The Policy in Insurance
What constitutes a policy of insurance – A policy of insurance is the “written instrument in which a contract of insurance is set forth.”
Ty v. First National Surety & Assurance Co., Inc.
G.R. No. L-16138, 29 April 1961
Diosdado Ty insured himself in 18 life policies, with his employer as a beneficiary. When a fire broke, Ty’s left hand was injured by a heavy object making it temporarily paralyzed. When he claimed his insurance, he was denied by the insurance companies on the ground that per contract what is compensable by a loss of hand refers to amputation and not paralysis.
HELD: The insurance companies are not liable. The Court cannot go beyond the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand by amputation through the bones of the wrist. There being no amputation, the insured cannot recover. The insurance policies are the law between the parties.
“While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand ‘by amputation through the bones of the wrist.’ There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was that the physical injuries ‘caused temporary total disability of plaintiff’s left hand.’ Note that the disability of plaintiff’s hand was merely temporary, having been caused by fracture of the index, the middle and the fourth fingers of the left hand.”
Policy required to be in printed form – The policy is required to be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance are to be written on the blank spaces provided therein. Notwithstanding, the policy may be in electronic form subject to the law on Electronic Commerce Act and the rules and regulations that may be prescribed by the Insurance Commissioner.
Rider, clause, warranty or endorsement purporting to be part of contract of insurance – Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is required to have its descriptive title or name of the rider, clause, warranty or endorsement be mentioned and written on the blank spaces provided in the policy. Otherwise, the rider, clause, warranty or endorsement is not binding on the insured.
Same; Counter-signed by insured or owner – Unless applied for by the insured or owner, the latter is required to countersign the rider, clause, warranty or endorsement issued after the original policy as such countersignature will be taken as his agreement to the contents thereof.
Best Legal Practices
- Riders, clause, warranty, or endorsement counter-signed – Insurance contracts already come in forms. Hence, any rider, clause, warranty, or endorsement added to the policy should be counter-signed by the insurer to be valid.
What must be specified in a policy of insurance – A policy of insurance must specify:
- The parties between whom the contract is made;
- The amount to be insured except in the cases of open or running policies;
- 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 and rates upon which the final premium is to be determined;
- The property or life insured;
- The interest of the insured in property insured, if he is not the absolute owner thereof;
- The risks insured against; and
- The period during which the insurance is to continue.
Cover notes binds insurance temporarily pending issuance of policy – Pending the issuance of the policy, cover notes may be issued to bind the insurance temporarily. Within 60 days after the issuance of the cover note, the policy is required to be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium thereof. The cover notes may be extended for renewed beyond 60 days only with the written approval of the Insurance Commissioner.
Insurance proceeds applied exclusively to insured or beneficiary – Unless otherwise specified in the policy, the insurance proceeds is to be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made.
Principal’s agent or trustee as insured to be indicated in policy – When an insurance contract is executed with the principal’s 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.
Insurance effected by partners or part-owners requires policy’s terms to be applicable to joint or common interest of them – 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.
Construction of policy couched in general terms favors one who can show that it intended to include him – 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. Related thereto, a policy may be so framed that it will inure to the benefit of whomsoever may become the owner of the interest insured during the continuance of the risk. 
Transfer of thing insured suspends policy until same person owns policy and thing insured – The mere transfer of a thing insured does not transfer the policy; however, the policy is suspended until the same person becomes the owner of both the policy and the thing insured.
What constitutes open, valued, or running policy – A policy may either be open, valued, or running. An open policy is “one in which the value of the thing insured is not agreed upon, and the amount of the insurance merely represents the insurer’s maximum liability.” A valued policy is “one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.” A running policy is “one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.”
Void stipulation limiting commencement of action for a period less than 1 year – 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 from the time when the cause of action accrues, is void.
Sun Insurance v. Court of Appeals
G.R. No. 89741, 13 March 1991
Emilio Tan insured the electrical supply store of his brother. Four days after, the store burned down. His claim was rejected by the insurance company. He filed for reconsideration. Still, it was rejected. When he filed a case against the insurance company, the latter posits the defense that the cause of action had already prescribed as the 12 months within which to claim under the contract elapsed.
HELD: The insurance company was not liable. It is clear in Condition No. 27 of the policy that there is a one year prescription. Moreover, filing reconsideration with the insurance company does not interrupt the running of the prescription. The condition in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared. Cause of action accrues from the denial of the insured’s right to claim.
Policy written for less than 1 year term considered as a 1 year term – Any policy written for a term of less than one year is considered as if written for a term of one year. Meanwhile, any policy written for a term longer than one year or any policy with no fixed expiration date is considered as if written for successive policy periods or terms of one year. 
Grounds for cancellation of insurance policy – Except life insurance, the insurer is obligated to cancel an insurance policy after sending to the insured a prior notice of cancellation, which is effective only if based on the occurrence, and after the effectivity of the policy, of one or more of the following:
- Nonpayment of premium;
- Conviction of a crime arising out of acts increasing the hazard insured against;
- Discovery of fraud or material misrepresentation;
- Discovery of willful or reckless acts or omissions increasing the hazard insured against;
- Physical changes in the property insured which result in the property becoming uninsurable;
- Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or
- A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.
Written notices of cancellation required to be mailed or delivered to named insured at address in policy – All notices of cancellation mentioned above is required to be in writing, mailed, or delivered to the named insured at the address shown in the policy, or to his broker provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf, and it has to state:
- Which of the grounds for cancellation is relied upon; and
- That, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.
Insured entitled to renewal unless
insurer informs intention not to renew at least 45 days in advance of end of
policy period – In
case of non-life insurance, the named insured is entitled to renew the policy
upon payment of the premium due on the effective date of the renewal.
The latter rule does not apply if the insure,r at least 45 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 coverage.
 P.D. 612 (Insurance Code), as amended, Section 49.
 Ibid. Paragraph 1, Section 50.
 Ibid. Paragraph 4, Section 50.
 Ibid. Paragraph 2, Section 50.
 Ibid. Paragraph 2, Section 50.
 Ibid. Paragraph 3, Section 50.
 Ibid. Section 51.
 Ibid. Section 51 (a).
 Ibid. Section 51 (b).
 Ibid. Section 51 (c).
 Ibid. Section 51 (d).
 Ibid. Section 51 (e).
 Ibid.Section 51 (f).
 Ibid. Section 51 (g).
 Ibid. Section 52.
 Ibid. Paragraph 1, Section 52.
 Ibid. Paragraph 1, Section 52. “Cover notes may be extended or renewed beyond such sixty (60) days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this [Insurance Code]. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations” (Ibid.).
 Ibid. Section 53.
 Ibid. Section 54.
 Ibid. Section 55.
 Ibid. Section 56.
 Ibid. Section 57.
 Ibid. Section 58.
 Ibid. Section 59.
 Ibid. Section 60. “The value of such thing insured shall be ascertained at the time of the loss” (Ibid.).
 Ibid. Section 61.
 Ibid. Section 62.
 Ibid. Section 63.
 Ibid. Section 66.
 INSURANCE CODE, as amended. Section 64.
 Ibid. Section 64 (a).
 Ibid. Section 64 (b).
 Ibid. Section 64 (c).
 Ibid. Section 64 (d).
 Ibid. Section 64 (e).
 Ibid. Section 64 (f).
 Ibid. Section 64 (g).
 Ibid. Section 65.
 Ibid. Section 65 (a).
 Ibid. Section 65 (b).
 Ibid. Section 66.
 Ibid. Section 66.