Insurance Reviewer
provisions of the Spanish Code of Commerce on
I. History of Insurance Law in the Philippines
How did insurance develop 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.
At present, there are 130 insurance companies
registered with the Office of the Insurance
Commissioner. Of these, 2 are composite insurance
companies (engaged in both life and non-life
insurance), 23 are life insurance companies, 101 are
non-life insurance companies and 4 are reinsurance
companies.
How did insurance laws develop in the
Philippines? 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 (whew!)
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This Act which took effect on July 1, 1915 repealed the
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.
II. Contract of Insurance (sec 2- 5)
"GENERAL PROVISIONS
Section 2. Whenever used in this Code, the following
terms shall have the respective meanings hereinafter
set forth or indicated, unless the context otherwise
requires:
(1) 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 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.
(2) The term “doing an insurance business” or
“transacting an insurance business” withing 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.
In the application of the provisions of this Code,
the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that
no separate or distinct consideration is received
therefor, shall not be deemed conclusive to show that
the making thereof does not constitute the doing or
transacting of an insurance business.
(3) As used in this Code, the term “Commissioner”
means the “Insurance Commissioner.”
 "CHAPTER I
"THE CONTRACT OF INSURANCE
"TITLE 1
"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.
"Section 4. The preceding section does not authorize an
insurance for or against the drawing of any lottery, or for
or against any chance or ticket in a lottery drawing a
prize.
"Section 5. All kinds of insurance are subject to the
provisions of this chapter so far as the provisions can
apply.
A. Rules on Construing Insurance Code
B. Rules on Construing Insurance Policy
III. Elements of an Insurance Contract
Gulf Resorts, Inc Vs Philippine Charter Insurance
Corporation
- An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the
happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme
to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurer's promise, the
insured pays a premium
IV. Characteristics of Insurance Contracts
What are the characteristics of an insurance
contract?
A contract of insurance has the following
characteristics:
1. Consensual – perfected by the meeting of the
minds of the parties
2. Voluntary – it is not compulsory, and the parties
may incorporate such terms and conditions as they
may deem convenient which will be binding
provided they are not against the law or public
policy
3. Aleatory – depends upon some contingent event
4. Executed – as to the insured after the payment of
the premium
5. Executory – as to the insurer as it is not executed
until payment for a loss
6. Conditional – subject to conditions the principal
one of which is the happening of the event insured
against
7. Personal – each party in the contract have in view
the character, credit and conduct of the other
V. Doing an insurance business (Sec. 2,
insurance code)
Sec. 2 (2) : The term “doing an insurance business”
or “transacting an insurance business” withing 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.
Principle of Subrogation
Principle in Insurance means;
When insurer (insurance company) pays full
compensation for any insured loss (of insured property),
the insurer (insurance company) holds the legal right
(claim) of the insured property. This also means the
insurer (insurance company) has the legal right to claim
any future gains from the said property for any recovery
and/or settlement.
Definition - What does Subrogation Principle mean?
The subrogation principle is a term for a legal right of
most insurance companies. An important part of most
property insurance policies, it states that if a third party
damages the insured's property, the insured has to
transfer their right to sue the third party to their
insurance company before the insured can receive
payment for their insurance claim. By accepting the
payment, the insured agrees to transfer over their right
to sue.
VI. Public Interest in the Insurance Business
Is the Business of Insurance affected with public
interest?
Yes. It is therefore, subject to regulation and
control by the state by virtue of the exercise of its
police power or in the interest of public
convenience and the general good of the people.
“Besides, the business of insurance is imbued with
public interest. It is subject to regulation by the State,
with respect not only to the relations between the
insurer and the insured, but also to the internal affairs of
insurance companies. As this case is undeniably
endowed with public interest and involves a matter of
public policy, this Court shall not shirk from its duty to
educate the bench and the bar by formulating guiding
and controlling principles, precepts, doctrines and rules.”
-Republic Vs. Del Monte Motors
VII. Insurance Vs Health Maintenance
Organizations (HMO)
-Regulated by DOH
VIII. Parties to the Contract of Insurance (Sec 6-
9)
"TITLE 2
"PARTIES TO THE CONTRACT
"Section 6. Every corporation, partnership, or
association, duly authorized to transact insurance
business as elsewhere provided in this Code, may be
an insurer.
"Section 7. Anyone except a public enemy may be
insured.
"Section 8. Unless the policy otherwise provides,
where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable
to the mortgagee, or assigns a policy of insurance to
a mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be
a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any
act which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by
the mortgagee therein named, with the same effect
as if it had been performed by the mortgagor.
"Section 9. If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee, and, at
the time of his assent, imposes further obligations on
the assignee, making a new contract with him, the
acts of the mortgagor cannot affect the rights of said
assignee.

“Petitioner's contention that it is a health

maintenance organization and not an insurance
company is irrelevant. Contracts between companies
like petitioner and the beneficiaries under their plans
are treated as insurance contracts.” – Phil. Health
Care Providers vs Commissioner of Internal Revenue

HMO Insurance
- Individuals enrolled in - an agreement whereby
its health care programs one undertakes for a
pay an annual consideration to
membership fee and are indemnify another
entitled to various against loss, damage or
preventive, diagnostic liability arising from an
and curative medical unknown or contingent
services provided by its event.14 The event
duly licensed physicians, insured against must be
specialists and other designated in the
professional technical contract and must either
staff participating in the be unknown or
group practice health contingent.
delivery system at a
hospital or clinic owned, -regulated by Insurance
operated or accredited Commission
by it