MODULE 1: INSURANCE; GENERAL PROVISIONS

History of Insurance in The Philippines

 Pre-Spanish Era - there was no insurance; every loss was borne by the person or the
family who suffered the misfortune.
 Spanish era – Insurance, in its present concept, was introduced in the Philippines when
Lloyd’s of London appointed Strachman, Murray & Co., Inc. as its representative here.
 1898 – Life insurance was introduced in this country with the entry of Sun Life Assurance
of Canada in the local insurance market
 1906 – First domestic non-life insurance company, the Yek Tong Lin Insurance
Company, was organized
 1910 – First domestic life insurance company, the Insular Life Assurance Co., Ltd., was
organized
 1939 – Union Insurance Society of Canton appointed Russel & Surgis as its agent in
Manila. The business transacted the Philippines was then limited to non-life insurance.
 1936 – Social insurance was established with the enactment of Commonwealth Act no.
186 which created the Government Service Insurance System (GSIS) which started
operations in 1937. The Act covers gov’t employees.
 1949 – Government agency was formed to handle insurance affairs, where the Insular
Treasurer was appointed commissioner ex-officio.
 1950 – Reinsurance was introduced by the Reinsurance Company of the Orient when it
wrote treaties for both life and non life.
 1951 – First workmen’s compensation pool was organized as the Royal Group
Incorporated.
 1954 – RA 1161 was enacted which provided for the organization of the Social Security
System (SSS) covering employees of the private sector.
 During the Spanish Period, the laws on insurance were found in Title VII of Book II and
Section III of Title III of Book III of the Spanish Code of Commerce; and in Chapters II
and IV of Tile XII of Book IV of the Spanish Civil Code of 1889
 During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the
Insurance Act (Act 2427). This Act which took effect on July 1, 1915 repealed the
provisions of the Spanish Code of Commerce on Insurance.
When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the
provisions of the Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the
Insurance Act was the governing law on insurance in the Philippines.
On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of
the Philippines, thereby repealing Act 2427. PD’s 63, 123 and 317 were issued, amending PD
612. Finally PD 1460 which took effect on June 11, 1976 consolidated all insurance laws into a
single code and this is what we know now as the Insurance Code of 1978.
On 15 August 2013, the President of the Philippines signed into law Republic Act No. 10607
or the revised Insurance Code of the Philippines (RA 10607). RA 10607, which amends the 38-
year-old Insurance Code under Presidential Decree No. 612, seeks to strengthen the Philippine
insurance industry and re-align Philippine law with global developments in the insurance sector.
REPUBLIC ACT NO. 10607
AN ACT STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING
PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS "THE INSURANCE CODE",
AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981,
AND BATAS PAMBANSA BLG. 874, AND FOR OTHER PURPOSES
Section 1. This Decree shall be known as ‘The Insurance Code’
Section 2(a). Contract of Insurance- an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage, or liability arising from an unknown or contingent
event.
Contract of suretyship- shall be deemed to be an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as such, is doing an insurance business as
hereinafter provided.
Section 2(b). The term doing an insurance business or transacting an insurance business,
within the meaning of this Code, shall include:
a. Making or proposing to make, as insurer, any insurance contract;
b. Making or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;
c. Doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
d. Doing or proposing to do any business in substance equivalent to any of the foregoing in
a manner designed to evade the provisions of this Code.
Parties to the Contract of Insurance
Insured
 whose favor the contract is operative
 who indemnified against or is to receive a certain sum upon the happening of a specified
contingency or event
 anyone except a public enemy
 must be competent to enter into contract
 must possess an insurable interest in the subject of the insurance
 a juridical person, like a partnership or a corporation, may take out insurance on property
owned by it.
Insurer
 assumes or accepts the risk of loss and undertakes the consideration to indemnify the
insured
 every corporation, partnership or association, duly authorized to transact insurance
business as elsewhere provided in this Code
Section 2(c).).
The INSURANCE COMMISSIONER
The Insurance Commission headed by the Insurance Commissioner is a government
agency under the Department of Finance that supervises and regulates insurance, pre-need,
and health maintenance organization industries pursuant to Republic Act Nos. 10607, 9829, and
Executive Order No. 192, series of 2015.

Elements of Contract of Insurance

1. Consent- there must be an offer and acceptance and the parties must have the legal
capacity.
2. Cause or Consideration- the consideration for an insurance contract is the premium
paid by the insured.
3. Object and purpose- the principal object and purpose of insurance is the transfer and
distribution of risk of loss, damage, or liability arising from unknown or contingent event.
Additional element:
Insurable Interest- this means that the insured possesses an interest of some kind susceptible
of pecuniary estimation.

Insurable Interest

X owned a house and lot. X insured the house. The house got burned. Then he sold the
partially burnt house and the lot to Y. Which statement is most accurate?
a. X is not anymore entitled to the proceeds of the insurance policy because he already sold
the partially burnt house and lot.
b. X is still entitled to the proceeds of the insurance policy because what is material is that at
the time of the loss, X is the owner of the house and lot.
c. No one is entitled to the proceeds because ownership over the house and lot was already
transferred.
d. Y will be the one entitled to the proceeds because he now owns the partially burnt house
Answer
On February 3, 1987, while Jose Palacio was in the hospital preparatory to a heart
b.surgery,
X is still he
entitled
calledtohis
theonly
proceeds of the
son, Boy insurance
Palacio, policy because
and showed what
the latter is material
a will is that
naming the sonatas
the time
sole of to
heir theallloss,
the X is the owner
father9s estateof the house
including theand lot. mansion in Forbes Park. The following
family
day, Boy
Sec.Palacio tookInsurance
19 of the out a fireCode insurance policy
provides onan
that theinterest
ForbesinPark mansion.
property Onemust
insured week
later, the father died. After his father's death, Boy Palacio moved his wife
exist when the insurance takes effect, and when the loss occurs, but need not exist in theand children to the
family mansion
meantime. Here Xwhich
was he
stillinherited. On March
the property owner 30, 1987,
at the timea fire
when occurred razing the
the insurance mansion
takes effect to
the ground. Boy Palacio then proceeded to collect on the fire insurance
and at the time of the loss hence, he may still recover despite selling the property to Y. he took earlier on
the house.
Should the insurance company pay? Reasons.

Answer
No, the insurance company should not pay.
Section 14 of the Insurance Code of the Philippines provides that an insurable
Subject Matter of Insurance Contract

 In General- anything that has an appreciable pecuniary value, which is subject to loss or
deterioration
 Property Insurance- insurance on the property that is primarily involved.
 Life, Health and Accident Insurance- the life or health of the person is the subject of
the contract
 Casualty Insurance- the subject matter is the risks involved or the insured risk of loss or
liability
What may be Insured?
Section 3. Any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest, or create a liability against him, may be insured against,
subject to the provisions of this chapter.
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.

Nature and Characteristics of Insurance Contract

1. Voluntary- the parties may incorporate such terms and conditions as they may deem
convenient.
2. Conditional- it is subject to conditions the principal one of which is the happening of the
event insured against
3. Consensual-perfected by the meeting of the minds of the parties.
4. Risk Distributing Device- risk sharing not risk shifting. Distribute potential liability
among group of persons bearing the same risk
5. Contract of Adhesion
 drafted by one party
 take-it-or-leave-it basis
 little opportunity to bargain/alter
 interpreted in favor of the insured
6. Aleatory Contract
 value to either or both parties depends on chance or future events
 monetary values of the parties' performance are unequal
 premium vs. indemnity
7. Contract of Indemnity
 insurers pay no more than the actual loss suffered
 purpose is to maintain status quo
 except -life insurance, personal accident insurance
8. Uberrima Fides Contract
 utmost good faith
  disclose all material facts relative to the risk
 status and coverage
9. Personal Contract- personal obligation, it only binds the parties
10. Executed and Executory
 Executed as to the insured after the payment of the premium
 Executory on the part of the insurer in the sense that it is not executed until payment
for a loss
11. Property- in legal contemplation, since an insurance is a contract.

A written insurance contract is called a policy

Perfection of the Contract of Insurance

a mere offer or proposal of insurance contract does not constitute perfection of contract.
the contract of insurance, being a consensual contract is perfected upon meeting of the
minds of the parties to the contract.
meeting of the minds is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.

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?
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 X9s 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.

Answer
C. No, since X had no knowledge of the insurer's acceptance of his application before he
died.
An insurance contract is a consensual contract and is therefore perfected the
moment there is a meeting of minds with respect to the object and the cause or
consideration. What is being followed in the insurance contract is the Cognition Theory and
is contemplated under Article 1319 of the Civil Code. It provides that acceptance of an offer
by letter and mailing it do not bind the offeror except from the time it came to his knowledge.