insurance: general provisions

GENERAL PROVISIONS

A. Governing Laws

Primary:

PD 1460 as amended, Insurance Code of 1978

PD 1146 as amended, Revised Government Services Insurance Act of 1977

RA 656 as amended, Government Property Insurance Law

RA 3591 as amended, Philippine Deposit Insurance Corporation Law

Code of Commerce

Suppletory:

Civil Code

General Principles prevailing in the State of California and New York

History: Evolution of laws which primarily governed the business of insurance in the Philippines

Insurance Act (July 1, 1915) – a verbatim copy of the California Insurance Act, except for some provisions taken from the New York Insurance Law.1

Presidential Decree No. 612, the Insurance Code (December 18, 1974) – substantial number of its provisions was rendered obsolete and/or impractical in the Philippines necessitating its revision.2

1 The Insurance Code of the Philippines, Dizon 20092 Ibid

Presidential Decree No. 1141 - amended section 249 and Title 15 (Proceedings upon insolvency) of PD 612.3

Presidential Decree No. 1280 - amended Title 17, Chapter III, (Mutualization of stock life insurance companies) of PD 612.4

Presidential Decree No. 1460, the Insurance Code of 1978(June 11, 1978) – consolidated and codified insurance laws embodied in PD 612 and various laws, presidential decrees and executive orders.5

Presidential Decree No. 1814 (January 16, 1981) – amended sections of PD 1460 to ensure the due execution and performance of insurance contracts in the interest of the national economy during that time and assure reasonable insurance service for the protection of interests of policy holders and the public.6

Batas Pambansa Blg. 874 (June 12, 1985) – amended Sections 27, 45, 384 and 416 and inserted Section 180-A7

Republic Act 10607 (August 15, 2013 - amended PD 1141, 1280, 1455, 1460, 1814 and 1981, and Batas Pambansa blg. 874 (Revised Government Insurance Act)8

3 Presidential Degree No. 11414 Presidential Degree No. 12805 Dizon 20096 Ibid7 Presidential Degree No. 8748 Republic Act 10607

Changes made by Republic Act 10607 9

By Chapter and title

1. For Chapter I, Title 1: Section 3 was

modified.


modified.

3. For Chapter I, Title 3: Sections 11

and 12 were modified.


reverted to version prior to

amendment by Batas Pambansa 874.

5. For Chapter I, Title 6: Sections 50,

60, 64 and 65 were modified.


modified. A new Section 78 was

added. The old Sections 78 to 80 were

renumbered as Sections 79 to 81.

The old Sections 81 and 82 was

modified and renumbered as Sections

82 and 83. A new Section 84 was

added.

7. For Chapter I, Title 9: The old

Sections 83 to 87 were renumbered as

Sections 85 to 89.


Section 88 was modified and

renumbered as Section 90. The old


Sections 91 to 94.


Section 93 was renumbered as Section

95.

9 https://berneguerrero.wordpress.com/2014/04/05/list-of-changes-in-the-philippine-insurance-code-pd612-viz-ra-10607/ April 5, 2014

The old Section 94 was modified and

renumbered as Section 96.



Sections 97 to 100.

11. For Chapter II, Title 1, Subtitle 1-A:

The old Section 99 was modified and


12. For Chapter II, Title 1, Subtitle 1-B:

The old Sections 100 to 106 were


13. For Chapter II, Title 1, Subtitle 1-C:



14. For Chapter II, Title 1, Subtitle 1-D:



15. For Chapter II, Title 1, Subtitle 1-E:



16. For Chapter II, Title 1, Subtitle 1-F:



17. For Chapter II, Title 1, Subtitle 1-G:



18. For Chapter II, Title 1, Subtitle 1-H:



19. For Chapter II, Title 1, Subtitle 1-I:



20. For Chapter II, Title 2: The old

Sections 167 to 171 were renumbered

as Sections 169 to 173. The old


https://berneguerrero.wordpress.com/2014/04/05/list-of-changes-in-the-philippine-insurance-code-pd612-viz-ra-10607/




Section 173 was renumbered as

Section 175.






as Sections 177 to 180.


Sections 179 to 180 were modified

and renumbered as Sections 181 to

182. The old Section 180-A (as

inserted by Batas Pambansa 874) was




24. Chapter II, Title 6 was added, along

with new Sections 187 and 188.

25. Chapter II-A was added, along

with new Section 189.

26. For Chapter III, Title 1: The old



Section 185 was replaced and



and renumbered as Section 192 to

194. The old Section 189 and 190

were renumbered as Sections 195 and

196. The old Sections 191 to 193 was


197 to 199.


Sections 194 and 195 were modified

and renumbered as Sections 200 and

201.





Section 203.




212. The old Section 207 was





Section 216.




















Section 230. The old Section 228 was

modified and renumbered as Section

234.


Sections 226 and 227 were

renumbered as Sections 232 and 233.

The old Section 228 was modified

and renumbered as Section 234. The

old Sections 229 and 230 were

renumbered as Section 235 and 236.


and renumbered as Section 237.







renumbered as Section 245 and 246.





renumbered as Section 250. A new

Section 251 was added.













Section 250 was repealed. The old








Section 268. The old Sections 263 to

267 were modified and renumbered as

Section 269 to 273. The old Section

268 was renumbered as Section 274.

The old Sections 269 and 269-

A were modified and renumbered as

Section 275 and 276. The old Section

270 was renumbered as Section 277.

The old Sections 271 and 272 were



added.
















289.




292. The old Sections 285 to 292 were




301 to 303. The old Sections 296 and

297 were renumbered as Sections 304

and 305. The old Section 298was


306.

46. For Chapter IV, Title 1: The old



Section 308 was added. The old




Section 310. The old Sections 302

and 303 were modified and


The old Sections 304 and 305 were







and renumbered as Section 318.












old Section 316 was renumbered as



326.



as Sections 327 and 330. The old













347.






old Sections 342 to 350 were











372.





54. Chapter IV, Title 9 was added, along

with new Sections 375 to 377.

55. For Chapter V: The old Section

365 was modified and renumbered as







56. For Chapter VI: The old Sections 373

to 382 were modified and renumbered











Section 402.

57. For Chapter VII, Title 1: The old


Section 403. The old Sections 391 to


Sections 404 and 405. The old

Sections 393 and 394 was renumbered

as Sections 406 and 407. The old



409. The old Sections 397 to 407 was


The old Sections 408 and 409were



added.

58. For Chapter VII, Title 2: The old






59. Chapter VIII was added, along

with new Section 429.

60. Chapter IX was added, along

with new Sections 430 to 436.

61. For Chapter X (Formerly Chapter

VIII), Title 1: The old Sections 414 to


Sections 437 to 439.

62. For Chapter X (Formerly Chapter

VIII), Title 2: The old Sections 417 to


Sections 440 to 441.

63. For Miscellaneous Provisions:





A new Section 445 was added.



446 to 448.

By Section references (Amendments and

renumbering)

For the purpose of referring to prior

literature, i.e. especially those subsequent to

the last amendment on 12 June 1985 (as per

BP 874), the following provisions were

modified (as to their content, whether

substantially or not):

Sections 3, 6, 11, 12, 45, 50, 60, 64, 65, 77,

81, 82, 88, 94, 99, 172, 174, 179, 180, 184,

185, 186, 187, 188, 191, 192, 193, 194, 195,

196, 198, 199, 200, 201, 202, 203, 204, 205,

206, 208, 210, 211, 212, 213, 215, 219, 220,

221, 223, 228, 231, 238, 244, 247, 248, 249,

251, 263, 264, 265, 266, 267, 269, 269-A,

271, 272, 274, 276, 277, 279, 280, 281, 282,

283, 284, 293, 294, 295, 298, 299, 300, 302,

303, 306, 309, 311, 315, 317, 322, 328, 335,

336, 337, 338, 341, 351, 361, 363, 364, 365,

367, 373, 374, 375, 376, 377, 378, 379, 380,

381, 382, 385, 388, 391, 392, 395, 396, 408,

409, 413, 414, 415 416, 417, 418, 419, 422,

423, and 424.

The current numbering of the old provisions

are as follows:

1. The numbering for (Sections 1 to 77)

remained as is.

2. With the introduction of a new

Section 78, the numbers for former

sections 78 to 82 were adjusted by 1

(Sections 79 to 83).



sections 83 to 180 were adjusted by 2


4. With the number for former section

180-A adjusted as (Section 183), the

numbers for former sections 181 to

183 were adjusted by 3 (Sections 184

to 186).

5. With the introduction of new Sections

187 to 189, the numbers for former

sections 184 to 244 were adjusted by

6 (Sections 190 to 250).





7. With the repeal of the former Section

250, the numbers for former sections

251 to 269 were adjusted by 6


8. With the number for former section

269-A adjusted as (Section 276), the

numbers for former sections 270 to

272 were adjusted by 7 (Sections 277

to 279)

























* It referred to a revision of Presidential Decree 612 and not 1460.

A. Definitions

Contract of Insurance

an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.10

Contract of Suretyship

an agreement whereby a party called the surety guarantees the performance by another called the principal or obligor of a n obligation or undertaking in favour of a third party called the oblige. It is an insurance

10 Ibid, Sec 2., par 2

contract if made by a surety who or which, as such, is doing an insurance business11.

Doing an insurance business or transacting an insurance business

A person is doing an insurance business or transacting an insurance business if he performs any of the following:

(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.12

Does absence of profit in making insurance contracts, agreements or transactions means non-engagement in an insurance business or transacting an insurance business?

No. The fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not

11 Ibid, Sec 175 and Sec 2., par 312 Ibid, Sec. 2, par 4

constitute the doing or transacting of an insurance business.13

Test to determine if a contract is a contract of insurance

Nature of promise; Act required to be performed; Exact nature of the agreement in the light

of the occurrence, contingency, or circumstances under which performance becomes requisite

*it is not determined how the parties called it14

B. Essential elements of an insurance contract15

Existence of an insurable interest; Risk of loss on the insured; Assumption of risks by the insurer; Scheme to distribute loss among a large

group of persons bearing the same risks; Payment of premiums by the insured

*Insurance contract must have all the essential elements of a contract (consent, object, cause)

C. Characteristics of an Insurance Contract

13 Ibid, sec2, par 514 43 Am Jur. 2d Insurance Sec 4 (1982)15 Ibid, sec 2; sec 12-14; sec 51 par 9; sec 77, Philmacare Health Systems, Inc. vs CA, GR 125678, March 12, 2002, Gulf Resorts, Inc. vs Phil. Charter Insurance Corp. GR 156167, May 16, 2005, Dizon, 2009, Reviewer on Commercial Law, Sundiang & Aquino, 2013

Risk-distributing device – distribution of economic loss among those who are subject to the same kind of risk

Contract of adhesion – contract drafted by one party and offered on a take-it-or leave it basis, or which with little opportunity for the offeree to bargain or alter the provisions

Aleatory contract – insurer’s obligation is dependent on the happening of an event,which is uncertain, or which occurs at an indeterminate time.

Contract of indemnity – insurer promises to make good on the loss of the insured, in exception of life and accident insurance.

Uberrimae Fides Contract (principle of utmost good faith) – both parties are expected to deal in good faith

Personal contract – cannot be assigned, it follows the insured and not the property

Executory and conditional contract – executed on the part of the insurer upon payment of premium, and conditional upon the loss caused by the peril insured against

D. Essentials of a Valid Insurance Contract16

There must be an offer and acceptance There must be a consideration involved

(premiums) Parties must have the legal capacity to

enter in a contract The purpose of the contract must be lawful

E. Perfection of an Insurance contract

An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of the minds with respect to the object and the cause of consideration.17 Insurance contracts follow the cognition theory over manifestation theory.

The mere submission of the application without corresponding approval of the policy does not result in the perfection of the contract18. Application is merely an offer made by the applicant/insured, and approval of the application by the insurer constitutes acceptance

F. Principle of subrogation in the business of insurance

The insurer steps into the shoes of the insured so as to have the benefit of the insured’s rights and remedies against a third party. As a normal incident of indemnity insurance, once an insurance company pays

16 Dizon. 200917 Sec 1315, 1318, and 1319 of the Civil code18 Great Pacific Life Assurance Corp. vs. CA , 89 SCRA 543

for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof.19

Indemnity insurer’s subrogation rights

Take over the remedies of the insured against third persons in order to recover the sums paid out by the insurer to the insured and by which the insured would be overcompensated

Recover from the insured up to the amount which the insurer paid to the insured by which the insured is overcompensated.

Surety’s subrogation rights

Take over the claims and remedies the creditor have over the debtor

Recover the sum paid to the creditor from the debtor

G. Types of Insurance (the following are non-exhaustive)

Life insurance/Life assurance

Insurance on human lives and insurance appertaining thereto or connected therewith20

Marine insurance

Insurance against risks connected with navigation to which a ship, a cargo, freightage, profits or other insurable interest in movable property may be exposed during a certain voyage or fixed period of time.21

19 ibid20 RA 10607, Sec 18121 Ibid, Sec 101

Fire insurance

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 policies.22

Casualty insurance

Insurance covering 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 or marine. It includes, but is not limited to, employer’s liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance23.

Compulsory Motor Vehicle Liability Insurance

Compulsory insurance that provides protection coverage that will answer for the legal liability for losses & damages for bodily injuries or property damage that may be sutained by another arising from the use and operation of a motor vehicle.24

Suretyship

22 Ibid, Sec 16923 Ibid, Sec 176 24 Ibid, Sec 386

An insurance contract within the meaning of the code if made by a surety who or which, as such, is doing an insurance business25

General rule: any risk that can be quantified or known, can potentially be insured

Exception: those contrary to law, morals, public order, good customs or public policy

H.

Lending investors vs, Insurance Companies26

Cannot hold anyone harmless for loss, damage or liability for compensation, nor provide compensation or indemnity for loss

Underwriting of risks is the prerogative of insurers

Lending activities are not circumscribed and strictly regulated by the state

Lending activities are circumscribed and strictly regulated by the state

Not required by law to possess and maintain substantial legal reserves

Required by law to possess and maintain substantial legal reserves to meet their obligations to policy holders

WHAT MAY BE INSURED

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against.27

Contingent or unknown event

25 Ibid, Sec 226 Dizon, 200927 Ibid, Sec 3 par 1

An event which may or may not happen; that which is unforeseen, undetermined, or dependent on some future contingency.

Past or Future events

Events which happened, or will happen, unknown to both insurer and insured. As to Past events, the parties must also expressly stipulate that a prior loss is insured by the policy (lost or not lost clause)

Are fortuitous events a valid defence against liability in an insurance contract?

No. insurance contract involves assumption of risk, hence such defence cannot be raised.

Is consent of the spouse necessary for the validity of an insurance policy?

No, under Sec 3 of the Insurance code, as amended, 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.

The wife can procure a contract of insurance without the consent of the husband so long as the insurance is upon her life, her children, and that of her husband. She could also procure an insurance without the consent of the husband for her exclusive properties.28

As to communal property, consent is also not necessary, but such shall be subject to objection of the husband on valid, serious and moral grounds. The premiums are chargeable to the property. 29

What happens to the insurance policy upon death of the original owner prior to

28 Family code art 110, 11129 Ibid, Art 23, 94, 96

the occurrence of the risk insured against over the life or health of another?

The insurance code as amended by RA 10607 provides that 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.

Can insurance be issued against the drawing of any lottery?

No. SEC. 4. Of the insurance code provides that the law does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

Insurance vs. Gambling30

Protection from risk Risk in itselfCommon interest of both parties (non-occurrence of risk)

Different interests of the parties

Loss and reimbursement

Loss and gain

Spending is limited to the amount the insurer will accept to insure. Loss is

limited to the amount of premium

Continuous spending, buying

more risk than what one can afford to

pay

Required existence of insurable interest

Creation of risk with no link to

personal and family situation

Insured is a risk avoider

Gambler is a risk seeker

30 Dizon, 2009

insurance: general provisions

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