1

INSURANCE CODE OF 19781

GENERAL PROVISIONS
Sec. 1. This Decree shall be known as The Insurance
Code of 1978.2
A.

Brief History

The business and contract of insurance in the Philippines are

generally governed by the provisions of Presidential Decree No. 612
(PD 612), as amended, then known as the Insurance Code. The Insurance Code was ordained and instituted by Former President Ferdinand E. Marcos (President Marcos) on 18 December 1974.
Prior to the enactment of PD 612, the applicable law was the
Insurance Act which took effect on 1 July 1915. The Insurance Act
was practically a verbatim copy of the California Insurance Act except for some provisions taken from the New York Insurance Law.
The Insurance Code had undergone several amendments since
its promulgation on 18 December 1974. A substantial number of provisions were rendered obsolete by subsequent issuances of amendatory laws, decrees and executive orders. It then became imperative
to consolidate, codify and integrate such amendatory laws, decrees
and executive orders to harmonize their provisions for the proper
guidance of the public and efcient administration thereof. There
likewise existed in the Insurance Code certain provisions which were
impractical in application in the Philippines thereby necessitating
revision in order to infuse exibility, keep pace with the changing
needs and demands of industries in line with new risks and arising
out of new international developments.
Thus, on 11 June 1978, then President Marcos signed Presidential Decree No. 1460 (PD 1460) for the purpose of consolidating
and codifying all insurance laws embodied in PD 612 and various

1
Presidential Decree No. 612 and related laws codied by Presidential Decree
No. 1460.
2
Inserted by virtue of Presidential Decree No. 1460.

THE INSURANCE CODE OF THE PHILIPPINES

laws, presidential decrees and executive orders. It is now known as

the Insurance Code of 1978.
On 16 January 1981, Presidential Decree No. 1814 was signed
into law amending certain sections of PD 1460 to: (i) ensure the due
execution and performance of insurance contracts in the interests of
the sound development of the national economy in view of the prevailing economic conditions during that time; and (ii) further assure
reasonable insurance services for the protection of the interests of
the policy holders and the public.
On 12 June 1985, Batas Pambansa Blg. 874 amended Sections
27, 45, 384 and 416 and inserted Section 180-A.
B.

How Insurance Works3

Life is a risk. A time proven clich. The world is surrounded by risks. There are risks everywhere. Some risks are minimal
and can be lived with, but most are not. Thus, the need for insurance. But insurance does not work to protect one against the risks
happening, instead, it covers the consequences of the happening.
Thus, insurance is something one buys hoping he never has
to use. It is purchased to protect oneself from unexpected losses he
cannot afford the accident he hopes he never gets into, the re he
prays never destroys his home, the storm he knows sooner or later
is bound to batter his roof, the lawsuit that threatens to wipe out all
his savings.
While it may seem complex, insurance is really quite simple:
The payments (or premiums) of the many pay for the losses of a few.
The premiums go into a large pool. The claims of the few are paid
from that pool. Because there are more people contributing to the
pool than there are making claims, there is always enough to pay
the claims even large single claims like when someone is permanently disabled as a result of a car collision, or many smaller claims
like those resulting from a natural disaster.
Even when the pool comes close to emptying, there is another
pool from which insurance companies can draw to pay claims. Some
of the premiums are used by the insurance company to buy reinsurance insurance for insurance companies. Sometimes losses are

The Insurance Bureau of Canada, How Insurance Works.

INSURANCE CODE OF 1978

GENERAL PROVISIONS

so big like those resulting from an earthquake that there is no

way that an insurance company can cover the costs. Reinsurance is
an extra layer of protection against large losses.
C.

Imbued with Public Interest

The business of insurance is imbued with public interest. It is

subject to regulations by the State, with respect not only to the relations between the insurer and the insured, but also to the internal
affairs of insurance companies.4
Sec. 2. Whenever used in this Code, the following terms
shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(1) 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.
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) The term doing an insurance business or transacting an insurance business, within the meaning of this
Code, shall include:
(a) making or proposing to make, as insurer, any
insurance contract;
(b) making or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of
the surety;
(c) doing any kind of business, including a reinsurance business, specically recognized as constituting
the doing of an insurance business within the meaning
of this Code;

Republic vs. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006.

PREFACE
Upon reaching the age of thirty (30) and after five (5) academic
years of teaching the subject, the author felt that it was time to
collate his materials and sit down in writing his views and thoughts
on the subject of insurance.
This book, although it consists of almost a thousand pages, represents a simple discussion of the insurance law in the Philippines.
A substantial proportion of the material is adapted from the legal
provisions and jurisprudence, both here and abroad; opinions and
annotations of authors, both local and foreign; and other published
articles, both in the papers and in the internet. Some Supreme Court
decided cases are reproduced herein in full for the readers to appreciate the correlation of insurance law principles with one another as
well as with other laws, both substantive and remedial.
The author wrote this book in the hope that his humble work
would be of great help to the law students, bar candidates and law
practitioners.

E.V.M.D.
March 31, 2009

iii

iv

CONTENTS
GENERAL PROVISIONS
Section 1 ..................................................................................................
A.
B.
C.

Brief History ............................................................................

How Insurance Works .............................................................
Imbued with Public Interest ...................................................

1
2
3

Section 2 ..................................................................................................

A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.

Essential Elements of Insurance............................................

Characteristics of an Insurance Contract ..............................
Requisite of an Insurance Contract .......................................
Parties ......................................................................................
Consent ....................................................................................
Theory of Cognition .................................................................
Defects of Consent ...................................................................
Object .......................................................................................
Cause/Consideration ...............................................................
Governing Law ........................................................................
Construction of the Insurance Code .......................................
Policy Construction .................................................................

4
5
16
19
20
23
27
27
28
28
32
33

Case: QUA CHEE GAN vs. LA UNION AND

ROCK INSURNACE CO. LTD. .................................
M. Principle of Subrogation .........................................................
N. The Business of Insurance ......................................................

38
43
50

Case: WHITE GOLD MARINE SERVICES INC. vs.

PIONEER INSURANCE AND SURETY
CORPORATION ..........................................................
O. Types of Insurance ..................................................................
P. Classification Under the Code ................................................
Q. Lending Investors vs. Insurance Companies .........................

52
56
59
60

Chapter 1
THE CONTRACT OF INSURANCE
Title 1
WHAT MAY BE INSURED
Section 3 ..................................................................................................
v

62

A.
B.
C.

What may be Insured ..............................................................

Minors ......................................................................................
Married Woman ......................................................................

Section 4 ..................................................................................................
A.
B.
C.

62
64
66
69

Drawing Lottery ......................................................................

Insurance is not Gambling .....................................................
Risk Management ...................................................................

69
70
71

Section 5 ..................................................................................................

73

Title 2
PARTIES TO THE CONTRACT
Section 6 ..................................................................................................
A.
B.
C.
D.

Who may be an Insurer...........................................................

Certificate Authority ...............................................................
Entities Prohibited to Act as an Insurer ................................
Separate License from an Insurance Agent...........................

Section 7 ..................................................................................................

74
74
75
76
77
77

A.
B.
C.
D.
E.

Who is a Public Enemy ...........................................................

Control Test on the Corporations ...........................................
Effect of War Generally ..........................................................
Dealing with Dual Citizenship ...............................................
Effect of Termination of War ..................................................

F.

Case: FILIPINAS COMPAA DE SEGUROS vs.

CHRISTERN, HUENEFELD AND CO., INC. ..........
CONSTANTINO vs. LIFE INSURANCE
COMPANY ..................................................................
HIDALGO vs. MANUFACTURERS LIFE
INSURANCE COMPANY...........................................
May a Public Enemy Be a Beneficiary ...................................

97
102

Section 8 ..................................................................................................

103

Section 9 ..................................................................................................
A.
B.
C.
D.
E.
F.

Mortgagor and Mortgagees Interest......................................

Mortgage Redemption Insurance ...........................................
Types of Mortgage Clause.......................................................
Simple vs. Standard ................................................................
Proper Party to Bring the Suit ...............................................
Effect of Assent of the Insurer to the Transfer
of Insurance .............................................................................
Case: GREAT PACIFIC LIFE ASSURANCE
CORPORATION vs. COURT OF APPEALS .............

vi

78
78
81
81
86
86
89

103
103
105
106
107
111
113
113

Title 3
INSURABLE INTEREST
Section 10 .................................................................................................
A.
B.
C.

120

Requirement of Insurable Interest.........................................

Moral Hazard in Life Insurance .............................................
In whose Life or Health does a Person Have an
Insurable Interest ...................................................................
D. Consent of Person Whose Life is Being Insured is not
Estate Necessary .....................................................................

120
122

Section 11 .................................................................................................

135

A.
B.
C.
D.
E.
F.
G.

Policy Owner, Insured and Beneficiary .................................

Types of Beneficiaries .............................................................
Revocable vs. Irrevocable ........................................................
Importance of Choosing a Beneficiary ...................................
Disqualified to be Beneficiaries ..............................................
What if Beneficiary Dies Before the Insured .........................
Paying Life Insurable Proceeds into a Trust .........................

Section 12 .................................................................................................
1)
2)
3)

125
135
135
136
137
139
141
144
145
145

Rationale ..................................................................................
Act Must be Felonious.............................................................
Nearest Relative as Beneficiary .............................................

145
146
147

Section 13 .................................................................................................

149

Section 14 .................................................................................................
A.
B.
C.
D.
E.
F.

150

Insurable Interest in Property ...............................................

Title or Security Interest Not Required .................................
Exceptions to Insurable Interest ............................................
Stolen Property........................................................................
Effects of War to Insurable Interest.......................................
Insurable Interest of Consignee, Factor or Agent .................

150
151
154
155
157
158

Section 15 .................................................................................................

158

Section 16 .................................................................................................

159

Section 17 .................................................................................................

160

Section 18 .................................................................................................
1)
2)

161

Different Expressions .............................................................

Insurance not Invalid ..............................................................

161
163

Case: GARCIA vs. THE HONGKONG FIRE &

MARINE INSURANCE CO., LTD. ............................

163

Section 19 .................................................................................................

167

A. Property and Liability Insurance ...........................................

B. Life Insurance .........................................................................

168
169

Section 20 .................................................................................................

170

Section 21 .................................................................................................

170

vii

Section 22 .................................................................................................

170

Section 23 .................................................................................................

170

Section 24 .................................................................................................

170

A.
B.
C.

Life and Health Insurance ......................................................

Change After the Occurrence of the Loss ..............................
Change of Interest in One or More Several
Distinct Things Separately Insured by One Policy ...............
D. Change by Will or Succession .................................................
E. Transfer by One of Several Partners
Joint Owners or Owners in Common .....................................
F. Policy Inures to the Benefit of Whomsoever
May Become the Owner ..........................................................
Section 25 .................................................................................................

171
172
173
173
173
174
174

Title 4
CONCEALMENT
Section 26 .................................................................................................
1)
2)

176

Act of Withholding Information .............................................

Concealment Presupposes Knowledge ...................................

176
177

Section 27 .................................................................................................

177

A.

Grounds and Rationale for Rescission of Contract

of Insurance .............................................................................
Intentional or Unintentional ..................................................
Good Faith not a Defense .......................................................

177
179
179

Case: GREAT PACIFIC LIFE ASSURANCE COMPANY

vs. HONORABLE COURT OF APPEALS .................

180

D. Waiver of Medical Examination .............................................

185

B.
C.

Section 28 .................................................................................................
A.
B.

187

Within the Knowledge ............................................................

Makes No Warranty ................................................................

187
188

Section 29 .................................................................................................

188

A.
B.

Truth of Warranty ...................................................................

Intent to Deceive a Question of Fact ......................................

188
188

Section 30 .................................................................................................

189

A.
B.
C.
D.
E.

What Need to be Disclosed .....................................................

Public Character and Notoriety .............................................
Insurers Duty to Inquire ........................................................
Obligation in Good Faith ........................................................
Knowledge of Agent ................................................................

189
189
191
191
192

Section 31 .................................................................................................

192

A.
B.

Inducement to Enter Into a Contract ....................................

Need Not be the Cause of the Loss.........................................
viii

192
193

C.

Matters of Inquiries ................................................................

Section 32 .................................................................................................
A.
B.
C.

194
195

General Causes Open to Inquiry ............................................

Full Conversant in the Usual Course of Trade .....................
Rule on Judicial Notice ...........................................................

195
196
197

Section 33 .................................................................................................

198

A. Right to Rely on the Truthfulness of Answers ......................

B. Imperfect Answers ..................................................................

198
199

Cases: NG GAN ZEE vs. ASIAN CRUSADER

LIFE ASSURANCE CORPORATION .......................

199

No Waiver in Non-Medical Insurance ....................................

203

Section 34 .................................................................................................

C.

203

Section 35 .................................................................................................

203

Title 5
REPRESENTATION
Section 36 .................................................................................................
A.
B.
C.
D.
E.

207

Representation vs. Misrepresentation ...................................

Representation vs. Warranty .................................................
Misrepresentation vs. Concealment .......................................
Orally or in Writing ................................................................
Representation in the Application Process ............................

207
208
208
208
209

Section 37 .................................................................................................

210

A.
B.
C.

Time in Which Representation is Made .................................

Effect of Provisions..................................................................
Must be Made by the Insured .................................................

210
211
211

Section 38 .................................................................................................

211

A. Construction ............................................................................
B. Applicability of Rules on Interpretation of Contracts ...........
C. Applicability of the Rules of Court .........................................

211
212
213

Section 39 .................................................................................................

214

A.
B.

Affirmative vs. Promissory .....................................................

Statement of Belief or Expectation vs. Promissory
Representation ........................................................................

Section 40 .................................................................................................
A.
B.
C.

214
215
215

Representation vs. Warranty .................................................

Qualifying an Implied Warranty ............................................
Express Warranty Supersedes Representation .....................

216
216
216

Section 41 .................................................................................................

216

Section 42 .................................................................................................

217

Section 43 .................................................................................................

217

ix

A.

No Personal Knowledge .........................................................

217

B.

Case: HARDING vs. COMMERCIAL

UNION ASSURANCE COMPANY ............................
Knowledge of Agent ................................................................

218
226

Cases: THE INSULAR LIFE ASSURANCE

CO., LTD. vs. FELICIANO .........................................
THE INSULAR LIFE ASSURANCE
CO., LTD. vs. FELICIANO .........................................
C.

Knowledge of Insured Corporation ........................................

Section 44 .................................................................................................
A.
B.
C.
D.
E.
F.

228
231
235
235

False Representation ..............................................................

No Misrepresentation if Substantially True..........................
Need not be Intended ..............................................................
Facts of Loss Not Material......................................................
Mistake of Forgetfulness ........................................................
Misstatement of Age ...............................................................

235
236
236
236
237
237

Section 45 .................................................................................................

237

A.

B.
C.
D.
E.

Contract of Speculation...........................................................

237

Case: SATURNINO vs. THE PHILIPPINE

AMERICAN LIFE INSURANCE COMPANY ...........

238

Kinds of Misrepresentation ....................................................

No Misrepresentation .............................................................
Affirmative Defense ................................................................
Waiver by Acceptance of Premiums .......................................

241
242
242
243

Case: EDILLON vs. MANILA BANKERS LIFE

INSURANCE CORPORATION ..................................

243

Section 46 .................................................................................................
A.
B.

247

Determination of Materiality .................................................

Falsity of Answers ...................................................................

247
248

Section 47 .................................................................................................

248

Section 48 .................................................................................................

249

A.
B.

Previous to the Commencement of Action .............................

Presupposes Existence of Contract ........................................
Cases: TAN CHAY HENG vs. WEST
COAST LIFE INSURANCE COMPANY ...................
ARGENTE vs. WEST COAST
LIFE INSURANCE COMPANY .................................

249
250
250
258

C. Incontestability Clause ...........................................................

265

Cases: PHILAMCARE HEALTH SYSTEMS, INC. vs.

COURT OF APPEALS ................................................
TAN vs. COURT OF APPEALS .................................

266
272

D. Not a License to Commit a Fraud ..........................................

278

E.
F.
G.
H.

Mutual Advantage of Insurer and Insured ............................

Applicability of Reinstated Policies ........................................
Exceptions to Incontestability Clause ....................................
Rationale of Imposter Defense ...............................................

279
279
279
280

Title 6
THE POLICY
Section 49 .................................................................................................

281

Section 50 .................................................................................................

281

A.
B.
C.
D.
E.

Forms of Insurance Contract ..................................................

Rider, Clause, Warranty and Endorsement ..........................
Counter-Signature of the Insured ..........................................
Group Insurance......................................................................
Group Annuity.........................................................................

282
292
293
294
295

Case: COMMISSIONER OF INTERNAL REVENUE

vs. LINCOLN PHILIPPINES LIFE INSURANCE
COMPANY, INC. ........................................................

295

Section 51 .................................................................................................
A.
B.
C.
D.
E.
F.
G.

Parties ......................................................................................
Amount of Insurance...............................................................
Premium ..................................................................................
Property, Life or Liability Insured .........................................
Interest of the Insured in Property ........................................
Risk Insured Against ..............................................................
Period During Which the Insured is to Continue ..................

Section 52 .................................................................................................
A.
B.
C.
D.

309

Cover Notes .............................................................................

Preliminary Contract of Insurance ........................................
Binding Receipt .......................................................................
Separate Premiums Not Required .........................................

309
311
311
313

Case: PACIFIC TIMBER EXPORT CORPORATION vs.

COURT OF APPEALS ................................................

313

Section 53 .................................................................................................
A.

300
300
305
306
307
308
309
309

318

Person Designated in the Policy .............................................

318

Case: SUNLIFE ASSURANCE COMPANY OF

CANADA vs. TORIBIO ...............................................

318

B. Third Partys Right to Insurer................................................

C. Not Solidary .............................................................................

328
328

Cases: LAMPANO vs. JOSE ..................................................

BONIFACIO BROS. INC. vs. MORA .........................
COQUIA vs. FIELDMENS INSURANCE
CO., INC. ....................................................................
GUINGON vs. DEL MONTE......................................

329
333

xi

338
343

Section 54 .................................................................................................

347

Case: LOPEZ vs. DEL ROSARIO .........................................

347

Section 55 .................................................................................................

352

Section 56 .................................................................................................

353

Section 57 .................................................................................................

353

Section 58 .................................................................................................

353

Section 59 .................................................................................................

354

Section 60 .................................................................................................

354

Section 61 .................................................................................................

354

Section 62 .................................................................................................

354

A. Open and Valued Policies .......................................................

B. Running Policy ........................................................................

354
356

Section 63 .................................................................................................

356

1)
2)

Prescription Under the Civil Code .........................................

Prescription by Agreement .....................................................

356
357

Cases: ANG vs. FULTON .......................................................

FILIPINO MERCHANT INSURANCE
COMPANY, INC. vs. ALEJANDRO...........................
MAYER STEEL PIPE CORPORATION vs.
COURT OF APPEALS ................................................

357
361

Oral Contract of Insurance .....................................................

Cause of Action ........................................................................
Denial of Reconsideration .......................................................

370
370
371

Section 64 .................................................................................................

372

Section 65 .................................................................................................

373

Case: MALAYAN INSURANCE CO. vs. ARNALDO ..........

373

Section 66 .................................................................................................

382

3)
4)
5)

367

Title 7
WARRANTIES
Section 67 .................................................................................................

383

A. Primary Concerns ...................................................................

B. Devices to Ascertain and Control Risk and Loss ...................
C. Construction of Warranty .......................................................

383
383
385

Case: AMERICAN HOME ASSURANCE COMPANY vs.

TANTUCO ENTERPRISE, INC.................................

385

Section 68 .................................................................................................
A.
B.

392

Past, Present of Future ...........................................................

Affirmative or Promissory ......................................................

392
393

Section 69 .................................................................................................

393

xii

Section 70 .................................................................................................

394

Case: ANG GIOK CHIP vs. SPRINGFIELD FIRE

& MARINE INSURANCE ..........................................

394

Section 71 .................................................................................................

402

1)
2)
3)
4)

Express and Implied Warranty ..............................................

Implied Warranty and Representation ..................................
Express Warranty and Representation .................................
Forms of Express Warranty ...................................................

403
403
403
404

Section 72 .................................................................................................

405

Section 73 .................................................................................................
A.
B.

Effect of Non-Compliance .......................................................

When Compliance Dispense With ..........................................

405
405
406

Section 74 .................................................................................................

406

A. Effect of Breach .......................................................................

B. Expressly Included ..................................................................
Case: YOUNG vs. THE MIDLAND TEXTILE
INSURANCE COMPANY...........................................

406
407
407

Section 75 .................................................................................................

411

Case: GEAGONIA vs. COURT OF APPEALS .....................

412

Section 76 .................................................................................................

420

Title 8
PREMIUM
Section 77 .................................................................................................
Cases: ARCE vs. THE CAPITAL INSURANCE &
SURETY CO., INC. .....................................................
ACME SHOE RUBBER & PLASTIC
CORPORATION vs. THE COURT OF APPEALS ....
THE MANUFACTURERS LIFE INSURANCE
CO. vs. MEER..............................................................
Section 78 .................................................................................................
A.
B.
C.

422
423
425
429
434

Exceptions to Cash and Carry Basis ......................................

Payment by Installments........................................................
Credit Agreement ...................................................................

434
437
438

Case: UCPB GENERAL INSURANCE CO., INC. vs.

MASAGANA TELEMART, INC. ................................

439

D. Payment by Promissory Notes or Bill of Exchange ...............

E. Acknowledgement of Receipt if Premium ..............................

456
456

Section 79 .................................................................................................

456

Section 80 .................................................................................................

457

Section 81 .................................................................................................

457

xiii

Section 82 .................................................................................................
A.
B.
C.

457

Return of Entire Premium ......................................................

Return of Portion of Premium ................................................
No Return of Premium ............................................................

457
460
461

Case: GREAT PACIFIC LIFE INSURANCE

CORPORATION vs. COURT OF APPEALS .............

461

Title 9
LOSS
Section 83 .................................................................................................
A.

Loss Under the Civil Code .....................................................

466
466

Section 84 .................................................................................................

469

A. Proximate Cause .....................................................................

B. Burden of Proof .......................................................................

470
471

Case: COUNTRY BANKERS INSURANCE

CORPORATION vs. LIANGA BAY AND
COMMUNITY MULTI-PURPOSE ............................

471

Section 85 .................................................................................................

479

Section 86 .................................................................................................

479

Section 87 .................................................................................................
A.
B.
C.

Willful Act and Negligence .....................................................

Negligence or Misconduct .......................................................
Agreement to Indemnity .........................................................
Cases: FGU INSURANCE CORPORATION vs.
THE COURT OF APPEALS .......................................
SUNRISE INSURANCE OFFICE, LTD. vs.
COURT OF APPEALS ................................................

480
480
480
481
481
494

Title 10
NOTICE OF LOSS
Section 88 .................................................................................................

499

A. Condition .................................................................................
B. Requisite for Recovery ............................................................
C. Notice in Fire Insurance .........................................................

499
499
500

Section 89 .................................................................................................

500

Section 90 .................................................................................................

500

Section 91 .................................................................................................

500

Case: PACIFIC TIMBER EXPORT CORPORATION vs.

COURT OF APPEALS ................................................

501

Section 92 .................................................................................................

506

xiv

Title 11
DOUBLE INSURANCE
Section 93 .................................................................................................
A.
B.
C.

507

When Double Insurance Exists ..............................................

Same Subject Matter, Same Interest, and Same Risk ..........

507
508

Case: GEAGONIA vs. COURT OF APPEALS .....................

508

Prohibition Against Double Insurance...................................

516

Cases: SANTA ANA vs. COMMERCIAL UNION

ASSURANCE COMPANY, LTD. ...............................
GENRERAL INSURANCE & SURETY
CORPORATION vs. NG HUA ....................................

517
522

D. Waiver of Annulment ..............................................................

524

Section 94 .................................................................................................

524

A.
B.
C.
D.

Over Insurance by Double Insurance ....................................

Recovery from Insurers ...........................................................
Cannot Recover Doubly...........................................................
Refund of Premiums ...............................................................

525
525
525
526

Title 12
REINSURANCE
Section 95 .................................................................................................
A.
B.
C.
D.
E.

529

Protection if Insurer ................................................................

Functions of Reinsurance .......................................................
Types Reinsurance ..................................................................
Contracts .................................................................................
Applicability of Rules on Representation and
Concealment ............................................................................
F. Retrocession .............................................................................
G. Importance of Reinsurance .....................................................
H. Rules on Reinsurance Under the Insurance Code.................
I. Reinsurance vs. Double Insurance .........................................
J. Policy vs. Treaty ......................................................................

533
533
534
535
538
538

Section 96 .................................................................................................

538

Section 97 .................................................................................................

539

Section 98 .................................................................................................

539

A.
B.

Indemnity Against Liability ...................................................

Defense of Reinsured Available to Reinsurer ........................

xv

529
530
531
533

539
540

Chapter II
CLASSES OF INSURANCE
Title I
MARINE INSURANCE
Sub-Title 1- A
DEFINITION
Section 99 .................................................................................................
A.
B.
C.
D.
E.
F.

General Principles ...................................................................

Coverage ..................................................................................
Hull Insurance and Marine Cargo Policy ..............................
Kinds of Marine Policies .........................................................
Assignment of Policy ...............................................................
Perils of the Sea vs. Perils of the Ship ...................................

Cases: LA RAZON SOCIAL GO TIAOCO Y

HERMANOS vs. UNION INSURANCE
SOCIETY OF CANTON, LTD. ...................................
MALAYAN INSURANCE CORPORATION vs.
COURT OF APPEALS ................................................
G. Barratry ...................................................................................
H. Inchmaree Clause ...................................................................
I. All Risks Policy ........................................................................

J.

541
542
543
545
546
547
548

551
556
564
564
565

Case: FILIPINO MERCHANTS INSURANCE

CO., INC. vs. COURT OF APPEALS .........................

566

Wages of Mariners and Property on Board ...........................

572

Sub-Title 1-B
INSURABLE INTEREST
Section 100 ...............................................................................................
A.
B.
C.
D.
E.
F.

573

Requirement of Insurable Interest.........................................

Charter Party ..........................................................................
Kinds of Charter ......................................................................
Charterers Liability ...............................................................
Charterers Interest ................................................................
Charterers Loss of Hire ..........................................................

573
574
575
576
577
577

Section 101 ...............................................................................................

578

A.
B.
C.
D.
E.
F.

Respondentia and Bottomry ...................................................

Payment is Conditional...........................................................
Insurable Interest of Lender ..................................................
Insurable Interest of Borrower ...............................................
Not Subject to Usury Law.......................................................
Interest of Lender and Underwriter ......................................

578
578
578
579
580
580

Section 102 ...............................................................................................

580

xvi

Section 103 ...............................................................................................

Section 104 ...............................................................................................
A.
B.
C.
D.

580
580

Existence of Interest in Freightage ........................................

Ship Owners Interest on Freight ...........................................
Partial Lost on Freight ...........................................................
Arrival in Bulk ........................................................................

580
581
582
582

Section 105 ...............................................................................................

582

Section 106 ...............................................................................................

583

Sub-Title 1-C
CONCEALMENT
Section 107 ...............................................................................................

583

Section 108 ...............................................................................................

584

Section 109 ...............................................................................................

584

A.

Stricter Application of Rules on Concealment and

Representation ........................................................................
B. Required Disclosure ................................................................
C. Belief or Expectation of Third Person ....................................

584
584
585

Section 110 ...............................................................................................

585

Sub-Title 1-D
REPRESENTATION
Section 111 ...............................................................................................

586

Section 112 ...............................................................................................

586

A.
B.

High Degree of Good Faith .....................................................

Matter of Fact or Expectation ................................................

586
587

Sub-Title 1-E
IMPLIED WARRANTIES
Section 113 ...............................................................................................
A.
B.

Implied Seaworthiness............................................................
Express and Implied Warranties ...........................................

Section 114 ...............................................................................................

A.
B.
C.
D.

587
587
588
588

General Term ..........................................................................

When is a Ship Seaworthy ......................................................
Presumption of Seaworthiness ...............................................
Must be in Navigation ............................................................

588
589
591
592

Section 115 ...............................................................................................

592

Section 116 ...............................................................................................

592

Section 117 ...............................................................................................

592

xvii

A. Relative Term ..........................................................................

B. Seaworthy at the Time of Sailing ...........................................

593
593

Section 118 ...............................................................................................

594

Section 119 ...............................................................................................

595

Section 120 ...............................................................................................

597

A. Warranty Not a Representation .............................................

B. Neutrality ................................................................................
C. Documents of Nationality or Neutrality ................................

597
598
599

Sub-Title 1-F
THE VOYAGE AND DEVIATION
Section 121 ...............................................................................................

599

Section 122 ...............................................................................................

599

A. Covered Voyage .......................................................................

B. Common Usage........................................................................

599
599

Section 123 ...............................................................................................

600

A.
B.
C.

Concept of Deviation ...............................................................

Distinguished from Breach of Warranty................................
Goods on Board........................................................................

600
601
601

Section 124 ...............................................................................................

602

Section 125 ...............................................................................................

602

Section 126 ...............................................................................................

A.
B.
C.

Proper and Improper Deviation .............................................

Effect of Deviation ...................................................................
What Constitute Deviation .....................................................

602
602
602
604

Sub-Title 1-G
LOSS
Section 127 ...............................................................................................

605

Section 128 ...............................................................................................

605

Section 129 ...............................................................................................

606

Section 130 ...............................................................................................

606

Section 131 ...............................................................................................

606

Section 132 ...............................................................................................

606

A.
B.
C.

Actual and Constructive Loss .................................................

Right to Abandon ....................................................................
Loss of Vessel...........................................................................

606
607
608

Section 133 ...............................................................................................

609

Section 134 ...............................................................................................

609

A. Reshipment ..............................................................................

609

xviii

B.
C.

Lien of Finder or Salvor ..........................................................

Loss of Value ...........................................................................

609
610

Section 135 ...............................................................................................

610

Section 136 ...............................................................................................

611

A.
B.
C.

Rules on Average .....................................................................

Particular and General ...........................................................
Free From Particular Average Clause ...................................

611
614
615

Case: PHILIPPINE HOME ASSURANCE

CORPORATION vs. COURT OF APPEALS .............

619

Section 137 ...............................................................................................

626

Sub-Title 1-H
ABANDONMENT
Section 138 ...............................................................................................

627

Section 139 ...............................................................................................

627

Section 140 ...............................................................................................

627

Section 141 ...............................................................................................

628

A.
B.

Restrictions on Abandonment ................................................

The Three-Fourth Rule ...........................................................

628
628

Section 142 ...............................................................................................

629

Section 143 ...............................................................................................

629

Section 144 ...............................................................................................

629

Section 145 ...............................................................................................

629

Section 146 ...............................................................................................

630

Section 147 ...............................................................................................

630

Section 148 ...............................................................................................

630

Section 149 ...............................................................................................

630

Section 150 ...............................................................................................

630

Section 151 ...............................................................................................

631

Section 152 ...............................................................................................

631

Section 153 ...............................................................................................

631

Section 154 ...............................................................................................

631

Section 155 ...............................................................................................

631

1.
2.
3.

Effect of Non-Acceptance ........................................................

Annulment of Abandonment ..................................................
Election of the Insured ............................................................

631
632
632

Sub-Title 1-I
MEASURE OF INDEMNITY
Section 156 ...............................................................................................
xix

632

Section 157 ...............................................................................................

632

Section 158 ...............................................................................................

634

Section 159 ...............................................................................................

634

Section 160 ...............................................................................................

634

Section 161 ...............................................................................................

634

Section 162 ...............................................................................................

634

A.
B.

Primage and Demurrage ........................................................

Partial Loss of the Cargo ........................................................

635
635

Section 163 ...............................................................................................

636

Section 164 ...............................................................................................

637

Section 165 ...............................................................................................

637

Section 166 ...............................................................................................

637

Title 2
FIRE INSURANCE
Section 167 ...............................................................................................
A.
B.
C.
D.
E.
F.
G.

639

Coverage ..................................................................................
Extension or Under Separate Policies ...................................
Fire Following Earthquake.....................................................
Friendly Fire/Hostile Fire .......................................................
Direct and Indirect Losses ......................................................
Lightning .................................................................................
Double Insurance ....................................................................

639
640
640
641
641
642
642

Section 168 ...............................................................................................

643

Section 169 ...............................................................................................

643

Section 170 ...............................................................................................

643

Section 171 ...............................................................................................

643

Section 172 ...............................................................................................

A.
B.

644

Measure of Indemnity .............................................................

Repair, Rebuild and Replace ..................................................

644
645

Case: ONG GUA CAN vs. THE CENTURY

INSURANCE CO., LTD. .............................................

645

Section 173 ...............................................................................................

647

Title 3
CASUALTY INSURANCE
Section 174 ...............................................................................................
A.
B.
C.

Direct Result of Accident ........................................................

Direct Suit Against the Insurer..............................................
Not Solidarily Liable ...............................................................
xx

648
648
649
649

D. Accidental Means ....................................................................

650

Title 4
SURETYSHIP
Section 175 ...............................................................................................

654

Section 176 ...............................................................................................

654

Section 177 ...............................................................................................

654

Section 178 ...............................................................................................

655

A. Three Party Contract ..............................................................

B. Guaranty vs. Surety ................................................................
C. Credit Accommodation ............................................................
Case: PHILIPPINE PRYCE ASSURANCE
CORPORATION vs. COURT OF APPEALS .............

655
655
656
656

Title 5
LIFE INSURANCE
Section 179 ...............................................................................................

664

Section 180 ...............................................................................................

664

A.
B.
C.

Concept of Life Insurance .......................................................

Parties to the Contract............................................................
Types of Life Insurance...........................................................

664
665
666

Section 180-A............................................................................................

669

Section 181 ...............................................................................................

670

Section 182 ...............................................................................................

670

Section 183 ...............................................................................................

671

Chapter III
THE BUSINESS OF INSURANCE
Title 1
INSURANCE COMPANIES, ORGANIZATION,
CAPITALIZATION AND AUTHORIZATION
Section 184 ...............................................................................................

672

Section 185 ...............................................................................................

672

Section 186 ...............................................................................................

672

Section 187 ...............................................................................................

673

Section 188 ...............................................................................................

674

Section 189 ...............................................................................................

675

Section 190 ...............................................................................................

676

Section 191 ...............................................................................................

677

Section 192 ...............................................................................................

678

xxi

Section 193 ...............................................................................................

678

Title 2
MARGIN OF INSOLVENCY
Section 194 ...............................................................................................

680

Section 195 ...............................................................................................

681

Title 3
ASSETS
Section 196 ...............................................................................................

682

Section 197 ...............................................................................................

683

Title 4
INVESTMENTS
Section 198 ...............................................................................................

685

Section 199 ...............................................................................................

686

Section 200 ...............................................................................................

686

Section 201 ...............................................................................................

689

Section 202 ...............................................................................................

689

Section 203 ...............................................................................................

690

Section 204 ...............................................................................................

690

Section 205 ...............................................................................................

691

Section 206 ...............................................................................................

691

Section 207 ...............................................................................................

692

Section 208 ...............................................................................................

692

Section 209 ...............................................................................................

694

Title 5
RESERVES
Section 210 ...............................................................................................

695

Section 211 ...............................................................................................

695

Section 212 ...............................................................................................

696

Section 213 ...............................................................................................

696

Section 214 ...............................................................................................

696

Title 6
LIMIT OF SINGLE RISK
Section 215 ...............................................................................................

xxii

697

Title 7
REINSURANCE TRANSACTIONS
Section 216 ...............................................................................................

698

Section 217 ...............................................................................................

698

Section 218 ...............................................................................................

698

Section 219 ...............................................................................................

698

Section 220 ...............................................................................................

699

Section 221 ...............................................................................................

699

Section 222 ...............................................................................................

700

Title 8
ANNUAL STATEMENT
Section 223 ...............................................................................................

701

Section 224 ...............................................................................................

701

Section 225 ...............................................................................................

701

Title 9
POLICY FORMS
Section 226 ...............................................................................................

702

Section 227 ...............................................................................................

702

Section 228 ...............................................................................................

704

Section 229 ...............................................................................................

708

Section 230 ...............................................................................................

708

Section 231 ...............................................................................................

711

Title 10
VARIABLE CONTRACTS
Section 232 ...............................................................................................

714

Section 233 ...............................................................................................

715

Section 234 ...............................................................................................

715

Section 235 ...............................................................................................

715

Section 236 ...............................................................................................

715

Section 237 ...............................................................................................

716

Section 238 ...............................................................................................

717

Section 239 ...............................................................................................

717

Section 240 ...............................................................................................

717

xxiii

Title 11
CLAIMS SETTLEMENT
Section 241 ...............................................................................................

719

Section 242 ...............................................................................................

720

Section 243 ...............................................................................................

720

Section 244 ...............................................................................................

721

Title 12
EXAMINATION OF COMPANIES
Section 245 ...............................................................................................

725

Section 246 ...............................................................................................

725

Title 13
SUSPENSION OR REVOCATION OF AUTHORITY
Section 247 ...............................................................................................

726

Title 14
APPOINTMENT OF CONSERVATOR
Section 248 ...............................................................................................

727

Title 15
PROCEEDINGS UPON INSOLVENCY
Section 249 ...............................................................................................

729

Section 250 ...............................................................................................

731

Section 251 ...............................................................................................

731

Title 16
CONSOLIDATION AND MERGER OF INSURANCE COMPANIES
Section 252 ...............................................................................................

732

Section 253 ...............................................................................................

732

Section 254 ...............................................................................................

732

Section 255 ...............................................................................................

733

Section 256 ...............................................................................................

733

Section 257 ...............................................................................................

733

Section 258 ...............................................................................................

734

Section 259 ...............................................................................................

734

Section 260 ...............................................................................................

734

Section 261 ...............................................................................................

734

xxiv

Title 17
MUTUALIZATION OF STOCK LIFE INSURANCE COMPANIES
Section 262 ...............................................................................................

735

Section 263 ...............................................................................................

735

Section 264 ...............................................................................................

736

Section 265 ...............................................................................................

737

Section 266 ...............................................................................................

738

Section 267 ...............................................................................................

739

Section 268 ...............................................................................................

740

Section 269 ...............................................................................................

740

Section 269-A............................................................................................

740

Section 270 ...............................................................................................

743

Section 271 ...............................................................................................

743

Section 272 ...............................................................................................

745

Title 18
WITHDRAWAL OF FOREIGN INSURANCE COMPANIES
Section 273 ...............................................................................................

747

Section 274 ...............................................................................................

747

Section 275 ...............................................................................................

747

Section 276 ...............................................................................................

747

Section 277 ...............................................................................................

748

Section 278 ...............................................................................................

748

Section 279 ...............................................................................................

748

Title 19
PROFESSIONAL REINSURERS
Section 280 ...............................................................................................

749

Section 281 ...............................................................................................

750

Title 20
HOLDING COMPANIES
Section 282 ...............................................................................................

751

Section 283 ...............................................................................................

752

Section 284 ...............................................................................................

752

Section 285 ...............................................................................................

752

Section 286 ...............................................................................................

752

Section 287 ...............................................................................................

753

xxv

Section 288 ...............................................................................................

753

Section 289 ...............................................................................................

753

Section 290 ...............................................................................................

754

Section 291 ...............................................................................................

754

Section 292 ...............................................................................................

754

Section 293 ...............................................................................................

755

Section 294 ...............................................................................................

755

Section 295 ...............................................................................................

757

Section 296 ...............................................................................................

757

Section 297 ...............................................................................................

757

Section 298 ...............................................................................................

757

Chapter IV
SALES AGENCIES AND TECHNICAL SERVICES
Title 1
INSURANCE AGENTS AND INSURANCE BROKERS
Section 299 ...............................................................................................

759

Section 300 ...............................................................................................

760

Section 301 ...............................................................................................

760

Section 302 ...............................................................................................

760

Section 303 ...............................................................................................

761

Section 304 ...............................................................................................

761

Section 305 ...............................................................................................

761

Section 306 ...............................................................................................

762

Section 307 ...............................................................................................

763

Section 308 ...............................................................................................

763

Section 309 ...............................................................................................

763

Title 2
REINSURANCE BROKERS
Section 310 ...............................................................................................

765

Section 311 ...............................................................................................

765

Section 312 ...............................................................................................

766

Title 3
RESIDENT AGENTS
Section 313 ...............................................................................................

767

Section 314 ...............................................................................................

767

xxvi

Section 315 ...............................................................................................

767

Section 316 ...............................................................................................

767

Section 317 ...............................................................................................

767

Title 4
NON-LIFE COMPANY UNDERWRITER
Section 318 ...............................................................................................

769

Section 319 ...............................................................................................

769

Section 320 ...............................................................................................

769

Section 321 ...............................................................................................

770

Section 322 ...............................................................................................

770

Title 5
ADJUSTERS
Section 323 ...............................................................................................

771

Section 324 ...............................................................................................

771

Section 325 ...............................................................................................

771

Section 326 ...............................................................................................

772

Section 327 ...............................................................................................

772

Section 328 ...............................................................................................

772

Section 329 ...............................................................................................

772

Section 330 ...............................................................................................

772

Section 331 ...............................................................................................

773

Section 332 ...............................................................................................

773

Section 333 ...............................................................................................

773

Section 334 ...............................................................................................

773

Title 6
ACTUARIES
Section 335 ...............................................................................................

774

Section 336 ...............................................................................................

774

Section 337 ...............................................................................................

774

Section 338 ...............................................................................................

775

Title 7
RATING ORGANIZATION AND RATE MAKING
Section 339 ...............................................................................................

776

Section 340 ...............................................................................................

776

xxvii

Section 341 ...............................................................................................

776

Section 342 ...............................................................................................

777

Section 343 ...............................................................................................

777

Section 344 ...............................................................................................

778

Section 345 ...............................................................................................

778

Section 346 ...............................................................................................

778

Section 347 ...............................................................................................

778

Section 348 ...............................................................................................

778

Section 349 ...............................................................................................

779

Section 350 ...............................................................................................

779

Section 351 ...............................................................................................

780

Section 352 ...............................................................................................

780

Section 353 ...............................................................................................

780

Section 354 ...............................................................................................

780

Section 355 ...............................................................................................

781

Section 356 ...............................................................................................

781

Section 357 ...............................................................................................

781

Section 358 ...............................................................................................

781

Section 359 ...............................................................................................

782

Section 360 ...............................................................................................

782

Section 361 ...............................................................................................

782

Section 362 ...............................................................................................

782

Section 363 ...............................................................................................

783

Title 8
PROVISION COMMON TO AGENTS, BROKERS,
AND ADJUSTERS
Section 364 ..............................................................................................

784

Chapter V
SECURITY FUND
Section 365 ...............................................................................................

785

Section 366 ...............................................................................................

785

Section 367 ...............................................................................................

785

Section 368 ...............................................................................................

786

Section 369 ...............................................................................................

787

Section 370 ...............................................................................................

787

Section 371 ...............................................................................................

787

xxviii

Section 372 ...............................................................................................

788

Chapter VI
COMPULSORY MOTOR VEHICLE
LIABILITYINSURANCE
Section 373 ...............................................................................................

789

Section 374 ...............................................................................................

790

Section 375 ...............................................................................................

790

Section 376 ...............................................................................................

790

Section 377 ...............................................................................................

790

Section 378 ...............................................................................................

792

Section 379 ...............................................................................................

792

Section 380 ...............................................................................................

793

Section 381 ...............................................................................................

793

Section 382 ...............................................................................................

794

Section 383 ...............................................................................................

794

Section 384 ...............................................................................................

794

Section 385 ...............................................................................................

794

Section 386 ...............................................................................................

795

Section 387 ...............................................................................................

795

Section 388 ...............................................................................................

795

Section 389 ...............................................................................................

A.
B.
C.
D.

Compulsory Motor Vehicle Liability Insurance ....................

Accrual of Liability ..................................................................
Right to Sue Insurer Directly ................................................
The No-Fault Clause ...............................................................
Cases: PERLA COMPANIA DE SEGUROS, INC. vs.
ANCHETA ...................................................................
VDA. DE MAGLANA vs. CONSOLACION ...............
GOVERNMENT SERVICES INSURANCE
SYSTEM vs.COURT OF APPEALS ...........................

E.

F.

Authorized Driver Clause .......................................................

795
795
796
796
797
798
801
806
813

Cases: VILLACORTA vs. THE INSURANCE

OMMISSION ...............................................................
PALERMO vs. PYRAMID INSURANCE,
CO., INC. .....................................................................
TANCO vs. THE PHILIPPINE GUARANTY
COMPANY ..................................................................
GUTIERREZ vs. CAPITAL INSURANCE
AND SURETY CO. ......................................................

824

Presumption of Regularity in Issuance of License ................

827

xxix

814
818
821

G. Joy Ride/Theft Clause .............................................................

827

Case: ASSOCIATION OF BAPTISTS

FOR WORLD EVANGELISM, INC. vs.
FIELDMANS INSURANCE CO., INC. .....................

828

H. Expired License .......................................................................

I. Period to File Claim ................................................................

830
831

Chapter VII
MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
Title 1
MUTUAL BENEFIT ASSOCIATIONS
Section 390 ...............................................................................................

832

Section 391 ...............................................................................................

833

Section 392 ...............................................................................................

833

Section 393 ...............................................................................................

834

Section 394 ...............................................................................................

834

Section 395 ...............................................................................................

835

Section 396 ...............................................................................................

835

Section 397 ...............................................................................................

835

Section 398 ...............................................................................................

835

Section 399 ...............................................................................................

836

Section 400 ...............................................................................................

836

Section 401 ...............................................................................................

837

Section 402 ...............................................................................................

837

Section 403 ...............................................................................................

837

Section 404 ...............................................................................................

837

Section 405 ...............................................................................................

837

Section 406 ...............................................................................................

838

Section 407 ...............................................................................................

838

Section 408 ...............................................................................................

839

Section 409 ...............................................................................................

839

Title 2
TRUSTS FOR CHARITABLE USES
Section 410 ...............................................................................................

840

Section 411 ...............................................................................................

840

Section 412 ...............................................................................................

840

Section 413 ...............................................................................................

840

xxx

Chapter VIII
THE INSURANCE COMMISSIONER
Title 1
ADMINISTRATIVE AND ADJUDICATORY POWERS
Section 414 ...............................................................................................

841

Section 415 ...............................................................................................

Section 416 ...............................................................................................

841
842

A.
B.
C.
D.
E.
F.

Regulatory Powers ..................................................................

Duty to Hold Security Deposits ..............................................
Commissioners Interpretation to Great Respect ..................
Contract Between the Insurer and Its Agents ......................
Quasi-Judicial Powers ............................................................
Jurisdiction ..............................................................................

844
844
845
846
847
848

Title 2
FEES AND OTHER SOURCES OF FUNDS
Section 417 ...............................................................................................

849

Section 418 ...............................................................................................

851

MISCELLANEOUS PROVISIONS
Section 419 ...............................................................................................

852

Section 420 ...............................................................................................

852

Section 421 ...............................................................................................

852

Section 422 ...............................................................................................

852

Section 423 ...............................................................................................

852

Section 424 ...............................................................................................

852

Subject Index ............................................................................................

853

Case Index ................................................................................................

873

xxxi