INSURANCE LAW REVIEW 2014 Ateneo de Davao College of Law

INSURANCE LAW REVIEW 2014Ateneo de DavaoCollege of LawInsurance Code of 2013REPUBLIC ACT NO. 10607

AN ACT STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS "THE INSURANCE CODE", AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND FOR OTHER PURPOSESFrameworkGeneral ConceptsLife InsuranceNon-Life InsurancePayment of ProceedsGrounds for RescissionSummary of Amendments in Insurance CodePDIC LawInsurance CodeGeneral principles

Life Insurance

Non-Life Insurance

Payment of Proceeds

Rescission of insurance contractsIMPORTANT CONCEPTSDifferences between life and non-life insuranceWhat is insurable interestNo-fault Indemnity ClauseSpecial rules in Industrial LifeIncontestability ClauseUnfair Settlement Practices ActIllegal Acts in Collecting ClaimsIMPORTANT CONCEPTSCoverage under PDIC LawCash and Carry RuleEffect of grace periodCover notes Test of MaterialityDouble InsuranceRule in case of suicideRatable return of premiumsPART ONE: GENERAL PRINCIPLESConceptAn 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 is deemed an insurance contract only if made by a surety who or which is doing an insurance business as a vocation.Elements The insured has insurable interest or interest of some kind susceptible of pecuniary estimation

The insured is subject to a risk of loss caused by the happening of the designated perils;ElementsThe insurer assumes the risk of loss;Assumption is part of a general scheme to distribute actual losses among a large group of persons bearing somewhat similar risks;As consideration for the insurers promise, the insured pays the premium Philippine HealthCare v. CIRISSUE: 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.Philippine HealthCare v. CIRThe 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.Bar 2011In return for the 20 years of faithful service of X as a househelper to Y, the latter promised to pay Php100,000.00 to Xs heirs if he (X) dies in an accident by fire. X agreed. Is this an insurance contract? Bar 2011A. Yes, since all the elements of an insurance contract are present. B. Yes, since X services may be regarded as the consideration.C. No, since Y actually made a conditional donation in Xs favor.D. No, since it is in fact an innominate contract between X and Y. AnswerC. No, since Y actually made a conditional donation in Xs favor.

Principle of SubrogationProcess of legal substitution

The insurer, after paying the amount covered by the policy, steps into the shoes of the insuredPrinciple of SubrogationInsurer avails of the rights of the insured against the wrongdoer

Insured CANNOT recover from offender what was paid by insured but can recover any deficiency.Principle of SubrogationApplicable only in non-life insurance (Philamgen v. CA)Bar 2011 Where the insurer was made to pay the insured for a loss covered by the insurance contract, such insurer can run after the third person who caused the loss through subrogation. What is the basis for conferring the right of subrogation to the insurer? Bar 2011A. Their express stipulation in the contract of insurance.

B. The equitable assignment that results from the insurers payment of the insured.

C. The insureds formal assignment of his right to indemnification to the insurer. D. The insureds endorsement of its claim to the insurer. AnswerB. The equitable assignment that results from the insurers payment of the insured.

Bar 2014ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to insure the shipment of 132 bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped on board the vessel "M/V Menchu" from Leyte to Pier 10, North Harbor, Manila.Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants in Valenzuela City. The goods were loaded on board twelve (12) trucks owned by CGM, Inc., driven by its employed drivers and accompanied by its employed truck helpers. Of the twelve (12) trucks en routeto Valenzuela City, only eleven (11) reached the destination. One (1) truck, loaded with eleven (11) bundles of copper cathodes, failed to deliver its cargo.Bar 2014Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity in the amount of P1,500,000.00. After the requisite investigation and adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance indemnity.

ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the Regional Trial Court (RTC), seeking reimbursement of the amount it had paid to FCL Corp. for the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is not privy to the contract entered into by and between FCL Corp. and ELP Insurance, Inc., and hence, it is not liable therefor. If you are the judge, how will you decide the case? (4%)Suggested AnswerIf I were the judge, I will rule in favor of ELP. While it is true that CGP is not privy to the contract of ELP and FCL, ELP has the right of subrogation.

In insurance law, an insurer, after paying the claim of an insured, by process of legal substitution, steps into the shoes of the insured and can proceed against an erring party or the one who caused the loss. Nature and CharacteristicsAleatoryContract of indemnity for non-life and an investment for life insurancePersonal Executory and conditional on the part of the insurerUberrimae fidesAdhesionBar 2012An insurance contract is an aleatory contract, which means:The insurer will pay the insured equivalent to the amount of premium paidThe obligation of the insurer is to pay depending upon the happening of an uncertain future eventC. The insured pays a fixed premium for the duration of the policy period and the amount of premiums paid to the insurer is not necessarily the same amount that the insured will get upon the happening of an uncertain future eventThe obligation of the insurer is to pay dependent upon the happening of an event which is certain to happenAnswerAleatory- A contract whose performance by one party depends on the occurrence of an uncertain contingent event

ANSWER: B. The obligation of the insurer is to pay depending upon the happening of an uncertain future eventRule of ConstructionDoubts are resolved in favor of the insured

Since a contract of insurance is a contract of adhesion, any obscure word or stipulation in the insurance policy shall be resolved against the insurance company which drafted the terms thereof (AMERICAN HOME V. TANTUCO, OCTOBER 8, 2001)Bar 2012An insurance contract is a contract of adhesion, which means in resolving ambiguities in the provision of the insurance contract The general rule is that, the insurance contract is to be interpreted strictly in accordance with what is written in the insurance contractAre to be construed liberally in favor of the insured and strictly against the insurer who drafted the insurance policyC. Are to be construed strictly against the insured and liberally in favor of the insurerIf there is an ambiguity in the insurance contract, this will invalidate the contract ANSWER: BStatute of LimitationsGeneral Rule: 10 YEARS from the time the cause of action accrues.

Exception: Period may be increased or decreased BUTStatute of LimitationsIn industrial life: cannot be shorter than SIX YEARS

in all other kinds of insurance: cannot be shorter than ONE YEAR.Right of Action AccruesPeriod is reckoned from the time of the denial of the claim by the insurer (Vda de Gabriel v. CA)

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

Doing an Insurance Businessmaking or proposing to make, as insurer, any insurance contract;

making or proposing to make, as surety, any contract of suretyship as a vocation and not merely incidental to any other legitimate business or activity of the surety.Doing an Insurance Businessdoing any kind of business, including a reinsurance business, specifically recognized as doing insurance business

doing or proposing to do any business in substance equivalent to any of the foregoing

An entity can still be deemed engaged even if he does not derive any profit from the activityMICROINSURANCESection 187. Microinsurance is a financial product or service that meets the risk protection needs of the poor where:

(a) The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in Metro Manila; andNEWMICROINSURANCE(b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of the current daily minimum wage rate for nonagricultural workers in Metro Manila.Section 188. No insurance company or mutual benefit association shall engage in the business of microinsurance unless it possesses all the requirements as may be prescribed by the Commissioner. The Commissioner shall issue such rules and regulations governing microinsurance.NEWRegulation of the Insurance BusinessInsurance business is impressed with public interest.

The public must be protected against insolvency or unfair treatment by insurers.Regulation of the Insurance BusinessInsurance Commission is tasked to regulate the conduct of insurance business through licensing, examination, investigation and revocationRegulation of the Insurance Business The Commission is authorized to issue a certificate of authority which shall expire on the last day of December, 3 years following its date of issuance,

This shall be renewable every 3 years thereafter, subject to the companys continuing compliance with the provisions of this Code, circulars, instructions, rulings or decisions of the Commission.NEWNo LGU interference "No insurance company issued with a valid certificate of authority to transact insurance business anywhere in the Philippines by the Insurance Commissioner, shall be barred, prevented, or disenfranchised from issuing any insurance policy or from transacting any insurance business within the scope or coverage of its certificate of authority, anywhere in the Philippines,

by any local government unit or authority, for whatever guise or reason whatsoever, including under any kind of ordinance, accreditation system, or scheme. Any local ordinance or local government unit regulatory issuance imposing such restriction or disenfranchisement on any insurance company shall be deemed null and void ab initio.NEWFINANCIAL REPORTING FRAMEWORKAll companies regulated by the Commission, should comply with the financial reporting frameworks adopted by the Commission for purposes of creating the statutory financial reports and the annual statements to be submitted to the Commission. Financial reporting framework means a set of accounting and reporting principles, standards, interpretations and pronouncements that must be adopted in the preparation and submission of the statutory financial statements and reports required by the Commission. Not the same as financial reporting framework used to prepare the financial statements of SEC. NEWFINANCIAL REPORTING FRAMEWORKMain purpose of the statutory statements: to present important information about the level of risk and solvency situation of insurers. In prescribing the applicable statutory financial reporting framework, the Commissioner shall take into account international standards concerning solvency and insurance company reporting as well as generally accepted actuarial principles concerning financial reporting promulgated by the Actuarial Society of the Philippines.The assets and investments discussed in Sections 204 to 215 shall be accounted for in accordance with this section."The valuation of reserves shall be accounted for in accordance with Title 5 of this Code. NEWRegulation of BancassuranceSection 375. The term bancassurance shall mean the presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the Bangko Sentral ng Pilipinas may promulgate.

To engage in bancassurance arrangement, a bank is not required to have equity ownership of the insurance company. No insurance company shall enter into a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Commissioner and the Bangko Sentral ng Pilipinas.NEWRegulation of BancinsurerNo insurance product under this section, whether life or non-life, shall be issued or delivered unless in the form previously approved by the Commissioner.

Section 376. Personnel tasked to present and sell insurance products within the bank premises shall be duly licensed by the Commissioner and shall be subject to the rules and regulations of this Act.

"Section 377. The Commissioner and the Bangko Sentral ng Pilipinas shall promulgate rules and regulations to effectively supervise the business of bancassurance.NEWRegulation of Insurance-Related EntitiesThe Commissioner shall have the power to register as a self-regulatory organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend or otherwise discontinue, as a condition for the operation of organizations whose operations are related to or connected with the insurance market such as, but not limited to, associations of insurance companies, whether life or non-life, reinsurers, actuaries, agents, brokers, dealers, mutual benefit associations, trusts, rating agencies, and other persons regulated by the Commissioner, which are engaged in the business regulated by this Code.NEWRegulation of Insurance-Related Entities"The Commissioner may prescribe rules and regulations which are necessary or appropriate in the public interest or for the protection of investors to govern self-regulatory organizations and other organizations licensed or regulated pursuant to the authority granted hereunder including, but not limited to, the requirement of cooperation within and among all participants in the insurance market to ensure transparency and facilitate exchange of information.NEWRegulation of Insurance-Related EntitiesSection 431. An association cannot be registered as a self-regulatory organization unless the Commissioner determines that:(a) The association is so organized and has the capacity to be able to carry out the purposes of this Code and to comply with, and to enforce compliance by its members and persons associated with its members, with the provisions of this Code, the rules and regulations thereunder, and the rules of the association.

(b) The rules of the association, notwithstanding anything in the Corporation Code to the contrary, provide the following:

(1) Qualifications and the disqualifications on membership of the association;(2) A fair representation of its members to serve on the board of directors of the association and the administration of its affairs, and that any natural person associated with a juridical entity that is a member shall also be deemed to be a member for this purpose;(3) Fair procedure for the disciplining of members and persons associated with members; and(4) The prohibition or limitation of access to services offered by the association or a member thereof.NEWRegulation of Insurance-Related Entities(5) The president of the association and at least two (2) independent directors as members of the board of directors of the association;

(6) Equitable allocation of reasonable dues, fees, and other charges among members and other persons using any facility or system which the association operates or controls;

(7) The prevention of fraudulent and manipulative acts and practices to protect the insuring public and the promotion of just and equitable principles of business;

(8) Members and persons associated with its members subject to discipline for violation of any provision of this Code, the rules or regulations thereunder, or the rules of the association;NEWRegulation of Insurance-Related EntitiesSection 432. A self-regulatory organization may examine and verify the qualifications of an applicant to become a member in accordance with procedures established by the rules of the association.A self-regulatory organization shall deny membership or condition the membership of an entity, if it does not meet the standards of financial responsibility, operational capability, training, experience, or competence that are prescribed by the rules of the association; or has engaged, and there is a reasonable likelihood it will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.NEWRegulation of Insurance-Related EntitiesA self-regulatory organization may deny membership to an entity not engaged in a type of business in which the rules of the association require members to be engaged.NEWCAPITALIZATIONSECTION 194

PAID-UP CAPITAL FOR NEW domestic life or non-life insurance company shall, in a stock corporation: One billion pesos; (P1,000,000,000.00): Provided,

Domestic insurance company already doing business in the Philippines;net worth by June 30, 2013- P250 Millionby December 31, 2016- an P300 Million worthBy December 31, 2019- an additional P350 Million worthBy December 31, 2022- an additional P400 Million worthNEWCAPITALIZATIONPre-licensing requirement of a new insurance company, in addition to the paid-up capital stock, require the stockholders to pay in cash to the company in proportion to their subscription interests a contributed surplus fund of not less than P100 Million

May also require such company to submit to him a business plan showing the companys estimated receipts and disbursements, as well as the basis therefor, for the next succeeding (3) years.NEWCAPITALIZATIONSECTION 197 Foreign Corporations

Unimpaired capital or assets and reserve: P1 Billion nor until it shall have deposited with the Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines, securities satisfactory to the Commissioner consisting of good securities of the Philippines, including new issues of stock of "registered enterprises as this term is defined in E.O. 226 of 1987, as amended, to the actual market value of not less than the amount herein requiredNEWCAPITALIZATIONSection 289.

Any partnership, association, or corporation authorized to transact solely reinsurance business must have a capitalization of at least Three billion pesos (P3,000,000,000.00) paid in cash of which at least fifty percent (50%) is paid-up and the remaining portion thereof is contributed surplus, which in no case shall be less than Four hundred million pesos, (P400,000,000.00) or such capitalization as may be determined by the Secretary of Finance, upon the recommendation of the Commissioner:NEWCAPITALIZATIONProvided, That (25%) of the paid-up capital must be invested in securities satisfactory to the Commissioner, consisting of bonds or other instruments of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or -controlled corporations Provided, That aforesaid capital requirement is without prejudice to other requirements to be imposed under any risk-based capital method that may be adopted by the Commissioner: Provided, finally, That the provisions of this chapter applicable to insurance companies shall as far as practicable be likewise applicable to professional reinsurers.NEWCAPITALIZATIONNo mutual benefit association shall be issued a license to operate as such unless it has constituted and established a Guaranty Fund by depositing with the Commissioner an initial minimum amount of Five million pesos (P5,000,000.00) in cash, or in government securities with a total value equal to such amount, to answer for any valid benefit claim of any of its members.NEWBar 2011A group of Malaysians wanted to invest in the Philippines insurance business. After negotiations, they agreed to organize "FIMA Insurance Corp." with a group of Filipino businessmen. FIMA would have a PhP50 Million paid up capital, PhP40 Million of which would come from the Filipino group. All corporate officers would be Filipinos and 8 out of its 10-member Board of Directors would be Filipinos. Can FIMA operate an insurance business in the Philippines? Bar 2011A. No, since an insurance company must have at least PhP75 Million paid-up capital.

B. Yes, since there is substantial compliance with our nationalization laws respecting paid-up capital and Filipino dominated Board of Directors. C. Yes, since FIMAs paid up capital more than meets the countrys nationalization laws.

D. No, since an insurance company should be 100% owned by Filipinos. AnswerA. No, since an insurance company must have at least PhP75 Million paid-up capital (based on DO 27-06).

What may be insured againstDAMNIFY A PERSON OR CREATE LIABILITY AGAINST HIMUNKNOWN EVENTCONTINGENT EVENTContingent EventAn event which may or may not happen

Example: Fire, accident, sinking of a ship, theftUnknown eventAn event which is certain to happen

Aspect of being unknown is WHEN it will happen

Example: DeathDamnify v. Create a liabilityDamnify - direct loss of a person

Create a liability - expose the person to liability to third persons. E.g. third party liability insurance Insurance by a married personMay take out an insurance on his/her life or that of her children or that of his/her spouse without the consent of his/her spouseNEWInsurance by a minor (Sec. 3)Any minor maycontract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippinesprovided the insurance is taken on his own life andthe beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.Rights of minor under life insurance policiesWhen there is a contract of life, health, or accident insurance involving a minor

The minors judicial guardian, father, or in the latters absence or incapacity, the mother

In the absence of parents and grandparents, the eldest brother or sister at least eighteen (18) years of age, or any relative who has actual custody of the minor insured or beneficiary

May obtain a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy

If the amount does not exceed P500,000.00NEWInsurance by a minorA property insurance taken by a minor is voidable or valid until annulled (1390)

If contract is not disaffirmed, insurer cannot invoke minority to escape liability.Bar 2012X, a minor, contracted an insurance on his own life. Which statement is most accurate?

The life insurance policy is void ab initio.

The life insurance is valid provided it is with the consent of the beneficiary.

The life insurance policy is valid provided the beneficiary is his estate or his parents, or spouse or child.

The life insurance is valid provided the disposition of the proceeds will be subject to the approval of the legal guardian of the minor.ANSWERThe life insurance policy is valid provided the beneficiary is his estate or his parents, or spouse or child.InsuranceLife IndividualGroupIndustrialNon-LifeMarineCasualtyFireSuretyship

Life InsuranceInsurance on human lives and insurance appertaining thereto or connected therewith

Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under a retirement program where a life insurance company manages or acts as a trustee for such retirement program shall be considered a life insurance contract for purposes of this Code.NEWClasses 1. Individual protection is based on individual application.2. Group unit of selection is the group rather than the individual, blanket policy covering a number of individuals3. Industrial premiums are payable either monthly or oftener if the face amount of insurance is not more than 500 times the current statutory minimum wage in Metro Manila.Non-LifeProperty insurance or insurance whose object is other than a persons life or where the covered peril is something other than deathTypes: FireIncludes insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policiesTypes: CasualtyCovers loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire, marine.Types: CasualtyIncludes but is not limited to employers liability insurance, workmens compensation insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance written by non-life companies.Casualty: Compulsory Motor Vehicle Liability OR Third Party LiabilityInsurance against passenger and third party liability for death or bodily injuries arising from motor vehicle accidentsRequired before an owner or operator can use his vehicleRequired in registration or renewal of registrationBar 2014 As a rule, an insurance contract is consensual and voluntary. The exception is in the case of: (1%)(A) Inland Marine Insurance(B) Industrial Life Insurance(C) Motor Vehicle Liability Insurance(D) Life InsuranceAnswer (C) Motor Vehicle Liability InsuranceCompulsory Motor Vehicle Liability OR Third Party LiabilityLand transportation operator, the insurance guaranty in cash or surety bond shall cover liability for death or bodily injuries of third-parties and/or passengers arising out of the use of such vehicle in the amount not less than Twelve thousand pesos (P12,000.00) per passenger or third -party and an amount, for each of such categories, in any one accident of not less than that set forth in the following scale:(1) Motor vehicles with an authorized capacity of twenty-six (26) or more passengers: Fifty thousand pesos; (P50,000.00);

(2) Motor vehicles with an authorized capacity of from twelve (12) to twenty-five (25) passengers: Forty thousand pesos; (P40,000.00);

(3) Motor vehicles with an authorized capacity of from six (6) to eleven (11) passengers: Thirty thousand pesos; (P30,000.00);

(4) Motor vehicles with an authorized capacity of five (5) or less passengers: Five thousand pesos (P5,000.00) multiplied by the authorized capacity.Compulsory Motor Vehicle Liability OR Third Party Liability(1) Private Cars

(i) Bantam: Twenty thousand pesos (P20,000.00);

(ii) Light: Twenty thousand pesos (P20,000.00); and

(iii) Heavy: Thirty thousand pesos (P30,000.00).Compulsory Motor Vehicle Liability OR Third Party Liability(2) Other Private Vehicles(i) Tricycles, motorcycles and scooters: Twelve thousand pesos (P12,000.00);(ii) Vehicles with an unladen weight of 2,600 kilos or less: Twenty thousand pesos (P20,000.00);(iii) Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos: Thirty thousand pesos (P30,000.00); and(iv) Vehicles with an unladen weight over 3,930 kilos: Fifty thousand pesos (P50,000.00).Types: Marinevessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, bottomry, respondentia interests

person or property in connection with or appertaining to marine, inland marine, transit or transportation insurance but excludes life insurance or surety bonds or insurance against loss by reason of bodily injury to any person who arising out of ownership, maintenance or use of automobiles Types: Marineprecious stones, jewels, jewelry, precious metals, whether in the course of transportation OR otherwise

bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, furniture and furnishings fixed contents and supplies held in storage), piers, wharves, docks and slips other aids of navigation, dry docks, marine railways, damsTypes: SuretyshipAn agreement whereby a party called the surety guarantees the performance of another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee.

Includes official recognizances, stipulations, bonds or undertakings issued by any companyAt a glanceIn an insurance contract, a person indemnifies another person for his loss, damage or liability

Any contingent or unknown event which may damnify a person or create a liability against him may be insured

The two main kinds of insurance are life and non-life insuranceAt a glanceA person can sue based on an insurance contract within 10 years from the time the right of action accrues

10-year period may be longer or shorter but generally, cannot be shorter than one year and in industrial life, cannot be shorter than 6 years

Doubts in interpreting insurance contracts are resolved in favor of the insuredFrameworkGeneral ConceptsLife InsuranceNon-Life InsurancePayment of ProceedsGrounds for RescissionSummary of Amendments in Insurance CodePDIC LawPART TWO: LIFE INSURANCEProcedureAgent offers a person a life insurance policyThe person files an application for a policy. He is required to pay the first premium when he appliesInsurance company approves the application and issues a policy in favor of the person. In case of disapproval, the premium is returned to the personProcedureIn case the contingency happens, either the policyholder or his designated beneficiaries claim from the policyThe claim is either granted or denied by the insurance companyIf denied, the claimant may file a case either in the insurance commission or the regular courts depending on the amount of the claimTopics in Stages 1 and 2What may be insured againstRule in case of death by suicideInsurable InterestPartiesKinds of life insuranceKinds of life insurance policies ConceptLife Insurance - insurance on human lives and insurance appertaining thereto or connected therewithConceptEvery contract or undertaking for the payment of annuities including contracts for the payment of lump sums under a retirement program where a life insurance company manages or acts as a trustee for such retirement program shall be considered a life insurance contract for purposes of this Code.NEWClasses 1. Individual protection is based on individual application.2. Group unit of selection is the group rather than the individual, blanket policy covering a number of individuals3. Industrial premiums are payable either monthly or oftener if the face amount of insurance is not more than 500 times the current statutory minimum wage in Metro Manila.Contingenciesdeath

survival for a specific period

continuance or cessation of lifeWhat may be insured against?Actual death

Living death

Retirement deathActual DeathCessation of life

Best proof of death: death certificate

Policy matures upon the death of the insuredLiving DeathWhen the insured suffers from disability due to disease or accident which prevents him from engaging in any lawful occupation

Partakes the nature of health and disability benefits Living Death: Accident and HealthHealth, accident and disability insurance are deemed as both life and non-life insurance and such may be issued by either life or non-life insurance companies (Sec. 193, 9th par).

Living Death: Accident and HealthDeemed life insurance when death is one of the risks insured against (Gallardo v. Morales)AccidentAn event which happens without any human agency or, if happening through human agency, an event which under the circumstances, is unusual and not expected by the person to whom it happens by reason of some violence or casualty to the insured without his design, consent or voluntary cooperation (Sun Insurance v. CA)

Death by suicide: compensable?General Rule: NO. BASIS: Sec. 89 which provides that an insurer is not liable if loss is caused by willful act or connivance of the insured; and

the Rules of Court which provides that a person is presumed to intend the consequences of his voluntary actsWhen is suicide compensable?Section 183If insured was not in his right mind/insane at the time of suicide

If insured committed suicide after the policy has been effective for at least 2 years from issuance or last reinstatement

Note: The 2-year period can be shortened but not lengthenedBar 2012X, on January 30, 2009, or two years before reaching the age of 65, insured his life for P20 Million. For reasons unknown to his family, he took his life 2 days after he reached 65. The policy contains no excepted risk. Which statement is most accurate?A.The insurer will be liableB.The insurer will not be liableC.The state of sanity of the insured is relevant in order to hold the insurer liableD.The state of sanity of the insured is irrelevant in order to hold the insurer liableANSWERThe insurer will be liable. The suicide was committed after the two-year period from the time the policy was obtained. Further, there is no excepted risk provision in the policy. Hence, the beneficiaries are entitled to the proceeds.Retirement Death Life Annuity debtor binds himself to pay annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of income (Art. 2021, Civil Code)Dynamics in Life AnnuityAnnuitantAnnuitant gives money to insurerInsurerInsurer becomes the debtorInsurer must give pension to annuitant or designated personEnd of obligationDeath of annuitant or appointed persons extinguishes obligation to give pensionRetirement DeathAnnuitant gives money or property to the insurer

Insurer now becomes the debtor, and has the obligation to give annual pension or income to either the annuitant or another person

The obligation of insurer to give pension stops upon the death of the annuitantINSURABLE INTERESTInsurable Interest in LifeA person cannot insure just anyone he wants

One has to establish that he stands to suffer some loss because of the death of a person

Insurable interest ensures that a person can only get a policy on the life of someone whose death will produce loss Concept Relation between the insured and a particular event such that the happening of the event will damnify or cause loss to the person

PURPOSE FOR THE CONCEPT:To avoid wagering To avoid temptation of bringing about the eventOn whose life does a person have insurable interest? himself, spouse, children

person on whom he depends wholly or in part for education or support or in whom he has a pecuniary interest On whose life does a person have insurable interest? any person who is under legal obligation to him for payment of money or respecting property or services of which illness or death might delay or prevent performance

any person upon whose life any estate or interest vested in him dependsSection 10(a)Every person has unlimited insurable interest in his own life

One also had insurable interest in the life of his spouse and children on the basis of love and affectionSection 10(b)Obligation to give support Article 195, Family CodeSpouses, legitimate ascendants and descendantsparents and their legitimate children and legitimate or illegitimate children of the latterparents and their illegitimate children and legitimate or illegitimate children of the latterlegitimate brothers and sisters whether of the full or half bloodSection 10(b)Obligation to give support:Article 196, Family CodeBrothers and sisters not legitimately related,whether of the full or half blood, are likewise bound to support each other EXCEPT only when the need for support of the brother or sister, being of age, is due to a cause imputable to the claimants fault or negligence.Blood relationship, affinity: enough?In cases not falling under 195 and 196, mere blood relationship or affinity does not create insurable interest

Examples: uncle, aunt, nephew, niece, cousins, son-in-law, brother-in-law, stepchildrenSection 10 Pecuniary InterestDebtor-Creditor

Employer-Employee - El Oriente v. Posadas

Business partnersSection 10(d)Person in whose estate an interest is dependentPerson is given the right to use a house

Right ceases when the owner dies and another person becomes the ownerBar 2011X has been a long-time household helper of Z. X's husband, Y, has also been Z's long-time driver. May Z insure the lives of both X and Y with Z as beneficiary? Bar 2011A. Yes, since X and Y render services to Z.

B. No, since X and Y have no pecuniary interest on the life of Z arising from their employment with him.

C. No, since Z has no pecuniary interest in the lives of X and Y arising from their employment with him.

D. Yes, since X and Y are Zs employees. AnswerC. No, since Z has no pecuniary interest in the lives of X and Y arising from their employment with him.

Bar 2011X, Co., a partnership, is composed of A (capitalist partner), B (capitalist partner) and C (industrial partner). If you were partner A, who between B and C would you have an insurable interest on, such that you may then insure him? Bar 2011A. No one, as there is merely a partnership contract among A, B and C.

B. Both B and C, as they are your partners.

C. Only C, as he is an industrial partner.

D. Only B, as he is a capitalist partner. Answer B. Both B and C, as they are your partners.

Bar 2014 Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each other and got married soon after. They have been cohabiting blissfully as husband and wife, but they did not have any offspring. As the years passed by, Carlo decided to take out an insurance on Biancas life for P1,000,000.00 with him (Carlo) as sole beneficiary, given that he did not have a steady source of income and he always depended on Bianca both emotionally and financially. Bar 2014 During the term of the insurance, Bianca died of what appeared to be a mysterious cause so that Carlo immediately requested for an autopsy to be conducted. It was established that Bianca died of a natural cause. More than that, it was also established that Bianca was a transgender all along a fact unknown to Carlo. Can Carlo claim the insurance benefit? (5%)Suggested Answer Carlo cannot recover from the insurance policy. Insurable interest is necessary before a person can obtain a life insurance policy on the life of another person. Without insurable interest, there is no valid life insurance policy.

Section 10 of the Insurance Code enumerates the people on whom we have an insurable interest on, one of which is ones legitimate spouse.

In the instant case, the marriage between Bianca and Carlo is void ab initio since marriage must be between a man and a woman. Since Bianca was a transgender, there was never a valid marriage between Bianca and Carlo. Carlo never had any insurable interest on the life of Bianca and hence, cannot recover from the policy.Bar 2014On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers Life Insurance Corporation (Ilocos Life) designating Crescencia Aban(Aban), her niece, as her beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in Soteros favor on August 30, 1993, after the requisite medical examination and payment of the premium.On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Ilocos Life conducted an investigation into the claim and came out with the following findings:1. Sotero did not personally apply for insurance coverage, as she was illiterate.2. Sotero was sickly since 1990.3. Sotero did not have the financial capability to pay the premium on the policy.4. Sotero did not sign the application for insurance.5. Aban was the one who filed the insurance application and designated herself as the beneficiary.Bar 2014 For the above reasons and claiming fraud, Ilocos Life denied Abans claim on April 16, 1997, but refunded the premium paid on the policy. (6%)(A) May Sotero validly designate her niece as beneficiary?(B) May the incontestability period set in even in cases of fraud as alleged in this case?(C) Is Aban entitled to claim the proceeds under the policy?Suggested Answer (A) May Sotero validly designate her niece as beneficiary?

Yes, Sotero has insurable interest on her own life and can validly designate any beneficiary as long as it is not against the law, public policy and morals. A beneficiary is not required to have insurable interest in life insurance.Suggested Answer (C) Is Aban entitled to claim the proceeds under the policy?

No Aban is not entitled to the proceeds. She was the one who obtained the policy on the life of her aunt on whose life she did not have insurable interest. Since she did not insurable interest, the policy is void.Measure of Recovery of ProceedsGENERAL RULE: Face value of the policy

Except: pecuniary estimation is possible [10]

Special Rule on Insurable Interest in Industrial LifeUsual rules regarding insurable interest are generally not made applicable in industrial life because:

Proceeds are small, little danger to induce a person to killSpecial Rule on Insurable Interest in Industrial LifeInvestigation of presence of insurable interest will nullify speedy payment of proceeds under the facility of payment clause

The costs to prove insurable interest will destroy the purpose for this type of insurancePARTIESInsuredInsurerCestui Que VieBeneficiaryInsurer: Section 6Every corporation, partnership, or association, duly authorized to transact insurance business as elsewhere provided in this Code, may be an insurerNEWInsurerInsurance corporations- corporations formed or organized to save any person or persons or other corporations harmless from any loss, damage or liability arising from any unknown or contingent event, or to indemnify or compensate for such loss, damage or liability or to guarantee performance with contractual obligations or payment of debtsMutualization and Demutualization

Mutualization A shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. A mutual organization is customer-owned.

Demutualization -customer-owned mutual organization or cooperative changes form to a joint, stock company, sometimes called stocking for privatization.

DemutualizationSection 280. A domestic mutual life insurance company doing business in the Philippines may convert itself into an incorporated stock life insurance company by demutualization. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this title.

"The conversion of a domestic mutual life insurance company to an incorporated stock life insurance company shall be carried out pursuant to a conversion plan duly approved by the Commissioner.NEWDemutualization"The Commissioner shall promulgate such rules and regulations as he or she may deem necessary to carry out the provisions of this title, after due consultation with representatives of the insurance industry.

"All converted insurers under the provisions of this title shall be subject to all other applicable provisions of this Code. The provisions of the Corporation Code shall apply in a suppletory manner.NEWInsured: Section 7Anyone except a public enemy may be insured.

Public enemy - citizen or national of any country with which the Philippines is at war Bar 2000May a member of the Moro Islamic Liberation Front or its breakaway group Abu Sayyaf be insured with a company licensed to do business under the Insurance Code of the Philippines? Explain (3%) ANSWERYes, a member of the MILF or the Abu Sayyaf may be insured. Only a public enemy cannot be insured. A public enemy is a citizen or national of a country with which the Philippines is at war.InsuredThe person who must have insurable interest

The person who pays the premiums

Commonly referred to as the policyholder

Not necessarily whose life is used to constitute the insurance policyInsured: RightsRight to borrow on the policy 227(g)

Right to dividends if participating policy 227(e); 230(e)Insured: RightsRight to reinstatement 227(j); 230(j)3 years from date of default in individual2 years from date of default in industrialpayment of overdue premiumsevidence of insurabilityInsured: RightsRight to transfer/bequeath-pass by transfer, will or succession to any person whether he has insurable interest or not; notice to insurer not requiredCestui Que ViePerson on whose life the insurance contract is constituted

Can be any of those enumerated under Section 10

BeneficiaryOne who receives benefitsGENERAL RULE: Designation of beneficiary may be changed by insured EXCEPTION: insured has expressly waived his right to changeBUT, if there was no change of beneficiary, designation is IRREVOCABLENEW Bar 2005What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain (2%)

Jacob obtained a life insurance policy for P1 M designating irrevocably Diwata, a friend, as his beneficiary. Jacob changed his mind and wants to include two other friends as beneficiaries. Can Jacob still add the two friends? (2%) ANSWERThe irrevocable beneficiary has a vested interest in the policy, including its incidents such as the policy loan and cash surrender value

Jacob cannot include the two friends as additional beneficiaries as this would diminish the interest of Diwata who is irrevocably designated as beneficiary. Diwata has to consent first to the inclusion.Disqualified BeneficiariesArticle 2012 in relation to Article 739 of the Civil Code

those made between persons who were guilty of concubinage at the time of donation

those made between persons found guilty of the same criminal offense in consideration thereof

those made to a public officer or his spouse, descendants and ascendants by reason of his officeBeneficiary Insular Life v. Ebrado, 80 SCRA 181 - The designation of a common law wife is void. This need only be proved by preponderance of evidence, no previous conviction is requiredBeneficiary Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides:The following donations shall be void:1. Those made between persons who were guilty of adultery or concubinage at the time of 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 or ascendants by reason of his office.In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.If the beneficiary is disqualifiedThe estate of the insured will be entitled to the proceeds of the life insurance policy. Bar 1998A was issued a policy on whole life plan for P20,000. A is married to B with whom he has 3 legitimate children. However, A designated his common-law wife C as the beneficiary in his policy and referred to C as his legal wife. When A died, both B and C claimed the proceeds of the insurance. Who is entitled to the proceeds? (5%) ANSWERThe estate of A is entitled to the proceeds. C is a disqualified beneficiary because of the illicit relation she had with A. Bar 2012X is the common law wife of Y. Y loves X so much that he took out a life insurance on his own life making X as the sole beneficiary. Y did this to ensure that X will be financially comfortable when he is gone. Upon the death of Y---X as the sole beneficiary in the policy of Y will be entitled to the entire proceedsDespite the designation of X, the proceeds will go to the estate of YThe proceeds will go the compulsory heirs of YThe proceeds will be divided equally amongst X and the compulsory heirs of YANSWERCommon law spouses are barred from donating to each other. Those who are barred from being donees cannot be beneficiaries in a life insurance policy.

Hence, X is a disqualified beneficiary and the proceeds will go to the estate of Y.If beneficiary willfully causes death of insuredIf beneficiary WILLFULLY causes the death of the insured/cestui:

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.NEWIf beneficiary dies before insuredIf beneficiary dies ahead of the insured/cestui, the estate of the insured will get the proceedsIf no beneficiaryIf beneficiary is not designated, insureds estate will get the proceedsNOTE!!!Only the insured or policyholder in life insurance is required to have insurable interest on the life of the cestui.

The beneficiary may or may not have insurable interest on the life of the cestui. What is vital is that the beneficiary is not disqualified under the law to get the proceeds. Bar 2000A is an elderly bachelor who took out an individual life insurance policy on his life. The designated beneficiary is B a companion-friend. A died in a fire which also destroyed his home. The insurer refused payment to B due to absence of insurable interest on the life of A. Is the insurer correct? ANSWERThe insurer is wrong. B as the beneficiary is entitled to collect the proceeds. As a beneficiary in a life insurance policy, B is not required to have insurable interest on the life of A. A had insurable interest on his own life and the policy was taken on his life.LIFE INSURANCE POLICYFormGENERAL RULE: printed formEXCEPTIONS: 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.Contains blanks where word, phrase, clause, mark, sign necessary to complete the policy are placedNEWContentsParties

amount to be insured

premium

life insured

risks

period of effectivityRequired ProvisionsGrace period provision provision which gives the insured additional time to pay his premiums from the due date

Clarifies the right to collect if death happens within the grace period

Individual life 30 days/1 monthGroup life 30 days/1 monthIndustrial life 4 weeks or if payable monthly 30 days/1 monthRequired ProvisionsEntire contract provision The policy shall constitute the entire contract between the partiesRequired ProvisionsMisstatement of age provision if the age of the insured is misstated, the amount payable shall be as such premium would have purchased at the correct ageRequired ProvisionsReinstatement provision clarifies the requirements for restoring a policy to premium-paying status after it has lapsed.Individual life within 3 years from defaultGroup no reinstatementIndustrial life within 2 years from defaultSpecial Features Loan privilege based on the cash surrender value, the insured may obtain a loan by pledging the policy

Policy dividend options if the policy is participating?, the policyholder is entitled to a share of the surplus.Special FeaturesExemption from claims of creditors protection against execution

Income tax treatment proceeds of life insurance policies are generally tax exempt. However, endowment proceeds and cash surrender values are treated as income and are taxable.Special FeaturesSurrender options/NON-DEFAULT OPTIONS if the policyholder cannot continue paying the premiums, he has some options which will not put to waste what he has paid. However, these options are available only upon payment of at least 3 annual premiumsNon-Default/Surrender OptionsCash Surrender Value 227(f); 230(f) and (g)payment of at least 3 annual premiumsnot less than the reserve on the policy

Extended InsuranceAt least three annual premiumslimited time, same face valueNon-Default/Surrender OptionsPaid-Up InsuranceAt least three annual premiumssame period, lower proceeds

Automatic Premium LoanParties agree that in case of default insurer advances the premium not subject to repaymentKinds of Policies1. Ordinary Life payment of premiums is annually or at more frequent intervals throughout life and the beneficiary is entitled to receive payment only after the death of the insured.Kinds of Policies2. Limited Payment Life premiums are payable only during a limited period of years (10,15,20 years). After the period, the insurance is deemed fully paid. Proceeds are payable upon death of insured.Kinds of Policies3. Term Insurance provides coverage only if the insured dies during a limited period.If the insured dies within the period, the beneficiary gets the proceeds. If the insured survives the period, the contract is terminated.Kinds of Policies4.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. Kinds of Policies5. Life Annuity debtor binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of income.Kinds of Policies6. Accident Insurance may be classified as life or non-life insurance.

*If death is one of the risks insured against, it is classified as life insurance.When is an insurance contract perfected?ProcedureAgent offers a person a life insurance policyThe person files an application for a policy. He is required to pay the first premium when he appliesInsurance company approves the application and issues a policy in favor of the person. In case of disapproval, the premium is returned to the personWhen is the insurance contract perfected?At the time the insured-applicant has knowledge of the approval of his application.

Even if the application has been approved if the applicant-insured does not know about approval, there is NO perfected contract yetWhen is the insurance contract perfected?Since the insured is the one making the offer, the submission of the application WITHOUT the approval of the policy does not result in a perfected contract of insurance (Grepalife v. CA)When is the insurance contract perfected?De Lim v. Sun Life the applicant paid the premium upon filing of application but he dies before the approval

HOLDING: NO perfected contract of insurance Bar 2011On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with payment for 5 years of premium enclosed in it. On July 21, 2011, the insurance company accepted the application and mailed, on the same day, its acceptance plus the cover note. It reached X's residence on August 11, 2011.

But, as it happened, on August 4, 2011, X figured in a car accident. He died a day later. May X's heirs recover on the insurance policy? Bar 2011A. Yes, since under the Cognition Theory, the insurance contract was perfected upon acceptance by the insurer of X's application.

B. No, since there is no privity of contract between the insurer and Xs heirs.

C. No, since X had no knowledge of the insurer's acceptance of his application before he died. D. Yes, since under the Manifestation Theory, the insurance contract was perfected upon acceptance of the insurer of X's application. AnswerC. No, since X had no knowledge of the insurer's acceptance of his application before he died.(no meeting of the minds of the offer and acceptance) When is the insurance contract perfected?If insured died during the period of provisional policy which is conditioned upon approval of application, beneficiary is NOT entitled to proceeds.When is the insurance contract perfected?Even if the insurer has approved the application via a letter, there is no perfected contract if there is no evidence that the applicant knew of the approval (Enriquez v. SunLife, 41 Phil 629)When is the insurance contract perfected? The insured is presumed to have understood the application and the contract of insurance (Tang v. CA, 90 SCRA 236)

Cover Notes v. Binding ReceiptCOVER NOTE: Temporary insurance policies intended to cover the insured while application is being evaluatedCover Note v. Binding receiptBINDING RECEIPT: acknowledgment of receipt of premium and application subject to evaluation. NOT the same as cover note (Great Pacific v. CA, 89 SCRA 543)Cover note is a valid insurance K 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)Cover note is a valid insurance K IF:7-day notice to the other party is required to cancel the cover notePolicy must be issued within 60 days from issuance of cover notesCover note is a valid insurance K IF:60-day period may be extended upon written approval of ICWritten approval is dispensed when president, VP or general manager aver that the renewal is not to circumvent the insurance code (Ins. Memo Circular 3-75)PREMIUMConcept of Premium

Agreed price for assuming the risk

The right to premium arises the moment the property/object is exposed to risk

Cash and carry basis - based on section 77 which provides that the moment the thing insured is exposed to the peril, the insurer has the right to payment of premium. When is non-payment excused? insolvent insuredinsurers negligence or faultinsurer waives the right to paymentWhen is non-payment excused?war does not suspend the policy and does not excuse non-payment of premiumsConstantino vs. Asia Life, 87 Phil 248Premium If insured fails to pay 1st premium, insurer cannot ask for specific performance but can only rescind the contract since there is no creditor-debtor relationshipSpecial Rule in Industrial Life if premiums are not paidIn industrial life, if insured failed to pay because the insurance agent did not collect in the address provided in the policy policy will NOT lapseSpecial Rule in Industrial Life if premiums are not paidExcept: if 12 weeks or 3 months have lapsed from end of grace periodAt a glanceOnly the insured must have insurable interest on the life if the cestui

Suicide is generally not compensable unless: mentally ill or committed after the policy has existed for more than two years from issuanceAt a glanceIf the beneficiary is disqualified because he participated in the death of the cestui, the other beneficiaries will get his share. If there are no other beneficiaries or also disqualified, the terms of the policy will be followed. Otherwise, the estate will recover. In all other cases, it is the estate of the insured which can recoverAt a glanceIf the cestui dies during the grace period, there can be recovery

If the cestui dies during the duration of the cover notes, there can be recovery

The measure of recovery in life insurance is the face value of the policy. Except when insurable interest is capable of pecuniary estimationFrameworkGeneral ConceptsLife InsuranceNon-Life InsurancePayment of ProceedsGrounds for RescissionSummary of Amendments in Insurance CodePDIC LawPART THREE NON-LIFE INSURANCETopicsWhat may be insured against

Insurable interest

Non-life insurance policyTopicsPremiums

Parties

Double insurance v reinsurance

Different kinds of non-life insuranceWHAT MAY BE INSURED AGAINSTWhich will damnify a person OR create a liability against himContingent Event- may or may not happenUnknown Event- time of occurrence is unknownRequirement for recoveryPeril insured against must be the PROXIMATE CAUSE of the loss or damage (sec. 86)

NO liability if insured risk is only a remote cause or if proximate cause is an excepted peril

Concept of loss - injury, damage, liability, loss of income or profits sustained by the insured in consequence of the happening of one or more perils insured against (Bonifacio Bros. V. Mora, 20 SCRA 261)Proximate CauseThat which in the natural and continuous sequence, unbroken by any NEW INDEPENDENT cause, produces an event without which the event would not have occurred.

Also called the EFFICIENT CAUSE, or one that sets the others in motion

NOT equivalent to IMMEDIATE CAUSEProximate Cause: ExamplesFire causes an explosion which results in loss. Fire is the proximate cause of the loss. If fire is a covered peril, the insurer is liable.

A house is insured against fire. The house is destroyed due to the falling of a wall. The wall fell due to fire. The insurer is liableImmediate Cause v. Proximate CauseImmediate cause cause or peril which appears closest in time to the loss

Immediate cause is NOT necessarily the proximate cause and vice versa Bar 2007Alfredo took out a policy to insure his commercial building against fire. A fire broke out and destroyed the building. It was found that the proximate cause of the fire was explosion but fire was the immediate cause of the loss. There is no excepted peril in the policy. Can there be recovery under the policy. ANSWERAlfredo cannot recover from the policy. Section 84 of the Insurance Code provides that before there can be recovery under property insurance, the proximate cause of the loss must be the covered peril. In the instant case, the proximate cause of the loss was not the peril insured against. Hence, there can be no recovery under the policy. Hostile v. Friendly FireFriendly - fire burns in a place where it is intended to burn

Hostile - occurs outside the confines or begins as a friendly fire and becomes hostile by escaping from the place where it ought to be

Hostile fire is the one covered by fire insuranceSection 87: Loss in the course of rescueInsurer is liable if the thing is rescued from peril insured against if in the course of rescue, the thing is exposed to a peril not insured againstIllustrationAn owner gets fire insurance for his house and all furniture inside.

In the course of rescuing the furniture from fire, the furniture is damaged due to water.

The insurer is liable to the owner although the damage is not due to fire since it was in the course of rescuing the furniture from fire that it suffered some damage.

If loss due to willful act or connivance of insured Section 89 - insurer is not liable if insured, through his willful act or connivance caused the loss

Ex. Arson, owner hiring other people to rob his propertyIf loss due to willful act or connivance of insuredSection 89 - if loss is through SIMPLE negligence of insured or his agents, insurer is STILL LIABLE

Insurer is NOT liable if loss is caused by GROSS negligence of insured Bar 2007If the fire was found to have been caused by Alfredos own negligence, can he still recover from the policy? ANSWERI qualify. If the negligence was simple in nature then Alfredo can still recover under the policy. However, if there was gross negligence on the part of Alfredo then he is barred from recovering under the policy. Bar 2014 On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance Company (Matino) involving a motor vehicle. The policy obligates Matino to pay Barrack the amount of Six Hundred Thousand Pesos (P600,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26, 2013 to February 26, 2014.

On April 16, 2013, at about 9:00 a.m., Barrack instructed his driver, JJ, to bring the motor vehicle to a near by auto shop for tune-up. However, JJno longer returned and despite diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly, Barrack promptly notified Matino of the said loss and demanded payment of the insurance proceeds of P600,000.00.Bar 2014 In a letter dated July 5, 2013. Matino denied the claim, reasoning as stated in the contract that "the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person in the insureds service. Is Matino correct in denying the claim? (4%)Suggested AnswerNo, Matino is wrong in denying the claim.

Under the Insurance Code, an insurance policy is intended to cover losses due to acts of simple negligence. It is only when the insured is guilty of willfull connivance in bringing about the risk insured against or gross negligence that an insurer can deny compensation.

In this case, the act of Barrack of allowing his driver to bring the car for tune up is simple negligence, which should be covered by an insurance policy.Suggested AnswerFurther, the act of JJ, Barracks driver in running away with the vehicle, cannot be considered as malicious damage. It is a crime, which is an act covered by an insurance policy. Hence, Matino cannot use this exlusionary clause to defeat payment of proceeds. INSURABLE INTERESTConcept, Section 13Every interest in property, whether real or personal (owner)

Any relation thereto (lessee, agent)

Liability in respect of property (carrier, depositary)

Which will directly damnify the insured when a contemplated peril happensForms, Sec. 14Existing interest (owner)

Inchoate interest founded on an existing interest (shareholder)

Expectancy coupled with an existing interest (usufructuary, expected profit)Factual ExpectationMere factual expectation of loss not arising from any legal right or duty in connection with the SM does NOT constitute an insurable interest.

NOTE: Factual expectation is enough basis in life insurance.Beneficiary is required to have insurable interestInsurable interest is required before a person can benefit from a property insurance (Sec. 18) Bar 2000A is an elderly bachelor. He insured his house against fire. He named his companion-friend as beneficiary. A died in a fire which also destroyed his home. The insurer refused payment to B due to absence of insurable interest on the life of A. Is the insurer correct? ANSWERThe insurer is correct. The beneficiary in property insurance must have insurable interest on the property. The companion-friend of A does not have insurable interest on the house of A. Hence, he cannot recover from the fire insurance policy. Bar 2001JQ, the owner of a condominium insured the same against fire with XYZ Company and made the loss payable to his brother MLQ. In case of loss by fire, who can recover from the policy. State the reason for your answer (5%) ANSWERJQ can recover since he has insurable interest over his own condominium unit. MLQ cannot recover since it is required that a beneficiary must have insurable interest over the property. Bar 2014A person is said to have an insurable interest in the subject matter insured where he has a relation or connection with, or concern in it that he will derive pecuniary benefit or advantage from its preservation. Which among the following subject matters is not considered insurable? (1%)(A) A partner in a firm on its future profits(B) A general creditor on debtors property(C) A judgment creditor on debtors property(D) A mortgage creditor on debtors mortgaged propertySuggested answer(B) A general creditor on debtors propertyInsurable interest in a mortgaged property (Sec. 8)Both the mortgagor and the mortgagee have insurable interest on the mortgaged property

The II of the mortgagor is to the full value of the SM

The II of the mortgagee is only up to the extent of the indebtednessBar 2012A house and lot is covered by a real estate mortgage (REM) in favor of ZZZ Bank. The bank required that the house be insured. The owner of the policy failed to endorse nor assign the policy to the bank. However, the Deed of Real Estate Mortgage has an express provision which says that the insurance policy is also endorsed with the signing of the REM. Will this be sufficient?A.No, insurance policy must be expressly endorsed to the bank so that the bank will have a right in the proceeds of such insurance in the event of loss.B.The express provision contained in the Deed of Real Estate Mortgage to the effect that the policy is also endorsed is sufficient.C.Endorsement of Insurance Policy in any form is not legally allowed.D.Endorsement of the Insurance Policy must be in a formal document to be valid. Bar 1999A businessman obtained a fire insurance policy on his stocks for P5 M. Three months later, a fire broke out and destroyed the grocery and stocks. The insurer denied the claim since the stocks were mortgaged to another person who also insured the same stocks for P5 M. May the businessman and the creditor obtain different insurance policies on the same stocks? ANSWERYes. The businessman, as the owner and the creditor, as the mortgagee have insurable interest over the stocks. Hence, they may obtain separate policies on the same stocks.MeasureMeasure of insurable interest is the extent the insured might be damnified by loss or injury (Sec. 17)

Section 25: Void stipulations payment of loss whether insured has insurable interest or not or that policy shall be proof of interestINSURABLE INTEREST: jurisprudenceFire insurance taken on a property belonging to another is VOID, although the insurer had full knowledge of fact of ownership and even if insured subsequently acquired insurable interest (Cha v. CA, 277 SCRA 690)INSURABLE INTEREST: jurisprudenceWhere the real intention of insured was to insure his goods for P15,000 but insurer mistakenly insured the building where the goods were contained and not owned by insured, in case of loss of goods insured was allowed to recover (Garcia v. Hongkong, 45 Phil 122)

When insurable interest must exist in property insurance Time the insurance takes effect and when the loss occurs, but NEED NOT exist in the meantime Bar 2002Distinguish insurable interest in property insurance from insurable interest in life insurance (5%) ANSWERIn property insurance, the expectation of benefit must have a legal basis. In life insurance, insurable interest can be based on mere factual expectation.

In property insurance, the actual value of the interest is the limit of the insurance. There is no such limit in life insurance except if insurable interest is capable of pecuniary estimation.

In property insurance, insurable interest must exist when the insurance takes effect and at the time of the loss but not in the meantime. In life insurance, insurable interest must exist only at the time the insurance takes effect.Bar 2012For both the Life Insurance and Property Insurance, the insurable interest is required to be -A.existing at the time of perfection of the contract and at the time of loss.B.existing at the time of perfection and at the time of loss for property insurance but only at the time of perfection for life insurance.C.existing at the time of perfection for property insurance but for life insurance both at the time of perfection and at the time of loss.D.existing at the time of perfection only.ANSWERB.existing at the time of perfection and at the time of loss for property insurance but only at the time of perfection for life insurance.Change of ownership of propertySection 20 and 58: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest suspends the insurance until the interest in the thing and interest in the insurance are vested on the same personIllustrationA owns a car which is insured against theft

A sells the car to B. The policy was not included in the sale.

If the car is carnapped, neither A nor B can recover under the policy.

A cannot recover because he does not own the car at the time of the theft.

B cannot recover because he does not own the policyTransfer of property by successionWhen the insured dies, and the subject matter is transferred by succession, the new owner of the thing will also own the insurance. (Sec. 23)IllustrationA owns a car which has theft insuranceA bequeath the car to B under his willA diesB now owns the car, together with the insurance policyPOLICY

KINDSOpen Value of thing is not agreed upon but is to be ascertained at time of loss. The amount of the insurance merely represents the insurers maximum liability. NEWKINDSValued expresses on its face an agreement that the thing shall be valued at a specific sum

Running successive insurancesTWO KINDS OF VALUESFace value maximum amount which may be recovered under the policy

Valuation- value of the subject matter agreed on by the partiesOpen v. Valued Open - has a face value but has NO valuation of the thing. Valuation is done after the loss

Valued - has both face value and valuation of the thingIllustration: OpenValue of the building: to be determined at time of lossFace Value: P10 MillionIf the valuation is more than the face value, recovery is limited to the face value

Illustration: ValuedValuation of the car : P15 MillionFace Value : P 10 MillionGENERAL RULE: Recovery will be based on valuationEXCEPTION: If valuation is obtained through fraud or misrepresentation. Recovery is limited to the face value or insurer may deny the claim

Illustration: Running

As of June 1, 2014 value of goods P1 MillionAs of June 10, 2014 - value of goods P500,000PREMIUMPREMIUMCash and carry basis rule is followed

Section 77 - insurer is entitled to premium as soon as the thing insured is exposed to the peril insured against

Premium - is the agreed price for assuming and carrying the riskPREMIUMGeneral Rule: Cash and carry basis nonpayment of the first premium prevents the contract from becoming binding

Premium must be paid in cash as a condition precedent for non-life insurance policy to be valid and bindingPREMIUMIn Suretyship, payment of premium is also necessary for the contract to be binding

EXCEPT: if obligee has accepted the bond, suretyship is binding even if premium has not been paid, subject to the right of the insurer to recover the premium from its principal (SEC. 177)Exceptions to Cash and Carry Basis, Sec. 77Life/industrial life when the grace period applieswhenever 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.NEWExceptions to Cash and Carry Basis, Sec. 77An 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.

When the parties have agreed on installment payment (Makati Tuscany case)

When the insurer has renewed the insurance over the years under a clear credit term arrangement (UCPB case)Exceptions to Cash and Carry Basis, Sec. 77

In Suretyship where the obligee accepts the bond even if premium has not been paid (Sec. 177)When there is a credit schemeUCPB v. Masagana April 4, 2001 - insured is entitled to proceeds even if he has not fully paid premiums when:

for years, insurer has been issuing fire insurance policies to insured and the policies were renewed

insurer has been granting 60-90 day credit extensionWhen there is a credit schemeno valid notice of non-renewal

premium was paid by insured within credit extension period Bar 2007Alfredo took out a policy to insure his commercial building. The broker agreed to give a 15-day credit to Alfredo within which to pay the premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check dated May 30, 2006. On May 28, 2006, fire destroyed the building. May Alfredo recover from the policy? ANSWERAlfredo can recover from the policy. In a decided case by the Supreme Court, it was held that parties may agree on a credit extension in paying the premium. The happening of the peril during the credit extension will entitle the insured to proceeds, less the unpaid premiums.Premium by installment: Makati Tuscany v. CAMakati and American Assurance agreed that premiums will be paid via three installmentsMakati paid premiums for 3 consecutive years in three installmentsOn the 4th year, Makati paid only the 1st 2 installments. Premium by installment: Makati Tuscany v. CAAmerican collected the 3rd installment

Makatis defense: Section 77 provides that no policy will be effective unless the premium has been paid. Since premiums were paid on installments, there was no valid policy. Premium by installment: Makati Tuscany v. CAMakati and American Assurance agreed that premiums will be paid on three installments

After paying premiums for 3 consecutive years, Makati refused to pay the third installment on the 4th year

American sought to collect the balance from MakatiPremium by installment: Makati Tuscany v. CASC: Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted Bar 2006A Insurance Company issued an policy on the new car of B. The premium of P60,000 was to be paid in 6 months. B paid only the 1st two months installments. Despite demands, B failed to pay the rest of the installments. Five months after the issuance of the policy, the vehicle was carnapped. A denied the claim of B since B did not pay the premium resulting to cancellation of the policy. Can B recover from A? ANSWERB can recover from A the proceeds of the policy less the unpaid premiums. In a decided case by the Supreme Court, it was held that when the parties agreed on payment of premiums by installment, the policy becomes effective upon payment of first installment. Absent any provision that non-payment of subsequent installments will cause cancellation, the policy between A and B continue to exist.Bar 2010Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance to cover his top of the line Aston Martin. The policy was issued on March 31, 2010 and, on even date, Enrique paid the premium with a personal check postdated April 6, 2010.On April 5, 2010, the car was involved in an accident that resulted in its total loss.Bar 2010On April 10, 2010, the drawee bank returned Enriques check with the notation "Insufficient Funds." Upon notification, Enrique immediately deposited additional funds with the bank and asked the insurer to redeposit the check.

Enrique thereupon claimed indemnity from the insurer. Is the insurer liable under the insurance coverage? Why or why not? (3%)Suggested AnswerEnrique cannot recover. In a decided case, the Supreme Court said that an insurer and the insured may agree on a credit scheme for payment of premiums, which will give rise to a perfected contract of insurance. However, the insurer must make payment within the period agreed on (UCPB v. Masagana).In this case, Enriques check bounced on April 6. He only funded the check on April 10 or 4 days late than the date of the check. Thus, there was no perfected contract of insurance which can cover the April 5 accident. Enrique cannot recover under the policy. Bar 2014 On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face value of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial(Tina) as sole beneficiary. On the same day, Danny issued an undated check to RN for the full amount of the premium. Bar 2014 On October 5, 2013, Danny met a tragic accident and died. Tina claimed the insurance benefit, but RN was quick to deny the claim because at the time of Dannys death, the check was not yet encashed and therefore the premium remained unpaid.

Is RN correct? Will your answer be the same if the check is dated October 15, 2013? (4%)Suggested AnswerRN is correct in denying the claim.

Based on jurisprudence, an insurer can be held liable for loss if the insurer and the insured agreed on a credit scheme where is a definite period when premium should be fully paid.

In this case, there was no clear credit extension period or scheme since the check issue by Danny was undated. Since there was no payment of premiums or even a definite time when payment should be made, there was no valid insurance policy at the time of Dannys death. Hence, there can be no recovery of proceeds.Suggested AnswerMy answer will not be the same if the check was dated October 15, 2014.

If the check was properly dated, this means that there was a valid credit extension scheme or period between the parties. Hence, there was a valid policy and there should be payment of proceeds, less the amount of premiums.When is insured entitled to return of premium?Whole premium if object was never exposed to peril, unless it is an indivisible policy

E.g. insured pays in advance the annual premium, loss occurs before date of effectivity. Insured is entitled to reimbursement of whole premiumWhen is insured entitled to return of premium?Pro- rated premium surrender policy before period is up

E.g. A insures his house for 1 year but returns the policy after 3 months. A is entitled to of the premiums.When is insured entitled to return of premium?If the contract is voidable and subsequently annulled under the provisions of the Civil Code or on account of fraud / misrepresentation of insure/agent, facts insured was ignorant of, default of insured other than fraud

E.g. Agent represents that A can be insured even if his age disqualifies him. Insured is entitled to return of premium.NEWWhen is insured entitled to return of premium?Over insurance by several insurers, other than life

ratable return of premiumNEWADDITIONAL PREMIUMSSection 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.NEWNOTE!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.NEWRATABLE RETURN OF PREMIUM IN CASE OF OVERINSURANCESec. 82 premiums to be returned when there is over insurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all policies exceeds the insurable value of the thing at risk Illustration: P1.5M houseP36,000.00P1,800,000.00TOTALP12,000.00P600,000.00B companyP24,000.00P1,200,000.00A companyPremiums PaidAmount of insuranceInsurerHow to compute:STEP 1: Determine amount overinsured

Amount overinsured = Amount of insurance value of property

P1.8 P1.5M = P300,000How to computeGet the ratio of overinsurance with the total amount of insurance

P300,000/P1,800,000.00

= 1/6Ratable ReturnSTEP 3: Multiply the ratio to the amount of premium paid to every insurer

A= 1/6 of P24,000 = P4,000 from A Company

B= 1/6 of P12,000 = P2,000 from B Company Bar 2000Name at least three instances when an insured is entitled to a return of the premium paid. PARTIESInsurerBeneficiaryInsuredThe beneficiarySection 18 - no contract or policy on property shall be enforceable except for the benefit of some person having an insurable interest in the property insuredCompare with Life InsuranceWhere the beneficiary is not required to have insurable interest over the cestui que vie

It is only the insured who must have insurable interest over the cestui que vieInsurerBefore issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public. The Commissioner may issue rules and regulations on the use of names of insurance companies and other supervised persons or entities.NEWInsurer- BancassuranceSection 375. The term bancassurance shall mean the presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the Bangko Sentral ng Pilipinas may promulgate.

To engage in bancassurance arrangement, a bank is not required to have equity ownership of the insurance company. No insurance company shall enter into a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Commissioner and the Bangko Sentral ng Pilipinas.NEWInsurerNo insurance product under this section, whether life or non-life, shall be issued or delivered unless in the form previously approved by the Commissioner.

Section 376. Personnel tasked to present and sell insurance products within the bank premises shall be duly licensed by the Commissioner and shall be subject to the rules and regulations of this Act.

"Section 377. The Commissioner and the Bangko Sentral ng Pilipinas shall promulgate rules and regulations to effectively supervise the business of bancassurance.NEW

Insurer-Mutual Benefit Association and Trusts for Charitable UsesSection 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.NEWMutualization and DemutualizationMutualization A a shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. A mutual organization is customer-owned.

Demutualization -customer-owned mutual organization or cooperative changes form to a joint, stock company, sometimes called stocking for privatization. MutualizationSection 280. A domestic mutual life insurance company doing business in the Philippines may convert itself into an incorporated stock life insurance company by demutualization. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this title."The conversion of a domestic mutual life insurance company to an incorporated stock life insurance company shall be carried out pursuant to a conversion plan duly approved by the Commissioner."The Commissioner shall promulgate such rules and regulations as he or she may deem necessary to carry out the provisions of this title, after due consultation with representatives of the insurance industry."All converted insurers under the provisions of this title shall be