Pointers

Question 1

What is subrogation?

Question 2

What is the statutory basis of the right of the insurer to subrogation?

Answer 2

The basis of subrogation is Article 2207 of the Civil Code of the Philippines which provides that “if the plaintiffs property has been insured and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company !oes not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss of
injury.” ‘

Question 3

Is the consent of the wrongdoer necessary to enable the insurer to acquire the right of subrogation?

Answer 3

Subrogation does not require the consent of the wrongdoer. It is an equitable assignment of right that accrues to the insurer after valid payment is made to the insured as a result of the happening of the risks insured against. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer.

Question 4

Is the consent of the insured necessary for the right of subrogation to exist?

Answer 4

No, after payment to the insured, the insurer is entitled to go after the person that violated its contractual commitment to answer for the loss insured against. As previously stated, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon written assignment of claim, and payment to the insured makes the insurer an assignee in equity.

Question 5

What are the elements of an insurance contract?

Answer 5

a. The insured has an insurable interest capable of pecuniary estimation;
b. The insured is subject to a risk of loss by the happening of the designated peril;
c. The insurer assumes the risk of loss;
d. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and
e. In consideration of the insurer’s promise, the insured pays a premium.

Question 6

What is meant by an insurance is a risk-distributing device?

Answer 6

Insurance serves to distribute the risk of economic loss among as many as possible of those who are subject to the same kind of loss

Question 7

Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose is “to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization.” Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic, and curative medical services provided by its duly licensed physicians, specialists, and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated, or accredited by it.
The Commissioner of Internal Revenue ordered Philippine Health Care Providers to pay documentary stamp tax (DST) on its health care agreements. It moved for reconsideration arguing that DST is imposed only on a company engaged in the business of fidelity bonds and insurance policies. Philippine Health Care Providers, Inc., as a health maintenance
organization (HMO), is a service provider and not an insurance company.
Is Philippine Health Care Providers, Inc. (now Maxicare) engaged in the business of insurance?

Answer 7

No, Maxicare, as an HMO, is not engaged in insurance business. The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid medical and health services through participating physicians and accredited establishments, thus relieving subscribers of any further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy. The mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services. Even if Maxicare assumes the risk of paying the cost of these services, it nevertheless cannot be considered as being engaged in the insurance business. Assumption of the expense by Maxicare is not confined to the happening of a contingency but includes incidents even in the absence of illness or injury.

Even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance. Under the principal purpose test, the test applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental, and service is the principal purpose, then the business is not insurance.

Question 8

Who are the parties to a contract of insurance?

Answer 8

a. Insurer. It assumes the risk of loss and undertakes for a consideration to indemnify the insured upon the happening of the designated peril.

Every corporation, partnership, or association, duly authorized to transact insurance business by the Insurance Commission may be an insurer.6 A natural person is not allowed to be an insurer.

b. Insured. He is the person whose loss is the occasion for the payment of the insurance proceeds by the insurer. Anyone except a public enemy may be insured.7 A public enemy is a nation, including its citizens or subjects, with whom the Philippines is at war.

c. the assured

d. Beneficiary. He is the third person designated by the insured to receive the proceeds. In case of failure to designate a beneficiary in a life insurance or the beneficiary designated is disqualified, the proceeds should accrue to the estate of the insured.

Question 9

May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Philippines? Explain.

Answer 9

A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business under the Insurance Code of the Philippines. What is prohibited to be insured is ,a public enemy. A
public enemy is a citizen or national of a country with which the Philippines is at war. Such member of the MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines.

Question 10

What is insurable interest?

Answer 10

Insurable interest is that interest which a person is deemed to have in the subject matter of the insurance where he has a relation or connection to it such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against it.

Question 11

Upon whose life or health does a person have insurable interest in?

Answer 11

Section 10. Every person has an insurable interest in the life and health:
“(a) Of himself, of his spouse, and of his children;
“(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
“(c) 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
“(d) Of any person upon whose life any estate or interest vested in him depends.

Question 12

What is the doctrine of indemnity?

Answer 12

It is a contract of indemnity in the sense that the insured is entitled to recover only the amount of total loss actually sustained. This rule applies only to property insurance. In life insurance, one cannot assign a price tag on the value ofhuman life. The measure ofliability ofthe insurer is the face value of the insurance policy. By way of exception, a creditor may insure the life of a debtor but only up to the
amount of the debt - which is the extent of the creditor’s insurable interest

Question 13

Who are the persons specified in Article 739 and as such, cannot be designated beneficiary of the insured?

who are disqualified as beneficiary?

Answer 13

The persons specified in Article 739 of the Civil Code are:
1. persons in illicit relations — adultery or concubinage (no need for conviction);
2. persons found guilty of adultery or concubinage;
3. public officer or his wife, descendants, or ascendants.

Art. 43, FC. The termination of subsequent marriage produces the following effects:
xxx.
(4) The innocent spouse may revoke the designation of the other spouse who acted in bad faith as a
beneficiary in any insurance policy even if such designation be stipulated as irrevocable.
Art. 64, FC. After the finality of the decree of legal separation, the innocent spouse may revoke the
designation of the offending spouse as beneficiary in any insurance policy. T

Question 14

Who is a public enemy?

Answer 14

A public enemy is a citizen of another country against which the Philippine government is at war.

Question 15

What does insurable interest in property consist of?

Answer 15

An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.

Question 16

What is concealment?

Answer 16

The neglect to communicate that which a party knows and ought to communicate is called a concealment

Question 17

What is the effect of concealment?

Answer 17

A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of insurance

The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon; The insurer, relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.

Question 18

What is the test of materiality?

Answer 18

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries

Question 19

What is representation in the context of insurance laws?

Answer 19

Representation is a statement of fact or condition relating to the risk which induced the insurer to enter into a contract. Representation is the statement made in compliance with the duty to disclose.

Question 20

When is a representation deemed false?

Answer 20

A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.

Question 21

What are the grounds for rescission of contract?

Answer 21

1. concealment
2. misrepresentation
3. breach of warranty

Question 22

What are the different kinds of representations?

Answer 22

They may either be:
1. Oral or written;
2. Made at the time of the issuance of the policy or before;
3. Affirmative or promissory

Question 23

What is an affirmative representation?

Answer 23

It is any allegation as to the existence or non-existence of a fact when the contract begins. An example would be when the insured states that the house subject of the insurance is used only for residential
purposes.

Question 23

What is a promissory representation?

Answer 23

A promissory representation is any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance.

Question 24

What is the nature of a promissory representation?

Answer 24

First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT incorporated in the policy. The non-performance of such a promise CANNOT be shown by the insurer in defense to an action on the policy, but proof that the promise was made with fraudulent intent and will serve to defeat the insurance.

Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a warranty, is called a promissory representation. It is however in such a case merely an executory term of the contract,
and not properly a representation. A promissory representation, is therefore, substantially a condition or a
warranty.

Question 25

What are the requisites of concealment?

Answer 25

There can be no concealment unless:
1) A party knows the fact which he neglects to communicate or disclose to the other;
2) Such party concealing duty bound to disclose such fact to the other
3) Such party concealing makes no warranty of the fact concealed; and
4) The other party has no means of ascertaining the fact concealed

Question 26

What is an Incontestability Clause?

Answer 26

Incontestability clauses are those clauses in life insurance policies stipulating that the policy shall be incontestable after a stated period. Sec. 48 par. 2 now requires that the incontestability of a life insurance
policy starts after the lapse of the 2 years that the insurance was in force during the life time of the insured.

Question 27

What are the requisites for INCONTESTABILITY?

Answer 27

at are the requisites for INCONTESTABILITY?
1) The policy is a life insurance policy
2) It is payable on the death of the insured; and
3) It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement.

Question 28

What are the defenses that the insurer may raise to avoid liability even after the lapse of the 2 years?

Answer 28

1) That the person taking the insurance lacked insurable interest as required by law;
2) Cause of death of the insured is an expected risk;
3) That the premiums have not been paid [Secs. 77, 277(b), 228(b), 230(b)];
4) That the conditions of the policy relating to military or naval service have been violated [Sec. 227(b), 228(b)];
5) That the fraud is of a particularly vicious type, as where the policy was taken out in furtherance of a scheme to murder the insured, or where the insured substitutes another person for the medical
examination, or where the beneficiary feloniously kills the insured.
6) That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the
policy after the loss has happened (Sec. 242)
7) That the action was not brought within the time specified.

Question 29

what is a cover note?

Answer 29

Cover notes are issued to bind insurance temporarily pending the issuance of the policy. Within 60 days after issue of a covernote, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.

Question 30

Can an insurance policy be binding even if the premium is unpaid?

Answer 30

Premium is the consideration for the undertaking of the insurer to indemnify the insured against a specified peril. Thus, as a general rule, the insurance policy is not valid and binding unless the premium thereof has been paid.
The rule, however, admits of exceptions. They are as follows.
a. Whenever the grace period applies in the case of a life or an industrial life policy.

b. Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day credit extension is given. No credit extension to a duly licensed intermediary should exceed 90 days from date of issuance of the policy.

c. 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.

d. In a contract of suretyship, the suretyship or bond shall not be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety.
e. When there is an agreement allowing the insured to pay the premium in instalment and partial payment has been made at the time of the loss.

f. In case of estoppel as when there is a long-standing business practice of allowing the insured to pay the premiums after issuance of the policy and was relied upon in good faith by the insured.

g. If a cover note issued is issued to temporarily bind the insurance pending issuance of the policy

Question 31

What is an open policy?

Answer 31

it is 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 loss

Question 32

What is a valued policy?

Answer 32

one which expresses on kits face an agreement that the thing insured shall be valued at a specific sum

Question 33

What is a running policy?

Answer 33

is 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.

Question 34

What is the cash and carry rule?

Answer 34

Section 77. no policy or contract of insurance shall be valid and binding unless the premium has been paid.

Question 35

When is a person entitled to a return of the premium?

Answer 35

Section 80. entitled to the whole premium when no part of his interest in the thing insured be exposed to any of the perils insured against

or where the insurance is made for a definite period of time and the insured surrenders his policy to such portion of the premium as corresponds with the unexpired time at a pro rata rate

Question 36

When is there double insurance?

Answer 36

Section 95. Where the same person is insured by several insurers separately in respect to the same subject and interest

Question 37

May an insurance policy be cancelled? If yes, under what grounds and conditions?

Answer 37

No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice ofcancellation 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; or
“(g) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of the Insurance Code

Question 38

Distinguish misrepresentation from concealment.

Answer 38

a. There is concealment with the insured withholds information of material fact from the insurer, while there is misrepresentation when the insured makes erroneous statements with the intent of inducing the insurer to enter into the insurance contract;
b. A concealment is a negative act, meaning, the neglect to communicate information as to material facts known to the insured, while misrepresentation is a positive act as the insured volunteers such fact;
c. Concealment usually occurs prior to the making of the insurance contract, while misrepresentation may be made at the time of, or prior, to the issuance of the insurance policy; and
d. Proof of fraudulent intent is not necessary in case of rescission due to concealment but not so in case of rescission due to misrepresentation.

Question 39

Explain the Incontestability Clause.

Answer 39

It means that after two years from date of issuance of the policy or its last reinstatement, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation.146 It basically precludes the insurer from rescinding the policy on account ofconcealment or misrepresentation.

Question 40

What are the defenses not barred by the incontestability clause?

Answer 40

These defenses are not barred by the incontestability clause:
a. Lack of Insurable interest;
b. Premium was not paid;
c. The death was due to excepted risk, (like suicide);
d. The insured employed vicious fraud (as in another person took the physical exams for the insured);
e. Failure to comply with conditions imposed by the insurer; and
f. Time specified in the contract to make claims is not complied with.

Question 41

What are the requisites for double insurance?

Answer 41

The requisites in order for double insurance to arise are as follows: 1) The person insured is the same; 2) Two or more
insurers insuring separately; 3) There is identity of subject matter; 4) There is identity of interest insured; and 5) There is identity of the risk or peril insured against.

Question 42

What does loss in insurance mean?

Answer 42

A loss is the injury or damage sustained by the insured as a consequence of the happening of the risk/s insured against which the insurer, in consideration of the premium, has undertaken to indemnify or pay the insured.

Question 43

When is an insurer liable for a loss?

Answer 43

a. If the proximate cause of the loss is the risk or peril insured against.

b. If the immediate cause of the loss is the risk or peril insured against unless the proximate cause is an excepted peril.

c. Where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.’” L
Thus, if in the course of the efforts to save personal effects from fire, the risk insured against, the insured temporarily stored the property in a secluded area, but stolen by looters, as the insured returns to the fire scene to try to save more properties, the insured may recover for the loss of the stolen property, even though robbery is not a peril insured against.

d. Loss caused by the negligence of the insured, or of the insurance agents or others.1

Question 44

When is the insurer not liable despite the occurrence of a loss?

Answer 44

An insurer is not liable for a loss caused by the willful act or through the connivance of the insured;”6 for a loss of which the peril insured against was only a remote cause,”7 or if the loss is caused by an excepted risk