Insurance Code Chapter I

The Insurance Code

CHAPTER I



PRESIDENTIAL DECREE NO. 612

ORDAINING AND 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 & 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:

(1) A “contract of insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising fr. an unknown or contingent event.

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.

(2) The term “doing an insurance business” or “transacting an insurance business”, within the meaning of this Code, shall include (a) making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any contract of suretyship as a vocation & not as merely incidental to any other legitimate business or activity of the surety; (c) 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; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is derived fr. 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

SECTION 3. Any contingent or unknown event, whether past or future, w/c may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

The consent of the husband is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children.

Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health & accident insurance, w/ any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life & the beneficiary appointed is the minor’s estate or the minor’s father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights & privileges of an owner under a policy.

All rights, title & interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

SECTION 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

SECTION 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

Title II PARTIES TO THE CONTRACT

SECTION 6. Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, may be an insurer.

SECTION 7. Anyone except a public enemy may be insured.

SECTION 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, & any act of his, prior to the loss, w/c would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act w/c, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, w/ the same effect as if it had been performed by the mortgagor.

SECTION 9. If an insurer assents to the transfer of an insurance fr. a mortgagor to a mortgagee, &, at the time of his assent, imposes further obligation on the assignee, making a new contract w/ him, the act of the mortgagor cannot affect the rights of said assignee.

Title III INSURABLE INTEREST

SECTION 10. Every person has an insurable interest in the life & health:

(a) Of himself, of his spouse & of his children;

(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of w/c death or illness might delay or prevent the performance; &

(d) Of any person upon whose life any estate or interest vested in him depends.

SECTION 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.

SECTION 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured; in w/c event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

SECTION 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.

SECTION 14. An insurable interest in property may consist in:

(a) An existing interest;

(b) An inchoate interest founded on an existing interest; or

(c) An expectancy, coupled w/ an existing interest in that out of w/c the expectancy arises.

SECTION 15. 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.

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.

SECTION 17. The measure of an insurable interest in property is the extent to w/c the insured might be damnified by loss or injury thereof.

SECTION 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

SECTION 19. An interest in property insured must exist when the insurance takes effect, & when the loss occurs, but not exist in the meantime; & interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

SECTION 20. Except in the cases specified in the next four sections, & in the cases of life, accident, & health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing & the interest in the insurance are vested in the same person.

SECTION 21. A change in interest in a thing insured, after the occurrence of an injury w/c results in a loss, does not affect the right of the insured to indemnity for the loss.

SECTION 22. A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others.

SECTION 23. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; & his interest in the insurance passes to the person taking his interest in the thing insured.

SECTION 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured.

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

SECTION 26. A neglect to communicate that w/c a party knows & ought to communicate, is called a concealment.

SECTION 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (As amended by Batasang Pambansa Blg. 874)

SECTION 28. Each party to a contract of insurance must communicated to the other, in good faith, all facts within his knowledge w/c are material to the contract & as to w/c he makes no warranty, & w/c the other has not the means of ascertaining.

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.

SECTION 31. Materiality is to be determined not by the event, but solely by the probable & reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.

SECTION 32. Each party to a contract of insurance is bound to know all the general causes w/c are open to his inquiry, equally w/ that of the other, & w/c may affect the political or material perils contemplated; & all general usages of trade.

SECTION 33. The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of w/c information is communicated.

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

SECTION 36. A representation may be oral or written.

SECTION 37. A representation may be made at the time of, or before, issuance of the policy.

SECTION 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.

SECTION 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.

SECTION 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.

SECTION 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.

SECTION 42. A representation must be presumed to refer to the date on w/c the contract goes into effect.

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.

SECTION 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract fr. 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)

SECTION 46. The materiality of a representation is determined by the same rules as the materiality of a concealment.

SECTION 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.

SECTION 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years fr. the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Title VI THE POLICY

SECTION 49. The written instrument in w/c a contract of insurance is set forth, is called a policy of insurance.

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.

SECTION 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;

(b) The amount to be insured except in the cases of open or running policies;

(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis & rates upon w/c the final premium is to be determined;

(d) The property or life insured;

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

(f) The risks insured against; &

(g) The period during w/c the insurance is to continue.

SECTION 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note & the premium therefor.

Cover notes may be extended or renewed beyond such sixty days w/ the written approval of the Commissioner if he determines that such extension is not contrary to & is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules & regulations governing such extensions for the purpose of preventing such violations & may by such rules & regulations dispense w/ the requirement of written approval by him in the case of extension in compliance w/ such rules & regulations.

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

SECTION 54. When an insurance contract is executed w/ an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.

SECTION 55. To render an insurance effected by one partner or part‑owner, applicable to the interest of his co‑partners or other part‑owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

SECTION 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.

SECTION 57. A policy may be 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.

SECTION 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy & the thing insured.

SECTION 59. A policy is either open, valued or running.

SECTION 60. An open policy is one in w/c the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss.

SECTION 61. A valued policy is one w/c expresses on its face an agreement that the thing insured shall be valued at a specific sum.

SECTION 62. A running policy is one w/c contemplates successive insurances, & w/c provides that the object of the policy may be fr. time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.

SECTION 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year fr. the time when the cause of action accrues, is void.

SECTION 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, & no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a) non‑payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(e) physical changes in the property insured w/c result in the property becoming uninsurable; or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

SECTION 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, & shall state (a) w/c of the grounds set forth in section sixty‑four is relied upon & (b) that, upon written request of the named insured, the insurer will furnish the facts on w/c the cancellation is based.

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

SECTION 67. A warranty is either expressed or implied.

SECTION 68. A warranty may relate to the past, the present, the future, or to any or all of these.

SECTION 69. No particular form of words is necessary to create a warranty.

SECTION 70. Without prejudice to section fifty‑one, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured & referred to in the policy as making a part of it.

SECTION 71. A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.

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 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.

SECTION 74. The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.

SECTION 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.

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

SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid & binding unless & until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

SECTION 78. An acknowledgment in a policy or contract of insurance or the receipt of premium is 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.

SECTION 79. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;

(b) Where the insurance is made for a definite period of time & the insured surrenders his policy, to such portion of the premium as corresponds w/ the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon & appears on the face of the policy, after deducting fr. the whole premium any claim for loss or damage under the policy w/c has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

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.

SECTION 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of w/c the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

SECTION 82. In case of an over‑insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by w/c the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

Title IX LOSS

SECTION 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.

SECTION 84. Unless otherwise provided by the policy, an insurer is liable for a loss of w/c a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss w/c the peril insured against was only a remote cause.

SECTION 85. An insurer is liable where the thing insured is rescued fr. a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, w/c permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured fr. a peril insured against.

SECTION 86. Where a peril is especially excepted in a contract of insurance, a loss, w/c would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril w/c was not excepted.

SECTION 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.

Title X NOTICE OF LOSS

SECTION 88. In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay.

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

SECTION 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject & interest.

SECTION 94. Where the insured is overinsured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment fr. the insurers in such order as he may select, up to the amount for w/c the insurers are severally liable under their respective contracts;

(b) Where the policy under w/c 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;

(c) Where the policy under w/c 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;

(d) 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;

(e) Each insurer is bound, as between himself & the other insurers, to contribute ratably to the loss in proportion to the amount for w/c he is liable under his contract.

Title XII REINSURANCE

SECTION 95. A contract of reinsurance is one by w/c an insurer procures a third person to insure him against loss or liability by reason of such original insurance.

SECTION 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, & also all the knowledge & information he possesses, whether previously or subsequently acquired, w/c are material to the risk.

SECTION 97. A reinsurance is presumed to be a contract of indemnity against liability, & not merely against damage.

SECTION 98. The original insured has no interest in a contract of reinsurance.