My Notes (Insurance) Quimson, Irene M.

Sec. 1
What is the principle behind insurance? Insurance is based upon the principle of aiding another from a loss caused by an unfortunate event. . Laws applicable to insurance in the order of priority: a. b. Insurance Code Civil Code The provisions of the Civil Code dealing on insurance are found in articles 739 and 2012 (void donations), Article 2011 (applicability of the Civil Code), Articles 2021-2027 (life annuity contracts), Article 2186 (compulsory motor vehicle liability insurance), and Article 2207 (right of subrogation). General Principles prevailing on the subject in the US

c.

* Where there is Ambiguity or Doubt As a general rule, contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer, resolving all ambiguities against the latter, so as to effect its dominant purpose of indemnity or payment to the insured, especially were a forfeiture is involved. *Where Terms are Clear If such terms are clear and certain, they must be taken in their plain and ordinary sense Judicial Construction can not alter terms Insurance is a contract of adhesion Policy is presented to the insured already in its printed form Take it or leave it Sec. 2 CONTRACT OF INSURANCE An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC) Elements of Insurance: a. b. c. d. existence of an insurable interest;] risk of loss; assumption of risk; general scheme to distribute losses; and

e. payment of premiums Note: If only a, b, and c are present, it is not a contract of insurance but a risk shifting device. Test to Determine Existence of IC 1. Exact Nature of Agreement 2. Nature of promise 3. Act required to be performed Characteristics of IC 1. 2. Personal Executory upon payment of premium

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My Notes (Insurance) Quimson, Irene M.

3. Contract of Indemnity Exception: Life Insurance, Accident resulting to death- life cannot be quantified Exception to exception: Creditor-Debtor Relationship 4. 5. Conditional Aleatory

Contract of Suretyship deemed to be an insurance contract within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business Definition of doing an insurance business: a. b. c. d. making or proposing to make, as insurer, any insurance contract; making or proposing to make as a surety, any contract of suretyship as a vocation doing reinsurance business; doing or proposing to do any business in the substance equivalent to any of the

and not merely incidental to any other legitimate business or activity of the surety;

foregoing in a manner designed to evade the provisions of the Insurance Code.

Sec.3

What may be insured? (a) any contingent or unknown event, whether past or future, which may damnify a person

having an insurable interest; or (b) any contingent or unknown event, whether past or future, which may create a liability

against the person insured. Effect of Death Of Policys Original Owner- Sec 3 par 5 Sec.4 Sec.5 Sec.6 Prohibition Against Gambling Gambling seeks fortune; Insurance avoids misfortune Application of IC Parties to a contract of Insurance: a. b. c. Sec.7 insurer party who assumes the risk or undertakes to indemnify the insured or to pay insured person in whose favor the contract is operative, and who is indemnified beneficiary may or may not be the same as the insured a certain sum on the happening of a specified contingency against, or is to receive a certain sum upon the happening of a specified contingency

Anyone except a public enemy may be insured. What are the requisites in order that a person may be insured in a contact of insurance? There are 3 requisites namely: a) He must be competent to enter into a contract. b) He must possess an insurable interest in the subject of insurance. c) He must NOT be a public enemy. What is a public enemy? It is a nation with whom the Philippines is at war, and it includes every citizen or subject of such nation.

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My Notes (Insurance) Quimson, Irene M.

What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to property insurance? With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to be valid and enforceable as soon as the insured becomes a public enemy. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to life insurance? US Rule declared the contract not merely suspended but is abrogated by reason of non-payment of premiums, since the time of the payment is peculiarly of the essence of the contract. However, the insured is entitled to the cash or reserve value of the policy (if any) which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. Sec.8 Who may insure mortgage property? Mortgagor- Full value of property Mortgagee- up to extent of his credit Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee? The legal effects of this are: (1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be a party to the contract; (2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee; (3) Any act which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee; (4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and (5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. What is the effect if the mortgagee effects insurance on behalf of the mortgagor? Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the debt. Sec.9 Sec.10 Every person has an insurable interest in the life and health: (a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly in part for education or support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, Of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends. What is insurable interest? Insurable interest is one the most basic of all requirements in insurance. In general, a person is deemed to have insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Union Mortgage Clause- the act of mortgagor does not affect the mortgagee; an exception to Sec. 8 where the act mortgagor affects the mortgagee ( Open Mortgage Clause)

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My Notes (Insurance) Quimson, Irene M.

Consent of Insured Necessary if taken in anothers life: VOID if without consent Remedy: Ratification of Insured Exception: Parent insures his childs life. Insurable Interest on Debtors Life: Extent of Debt -mere wagering contract if disproportionate to amount of obligation from policy Eg. 700 debt: 60,000 insurance- mere wagering contract Sec.11 What is a beneficiary? A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the recipient of the proceeds in the insurance. Who can be a beneficiary? Any person in general can be a beneficiary. Are there any exceptions? Yes. The only persons disqualified from being a beneficiary are those not qualified to receive donations under Art. 739. They cannot be named beneficiaries of a life insurance policy by the person who cannot make any donation to him. What if the beneficiary dies before the insured and the insured did not change the designation, who gets the proceeds? There is a divergence of opinion, but the general trend is to give it to the estate of the beneficiary. Sec.12 Beneficiary being forfeited: when the beneficiary is the principal, accomplice or accessory in willfully bringing about the death of the insured. Effect: To ESTATE Who are the nearest relatives mentioned here? Those related to the decedent in the order mentioned under the rules of intestate succession such as: (the order of the following relatives are as follows) 1. The legitimate children; 2. The father and mother, if living; 3. The grandfather and grandmother; or ascendants nearest in degree, if living; 4. The illegitimate children; 5. The surviving spouse; and 6. The collateral relatives, to wit: a. Brothers and sisters of the full blood; b. Brothers and sisters of the half-blood; and c. Nephews and nieces 7. In default of the above, the STATE shall be entitled to receive the insurance proceeds. Sec.13 It defines insurable interest in PROPERTY. An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. What is existing interest? Existing interest in property is the legal or equitable title on the property. What is an inchoate interest? It is an interest which has not yet ripened, such as the interest of a stockholder in the property of the corporation which he owns stocks.

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In what kind of expectancy may insurable interest consist? The expectancy MUST be coupled with an existing interest in that, out of which such expectancy arises. Examples would be: a farmer insuring future crops that he will grow on his land, or a workman insuring the building which he was contracted to repair. Insurable Interest in Life Category Insurance may be based on pecuniary interest, affinity, or consanguinity at the time the policy takes effect EXCEPT: life insurance taken by the creditor on the life of the debtor wherein interest must also exist at the time of the loss no limit EXCEPT: if insurable interest is based on creditor-debtor relationship (only to the extent of the credit or debt) Insurable Interest in Property based purely on pecuniary interest

1. basis

2. when interest must exist

at the time the policy takes effect and at the time of the loss

3. amount of insurable interest Sec.15

limited to the actual value of damage/injury/loss

A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable. The measure of an insurable interest in the property is the extent to which the insured might be damnified by loss or injury thereof. NO insurable interest = NO contract of Insurance. When must insurable interest exist? In case of life insurance at the time the insurance takes effect. In case of property insurance, at the time the insurance takes effect AND at the time of the loss, but it need not exist in the meantime. What is the general rule embodied in this section? The General Rule is that the mere transfer of the 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. The term change of interest in this section means absolute transfer of the property insured such as the conveyance of the property insured by means of an absolute deed of sale. What are the exceptions to the general rule? The exceptions, where a change of interest does NOT suspend the insurance are: 1. Life, health and accident insurance (Sec. 20) 2. Change of interest in the thing insured occurs after the injury which results in a loss (Sec. 21) 3. Change of interest in one or more of several things separately insured by one

Sec.16

Sec.17

Sec.18 Sec.19

Sec.20-24

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My Notes (Insurance) Quimson, Irene M.

4. 5. policy (Sec. 22) Change of interest by will or succession on the death of the insured (Sec. 23) Transfer of interest by one of several partners, joint owners or owners in common who are jointly insured, to the other (Sec. 24) Exception: Alienation to 3rd person

Sec. 25

VOID Stipulations eg. Gambling stipulation This section avoids two types of stipulations in an insurance policy. What are they? 1. Stipulation for the payment of loss WON the person insured has any interest in the subject matter of the insurance (exception: life insurance) 2. Stipulation that the policy will be received as proof of insurable interest

Sec. 26

A neglect to communicate that which a party knows and ought to communicate is called concealment. What are the requisites of concealment? There can be no concealment unless: 1) A party knows the fact which he neglects to communicate or disclose to the other; 2) Such party concealing duty bound to disclose such fact to the other 3) Such party concealing makes no warranty of the fact concealed; and The other party has no means of ascertaining the fact concealed Uberrimae fidae- Utmost good faith; absence of any concealment upon principle of doctrines of warranties, representation and concealment.

Sec. 27

What is the effect of concealment? Entitlement to rescind the contract WON intentional or not. Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining. According to Sec. 28, what are the matters that must be communicated by the party to the other? This section makes it the duty of each party to a contract of insurance to communicate in good faith all facts that are material to the contract within his knowledge when: 1. the party with the duty to communicate makes no warranty; and 2. the other party has no means of ascertaining the facts Any exceptions to the duty to communicate? Those falling under Sec. 30. What is the test to determine whether or not one must communicate the facts to the other party? The test is: If the applicant is aware of the existence of some circumstance which he knows would influence the insurer in acting upon his application, GOOD FAITH requires him to disclose that circumstance, though unasked.

Sec. 28

Sec, 29 What type of concealment is referred to here? The type of concealment referred to here, relates to the falsity of a warranty. Unlike the ordinary concealment provided for in Sec. 27, the non-disclosure under this section must be intentional and fraudulent in order that the contract may be rescinded. What is an example of this kind of concealment? In every contract of marine insurance, there is an implied warranty of seaworthiness of the

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vessel. The intentional and fraudulent omission on the part of the insured to communicate the fact that his ship is in distress or in special peril entitles the insurer to rescind because the concealment refers to matters proving or tending to prove the falsity of the warranty that the ship is seaworthy. Sec. 30 What is the general rule? Communicate the necessary material facts. What is the exception? Those provided for under Section 30. (a) Those which the other knows; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; (c) Those of which the other waives communication; (d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and (e) Those which relate to a risk excepted from the policy and which are not otherwise material. When will the insured be required to communicate information covered by Sec. 30(exception to the exception)? If the insurer asks about them, the insured becomes duty bound to communicate such information. Sec. 31 Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. What is the test of materiality? The test is simply: IF the knowledge of true facts would have influenced a prudent insurer in determining WON to accept the risks or fixing the amount of premium. Material Fact: concealment entitles the other party to rescind the contract Matters Subject To Special Inquiries: Failure to disclose> will AVOID the policy Under this section, what is each party to a contract of insurance bound to know? There are two matters that each party to a contract of insurance is bound to know, namely: 1. General clauses 2. General usages of trade. A party however, is not bound to know all the classes of general clauses but only such general causes: a) Which are open to his inquiry, equally with that of the other; b) Which may affect either the political or material perils contemplated. What is the import of the aforementioned rules? The insured need not communicate public events such as that the nation is at war, or what the law is, or political conditions in other countries, the sources of this information being equally open to the insurer who is also presumed to know such events. Likewise, the insurer is charged with the knowledge or general trade usages and rules of navigation, kinds of seasons and all the risks connected with navigation. Sec. 33 May the right to information be waived? Yes. The right to information of material facts may be waived either: 1) Expressly, by the terms of the insurance; or 2) Impliedly, by neglect to make inquiry as to the facts already communicated.

Sec. 32

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My Notes (Insurance) Quimson, Irene M.

If the applicant has answered the questioned asked in the application, he is justified in assuming that no further information is desired. What is an example of the operation of this provision? The insurer asks the insured if he was ever confined in a hospital for more than a month and the insured says YES. If the insurer does not inquire for the cause of the long confinement, then he is deemed to have waived the information. Sec. 34 Nature of Amount of Interest: Need NOT COMMUNICATE Except: a. When insurer makes an inquiry b. Where the insured is not the absolute owner of property insured To what is the duty to disclose confined? The duty to disclose is confined to facts. There is no duty to disclose mere opinion, speculation, intention or expectation. This is true even if the insured is asked. Opinion/Judgment: Need Not Communicate> will not AVOID POLICY Exception: Marine Insurance: the expectation of 3rd person in reference to a material fact. What is a representation? A representation is a factual statement made by the insured at the time of, or prior to, the issuance of the policy to give, information to the insurer and otherwise induce him to enter into the insurance contract Forms of Representation: No particular form is necessary. It may be oral or written. Need not be a part of contract otherwise it will be considered a warranty KINDS of Representation: 1. Affirmative-affirmation of fact existing 2. Promissory- Statement of insured concerning what is to happen during the term of insurance Nature of Representation: collateral matter Misrepresentation- statement which is untrue Sec. 37 Sec. 38 A representation may be made at the time of, or before, issuance of the policy The language of a representation is to be interpreted by the same rules as the language of contracts in general. How are misrepresentations construed? They are construed liberally in favor of the insured. Must the representations be literally true? No. It is sufficient that they be substantially true. Sec. 39 A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation. What are the different kinds of representations? They may either be: 1. Oral or written; 2. Made at the time of the issuance of the policy or before; 3. Affirmative or promissory What is an affirmative representation? It is any allegation as to the existence or non-existence of a fact when the contract

Sec. 35

Sec. 36

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My Notes (Insurance) Quimson, Irene M.

begins. An example would be when the insured states that the house subject of the insurance is used only for residential purposes. What is a promissory representation? A promissory representation is any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. What is the nature of a promissory representation? First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT incorporated in the policy. The non-performance of such a promise CANNOT be shown by the insurer in defense to an action on the policy, but proof that the promise was made with fraudulent intent and will serve to defeat the insurance. Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a warranty, is called a promissory representation. It is however in such a case merely an executory term of the contract, and not properly a representation. A promissory representation is therefore, substantially a condition or a warranty. Can you give examples of promissory representations? 1. An applicant for fire insurance on a building orally promised that the building will be occupied. 2. An applicant for fire insurance on a building orally promised to install two fire extinguishers within the bldg. 3. A TV hostess saying Will be back.. promise.. saranghameda po Does a false representation based on an opinion or expectations avoid the policy? IT DEPENDS. A representation of an expectation, intention, belief opinion or judgment of the insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is likewise the rule although the statement is material to the risk. In such a case, the insurer is not justified in relying upon such statement but is obligated to make further inquiry. What must the insurer then to do to avoid liability? The insurer must prove both the materiality of the insureds opinion and the latters intent to deceive. If the representation is one of fact, all the insurer needs to prove is its falsity and materiality. The intent to deceive is already presumed. When is a representation deemed a mere expression of opinion? An oral representation as to a future event, or condition over which the insured has no control, with reference to property or life insured will be deemed a mere expression of opinion, which will avoid a contract ONLY when made in bad faith. Sec. 40 A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. Why is it that a representation cannot qualify an express provision in a contract of insurance? A representation cannot qualify an express provision or an express warranty in a contract of insurance because a representation is not a part of the contract but only a collateral inducement to it. Can you give two examples? 1) If the policy expressly provides that the house insured is used as a warehouse, any representation made by the insured prior to the issuance of the policy to the effect that the house was used only as a residence is NOT a defense in the action for the recovery of the amount of the insurance. 2) The representation of the insured to the effect that the last time the vessel was

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drydocked was six months ago would NOT qualify the implied warranty that the vessel is seaworthy. Sec. 41 A representation may be altered or withdrawn before the insurance is effected, but not afterwards. What is the reason for this provision? As representations induce the insurer in assuming the risk insured against and in issuing the insurance policy, it is but logical that representations may not be altered or withdrawn after the insurance is affected. Sec. 42 A representation must be presumed to refer to the date on which the contract goes into effect. NO PERSONAL KNOWLEDGE: Believes to be true- will NOT AVOID POLICY General Rule: Information received from others and which the insured has no knowledge need not be communicated to the insurer. Exception: 1. When information is material to the transaction is acquired by the agent of insured 2. Marine Insurance- the information as to the belief or expectation of a 3 rd person Sec. 44 A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations What is the importance of Sec. 44? This defines misrepresentation. Must representation be literally true? No. See Section 38. Representations are not required to be literally true unlike warranties which must be literally true. It is sufficient that representations are substantially true. Is the same true in cases of marine insurance? NO. In marine insurance, the substantial truth of a representation is NOT sufficient. Accdg. to Sec. 107, the insured is required to state the exact and whole truth in relation to all matters that he represents, or upon inquiry, discloses or assumes to disclose. When will a representation relied upon avoid a policy? In order that a representation shall avoid a policy, it must be relied upon and be falise in a substantial and material respect. Sec. 45 Effect of Misrepresentation: AVOID POLICY- material fact to IC Eg. Insurer gave material facts to agent but the agent negated it in the form. Effect: CANNOT AVOID POLICY Exception: if made with connivance by the insured and agent- AVOID POLICY- defense to the insurer. False Statement of Age: Not AVOID POLICY when there is valid binding contract but the insurance will be adjusted in such way that the amount payable to or benefit accruing under policy shall be such of the premium paid would have purchased at the correct age. EXCEPTION: procured by FRAUD WAIVER BY ACCEPTANCE OF PREMIUM: if the insurer has knowledge on the ground for rescission of contract.

Sec. 43

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My Notes (Insurance) Quimson, Irene M.

Sec. 46 The materiality of a representation is determined by the same rules as the materiality of a concealment. Who determines materiality? It is a judicial question. It is NOT left to the insurance company to say after the loss has occurred that it would or would not have issued the policy had an answer been truly given. The matter misrepresented must be of that character which the court can say would reasonably affect the insurers judgment. What are the differences and similarities between a concealment and misrepresentation? CONCEALMENT Insured withholds information of material facts from the insurer MISREPRESENTATION Insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract. Materiality is determined by the same rules applied in cases of misrepresentation. Concealment on the part of the insured has the same effect as a misrepresentation and gives the insurer the right to rescind the contract. Whether intentional or not intentional, the injured party is entitled to rescind the contract of insurance on ground of concealment or false representation. Rules on concealment and representation apply likewise to the insurer since the contracts of insurance is said to be one of utmost good faith on part of both parties to the agreement.

Sec. 47

What does this section mean? This section means that the provisions of Sec. 26 to 35 governing concealment and Sec. 36-48 governing representation apply NOT ONLY to the original formation of the contract but also to a modification of the same during the time it is in force Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. What is an Incontestability Clause? Incontestability clauses are those clauses in life insurance policies stipulating that the policy shall be incontestable after a stated period. Sec. 48 par. 2 now requires that the incontestability of a life insurance policy starts after the lapse of the 2 years that the insurance was in force during the life time of the insured. What is the reason for this incontestability? As to the Insurer The insurer is given a reasonable opportunity to investigate the statements which the applicant makes in procuring his policy and that after the definite period, the insurer should not be permitted to question the validity of the policy, either by affirmative action, or by defense to a suit brought on the life policy by the beneficiary. As to the insured. Such clauses give assurance to the policy holder that his beneficiaries would receive payment without question as to the validity of the policy or the existence of the coverage once the period of contestability passes. It is designed to protect the policyholder or

Sec. 48

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My Notes (Insurance) Quimson, Irene M.

beneficiary from a lawsuit contesting the validity of the policy after a considerable time has passed and evidence of the facts surrounding the purchase may be unavailable. What are the requisites for INCONTESTABILITY? 1) The policy is a life insurance policy 2) It is payable on the death of the insured; and 3) It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement. May the period of 2 years be shortened by agreement between the insurer and the insured? It may be shortened but it cannot be extended by stipulation. What does the phase during the lifetime of the insured mean? Simply means that the policy is no longer considered in force after the insured has died. What is the effect when the life insurance policy becomes incontestable? The insurer may NOT refuse to pay the same by claiming that: 1) The policy is void ab initio; or 2) It is rescissible by reason of the fraudulent misrepresentations of the insured or his agent, no matter how patent or well-founded; or 3) It is rescissible by reason of the fraudulent misrepresentations of the insured agent. What are the defenses that the insurer may raise to avoid liability even after the lapse of the 2 years? 1) That the person taking the insurance lacked insurable interest as required by law; 2) Cause of death of the insured is an expected risk; 3) That the premiums have not been paid [Secs. 77, 277(b), 228(b), 230(b)]; 4) That the conditions of the policy relating to military or naval service have been violated [Sec. 227(b), 228(b)]; 5) That the fraud is of a particularly vicious type, as where the policy was taken out in furtherance of a scheme to murder the insured, or where the insured substitutes another person for the medical examination, or where the beneficiary feloniously kills the insured. 6) That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened (Sec. 242) 7) That the action was not brought within the time specified. What does Sec. 227(b), Sec. 228 (b) and Sec. 230 (b) provide? Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions: xxx (b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war; Section 228. No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policy-holders: xxx (b) A provision that the validity of the policy shall not be contested, except for nonpayment of premiums after it has been in force for two years from its date of issue; and that no statement made by any insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such

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person's lifetime nor unless contained in written instrument signed by him; Section 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions: xxx (b) A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a specified period, not more than two years from its date of issue, except for non-payment of premiums and except for violation of the conditions of the policy relating to naval or military service, or services auxiliary thereto, and except as to provisions relating to benefits in the event of disability as defined in the policy, and those granting additional insurance specifically against death by accident or by accidental means, or to additional insurance against loss of, or loss of use of, specific members of the body; Sec. 49 The written instrument in which a contract of insurance is set forth, is called a policy of insurance. Form of IC- maybe verbal or written/ partly written and partly verbal. The usual form of insurance is written- called policy. Necessity of Approval of Form of Policy- must be sub. to Insurance Commissioner for approval and disapproval to determine WON it violates any law or principle of equity. Failure to Obtain Approval- does not affect the terms of insurance contract, it can still be enforced. However insurer is liable for prosecution for having used unapproved form. If contrary to law, then it is VOID. Insurance by Correspondence- if the application and acceptance are made by correspondence, such acceptance shall not give rise to a valid contract until the acceptance is made known to the applicant. Language of Policy- if one which the insured cannot read or understand, the obligation to show that the terms had been fully explained to the insured devolves on the party seeking to enforce contract. Sec. 50 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? NOPE. A contract is a meeting of the minds of the insured and the insurer. (Remember CLV?) The policy 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?

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My Notes (Insurance) Quimson, Irene M.

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 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 laibiity 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. 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. Sec. 51 Contents of Insurance Policy 1. Risks insured against 2. Insured life or property 3. Parties between whom the contract is made\ 4. Amount to be insured except in cases of open or running policy 5. Premium/statement of the basis and the rates upon which the final premium is to be determined

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My Notes (Insurance) Quimson, Irene M.

6. 7. Interest of the insured, if he is not absolute owner thereof Period during which the insurance is to continue 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. Remember Atty. Quimsons famous words? 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 life or health risks 2) Property risks loss or damage to property 3) Liability risks involve liability of the insured for an injury caused to the person or property of another What are the requirements in order that a risk be 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 NOTE: Read sections 227, 228, and 230 for additional matters to be included in individual, group and industrial life policies. Effect of Error in Name of Insured- In absence of fraud it shall not invalidate the policy Limit of Single Risk: No insurance company other than life, whether foreign or domestic shall retain on any one subject of insurance in an amount exceeding 20 per centum of its net worth. Sec. 52 Sec. 53 Sec. 54 Sec. 55 Sec. 56 Sec. 57 Sec. 58 Sec. 59

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My Notes (Insurance) Quimson, Irene M.

Sec. 60

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