Perfection of The Contract of Insurance

PERFECTION OF THE
CONTRACT OF
INSURANCE
EMAR G. BASILAN
JD III
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;
Elements of the Contract:
a) Subject matter
b) Consideration
c) Object and
Purpose
Nature and Characteristics of an Insurance Contract:
1) It is consensual
2) It is voluntary
3) It is aleatory
4) It is unilateral
5) It is a contract of indemnity
6) It is personal
Consensual Nature of Contract
- A contract of insurance must be assented to by both parties,

either in person or through their agents and so long as an
application for insurance has not been either accepted or
rejected, it is merely a proposal or an offer to make a contract
Theory of Cognition
- Under the theory of cognition, the acceptance is considered

to effectively bind the offeror only from the time it came to
his knowledge.
When is a Contract of Insurance Perfected?
- Pursuant to the cognition theory, an insurance contract is perfected

when the applicant-insured has knowledge of the acceptance and
approval by the insurer of his application.
- However, the cognition theory should be construed in relation to

the provisions of the Insurance Code on premium payment.
Therefore, the insurance contract becomes enforceable as against
the insurer only after payment of the premium
Some Jurisprudence on the Perfection of Insurance Contract:
a) The mere signing of an application for life insurance and the

payment of the first premium do not bind the insurer to issue a
policy where there is no evidence of any contract between the
parties that such acts should constitute a contract of insurance
(Badger vs. New York Life Ins. Co.)
b) An insurance contract is not perfected where the applicant

for life insurance dies before its approval or it does not appear
that the acceptance of the application ever came to the
knowledge of the applicant (Enriquez vs Sun Life Assurance)
c) Submission of application, even with premium payment is a
mere offer on the part of the applicant and does not bind the
insurer (Enriquez vs Sun Life Assurance).
d) An acceptance made by letter shall not bind the person

making the offer except from the time it came to his
knowledge(Enriquez vs Sun Life Assurance).
e) The contract, to be binding from the date of application,

must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be
passed upon or determined before it shall take effect. There
can be no contract of insurance unless the minds of the
parties have met in agreement (De Lim vs Sun Life Assurance
Co.)
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 heir recover on the insurance policy? (2011 Bar Exams)
(A) Yes, since under the Cognition Theory, the insurance contract was
perfected upon the acceptance by the insurer of X’s application.
(B) No, since there is no privity of contract between the insurer and X
heir’s.
(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.
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 heir recover on the insurance policy? (2011
Bar Exams)
(A) Yes, since under the Cognition Theory, the insurance contract was
perfected upon the acceptance by the insurer of X’s application.
(B) No, since there is no privity of contract between the insurer and X
heir’s.
(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.
Jason is the proud owner of a newly-built house worth P5 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 on Jason’s claim with reasons. (2016 Bar Exams)

Suggested Answer:
No. What governs insurance contract is the cognition theory

whereby the insurance contract is perfected only from the time
the applicant came to know of the acceptance of the offer by
the insurer. In this case, the loss occurred a day prior to Jason’s
knowledge of the acceptance by Shure of Jason’s application.
There being not perfected insurance contract, Jason is not
entitled to recover from Shure.
Delay in Acceptance
Mere delay by the insurer, although unreasonable, in acting

upon the application raises no implication of acceptance
nor does it estop the insurer to deny the existence of the
contract (Perez vs CA, G.R No. 112329, January 28, 2000)
When there is delay in acceptance due to the negligence of

the insurance company which takes unreasonably long time
before the application is processed and the applicant dies,
the contract is perfected.
Delivery of Policy
Sec. 49. the written instrument in which a contract of

insurance is set forth, is called a policy of insurance.
Delivery – is the act of putting the insurance policy – the

physical document- into the possession of the insured.
A policy may now be electronic subject to the pertinent

provisions of the Electronic Commerce Act (RA No. 8792)
and t0 such rules and regulations as may be prescribed by
the Commissioner (Insurance Code, Sec. 50)
Importance of Delivery
1. As evidence of the making of a contract and of its terms;
2. It is conclusive evidence of communication of the

insurer’s acceptance of the insured’s offer.
Absence of Delivery
-the delivery of a policy is not, however, a prerequisite to a

valid contract of insurance. The contract may be completed
prior to delivery of the policy or even without delivery of
the policy depending on the intention of the parties. The
policy may contain provision that states that the insurance
is not effective until the delivery of the policy.
Modes of Delivery
- the actual manual transfer of the policy (actual delivery)

is not a prerequisite to its validity unless the parties have
so agreed in clear language. The delivery may be made to
the insured in person or to his duly constituted
agent(constructive delivery)
Effect of Delivery
1. Conditional Delivery
- Non-performance of the condition precedent
prevents the contract from taking effect.
2. Unconditional Delivery
-This consummates the contract, and the policy
delivered becomes the final contract between the
parties.
Note: Where the premium is still unpaid after unconditional delivery

and the absence of any clear agreement granting credit extension,
the policy will lapse if the premium is not paid at the time and
manner specified in the policy
Sec. 315 (par.2).
Any insurance company which delivers to an insurance

agent or insurance broker a policy or contract of insurance shall
be deemed to have authorized such agent or broker to receive
on its behalf payment of any premium which is due on such
policy or contract of insurance at the time of its issuance or
delivery or which becomes due thereon.
Thank you…

Perfection of The Contract of Insurance

Uploaded by

Copyright:

Available Formats

Perfection of The Contract of Insurance

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Perfection of The Contract of Insurance

Uploaded by

Copyright:

Available Formats

PERFECTION OF THE

Elements of the Contract:

- A contract of insurance must be assented to by both parties,

- Under the theory of cognition, the acceptance is considered

- Pursuant to the cognition theory, an insurance contract is perfected

- However, the cognition theory should be construed in relation to

a) The mere signing of an application for life insurance and the

b) An insurance contract is not perfected where the applicant

d) An acceptance made by letter shall not bind the person

e) The contract, to be binding from the date of application,

Decide on Jason’s claim with reasons. (2016 Bar Exams)

No. What governs insurance contract is the cognition theory

Mere delay by the insurer, although unreasonable, in acting

When there is delay in acceptance due to the negligence of

Sec. 49. the written instrument in which a contract of

Delivery – is the act of putting the insurance policy – the

A policy may now be electronic subject to the pertinent

1. As evidence of the making of a contract and of its terms;

2. It is conclusive evidence of communication of the

-the delivery of a policy is not, however, a prerequisite to a

- the actual manual transfer of the policy (actual delivery)

Note: Where the premium is still unpaid after unconditional delivery

Any insurance company which delivers to an insurance

You might also like