INSURANCE

General Provisions

Contract of Insurance vs. Contract of Surety

A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify

another against: 1.) loss,
2.) damage or
3.) 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.

Doing an insurance business or transacting an insurance business, within the meaning of this Code,
shall include:

(1) Making or proposing to make, as insurer, any insurance contract;

(2) 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;

(3) 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;

(4) 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.

"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
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.

Commissioner means the Insurance Commissioner.

CHAPTER I
The Contract of Insurance

TITLE 1
WHAT MAY BE INSURED
Any contingent or unknown event, whether past or future, which may damnify a person having an
(1) insurable interest, or (2) create a liability against him, may be insured against, subject to the
provisions of this chapter.

The consent of the spouse is not necessary for the validity of an insurance policy taken out by a
married person on his or her life or that of his or her children.

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 in the policy.

The preceding section does not authorize an insurance (1) for or against the drawing of any lottery, or
(2) for or against any chance or ticket in a lottery drawing a prize.

All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.
 PARTIES TO THE CONTRACT

Every 1) corporation, 2) partnership, or 3) association, duly authorized to transact insurance business as

elsewhere provided in this Code, may be an insurer.

Anyone except a public enemy may be insured.

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.

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.

INSURABLE INTEREST

Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting property or
services, of which death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.

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 interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
1) principal, 2) accomplice, or 3) 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.

Every interest in property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable
interest.

An insurable interest in property may consist in:

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent
of his liability but not to exceed the value thereof.

A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor
upon any valid contract for it, is not insurable.

The measure of an insurable interest in property is the extent to which the insured might be damnified
by loss or injury thereof.

No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.

An interest in property insured must exist when the insurance takes effect, and when the loss occurs,
but need not exist in the meantime;

and interest in the life or health of a person insured must exist when the insurance takes effect,
but need not exist thereafter or when the loss occurs.

Except in the cases specified in the next four sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change
of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the
thing and the interest in the insurance are vested in the same person.

A change of interest in a thing insured, after the occurrence of an injury which results in a loss,
does not affect the right of the insured to indemnity for the loss.

A change of interest in one or more of several distinct things, separately insured by one policy,
does not avoid the insurance as to the others.

A change of interest, by will or succession, on the death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the person taking his interest in the thing insured.

A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly
insured, to the others, does not avoid an insurance even though it has been agreed that the insurance
shall cease upon an alienation of the thing insured.

Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has
not any interest in the property insured, or that the policy shall be received as proof of such interest,
and every policy executed by way of gaming or wagering, is void.

PREMIUM

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against.

Notwithstanding any agreement to the contrary, 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.
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.

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.

A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils
insured against;

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to
such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short
period rate has been agreed upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously accrued: Provided, That no
holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient
cause as otherwise provided by law.

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.

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.

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.

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.

THE POLICY
The written instrument in which a contract of insurance is set forth, is called a policy of insurance.

The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be
written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which
is pasted or attached to said policy is not binding on the insured , unless the descriptive title or name of
the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided
in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the
original policy shall be countersigned by the insured or owner, which countersignature shall be taken as
his agreement to the contents of such rider, clause, warranty or endorsement.

Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent provisions
of Republic Act No. 8792, otherwise known as the ‘Electronic Commerce Act’ and to such rules and
regulations as may be prescribed by the Commissioner.

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 open or running policies;

(c) The premium, or if the insurance is of a character where the exact premium is only determinable
upon the termination of the contract, a statement of the basis and rates upon which the final premium
is to be determined;

(d) The property or life insured;

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

(f) The risks insured against; and

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

Cover notes may be issued to bind insurance temporarily pending the issuance of the policy.
Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof, including within
its terms the identical insurance bound under the cover note and the premium therefor.

Cover notes may be extended or renewed beyond such sixty (60) days with the written approval of the
Commissioner if he determines that such extension is not contrary to and is not for the purpose of
violating any provisions of this Code.

The Commissioner may promulgate rules and regulations governing such extensions for the purpose of
preventing such violations and may by such rules and regulations dispense with the requirement of
written approval by him in the case of extension in compliance with such rules and regulations.

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.

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.

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.
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.

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.

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.

A policy is either open, valued or running.

An open policy is one in which the value of the thing insured is not agreed upon, and the amount of the
insurance merely represents the insurer’s maximum liability. The value of such thing insured shall be
ascertained at the time of the loss.

A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at
a specific sum.

A running policy is one which contemplates successive insurances, and which provides that the object of
the policy may be from time to time defined, especially as to the subjects of insurance, by additional
statements or indorsements.1âwphi1

A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one (1) year from the time when the cause of action accrues,
is void.

No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof
to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after
the effective date of the policy, of one or more of the following:

(a) Nonpayment of premium;

(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;
(e) Physical changes in the property insured which result in the property becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the
property insured; or
(g) A determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code.

All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to
the named insured at the address shown in the policy, or to his broker provided the broker is authorized
in writing by the policy owner to receive the notice of cancellation on his behalf, and shall state:

(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish the facts on which the
cancellation is based.

In case of insurance other than life, unless the insurer at least forty-five (45) days in advance of the end
of the policy period mails or delivers to the named insured at the address shown in the policy notice of
its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew the policy upon payment of the premium due
on the effective date of the renewal. Any policy written for a term of less than one (1) year shall be
considered as if written for a term of one (1) year. Any policy written for a term longer than one (1) year
or any policy with no fixed expiration date shall be considered as if written for successive policy periods
or terms of one (1) year.