POINTERS IN INSURANCE LAW

(2018 Bar Examinations)

Atty. Maria Diory Rabajante

INSURANCE CONTRACT, NATURE

An insurance contract is a contract of indemnity. In it, one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event. (White Gold Marine Services, Inc. v. Pioneer Insurane and Surety
Corporation, G.R. No. 154514, 28 July 2005)

TEST IN DETERMINING AN INSURANCE CONTRACT

The test to determine if a contract is an insurance contract or not, depends on the

nature of the promise, the act required to be performed, and the exact nature of the agreement
in the light of the occurrence, contingency, or circumstances under which the performance
becomes requisite. It is not by what it is called. (White Gold Marine Services, Inc. v. Pioneer
Insurane and Surety Corporation, supra.)

INSURANCE CONTRACT AS A CONTRACT OF ADHESION

An insurance contract is a contract of adhesion which must be construed liberally in

favor of the insured and strictly against the insurer in order to safeguard the latter’s interest.
(The Insular Life Assurance Company, Ltd v. Khu, G.R. No. 195176, 18 April 2016)

To characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts
of experience in the industry purposefully used to its advantage. (The Insular Life Assurance
Company, Ltd v. Khu, supra.)

SUBROGATION

The right of subrogation attaches upon payment by the insurer of the insurance claims
by the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise
only those rights that the assured may have against the wrongdoer who caused the damage.
(Aboitiz Shipping Corporation v. Insurance Company of North America, G.R. No. 168402, 6
August 2008)

CASES WHERE SUBROGATION DOES NOT APPLY

Subrogation does not apply if the assured by his own act releases the wrongdoer or
third party liable for the loss or damage, from liability, the insurer's right of subrogation is
defeated. (Pan Malayan Insurance Co. v. CA, G.R. No. 77397, 3 April 1990)

Similarly, where the insurer pays the assured the value of the lost goods without
notifying the carrier who has in good faith settled the assured's claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action against
the carrier on his right of subrogation. (Pan Malayan Insurance Co. v. CA, supra., citing
McCarthy v. Barber Steamship Lines, Inc. [45 Phil. 488])
 And where the insurer pays the assured for a loss which is not a risk covered by the
policy, thereby effecting "voluntary payment", the former has no right of subrogation against
the third party liable for the loss (Pan Malayan Insurance Co. v. CA, supra., citing Sveriges
Angfartygs Assurans Forening v. Qua Chee Gan [G. R. No. L-22146, 5 September 1967])

INSURABLE INTEREST

An insurable interest is that interest which a person is deemed to have in the subject
matter insured, where he has a relation or connection with or concern in it, such that the person
will derive pecuniary benefit or advantage from the preservation of the subject matter insured
and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. (Lalican v. Insular Life, G.R. No. 183526, 25 August
2009)

Section 10 of the Insurance Code provides that every person has an insurable interest
in his own life. Section 19 of the same code also states that an interest in the life or health of
a person insured must exist when the insurance takes effect, but need not exist thereafter or
when the loss occurs. (Lalican v. Insular Life, supra.)

An insurable interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in
that out of which the expectancy arises. (Gaisano Cagayan, Inc. v. Insurance Company
of North America, G.R. No. 147839, 8 June 2006, citing Section 14 of the Insurance Code)

An insurable interest in property does not necessarily imply a property interest in, or a
lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured
is so situated with reference to the property that he would be liable to loss should it be injured
or destroyed by the peril against which it is insured. (Gaisano Cagayan, Inc. v. Insurance
Company of North America, supra.)

Anyone has an insurable interest in property who derives a benefit from its existence
or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest
in the property sold so long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor’s lien. (Gaisano Cagayan, Inc. v. Insurance
Company of North America, supra.)

CASH AND CARRY RULE

The general rule in insurance laws is that unless the premium is paid, the insurance
policy is not valid and binding. (Gaisano v. Development Insurance and Surety Corporation,
G.R. No. 190702, 27 February 2017)

The exceptions to the above rule are as follows (Gaisano v. Development Insurance
and Surety Corporation, supra., citing UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc. [G.R. No. 137172, 4 April 2001]):
a. in case of life or industrial life policy, whenever the grace period provision applies,
as expressly provided by Section 77 itself;
b. where the insurer acknowledged in the policy or contract of insurance itself the
receipt of premium, even if premium has not been actually paid, as expressly
provided by Section 78 itself;
 c. where the parties agreed that premium payment shall be in installments and partial
payment has been made at the time of loss, as held in Makati Tuscany
Condominium Corp. v. Court of Appeals [G.R. No. 95546, 6 November 1992];
d. where the insurer granted the insured a credit term for the payment of the premium,
and loss occurs before the expiration of the term, as held in Makati Tuscany
Condominium Corp. (Id.); and
e. where the insurer is in estoppel as when it has consistently granted a 60 to 90-day
credit term for the payment of premiums.

Even if there is a waiver of pre-payment of premiums, that in itself does not become
an exception to Section 77, unless the insured clearly gave a credit term or extension. This is
the clear import of the fourth exception in the UCPB General Insurance Co., Inc. To rule
otherwise would render nugatory the requirement in Section 77 that "[n]otwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance company
is valid and binding unless and until the premium thereof has been paid, x x x.” (Gaisano v.
Development Insurance and Surety Corporation, supra.)

CONCEALMENT

Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the authority to
investigate, the insurer is liable for claims made under the contract. Having assumed a
responsibility under the agreement, the insurer is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care provider or insurer attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid. (Philamcare Health Systems, Inc. v. CA,
G.R. No. 125678, 18 March 2002)

The waiver of a medical examination in a non-medical insurance contract renders even

more material the information required of the applicant concerning previous condition of health
and diseases suffered, for such information necessarily constitutes an important factor which
the insurer takes into consideration in deciding whether to issue the policy or not. (Sunlife
Assurance Company of Canada v. CA, G.R. No. 105135, 22 June 1995)

It is well settled that the insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates
of the risks of the proposed insurance policy or in making inquiries. (Sunlife Assurance
Company of Canada v. CA, supra.)

INCONTESTABILITY CLAUSE

The so-called "incontestability clause" precludes the insurer from raising the defenses
of false representations or concealment of material facts insofar as health and previous
diseases are concerned if the insurance has been in force for at least two years during the
insured’s lifetime. The phrase "during the lifetime" found in Section 48 of the Insurance Code
simply means that the policy is no longer considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is "for a period of two years." (Manila
Bankers Life Insurance Corporation v. Aban, G.R. No. 175666, 29 July 2013)

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit
business from or provide insurance coverage only to legitimate and bona fide clients, by
requiring them to thoroughly investigate those they insure within two years from effectivity of
the policy and while the insured is still alive. If they do not, they will be obligated to honor
claims on the policies they issue, regardless of fraud, concealment or misrepresentation. The
law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting
and accepting insurance business from any Tom, Dick and Harry. (Manila Bankers Life
Insurance Corporation v. Aban, supra.)

NOTICE OF INSURANCE CLAIM

When the bank offered a deposit savings account with life and disability insurance
coverage to its customers, and a customer who availed of said account subsequently died,
said bank had the primary responsibility to ensure that the 2-in-1 account be reasonably
carried out with full disclosure to the parties concerned, particularly the beneficiaries. As agent
of the insurer, it was incumbent upon the bank to give proper notice of the existence of the
insurance coverage and the stipulation in the insurance contract for filing a claim to the
customer’s beneficiary, upon receipt of the notice of death of said customer. (BPI v. Laingo,
G.R. No. 205206, 16 March 2016) In such case, the beneficiary who had no knowledge of the
existence of the insurance contract, is not bound by the deadline for filing a written notice of
claim upon the death of the insured. (Id.)

DOUBLE INSURANCE

The requisites in order for double insurance to arise are as follows (Malayan Insurance
Co., Inc. v. Philippines First Insurance Co., Inc., G.R. No. 184300, 11 July 2012):
a. The person insured is the same;
b. Two or more insurers insuring separately;
c. There is identity of subject matter;
d. There is identity of interest insured; and
e. There is identity of the risk or peril insured against.

Even though two insurance policies were issued over the same goods and cover the
same risk, there is no double insurance if they were issued to two different persons/entities
having distinct insurable interests. (Malayan Insurance Co., Inc. v. Philippines First Insurance
Co., Inc., supra.)

MORTGAGE REDEMPTION INSURANCE

A mortgage redemption insurance is a device for the protection of both the mortgagee
and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so
that in the event of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a
similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death, the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. (Paramount Life & General Insurance Corporation,
v. Castro, G.R. No. 211329, 19 April 2016)

In allowing the inclusion of the mortgagee bank as a third-party defendant, the Court
recognizes the inseparable interest of the bank (as policyholder of the group policy) in the
validity of the individual insurance certificates issued by the insurer. The mortgagee bank need
not institute a separate case, considering that its cause of action is intimately related to that of
the insurer as against the insured- mortgagor. The soundness of admitting a third-party
complaint hinges on causal connection between the claim of the plaintiff in his complaint and
a claim for contribution, indemnity or other relief of the defendant against the third-party
defendant. (Paramount Life & General Insurance Corporation, v. Castro, supra.)

HEALTH CARE AGREEMENT

For purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under the contract. (Fortune Medicare, Inc.
v. David Robert Amorin, G.R. No. 195872, 12 March 2014)