Jason is the proud owner of a newly-built house worth PS million. As a protection against any possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the company a week to approve Jason’s application. On October 18, 2016, Shure mailed the approved policy to Jason which the latter received five (5) days later. However, Jason’s house had been razed by fire which transpired a day before his receipt of the approved policy. Jason filed a written claim with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the theory of cognition applies to contracts of insurance.
Decide Jason’s claim with reasons. (5%)
Suggested answer only. Not an official answer and not legal advice.
Jason's insurance claim should be denied.
Under the cognition theory, an insurance contract is perfected only from the moment the applicant learns of the insurer's acceptance of his application. Without such knowledge, no binding insurance contract comes into existence.
Here, Shure mailed the approved policy on October 18, 2016, but Jason received it only on October 23, 2016. Since the house was razed by fire on October 22, 2016, the loss occurred prior to Jason's knowledge of the acceptance.
Therefore, because there was no perfected insurance contract at the time of loss, Shure is legally justified in denying Jason's claim.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
Under the cognition theory followed in Philippine insurance law, when is a contract of insurance perfected?
Under the cognition theory, an insurance contract is perfected only when the applicant receives notice of acceptance.
Why is Shure Insurance Corporation not liable for the destruction of Jason's house by fire on October 22, 2016?
The loss occurred before Jason received notice of approval, meaning no insurance contract was perfected at the time of loss.
What is the legal effect of an applicant paying the insurance premium at the time of submitting his application?
Payment of premium does not perfect an insurance contract until acceptance is communicated to the applicant.
Under the Insurance Code, what type of contract is an insurance policy regarding its formation?
Insurance is a consensual contract perfected by the meeting of minds through communicated acceptance.
Which primary statutes govern contract perfection, cognition theory, and insurance policies in the Philippines?
The Civil Code and Insurance Code govern contract perfection and insurance policies in the Philippines.
Learn more about these topics
1. Cognition Theory Rule
Under Article 1319 of the Civil Code of the Philippines (Republic Act Number 386) and established insurance law jurisprudence, the Philippines follows the cognition theory for the perfection of insurance contracts. Under this doctrine, an insurance contract is not perfected upon the mere signing or mailing of the policy by the insurer. Instead, perfection occurs only from the precise moment the applicant receives actual or constructive notice of the insurer's acceptance of his offer. Until the applicant learns of such acceptance, either party may withdraw, and no binding contractual obligation binds the insurer.
2. Insurance Contract Perfection
Under Section 2 and Section 19 of the Insurance Code of the Philippines (Republic Act Number 10607), an insurance policy is a consensual contract created by meeting of minds upon the object and cause. Payment of premium alone does not perfect the contract if acceptance has not been communicated to the applicant. Where the insurance policy is mailed by the insurer, acceptance is deemed communicated only upon actual receipt by the applicant. Consequently, risk coverage does not commence prior to notice of acceptance, even if the premium was paid in advance upon submitting the application.
3. Loss Before Perfection
Under Philippine insurance law, an insurer cannot be held liable for a loss that occurs prior to the perfection of the insurance contract. Since insurance is an aleatory contract covering future contingent risks, an uncommunicated acceptance cannot retroactively cover a subject matter that has already been destroyed before the contract came into legal existence. When the insured property is razed by fire prior to the applicant's receipt of the approved policy, no risk attached at the time of loss, legally justifying the insurer's denial of the indemnity claim.