THE CONTRACT OF INSURANCE

GILBERT R. HUFANA
Professor, Law 139 Insurance Law
 ELEMENTS OF AN
INSURANCE CONTRACT

• Consent of the parties – insured and insurer

• Object - the transferring or distributing of the risk
of loss, damage, liability or disability from the
insured to the insurer
• Cause or consideration - the premium which the
insured pays the insurer
• Insurable interest - the insured possesses an
interest of some kind susceptible of pecuniary
estimation
 THE OBJECT OF AN
INSURANCE CONTRACT

• Insured is subject to a risk of loss through

destruction or impairment of that interest by the
happening of designated perils

• Insurer assumes the risk of loss

• Assumption is part of the general scheme to
distribute actual losses among large group of persons
bearing somewhat similar risks
 WHAT MAY INSURED?
SEC. 3, IC

• The following risks may be insured:

• Any contingent or unknown event whether past
or future which may cause damage to a person
having an insurable interest; or
• Any contingent or unknown event, whether past
or future, which may create liability against the
person insured.
 OTHER PROVISION OF SEC. 3, IC
SEC. 3, IC (AMENDED BY RA 10607)

• “The consent of the spouse is not necessary for the

validity of an insurance policy taken out by a
married person on his or her life or that of his or
her children.”

• “All rights, title and interest in the policy of

insurance taken out by an original owner on the life
or health of the person insured shall automatically
vest in the latter upon the death of the original
owner, unless otherwise provided for in the policy.”
 INSURANCE AGAINST DAMAGE
AN ILLUSTRATIVE EXAMPLE

• A marine insurance taken by the owner of a vessel

against the perils of the sea
• The thing insured is the damage which may be suffered by
the vessel during its voyage because of the perils of the
sea
• Perils of the Sea: refers to the natural accidents peculiar
to the sea. It can be maritime accidents and dangers such
as storms, waves, wind, collision of the vessel, fire, smoke
and noxious fumes; sinking, flooding and capsizing, loss of
propulsion or steering, and any other hazards resulting
from the unique environment of the sea
 INSURANCE AGAINST LIABILITY
AN ILLUSTRATIVE EXAMPLE

• A third party liability insurance taken by the owner

of a car against liability he may cause to third
persons by the use of his car
• An event which may cause liability against the car owner

• Liability of a debtor to its creditor (indebtedness)

 UNKNOWN PAST EVENT OR FUTURE
CONTINGENT EVENT

• Unknown past event

• Where the parties entered into a marine insurance in
a vessel against the perils of the sea “lost or not lost”
on October 10, without the parties knowing that the
vessel has already sunk on October 9
• Future contingent event
• The happening of a vehicular accident
• The occurrence of fire on a building
• The theft of jewelries & other personal properties of
value
 PARTIES TO AN
INSURANCE CONTRACT

• INSURER– the party who agrees to indemnify

another upon the happening of a specified
contingency
• INSURED – the party to be indemnified in case of
loss or damage

• BENEFICIARY– the person (natural or juridical) who

receives the benefits of an insurance policy upon its
maturity
 WHO MAY BE AN INSURER?
SEC. 6, IC (AMENDED BY RA 10607)

• Every corporation, partnership, or association, duly

authorized to transact insurance business as
elsewhere provided in this Code, may be an
insurer.
• The term insurer or insurance company shall
include all individuals, partnerships or corporations
including GOCCs engaged as principals in the
insurance business, excepting mutual benefit
associations.
 WHO MAY BE INSURED?
SEC. 7, IC

• Anyone except a public enemy may be insured.

• Only persons who have the capacity to enter into a
contract may be insured. He must also have an
insurable interest in the subject of the insurance.
• A public enemy may not be insured.
• A public enemy is a nation at war with the
Philippines and necessarily includes every citizen
or subject of such nation.
 INSURED VS ASSURED

• “INSURED” refers to the owner of the property

insured or the person whose life is the subject of
the contract of insurance
• “ASSURED” refers to the person for whose benefit
the insurance is granted
• Example:
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 is not the insured.
 INSURED VS ASSURED VS BENEFICIARY

• In property insurance, like fire insurance, the insure

is also the assured where 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
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.
 RULE ON DESIGNATION OF
A BENEFICIARY
SEC 11, IC (AMENDED BY RA 10607)

“The insured shall have the right to change the

beneficiary he designated in the policy, unless he has
expressly waived this right in said policy.
Notwithstanding the foregoing, in the event the
insured does not change the beneficiary during his
lifetime, the designation shall be deemed
irrevocable.”
• General Rule: Designation of beneficiary is revocable
• Exception: expressly stated otherwise or insured
does not change the beneficiary during his lifetime
 RULE ON DESIGNATION OF
A BENEFICIARY

• The insured has the power to revoke the designation

of the beneficiary even without the consent of the
latter, whether or not such power is reserved in the
policy.
• 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.
• 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.
 BENEFICIARY DIES AHEAD
OF THE INSURED

• If the beneficiary has no vested interest in the

proceeds of the life insurance of the insured (his
designation being revocable), the insured may
change his designated beneficiary.
• Otherwise, his representatives or heirs are entitled
to the proceeds upon the death of the insured.
 RULE ON BENEFICIARY
THE GENERAL RULE & THE EXCEPTION

• GR: A person may take a life insurance on his life

payable to any person called beneficiary
• Any person in general can be a beneficiary
• Even if said person is a stranger and has no interest
in the life of the insured
• Exception: The only persons disqualified from being a
beneficiary are those not qualified to receive
donations under Art. 739.
• They cannot be named beneficiaries of a life
insurance policy by the person who cannot make
any donation to him.
 ART 739, NCC

The following donations shall be void:

1. Those made between persons guilty of adultery
or concubinage at the time of donation
2. Those made between persons found guilty of the
same criminal offense, in consideration thereof
3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his
office.
 RULE ON BENEFICIARY
SEC 12, IC (AMENDED BY RA 10607

• The interest of a beneficiary in a life insurance policy

shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully
bringing about the death of the insured.
• In such a case, the share forfeited shall pass on to the
other beneficiaries, unless otherwise disqualified.
• In the absence of other beneficiaries, the proceeds
shall be paid in accordance with the policy contract.
• If the policy contract is silent, the proceeds shall be
paid to the estate of the insured.
 ILLUSTRATIVE EXAMPLES

• A common law wife of the insured who has a legal

wife is disqualified as beneficiary. (Insular Life v
Ebrado 80 SCRA 181)
• A common law wife designated prevailed over the
legal wife. (Southern Luzon Employee’s Association v.
Golpeo 96 PHIL 83)
• If the second wife designated as a beneficiary has not
known of the previous marriage, the second wife is
not guilty of adultery or concubinage therefore she is
entitled to the proceeds. (SSS v Davac, 17 SCRA 863)
 ILLUSTRATIVE EXAMPLES

• In case of failure to designate or designation is void,

the proceeds will go to the estate of the insured. (In
Re: Mario B. Chanliongco, 79 SCRA 364)
• In case where no beneficiary is designated, the
proceeds will be divided equally between the two
wives where the second wife contracted marriage in
good faith. (Vda de Consuegra v GSIS, 37 SCRA 315)