INSURANCE CODE
RIGHT OF SUBROGATION TO
INSURER - RIGHTS OF INSURED
AGAINST WRONGDOER
Basis of Right: Legal Subrogation
Purpose: To make the person who caused the
loss, legally responsible for it and at the same
time prevent the insured from receiving a
double recovery from the wrongdoer and the
insurer
*Right of subrogation applicable only to property
insurance - The value of humana life is regarded
as unlimited and, therefore, no recovery from a
third party can be deemed adequate to
compensate the insureds beneficiary.
*The right of subrogation is not dependent upon,
nor does it grow out of any privity of contract or
upon written assignment of claim. It accrues
simply upon payment of the insurance claim by
the insurer.
*The presentation in evidence of the insurance
policy is not indispensable before the insurer may
recover. The subrogation receipt, by itself, is
sufficient.
*The cause of the loss or injury must be a risk
covered by the policy to entitle the insurer to
subrogation. Nevertheless, if voluntary payment
be made by the insurer, it may recover from the
person responsible under Art 1236 of the Civil
Code.
*The insured cannot recover from both the
insurer and the person responsible to the loss or
injury. However, if the amount paid by the
insurance company does not fully cover the
injury or loss, the insured may recover from the
latter.
*Right of insured to recover from insurer instead
of the third party - the insurer cannot compel the
insured to seek indemnity elsewhere.
*The right of subrogation has limitations.
APPLICABILITY OF THE CIVIL CODE
Insurance contracts are governed primarily by
the Insurance Code and subsidiarily, by the Civil
Code.
*Where the insurance companys consent to the
policy was vitiated by error, such fact may give
rise to the nullity of the contract.
*An insurance contract in null and void where the
consideration is false and fraudalent.
* Since the Insurance Code has no provision
regarding the amount of recovery in case of
rescission, the rule found in the Civil Code which
imposes the obligation of mutual restitution shall
apply.
*A common-law wife is disqualified from
becoming the beneficiary of the insured in view of
the prohibition in Art 2012 in relation to Art 739
of the Civil Code and the absence of any specific
provision in the Insurance Code on the matter.
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.
Doing an insurance business or transacting
an insurance business:
*Making or proposing to make, as insurer, any
insurance contract
*Making or proposing to make, as surety, any
contract of suretyship as a vocation and not
INSURANCE CODE
as merely incidental to any other legitimate
business or activity of the surety
*Doing any kind of business, including a
reinsurance business, specifically recognized
as constituting the doing of an insurance
business within the meaning of this Code
* Doing or proposing to do any business in
substance equivalent to any of the foregoing
in a manner designed to evade the provision
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 shall not be
deemed conclusive to sow that the making
thereof does not constitute the doing or
transacting of an insurance business.
Nature of the contract of Insurance
The character of the Insurance is to be
determined by the exact nature of the
contract entered into whatever the form it
takes or by whatever name it may be called.
Elements of the Contract of Insurance
(a) Subject matter
(b) Consideration
(c) Object and Purpose
Nature and Characteristics of an
Insurance Contract
(1) Consensual - perfected by the meeting of the
minds of the parties
(2) Voluntary - not compulsory and the parties
may incorporate such terms and conditions
(3) Aleatory - depends upon some contingent
event
(4) Unilateral - imposing legal duties only on the
insurer who promises to indemnify in case of loss
(5) Conditional - subject to conditions, the
principal one of which is the happening of the
event insured against
(6) Contract of Indemnity - the promise of the
insurer is to make good only the loss of the
insured
(7) Personal contract - each party views the
character, credit and conduct of the other
(8) Property in legal contemplation
*In insurance, each party must take a risk; the
insurer, that of being compelled upon the
happening of the contingency, to pay the entire
sum agreed upon and the insured, that of parting
with the amount required as premium without
receiving anything therefor in case the
contingency does not happen except what is
ordinarily termed protection which is itself a
valuable consideration.
* Any contract that contemplates a possible gain
to the insured by the happening of the event
upon which the liability of the insurer becomes
fixed is contrary to the proper nature of
insurance.
*If the insured has no insurable interest, the
contract is void and unenforceable as being
contrary to public policy because it affords a
temptation to the insured to wish or bring about
the happening of the loss.
*As a rule, the insured cannot assign, before the
happening of the loss, his rights under a property
policy to others without the consent of the
insurer.
*Life Insurance policies are generally assignable
or transferable as they are in the nature of
property and do not represent a personal
agreement between insured and insurer.
INSURANCE CODE

sharing of economic risk is the principle of

risk-distribution.
DISTINGUISHING ELEMENTS OF THE
CONTRACT OF INSURANCE

(1) The insured possesses an interest of some
kind susceptible of pecuniary estimation known
as insurable interest
(2) The insured is subject to a risk of loss through
the destruction or impairment of that interest by
the happening of designated perils
* If a contract possesses the five elements
mentioned, principally, the allocation or pooling
of risks, it is a contract of insurance, whatever be
its name or form, as distinguished from contracts
that transfer risk but do not constitute insurance.

(3) The insurer assumes risk of loss
(4) Such assumption of risk is part of a general
scheme to distribute actual losses among a large
group or substantial number of persons bearing a
similar risk
(5) As consideration for the insurers promise,
the insured makes a ratable contribution called
premium to a general insurance fund
*All the elements must be present, otherwise
there can be no contract of insurance.
* The characteristic of risk distribution sets
insurance contracts apart from other kinds of
contracts.
* It can be said that a contract of insurance is an
agreement in which one party(the insurer) in
exchange for a consideration provided by the
other party(the insured) assumes the other
partys risk and distributes it across a group of
similarly situated persons, each of whose risk has
been assumed in a similar transaction.

COPING WITH RISK

INSURANCE, A RISK-DISTRIBUTING DEVICE (1) Limiting the possibility of loss -
A contract possessing only the first three (2) Limiting the effects of loss
elements named above is a risk-shifting device,
but not a contract of insurance which is (3) Self-insurance
fundamentally a risk-distributing (risk-sharing or
risk-policy) device. (4) Ignoring risk

(5) Transferring risk to another

* Equitable distributes losses put of a general fund

contributed by all - The device of insurance *Diversification is a way of limiting the effects of
serves to distribute the risk of economic loss loss.
among as many as possible of those who are
subject to the same kind of risk. Each member
contributes to a small degree toward
*To deal with moral hazard phenomenon in most
compensation for losses suffered by any member
insurance transactions, the insured retains some
of the group.
responsibility for the risk through either a
deductible or coinsurance.

* Provide protection against absorbing ones

losses alone - The member has no way of
*deductible bears stated amount of loss
knowing in advance whether he will receive
compensation more than he contributes or *coinsurance bears stated percentage of the loss
whether he will merely be paying for the losses regardless of the amount
others in the group; but his primary goal is to
exchange the gamble of doing it alone. This broad
INSURANCE CODE
The fields of Insurance
Social Insurance (government) - compulsory and
is designed to provide a minimum of economic
security for large groups of persons, particularly
those in lower income groups. The compulsion
element is predicated upon the experience that
some persons cannot or will not voluntarily
purchase insurance.
Volutary Insurance (private) - not based upon
government compulsion and is sought to meet a
recognized need for protection. It includes the
major category of commercial insurance and
property types of protection. It divides itself into
3 groups:
(a) Commercial Insurance - it receives
motivating force from the profit idea.
(1) Personal Insurance - based on the
nature of the perils, I.e. whether they are
more directly concerned with losses due to
loss of earning power of a person.
(2) Property Insurance - includes every
form that has for its purpose the protection
against loss arising from the ownership or
use of property.
(b) Cooperative Insurance - organized without
regard to the profit motive and represent, in
fact, an effort to accomplish the ends of social
insurance by private enterprise.
(c) Voluntary government insurance - there is
no element of compulsion. The various plans
offered are designed to benefit the entire
community but are used only by those persons
who wish to use the available benefits.
*Multiple line insurance - combination of at least
two kinds of insurance
*All lines insurance - to describe the broadening
nature of insurance operations which combine at
least most of the basic types of insurance
Classifications of contracts of insurance
(1) Insurance against loss or impairment of
property interest, which may be either in
existence or merely expected; that is, present
rights or profits yet to accrue.
(2) Insurance against loss of earning power
(3) Insurance against contingent liability to
make payment to another, that is to say, the
insured is protected against his loss with
regard to claims for damages.
*A modernized classification scheme recognizes
four (4) categories of insurance, namely: marine,
property, personal and liability.
Classification by interests protected
(1)First-party vs third-party insurance - In
first-party insurance, the contract between the
insurer and the insured is designed to indemnify
the insured for a loss suffered directly by the
insured while in third-party insurance, the
interest protected by the contract are the
third-parties injured by the insureds conduct.
A. Property Insurance
B. Liability Insurance
C. Life Insurance
D. Health Insurance
* All insurance except liability can be fairly
thought of as first-party insurance
* The FP vs TP insurance assists in understanding
the concept of no-fault insurance. No-fault
connotes that the victim recovers for his loss
from his own insurer, without regard to the fault
of the third party or his own contributory fault.
(2)All-risk vs specified-risk - All-risk insurance
reimburses the insured for damage to the subject
matter of the policy from all causes except those
specifically excepted in the policy. Specified-risk
insurance covers damage to the subject matter if
it results from specifically identified causes listed
in the policy
INSURANCE CODE
* The historical development of the policy can be
important in determining whether the policy
covers all risks.
* Burden of proof - Under a specified-risk policy,
the burden is ordinarily placed on the insured to
initially prove that the loss falls within the policys
provision on coverage. While in an all-risk policy,
the burden is ordinarily placed on the insurer to
prove that the loss falls within an explicit
exception to coverage.
* All-risk coverage not absolute - e.g. will not
include undisclosed events that existed prior to
coverage.
* If a loss is certain to occur, such as due to
normal wear and tear, the loss is not fortuitous
and therefore not insurable.
* An all-risk insurance policy covers all kinds of
loss but not those due to willful and fraudalent
act of the insured;
Classification under the Code
(1)Life insurance contract
A. Individual life
B. Group life
C. Industrial life
(2)Non-life insurance contracts
A. Marine
B. Fire
C. Casualty
(3) Contracts of suretyship or bonding
**The general definition of insurance in Sec.2 can
cover any kind of loss, damage, or liability arising
from an unknown or contingent event.
Theoretically, it would be possible for an
insurance company to inure against any risk
whatever associated with any lawful activity as
long as there is no prohibition by a statute or
violation of public policy.
CONTRACTS WRITTEN BY GUARANTY OR
SURETY COMPANIES
Contracts of this kind are now almost
regarded as those of insurance where the
underwriter engages in the business for profit,
especially since the terms of such contracts
usually closely resemble the essential elements
of an insurance contract. The general rule that
the bonds of guaranty and surety companies who
engage in the business for profit are essentially
insurance contracts and are governed by the
rules off construction applicable thereto, rather
than by the rules applicable to strict or pure
contracts of suretyship, applies to bonds
guaranteeing the carrying out or performance of
contracts to do a particular act or carry out a
particular project.
CONSTRUCTION OF INSURANCE
CONTRACTS
*Should be examined and interpreted in
consonance with each other.
Where there is ambiguity or doubt
*As a general rule, insurance contracts are to be
interpreted liberally in favor of the insured and
strictly against the insurer resolving all
ambiguities against the latter, so as to effect its
dominant purpose of indemnity or payment to
the injured, especially when a forfeiture is
involved.
**Limitations of liability must be construed in
such a way as to preclude the insurer from
non-compliance
Contract of Adhesion vs Bargaining Contract
In a contract of adhesion, most of the terms
do not result from mutual negotiation between
the parties as they are prescribed by the insurer
in final printed forms which the insured may
reject or to which he may adhere if he chooses
but which he cannot change.
INSURANCE CODE

In a bargaining contract, both parties
participate in drawing up its terms and conditions
or determining its wording.
Where terms are clear
object and purpose is indemnity, the contract
constitutes insurance, but if it is service, risk
transfer and distribution being merely incidental,
then the arrangement is not insurance and,
therefore, not subject to laws regulating
insurance.

The cardinal principle of insurance law of

interpreting insurance contracts favorably to the FUNCTIONS OF INSURANCE
insured is applicable only in cases of doubt, not
only when the intention of the policy is clear or Principal Function: The main function of
the language is sufficiently clear to convey the insurance is risk-bearing.
meaning of the parties.
Subsidiary Function:

-Stimulates business enterprises

**The purpose of the requirement in the policy
that the insured declare other insurance is to -Encourages business efficiency and
prevent over insurance and thus avert the enterprises
perpetration of fraud. The public as well as the -Promotes loss-prevention
insurer is interested in preventing the situation in
which fire would be profitable to the insure. -Encourages savings

-Solves social problems

Indirect Functions:

Where contract is silent with respect to a -Investment of Funds

particular matter
-Unse of reserve funds
Any doubt that may arise for failure of the
-Effect on prices
contrast to provide with respect to a particular
matter should be resolved against the insurer. -As a basis of credit

What constitutes doing or transacting an

insurance business
TITLE 1 - WHAT MAY BE INSURED
(1) Name or designation by insurer not
controlling - The name by which a company or Sec. 3
association or its certificates or policies are
designated, are not determinative of the question Requisites of a contract of insurance
of whether the organization is an insurance There will only be a valid and enforceable
business, or its contracts are in the nature of contract of insurance if the following is present:
insurance policies
> A subject matter in which the insured has
(2) Acts deemed included by law - The fact that an insurable interest
no profit is derived from the making of insurance
contracts or that no separate or direct > Event or peril insured against and a
consideration is received therefor, indeed, the duration for the risk thereof
fact that the contract states that it is not an
> A promise to pay or indemnify in a fixed
insurance policy, is not conclusive to show that
or ascertainable amount
the making thereof does not constitute the doing
or transacting of an insurance business. > A consideration for the promise, known
as premium
(3) Principal object and purpose test to
determine nature of contract - If the principal
INSURANCE CODE
> Meeting of the minds of the parties
Subject Matter
Generally, anything that has an appreciable
pevuniary valur, which is subject to loss or
deterioration or of which one may be deprived
so that his pecuniary interest is or may be
prejudiced, may properly constitute the subject
matter of insurance.
Property Insurance - The property covered by
a policy is regarded the subject matter of the
insurance, but it is apparent that in the last
analysis, it is the risk of loss of such property
that is primarily involved.
Life, health and accident insurance - While it is
true that in life, health or accident insurance
the person becomes the subject of insurance,
the matter is generally viewed as on in
reference to the insured as a party to the
contract.
Casualty insurance - The subject matter is the
risks involved in its use, or the insureds risk of
loss or liability, that he may suffer loss or be
compelled to indemnify for the loss suffered by
the third person.
Event or peril
The contingency or unknown event must be
such that its happening will damnify or cause loss
to a person having an insurable interest or create
a liability against him. The unknown event may be
past or future event. In a contract of insurance,
the insurer is liable for a fortuitous event if it is
the event or peril insured against and is the
proximate cause of the loss.
*Another point of view considers as the subject
matter of liability insurance the activity or
process in the course of which legal liability is
incurred by the insurer.
*The insurer merely promises to pay a sum of
money (exceptionally, to make a restitution in
kind as an alternative) if a defined event occurs.
To insure an event, then, means to make such a
conditional promise.
Insurance by a married woman
A married woman may take out an insurance
on her life or that of her children without the
consent of her husband or that of her husband ,
she having an insurable interest in the latter. She
may also take out insurance on her paraphernal
or separate property, or on property given to
her by her husband.
Insurance by a minor
Life, health or accident insurance - a minor may
enter into a valid contract of insurance provided
that:
(s) He is 18 years of age or over
(b) The contract is for life, health or
accident insurance
(c) The insurance is taken on his life
(d) The beneficiary is any of those
enumerated by law.
*Beneficiary - the person designated to receive
the proceeds of the insurance upon the
happening of the event insured against.
Other insurance - A contract of insurance
other than life, health or accident insurance, such
as fire or marine insurance, entered into by a
minor is not entirely void but merely voidable.
*If the contract is affirmed by the minor, the
insurer cannot escape liability by pleading
minority as a defense because persons who
capable cannot allege the incapacity of those with
whom they contracted/ But if the contract is fair
and no fraud or undue influence was practiced by
the insurer, the minor cannot recover the
INSURANCE CODE

premiums paid, if he cannot return the benefits

received.

Ownership of life insurance policy

*Ownership of a modern life insurance policy is

divided between the insured and the beneficiary.

*One who takes a policy of insurance on his own

life become, in so doing, a party to the contract,
even though the benefits of the insurance are to
accrue to the beneficiary.

*In general, the nature of the interest of the

beneficiary depends on the terms of the
insurance contract, including the existing statutes
by which the insurer and its policyholders are
bound.

*Upon the death of the original owner of a policy

of insurance taken out by him on the life or health
of a minor, all rights, title and interest in the
policy shall automatically vest in the minor unless
otherwise provided for in the policy.