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WHAT LAWS GOVERN INSURANCE

The laws governing insurance in the order of priority are (1) The Insurance Code [PD 1460whose effectivity date is June 11, 1978] (2) In the absence of applicable provisions, the Civil Code (2) In
the absence of applicable provisions in the Insurance Code and Civil Code, the general principles on the
subject in the United States (Constantino vs. Asia Life Insurance, 87 Phil 248)
Example:
H applied for insurance with S Company with offices in Montreal, Canada. The application was
mailed to S and on November 26, the insurer gave notice of acceptance by cable. H never received the
cable and he died on December 20. The Insurance Code is silent as to acceptance by cable. The Civil
Code shall apply and under Article 1319, an acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge. There was no valid contract as H died without
knowing the acceptance of his application. (Enriquez vs. Sun Life Assurance of Canada, 41 Phil 269)
WHAT IS A CONTRACT OF INSURANCE
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.
A Contract of Suretyship shall also be deemed an insurance contract if made by a surety who or
which is doing an insurance business.
Doing an insurance business or transacting an insurance business is:
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 business including a reinsurance business, specifically recognized as doing an insurance
business within the meaning of the 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 the Code. (Section 2)
NOTE the fact that no profit is derived from making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received shall not be deemed CONCLUSIVE to show that
the making thereof does not constitute the doing or transacting of an insurance business.
NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE
1.
IT IS AN ALEATORY CONTRACT - the liability of the Insurer depends upon the happening of a
contingent event. It is not a wagering contract.
2.
IT IS A CONTRACT OF INDEMNITY FOR NON-LIFE recovery is commensurate to the loss. IT
IS AN INVESTMENT IN LIFE INSURANCE secured by the insured as a measure of economic security
for him during his lifetime and for his beneficiary upon his death EXCEPT one secured by the creditor on
the life of the debtor.
3.
IT IS A PERSONAL CONTRACT - an insurer contracts with reference to the character of the
insured and vice versa.
4.
IT IS EXECUTORY AND CONDITIONAL ON THE PART OF THE INSURER - because upon
happening of the event or peril insured against, the conditions having been met, it has the obligation to
execute the contract by paying the insured. IT IS EXECUTED ON THE PART OF THE INSURED after
the payment of the premium

5.
IT IS ONE OF PERFECT GOOD FAITH for both Insurer and Insured, but more so for the
INSURER, since its dominant bargaining position imposes a stricter liability/responsibility.
6.
IT IS A CONTRACT OF ADHESION Insurance companies manage to impose upon the insured
prepared contracts which the insured cannot change. Consequently, they are construed as follows:
In case there is no doubt as to the terms of the insurance contract, it is to be construed in its
PLAIN, ORDINARY AND POPULAR SENSE.
If DOUBTFUL, AMBIGUOUS, UNCERTAIN it is to be construed strictly against the insurer and
liberally in favor of the insured because the latter has no voice in the selection of the words used, and the
language used is selected by the lawyers of the Insurer. (QUA CHEE GAN v. LAW UNION ROCK INS.
CO. LTD 98 Phil. 85)
ILLUSTRATIONS:
a. P Bank obtained insurance against robbery which excluded loss by any criminal act of the
insured or any authorized representative. While transferring funds from one branch to another, the
insureds armored truck was robbed. The driver was assigned by a labor contractor with the insured,
while the security guard was assigned by an agency contracted by the insured. Both driver and guard
were found to be involved. Can the loss be excluded? HELD: THE LOSS IS EXCLUDED, the
DRIVER/GUARD ALTHOUGH ASSIGNED BY LABOR CONTRACTORS ARE AUTHORIZED
REPRESENTATIVES. THE TERMS ARE CLEAR AND UNAMBIGUOUS (Fortune Insurance v. CA, 244
SCRA 308).
b.
Personal Accident policies providing payment for loss of hand. The Insurance policy
defines it as amputation. Insured has an accident resulting in a temporary total disability but hand is not
amputated. HELD: Insurer is not liable (TY v. First National Surety and Assurance Company 17 SCRA
364) BUT in a case where the policy provided for loss of both legs by amputation, a claim against the
policy was allowed for a total paralysis to exclude total paralysis is contrary to public policy, public good
and sound morality, as it would force the insured to have his legs amputated to be able to claim on the
policy (Panaton v. Malayan 2 Court of Appeals 783).
c.
Warranty in a fire insurance policy prohibited storage of oils having a flash point of below
300 Fahrenheit. Gasoline is stored. Is there a policy violation? HELD: The clause is ambiguous. In
ordinary parlance oil means lubricants not gasoline. There is no reason why gasoline could not be
expressed clearly in the language the public can readily understand. (QUA CHEE GAN 98 Phil. 85)
d.
An action to recover the amount of PHP 2,000.00 due to death by drowning where the
policy provided for indemnity in the amount of PHP 1,000.00 to PHP 3,000.00. HELD: the interpretation
of the obscure stipulation in contract must not favor the one who caused the obscurity. Hence, judgment
for an additional PHP 2,000.00 was affirmed (Del Rosario vs. Equitable Insurance and Casualty
Company, 8 SCRA 343).
e.
Denial of a claim on the ground that the insured vehicle was a private owner type
vehicle on the ground that the policy issued to the insured was a Common Carriers Liability Insurance
Policy which covers a public vehicle for hire. HELD: Insurer is liable as it was aware all along that the
vehicle of the insured was a private vehicle. (Fieldmans Insurance v. Mercedes Vargas Vda De Songco,
25 SCRA 70)
f.
Denial of claim for benefit due to the death of Flaviano Landicho in a plane crash under a
GSIS Policy on the ground of non payment of the premium. HELD: The policy contained a provision that
the application for insurance is authority for GSIS to cause the deduction of premium from the insureds
salary (Landicho v. GSIS, 44 SCRA 7)
OTHER CASE REFERENCES: New Life Enterprises v. CA, 207 SCRA 669