IV. PERFECTION OF THE CONTRACT OF INSURANCE Flashcards
When is an insurance contract perfected?
There is no exact provision in the Insurance Code that says when a contract of insurance is perfected. However, under the Civil Code, it requires a “meeting of minds” – there must be both an offer and an acceptance, resulting from such meeting of the minds.
Who makes an offer in a contract of insurance?
It is the would-be insured who makes the offer by filling up an application form supplied by the broker/agent, and submitting relevant information called for by the kind of insurance being applied for.
What is the “tort theory” in reference to insurance contracts based on?
The tort theory is based on the proposition that insurance, more so life insurance, being one affected with public interest, the insurer should act with reasonable dispatch in acting on the application, or else the applicant loses the opportunity to secure such insurance from another source.
May an insurance contract be oral?
The Insurance Code has no provision requiring a particular form for the validity of an insurance contract. Furthermore, in our jurisdiction, the Supreme Court has not made a categorical ruling against the validity of an oral contract of insurance.
It is the undertaking performed by the insured in return for the insurer’s assumption of the risk; it is essential to the formation of the contract of insurance.
Payment of premium
It is the act of putting the insurance policy – the physical document – into the possession of the insured.
Delivery
Should there be manual delivery of the insurance policy?
No. In the case of Vda. de Sindayen v. Insular Life, the Court held that actual delivery of the policy is not essential unless the parties have so agreed in clear language. Constructive delivery may be sufficient.
What is the general rule regarding the effectivity of an insurance contract with regard to premium payments?
Under Sec. 77 of the Insurance Code, “An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.”
May there be a valid and binding contract of insurance in the absence of a premium payment?
Generally, there is no valid and binding contract of insurance without the premium payment. The general rule is provided in Sec. 77 of the Insurance Code: “No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid.” However, there are exceptions to this general rule. As also provided in Sec. 77, the exceptions are: (1) an agreement to the contrary, (2) in cases of life or industrial life insurance policies where the grace period provision applies, and (3) whenever there is a 90-day credit extension granted by the insurance company.
What is the grace period provided for payment of premiums for life insurance contracts?
Under Sec. 233(a) of the Insurance Code, the grace period is 30 days to 1 month after the first premium payment.
What is the legal effect of a claim of life insurance proceeds when the claim is made during the grace period?
The legal effect is that the insurance claim shall be valid but the premium due shall be deducted from the claim.
What is the legal effect if the insured fails to pay the premium during the grace period, and a claim is made after the grace period?
No claim can be made, and the previous premiums shall be forfeited– the policy lapses.
True or false. An acknowledgment in a policy or contract of insurance or the receipt of premium gives rise to a prima-facie presumption of payment, so far as to make the policy binding.
False. IC Sec. 79. An acknowledgment in a policy or contract of insurance or the receipt of premiums 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.
What is the general rule regarding the cancellation of insurance contracts?
Under Sec. 64, the general rule is “No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured.”
What are the grounds for a valid notice of cancellation to the insured?
Under Sec. 64 of the Insurance Code: “No notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;
(e) Physical changes in the property insured which result in the property becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured;
(g) A determination by the Commissioner that the continuation of the policy wold violate or would place the insurer in violation of this Code.”
Thus, the requisites for a valid notice of cancellation are: (1) that the notice of cancellation is based on the occurrence of events listed in Sec. 64 of the Insurance Code; and (2) that the basis for the notice of cancellation occurs after the policy has become effective.
