Insurance Policy &

Premium
Law 139 Insurance Law

ATTY. GILBERT R. HUFANA

Professor
 The Policy
• Sec. 49 defines a policy of insurance as a
written instrument in which the contract of
insurance is set forth
• 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.
 Sec 70, IC
• "Section 70. Without prejudice to Section 51,
every express warranty, made at or before the
execution of a policy, must be contained in the
policy itself, or in another instrument signed by
the insured and referred to in the policy as
making a part of it.”
 Terms of the Policy
• 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.
 Contract vs Policy
• Q: Is the policy and the Contract one and the
same thing?

• A: 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.
 Contract vs Policy
• Q: What is usually the best evidence that a
contract has been entered into between the
insurer and the insured?
A: Delivery of the policy by the insurer to the
insured.
– If the delivery is conditional, non-fulfillment of
the condition bars the contract from taking
effect. If the delivery is unconditional, the
insurance becomes effective at the time of
delivery.
 Form of Insurance Policy
• Printed form which may contain blank spaces on
which necessary data may be written
• 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. (Sec. 232, IC)
 Contents of Insurance Policy
(Sec. 51, IC)
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.
 Contents of Insurance Policy
(Sec. 51, IC)
4. Property or life or thing insured - constitutes the
Subject Matter
5. Interests of the insured in the property - to
determine actual damage
6. Risks insured against - In order to know when
the insurer is called to indemnify the insured; 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
 Kinds of Insurable Risks
• Personal risks – life or health risks

• Property risks – loss or damage to property

• Liability risks – involve liability of the insured

for an injury caused to the person or property of
another
 When is a risk insurable?
1. The loss to be insured against must be
important enough to warrant the existence of
an insurance contract
2. Risk must permit a reasonable statistical
estimate of the chance of loss in order to
determine the amount of premium to be paid
3. The loss should be definite as to cause, time,
place and amount
4. The loss is not catastrophic
5. Risk is accidental in nature
 The 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. (Ang Giok Chip vs.
Springfield, 56 Phil. 275)
• Riders are usually attached to the policy
because they constitute additional stipulations
between the parties.
 The Rider
• Q: What happens if there is an inconsistency
between the policy and the rider?

• A: RIDER prevails, as being a more deliberate

expression of the agreement of the contracting
parties.
 The Rider
• 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. (Sec. 50, IC)
Note: This rule apply also to warranties, clauses
and endorsements.
 Clauses & Endorsements
• Clauses
 An agreement between the insurer and the
insured on certain matter relating to the liability
of the insurer in case of loss.

• Endorsements
 Any provision added to the contract altering
its scope or application.
 Types of Preliminary
Contracts of Insurance
• Preliminary contract of present 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 issued or the risk is
rejected
• Preliminary executory contract of
insurance
– makes a contract to insure the subject matter at
some subsequent time which may be definite or
indefinite
 Binding Receipt/Binder
• 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 (Glora v Philamlife)
• PURPOSE: 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
 Binding Receipt/Binder
• 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
 The Cover Note
• The cover note 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.
• Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy.
(Sec. 52, IC)
 The Cover Note
• 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.
Rules governing Cover Notes
• Insurance companies doing business in the
Philippines may issue cover notes to bind
insurance temporarily pending the issuance of
the policy (Sec. 52, IC)
• A cover not shall be deemed to be a contract of
insurance within the meaning of Sec. 1(1) of IC.
• NO cover note shall be issued or renewed
unless in the form previously approved by the
Insurance Commission. (Sec. 232, IC)
•
 Rules governing Cover Notes
• A cover not shall be valid and binding for a period
NOT exceeding 60 days from the date of its
issuance (Sec. 52, IC)
– whether or not the premium therefore has been paid or
not, BUT such cover note may be cancelled by either
party upon at least 7 days notice to the other party.
• If a cover note is not cancelled, a policy of insurance
shall, within 60 days after the issuance of the cover
note, be issued in lieu thereof (Sec. 52, IC)
– Such policy shall include within its terms the identical
insurance bound under the cover note and the premiums
therefore.
Rules governing Cover Notes
• A cover note may be extended or renewed beyond
the aforementioned period of 60 days with the
written approval of the Insurance Commissioner
• EXCEPTION: The written approval of the
Insurance Commissioner 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.
Rules governing Cover Notes
• 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.
 Rules on Insurance Policy
• The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy. (Sec 53, IC)

• An insurance may be taken by a person, personally

or through his agent or trustee. (Sec 54, ICP)
– the agent or trustee when making an insurance
contract for or on behalf of his principal should,
indicate that he is merely acting in a
representative capacity by signing as such agent
or trustee, or by other general terms in the policy
 Rules on Insurance Policy
• A partner or part-owner who insures partnership
property in his own name limits the contract to
his individual share UNLESS the terms of the
policy clearly show that the insurance was
meant to cover also the shares of the other
partners. (Sec. 55, ICP)
• When the description of the insured in a policy is
so general that it may comprehend any person
or any class of persons, only he who can show
that it was intended to include him can claim the
benefit of the policy. (Sec. 56, ICP)
 Rules on Insurance Policy
• The mere transfer of a thing insured does not
transfer the policy, but suspends it until the
same person becomes the owner of both the
policy and the thing insured. (Sec. 58, IC)
– It is a well established principle that a policy is a
personal contract with the insured and does NOT
run with the insured property unless so expressly
stipulated, and in the absence of an assignment
of the policy with the insurer’s consent, the
purchaser of the interest of the property requires
no privity with the insurer.
– In consonance with Sec. 19 & 20, IC
 Kinds of Insurance Policies
• Open
– The value of the thing insured is not agreed upon
but is left to be ascertained in case of loss
• Valued
– That which expresses in its face an agreement of
the thing insured shall be valued at specified sum.
• Running
– The object of the policy may be from time to time defined
usually by additional statements or indorsements
 Sec. 63 Cause of Action
• 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 year from the time
when the cause of action accrues, is void.
 Cancellation of the Policy
• No policy of insurance other than life shall be
cancelled by insurer except upon prior notice
thereof to the insured
• Notice must be based on the grounds provided
by Sec. 64 ,ICP and shall so state said grounds
• Notice must be in writing mailed or delivered to
the named insured at the address shown in the
policy, containing: (Sec. 65,IC)
– Ground for cancellation
– If requested, the insurer must furnish the facts on
which the cancellation is based
 Grounds for Cancellation
(Sec 64, ICP - Modified)
• No cancellation shall be effective unless based
on the ff:
1. Nonpayment of premium;
2. Conviction of a crime arising out of acts increasing
the hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts or omissions
increasing the hazard insured against;
5. Physical changes in the property insured which
result in the property becoming uninsurable;
 Grounds for Cancellation
(Sec 64, ICP - Modified)
6. Discovery of other insurance coverage that makes
the total insurance in excess of the value of the
property insured; or
7. A determination by the Commissioner that the
continuation of the policy would violate or would
place the insurer in violation of this Code.
END OF LECTURE