THE INSURANCE CODE OF 1976

(Presidential Decree No. 1460) At present, there are 130 insurance companies registered with the Office of
the Insurance Commissioner. Of these, 2 are composite insurance companies
GENERAL PROVISIONS (engaged in both life and non-life insurance), 23 are life insurance companies, 101 are
non-life insurance companies and 4 are reinsurance companies.
Section 1. This decree shall be known as the “Insurance Code of 1978”
How did insurance laws develop in the Philippines?
What is the principle behind insurance? During the Spanish Period, the laws on insurance were found in Title VII of
Insurance is based upon the principle of aiding another from a loss caused by Book II and Section III of Title III of Book III of the Spanish Code of Commerce; and in
an unfortunate event. Chapters II and IV of Tile XII of Book IV of the Spanish Civil Code of 1889 (whew!)

How old is the concept of insurance? During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted
Very old. Benevolent societies organized for the purpose of extending aid to the Insurance Act (Act 2427). This Act which took effect on July 1, 1915 repealed the
their unfortunate members from a fund contributed by all, have been in existence from provisions of the Spanish Code of Commerce on Insurance.
the earliest times. They existed among the Egyptians, the Chinese, the Hindus, the
Romans, and are known to have been established among the Greeks as early as, When the Civil Code of the Philippines (RA 386) took effect on August 30,
believe it or not, 3 B.C. 1950, the provisions of the Spanish Civil Code of 1889 were likewise repealed. For
quite a long time, the Insurance Act was the governing law on insurance in the
How did insurance develop in the Philippines? Philippines.

● Pre-Spanish Era - there was no insurance; every loss was borne by the person or On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the
the family who suffered the misfortune. Insurance Code of the Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317
● Spanish era – Insurance, in its present concept, was introduced in the Philippines were issued, amending PD 612. Finally PD 1460 which took effect on June 11, 1976
when Lloyd’s of London appointed Strachman, Murray & Co., Inc. as its consolidated all insurance laws into a single code and this is what we know now as the
representative here. Insurance Code of 1978.
● 1898 – Life insurance was introduced in this country with the entry of Sun Life
Assurance of Canada in the local insurance market. What are the present laws that govern insurance (also known as the laws we have
● 1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance to know for exams)?
Company, was organized The laws we have to know are, of course, PD 1460, and Articles 2011-2012, 2021-
● 1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., 2027 and 2166 of the New Civil Code.
was organized
● 1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent What do these Civil Code Provisions say?
in Manila. The business transacted the Philippines was then limited to non-life Art. 2011. The contract of insurance is governed by special laws. Matters not
insurance. expressly provided for in such special laws shall be regulated by this Code.
● 1936 – Social insurance was established with the enactment of Commonwealth Act
no. 186 which created the Government Service Insurance System (GSIS) which Art. 2012. Any person who is forbidden from receiving any donation under Art. 739
started operations in 1937. The Act covers gov’t employees. cannot be named beneficiary of a life insurance policy by a person who cannot make
● 1949 – Government agency was formed to handle insurance affairs, where the any donation to him, according to said article.
Insular Treasurer was appointed commissioner ex-officio.
● 1950 – Reinsurance was introduced by the Reinsurance Company of the Orient Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual
when it wrote treaties for both life and non life. pension or income during the life of one or more determinate persons in consideration
● 1951 – First workmen’s compensation pool was organized as the Royal Group of a capital consisting of money or other property, whose ownership is transferred to
Incorporated. him at once with the burden of income.
● 1954 – RA 1161 was enacted which provided for the organization of the Social
Security System (SSS) covering employees of the private sector.
Art. 2022. The annuity may be constituted upon the life of the person who gives the How do we construe the provisions of the Insurance Code (IC)?
capital, upon that of a third person, or upon the lives of various persons, all of whom Since our present IC is based mainly on the Insurance Act, which in turn was
must be living at the time the annuity is established. taken verbatim from the law of California (except for Chap V, which was taken from the
law of NY), the courts should follow in fundamental points, at least, the construction
It may also be constituted in favor of the person or persons upon whose life or placed by California Courts on California law (and the construction placed by the NY
lives the contract is entered into, or in favor of another or other persons. Courts on NY law).

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was This is in accordance with the well settled rule in statutory construction that
already dead at the time the contract was entered into, or who was at the that time when a statute has been adopted from some other state or country, and said statute
suffering from an illness which caused his death within twenty days following said date. has previously been construed by the courts of such state or country, the statute is
usually deemed to have been adopted with the construction so given.
Art. 2024. The lack of payment of the income due does not authorize the recipient of
the life annuity to demand the reimbursement of the capital or to retake possession of Section 2. Whenever used in this Code, the following terms shall have the
the property alienated, unless there is a stipulation to the contrary; he shall have only a respective meanings hereinafter set forth or indicated, unless the context otherwise
right judicially to claim the payment of the income in arrears and to require a security for requires:
the future income, unless there is a stipulation to the contrary.
(1) A “Contract of Insurance” is an agreement whereby one undertakes for a
Art. 2025. The income corresponding to the year in which the person enjoying it dies consideration to indemnify another against loss, damage or liability arising from an
shall be pain in proportion to the days during which he lived; if the income should be unknown or contingent event.
paid by installments in advance, the whole amount of the installment which began to
run during his life shall be paid. A contract of suretyship shall be deemed to be an insurance contract, within
the meaning of this Code, only if made by a surety who or which, as such, is doing an
Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may insurance business as hereinafter provided.
provide at the time the annuity is established that the same shall not be subject to
execution or attachment on account of the obligations of the recipient of the annuity. If (2) The term “doing an insurance business” or “transacting an insurance business”
the annuity was constituted in fraud of creditors, the latter may ask for execution or withing the meaning of this Code, shall include:
attachment of the property.
(a) Making or proposing to make, as insurer, any insurance contract;
Art. 2027. No annuity shall be claimed without first proving the existence of the person (b) Making, or proposing to make, as surety, any contract of suretyship as a vocation
upon whose life the annuity is constituted. and not as merely incidental to any other legitimate business or activity of the
surety;
What is so important about the Civil Code Provisions? (c) Doing any kind of business including a reinsurance business, specifically
Atty. Quimson never fails to ask about Art. 2012. recognized as constituting the doing of an insurance business within the meaning
of this Code;
Are there special laws that govern insurance? (d) Doing or proposing to do any business in substance equivalent to any of the
Yes, but Atty. Quimson did not tell us to look them up. However, for reference foregoing in a manner designed to evade the provisions of this code.
they are:
1. Revised GSIS Act of 1977 (PD 1146, as amended) In the application of the provisions of this Code, the fact that no profit is
2. Social Security Act of 1954 ( RA 1161, (as amended) derived from the making of insurance contracts, agreements or transactions or that no
3. The Property Insurance Law ( RA 656, as amended by PD 245) separate or distinct consideration is received therefor, shall not be deemed conclusive
4. Republic Act No. 4898 to show that the making thereof does not constitute the doing or transacting of an
5. EO 250; and insurance business.
6. RA 3591
(3) As used in this Code, the term “Commissioner” means the “Insurance
Commissioner.”
Is the definition of a contract of insurance under Sec. 2 sufficient? 2) Non-Life Insurance Contracts
De Leon believes that it is not. He opines that the definition does Not include a) Marine (Sections 99-166)
Life insurance which is a contract upon a condition rather than a contract to indemnify b) Fire (Sections 167-173)
for nor recovery can fully repay a beneficiary for the loss of life which is beyond c) Casualty (Section 174)
pecuniary value. 3) Contracts of Suretyship and bonding (Sections 175-178)

A better definition he thinks, is that of Vance who said that a “contract of How are insurance contracts construed?
insurance is an agreement by which one party, for a consideration, promises to pay Ambiguities or obscurities must be strictly interpreted against the party that
money or its equivalent, or to do some act valuable to the insured or his nominee, upon caused them. As the insurance policy is prepared solely by the insurer, the ambiguities
the happening of a loss, damage, liability or disability arising from an unknown or shall be construed against it and in favor of the insured. (Qua Chee Gan)
contingent event.”
What does the term “doing insurance business” include?
What are the characteristics of an insurance contract? The term “doing an insurance business or “transacting an insurance business”
A contract of insurance has the following characteristics: includes:
1. Consensual – perfected by the meeting of the minds of the parties a) Making or proposing to make, as insurer, any insurance contract;
2. Voluntary – it is not compulsory and the parties may incorporate such terms and b) Making, or proposing to make, as surety, any contract of suretyship as a vocation
conditions as they may deem convenient which will be binding provided they are not and not as merely incidental to any other legitimate business or activity of the
against the law or public policy surety;
3. Aleatory – depends upon some contingent event c) Doing any kind of business including a reinsurance business, specifically
4. Executed – as to the insured after the payment of the premium recognized as constituting the doing of an insurance business within the meaning
5. Executory – as to the insurer as it is not executed until payment for a loss of this Code;
6. Conditional – subject to conditions the principal one of which is the happening of d) Doing or proposing to do any business in substance equivalent to any of the
the event insured against foregoing in a manner designed to evade the provisions of this code.
7. Personal – each party in the contract have in view the character, credit and
conduct of the other Does the fact that no profit was derived from the transaction nor a separate
consideration received therefore mean that no insurance business was
What are the elements of an insurance contract? transacted?
Like any other contract, an insurance contract must have consent of the
parties, object and cause or consideration. The parties who give their consent in this No. Fact that no profit is derived from the contract or transaction or that no
contract are the insurer and insured. The object of the contract is the transferring or separate or direct consideration is received for such contract or transaction is NOT
distributing of the risk of loss, damage, liability or disability from the insured to the deemed conclusive to show that no insurance business was transacted.
insurer. The cause or consideration of the contract is the premium which the insured
pays the insurer. Will any suretyship agreement amount to an insurance contract?

What is an additional element of an insurance contract? No. In order for a suretyship agreement to come under the purview of the
Insurable Interest. This means that the insured possesses an interest of some Insurance Code, the Surety undertaking to ensure the performance of the obligations
kind susceptible of pecuniary estimation. must be registered with the Insurance Commissioner and must have been issued by
the latter with a certificate of authority. Furthermore, the person acting as a surety is
How are insurance contracts classified? habitually engaged as such for a livelihood.
Insurance contracts are classified as follows:
1) Life insurance contracts
a) Individual (Sections 179-183, 227)
b) Group Life (Sections 50 and 228)
c) Industrial Life (Sections 229-231)
 CHAPTER 1 Atty Quimson asked us to look at a few provisions of law with respect to this
CONTRACT OF INSURANCE section. What are they?

TITLE I – WHAT MAY BE INSURED Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the
Section 3. Any contingent or unknown event, whether past or future, which assumption of risk, no person shall be responsible for those events which, could not be
may damnify a person having an insurable interest, or create a liability against him, may foreseen, or which, though foreseen, were inevitable.
be insured against, subject to the provisions of this chapter.
Art. 110 (FC). The spouses retain the ownership, possession, administration and
The consent of the husband is not necessary for the validity of an insurance enjoyment of their exclusive properties.
policy taken out by the married woman on her life or that of her children.
Either spouse may during the marriage, transfer the administration of his or
Any minor of the age of eighteen years or more, may notwithstanding such her exclusive property to the other by means of a public instrument, which shall be
minority, contract for life, health and accident insurance, with any insurance company recorded in the registry of property of the place where the property is located.
duly authorized to do business in the Philippines, provided the insurance is taken on his
own life and the beneficiary appointed is the minor’s estate or the minor’s father, mother, Art. 1327 (NCC). The following cannot give consent to a contract:
husband, wife, child, brother or sister. (1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
The married woman or the minor herein allowed to take out an insurance
policy may exercise all the rights and privileges of an owner under a policy. Art. 1390 (NCC). The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
All rights, title and interest in the policy of insurance taken out by an original (1) Those where one of the parties is incapable of giving consent to a contract;
owner on the life or health of a minor shall automatically vest in the minor upon the (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
death of the original owner, unless otherwise provided in the policy. influence or fraud.

What perils or risk may be insured? These contracts are binding, unless they are annulled by a proper action in court.
The following risks may be insured: They are susceptible of ratification.

1. Any contingent or unknown event whether past or future which may cause Problem:
damage to a person having an insurable interest; or A, wanted to open a medicinal herb shop. He placed a long distance phone
2. Any contingent or unknown event, whether past or future, which may create call to Taiwan and talked to an exporter who willingly agreed to consign several tons of
liability against the person insured. ginsengs with him on the condition that he will come and pick the goods up. A then
sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August 14, A
May a married woman take out an insurance? If so, on what? insured the 5 vessels against perils of the South China Sea “Lost or Not Lost” with B
Yes. A married woman may take out an insurance on her life or that of her Insurance Co. Without the knowledge of both parties, the ships had already sunk on
children even without the consent of her husband. She may likewise take out an Aug. 14. Is B Insurance Co. liable for the ships?
insurance on the life of her husband, her paraphernal property, or on property given to
her by her husband. Yes. This is an example of a past unknown event because the sinking of the
ship is a past event at the time that the policy took effect. The contract is valid and B
May a minor take out an insurance? Insurance Co. is liable because he agreed to pay even though the ship be already lost.
Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 An insurance against an unknown past event is peculiar only to marine insurance.
years old (RA 8809, Dec. 13, 1989). However, Atty. Quimson said in class that nowadays, most if not all insurance
companies no longer insure a past event since technology has progressed in such a
manner that a ship’s current status can easily be known while the application is being
processed.
 Section 4. The preceding section does not authorize an insurance for or Insurance Contract Gambling contract
against the drawing of any lottery, or for against any chance or ticket in a lottery
Parties seek to distribute loss by reason of Parties contemplate gain through mere
drawing a prize.
mischance chance or the occurrence of a contingent
event.
Is a contract of insurance a wagering or gambling contract?
Insured avoids misfortune. Gambler courts fortune
NO. A contract of insurance is a contract of indemnity and not a wagering or
Tends to equalize fortune. Tends to increase the inequality of
gambling contract. Although it is true that an insurance contract is also based on a fortune.
contingency, it is not a contract of chance.
What one insured gains is not at the Essence is whatever one person wins
expense of another insured. The entire from a wager is lost by the other wagering
What is the concept of a lottery? group of insureds provides through the party.
The term “lottery” extends to all schemes for the distribution of prizes by premiums paid, the funds which make
chance, such as policy playing, gift exhibition, prize concerts, raffles at fairs, etc. and possible the payment of all claims;
various forms of gambling. Purchase of insurance does not create a As soon as a party makes a wager, he
new and non-existing risk of loss to the creates a risk of loss to himself where no
What are the three essential elements of lottery? purchaser. In purchasing insurance, the such risk existed previously.
Consideration, prizes and chance. insurer faces an already existing risk of
There is consideration of price aid if it appears that the prizes offered by economic loss.
whatever name they may be called came out of the fund raised by the sale of chances
among the participants in order to win the prizes. What are the similarities between an insurance contract and a gambling contract?
They are similar in only one respect. In both, one party promises to pay a
Are all prizes equivalent to a lottery? given sum to the other upon the occurrence of a given future event, the promise being
If the prizes do not come out of the fund or contributions by the participants, no condition upon the payment of, or agreement to pay, a stipulated amount by the other
consideration has been paid and consequent, there is no lottery. Ex: A company, to party to the contract.
promote the sale of certain products, resorts to a scheme which envisions the giving
away for free of certain prizes for the purchase of said products, for the participants are In either case, one party may receive more, much more, than he paid or agreed to pay.
not required to pay more than the usual price o the products.
Problems.
Can a sweepstakes holder insure himself against the failure of his ticket to win?
NO. It cannot be said that he suffered a “loss” of prize when he did not win. A, B, C and D decided to join a bungee jumping competition. They contributed
The failure to win a prize would not damnify or create a liability against him. P1,000 each to a fund available for the use of any member who is injured in the contest.
Is this insurance or gambling?
What are the distinctions between an insurance contract and a wagering contract?
A contract of insurance is a contract of indemnity and not a wagering, or This is an insurance contract. Each member contributes to a common fund,
gambling contract.(Sec. 25) White it is based on a contingency, it is not a contract of out of which one is reimbursed for the losses that he may suffer.
chance and is not used for profit. The distinctions are the following:
Suppose A, B, C, and D agree that the whole amount of 4T would be given to the one
who swings nearest to the ground. Is this insurance or gambling?

This is now a gambling contract. The parties are now contemplating a gain
based upon uncertain events.
 Section 5. All kinds of insurance are subject to the provisions of this chapter How are the terms assurer, insured and assured used in insurance?
so far as the provisions can apply. Accdg to Black’s Law, Insurer is synonymous with the term “assurer” or
“underwriter”.
What is the applicability of the provisions of Chapter 1?
Provisions of Chap 1 on “The Contract of Insurance” (Secs 1-98) are also The terms “insured” and “assured” are generally used interchangeably; but
applicable to marine Insurance (Secs. 99-166), Fire insurance (Secs. 167-173), strictly speaking, the term “insured” refers to the owner of the property insured or the
Casualty Insurance (Sec. 174), Suretyship (Secs. 175-178), Life Insurance (Secs. 179- person whose life is the subject of the contract of insurance, while “assured” refers to
183), and to any other kind of insurance (Sec. 2) so far as said provisions can apply. the person for whose benefit the insurance is granted.
Matters not expressly provided for in the Insurance Code and special laws are
regulated by the CC. For ex: A wife insures the life of her husband for her own benefit. The wife is
the assured, and the husband the insured. The wife is the owner of the policy but she
So, an insurance contract under RA 1611 (Social Security Act of 1954) shall is not the insured.
be governed primarily by the said law and subsidiarily by Chap. 1 of the Insurance
Code, and in the absence of the applicable provisions in both laws, the pertinent In property insurance, like fire insurance, the insure is also the assured where
provisions of the CC shall be applied. the proceeds are payable to him.

Assured is also used sometimes as a synonym of “beneficiary.” The

beneficiary is the person designated by the terms of the policy as the one to receive the
TITLE II – PARTIES TO THE CONTRACT proceeds of the insurance. He is the third party in a contract of life insurance, whose
benefit the policy is issued and to whom the loss is payable.
Section 6. Every person, partnership, association or corporation duly
authorized to transact insurance business as elsewhere provided in this Code, may be Who may be an insurer?
an insurer. A foreign or domestic insurance company may transact business in the
Philippines but must first obtain a certificate of authority for that purpose from the
Who are the parties to the contract of insurance? Insurance Commissioner who has the discretion to refuse to issue such certificate if it
The Insurer is the party who assumes or accepts the risk of loss and undertakes will best promote the interests of the people of this country. (Sec. 187)
for a consideration to indemnify the insured or to pay him a certain sum on the
happening of a specified contingency or event. The business of insurance may be An individual may also be an insurer, provided he holds a certificate of
carried on by individuals just as much as by corporations and associations. The state authority from the Insurance Commissioner, and provided further that he is possessed
itself may go into insurance business. of the capital assets required of an insurance corporation doing the same kind of
business in the Philippines and invested in the same manner. (Secs. 184-186)
The insured, or the second party to the contract, is the person in whose favor,
the contract is operative and who is indemnified against, or is to receive a certain sum What is an insurance corporation?
upon the happening of a specified contingency or event. He is the person whose loss IC defines it as one formed or organized to save any person or persons or
is the occasion for the payment of the insurance proceeds by the insurer. other corporations harmless from loss, damage, or liability arising from any unknown or
future or contingent event, or to indemnify or to compensate any person or persons or
Is the insured always the person to whom the proceeds are paid? other corporations for any such loss, damage, or liability, or to guarantee the
No. The person paid may be the beneficiary designated in the policy. A performance of or compliance with contractual obligations or the payment of debts of
common example of this situation is a life insurance policy where the proceeds are not others. (Sec. 185) The last part of the statement refers to suretyship. (Sec. 175)
given to the insured but to a third party designated by the insured.
What does the term “insurer” and “insurance company” include?
What is the nature of the relationship between the insurer and the insured? It includes individuals, partnerships, associations or corporations, including
It is that of a contingent debtor and creditor, subject to the conditions of the GOCC’s or entities, engaged as principals in the insurance business, except mutual
policy and NOT that of trustee and cestui que trust. benefit associations. It shall also include professional reinsurers as defined in Sec. 280
(Sec. 184)
Is the Business of Insurance affected with public interest? provisions of section 188, reasonably assure the safety of the interests of the
Yes. It is therefore, subject to regulation and control by the state by virtue of policyholders and the public.
the exercise of its police power or in the interest of public convenience and the general
good of the people. In order to maintain the quality of the management of insurance companies
and afford better protection of policyholders and the public in general, any person of
Atty. Quimson asked us to look at Sec. 184-185 for the meaning of “insurer”, good moral character, unquestioned integrity and recognized competence may be
“insurance company”, and “Insurance corporation”; and Sec. 187 for the certificate of elected or appointed director or officer of insurance companies. The Commissioner
authority required to transact insurance business. What do these sections provide? shall prescribe the qualifications of the executive officers and other key officials of
insurance companies for the purposes of this section.
Sec. 184. For the purposes of this Code, the term “insurer” or “insurance company”
shall include all individuals, partnerships, associations, or corporations including No person shall concurrently be a director and/or officer of an insurance
government-owned or controlled corporations or entities, engaged as principals in the company and an adjustment company.
insurance business, excepting mutual benefit associations. Unless the context
otherwise requires, the term shall also include professional reinsurers defined in Sec. Incumbent directors and/or officers affected by the above provisions are
280. “Domestic Company” shall include companies formed, organized or existing under hereby allowed to hold on to their positions until the end of their terms or two years from
the laws of the Philippines. “Foreign Company,” when used without limitation, shall the effectivity of the Decree, whichever is shorter.
include companies formed, organized, or existing under any lws other than those of the
Philippines. Before issuing such certificate of authority, the Commissioner must be
satisfied that the name of the company is not that of any other known company
Sec. 185. Corporations formed or organized to save any person or persons or other transacting a similar business in the Philippines, or a name so similar as to be
corporations harmless from loss, damage, or liability arising from any unknown or future calculated to mislead the public.
or contingent event, or to indemnify or to compensate any person or persons or other
corporations for any such loss, damage, or liability, or to guarantee the performance of Such certificate of authority shall expire on the last day of June of each year
or compliance with contractual obligations or the payment of debts of others shall be and shall be renewed annually if the company is continuing to comply with the
known as “insurance corporations.” provisions of this Code or the circulars, instructions, rulings or decisions of the
Commissioner. Every company receiving any such certificate of authority shall be
The provisions of the Corporation Law shall apply to all insurance corporations subject to the provisions of this Code and other related laws and to the jurisdiction and
now or hereafter engaged in business in the Philippines in so far as they do not conflict supervision of the Commissioner.
with the provisions of this chapter.
No insurance company may be authorized to transact in the Philippines the
Sec. 187. No insurance company shall transact any insurance business in the business of life and non-life insurance concurrently, unless specifically authorized to do
Philippines until after it shall have obtained a certificate of authority for that purpose so, provided however, that the terms “life” and “non-life” insurance shall e deemed to
from the Commissioner upon application therefore and payment by the company include health, accident and disability insurance.
concerned of the fees hereinafter prescribed.
No insurer company shall have any equity in an adjustment company and
The Commissioner may refuse to issue a certificate of authority to any neither shall an adjustment company have an equity in an insurance company.
insurance company if, in his judgment, such refusal will best promote the interests of
the people of this country. No such certificate of authority shall be granted to any such Insurance companies and adjustment companies presently affected by the
company until the Commissioner shall have satisfied himself by such examination as he above provisions shall have two years from the effectivity of the Decree within which to
may make and such evidence as he may require that such company is qualified by the divest of their stockholdings.
laws of the Philippines to transact business therein, that the grant of such authority
appears to be justified in the light of local economic requirements, and that the direction
and administration, as well as the integrity and responsibility of the organizers and
administrators, the financial organization and the amount of capital, notwithstanding the
 Section 7. Anyone except a public enemy may be insured. Problem.

What are the requisites in order that a person may be insured in a contact of insurance? B is sideswiped by a balut vendor. Because he was previously indicted for
There are 3 requisites namely: many other crimes including illegal possession of balisongs, he was declared Metro
a) He must be competent to enter into a contract. Manila’s Public Enemy No.1. If A wants to secure insurance on the life of B, may the
b) He must possess an insurable interest in the subject of insurance. insurer refuse on the grounds that B is a public enemy and therefore may not be
c) He must NOT be a public enemy. insured under Sec. 7 of the IC?

What is a public enemy? NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom
It is a nation with whom the Philippines is at war, and it includes every citizen the Phil is at war and every citizen and or subject thereof.
or subject of such nation.
Section 8. Unless the policy otherwise provides, where a mortgagor of the
What is the effect of war on the existing insurance contracts between the property effects insurance in his own name providing that a loss shall be payable to the
Philippines and a citizen or subject of a public enemy, with respect to property mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed
insurance? to be upon the interest of the mortgagor, who does not cease to be a party to the
With respect to property insurance, the rule adopted in the Phil is that an original contract, and any act of his, prior to the loss, which would otherwise avoid the
insurance policy ceases to be valid and enforceable as soon as the insured becomes a insurance, will have the same effect, although the property is in the hands of the
public enemy. mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same
What is the effect of war on the existing insurance contracts between the effect as if it had been performed by the mortgagor.
Philippines and a citizen or subject of a public enemy, with respect to life
insurance? Is it alright if both the mortgagor and the mortgage insure the same property?
Three doctrines have arisen. YES. The mortgagor and the mortgagee have each an insurable interest in
(1) Connecticut Rule – there are two elements in the consideration for which the the property mortgaged, and this interest is separate and distinct from the other.
annual premium is paid: Consequently, insurance taken by one in his own name only and in his favor alone
a) The mere protection for the year; and does not inure to the benefit of the other. And in case both of them take out separate
b) The privilege of renewing the contract for each succeeding year by paying insurance policies on the same property, or one policy covering their respective
the premium for that year at the time agreed upon. interests, the same is not open to the objection that there is double insurance.

Accdg. to this view, the payments of the premiums are a condition precedent, What is the extent of the insurable interest of the mortgagor?
the non-performance of which (as when the performance would be illegal) necessary The mortgagor of the property, as owner has an insurable interest to the
defeats the right to renew the contract. extent of the value of the property, even if the mortgage debt is equal to such value.
The reason is that the loss or destruction of the property insured will NOT extinguish
(2) New York Rule – apparently followed by the number of decisions. War between the mortgage debt.
the states in which the parties reside merely suspends the contracts of life insurance
and that upon the tender of premiums due by the insured or his representatives after What is the extent of the insurable interest of the mortgagee?
the war has terminated revives the contract which becomes fully operative. The mortgagee or his assignee has an insurable interest in the mortgaged
property to the extent of the debt secured, such interest continues until the mortgage
(3) US Rule – declared the contract not merely suspended but is abrogated by debt is extinguished.
reason of non-payment of premiums, since the time of the payment is peculiarly of the
essence of the contract. However, the insured is entitled to the cash or reserve value Up to what extent can each recover?
of the policy (if any) which is the excess of the premiums paid over the actual risk The mortgagor cannot recover upon the insurance beyond the full amount of
carried during the years when the policy had been in force. the loss, and the mortgagee cannot recover in excess of the credit at the time of the
loss.
We follow the US Rule.
Under Sec. 8, what are the effects of insurance when the mortgagor effects TITLE III – INSURABLE INTEREST
insurance in his own name and provides that the loss be payable to the
mortgagee? Section 10. Every person has an insurable interest in the life and health:
The legal effects of this are: (a) Of himself, of his spouse and of his children;
(1) The contract is deemed to be upon the interest of the mortgagor, hence he does (b) Of any person on whom he depends wholly in part for education or support, or in
NOT cease to be a party to the contract; whom he has a pecuniary interest;
(2) Any action of the mortgage prior to the loss which would otherwise avoid the (c) Of any person under a legal obligation to him for the payment of money, or
insurance affects the mortgagee even if the property is in the hands of the respecting property or services, Of which death or illness might delay or prevent
mortgagee; the performance;
(3) Any act which under the contract of insurance is to be performed by the mortgagor, (d) Of any person upon whose life any estate or interest vested in him depends.
may be performed by the mortgagee;
(4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; Why is this section important?
and Other than it discusses the concept of keyman insurance, Atty. Quimsons
(5) Upon recovery by the mortgagee to the extent of his credit, the debt is asked this in a past mid-term exam, asking the students to Quote the provision.
extinguished.
What is insurable interest?
What is the effect if the mortgagee effects insurance on behalf of the mortgagor? Insurable interest is one the most basic of all requirements in insurance. In
Practically the same rules apply. Upon the destruction of the property, then the general, a person is deemed to have insurable interest in the subject matter insured
mortgagee is entitled to receive the proceeds equal to the amount of the mortgage where he ha a relation or connection with or concern in it that he will derive pecuniary
credit. Such payment operates to discharge the debt. benefit or advantage from its preservation and will suffer pecuniary loss or damage
from its destruction, termination or injury by the happening of the event insured against.
Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a
mortgagee, and, at the time of his assent, imposes further obligations on the assignee, Why must there be an insurable interest?
making a new contract with him, the acts of the mortgagor cannot affect the rights of It is essential for validity and enforceability of the contract or policy. A policy
said assignee. issued to a person without interest in the subject matter is a mere wager policy or
contract.
What does this provision say?
Under this section, where an insurer assents to the transfer of an insurance When is there insurable interest in life insurance?
from a Mortgagor (Mor) to a Mortgage (Mee), and at the time of his assent the insurer In life insurance, Insurable interest exists where there is reasonable ground
imposes further obligation on the Mee, a new and distinct consideration passed from founded on the relations of the parties whether pecuniary, contractual or by blood or
the Mee to the insurer, and a new contract is created between them. The acts of the affinity, and to expect some benefit or advantage from the continuance of the life of the
Mor cannot anymore affect the rights of the Mee. insured.

What is the significance of this provision? Problem.

Remember we said in Sec. 8 that all acts of the mortgagor affects the A takes an insurance policy on his life and names his friend X as beneficiary,
mortgagee? Well, this provision provides the exception to the rule. and another insurance on the life of Y in consideration of “love and affection” with A as
a beneficiary. Which of the two insurances, if any, is valid and which, if any, is void?

The Insurance taken on A on his life is VALID, because the beneficiary need
not have an insurable interest in the life of the insured. It must be the one insuring who
has an insurable interest in the life of the person he is insuring, and of course, it goes
without saying that one has an insurable interest in his own life and health.
 ON the other hand, the insurance taken by A on the life of Y is VOID because There is a divergence of opinion, but the general trend is to give it to the estate
“love and affection for the insured” n the part of the person insuring is NOT sufficient of the beneficiary.
ground to qualify as insurable interest.
What are the other provisions of law that Atty. Quimson required us to read?
Art. 2012, CC. Any person who is forbidden from receiving any donation under Art.
Section 11. The insured shall have the right to change the beneficiary he 739 cannot be named a beneficiary of a life insurance policy by the person who cannot
designated in the policy, unless he has expressly waived his right in the said policy. make any donation to him, according to said article.

What is a beneficiary? Art. 739. The following donations shall be void:

A beneficiary is a person whether natural or juridical for whose benefit the (1) Those made between persons who were guilty of adultery or concubinage at the
policy is issued and is the recipient of the proceeds in the insurance. time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
Who can be a beneficiary? consideration thereof;
Any person in general can be a beneficiary. (3) Those made to a public officer, or his wife, descendants and ascendants by
reason of his office.*
Are there any exceptions?
Yes. The only persons disqualified from being a beneficiary are those not *Atty. Quimson said that the designation of the public officer MUST be by
qualified to receive donations under Art. 739. They cannot be named beneficiaries of a reason of his office and NOT all public officers are disqualified from being beneficiaries
life insurance policy by the person who cannot make any donation to him. of a life insurance policy, as long as the designation was not made in consideration of
an act done by the public officer by reason of his office in favor of the insured.
In case of adultery, concubinage does the disqualification extend to the
illegitimate children? Art. 43, FC. The termination of subsequent marriage produces the following effects:
NO. The disqualification does not extend to the children, and as such, they (4) The innocent spouse may revoke the designation of the other spouse who acted in
may be made beneficiaries. bad faith as a beneficiary in any insurance policy even if such designation be stipulated
as irrevocable.
What is the old rule regarding revocability of designation of beneficiary as
enunciated in the case of Gercio v. Sunlife? Art. 64, FC. After the finality of the decree of legal separation, the innocent spouse
The OLD rule is: When the insured did NOT expressly reserve his right to may revoke the designation of the offending spouse as beneficiary in any insurance
revoke the designation of his beneficiary, such designation is irrevocable and he cannot policy. The revocation of or change in the designation of the insurance beneficiary shall
change his beneficiary without the consent of the latter. take effect upon written notification to the insured.

What is the current rule? Art. 50, FC. The effects provided for by paragraph (4) of Art. 43 xxx shall also apply in
The rule now is: The insured has the power to revoke the designation of the the proper cases to marriages which are declared void ab initio or annulled by final
beneficiary even without the consent of the latter, whether or not such power is judgment under Art. 40 & 45.
reserved in the policy. Such right must be exercised specifically in the manner set forth
in the policy or contract. It is of course, extinguished at his death and CANNOT be
exercised by his personal representatives or assignees.

Under the current rule, when does the insured lose the right to change the
beneficiary?
When the right to change the beneficiary is expressly waived in the policy, the
insured has no power to make such change without the consent of the beneficiary.

What if the beneficiary dies before the insured and the insured did not change
the designation, who gets the proceeds?
 BATAS PAMBANSA BLG. 22 Not with standing receipt of an order to stop payment, the drawee shall state in
the notice that there were no sufficient funds in or credit with such bank for the payment
AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A CHECK in full of such check, if such be the fact.
WITHOUT SUFFICIENT FUNDS OR CREDIT AND FOR OTHER PURPOSES.
Section 4. Credit construed. - The word "credit" as used herein shall be construed to
Section 1. Checks without sufficient funds. - Any person who makes or draws and mean an arrangement or understanding with the bank for the payment of such check.
issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of such Section 5. Liability under the Revised Penal Code. - Prosecution under this Act shall be
check in full upon its presentment, which check is subsequently dishonored by the without prejudice to any liability for violation of any provision of the Revised Penal Code.
drawee bank for insufficiency of funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the bank to stop Section 6. Separability clause. - If any separable provision of this Act be declared
payment, shall be punished by imprisonment of not less than thirty days but not more unconstitutional, the remaining provisions shall continue to be in force.
than one (1) year or by a fine of not less than but not more than double the amount of
the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both
such fine and imprisonment at the discretion of the court. Section 7. Effectivity. - This Act shall take effect fifteen days after publication in the
Official Gazette.1âwphi1
The same penalty shall be imposed upon any person who, having sufficient
funds in or credit with the drawee bank when he makes or draws and issues a check, Approved: April 3, 1979.
shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the
check if presented within a period of ninety (90) days from the date appearing thereon,
for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or

persons who actually signed the check in behalf of such drawer shall be liable under
this Act.

Section 2. Evidence of knowledge of insufficient funds. - The making, drawing and

issuance of a check payment of which is refused by the drawee because of insufficient
funds in or credit with such bank, when presented within ninety (90) days from the date
of the check, shall be prima facie evidence of knowledge of such insufficiency of funds
or credit unless such maker or drawer pays the holder thereof the amount due thereon,
or makes arrangements for payment in full by the drawee of such check within (5)
banking days after receiving notice that such check has not been paid by the drawee.

Section 3. Duty of drawee; rules of evidence. - It shall be the duty of the drawee of any
check, when refusing to pay the same to the holder thereof upon presentment, to cause
to be written, printed, or stamped in plain language thereon, or attached thereto, the
reason for drawee's dishonor or refusal to pay the same: Provided, That where there
are no sufficient funds in or credit with such drawee bank, such fact shall always be
explicitly stated in the notice of dishonor or refusal. In all prosecutions under this Act,
the introduction in evidence of any unpaid and dishonored check, having the drawee's
refusal to pay stamped or written thereon or attached thereto, with the reason therefor
as aforesaid, shall be prima facie evidence of the making or issuance of said check,
and the due presentment to the drawee for payment and the dishonor thereof, and that
the same was properly dishonored for the reason written, stamped or attached by the
drawee on such dishonored check.