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CHAPTER I
PRESIDENTIAL INSTITUTING AN INSURANCE CODE OF THE PHILIPPINES
I, Ferdinand E. Marcos, President of the Philippines, by virtue of the powers in me vested by the Constitution, do
hereby decree DECREE NO. 612 ORDAINING AND & order the following:
GENERAL PROVISIONS
SECTION 1. This Decree shall be known as The Insurance Code.
SECTION 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth
or indicated, unless the context otherwise requires:
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
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 w/c, as such, is doing an insurance business as hereinafter provided.
(DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4)
1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other
legitimate business of a surety;
3. Doing any insurance business, including a reinsurance business;
4. Doing or proposing to do any business in substance equivalent to any of the foregoing
In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.
(3) As used in this code, the term Commissioner means the Insurance Commissioner. acd
CHAPTER I THE CONTRACT OF INSURANCE
Title I WHAT MAY BE INSURED
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon,
2002 ed.)
1.
2.
3.
4.
5.
6.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002
ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for
the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as premium.
5. Meeting of the minds of the parties.
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. To make the person who caused the loss legally responsible for it.
2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured could have recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the
insureds claim for loss;
c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA,
184 SCRA 54)
d. In life insurance
e. For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However,
if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of
designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of
persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fund.
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing
device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
SPECIAL CASES
2. In case of a carrier or depositary
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability
but not to exceed the value thereof (Sec. 15)
RISK
What may be insured against:
1. Future contingent event resulting in loss or damage Ex. Possible future fire
2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a vessel unknown to the parties
3. Contingent liability Ex. Reinsurance
SECTION 16. 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.
CHANE OF INTEREST IN THE THING INSURED (Section 20 to 24)
The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured. (Sec. 58)
Reason: Insurance contract is personal.
GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest
in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the
insurance are vested in the same person. (Sec. 20)
EXCEPTIONS:
1. In life, health and accident insurance.(Sec. 20);
2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21);
3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22);
4. Change of interest, by will or succession, on the death of the insured. (Sec. 23);
5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to
others. (Sec. 24);
6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured. (Sec. 57);
7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of
insurance is not merely suspended but avoided. (Art. 1306, NCC).
SECTION 25.Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not
any interest in the property insured, or that the policy shall be received as proof of such interest, & every policy executed
by way of gaming or wagering, is void.
Title IV CONCEALMENT
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;
2. Precise delimitation of the risk;
3. Control of the risk;
4. Determining whether a loss occurred and if so, the amount of such loss.
Concealment A neglect to communicate that which a party knows and ought to communicate (Sec. 26)
Requisites: (Sec 28)
a. A party knows a fact which he neglects to communicate or disclose to the other.
b. Such party concealing is duty bound to disclose such fact to the other.
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter
(Sec. 27).
Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether intentional
or unintentional entitles the injured party to rescind the contract of insurance.
SECTION 29.
An intentional & fraudulent omission, on the part of one insured, to communicate information of
matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
SECTION 30.
Neither party to a contract of insurance is bound to communicate information of the matters
following, except in answer to the inquiries of the other:
(a) Those w/c the other knows;
(b) Those w/c, in the exercise of ordinary care, the other ought to know, & of w/c the former has no reason to suppose
him ignorant;
(c) Those of w/c the other waives communication;
(d) Those w/c prove or tend to prove the existence of a risk excluded by a warranty, & w/c are not otherwise material;
(e) Those w/c relate to a risk excepted fr. the policy & w/c are not otherwise material.
B. Devices used for ascertaining and controlling risk and loss:
1. Test of Materiality: 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 advantages of the proposed contract,
or in making his inquiries (Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more material the information
required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246
SCRA 268).
The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make
inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will
not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make
further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002).
SECTION 34. Information of the nature or amount of the interest of one insured need not be communicated unless in
answer to an inquiry, except as prescribed by section fifty-one.
SECTION 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his
own judgment upon the matters in question.
Title V REPRESENTATION
Representations Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give
information to the insurer and induce him to enter into the insurance contract. They are considered an active form of
concealment.
Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as
true without knowing it to be true and which has a tendency to mislead.
c. Such fact in either case is material to the risk.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written. (sec 36)
c. It is made at the same time of issuing the policy or before but not after. (sec 37)
d. It may be altered or withdrawn before the insurance is effected but not afterwards. (sec 41)
e. It always refers to the date the contract goes into effect. (sec 42)
Kinds:
a. AFFIRMATIVE affirmation of a fact when the contract begins; and
b. PROMISSORY promise to be performed after policy was issued. (sec 39)
Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes
false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite
knowledge of the ground for rescission. (As amended by Batasang Pambansa Blg. 874)
RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission.
(Sec. 45)
Limitations on the right of the insurer to rescind:
1. Non-life such right must be exercised prior to the commencement of an action on the contract;
2. Life such right must be availed of during the first two years from the date of issue of policy or its last reinstatement;
prior to incontestability. (Sec. 48)
Test of Materiality: Same as that in concealment. (sec 46)
Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was
held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for
that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
SECTION 38. The language of a representation is to be interpreted by the same rules as the language of contracts in
general.
SECTION 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an
implied warranty.
SECTION 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information w/c
he has upon the subject, & w/c he believes to be true, w/ the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the insurer; & in neither case is he responsible for its truth,
unless it proceeds fr. an agent of the insured, whose duty it is to give the information.
SECTION 44. A representation is to be deemed false when the facts fail to correspond w/ its assertions or stipulations.
Title VI THE POLICY
POLICY OF INSURANCE The written instrument in which a contract of insurance is set forth. (Sec. 49)
SECTION 50.
The policy shall be in printed form w/c may contain blank spaces; & any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank
spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance & w/c is pasted or
attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty
or endorsement is also mentioned & written on the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy
shall be countersigned by the insured or owner, w/c countersignature shall be taken as his agreement to the contents
of such rider, clause, warranty or endorsement.
Group insurance & group annuity policies, however, may be typewritten & need not be in printed form.
Binding Receipt A mere acknowledgment on behalf of the company that its branch office had received from the
applicant the insurance premium and had accepted the application subject to processing by the head office.
Riders Printed stipulations usually attached to the policy because they constitute additional stipulations between
the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more
deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines,
1968 ed.)
Clauses An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188)
Endorsements Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)
2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy; (sec 65)
3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the
insurer must furnish facts on which the cancellation is based; (sec 65)
4. Grounds should have existed after the effectivity date of the policy.
SECTION 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the
policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured
shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any
policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy
written for a term longer than one year or any policy w/ no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.
Title VII WARRANTIES
Warranties Statement or promise by the insured set forth in the policy or by reference incorporated therein, the
untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by
such untruth or non-fulfillment, renders the policy voidable by the insurer. (Sec 67 to 70)
Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the
change to the condition of the property.
Kinds:
a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk
are or shall be true, or certain acts relating to the same subject have been or shall be done. (sec 71)
b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance,
seaworthiness of the vessel.
Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to
rescind the contract. (Sec. 74)
EXCEPTIONS:
a. Loss occurs before the time of performance of the warranty.
b. The performances becomes unlawful at the place of the contract.
c. Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
WARRANTY
Part of the contract
Written on the policy, actually or by reference
Presumed material
Must be strictly complied with
REPRESENTATION
Mere collateral inducement
May be written in the policy or may be oral.
Must be proved to be material
Requires only substantial truth and compliance
SECTION 72. A statement in a policy w/c imparts that it is intended to do or not to do a thing w/c materially affects
the risk, is a warranty that such act or omission shall take place.
SECTION 76. A breach of warranty without fraud merely exonerates an insurer fr. the time that it occurs, or where it is
broken in its inception, prevents the policy fr. attaching to the risk.
Title VIII PREMIUM
PREMIUM PAYMENTS
Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.
Basis of the right of the insurer to collect premiums: Assumption of risk.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any
agreement to the contrary is void. (Sec. 77)
EXCEPTIONS:
1.
2.
3.
4.
5.
In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial
payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid.
(Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: 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.
(Sec. 78)
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
A. Whole:
1. If the thing insured was never exposed to the risks insured against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81)
3. If contract is voidable because of the existence of facts of which the insured was ignorant without his fault;
(Sec. 81)
4. When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81)
5. When rescission is granted due to the insurers breach of contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof;
Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2. When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and the parties are in pari delicto.
PREMIUM
Levied and paid to meet anticipated losses.
Payment is not enforceable against
the insured.
Not a debt.
ASSESSMENT
Collected to meet actual losses.
Payment is enforceable once
levied unless otherwise agreed upon.
It becomes a debt once properly levied unless otherwise
agreed.
SECTION 80.
If a peril insured against has existed, & the insurer has been liable for any period, however short,
the insured is not entitled to return of premiums, so far as that particular risk is concerned.
Title IX LOSS
A. LOSS, IN INSURANCE
Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or
misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured.
(Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable
1. Loss the proximate cause of which is the peril insured
against (Sec. 84);
2. Loss the immediate cause of which is the peril insured
against except where proximate cause is an excepted peril;
3. Loss through negligence of insured except where there
was gross negligence amounting to willful acts; and
4. Loss caused by efforts to rescue the thing from peril
insured against;
5. If during the course of rescue, the thing is exposed to a
peril not insured against, which permanently deprives the
insured of its possession, in whole or in part (Sec. 85).
Proximate Cause An event that sets all other events in motion without any intervening or independent case, without
which the injury or loss would not have occurred.
Required
Failure to give notice will defeat the right of the insured to
recover.
Not required
Failure to give notice will not exonerate the insurer,
unless there is a stipulation in the policy requiring the
insured to do so.
B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
LIFE POLICIES
a. Maturing upon the expiration of the term The
proceeds are immediately payable to the insured, unless
they are made payable in installments or as annuity, in
which case, the installments or annuities shall be paid
as they become due.
b. Maturing at the death of the insured, occurring
prior to the expiration of the term stipulated The
proceeds are payable to the beneficiaries within 60 days
after presentation and filing of proof of death.
NON-LIFE POLICIES
The proceeds shall be paid within 30 days after the receipt
by the insurer of proof of loss, and ascertainment of the loss
or damage by agreement of the parties or by arbitration but
not later than 90 days from such receipt of proof of loss
whether or not ascertainment is had or made.
In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can recover: 1)
attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest
rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398)
SECTION 89. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would
be necessary in a court of justice; but it is sufficient for him to give the best evidence w/c he has in his power at the
time.
SECTION 90. All defects in a notice of loss, or in preliminary proof thereof, w/c the insured might remedy, & w/c the
insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.
SECTION 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if
he omits to take objection promptly & specifically upon that ground.
SECTION 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other
than the insured, it is sufficient for the insured to use reasonable diligence to procure it, & in case of the refusal of such
person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds
of disbelief in the facts necessary to be certified or testified.
Title XI DOUBLE INSURANCE
A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the value of the
property with the same insurance company.
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the property lost;
2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property;
B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject
and interest. (Sec. 93)
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are severally liable under their respective contracts;
2. Where the policy under which the insured claims is a valued policy, the insured must give credit as against the
valuation for any sum received by him under any other policy without regard to the actual value of the subject matter
insured;
3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable
value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value
in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to
the amount for which he is liable under his contract.
Additional or Other Insurance Clause
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property
insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may declare that a violation
of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it.
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been double insurance.
Title XII REINSURANCE
C. REINSURANCE a contract by which the insurer procures a third person to insure him against loss or liability by reason
of an original insurance (also known as Reinsurance Cession). (Sec. 95)
In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate
policies.
DOUBLE INSURANCE
Involves the same interest
Insurer remains in such capacity
Insured is the party in interest in the 2 contracts
Subject of insurance is property
Insured has to give his consent
REINSURANCE
Involves different interest
Insurer becomes the insured in relation to reinsurer
Original insured has no interest in the reinsurance
contract.
Subject of insurance is the original insurers risk
Insureds consent not necessary
TERMS:
1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to cede and the
other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306)
2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the
risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party having a free
choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by
payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured.
It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)