Insurance Law (Insurance and Pre-need by Balmes) Flashcards
1) What is a contract of insurance? How different is a contract of insurance from a contract of suretyship under the Insurance Code?
Under Section 2(a) of Republic Act No. 10607 or the Insurance Code (Code), as amended, a contract of insurance is defined as:
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event.
On the other hand, the same section of the Code states that:
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.
2) What are the characteristics of a contract of suretyship?
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or debtor-obligor, of an obligation or undertaking in favor of another party called the creditor-obligee.
The liability of the surety is JOINT and SEVERAL (SOLIDARY).
The contact of suretyship is secondary only to the valid principal obligation, with the surety’s liability to the creditor being DIRECT, PRIMARY, and ABSOLUTE. The surety becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.
3) What is the significance of the New Civil Code of the Philippines provisions on the contract of suretyship?
“Pertinent provisions of the New Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.”
A suretyship agreement is an accessory contract (under Article 2047 of the New Civil Code of the Philippines) that introduces a third party element in the fulfillment of the principal obligation that a principal debtor-obligor owes a creditor-obligee.
A surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous.
The surety is bound to take notice of the principal’s default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.
4) Why is the surety contract an accessory contract?
A guarantee or a surety contract under Article 2047 of the New Civil Code of the Philippines is an accessory contract because it is dependent for its existence upon the principal obligation guaranteed by it.
6) Does the death of the principal debtor-obligor extinguish its obligation?
A surety company’s liability under the performance bond it issues is SOLIDARY. The death of the principal obligor does not, as a rule, extinguish the obligation and the solidary nature of that liability. Only obligations that are personal or are identified with the persons themselves are extinguished by death.
7) Differentiate surety from a guarantor.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor-obligor makes default.
8) Which provision of the New Civil Code of the Philippines applies to Sureties?
It is Article 2047 of the New Civil Code of the Philippines which provides:
Article 2047. By guaranty, a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case, the contract is called a suretyship.
10) Initially, was surety bond considered an insurance policy?
No.
A surety bond is not of course an insurance policy. There are similarities though, between bonding and insurance transactions; so much so that surety companies are placed under the supervision of the Insurance Commissioner.
11) Now, what is the concept of surety bond, especially corporate surety, in relation to it being an insurance?
With the advent of corporate surety, suretyship became regarded as insurance where, usually, provisions are interpreted most favorably to the insured and against the insurer because ordinarily the bond is prepared by the insurer who then has the opportunity to state plainly the term of its obligation.
12) What are considered as valid sources of insurance regulation in the Philippines?
- The Insurance Code, as amended, Republic Act No. 10607;
- New Civil Code of the Philippines, Republic No. 386; and
- Issuances of the Insurance Commission like Circular Letters.
13) Is the Civil Code of the Philippines applicable to Contracts of Insurance?
Yes, but only suppletorily due to the provisions of Article 2011 of the New Civil Code of the Philippines, which provide that:
Article 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code.
The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code of the Philippines may be resorted to.
16) What provisions in the New Civil Code of the Philippines are sources of insurance laws in the Philippines?
Article 1305
Article 1306
Article 1319
Article 2011
Article 2012
18) What is subrogration?
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.
As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused the damage.
Payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused damage.
20) What are the limitations on the exercise of subrogation?
The limitations on the exercise of subrogation are as follows:
(1) Both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.
(2) The insurer can be subrogated only to the rights as the insured may have against the wrongdoer.
22) Is the one-year period provided for in the Carriage of Goods by Sea Act (COGSA) within which to file a suit against the carrier and the ship, in case of damage or loss, applicable to the insurer of the goods?
Yes, the one-year period applies to the insurer.
The pertinent stipulations are provided for in Section 3(b) of COGSA. This is also expounded in a jurisprudential ruling in Chua Kuy v. Everett Steamship Corporation.
