OVERVIEW OF INSURANCE
Define insurance and its important functions.
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event which is otherwise known as peril.
The following are the some of the important functions of insurance, to wit:
Jason is the proud owner of a newly-built house worth PS million. As a protection against any possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the company a week to approve Jason's application. On October 18, 2016, Shure mailed the approved policy to Jason which the latter received five (5) days later. However, Jason's house had been razed by fire which transpired a day before his receipt of the approved policy. Jason filed a written claim with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the theory of cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (2016 Bar Exams)
Shure is correct. In insurance contracts, we apply what is known as the “cognition theory”.
In the Civil Code, "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269). Since the Jason was made aware of the approval of the policy a day after the fire, then the contract of insurance is not yet perfected at the time of the fire.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it is identical with the principles announced by a considerable number of respectable courts in the United States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
On 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? (2011 Bar Exams)
(A) 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 X’s 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.
What are the types of insurance companies?
There are 3 main categories of insurers, to wit:
What is a mutual insurance company or association? (2006 Bar Exams)
A mutual life insurance corporation is a cooperative that promotes the welfare of its own members, with the money collected from among themselves and solely for their own protection and not for profit. Members are both the insurer and insured. A mutual life insurance company has no capital stock and relies solely upon its contributions or premiums to meet unexpected losses, contingencies and expenses (Republic v. Sunlife, G.R. No 158085, October 14, 2005).
What are the main classes of insurance?
The major classes of insurance are:
I. Life insurance versus Non-life insurance which is sometimes referred to a General Insurance and Property and Casualty Insurance.
II. First party versus third-party insurance.
First party insurance includes the following: Fire Insurance, Business Interruption Insurance, Motor Car Insurance insofar as Section III: Own Damage, Personal Accident Insurance. Liability insurance, on the other hand, third party insurance includes Commercial General Liability Insurance, Employers Liability Insurance, Sections I, II and IV of the Motor Car Insurance.
III. Mandatory versus Optional Insurance.
What are the types of non-life insurance products available in the market?
The following are the major classes of non-life insurance products as per the Insurance Commission:
Non-Life Insurance can be further classified into two (2) major categories:
What are the characteristics of an insurance contract? Explain each characteristic briefly. (1970 Bar Examination)
There are a number of characteristic peculiar to insurance, namely:
Distinguish insurance contract from a wagering contract?
The differences between an insurance contract and a wagering contract are the following:
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event which is otherwise known as peril.
The following are the some of the important functions of insurance, to wit:
- Risk-bearing – it is the principal function of insurance. It provides for the distribution of losses of the few over the many out of fund contributed by all.
- Stimulates business enterprise – it enables the businessmen to use their capital in the development of their business by paying a fixed contribution by way of premium and obtain financial security against insured risks, instead of freezing capital to guard against various contingencies.
- Encourages efficiency and enterprise – the elimination of risk is an increase in business efficiency.
- Promotes loss prevention – insurance encourages loss-prevention through a system of rating which allows discounts for good features and impose special conditions where the risk is unsatisfactory.
- Encourages savings – by protecting the individual against unforeseen events, insurance provides for a climate where savings are encouraged.
- Solves social problems (De Leon, Hector. The Insurance Code of the Philippines Annotated. 2002 Edition, 57-58)
Jason is the proud owner of a newly-built house worth PS million. As a protection against any possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the company a week to approve Jason's application. On October 18, 2016, Shure mailed the approved policy to Jason which the latter received five (5) days later. However, Jason's house had been razed by fire which transpired a day before his receipt of the approved policy. Jason filed a written claim with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the theory of cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (2016 Bar Exams)
Shure is correct. In insurance contracts, we apply what is known as the “cognition theory”.
In the Civil Code, "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269). Since the Jason was made aware of the approval of the policy a day after the fire, then the contract of insurance is not yet perfected at the time of the fire.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it is identical with the principles announced by a considerable number of respectable courts in the United States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
On 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? (2011 Bar Exams)
(A) 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 X’s 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.
What are the types of insurance companies?
There are 3 main categories of insurers, to wit:
- Life Insurer
- Non-Life Insurer
- Composite Insurer - is an insurer who possesses both a life and non-life insurance license with the Insurance Commission.
What is a mutual insurance company or association? (2006 Bar Exams)
A mutual life insurance corporation is a cooperative that promotes the welfare of its own members, with the money collected from among themselves and solely for their own protection and not for profit. Members are both the insurer and insured. A mutual life insurance company has no capital stock and relies solely upon its contributions or premiums to meet unexpected losses, contingencies and expenses (Republic v. Sunlife, G.R. No 158085, October 14, 2005).
What are the main classes of insurance?
The major classes of insurance are:
I. Life insurance versus Non-life insurance which is sometimes referred to a General Insurance and Property and Casualty Insurance.
- While both provides protection on the life and health of a person, life insurance can provide cover whether death is due to accident or sickness while non-life insurance will only respond if death is due to an accident.
- The former is as a rule a valued policy, whereas the latter is generally an open policy. In the former, the value of indemnity is pre-determined as at the inception of the policy. The total sum insured and amount of indemnity is one and the same. In the latter, the value of indemnity shall be determined at the time of the happening the loss. The total sum insured is only the maximum amount of liability to be assumed by the insurer.
- The former has an investment feature in the form of dividends, whereas the latter is purely an indemnity contract. The former earns interests and/or dividends upon reaching the period of maturity while no such feature is available to the latter.
II. First party versus third-party insurance.
- In the former, the beneficiary is the named insured himself, whereas, in the latter, the beneficiary is a person other than the insured.
- In the former, what is being insured is the loss suffered by the insured himself or the property he owns, whereas, the latter covers the insured’s liability vis-à-vis a third party.
- In the former, a third party has no legal personality to file a claim against the insurer, whereas in the latter, a third party may directly file a claim against the insurer.
First party insurance includes the following: Fire Insurance, Business Interruption Insurance, Motor Car Insurance insofar as Section III: Own Damage, Personal Accident Insurance. Liability insurance, on the other hand, third party insurance includes Commercial General Liability Insurance, Employers Liability Insurance, Sections I, II and IV of the Motor Car Insurance.
III. Mandatory versus Optional Insurance.
- In the former, the insured buys insurance because it is a required either by law or the contracting party such a Compulsory Third Liability Insurance, Comprehensive General Liability Insurance and Surety Bond. The latter, on the other hand, is not.
- In the former, the beneficiary is generally a person other than the insured, whereas, in the latter, the beneficiary is the named insured himself.
What are the types of non-life insurance products available in the market?
The following are the major classes of non-life insurance products as per the Insurance Commission:
- Fire Insurance - insurance against loss by fire and/or lightning on the insured's property. It may extend to include acts of nature such earthquake, typhoon, flood, to name a few subject to payment of additional premium.
- Suretyship or Surety Bond - is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by
virtue of and under the provisions of Act No. 536, as amended by Act No. 2206. (Amended Insurance Code, Section 177) - Casualty Insurance includes all other types of insurance that is not Fire Insurance, Marine or Suretyship such as Motor Car; Personal Accident Insurance; Crime Insurance; Liability Insurance policies such as Professional Liability Insurance, Directors and Officers Liability Insurance, Comprehensive General, and Personal Liability Insurance; Workmen’s Compensation Insurance.
- Marine Insurance - Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, instruments of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder’s risks, and all personal property floater risks, (b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles); (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; and (d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (Amended Insurance Code, Section 101)
Non-Life Insurance can be further classified into two (2) major categories:
- Tariff Lines – this refers to a class of insurance products whose rates are subject to tariff and regulation by the the Insurance Commission (IC). Examples of which are as follows: (1) Fire Insurance, (2) Motor Car Insurance, and (3) Surety Bonds. In addition, Tariff Lines’ policy terms and conditions are uniform.
- Non-Tariff Lines - this refers to a class of insurance products insurers are given the discretion to impose the appropriate rate based on their underwriting procedures. Examples of which are as follows: Personal Accident, Marine Insurance, Commercial General Liability, and Crime Insurance.
What are the characteristics of an insurance contract? Explain each characteristic briefly. (1970 Bar Examination)
There are a number of characteristic peculiar to insurance, namely:
- Personal. The insurer takes into account the character, credit, and conduct of the insured. In case of change of ownership over an insured property, the coverage does not automatically transfer to the new owner. The insurer has the option not to extend cover to the said insured property if ever the new owner applies for a continuation of the existing insurance.
- Unilateral. The terms and conditions of the insurance did not arise from the meeting of the minds of the insurer and insured. The wordings are solely prepared by the former. It is the reason why in case of doubt in the interpretation of the terms and conditions of the insurance contract, it shall be construed in favor of the latter in case there is ambiguity.
- Conditional. The obligation of the insurer to pay the insured is dependent upon the compliance of the insured with the terms and conditions of the insurance contract such as payment of premium, timely filing of a claim, and submission of proofs of loss, among others.
- Aleatory. The obligation of the insurer to pay the insured is conditioned upon the happening of the contingent event such as the perils of fire or flood.
- Executory. Insofar as the insurer is concerned, the insurance contract is merely executory. It is not executed until there is a loss on the part of the insured.
- Consensual. A contract of insurance is a product of the meeting of the minds of the insured and the insurer. The mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance. (Great Pacific Life Assurance Corp. vs. Court of Appeals, 89 SCRA 543)
Distinguish insurance contract from a wagering contract?
The differences between an insurance contract and a wagering contract are the following:
- In the former, the parties seek to distribute possible loss by reason of mischance, whereas, in the latter, the parties contemplate gain through mere chance;
- The insured seeks to avoid misfortune, whereas, a gambler seeks fortune. (De Leon, Hector. The Law on Insurance (with Insolvency Law).1998 Edition, 18.)
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and can anticipate the bearings and possible complications of every contingency. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
ESSENTIAL ELEMENTS OF AN INSURANCE CONTRACT
What are the essential elements of a contract of insurance?
An insurance contract exists where the following elements concur:
An insurance contract exists where the following elements concur:
- Legal capacity of contracting parties.
- The insured is subject to a risk of loss by the happening of the designated peril and the insurer assumes the risk
- The insured has an insurable interest;
- Premium
LEGAL CAPACITY OF THE CONTRACTING PARTIES
Who may be an insurer?
It refers to any entity which is duly-authorized by the Insurance Commission to transact insurance business. Under the Amended Insurance Code, an insurer must meet the net worth requirement which will increase every three years from 2013 until 2022.
The required net worth—defined as the sum of paid-up capital, retained earnings, unimpaired surplus, and revalued assets— is set at P250 million in 2013, P550 million effective June 30, 2016, P900 million starting June 30, 2019, and P1.3 billion by June 30, 2022.
Who may be insured?
Any individual or corporation can be insured, provided the said individual or corporation is not a public enemy.
A public enemy refers a citizen of an enemy state.
May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Phils (PD 1460)? Explain. (2000 Bar Exams)
Yes, a member of the MILF or the Abu Sayyaf may be insured. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war.
It refers to any entity which is duly-authorized by the Insurance Commission to transact insurance business. Under the Amended Insurance Code, an insurer must meet the net worth requirement which will increase every three years from 2013 until 2022.
The required net worth—defined as the sum of paid-up capital, retained earnings, unimpaired surplus, and revalued assets— is set at P250 million in 2013, P550 million effective June 30, 2016, P900 million starting June 30, 2019, and P1.3 billion by June 30, 2022.
Who may be insured?
Any individual or corporation can be insured, provided the said individual or corporation is not a public enemy.
A public enemy refers a citizen of an enemy state.
May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Phils (PD 1460)? Explain. (2000 Bar Exams)
Yes, a member of the MILF or the Abu Sayyaf may be insured. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war.
RISK OF LOSS AND ASSUMPTION OF LOSS
The risk of loss being covered by an insurer is also known as fortuitous event. Sometime it is called an event which must be due to an accident or accidental in nature.
Define fortuitous event.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. (Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 [1967])
Define accident and accidental.
The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In-substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen.
Define peril.
It refers to the cause of the loss suffered by the insured. It refer to the specific fortuitous event being covered an insurance policy.
An insurable policy typically defines the perils they insure against. For example, in the case of Fire Insurance, the main peril covered is losses due to fire and/or lightning only. However, the insured has the option, subject to payment of additional premium, to extend the cover to include earthquake, typhoon, flood, terrorism or Business Interruption.
On the other hand, the insurance market have developed "all risk" policies whereby any loss to the insured property shall be covered unless specifically excluded in the policy. An example of which is Marine Insurance under Institute Cargo Class A and Property All Risk Insurance.
S Insurance Co issued a personal accident policy to Bob Tan with a face value of P500th. In the evening of Sep 5, 1992, after his birthday party, Tan was in a happy mood but not drunk. He was playing with his hand gun, from which he previously removed the magazine. As his secretary was watching television, he stood in front of her and pointed the gun at her. She pushed it aside and said that it may be loaded. He assured her that it was not and then pointed it at his temple. The next moment, there was an explosion and Tan slumped to the floor lifeless. The wife of the deceased sought payment on the policy but her claim was rejected. The insurance company agreed that there was no suicide. However, it was the submission of the insurance company that there was no accident. In support thereof, it contended a) that there was no accident when a deliberate act was performed unless some additional, unexpected, independent and unforeseen happening occur which produces or brings about the injury or death; and b) that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. Are the two contentions of the insurance company tenable? Explain. (1993 Bar Exams)
No. The two contentions of the insurer are not tenable. Tan had removed the magazine from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Tan did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. At most, the insured is only guilty of negligence. (See Sun Insurance Office, Ltd vs Court of Appeals, 211 SCRA 554 [July 17, 1992])
Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of P500th. A provision in the policy states that “the company shall not be liable in respect of “bodily injury’ consequent upon the insured person attempting to commit suicide or willfully exposing himself to needless peril except in an attempt to save human life.” Six months later Henry Dy died of a bullet wound in his head. Investigation showed that one evening Henry was in a happy mood although he was not drunk. He was playing with his handgun from which he had previously removed its magazine. He pointed the gun at his sister who got scared. He assured her it was not loaded. He then pointed the gun at his temple and pulled the trigger. The gun fired and Henry slumped on the floor. Henry’s wife Beverly, as the designated beneficiary, sought to collect under the policy. Sun-Moon Insurance rejected her claim on the ground that the death of Henry was not accidental. Beverly sued the insurer. Decide and Discuss fully.
Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not due to suicide or willful exposure to needless peril which are excepted risks. The insured’s act was purely an act of negligence which is covered by the policy and for which the insured got the insurance for his protection. In fact, he removed the magazine from the gun and when he pointed the gun to his temple he did so because he thought that it was safe for him to do so. He did so to assure his sister that the gun was harmless. There is none in the policy that would relieve the insurer of liability for the death of the insured since the death was an accident.
Luis was the holder of an accident insurance policy effective Nov 1, 1988 to Oct 31, 1989. At a boxing contest held on Jan 1, 1989 and sponsored by his employer, he slipped and was hit on the fact by his opponent so he fell and his head hit one of the posts of the boxing ring. He was rendered unconscious and was dead on arrival at the hospital due to “intra-cranial hemorrhage.” Can his father who is a beneficiary under said insurance policy successfully claim indemnity from the insurance company? Explain (1990 Bar Exams)
Yes. While the participation of the insured in the boxing contest is voluntary, the injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case. (Simon De La Cruz vs The Capital Insurance and Surety Co., Inc., GR No. L-21574 June 30, 1966])
Define fortuitous event.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. (Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 [1967])
Define accident and accidental.
The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In-substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen.
Define peril.
It refers to the cause of the loss suffered by the insured. It refer to the specific fortuitous event being covered an insurance policy.
An insurable policy typically defines the perils they insure against. For example, in the case of Fire Insurance, the main peril covered is losses due to fire and/or lightning only. However, the insured has the option, subject to payment of additional premium, to extend the cover to include earthquake, typhoon, flood, terrorism or Business Interruption.
On the other hand, the insurance market have developed "all risk" policies whereby any loss to the insured property shall be covered unless specifically excluded in the policy. An example of which is Marine Insurance under Institute Cargo Class A and Property All Risk Insurance.
S Insurance Co issued a personal accident policy to Bob Tan with a face value of P500th. In the evening of Sep 5, 1992, after his birthday party, Tan was in a happy mood but not drunk. He was playing with his hand gun, from which he previously removed the magazine. As his secretary was watching television, he stood in front of her and pointed the gun at her. She pushed it aside and said that it may be loaded. He assured her that it was not and then pointed it at his temple. The next moment, there was an explosion and Tan slumped to the floor lifeless. The wife of the deceased sought payment on the policy but her claim was rejected. The insurance company agreed that there was no suicide. However, it was the submission of the insurance company that there was no accident. In support thereof, it contended a) that there was no accident when a deliberate act was performed unless some additional, unexpected, independent and unforeseen happening occur which produces or brings about the injury or death; and b) that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. Are the two contentions of the insurance company tenable? Explain. (1993 Bar Exams)
No. The two contentions of the insurer are not tenable. Tan had removed the magazine from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Tan did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. At most, the insured is only guilty of negligence. (See Sun Insurance Office, Ltd vs Court of Appeals, 211 SCRA 554 [July 17, 1992])
Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of P500th. A provision in the policy states that “the company shall not be liable in respect of “bodily injury’ consequent upon the insured person attempting to commit suicide or willfully exposing himself to needless peril except in an attempt to save human life.” Six months later Henry Dy died of a bullet wound in his head. Investigation showed that one evening Henry was in a happy mood although he was not drunk. He was playing with his handgun from which he had previously removed its magazine. He pointed the gun at his sister who got scared. He assured her it was not loaded. He then pointed the gun at his temple and pulled the trigger. The gun fired and Henry slumped on the floor. Henry’s wife Beverly, as the designated beneficiary, sought to collect under the policy. Sun-Moon Insurance rejected her claim on the ground that the death of Henry was not accidental. Beverly sued the insurer. Decide and Discuss fully.
Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not due to suicide or willful exposure to needless peril which are excepted risks. The insured’s act was purely an act of negligence which is covered by the policy and for which the insured got the insurance for his protection. In fact, he removed the magazine from the gun and when he pointed the gun to his temple he did so because he thought that it was safe for him to do so. He did so to assure his sister that the gun was harmless. There is none in the policy that would relieve the insurer of liability for the death of the insured since the death was an accident.
Luis was the holder of an accident insurance policy effective Nov 1, 1988 to Oct 31, 1989. At a boxing contest held on Jan 1, 1989 and sponsored by his employer, he slipped and was hit on the fact by his opponent so he fell and his head hit one of the posts of the boxing ring. He was rendered unconscious and was dead on arrival at the hospital due to “intra-cranial hemorrhage.” Can his father who is a beneficiary under said insurance policy successfully claim indemnity from the insurance company? Explain (1990 Bar Exams)
Yes. While the participation of the insured in the boxing contest is voluntary, the injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case. (Simon De La Cruz vs The Capital Insurance and Surety Co., Inc., GR No. L-21574 June 30, 1966])
PREMIUM
What is meant by “cash and carry” in the business of insurance? (2003 Bar Exams)
It means, as a general rule, an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Premium is often referred to as elixir vitae or source of life of the insurance business,
Unless and until the premium is paid, there is no insurance in force. (Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63 [1982].
What if the premium is partially as of the time of the loss, is the insurer liable?
Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.
Premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured. (Sps. Antonio A. Tibay and Violeta R. Tibay And Ofelia M. Roraldo, Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M. Roraldo And Rosabella M. Roraldo, Petitioners, vs. Court Of Appeals and Fortune Life And General Insurance Co., Inc., Respondents, G.R. No. 119655 May 24, 1996)
What are the exceptions to the cash and carry rule?
The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the sum of PI Million for 1 year. The policy was issued with the premium fixed at 160,000.00 payable in 6 months. Francis only paid the first two months installments. Despite demands, he failed to pay the subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped. Francis filed with the insurance company a claim for its value. However, the company denied his claim on the ground that he failed to pay the premium resulting in the cancellation of the policy. Can Francis recover from the Peninsula Insurance Company? (2006 Bar Exams)
Yes, when insured and insurer have agreed to the payment of premium by installments and partial payment has been made at the time of loss, then the insurer becomes liable. When the car loss happened on the 5th month, the six months agreed period of payment had not yet elapsed. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
Alfredo took out a policy to insure this commercial building fire. The broker for the insurance company agreed to give a 15-day credit within which pay the insurance premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006, a fire broke out and destroyed the building owned by Alfredo. (2007 Bar Exams)
Yes, Alfredo may recover on the policy. It is valid to stipulate that the insured will be granted credit term for payment of premium. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
Enrique 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. On April 10, 2010, the drawee bank returned Enrique’s 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? (2010 Bar Exams)
The insurer is not liable under the insurance policy. Under Article 1249 of the Civil Code, the delivery of a check produces the effect of payment only when it is encashed.
Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing insurance relationship with each other; SPMC secures the comprehensive fire insurance on its plant and facilities from SIC. The standing business practice between them has been to allow SPMC a credit period of 90 days from the renewal of the policy with which to pay the premium. Soon after the new policy was issued and before premium payments could be made, a fire gutted the covered plant and facilities to the ground. The day after the fire, SPMC issued a manager’s check to SIC for the fire insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of loss. SIC responded by issuing its own manager’s check for the amount of the premiums SPMC had paid, and denied SPMC’s claim on the ground that under the ―cash and carry principle governing fire insurance, no coverage existed at the time the fire occurred because the insurance premium had not been paid. Is SPMC entitled to recover for the loss form SIC? (2013 Bar Exams)
SPMC is entitled to recover against SIC. Granting of credit term is not against the law. Because of the long standing business practice of allowing insured to pay the premiums after 60 or 90 days was relied upon in good faith by insured, SIC is estopped from questioning such practice. (See UCPB General Insurance Company, Inc. v. Masagana Telemart, Inc. 356 SCRA 307, 2001).
What are the rules regarding credit term?
1. If there was no clear and definite agreement between petitioner and respondent on the grant of a credit extension and if neither was there partial payment of premiums for petitioner, the exceptional doctrine in Makati Tuscany case will not apply. What would govern is the case of Tibay v. Court of Appeals. The issue raised therein was: "May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
In the said case, Fortune Life and General Insurance Co., Inc. issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo, on a two-storey residential building located at 5855 Zobel Street, Makati City, together with all the personal effects therein, The insurance was for P600,000.00, covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, Violeta Tibay only paid P600.00, thus leaving a substantial balance unpaid. On March 8, 1987, the insured building was completely destroyed by fire.
Two days later, or on 10 March 1987, Violeta Tibay paid the balance of the premium. On the same day, she filed with Fortune a claim for the proceeds of the fire insurance policy. In denying the claim of insurance, the Court ruled that "by express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.
As expressly stipulated in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. "No vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium." (Dissenting opinion of Justice Pardo in UCPB General Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])
2. Under Section 77 of the Amended Insurance Code of 2013, there is now a rule on the credit term. It provides that "no credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy." Insurance companies should therefore be prompt in the issuance of the policy since the credit terms is reckoned from the date of issuance of the policy and NOT from the inception date of the policy.
When is an insured entitled to a return of premium?
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. (Amended Insurance Code of 2013, Section 82-83)
Is the insurer allowed to keep the premium if a claim is denied by reason of the policy not being in force?
In case of Gaisano vs Development Insurance and Surety Corporation, the premium was paid to the insurance agent 1 day after it was carnapped while the loss was notified to the insurer 4 days after. The insurer denied the claim on the ground that there was no insurance contract (because of non-payment of premium), but it refused to return the premium.
The Supreme Court ordered the insurer to refund under the principle of unjust enrichment. “There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.
It means, as a general rule, an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Premium is often referred to as elixir vitae or source of life of the insurance business,
Unless and until the premium is paid, there is no insurance in force. (Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63 [1982].
What if the premium is partially as of the time of the loss, is the insurer liable?
Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.
Premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured. (Sps. Antonio A. Tibay and Violeta R. Tibay And Ofelia M. Roraldo, Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M. Roraldo And Rosabella M. Roraldo, Petitioners, vs. Court Of Appeals and Fortune Life And General Insurance Co., Inc., Respondents, G.R. No. 119655 May 24, 1996)
What are the exceptions to the cash and carry rule?
- In the case of a life or an industrial life policy whenever the grace period provision applies. (Section 77, Amended Insurance Code of the Philippines)
- An acknowledgement in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment. (Section 79, Amended Insurance Code of the Philippines)
- If the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
- If the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463.)
- Estoppel. It would be unjust and inequitable if recovery on the policy would not be permitted against Insurer, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Insured relied in good faith on such practice. (UCPB General Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])
- Whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy. (Insurance Code of the Philippines, Section 77).
The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the sum of PI Million for 1 year. The policy was issued with the premium fixed at 160,000.00 payable in 6 months. Francis only paid the first two months installments. Despite demands, he failed to pay the subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped. Francis filed with the insurance company a claim for its value. However, the company denied his claim on the ground that he failed to pay the premium resulting in the cancellation of the policy. Can Francis recover from the Peninsula Insurance Company? (2006 Bar Exams)
Yes, when insured and insurer have agreed to the payment of premium by installments and partial payment has been made at the time of loss, then the insurer becomes liable. When the car loss happened on the 5th month, the six months agreed period of payment had not yet elapsed. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
Alfredo took out a policy to insure this commercial building fire. The broker for the insurance company agreed to give a 15-day credit within which pay the insurance premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006, a fire broke out and destroyed the building owned by Alfredo. (2007 Bar Exams)
Yes, Alfredo may recover on the policy. It is valid to stipulate that the insured will be granted credit term for payment of premium. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
Enrique 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. On April 10, 2010, the drawee bank returned Enrique’s 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? (2010 Bar Exams)
The insurer is not liable under the insurance policy. Under Article 1249 of the Civil Code, the delivery of a check produces the effect of payment only when it is encashed.
Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing insurance relationship with each other; SPMC secures the comprehensive fire insurance on its plant and facilities from SIC. The standing business practice between them has been to allow SPMC a credit period of 90 days from the renewal of the policy with which to pay the premium. Soon after the new policy was issued and before premium payments could be made, a fire gutted the covered plant and facilities to the ground. The day after the fire, SPMC issued a manager’s check to SIC for the fire insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of loss. SIC responded by issuing its own manager’s check for the amount of the premiums SPMC had paid, and denied SPMC’s claim on the ground that under the ―cash and carry principle governing fire insurance, no coverage existed at the time the fire occurred because the insurance premium had not been paid. Is SPMC entitled to recover for the loss form SIC? (2013 Bar Exams)
SPMC is entitled to recover against SIC. Granting of credit term is not against the law. Because of the long standing business practice of allowing insured to pay the premiums after 60 or 90 days was relied upon in good faith by insured, SIC is estopped from questioning such practice. (See UCPB General Insurance Company, Inc. v. Masagana Telemart, Inc. 356 SCRA 307, 2001).
What are the rules regarding credit term?
1. If there was no clear and definite agreement between petitioner and respondent on the grant of a credit extension and if neither was there partial payment of premiums for petitioner, the exceptional doctrine in Makati Tuscany case will not apply. What would govern is the case of Tibay v. Court of Appeals. The issue raised therein was: "May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
In the said case, Fortune Life and General Insurance Co., Inc. issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo, on a two-storey residential building located at 5855 Zobel Street, Makati City, together with all the personal effects therein, The insurance was for P600,000.00, covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, Violeta Tibay only paid P600.00, thus leaving a substantial balance unpaid. On March 8, 1987, the insured building was completely destroyed by fire.
Two days later, or on 10 March 1987, Violeta Tibay paid the balance of the premium. On the same day, she filed with Fortune a claim for the proceeds of the fire insurance policy. In denying the claim of insurance, the Court ruled that "by express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.
As expressly stipulated in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. "No vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium." (Dissenting opinion of Justice Pardo in UCPB General Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])
2. Under Section 77 of the Amended Insurance Code of 2013, there is now a rule on the credit term. It provides that "no credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy." Insurance companies should therefore be prompt in the issuance of the policy since the credit terms is reckoned from the date of issuance of the policy and NOT from the inception date of the policy.
When is an insured entitled to a return of premium?
- When the contract is voidable, and subsequently annulled under the provisions of the Civil Code;
- On account of the fraud or misrepresentation of the insurer, or of his agent,
- On account of facts, or the existence of which the insured was ignorant of without his fault;
- When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy
- In case of an over insurance by several insurers other than life.
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. (Amended Insurance Code of 2013, Section 82-83)
Is the insurer allowed to keep the premium if a claim is denied by reason of the policy not being in force?
In case of Gaisano vs Development Insurance and Surety Corporation, the premium was paid to the insurance agent 1 day after it was carnapped while the loss was notified to the insurer 4 days after. The insurer denied the claim on the ground that there was no insurance contract (because of non-payment of premium), but it refused to return the premium.
The Supreme Court ordered the insurer to refund under the principle of unjust enrichment. “There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.
INSURABLE INTEREST
Define insurable interest. (1965 Bar Examination)
The legal relationship of the insured with the subject matter of insurance whereby the former stands to benefit from the preservation of the latter or be prejudiced by the loss thereof. Consequently, no contract of insurance on property shall be enforceable except for the benefit of some person having insurable interest in the property insured. (Section 18, New Insurance Code)
Also, the following stipulations shall be void:
The legal relationship of the insured with the subject matter of insurance whereby the former stands to benefit from the preservation of the latter or be prejudiced by the loss thereof. Consequently, no contract of insurance on property shall be enforceable except for the benefit of some person having insurable interest in the property insured. (Section 18, New Insurance Code)
Also, the following stipulations shall be void:
- for the payment of loss whether the person insured has or has not any interest in the property insured;
- that the policy shall be received as proof of such interest; and
- every policy executed by way of gaming or wagering. (Section 25, New Insurance Code)
CLAIMS
What are the most common basis for denial of an insurance claim?
They are as follows:
In motor insurance -
a. Private Car – 0.5% of the Insured vehicle’s fair market value or Php 2,000.00, whichever is higher.
b. Commercial Vehicle – 1% of the Insured vehicle’s fair market value or Php 3,000.00, whichever is higher.
In fire insurance -
a. Earthquake fire and shock - 0.10% (Circular Letter 5-2000, April 25, 2000 amending the 1998 Tariff)
b. Typhoon and/or floods - 0.05% (1998 Tariff)
c. Extended coverages such as explosion. smoke and vehicle impact - 0.01%
What are the exceptions to the general rule that non-payment of premium is ground for denial of claim?
As a general rule, an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Unless and until the premium is paid, there is no insurance. (Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63 [1982].
However, there are exceptions, to wit:
What are the most common exclusions in an insurance policy?
They are as follows:
How are insurance contracts interpreted?
In case of ambiguity, insurance contracts are to be construed liberally in favor of the insured and strictly against the insurer. (Sun Insurance Office, Ltd. vs. Court of Appeals, [195 SCRA 193, 1991]; Young vs. Midland Textile Insurance Co., 30 Phil 617).
The reason behind this is because insurance, in its nature, is complex and difficult for the layman to understand. (Algoe vs. Pacific Meet. L. Ins., Co., 91 Wash. 324 LRA 1917A,1237). Most of the terms of the insurance contract do not result from the mutual negotiation between the insured and the insurer. The insured merely adheres to the terms appearing in the final printed form of the insurance contract. (Serrano vs. Court of Appeals, 130 SCRA 327 [1984])
However, if the terms and conditions are clear and unequivocal, it shall be interpreted according to its ordinary meaning.
An insurance contract must be interpreted so as to carry out the purpose for which the parties entered into the contract, which is to insure against risk of loss, damage, or liability on the part of the insured.
When is a case within the jurisdiction of the Insurance Commission?
Where the amount of any such loss, damage or liability, excluding interest, cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim Five million pesos (P5,000,000.00). (Section 439, Amended Insurance Code of the Philippines). The amount used to be Php100,000 only under Section 416 of the old Insurance Code of the Philippines.
What is the prescription period to file a lawsuit in an insurance contract?
The general rule is 10 years from the time cause of action accrues according to the Civil Code. However, insurers are allowed to reduce it to no less than 1 year under the Insurance Code. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action to a period of less than one (1) year from the time when the cause of action accrues, is void. (Section 63, Amended Insurance Code of the Philippines)
The reduction must be either incorporated as one of the built-in clauses under the policy or in the form an endorsement.
What is cause of action which triggers the prescription period?
The cause of action of the insured accrues from the time his claim was denied by the insurer.
They are as follows:
- Non-payment of premium. It is the consideration for the assumption of the risk of loss by the insurer. The absence of which shall render the policy ab initio.
- The proximate cause of the loss or damage is an exclusion or not a covered peril. Peril is the cause of the loss such as fire and/or lightning in case of Fire Insurance, accidental collision or malicious damage in motor insurance or negligence in CGL.
- Misrepresentation and/or concealment.
- Commission of fraud by the insured.
- The claim is time-barred.
- The policy is already expired.
- Breach of warranty.
- The insured has no insurable interest.
- The claim is below deductible. It refers to the participation of the insured in the loss. The Fire and Motor tariff has a fixed deductible unlike in the case of other lines of business.
In motor insurance -
a. Private Car – 0.5% of the Insured vehicle’s fair market value or Php 2,000.00, whichever is higher.
b. Commercial Vehicle – 1% of the Insured vehicle’s fair market value or Php 3,000.00, whichever is higher.
In fire insurance -
a. Earthquake fire and shock - 0.10% (Circular Letter 5-2000, April 25, 2000 amending the 1998 Tariff)
b. Typhoon and/or floods - 0.05% (1998 Tariff)
c. Extended coverages such as explosion. smoke and vehicle impact - 0.01%
What are the exceptions to the general rule that non-payment of premium is ground for denial of claim?
As a general rule, an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Unless and until the premium is paid, there is no insurance. (Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63 [1982].
However, there are exceptions, to wit:
- In the case of a life or an industrial life policy whenever the grace period provision applies. (Section 77, New Insurance Code )
- An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment. (Section 79, New Insurance Code)
- If the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463)
- If the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463.)
- Estoppel. It would be unjust and inequitable if recovery on the policy would not be permitted against Insurer, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Insured relied in good faith on such practice. (UCPB General Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])
- Whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy. (Section 77, New Insurance Code)
What are the most common exclusions in an insurance policy?
They are as follows:
- War and acts of war
- Intentional acts of the insured.
- Acts of nature such as typhoon, flood and earthquake
- Consequential loss. However such loss can now be bought back like in the case of loss of profit or rental income in the cases of Business Interruption Insurance.
- Non-compensatory damages such as fines, penalties and exemplary damages. Payment thereof is considered against public policy.
- Terrorism.
How are insurance contracts interpreted?
In case of ambiguity, insurance contracts are to be construed liberally in favor of the insured and strictly against the insurer. (Sun Insurance Office, Ltd. vs. Court of Appeals, [195 SCRA 193, 1991]; Young vs. Midland Textile Insurance Co., 30 Phil 617).
The reason behind this is because insurance, in its nature, is complex and difficult for the layman to understand. (Algoe vs. Pacific Meet. L. Ins., Co., 91 Wash. 324 LRA 1917A,1237). Most of the terms of the insurance contract do not result from the mutual negotiation between the insured and the insurer. The insured merely adheres to the terms appearing in the final printed form of the insurance contract. (Serrano vs. Court of Appeals, 130 SCRA 327 [1984])
However, if the terms and conditions are clear and unequivocal, it shall be interpreted according to its ordinary meaning.
An insurance contract must be interpreted so as to carry out the purpose for which the parties entered into the contract, which is to insure against risk of loss, damage, or liability on the part of the insured.
When is a case within the jurisdiction of the Insurance Commission?
Where the amount of any such loss, damage or liability, excluding interest, cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim Five million pesos (P5,000,000.00). (Section 439, Amended Insurance Code of the Philippines). The amount used to be Php100,000 only under Section 416 of the old Insurance Code of the Philippines.
What is the prescription period to file a lawsuit in an insurance contract?
The general rule is 10 years from the time cause of action accrues according to the Civil Code. However, insurers are allowed to reduce it to no less than 1 year under the Insurance Code. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action to a period of less than one (1) year from the time when the cause of action accrues, is void. (Section 63, Amended Insurance Code of the Philippines)
The reduction must be either incorporated as one of the built-in clauses under the policy or in the form an endorsement.
What is cause of action which triggers the prescription period?
The cause of action of the insured accrues from the time his claim was denied by the insurer.
Define concealment.
It is the neglect to communicate that which a party knows and ought to communicate. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (Section 26-27, Amended Insurance Code of the Philippines).
Define misrepresentation.
It refers to a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract.
Will commission of concealment or misrepresentation automatically result to rescission of the insurance contract or denial of claim?
No. The information should be material in nature in order for it to be a valid ground.
How is materiality determined?
It is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. (Section 31, Amended Insurance Code of the Philippines)
It is the neglect to communicate that which a party knows and ought to communicate. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (Section 26-27, Amended Insurance Code of the Philippines).
Define misrepresentation.
It refers to a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract.
Will commission of concealment or misrepresentation automatically result to rescission of the insurance contract or denial of claim?
No. The information should be material in nature in order for it to be a valid ground.
How is materiality determined?
It is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. (Section 31, Amended Insurance Code of the Philippines)
Cite examples of facts/circumstances which are deemed material.
The following facts/circumstances were deemed to be material which was the basis for denial of claim:
What is the penalty to be imposed on the person who commits fraud?
Any person who commits the following shall be punished by a fine not exceeding twice the amount claimed or imprisonment of two (2) years, or both, at the discretion of the court:
The following facts/circumstances were deemed to be material which was the basis for denial of claim:
- That the insured is suffering from: (a) Incipient pulmonary tuberculosis (Musngi vs. West Coast Life Ins. Co, 61 Phil. 864 [1939]), (b) Cerebral congestion and Bells Palsy (Argente vs. West Coast Life Ins. Co,51 Phil. 725 [1928]), (c). Cardiovascular disease (St. Ferdinand Memorial Park, Inc. vs. Great Pacific Life Assurance Corp., I.C. Case Nov. 20 [1977]), (d) Acute Bronchitis (Canilang vs. Court of Appeals, 42 SCAD 455, 223 SCRA 443 [1993])
- That he has been treated or hospitalized from some ailment like pneumonia, diabetes or syphilis (De Leon vs. Crown Life Ins. Co., C.A. L-44842 [1993])
- That he was hospitalized for two (2) weeks prior to his application for insurance. (Sunlife Assurance Co. of Canada, 64 SCAD 24, 245 SCRA 268 [1995])
- Material change in class of occupancy in the case of fire insurance, Example: change of occupancy from residential to a commercial property.
- Material change in classification of use in the case of motor insurance. Example: from private car to common carrier.
What is the penalty to be imposed on the person who commits fraud?
Any person who commits the following shall be punished by a fine not exceeding twice the amount claimed or imprisonment of two (2) years, or both, at the discretion of the court:
- Present or cause to be presented any fraudulent claim for the payment of a loss under a contract of insurance; and
- Fraudulently prepare, make or subscribe any writing with intent to present or use the same, or to allow it to be presented in support of any such claim. (Section 251, Amended Insurance Code of the Philippines)
THE PHILIPPINE INSURANCE INDUSTRY
The Philippine life insurance market penetration was the second lowest at 1.7 percent while its insurance density, or average spending of each individual on insurance, was the lowest at $41 per individual.
The Philippines also has the smallest market, for now, for the non-life insurance segment, valued at $3.4 billion in assets and $1.3 billion in premium earnings. This segment is led by Thailand (population: 64 million) which had the biggest assets at $15.8 billion." (Source: The Philippine Star)
The Philippines also has the smallest market, for now, for the non-life insurance segment, valued at $3.4 billion in assets and $1.3 billion in premium earnings. This segment is led by Thailand (population: 64 million) which had the biggest assets at $15.8 billion." (Source: The Philippine Star)
KEY CHANGES INTRODUCED IN INSURANCE CODE OF 2013
- The Insurance Commissioner is now given a fixed terms of 6 years.
- The validity of agents' and brokers' license is now 3 years.
- The net worth requirement for existing insurance firms will increase every three years until 2022. The required net worth—defined as the sum of paid-up capital, retained earnings, unimpaired surplus, and revalued assets—is set at P250 million in 2013, P550 million effective June 30, 2016, P900 million starting June 30, 2019, and P1.3 billion by June 30, 2022.
- The capital requirement for new entrants is Php1 billion.
- Bancassurance is now institutionalized. Unlike in BSP Circular 357, a bank is no longer required to have equity ownership of the insurance company. However, personnel tasked who will perform bancassurance within the bank premises must be duly licensed by the Insurance Commission.
- Microinsurance is now institutionalized. It is defined as "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; and
- 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.
- Insurers are now allowed to invest in more financial instruments. Previously, they could only invest in virtually risk-free instruments, mainly government securities.
TOP 10 NON-LIFE INSURERS |
TOP 10 LIFE INSURERS |
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THE INFORMATION CONTAINED HEREIN HAS BEEN COMPILED FROM SOURCES BELIEVED TO BE RELIABLE. NO WARRANTY, GUARANTEE, OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, IS MADE AS TO THE CORRECTNESS OR SUFFICIENCY OF ANY REPRESENTATION CONTAINED HEREIN.