; and
2. One or more paid-up benefits on a plan or plans specified in the policy of such value as may be purchased by the
cash surrender value.
- Automatic Premium Loan Clause: “if at the end of the grace period the premium due has not been paid, a policy loan will
automatically be made from the policy’s cash value to pay the premium. The primary purpose is to prevent unintentional
lapses of the policy.”

Dividends

- In the case of participating insurance policy, the insured is entitled to the dividends that may be available. A participating
policy must contain a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on
the policy under conditions specified therein.

Reinstatement Clause

- Sec. 233 (j) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three (3)
years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension
period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all
overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which
would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement.
 - A life insurance policy must contain a provision that the policyholder shall be entitled to have the policy reinstated at any
time within 3 years from the date of default of the premium payment unless the CSV has been duly paid, or the extension
period has expired.
- But the insurer may deny the application for reinstatement if it is not satisfied was to the insurability of the insured and if
the insured does not pay the overdue premium.
- Requisites:
1. It must be exercised within 3 years from date of default
2. The insured must present evidence of insurability satisfactory to the insurer
3. He must pay all back premiums and all indebtedness to the insurer (with interest)
4. The CSV must not have been duly paid to the insured nor the extension period expired
5. The application must be filed during the insured’s lifetime.

Return of Premium

- Section 80. A person insured is entitled to a return of premium, as follows:

1. "(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured
against;
2. "(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such
portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate
has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim
for loss or damage under the policy which has previously accrued: Provided, That no holder of a life insurance
policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by
law.
- Section 81. If a peril insured against has existed, and the insurer has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as that particular risk is concerned.
- Section 82. A person insured is entitled to a return of the premium when the contract is voidable, and subsequently
annulled under the provisions of the Civil Code; or on account of the fraud or misrepresentation of the insurer, or of his
agent, or on account of facts, or the existence of which the insured was ignorant of without his fault; or when by any
default of the insured other than actual fraud, the insurer never incurred any liability under the policy. A person insured
is not entitled to a return of premium if the policy is annulled, rescinded or if a claim is denied by reason of fraud.
- Section 83. In case of an over insurance by several insurers other than life, the insured is entitled to a ratable return of
the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable
value of the thing at risk.
- Grounds for return of premium:
1. When the thing was not exposed to the peril insured against
2. “Time policy” when the policy is surrendered before the expiration of the stipulated time (refund is pro rata)
 Surrender of the policy means the insurer will not be liable for the remaining period and the premium
corresponding to the remaining period is no longer due.
3. When the contract is voidable and subsequently annulled under the provisions of the Civil Code
4. When the contract is annulled on account of fraud or misrepresentation of the insurer / agent or on account of
facts, or the existence of which the insured was ignorant of without his fault
5. When by any default of the insured other than actual fraud, the insurer never incurred liability under the policy
6. When there is over-insurance by several insurers

Great Pacific Life v. CA and Cortez

- When the petitioner advised private respondent on June 1, 1973, four months after he had paid the first premium, that
his policy had never been in force, and that he must pay another premium and undergo another medical examination
to make the policy effective, the petitioner committed a serious breach of the contract of insurance. Since his policy
was in fact inoperative or ineffectual from the beginning, the company was never at risk, hence, it is not entitled to
keep the premium.

Advance Payment

- Premium may be paid in advance by the insured: Section 84. An insurer may contract and accept payments, in addition to
regular premium, for the purpose of paying future premiums on the policy or to increase the benefits thereof.

Rebate of Premium
- Sec 370. No insurance company doing business in the Philippines or any agent thereof, no insurance broker, and no
employee or other representative of any such insurance company, agent, or broker, shall make, procure or negotiate any
contract of insurance or agreement as to policy contract, other than is plainly expressed in the policy or other written
contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in
any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of such insured, either
as an inducement to the making of such insurance or after such insurance has been effected, any rebate from the
premium which is specified in the policy, or any special favor or advantage in the dividends or other benefits to accrue
thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which
is not specified in such policy or contract of insurance; nor shall any such company, or any agent thereof, as to any policy
or contract of insurance issued, make any discrimination against any Filipino in the sense that he is given less
advantageous rates, dividends or other policy conditions or privileges than are accorded to other nationals because of his
race.