Insurance Law (RA 10607) Flashcards
It is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
Contract of Insurance
What are the Concept/Characteristics of Insurance?
(6)
- Risk-distributing device
- Contract of adhesion
- Aleatory
- Contract of Indemnity (for property insurance)
- Contract of Utmost Good Faith (uberrimae fides contract)
- Personal Contract
It serves to distribute the risk of economic loss among as many possible to those who are subject to the same kind of risk.
Characteristics of Insurance
Risk-distributing Device
Considering that usually it is the insurance company that prepares the terms and conditions of the contract and the other party merely “adheres” to the said contract.
Characteristics of Insurance
Contract of Adhesion
An insurance contract is a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify.
Considering that the payment of insurance claims is contingent upon the happening of an event which may or may not happen or that which may happen at an indeterminate time. Although it may be considered cumulative given that there is still equivalence in prestations as to the payment of premiums being equivalent to the protection given.
Characteristics of Insurance
Aleatory
The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event which is uncertain. It does not depend upon some contingent event.
In the sense that the owner of the property may recover only up to the amount of actual loss sustained.
Characteristics of Insurance
Contract of Indemnity
The insured is entitled to recover only the amount of total loss sustained, and the burden is upon him to prove the amount of such loss.
It is a contract of good faith which requires that applicant to make certain disclosures affecting risks of which he may be aware, or material facts, which the he knows or ought to know.
Characteristics of Insurance
Contract of Utmost Good Faith (uberrimae fides contract)
The contract of insurance is one of perfect good faith, not for the insured alone, but equally so for the insurer. In fact, it is more so for the latter since the insurer’s dominant bargaining position carries with it stricter responsibility.
A contrac of insurance is not transmissible since the personal qualifications of the applicant/insured were considered in the approval.
Characteristics of Insurance
Personal Contract
The law presumes that the insurer considered the personal qualification of the insured in approving the insurance application. The insured cannot assign, before the happening of the loss, his rights under a property policy without the consent of the insurer.
It is a contract where a person binds himself solidarily to the creditor to fulfill the obligation of the debtor in case the latter should fail to do so.
Suretyship
A contract of suretyship shall be 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.
What are the Elements of an Insurance Contract?
(5)
- The insurer has insurable interest;
- The insured is subject to a risk of loss by the happening of the designated peril;
- The insurer assumes the risk;
- Such assumption of risk is part of the general scheme to distribute actual losses among a large group of persons;
- In consideration of the insurer’s promise, the insured pays a premium.
Classes of Insurance Contracts under the Insurance Code
(5)
1. Life Insurance
a. Individual Life
b. Group Life
c. Industrial Life
2. Non-life Insurance
a. Marine Insurance
b. Fire Insurance
c. Casuality
3. Contract of Suretyship
4. Microinsurance
5. Variable Insurance
Every person who has an insurable interest in the llife and health:
(4)
- Of himself, of his spouse, and of his children;
- Of any person on whom he depends wholly or in part for education or suppport, or in whom he has a pecuniary interest;
- 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
- Of any person upon whose life any estate or interest vested in him depends.
What are the measures or conditions sine qua non (Life Insurance)?
(2)
- Positive: will you be benefited if the person does not die;
- Negative: the amount of loss and effect of that loss, or the amount by which you will be damnified.
Is consent essential to the validity of an insurance taken by another?
Consent of the person whose life is insured is not essential to the validity of an insurance taken by another as long as the insured has a legal insurable interest at the inception of the policy.
Can a creditor insure the life of the debtor?
Yes, but the creditor may only insure the life of the debtor upto the amount of the debt. Such that if the debt has been paid prior to the death, the creditor can no longer recover.
However, if the debtor insures his own life for the benefit of the creditor, upon full payment of the debt, the insurance will inure to the benefit of the debtor’s estate upon death.
Debt unenforceable or insolvency of the debtor: does not make the insurance unenforceable. The unenforceability and insolvency of the debtor discharges only his “legal” obligation to pay, not the moral obligation to settle the debt.
Property Insurance
Insurable Interest
Insurable interest in property is any interest therein, or liability in respect thereof, and it may consist in:
1. An existing interest,
2. An inchoate interest founded on existing interest, or
3. Any expectancy coupled with an existing interest
In general, a person has an insurable interest in the property, if he derives pecuniary benefit or advantage from its preservation or would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has no title in, or lien upon, or possession of the property. Hence, pecuniary interest over the property is always necessary.
Insurable Interest of Mortgagor and Mortgagee on Mortgaged Property
Mortgagor: as owner, has an insurable interest to the extent of its value, even though the mortgage debt equals such value.
Mortgagee: has an insurable interest in the mortgaged property to the extent of the debt secured; such interest continues until the mortgage debt is extinguished.
Effect of Change of Interest in Insured Property
General Rule: a change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.
Exceptions:
1. In life, health and accident insurance
2. a change of interest in the thing insured after the occurrence of an injury which results in a loss.
3. a change of interest in one or more of several distinct things, separately insured by one policy.
4. A change of interest by will or succession on the death of the insured
5. A transfer of interest by one of several partners, joint owners or owners in common, who are jointly insured, to the others.
6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.
When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.
Perfection of the Contract of Insurance
A contract of insurance is a consensual contract which is perfected by the meeting of the minds between the insured and the insurer. Thus, the Supreme Court in one case held that “[t]here can be no contract of insurance unless the minds of the parties have met in agreement.”
This is the consideration paid by the insured to the insurer for undertaking the assumption of the risk covered by the insurance contract.
Premiums.
As a general rule, there can be no binding contract of insurance if there is no payment of the premium, considering that it is one of the elements of an insurance contract.
Grounds on which a Non-life Insurance Policy may be cancelled
(7)
A NON-LIFE Insurance Policy may be CANCELLED by the insurer on the following grounds:
1. Nonpayment of premium;
2. Conviction of a crime arising out of acts increasing the hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts or omissions increasing the hazard insured against;
5. Physical changes in the property insured which result in the property becoming uninsurable;
6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or
7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.
Other Grounds for Rescission or Cancellation of the Insurance Contract
- Concealment - whether intentional or unintentional
- False Representation or Misrepresentation - whether oral or written and may be made at the time of, or before, issuance of the policy
- Breach of Warranty
They have no duty to disclose: except in answer to inquiries of the other.
(5)
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
e. Those which relate to a risk excepted from the policy and which are not otherwise material.
Claims Settlement and Subrogation
Life Insurance
- If there is maturity - immediately upon such maturity;
- If the policy matures upon death - within 6- days after presentation of the claim and filing of the prood of the death of the insured.
CLAIMS SETTLEMENT AND SUBROGATION
Property Insurance
- Ascertainment of loss is either by agreement or by arbitration – within 30 days after proof of loss is received by the insurer and ascertainment of the loss or damage is made;
- If no ascertainment is made within 60 days after receipt of proof of loss – within 90 days after such receipt.
Delay or non-compliance with the period would entitle the beneficiary to what?
(3)
- Interest – for the duration of the delay at a rate TWICE the legal interest;
- Attorney’s fees and other litigation expenses;
- Appropriate damages under the Civil Code like moral and exemplary.
Prescription
Insurance Contracts
- In the absence of stipulation, 10 years.
- However, the parties may validly agree on a shorter period provided it is NOT less than 1 year from the time the cause of action accrues.
The cause of action accrues from the time of the final rejection of the claim and not from the time of loss. If there is a motion for reconsideration, the one year period is to be counted from the date of first denial and not on the denial of the reconsideration.
If they agreed on a period of 1 year from the time the cause of action accrues, it shall be reckoned from the initial denial of the claim and not on the resolution of the MR.
It is a normal incident of indemnity property insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy.
Such right is not dependent upon nor does it grow out of any privity of contract. Payment to the insured makes the insurer an assignee in equity.
The rights of the insurer are those which are available to the insured at the time of payment.
Subrogation
No right of Subrogation
(4)
- The insured by his own act releases the wron-doer/third person liable for the loss;
- Where the insurer pays the insured for a loss or risk not covered by the policy
- In life insurance;
- For recovery of loss in excess of insurance coverage
Claims
Subrogation
- Notice - must be given without undue delay. Otherwise, the insurer is exonerated.
- Proof - the insurer may give the best evidence he has. Even if there is a stipulated requirement of proof, substantial compliance thereof would suffice.
