Concept of Insurance

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What constitutes a contract of insurance – A 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.”[1]

Same; Surety when an insurance contract – Within the meaning of the Insurance Code, a contract of suretyship is deemed as an insurance contract “only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.”[2]

Best Legal Practices

  • Safekeeping insurance contract or policy is highly recommended – As an insurance contract or policy is one that requires to be in writing, safekeeping the same is highly recommended considering it is the best evidence available.

What constitutes doing an insurance business – The term doing an insurance business or transacting an insurance business includes:[3]

  • Making or proposing to make, as insurer, any insurance contract;[4]
  • Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;[5]
  • 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;[6] or
  • Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Code.[7]

Insurance contracts covered by the Insurance Code – The following are the insurance contracts covered and governed by the Insurance Code:(a) Marine Insurance;[8] (b) Fire Insurance;[9] (c) Casualty Insurance;[10] (d) Suretyship;[11] (e) Life Insurance;[12] (f) Microinsurance;[13] (g) Variable Contracts;[14] and (h) Reinsurance Contracts.[15]

Same; Highly regulated industry – “The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the insurance business.”[16]

Philamcare Health Systems v. Court of Appeals
G.R. No. 125678, 18 March 2002

Insured Ernani Trinos answered “No” to the question of whether he or any of his family members have ever consulted or been treated for, among others, heart attack, in the insurance application form. Trinos died of heart attack. PHILAMCARE denied the insurance claim on the ground of fraud.

HELD: PHILAMCARE was liable. Health insurance is a contract of indemnity. When Trinos answered the question it was out of good faith. Moreover, fraudulent intent on his part was not established.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.”

More importantly, the cancellation of health care agreement require the following conditions: (1) prior notice; (2) notice of cancellation must be based on the grounds mentioned in Sec. 64 of the Insurance Code;[17] (3) must be in writing, mailed or delivered to the insured at the address shown in the policy; and (4) must state the grounds relied upon provided in section 64. None of which were followed.

The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even if they are untrue. Fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.

What may be insured – Subject to law, anyone may take out an insurance against any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him.[18]

Spousal consent not necessary for validity of insurance policy – A married person is not required to obtain spousal consent in order to validly obtain an insurance policy on his/her life or that of his/her children.[19]

Insurance proceeds automatically go to insured by default – Unless otherwise stipulated in the policy, all rights, title, and interest in the policy of insurance taken out by an original owner on the life or health of the person insured automatically vests in the latter upon the death of the original owner.[20]


[1] P.D. 612 (Insurance Code), as amended, Section 2 (a).

[2] Ibid.

[3] INSURANCE CODE. as amended. Section 2 (b). “In the application of the provisions 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 therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business” (Paragraph 2, Ibid.).

[4] Ibid. Section 2 (b) (1).

[5] Ibid. Section 2 (b) (2).

[6] Ibid. Section 2 (b) (3).

[7] Ibid. Section 2 (b) (4).

[8] INSURANCE CODE, as amended. Section 101. Marine insurance includes: “(a) Insurance against loss of or damage to… (1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, instruments of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder’s risks, and all personal property floater risks… (2) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles)… (3) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; and… (4) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways… (b) Marine protection and indemnity insurance, meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.

[9] Ibid. Section 169. In fire insurance, “the term fire insurance shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies” (Ibid.).

[10] Ibid. Section 176. Casualty insurance is “insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer’s liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance” (Ibid.).

[11] Ibid. Section 177. A contract of suretyship is “an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the oblige” (Ibid.).

[12] Ibid. Section 181.  Life insurance is “insurance on human lives and insurance appertaining thereto or connected therewith” (Ibid.).

[13] Ibid. Section 187. Microinsurance is “a financial product or service that meets the risk protection needs of the poor where… (a) The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and… (b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of the current daily minimum wage rate for nonagricultural workers in Metro Manila” (Ibid.).

[14] Ibid. Section 238 (b). “The term variable contract shall mean any policy or contract on either a group or on an individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not be deemed to be a security or securities as defined in The Securities Act, as amended, or in the Investment Company Act, as amended, nor subject to regulations under said Acts” (Ibid.).

[15] Ibid. Section 97. A contract of reinsurance is “one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance” (Ibid.).

[16] Tongko v. The Manufacturers Life Insurance Co. (Phils.), Inc., G.R. No. 167622, 29 June 2010 (En Banc).

[17] Any one or more of the following: (1) non-payment of premium, (2) conviction of a crime arising out of facts increasing the hazard insured against, (3) discovery of fraud or material misrepresentations, (4) discovery of willful or reckless acts or omissions increasing the hazard insured against, (5) physical changes in property insured in which result in the property becoming uninsurable, (6) a determination by the Commissioner that the continuance of the policy would violate or would place the insurer in violation of the Insurance Code.

[18] Ibid. Paragraph 1, Section 3.

[19] Ibid. Paragraph 2, Section 3.

[20] Ibid. Paragraph 3, Section 3. There can be no insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize (Section 4, Ibid.).

©2020 BUSINESSLAW.PH. All rights reserved. Statements and opinions of the author are of his own, and does not reflect any organization he may be connected or affiliated. All information herein are for educational and general information only. The content should not be considered as a legal advice or opinion. Please consult a lawyer to address your specific concerns.
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