The Insurance Code of the

Philippines

TITLE 6-THE POLICY

EDEN T. BELTRAN
AUSL.2016

CONTENTS OF THE
PRESENTATION
Section 49- Policy of Insurance, Defined
Section 50-Form and contents; Rider,
requirements, Effect
Section 51- Contents and provisions of the
Policy
Section 52- Cover Notes

Section 49. The written instrument in which a contract of insurance is

set forth, is called a policy of insurance.
Section 50. The policy shall be in printed form which may contain blank
spaces; and any word, phrase, clause, mark, sign, symbol, signature,
number, or word necessary to complete the contract of insurance shall
be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the
contract of insurance and which is pasted or attached to said policy is
not binding on the insured, unless the descriptive title or name of the
rider, clause, warranty or endorsement is also mentioned and written on
the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty
or endorsement issued after the original policy shall be countersigned
by the insured or owner, which countersignature shall be taken as his
agreement to the contents of such rider, clause, warranty or
endorsement.
Group insurance and group annuity policies, however, may be
typewritten and need not be in printed form.

 What is a policy of insurance?

Sec. 49 defines a policy of insurance
as a written instrument in which the
contract of insurance is set forth.

Who signs the policy of

insurance:
Generally, only the insurer or his
duly authorized agent signs the
policy. It need not be singed by the
insured EXCEPT where the express
warranties are contained in a
separate instrument forming part of
the policy, in which case, Sec. 70
requires that the instrument be so
signed.

Why are the terms of the policy

important?
They are important because they
measure the liability of the insurer
on one hand, and the other hand,
strict compliance with the terms are
required for the recovery on the part
of the insured.

Is the policy and the Contract

one and the same thing?
NO. A contract is a meeting of the
minds of the insured and the insurer.
The policy is ONLY the formal written
instrument evidencing the contract.

What is usually the best evidence that a contract has been

entered into between the insurer and the insured?
Delivery of the policy by the insurer to the insured.

What are the effects of the delivery of the policy?

If the delivery is conditional, non-fulfillment of the condition bars the
contract from taking effect.
If the deliver is unconditional, the insurance becomes effective at the
time of delivery.

What is an endorsement?
An endorsement is any provision added to an
insurance contract altering its scope or application.
Examples would be those additions to the contract changing the
amount, the rate or the term of the same.

What does Sec. 226 say?

Section 226.
No policy, certificate or contract of insurance
shall be issued or delivered within the Philippines unless in the
form previously approved by the Commissioner, and no
application form shall be used with, and no rider, clause,
warranty or endorsement shall be attached to, printed or
stamped upon such
policy, certificate or contract unless the form of such application,
rider, clause, warranty or endorsement has been approved by
the Commissioner.

What is a rider?
It is a printed or typed stipulation contained on a slip of paper
attached to the policy and forming an integral part of the policy.
Riders are usually attached to the policy because they
constitute additional stipulations between the parties.

What happens if there is an inconsistency between

the policy and the rider?
RIDER prevails, as being a more deliberate expression of the
agreement of the contracting parties.

What are the requirements in order that a rider be

binding upon the insured?
1) Descriptive title or name of the rider which is pasted or
attached to a policy MUST be mentioned and written on the
blank spaces provided for in the policy; and
2) Unless applied for by the insured or owner, said insured or
owner MUST countersign the rider.

Do the preceding requirements apply only to riders?

NO. they apply also to warranties, clauses and endorsements.

What are warranties?

Warranties are inserted or attached to a policy to eliminate
specific potential increases of hazard during the policy term
owing to actions of the insured, or conditions of property.

What are clauses?

Clauses are agreements between the insurer and the insured on
certain matters relating to the laibility of the insurer in case of
loss.

What are examples of clauses:

1) Clause where the insurer is liable for only of the loss
or damage to the insured
2) Loss Payable clause where the loss if any is payable to the
party or parties named, as their interests may appear.
3) Change of Ownership clause where the insurance will insure
to the benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured.

Section 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or
running policies;
(c) The premium, or if the insurance is of a character
where the exact premium is only determinable upon the
termination of the contract, a statement of the basis and rates
upon which the
final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not
the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

What must a policy contain and what are the reason

behind such requirements?
A policy must contain:
1. Names of the parties
2. Amount of insurance
to easily and exactly determine the amount of indemnity to
be paid in case of loss or damage.
This requirement however can be dispensed with in cases of
open or running policies.
3. Rate of premium
Because the premium represents the consideration of the
contract; these rates are developed on the basis of the nature
and character of the risk assumed. As the risk increases,

the rate of premium also increases.

4.

Property or life or thing insured

Constitutes the Subject Matter

5. Interests of the insured in the property

In order to determine actual damage. Remember, an owner
gets the full value of the loss while a mortgagee gets only the
value of his credit.
6. Risks insured against
In order to know when the insurer is called to indemnify the
insured, because if this is NOT stated, and you hold the insurer
liable for any loss due to any cause whatsoever, it will result to a
big loss on the part of the insurer.
7. Duration of the insurance
This period signifies the life of the policy. If the duration of
insurance has already ended, it can no longer be revived.

What are the kinds of insurable risks?

1. Personal risks
2. Property risks
3. Liability risks

What are the kinds of insurable risks?

1. Personal risks
2. Property risks
3. Liability risks

Section 52. Cover notes may be issued to bind insurance

temporarily pending the issuance of the policy. Within sixty
days after the issue of the cover note, a policy shall be issued in
lieu thereof, including within its terms the identical insurance
bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty
days with the written approval of the Commissioner if he
determines that such extension is not contrary to and is not for
the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing
such extensions for the purpose of preventing such violations
and may by such rules and regulations dispense with the
requirement of written approval by him in the case of extension
in compliance with such rules and regulations.

What are two types of preliminary contracts of

insurance?
The preliminary contract of present insurance and the
preliminary executory contract of insurance.

What is a preliminary contract of present insurance?

By a preliminary contract of insurance, the insurer insures the
subject matter usually by what is known as a binding slip or
binder or cover note which is the contract to be effective
until the formal policy is ssued or the risk is rejected.

What is a cover note?

The cover not is merely a written memorandum of the most
important terms of the preliminary contract of insurance,
intended to give temporary protection pending the investigation
of the risk by the insurer, or until the issuance of a formal policy,
provided that it is later determined that the applicant was
insurable at the time it was given.
By its nature, it is subject to all conditions in the policy expected
even though that policy may never issue. In life insurance,
where an agreement is made between an applicant and the
insurers agent, no liability shall attach until the insurer
approves the risk. Thus, in life insurance, a binding slip or
binding
receipt DOES NOT insure itself.

Cover Note to a
SunLife Insurance

 A
confirmation
notice is
issued within
2 months
after the
temporary
life insurance
is issued
upon
approval of
the contract
by the
insurer

What is a preliminary executory contract of

insurance?
By a preliminary executory contract of insurance, the insurer
makes a contract to insure the subject matter at some
subsequent time which may be definite or indefinite. Under such
an executory contract, the right acquired by the insured is
merely to demand the delivery of the policy in accordance with
the terms agreed upon and the obligation assumed by the
insurer is to deliver the said policy.

What are the rules governing cover notes?

1) Insurance companies doing business in the Philippines may
issue cover notes to bind insurance temporarily pending the
issuance of the policy
2) A cover not shall e deemed to be a contract of insurance
within the meaning of Sec. 1(1) of IC.
3) NO cover note shall be issued or renewed unless in the form
previously approved by the Insurance Commission.
4) A cover not shall be valid and binding for a period NOT
exceeding 60 days from the date of its issuance, whether or not
the premium therefore has been paid or not, BUT such cover note
may be canceled by either party upon at least 7 days notice to the
other party.
5) If a cover not is not so canceled, a policy of insurance shall,
within 60 days after the issuance of the cover not be issued in
lieu thereof. Such policy shall include within its terms the
identical insurance bound under the cover note and the
premiums therefore.

6) A cover note may be extended or renewed beyond the

aforementioned period of 60 days with the written approval of
the Insurance Commissioner, provided that such written
approval may be dispensed with upon the certification of the
Pres, VP or General Mgr of the Insurance company
concerned, that the risks involved, the values of such risks, and
the premiums therefore have not as yet been determined or
established and that such extension or renewal is NOT contrary
to and is not for the purpose of violating any provision of the IC.
7) The insurance companies may impose on cover notes a
deposit premium equivalent to at least 25% of the estimated
premium of the intended insurance coverage but in no case less
than P500.

CASES:
Lim v. Sun Life
41 PHIL 263
Facts:
On July 6, 1917, Luis Lim Y Garcia of
Zamboanga applied for a policy of life
insurance with Sunlife in the amount of 5T.
He designated his wife Pilar Lim as the
beneficiary. The first premium of P433 was
paid by Lim and company issued a
provisional policy

confirm this agreement by issuing a policy on said application

xxx. Should the company NOT issue such a policy, then this
agreement shall be null and void ab initio and the Company shall be
held not to have been on the risk at all, but in such case, the amount
herein shall be returned.
Lim died on Aug. 23, 1917 after the issuance of the provisional
policy but before the approval of the application by the home office of
the insurance company.
The instant action is brought by the beneficiary to recover from Sun
Life the sum of 5T.
Issue: WON the beneficiary can collect the 5T.
Held: NO.
The contract of insurance was not consummated by the parties. The
above quoted agreement clearly stated that the agreement should NOT
go into effect until the home office of the Company shall confirm it by
issuing a policy. It was nothing but an acknowledgment by the Company
that it has received a sum of money agreed upon as the first years
premium upon a policy to be issued upon the application if it is accepted
by the Company.
When an agreement is made between the applicant and the agent
whether by signing an application containing such condition or

What is a binding receipt ?

A binding receipt or slip is ordinarily a document, slip or memorandum
given to the insured, which binds the insurance company to pay
insurance should a loss occur pending action upon the application and
actual issuance of a policy.
The purpose of a binder is to provide temporary insurance pending an
inquiry by the insurer as to the character of the risk and to take the
place of the policy until the latter can be issued.
The issuance of a binder evidences, a complete, temporary or
preliminary contract of insurance effective from that time until the
issuance of the formal policy or until rejection of the risk. Under a life
policy, it would establish liability upon the insurer if death occurred
prior to the issuance of the policy.
A binder receipt would be misnamed if it does NOT bind the insurer. If
the insurer issues a binder receipt with terms which will negate, or
neutralize the binding result of the receipt, then the insurer would
have actually practiced fraud on the applicant for insurance. (Glora v.
Philamlife)

Thank you for listening!