INSURANCE CODE OF THE PHILIPPINES

Presidential Decree No. 612

December 18, 1974

[REPUBLIC ACT NO. 10607]

AN ACT STRENGTHENING THE INUSURANCE INDUSTRY, FURTHER

AMENDING PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS “THE
INSURANCE CODE”, AS AMDENDED BY PRESIDENTIAL DECREE NOS. 1141,
1280, 1455, 1460, 1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND FOR
ORHER PURPOSES.

1. What is the basic concept of insurance?

 It provides aid from a loss caused by an unfortunate event.

2. Define insurance.

 Is a contract whereby, for stipulated considerations, one party undertakes to

compensate the other for loss on a specified subject by specified perils.
 Insurance is a contract, represented by a policy, in which an individual or entity
receives financial protection or reimbursement against losses from an insurance
company.
 “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.
 An agreement by which one party, for a consideration, promises to pay money or
its equivalent, or to do some act valuable to the insured or his nominee, upon the
happening of a loss, damage, liability, or disability, arising from an unknown or
contingent event.

Notes:

 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.
 Not any suretyship agreement will amount to an insurance contract. In order for
a suretyship agreement to come under the purview of the IC, the Surety
undertaking to ensure the performance of the obligations must be registered
with the Insurance Commissioner and must have been issued by the latter with
a certificate of authority. Furthermore, the person acting as a surety is habitually
engages as such for a livelihood.


3. Explain the term “doing an insurance business or transacting an insurance

business.”
 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 king of business, including 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
making of insurance contracts, agreements or transactions or that no separate or
direct 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.

4. What are the elements of an insurance contract?

1. a subject matter in which the insured has an insurable interest

2. Event or peril insured against which may be any future contingent or unknown event,
past or future, and a duration for the risk thereof

3. A promise to pay or indemnify in a fixed or ascertainable amount

4. A consideration known as “premium”

5. Meeting of the minds of the parties.

Leon, 2002 ed

1. The insured possesses an insurable interest susceptible of pecuniary estimation;

2. The insured is subject to a risk of loss through the destruction or impairment of that
interest by the happening of designated perils;
3. The insurer assumes that risk of loss
4. Such assumption is part of a general scheme to distribute actual losses among a large
group or substantial number of persons bearing somewhat similar risks and
5. The insured makes a ratable contribution (premium) to a general insurance fund.

Notes:

 Insurable interest – the insured possesses an interest of some kind susceptible

of pecuniary estimation.

5. Who are the parties to the contract of insurance?

 Every corporation, partnership or association, duly authorized to transact insurance

business as elsewhere provided in this Code may be an insurer.
  Anyone except a public enemy.

Insurer – the party who assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured or to pay him a certain sum on the happening
of a specified contingency or event. (a person who undertakes to indemnify another)

Insured – is the person in whose favor, the contract is operative and who is indemnified
against, or is to receive a certain sum upon the happening of a specified contingency
or event. He is the person whose loss is the occasion for the payment of the insurance
proceeds by the insurer. (the party to be indemnified upon the occurrence of the loss.
He must have capacity to contract, must possess an insurable interest in the subject
of the insurance and must not be a public enemy)

Beneficiary – a person designated to receive proceeds of policy when risk attaches.

Notes:

 The insured is not always the person to whom the proceeds are paid. It may be
the beneficiary designated in the policy. Common example, a life insurance
policy where the proceeds are not give to the insured but to a third party
designated by the insured.
 The terms insured and assured is not the same. Insured refers to the owner of
the property insured or the person whose life is the subject of the contract
insurance, while assured refers to the person whose benefit the insurance is
granted.
 A public enemy – a nation with whom the Philippines is at war and it includes
every citizen or subject of such nation.

6. What are the requisites in order that a person may be insured in a contact of
insurance?

There are three requisites namely:

1. He must be competent to enter into a contract.

2. He must possess an insurable interest in the subject of insurance
3. He must not be a public enemy.

Notes:

 Public enemy is a nation with whom the Philippines is at war, and it includes
every citizen or subject of such nation.

7. What are the events covered by Insurance?

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.
8. What are the characteristics and nature of insurance contract?

A contract of insurance has the following characteristics:

1. consensual – perfected by the meeting of 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 as it is not executed until payment for a loss
5. Conditional – subject to conditions the principal one of which is the happening of
the event insured against
6. Personal – each party in the contract have in view the character, credit and conduct
of the other.

The nature of Insurance contract may be divided into two:

a. Indemnity contracts – agreement to pay on behalf of another party under specified

circumstances. Example: Property insurance contracts
b. Non-indemnity contracts –insurer undertakes to pay the insured or the beneficiary
a fixed sum of money if the event insured against takes place. Example: Life
assurance policies

9. How does the law interpret insurance contracts?

1. To make the person who caused the loss legally responsible for it

2. to prevent the insured from receiving a double recovery from the wrongdoer and the
insurer

3. to prevent tortfeasors from being free from liabilities and is thus founded on
considerations of public policy.

10. What are the 3 types of insurance contract?

❖ A policy is either open, valued or running:

a. Open Policy

→ one in which the value of the thing insured is not agreed upon, and the
amount of the insurance merely represents the insurer’s maximum liability

→ the value of such thing insured shall be ascertained at the time of the loss

b. Valued Policy

→ one which expresses on its face an agreement that the thing

insured shall be valued at a specific sum

c. Running Policy
 → one which contemplates successive insurances, and which provides that
the object of the policy may be from time to time defined, especially as to
the subjects of insurance, by additional statements or indorsements

11. How are insurance contracts classified?

1. Life Insurance Contract - an insurance on human lives and insurance appertaining

thereto or connected therewith

a. Individual Life

→ made payable on the death of the person, or on his surviving a specified

period, or otherwise contingently on the continuation or cessation of life
b. Group Life → a blanket policy covering a number of individuals who are
usually a cohesive group and subjected to a common risk

c. Industrial Life → form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in any policy
is not more than 500 times the current statutory minimum daily wage in the City
of Manila

d. Microinsurance → a financial product or service that meets the risk

protection needs of the poor, where: (i) amount of contribution, premiums,
fees, or charges, computed on a daily basis, does not exceed 7.5% of the
current daily minimum wage rate for nonagricultural workers in Metro Manila
(ii) max. sum of guaranteed benefits is not more than 1,000 times of the
current daily minimum wage rate for nonagricultural workers in Metro Manila

2. Non-Life Insurance Contracts – mainly concerned with protecting the policyholder

from loss or damage caused by specific risks

a. Marine Insurance → type of transportation insurance which is concerned with

the perils of property in, or incidental to, transit as opposed to property perils
at a generally fixed location
b. Fire Insurance → includes insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate policies
c. Casualty Insurance → insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which falls exclusively
within the scope of other types of insurance such as fire or marine

4. Contracts of Suretyship
→ an agreement whereby a party called the surety guarantees the performance by
another party called the principal or obligor of an obligation or undertaking in favor
of a third party called the oblige
→ it shall be deemed as IC if the surety’s main business is that of suretyship, and
not where the contract is merely incidental to any other legitimate business or
activity of the surety
12. How are insurance contracts construed?

Insurance contracts are construed by ambiguities or obscurities must be strictly

interpreted against the party that cause them. As the insurance policy is prepared solely by
the insurer, the ambiguities shall be construed against it and in favor of the insured.

13. What perils or risk may be insured?

The following risks or perils may be insured:

1. Any contingent unknown event whether past or future which may cause damage
to a person having an insurable interest
2. Any contingent or unknown event, whether past or future, which may create liability
against the person insured.

Notes:

 A married woman may take out an insurance on her life or that of her children
even without the consent of her husband. She may likewise take out an
insurance on the life of her husband, her paraphernal property, or on property
given to her by her husband.
 A minor may not take out an insurance since the age of majority is now 18 years
old.

14. What are Variable contracts of insurance?

• any policy or contract on either a group or on an individual basis issued by an

insurance company providing for benefits or other contractual payments or values
thereunder to vary so as to reflect investment results of any segregated portfolio of
investments or of a designated separate account in which amounts received in
connection with such contracts shall have been placed and accounted for
separately and apart from other investments and accounts.
• This contract may also provide benefits or values incidental thereto payable in fixed
or variable amounts, or both. It shall not be deemed to be a "security" or "securities"
as defined in The Securities Act, as amended, or in the The Investment Company
Act, as amended, nor subject to regulation under said Acts.
• Variable contracts mean contracts providing for benefits or values which may vary
according to the investment experience of any separate or segregated account or
accounts maintained by an insurance company.
• Contract between you and an insurance company. It is intended to meet certain
insurance needs, investment goals, and tax planning objectives.

15. What is insurable interest?

Insurable interest is one of 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.

every interest in property, whether real or personal, or any relation thereto, or

liability in respect thereof, of such nature that a contemplated peril might directly damnify the
insured

16. Why must there be an insurable interest?

It is essential for validity and enforceability of the contract or policy. A policy issued to
a person without interest in the subject matter is a mere wager policy or contract.

17. When is there insurable interest in life insurance?

A person has insurable interest in the subject matter if he is so connected, so situated,

so circumstances, so related, that by the preservation of the same he shall derive pecuniary
benefit, and by it destruction shall suffer pecuniary loss, damage or prejudice.

18. When is there insurable interest in the life and health?

There is insurable interest in life and health of a person insures must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs. Therefore, at
the time the insurance takes effect.

19. When is there insurable interest in the property and other insurance?

There is insurable interest in the property when the insurance takes effect, and when
the loss occurs, but need not exist in the meantime. He is the third party in a contract of life
insurance, whose benefit the policy is issued and to whom the loss is payable.

20. What is a beneficiary?

Any person who is named or designated in a contract of life, health, or accident

insurance as the one who is to receive the proceeds or benefits which become payable,
according to the terms of the contract, if the insured risk occurs

21. Who can be a beneficiary?

A person may designate a beneficiary, irrespective of the beneficiary’s lack of

insurable interest, provided he acts in good faith and without intent to make the transaction
merely a cover for a forbidden wagering contract

22. Are there any exceptions?

Yes. The only person disqualified from being a beneficiary are those not qualified to
receive donations under Article 739. They cannot be named beneficiaries of a life insurance
policy by the person who cannot make any donation to him.
 Notes:

 Article 739 of the Civil Code of Philippines pertains to:

o The following donations shall be void:
▪ Those made between persons who were guilty of adultery or
concubinage at the time of donation.
▪ Those made between persons found guilty of the same criminal
offense, in consideration thereof.
▪ Those made to a public officer or his wife, descendant and
ascendants by reason of his office.

23. When is the insurance contract perfected?

• When the assent or consent manifested by meeting of the offer and acceptance
upon the thing and the cause which are to constitute the contract.
• It is only when the applicant pays the premium and receives and accepts the
policy while he is in good health that the contract of insurance is deemed to have
been perfected.
• Perfection of insurance:
o A policy must have been issued
o The premiums paid;
o The policy must have been delivered to and accepted by the applicant
while he is in good health.

24. Define premium

 The amount of money and individual or business pays for an insurance policy.
 the agreed price for assuming and carrying the risk, that is, the consideration paid
an insurer for undertaking to indemnify the insured against the specified peril

Notes:

• An insurer is entitled to payment of the premium as soon as the thing insured

is exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except
in the case of a life or an industrial life policy whenever the grace period
provision applies.
• An acknowledgment in a policy or contract of insurance or the receipt of
premium is conclusive evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it shall not be binding until
the premium is actually paid.

25. Discuss the process of the insurance claims settlement

A. Life insurance

- as to maturity:
 (1) upon death the person insured

(2) Upon surviving a specific period

- As to delivery of proceeds:

General rule: The proceeds should be delivered immediately upon maturity of

policy

Exceptions:

(1) If payable in installments or as an annuity, when such

installments or annuities become due
(2) If maturity is upon death, within 60 days after presentation
of claim and filing of proof of death of insured.
(3) Otherwise contingently or cessation of life

B. Non-life insurance

- as to maturity:

(1) Upon happening of event insured against

(2) Event must occur within the period specified in policy, otherwise
insurer has no liability

- As to delivery of proceeds:

(1) Within 30 days after:

a. proof of loss is received by insurer and

b. Ascertainment of loss or damage is made either by agreement

between the insured and insurer or by arbitration.

(2) If ascertainment is not made within 60 days after such receipt by

insurer of proof of loss, then loss or damage shall be paid within 90 days
after such receipt.

- Effect of refusal or failure to pay claim within prescribed time:

o This entitles the beneficiary to collect interest on the proceeds of policy
for the duration of the delay at rate of twice the ceiling prescribed by the
monetary board (unless refusal to pay is based on ground that claim is
fraudulent)
o In case damages are awarded, this includes attorney’s fees and other
expenses incurred due to delay (plus interest)

Notes:
 Claim settlement – indemnification of the loss suffered by the insured.

26. What are unfair claim settlement practices?

An unfair claims practice is what happens when an insurer tries to delay, avoid, or
reduce the size of a claim that is due to be paid out to an insured party.

1. No insurance company doing business in the Philippines shall refuse, without

just cause, to pay or settle claims arising under coverages provided by its
policies, nor shall any such company engage in unfair claim settlement
practices. Any of the following acts by an insurance company, if committed
without just cause and performed with such frequency as to indicate a general
business practice, shall constitute unfair claim settlement practices:
(a) knowingly misrepresenting to claimants pertinent facts or policy provisions
relating to coverage at issue;
(b) failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its policies;
(c) failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
(d) not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become reasonably
clear; or
(e) compelling policyholders to institute suits to recover amounts due under
its policies by offering without justifiable reason substantially less than the
amounts ultimately recovered in suits brought by them.
2. Evidence as to numbers and types of valid and justifiable complaints to the
Commissioner against an insurance company, and the Commissioner's
complaint experience with other insurance companies writing similar lines of
insurance shall be admissible in evidence in an administrative or judicial
proceeding brought under this section.
3. If it is found, after notice and an opportunity to be heard, that an insurance
company has violated this section, each instance of non-compliance with
paragraph (1) may be treated as a separate violation of this section and shall
be considered sufficient cause for the suspension or revocation of the
company's certificate of authority.

Notes:

• Delay, in this context, means payment beyond the period set out by law.

27. Period to be observed in payment of claims.

Depending on the type of insurance, the proceeds or claims must be paid to the
insured or his or her beneficiaries within a specific period.

• If the insurance claim is related to a life insurance policy, the proceeds must be
paid immediately upon the maturity of the policy, which could be made in the
form of installment or annual payment.
 • In the case of a life insurance policy, the payment to the beneficiaries must be
made within 60 days after the presentation of the claim and filing of the proof of
the death of the insured.
• If the insurer refuses to pay within the said period, the beneficiary is entitled to
collect interest on top of the original payment, unless the insurer has a valid
reason to delay the payment, which will be discussed later.
• For non-life insurance policies such as fire or property insurance, the amount
of any loss or damage must be paid within 30 days after the proof of loss is
received by the insurance company and the loss has been ascertained either
through arbitration or negotiation or by agreement.
• The payment may even be made within a much shorter period depending on
the agreement.
• But if the loss has not been established within 60 days after the proof of loss
has been received by the insurance company, the loss or damage must be paid
within 90 days after the receipt of the proof of loss.
• Again, if the insurance company unreasonably denied or withheld the payment
of insurance proceeds, the claimant will receive an interest on top of the money
that the insurer must pay to him or her.
• The refusal or failure to pay by the insurance company a valid claim within the
prescribed time will entitle the claimant to receive a “double interest” or 12
percent for the duration of the delay.
• In case of any litigation or legal case is filed with the Claims Adjudication
Division of the Insurance Commission or the court, as the case may be, and
there is a finding of unreasonable denial and withholding of payment, the
claimant shall not only entitled to amount of claim, but also to “double interest,
“attorney’s fees and other expenses suffered by the claimant because of the
delay or refusal by the insurance company to pay.
• The insurance company may delay or reject the claim if it is fraudulent or was
made to deceive. Example: padding or increasing the claim than the actual
amount through the use of fabricated or forged invoices or receipts.

Summary:

Claims Life insurance Non-life insurance

Delivery of proceeds General Rule: Within 30 days after:

The proceeds should be a. Proof of loss is

delivered immediately received by insurer
upon maturity of policy/ b. Ascertainment of loss
of damage is made
either by agreement
between the insured
Exceptions: and insurer or by
arbitration
(1) If payable in c. If ascertainment is not
installments or as made within 60 days
an annuity, when after such receipt by
such installments insurer of proof of loss,
then loss or damage
 or annuities shall be paid within 90
become due. days after such
(2) If maturity is upon receipt,
death, within 60
days after
presentation of
claim and filing of
proof of death of
insured.