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- 1 - REVIEWER IN INSURANCE LAW As lectured by Dean Jose R. Sundiang 1 ATTERS TO STUDY: For purposes of the bar, study very well the following:1. Insurable interest (most important)2. The principle of indemnity, specially in property insurance3. The principle of subrogation (Art. 2207, NCC)4. The principle of utmost good faith5. The principle of insurance as a contract of adhesion CASE: ENRIQUEZ VS. SUN LIFE ASSURANCE CO. FACTS: An application for life insurance was mailed. An acceptance was alsomailed by the insurer. Before the receipt of the acceptance letter, theinsured died. HELD: Follow the Theory of Cognition. A contract is perfected upon knowledgeof the acceptance. There was no perfected contract since it was not shownthat the acceptance of the application ever came to the knowledge of theapplicant. HISTORY: 1. Insurance Act (2427)2. PD 6123. PD 1460 - merely codified all the insurance laws of the Philippines;date of effectivity - 11 June 19784. PD 1814 - amending certain provisions of the Insurance Code5. BP 874 CONTRACT OF INSURANCE A contract of insurance is an agreement whereby one undertakes for aconsideration to indemnify another against loss, damage or liability arisingfrom an unknown or contingent event.It is an agreement, a contract. Hence, it must have all the essentialelements of a contract: consent, object, and cause or consideration.What are the essential elements of a contract of insurance? There must bea subject matter in which case there must be an insurable interest,especially in property insurance. There must be the risk or the peril insuredagainst. Under the Code, the risk is any contingent and unknown event,whether past or future, which may damnify a person having an insurableinterest can be insured against.Insurable interest is a very important concept in insurance. There must bea risk or peril insured against. There must also be the consent of thecontracting parties. As a rule, it is a voluntary contract. The onlyexception is found in Chapter VI, the Compulsory Motor Vehicle LiabilityInsurance. Those who have cars know this. You cannot register your vehicleunless it is covered by this type of insurance. - 1 - - 2 - REVIEWER IN INSURANCE LAW As lectured by Dean Jose R. Sundiang 2 But as a rule, insurance is a voluntary contract. So the parties must givetheir consent freely; no vice of consent, like force, intimidation, undueinfluence, mistake, violence, etc. Then, like any other contract, there mustbe a meeting of the minds. It is a consensual contract; it is perfected bymere consent. There is also an offer and an acceptance between the insurerand the insured. These elements must concur before you have a contract ofinsurance. Who are the parties? The insured and the insurer. Who is the insurer? Heis the party who undertakes to indemnify the insured against loss, damage orliability arising from an unknown or contingent event. The insured on theother hand, is the party to be indemnified upon the occurrence of the loss.Aside from being capacitated to enter into a contract, what other qualifications must the insured posses ? The law says under Sec. 7, he mustnot be a public enemy. The law says anyone except a public enemy can beinsured against. What does public enemy mean? To what does it refer? It refers to a countrywith which the Philippines is at war and the citizens thereof. What is thereason why, under the law, a public enemy cannot be insured against? Thereason is obvious. The purpose of war is to cripple the power & exhaust theresources of the enemy. If the Code did not contain the aforementionedprohibition, it could be insured to compensate by way of insurance afterhaving destroyed or crippled the resources of the enemy. May a minor validly enter into a contract of insurance? Under the presentCode, the law by way of exception provides that a minor may enter into acontract of life, health and accident insurance, provided the beneficiary isamong those mentioned under the law: the minor's estate, the parents, spouse,children, siblings ( Sec. 3[3] ).Consider, however, RA 6809, which reduced the minority age to eighteen. Sowhen the law speaks of a minor at least eighteen years of age, considering RAsaid provision of the Insurance Code has beencorrespondingly modified by said piece of legislation.In other words, one who is eighteen (18) years of age is no longer a minorunder RA 6809. Therefore, a person who is eighteen years of age may enter notonly into a contract of life and accident insurance, but even property6809, I believe thatinsurance.Suppose the insured is minor, below eighteen years of age, say seventeenand he enters into a contract of property insurance. The insurance companyissues a policy. There is a loss by fire. Can the insurance deny the claim onthe ground that the insured is a minor? May the insurer raise as a defensethe minority of the insured, and therefore consider the contract void? NO.Recall the law on contracts under the Civil Code. Under the law, a contractentered into by a minor is not void, it is only voidable, therefore validuntil annulled ( Art. 1390 [1], NCC )Furthermore, we have that law on contracts, that when one of the partiesis incapacitated, the capacitated party cannot invoke as a defense theincapacity of the other party. In other words, in the absence ofmisrepresentation on the part of the minor, the insurer will be liabledespite the fact that the insured is a minor. We can even apply the principleof estoppel. The insurer is estopped from denying the claim. - 2 - - 3 - REVIEWER IN INSURANCE LAW As lectured by Dean Jose R. Sundiang 3 How about a married woman? Can she enter into a contract of insurancewithout the consent of her husband? YES provided that the insurance is on herlife or that of her children (Sec. 3, par. 2, ICP)The law does not mention property insurance. Under the Civil Code andunder the present Family Code, with respect to the question of whether a wifemay engage in any trade, occupation or profession without the consent of thehusband, the rule is YES, the wife can do so. All that the wife can do is toobject on serious moral grounds and provided that his income is sufficient tosupport the family in accordance with its social standing.There are many important concepts referring to a contract of insurance.The most important ones are:1. it is a personal contract2. it is a contract of adhesion CHARACTERISTICS OF A CONTRACT OF INSURANCE 1. It is an aleatory contractArt. 2010, NCC - by an aleatory contract, one of the parties or bothreciprocally bind themselves to give or to do something inconsideration of what the other shall give or do upon the happening ofan event which is uncertain or which is to occur at an indeterminatetime.Event which may or may not happen - fireEven that will happen although we do not know when - death (in so faras the insurer is concerned, the even is conditional, it may or may nothappen)2. It is a personal contractthat the insurer consideredSee Sec. 20The law presumes the personalqualifications of the insured.3. It is a contract of indemnity (except life & accident insurance wherethe result is death)In so far as property insurance is concerned. The purpose of theinsurance contract is to indemnify. Therefore, the amount to berecovered should never be more than the loss. Otherwise, the contractbecomes an instrument for unjust enrichment ( solutio indebiti ).4. It is a contract of adhesion A contract which does not result from the negotiation of the parties.In insurance, there is a policy, normally in printed form. Normally,the applicant of the insured has no participation in the preparation ofthe contract. He may either accept or reject the contract. - 3 - - 4 - REVIEWER IN INSURANCE LAW As lectured by Dean Jose R. Sundiang 4 In transportation law, there is a case involving a plane ticket whichthe Supreme Court held as a contract of adhesion. Will it bind thepassenger although he has not read it? Yes, because while it is acontract of adhesion, it is not a void contract. It follows that he isbound by the provisions thereof. That is also the case of a contract ofinsurance.The situation is different in a contract of sale where the partiesnormally would have a say on the terms thereof, the manner of payment,the manner of delivery, who should shoulder the expenses, etc. Thisdoes not apply in a contract of insurance.In a contract of insurance, the policy is in written form presented tothe applicant. He either adheres (that is why it is called a contractof adhesion) or rejects the contract. Therefore, as a result, being acontract of adhesion, the rule is: should there be any doubt, ambiguityor obscurity, in any of the terms and stipulations of the contract, thesame shall be interpreted strictly against the insurer and liberally infavor of the insured.There is a similar provision of the Civil Code, under Art. 1377. Art. 1377. The interpretation of obscure words or stipulations in acontract shall not favor the party who caused the obscurity. Applying the aforesaid provision to a contract of insurance, who isthat party? The insurer. The party who prepared the contract. Therefore,should there be any doubt, any ambiguity or obscurity, in any of theterms and conditions of the contract, the rule to follow is: the sameshall be interpreted strictly against the insurer and liberally infavor of the insured.To illustrate: regarding the so-called authorized driver clause of thepolicy, who is deemed to be an authorized driver under the policy? In acontract of insurance, should there be an accident, and the driver atthe time of the accident is not an authorized driver within the meaningof the policy, there can e no recovery.Under the policy, who is an authorized driver ?1. the insured2. any person driving upon the insured's order with his permissionprovided the person driving is authorized to drive the motor vehiclein accordance with the licensing laws, rules, or regulations and isnot disqualified from driving the same by order of a court law, orany rule or regulation on that behalf.Simply that means: if the one driving is other than the insured:1. he must be authorized or permitted by the insured.2. he must be qualified to drive in accordance with, say, the LandTransportation Code, and other rules and regulations, must not havebeen disqualified by any court of law, rule or regulation in thatbehalf.According to the Code, however, the requirement that the person driving,must be duly authorized to drive in accordance with the licensing law,rules and regulations, and is not disqualified from driving the said - 4 -
