Policy of Insurance
It is the written document embodying the
terms and stipulations of the contract of
insurance between the insured and the
insurer.
Signature of the parties
• General Rule: The policy of insurance is
signed only by the insurer or his duly
authorized agent.
Exception: Where express warranties are
contained in a separate instrument
forming part of the policy, the law requires
that the instrument must be signed by the
insured.
Policy controls terms of insurance
contract
• The terms of the insurance policy
constitute the measure of the insurer’s
liability. In order to recover, the insured
must show himself within the terms.
• In the absence of fraud or mistake, a
policy of insurance, upon acceptance,
constitutes a valid and binding contract,
superseding all preliminary agreements
and negotiations.
Policy a contract of “adhesion” (Fine Print
Rule)
• The terms are drafted and imposed by
the insurer. Ordinarily, contracts are freely
negotiated by parties with roughly
equivalent bargaining power. However, this
classical model is far removed from the
reality of the insurance business. o
Insurance contracts are drafted with the
aid of skillful and highly paid legal talent,
from which no deviation desired by an
applicant will be permitted. o Except for
riders which may later be inserted, the
insured sees the contract in its final form
and has had no voice in the selection or
arrangement of the words employed
therein. o The insured cannot negotiate
the substance of the contract with the
insurer. The provisions are normally
drafted by industry experts.
• Since the parties do not bargain on equal
footing, the weaker party’s participation is
reduced to the alternative “to take it or
leave it.” Consequently, where the
language use in an insurance contract or
application is such as to create ambiguity,
the same should be resolved liberally in
favor of the insured and strictly against the
party responsible therefor. The reason
being, to afford the greatest protection to
the insured. o Construe contracts as to
preclude the insurer from evading
compliance with its just obligations. o
Forfeitures are not favored and that any
construction which would result in the
forfeiture of the policy benefits for the
person claiming thereunder will be
avoided if it is possible to construe the
policy in a manner which would permit
recovery. o This rule that insurance
contracts are to be construed liberally in
favor of the insured and strictly against the
insurer applies to suretyship agreements.
• If the terms of the contract are clear and
unambiguous, there is no room for
construction and such terms cannot be
enlarged or diminished by judicial
construction. o The courts will only rule
out blind adherence to terms where facts
and circumstances will show that they are
basically one-sided.
Contents of the policy
• Names of the parties are essential. But
the mere fact that the name of the insured
was incorrectly spelled is of no importance
whatever, provided that the identity of the
party can be sufficiently established.
• Amount of insurance is necessary in
order to easily and exactly determine the
amount of indemnity to be paid the
insured in case of loss or damage
especially if it is only partial and not total.
The sum insured is the basis for calculating
the premium. However, it need not be
stated in the case of open or running
policies.
  The amount of insurance is the
maximum limit on the insurer’s
liability for loss or damage.
 Such amount is not necessarily the
value of the property insured nor
the extent of liability of the insurer
in the event of loss unless it is
otherwise stipulated.
 In life, health, accidental, and
injury insurance, a fixed sum is
payable.
 In workmen’s compensation
insurance, the amount is not
specified in the policy but by the
law imposing liability upon the
employer, which is, by reference,
made part of the contract.
 The amount insured is the amount
fixed in the policy
 The deductible is the stated
amount to be deducted from any
loss, which is shouldered by the
insured making the insurer liable
only for the excess of said amount.
• The premium is also essential because it
represents the consideration of the
contract. This is what the insured pays the
insurer to assume the risk of or the value
of the loss.
 The rates of premium are
developed on the basis of the
nature and character of the risk
assumed and also on the value of
the property or other interest
insured.
• The property or life insured constitutes
the subject matter of the contract.
 It has been suggested that the
proper phrase to use is “thing
insured” because insurable
interest may be in liability and not
in life or property.
• The requirement of interest insured in
property is especially important in fire
insurance policies to determine the actual
damage suffered by the insured in case of
loss of the property covered by the policy
if he is not the absolute owner thereof.
• The risks insured against must be stated
because the insurer’s undertaking is to
indemnify the insured for loss, damage or
liability caused or created only by the risks
insured against.
 Almost any contingent or unknown
event, whether past or future, may
be insured against except those
repugnant to public policy,
positively prohibited, or those
occasioned by the insured’s own
fraud or misconduct.
• The period during which the insurance is
to continue must also be stated because
although the loss suffered by the insured
was caused by the risk insured against, the
insurer would not be liable unless it
occurred during such duration of the
insurance.
 It may be expressed in terms of
time, distance or voyage.
 The period of time during which
the insurer assumes the risk of loss
is known as the life of the policy.
(12 mos. – annual policy; <12 mos.
– short period policies)
Attached papers on insurance policy
• Generally, the rider, slip or other paper
becomes a part of a contract or policy of
insurance if properly and sufficiently
attached or referred to therein in a
manner as to leave no doubt as to the
intention of the parties in such respect.
• Section 226: no rider shall be attached
to, printed, or stamped upon a policy of
insurance unless the form of such rider has
been approved by the Insurance
Commissioner.
• A rider, clause, warranty or endorsement
is not binding on the insured unless the
descriptive title or name of the rider, etc. is
also mentioned and written on the blank
spaces provided in the policy.
 Warranties are inserted or
attached to a policy to eliminate
 specific potential increases of
hazard owing to (1) actions of the
insured or (2) condition of the
property.
 A clause is an agreement between
the insurer and the insured on
certain matter relating to the
liability of the insurer in case of
loss.
 An endorsement is any provision
added to an insurance contract
altering its scope or application.
(Like extending the perils covered)
o An endorsement may be in
the nature of a permit
such as one authorizing
the removal of the insured
property and providing for
coverage in another
location.
• As to the lack of signature
 General Rule: If the rider is
physically attached to a policy of
insurance contemporaneously
with its execution and delivered to
the insured so attached, and
sufficient reference is made in the
policy, the fact that it is without
the signature of the insurer or of
the insured will not prevent its
inclusion and construction as a
part of the insurance contract.
o Same rule as above if the
rider, although issued
after the original policy,
was applied for by the
insured or owner.
Exception: The countersignature of the
insured or owner is required to any rider,
etc. not applied for by him if issued after
the delivery of the policy. The
countersignature shall be taken as his
agreement to the contents of the matter
so attached.
Kinds of policies
• An open or unvalued policy does not
predetermine the value of the insured
property but establishes a maximum
amount the insurer will pay in case of a
total loss of the property insured.
 It is one in which a certain agreed
sum is written on the face of the
policy NOT as the value of the
property insured, but as the
maximum limit of the insurer’s
liability.
 The insured must establish the
FMV of the property at the time of
the loss.
o If the FMV exceeds the
maximum, the insurer will
pay the maximum.
o If the FMV is less than the
maximum, the insurer will
pay the FMV.
• A valued policy is one where the value of
the property is predetermined
and the value is the amount to be used in
case of a total loss.
 There are 2 values, the face value
and the value of the thing insured.
In the absence of fraud or mistake,
the agreed value of the thing
insured will be paid in case of total
loss of the property.
 In life insurance, the liability of the
insurer is measured by the face
value of the policy.
 Example: A policy insuring a ship
“valued at P50 million” is a valued
policy.
• A running policy is intended to provide
indemnity for property which cannot well
be covered by a valued policy because of
its frequent change of location and
quantity, or for property of such a nature
as not to admit of a gross valuation.
 Here the risk is shifting,
fluctuating, or varying, and which
covers a class of property rather
than any particular thing.
 In some cases, the nature of the
property insured or the
circumstances are such as to make
 it impossible to designate the
subject matter of insurance with
certainty or particularity. These
policies are usually known as
“floating,” “running,” or “blanket.”
 A blanket policy (in the US) is one
covering by a single amount of
insurance the same kind of
property at different locations or
different kinds of property at a
single location.
 Running policies are in reality
open policies.
 When the goods change location
frequently so as to make it difficult
to insure its whole value, the
remedy is a contract that has no
fixed face value, the face value
adjusting itself to the changing
value at one specified location or
at each of several locations.
Issuance and renewal of cover notes
• Cover notes are short-term insurance
policies that may be issued to afford
immediate provisional protection to the
insured until the insurer can inspect or
evaluate the risk in question and issue the
proper policy or until the risk is declined
and notice thereof given.
 It is sufficient that the cover note
shows, by necessary implication,
an agreement to pay whatever
rate may be fixed.
 Cover notes do not contain
particulars that would serve as
basis for the computation of the
premiums and consequently, no
separate premiums are intended
or required to be paid therefor.
 A cover note is integrated with the
regular policy to be subsequently
issued.
Rules on cover notes
• Insurance companies doing business in
the Philippines may issue cover notes to
bind insurance temporarily, pending the
issuance of the policy.
• A cover note shall be deemed to be a
contract of insurance within the meaning
of Section 1(1) of the Code.
• No cover note shall be issued or renewed
unless in the form previously approved by
the Insurance Commission.
• A cover note shall be valid and binding
for a period not exceeding 60 days from
the date of its issuance, whether or not
the premium therefor has been paid. The
cover not may be cancelled by either party
upon at least 7 days notice to the other
party.
• If the cover note is NOT cancelled, within
60 days after its issuance, a policy of
insurance shall be issued in lieu thereof.
o This policy will include an identical
insurance bond and premium
provided under the cover note.
• A cover note may be extended or
renewed beyond the period of 60 days
with the written approval of the Insurance
Commission. The written approval may be
dispensed with upon the certification of
the president, vice-president, or general
manager of the insurance company
concerned that the risks involved, the
values of such risks, and the premiums
therefor have not as yet been determined
or established and that such extension is
not for the purpose of violating any
provisions of the Insurance Code or any
rulings, instructions, circulars, orders or
decisions of the Insurance Commissioner.
• Insurance companies may impose on
cover notes a deposit premium equivalent
to at least 25% of the estimated premium
coverage but in no case less than P500.
SEC. 64. No policy of insurance other than
life shall be cancelled by the insurer except
upon prior notice thereof to the insured,
and no notice of cancellation shall be
effective unless it is based on the
occurrence, after the effective date of the
policy, of one or more of the following:
(a) Non-payment of premium;
(b) Conviction of a crime arising out of
acts increasing the hazard insured against;
(c) Discovery of fraud or material
misrepresentation;
(d) Discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
(e) Physical changes in the property
insured which result in the property
becoming uninsurable; or
(f) Discovery of other insurance coverage
that makes the total insurance in excess of
the value of the property insured; or
(g) A determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
violation of this Code.
SEC. 65. All notice of cancellation
mentioned in the preceding section shall
be in writing, mailed or delivered to the
named insured at the address shown in
the policy or to his broker provided the
broker is authorized in writing by the
policy owner to receive the notice of
cancellation on his behalf, and shall state
(a) Which of the grounds set forth in
Section 64 is relied upon and (b) That,
upon written request of the named
insured, the insurer will furnish the facts
on which the cancellation is based.
Cancellation of non-life insurance policy
• Cancellation is broadly regarded as the
right to rescind, abandon or cancel a
contract of insurance.
• It is the termination by either the insurer
or the insured of a policy of insurance
before its expiration.
• The insured can cancel an insurance
contract at his election by surrendering the
policy. Such surrender, however, entitles
him to the return of the premiums on the
customary short-rate basis.
Form and sufficiency of notice of
cancellation by the Insurer
• There must be prior notice of
cancellation to the insured;
• The notice must be based on the
occurrence, after the effective date of the
policy, of one or more of the grounds
mentioned (Sec 64);
 The premium referred to in Sec
64(a) must be a premium
subsequent to the first, because it
speaks of non-payment “after the
effective date of the policy.”
• It must be in writing, mailed or delivered
to the named insured at the address
shown in the policy, or to his authorized
broker; and
• It must state which of the grounds set
forth is relied upon.
o It is the duty of the insurer upon
written request of the named
insured to furnish the facts on
which the cancellation is based.
Prior notice of cancellation to insured
• The purpose for notice to the insured is
to prevent the cancellation of the policy
without allowing the insured ample
opportunity to negotiate for other
insurance in its stead for his own
protection.
• Notice given to insured himself. – The
notice should be personal to the insured
and not to and/or through any
unauthorized person by the policy.
• Notice delivered personally or sent by
mail. – There must be proof that it was
actually sent by mail.
SEC. 63. A condition, stipulation, or
agreement, in any policy of insurance,
limiting the time for commencing an
action thereunder to a period of less than
one (1) year from the time when the cause
of action accrues, is void.
Validity of agreement limiting time for
commencing action

• General rule. – A clause in the policy
providing that an action must be brought
within a certain period is valid if not
contrary to Section 63.
• Period limitation. – If the period fixed is
less than 1 year, it is void.
 EXCEPT: In a policy of industrial life
insurance, the period cannot be
less than six (6) years after the
cause of action accrues.
Nature of condition limiting period for
filing claim
• The condition is an important matter, not
merely a procedural requirement, essential
to prompt settlement of claims against
insurance companies.
• It demands that insurance suits be
brought by the insured while the evidence
as to the origin and cause of the loss or
destruction has not yet disappeared.
• It is a resolutory cause, the purpose of
which is to terminate all liabilities in case
the action is not filed by the insured within
the period stipulated.
Where action brought against insurer’s
agent
• The bringing of such action against the
agent cannot have any legal effect except
that of notifying the agent of the claim.
When cause of action accrues
• The right of the insured to the payment
of his loss accrues from the happening of
the loss.
• However, the cause of action in an
insurance contract does not accrue until
the insured’s claim is finally rejected by the
insurer.
o Before such final rejection, there is
no real necessity for Bringing suit.
• The period for commencing an action
under a policy of insurance under Section
63 is to be computed not from the time
when the loss actually occurs but from the
time when the insured has a right to bring
an action against the insurer.
• Examples:
 Where the policy provided that no
such suit or action thereon “for
the recovery of any claim shall be
sustainable in any court of law or
equity unless the insured shall
have fully complied with all the
terms and conditions of the policy
nor unless commenced within 12
months next after the happening
of the loss,” it has been held that
such stipulation is repugnant to
Section 63.
o In effect, it reduces the
period allowed the insured
for bringing his action to
less than 1 year.
o Obviously, compliance
with the terms and
conditions would require
some time and that will
shorten the period for
bringing the suit.
o As the stipulation is upon
a written contract, the
time limit is 10 years from
the time the cause of
action accrues.
Where the policy provided that if a claim
be made and rejected, an “action or suit”
should be commenced within 12 months
after such rejection otherwise the claim
would prescribe, it has been held that such
a stipulation is valid.
Where a fidelity bond requires action to be
filed within 1 year from the filing of the
claim of loss, such condition contradicts
Section 63.
 o A fidelity bond is in the nature of a
contract of insurance against loss
from misconduct.

Contractual limitations contained in

insurance policies are regarded with
extreme jealousy by courts and will be
strictly construed against the insurer.

The new Insurance Code empowers the

Insurance Commissioner to adjudicate
disputes relating to an insurance
company’s liability to an insured. Hence, a
complaint or claim filed by the insured
with the Office of the Insurance
Commissioner would now be considered
an “action” or “suit” the filing of which
would have the effect of tolling or
suspending the running of the prescriptive
period.