III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607) Flashcards
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
A. Concept of Insurance (Sections 2-9)
Insurance vs Surety
Protects against f u E
Key
A) Insurance vs. Surety:
- The main definition clarifies an insurance contract as an agreement to financially protect someone (insured) against a future uncertain event (loss, damage, or liability).
- A surety contract is generally NOT considered insurance unless the surety is acting like an insurance company (doing insurance business as a profession).
B) What is “Doing Insurance Business”?
This section defines activities that constitute “doing insurance business” and thus fall under regulations of this code. These include:
- Offering or selling insurance contracts (acting as an insurer).
- Providing surety services professionally (not a one-time thing for a specific situation).
- Engaging in any activity clearly recognized as insurance under this code (e.g., reinsurance).
- Trying to act like an insurance company in a way to avoid following these rules.
C) Key Points for Memorization:
- Profit motive doesn’t matter: Even if no profit is made, offering insurance-like protection can be regulated.
- Direct payment not required: Consideration (payment) for the service doesn’t have to be direct for it to be insurance business.
- Focus on the substance: Don’t try to disguise an insurance activity to avoid regulations.
- Examples:
- A company selling fire insurance to homeowners is clearly “doing insurance business.”
- A bank occasionally acting as a loan guarantor (surety) for a customer likely wouldn’t be considered “doing insurance business.”
- However, if a company routinely acts as a surety for various loans, replacing a traditional insurance company, it would likely be seen as “doing insurance business” and subject to regulations.
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
B. Insurable Interest (Sections 10-25)
Pecuniary interest in life of anthr
Financial loss in prop
Insurable Interest Explained (Sections 10-16)
Here’s a breakdown of the key points regarding insurable interest for easier memorization:
A) Who Can Be Insured (Section 10):
* You have an insurable interest in someone’s life or health if:
* It’s yourself, your spouse, or your children.
* You depend on them financially (wholly or partly).
* You have a financial stake in their well-being (pecuniary interest).
* They owe you money or services, and their death/illness could affect their ability to fulfil that obligation.
* Your own financial well-being depends on their life (e.g., inheritance).
Example:
John can get life insurance on his wife, Mary, because he has a financial stake in her well-being and might suffer financially if she dies.
B) Changing Beneficiaries (Section 11):
* Generally, you can change the beneficiary named in your life insurance policy (the person who receives the pay-out) unless you specifically waive this right in the policy.
* If you don’t change the beneficiary during your lifetime, the originally designated person remains the beneficiary.
Example:
John has a life insurance policy with his wife, Mary, as the beneficiary. He can later change the beneficiary to his child, David, if the policy allows it.
C) Beneficiary Misconduct (Section 12):
* If the beneficiary (who gets the money) intentionally causes the insured person’s death, they forfeit their rights to the insurance pay-out.
* The money would then go to other beneficiaries (if any) or the insured’s estate.
Example:
If John’s son, David (the beneficiary), murders John, David would lose the right to the insurance money.
D) Insurable Interest in Property (Section 13):
* You can only get insurance on property if you would suffer a financial loss if something bad happened to it (peril).
Example:
You can insure your house against fire because if your house burns down, you suffer a financial loss.
E) Types of Insurable Interest in Property (Section 14):
* You can have an insurable interest in property if you:
* Already own it (existing interest).
* Have a future claim to it based on an existing ownership right (inchoate interest, e.g., inheritance rights).
* Expect to inherit it in the future, but only if you also have some existing ownership right in the property itself (expectancy coupled with an existing interest).
Example:
John can insure his car (existing interest). He can also insure his inheritance rights to his uncle’s house (expectancy coupled with an existing interest, assuming he has some legal claim to the inheritance).
F) Special Cases (Sections 15 & 16):
* Carriers or custodians (like a storage facility) have an insurable interest in the things they hold, limited to their liability or the value of the items.
* A mere hope of inheriting something or getting something in the future, without a legal basis for that hope, is not enough to get insurance.
Example:
A storage facility can insure the items they keep for customers, but only up to the value of those items or their own liability if something happens to them.
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
C. Concealment (Sections 26-35 and 51)
Wholding of MF wc allows insurer to cancel contract
MF are info wc influences insurer decision on ins risk
Concealment in Insurance: A Summary (RA 10607)
Key points:
1) Concealment Defined (Section 26):
Withholding information you know and should disclose is considered concealment.
2) Impact of Concealment (Section 27):
Either intentional or unintentional concealment can give the insurer the right to cancel the insurance policy.
3) Disclosure Requirements (Sections 28 & 30):
* Both parties (applicant and insurer) must act in good faith and disclose all material facts (information that could influence the insurer’s decision to offer coverage or the price).
* You don’t have to disclose things the insurer already knows, things they could reasonably find out with due diligence, or matters excluded from the policy coverage.
Example:
Applying for life insurance, you don’t need to tell the insurer about a minor traffic ticket (they might already know or could easily find out). However, you should disclose a recent cancer diagnosis, as it’s highly material to the risk they’re taking on.
4) Materiality (Section 31):
* Whether a fact is “material” is judged based on its potential impact on the insurer’s assessment of the risk, not whether it actually caused a claim.
Example:
Applying for travel insurance, you might forget to mention a planned adventure activity like skydiving. Even if you don’t end up skydiving, failing to disclose it could be considered concealment if skydiving is excluded from the policy’s coverage.
5) Waiver of Disclosure (Section 33):
* The insurer can waive the need for specific information or you might unintentionally waive your right to disclose something by not asking clarifying questions when the insurer clearly implies certain facts exist.
Current Event Example:
Imagine a professional athlete applying for life insurance without disclosing a recent performance-enhancing drug (PED) scandal they’re involved in. This could be considered concealment, as the PED use might affect their health and lifespan, which are material facts to life insurance.
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
D. Representation (Sections 36-48 and 51)
Statements made by app/insured to insurer during aplctn process
Affects inplied warr, explicit terms will nt change
Material if it can affect assesmnt of risk by insurer
False Rep allows insurer to cancel cont from time false rep was made - this rt of insurer is limtd to 2 yr perd from fr effctvty of contract
Understanding Representations in Insurance Contracts (RA 10607)
These sections define “representations” and their role in insurance contracts. Key points:
1) What are Representations? (Section 36):
Statements made by the applicant (insured) during the insurance application process, which can be written or spoken.
2) Timing (Sections 37 & 42):
Representations are typically made before or at the time the policy is issued, and are presumed to refer to the policy’s start date.
3) Interpretation (Section 38):
Similar to interpreting contracts in general, considering the plain meaning of the words used.
4) Promises vs. Beliefs (Section 39):
Statements about the future can be seen as promises (if the applicant intends to guarantee them) or beliefs/expectations (if there’s no guarantee).
Example:
Saying “I exercise regularly” might be a belief, while saying “I will get a yearly physical exam” is a promise.
5) Relationship to Warranties (Section 40):
Representations can’t change explicit terms in the policy (warranties), but they can affect implied warranties (assumptions the insurer makes based on the application).
6) Changes and Withdrawals (Section 41):
Representations can be changed or withdrawn before the insurance policy is finalized, but not afterward.
7) Knowledge and Reliance on Others (Section 43):
If you rely on information from others (e.g., a doctor’s report), you can disclose it without being responsible for its accuracy unless it comes from your agent who has a duty to provide accurate information.
8) Materiality (Section 46):
Similar to concealment, a misrepresentation is “material” if it could influence the insurer’s decision to offer coverage or the price.
9) Consequences of False Representations (Sections 44 & 45):
If a material representation is false, the insurer can potentially rescind (cancel) the policy from the time the misrepresentation was made.
Current Event Example:
A professional athlete applying for life insurance mentions they recently had a routine physical with no issues. However, they neglect to mention a recent injury they haven’t fully recovered from. This could be a misrepresentation if the injury is material (affects their health) and the athlete promised they were healthy (not just expressing a belief).
Important Note (Section 48): The insurer’s right to rescind based on misrepresentation is limited. If a life insurance policy has been in effect for two years or more, the insurer generally cannot void the policy due to misrepresentation by the insured or their agent.
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
E. Policy (Sections 49-66)
Wrtn Agrmnt outlining the terms if ins contract
Adtl terms attchd to policy must be described WITHIN the policy to be valid
Cover notes while policy is in process - valid 60 days otherws ask aprvl fr insComm
Understanding Insurance Policies: A Breakdown (RA 10607)
This section defines what an insurance policy is and its key components. Here’s a breakdown for a deeper understanding:
1) The Policy Document (Section 49):** The formal written agreement between you (insured) and the insurance company (insurer) outlining the terms of your insurance coverage.
2) Policy Format (Section 50):** Policies can be printed with blank spaces to be filled with specific details or electronic (subject to specific regulations).
- Important Note: Any riders, clauses, warranties, or endorsements (additional terms attached to the policy) must be clearly described within the policy document itself for them to be valid.
3) Policy Requirements (Section 51):** A valid policy should specify:
* The parties involved (you and the insurer)
* The insured amount (except for certain open or running policies)
* The premium cost (or how it will be calculated)
* The specific property or life insured
* Your interest in the insured property (if you’re not the sole owner)
* The risks covered by the policy
* The coverage period
4) Temporary Coverage (Section 52):** Cover notes can be issued as temporary binding agreements while the official policy is prepared (within 60 days). Extensions beyond 60 days require approval from the Insurance Commissioner.
5) Beneficiary Rights (Section 53):** Unless otherwise specified, insurance proceeds are typically paid to the person named on the policy or the beneficiary.
6) Agents and Trustees (Section 54):** If an insurance policy is obtained by an agent or trustee on your behalf, the policy should indicate that you are the real party in interest.
7) Joint/Shared Ownership (Section 55):** For shared ownership (partnerships), the policy wording should reflect that it applies to the joint or common interest of all owners.
8) Identifying the Insured (Section 56):** If the policy description is very general, only someone who can clearly demonstrate they were intended to be covered can benefit from the policy.
9) Flexible Coverage (Section 57):** Policies can be designed to extend benefits to whoever owns the insured interest during the coverage period.
10) Transfer of Ownership (Section 58):** Simply transferring ownership of insured property doesn’t automatically transfer the insurance policy. Both the policy and the insured item need to be under the same owner for coverage to continue.
11) Types of Policies (Sections 59-62):**
A) Open Policy:** The value of the insured item isn’t predetermined, and the insurer’s maximum liability is the insured amount. The actual value is determined at the time of a loss. (e.g., basic jewelry insurance)
B) Valued Policy:** A specific value for the insured item is agreed upon upfront in the policy. (e.g., rare antique furniture)
C) Running Policy:** Designed for ongoing or changing needs, allowing for additional items or endorsements to be added over time. (e.g., business inventory insurance)
11) Policy Cancellations (Sections 63-66):**
* One-Year Minimum: Any policy term limiting legal action to less than one year from the claim date is void.
* Insurer Cancellations: The insurer can only cancel your policy (other than life insurance) with written notice, stating a valid reason based on Section 64 (e.g., non-payment, fraud, risk increase).
* Notice Requirements: Cancellation notices must be mailed or delivered to you (or your authorized broker) and explain the reason for cancellation, with the option to request more details.
12) Policy Renewals (Section 66):**
* Renewal Notice: Unless the insurer notifies you at least 45 days before the end of the policy term about their intention not to renew or change the terms, you have the right to renew by paying the due premium.
Example:
You purchase a standard homeowner’s insurance policy. The policy document details the covered property, its value (likely an open policy), the risks covered (fire, theft, etc.), the coverage period, and your premium amount. This policy would likely be cancellable by the insurer with proper notice for reasons like non-payment or significantly increasing the risk (e.g., installing a pool without notifying them).
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
F. Warranties (Sections 67-76)
Promises by applicant/insured to insured, express & Implied
Allows insurer to avoid policy when if breach of warr
Understanding Warranties in Insurance Law (RA 10607)
Warranties are promises made by the insured (you) in an insurance policy. They can be crucial for the insurer’s decision to offer coverage and determine their obligations in case of a claim. Here’s a breakdown for a deeper understanding:
1) Types of Warranties (Section 67):
* Express Warranties: Clearly stated promises in the policy itself (written or referred to within the policy).
* Implied Warranties: Not explicitly stated but assumed based on the nature of the policy and what a reasonable person would expect (not as common).
2) Scope of Warranties (Section 68):
Warranties can relate to the past (e.g., your driving record), present (e.g., security system in your home), or future actions (e.g., maintaining your car).
3) Formalities (Sections 69 & 70):
No specific wording is required to create a warranty, but any express warranties must be included in the policy document.
4) Examples of Express Warranties (Sections 71 & 72):
* Stating the value of your property (becomes a warranty of that value).
* Promising to have a security system installed in your business (warranty of action).
5) Impact of Warranty Breaches (Sections 73-76):
* Future Events: If a future-oriented warranty is broken after a loss occurs, it generally doesn’t affect the claim (e.g., failing to install a security system after a fire).
* Material Breaches: Breaches of significant warranties (material breaches) can entitle the insurer to cancel the policy from the time of the breach or even refuse to pay a claim.
* Immaterial Breaches: Minor breaches (immaterial breaches) typically won’t affect the policy unless the policy wording specifically states otherwise.
* Fraudulent Breaches: If a warranty is breached due to fraud, the insurer can likely avoid the policy entirely.
6) Example (Current Event):
A celebrity recently purchased a high-performance car and obtained insurance. The policy might include an express warranty that the car wouldn’t be used for racing. If the celebrity is caught racing the car and has an accident, their breach of a material warranty could result in the insurer denying their claim (depending on the specific policy wording).
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
G. Premium (Sections 77-84)
1. Cash and Carry Rule
2. Exceptions
No prem, no ins cov
Grace period
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
H. Loss (Sections 85-89)
1. Notice and Proof of Loss – Sections 90-94
Submit to insurer w o delay
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
I. Double Insurance; Overinsurance (Sections 95-96)
Same person insured by several insurer, exceeds vakue of insrble int in prop
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
J. Reinsurance (Sections 97-100)
Agr between insurance company/ insurer
& another insurer to share risks
Demystifying Reinsurance: Insurance for Insurers (RA 10607)
Imagine insurance companies needing insurance! That’s essentially what reinsurance is.
a) Concept (Section 97):
Reinsurance is a separate agreement between an insurance company (the cedent) and another insurer (the reinsurer). The cedent pays the reinsurer a premium to share the risk of a potential large pay-out on an insurance policy they’ve issued.
b) Sharing the Burden (Section 98):
When a cedent obtains reinsurance, they are obligated to disclose all relevant information about the original insured and the risk involved. This transparency helps the reinsurer accurately assess the risk they’re taking on.
c) Focus on Liability (Section 99):
Reinsurance is typically considered a contract to cover the cedent’s potential liability (having to pay a claim), not just the direct financial loss from the insured event.
d) No Direct Benefit for Original Insured (Section 100):
The original policyholder (insured by the cedent) has no legal stake in the reinsurance agreement. It’s solely between the insurance companies involved.
- Example (Current Event):
Hurricane season can bring significant financial risk for insurance companies in coastal areas. To manage this risk, an insurance company in Florida might reinsure a portion of their hurricane coverage with a reinsurer in Europe, less likely to be affected by the same hurricane. By sharing the potential pay-out, the Florida insurer protects its financial stability in case of a major hurricane season.
III. INSURANCE LAW (P.D. No. 612, as amended by R.A. No. 10607)
K. Classes of Insurance
1. Fire Insurance – Sections 169-175
2. Casualty – Section 176
3. Suretyship – Sections 177-180
4. Life Insurance – Sections 181-186
5. Compulsory Motor Vehicle Liability Insurance – Sections 386-402
6. Marine Insurance – Sections 115-122
Insurer agrees to indemnify for Loss or Damage caused by
What is an insurable interest?
Means a person can get insurance on someone or something if he
SUFFERA FINANCIAL LOSS
to its damage or destruction, or death of that insured
What Can Be Insured (Sections 3-5): Key Points Explained with Examples
Here’s a breakdown of the key points in Sections 3-5 of the insurance code for easier memorization:
Section 3:
* Insurable Event: You can get insurance for any uncertain event (past, present, or future) that could cause financial loss or create legal liability, as long as you have an insurable interest (a stake in the outcome).
* Spouse Consent Not Required: A married person can get life or health insurance on themselves or their children without their spouse’s consent.
* Automatic Beneficiary: Unless otherwise stated in the policy, if the original owner of a life or health insurance policy dies, all rights and benefits automatically transfer to the insured person (the person covered by the policy).
Example:
John gets life insurance on himself. If John dies, the benefits from the policy would automatically go to his beneficiary (who he designated in the policy), even if his spouse didn’t consent to the policy initially.
Section 4:
* Lotteries Not Insurable: You cannot get insurance for lotteries or any chance or ticket in a lottery. Insurance is for legitimate risks, not gambling.
Section 5:
* All Insurance Applies: All types of insurance are subject to the general provisions of this chapter (Chapter containing these sections), as long as those provisions are relevant to the specific insurance type.
- Example: This section clarifies that car insurance, health insurance, and homeowner’s insurance would all be subject to the same general rules about insurable interest, claims process, etc. (as outlined in this chapter), even though they cover different things.
Who are the parties to the insurance contract?
Insured - subject matter
Insurer
Beneficiary
Parties to the Insurance Contract (Sections 6-9)
Here’s a breakdown of the key points for each section regarding parties in an insurance contract:
Section 6: Who Can Be an Insurer
* Main Point: Only authorized companies (corporations, partnerships, or associations) can act as insurers (the company providing the insurance).
Section 7: Who Can Be Insured
* Main Point: Anyone except a “public enemy” can be insured. (The exact definition of “public enemy” may vary by jurisdiction).
Section 8: Mortgagor (Borrower) and Mortgagee (Lender) Situations
* Main Point:
* If a borrower (mortgagor) gets insurance on the mortgaged property with the payout designated to the lender (mortgagee), the insurance covers the borrower’s interest.
* The borrower’s actions before a loss can still void the insurance even if the lender now holds the policy.
* However, actions the borrower is supposed to take according to the policy can be done by the lender instead (e.g., filing a claim).
- Example: John takes out a mortgage on his house and gets homeowner’s insurance with the payout going to the bank as the mortgagee. If John accidentally burns down the house before making a claim, the insurance might be void because of his action (arson is typically excluded). However, the bank (mortgagee) can still file a claim according to the policy.
Section 9: Transferring Insurance from Borrower to Lender
* Main Point: If the insurer approves transferring the insurance from the borrower to the lender and adds new requirements for the lender, the borrower’s actions no longer affect the lender’s rights under the policy.
Example:
Continuing from the previous example, if John defaults on the loan and the bank takes possession of the house, the bank (as the new insured) can still collect insurance on the house if it’s damaged by fire, even if John previously did something that might have voided the policy (as long as it wasn’t related to the new damage). This is because the insurer approved the transfer and potentially added conditions specific to the bank.
Question 2:
Mark takes out a life insurance policy on himself, naming his business partner, Sarah, as the beneficiary. Mark’s wife, Lily, was not informed about the policy. In the event of Mark’s death, can Lily contest the validity of the policy due to lack of her consent?
a) Yes, Lily’s consent is always required for a spouse’s life insurance policy.
b) Yes, Lily can contest if she can prove financial dependence on Mark.
c) No, Section 3 of RA 10607 eliminates spousal consent requirements for life insurance.
d) No, but Lily can claim a share of the death benefit if she was financially dependent on Mark.
Answer: (c) No, Section 3 of RA 10607 eliminates spousal consent requirements for life insurance.
Legal Reasoning:
Section 3 of RA 10607 clarifies that a married person can obtain life insurance on themselves or their children without their spouse’s consent. This eliminates a potential roadblock for obtaining life insurance coverage.
Question 3:
A company offers a warranty program for electronic devices. This warranty program goes beyond standard manufacturer warranties and promises to cover accidental damage like spills or drops. Can this program be considered “doing insurance business” under RA 10607?
a) No, warranty programs are inherently different from insurance contracts.
b) Yes, if the program is offered professionally and not as a one-time courtesy.
c) It depends on the specific terms and conditions of the warranty program.
d) Neither answer A nor B is entirely accurate.
Answer: (d) Neither answer A nor B is entirely accurate.
Legal Reasoning:
Section 2(b) of RA 10607 defines “doing insurance business” to include activities beyond traditional insurance contracts. We need to consider if the warranty program functions similarly to insurance. If the program is offered professionally and promises to financially protect against accidental damage (a contingent event), it could be considered “doing insurance business” and subject to regulations. However, a one-time warranty offered as a courtesy purchase might not be seen as such. The specific details of the program would be crucial for a definitive answer.
