Insurance Law

Insurance is an agreement where one party (insurer) undertakes for a consideration (premium) to indemnify another (insured) against loss arising from an unknown or contingent event.

• “Contingent event” is not certain to happen
• “Unknown event” is certain, but the timing is not

Key Elements of Insurance

1. The insured is subject to a risk of loss by a designated peril
2. The insured has an insurable interest
3. The insured pays a premium
4. The insurer assumes the risk
5. The insurer distributes actual losses to a large group with similar risks

Parties

The parties to an insurance contract are the insurer, who promises to pay for a loss, and the insured, or their beneficiary.

Classes or Types of Insurance

1. Life insurance – Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. There are also different types of life insurance which I will be discussing here and in the link above.
2. Marine Insurance – insurance against loss or damage to vessels, cargoes, effects, etc. while in transit or while docked.
3. Fire insurance – insurance against loss by fire, lightning, storm, tornado, earthquake or allied risks.
4. Casualty Insurance (including motor vehicle liability insurance, employer’s liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies [e.g. HMO’s])
5. Industrial Life Insurance
6. Compulsory Motor Vehicle Liability Insurance
7. Microinsurance – those that meet the risk protection needs of the poor and has certain limitations as to premiums and benefits. These are usually offered in pawnshops, shopee, GCash, and lending companies.
8. Mutual company – An insurance company which is owned and controlled by the policy owners who also share in the earnings of the insurance company in the form of dividends.
   1. Here, the insured themselves benefit from the payments they give, instead of just benefiting a private corporation.
9. Bancassurance – these are insurance products presentedand sold by the bank to its customers within the premises the bank duly licensed by the Bangko Sentral ng Pilipinas. (Section 375 of IC)
10. Mutual insurance companies are cooperative enterprises where members are both insurer and insured.

Requirement for Every Insurance

A person has insurable interest if they derive pecuniary benefit from its preservation or suffer pecuniary loss from its destruction, regardless of title, lien, or possession.

In property insurance, insurable interest is every interest in property (real or personal), such that a contemplated peril might indirectly damnify the insured. No contract of property insurance is enforceable except for someone with an insurable interest.

Rationale:
(1) Ensures that the insured has a genuine interest in preserving the subject matter
(2) Prevent wagering contracts, as theyare against State policy.
(3) Reduces the temptation for the insured to intentionally cause a loss, as they would also suffer a pecuniary loss. Bluntly speaking, without insurable interest, anyone can insure their enemy, kill them, and get the proceeds.

A lessee has an insurable interest in leased equipment and motor vehicles to the extent they may be damnified by loss or injury.

What an insurance policy must specify

An insurance policy is the written instrument setting forth the contract of insurance. It should be in printed form and may contain blank spaces to be filled in. A policy must specify:

1. The parties to the contract
2. The amount to be insured (except in open or running policies)
3. The premium, or the basis and rates for determining it
4. The property or life insured
5. The insured’s interest in property insured (if not the absolute owner) (e.g. creditor, father, brother)
6. The risks insured against (e.g. death, fire, theft)
7. The period of insurance

“Premium” and the Cash-and-Carry Rule

Premium is the consideration paid by the insured for the insurer’s undertaking to indemnify against a specified peril. Generally, the insurance policy is not valid and binding unless the premium is paid. However, there are exceptions to this rule.

1. Grace Period: If the policy has a grace period, it remains in force during this period even if a subsequent premium is unpaid.
2. Credit Extension: When there is an agreement under broker and agency agreements with duly licensed intermediaries for a credit extension, typically up to ninety (90) days.
3. Acknowledgment of Premium Payment: If the policy or a separate receipt acknowledges that the premium has been paid, this is conclusive evidence of payment and makes the policy binding, even if the premium was not actually paid. This usually happens during application. After payment of the premium to the agent, the agent issues a temporary insurance policy.
4. Equitable doctrine of estoppel. If the insurer’s actions or representations lead the insured to believe the policy is valid despite non-payment, the insurer may be estopped from denying coverage.
5. Payment by Check Accepted by the Insurer before the Loss: Payment by a check or promissory note that is accepted by the insurer and dated prior to the loss is generally considered sufficient, assuming there are sufficient funds, even if it hasn’t been encashed at the time of the loss. The subsequent encashment retroacts to the date of the instrument.
6. Acceptance by the Obligee in Suretyship: In the case of a surety bond, if the obligee accepts the bond, it becomes valid and enforceable even if the premium has not been paid by the obligor to the surety.
7. Issuance of Cover Notes: A cover note may temporarily bind the insurance pending the issuance of the full policy or payment of the premium.

It is important to note that some sources emphasize the “cash and carry” rule, stating that generally, no policy is valid until the premium is paid.

Loss in Insurance

Loss in insurance means the injury or damage sustained by the insured due to the happening of one or more of the accidents or misfortunes insured against.

Types of loss:

• Total Loss: Occurs when the insured subject is completely destroyed, lost, or unusable for its intended purpose.
  • Actual Total Loss
  • Constructive Total Loss (Marine Insurance) – A loss that is not actually total but is of such a nature that the insured, if they choose, can treat it as total by abandonment. This may occur if more than three-fourths of the value is lost or needs to be spent to recover it.
• Partial Loss – Every loss that is not a total loss
• Casualty Loss – Loss arising from accident or mishap, excluding fire or marine losses. It can also be caused by a fortuitous event or force majeure.

Proximate Cause

If the insured thing was the main trigger, they pay. If the uninsured thing was the main trigger, they usually don’t pay, even if an insured thing happened earlier but didn’t directly cause the major damage.

If an excepted peril is the proximate cause, the insurer is not liable, even if the immediate cause is an insured peril.

Notice and Proof of Loss:

• In case of fire insurance, the insurer is exonerated if written notice of loss is not given without unnecessary delay. The Commissioner may specify the period for notice of loss for other non-life insurance.
• The purpose of notice of loss is to inform the insurer of the damage and give them an opportunity to investigate.
• Substantial, not strict, compliance with requirements for proof of loss is usually sufficient. Insurers must specify defects in the proof of loss without unnecessary delay, or such defects are waived. Waiver also occurs when the insurer recognizes liability.

Exclusions and Limitations on Liability:

Insurers are not liable for losses caused by the willful act or connivance of the insured. However, they are generally liable for losses caused by ordinary negligence. Gross negligence amounting to misconduct may exonerate the insurer.

An insurer has the burden of proving that a loss falls within an exception or limitation in the policy.

Overinsurance

• Overinsurance occurs when the insured obtains insurance beyond the value of their insurable interest with only one insurer.
• The rationale behind preventing overinsurance is to avert fraud
• In cases of overinsurance by several insurers (double insurance), the insured can claim from insurers in any order up to their individual liability limits.
• Discovery of other insurance coverage exceeding the property’s value can be a ground for policy cancellation.

Double Insurance

This means that there are two or more insurance policies covering the same insured, the same subject matter, the same insurable interest, and the same peril. It is also known as co-insurance.

Legality: Double insurance is generally not prohibited, unless there is an “Other Insurance Clause” in the policy that expressly prohibits it.

Purpose: The rationale behind preventing over-insurance is to avert fraud by removing the incentive for the insured to destroy the property for profit.

Overinsurance is not the same as double insurance.

Reinsurance

Reinsurance is when an insurer (the original insurer or cedant) obtains insurance from a third party (the reinsurer) to protect against loss or liability from the original insurance policies they have issued. It is a separate contract from the original insurance, and the original insured has no interest in the reinsurance agreement. Essentially, reinsurance is “insurance of an insurance”.

The Insurance Commissioner

The Insurance Commissioner has regulatory powers over the insurance industry, including issuing certificates of authority for insurance companies to transact business in the Philippines. The Commissioner can also approve, reject, suspend, or revoke licenses.

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