INSURANCE

DEFINITION: (SECTION 2)

CONTRACT OF INSURANCE: an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown or contingent event.

 Insurance may also be defined as a contract whereby one party called the insurer undertakes for a
consideration to pay another called the insured, or his beneficiar, upon the happening of theperil insured
against, whereby the party insured or his beneficiary suffers loss or damage or is exposed to liability.

TEST

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act
required to be performed, and the exact nature of agreement in the light of the occurrence, contingency or
circumstances under which the performance becomes requisite. It is not by what it is called.

In Philamcare Health systems v. Ca: (considered an insurance contract even referred to as a health plan)
in this case, the insurable interest of respondent’s husband in obtaining the health care agreement was
his own health. Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contigen, the health careprovider must pay for the same to the extent agreed
upon under the contract.

In Philippine Health Care Provider Inc. v. CIR: (different conclusion of SC) The SC concluded that the
elements of insurance contract are absent. The court ruled there was no indemnity precisely because
the member merely avails of medical services to bepaid or alreadypaid in advance ata pre-agreed price
under the agreementbut the extension of medical services to themember at an affordable cost. It did
not partake of the nature of a contract of insurance.

Consequently, there is a need to distinguish prepaid service contracts from the usual insurance contract. An entity
undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return
on its investment. But it is not the risk of the type peculiar only to insurance companies.

Pre-need company may be authorized to issue plans if any or all of the following

 Educational plan
 Pension plan
 Life or memorial plan

Health plan is not a pre-need plans.

SURETYSHIP: (Regulatory purposes) A contract of suretyship shall be deemed to be an insurance contract within the
meaning of the insurance code when made by a surety who or which, as such, is doing an insurance business.

NCC: agreement whereby one binds himself solidarily with the principal debtor.

PRE-NEED PLANS (RA 9829): contracts, agreements, deeds or plans for the benefit of the planholders which provide for
the performance of future service/s, payments of monetary considerations or delivery of other benefits at the time of
actual need or agreed maturity date, as specified therein, in exchange for cash or installments amounts with or without
interest or insurance coverage and includes life, pension, education, interment and other plans, instruments, contracts
or deeds as may be determined by I.C.
VARIABLE PLANS: 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 desugnated 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.

DOING AN INSURANCE BUSINESS

1. Making or proposing to make, as insurer, any insurance contract;

2. 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;
3. Doing anu kind of business, including a reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of the Code.
4. 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.

Profit not material

- 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.
- In same case, a single transaction is suffering to consider that the party who extends the protection under
the cntract is engaged in insurance business because the law considers making “any” insurance contract as
engaging in the busines of insurance.

BANCASSURANCE: The presentation and sale to bank customers by an insurance company of its insurance products
within the premises of the head office of such bank duly licensed by the BSP or any of its branches under such rules and
regulations which the Commissioner and the BSP may promulgate.

MUTUAL INSURANCE COMPANIES

- Company owned by policyholders

- It is designed to promote the welfare of its members and the money collected from among them is solely for
their own protection.
- It has no capital stock and the premiums or contributions of the members are the only sources of funds to
meet lossesand expenses.

APPLICABLE LAWS

- Primary law: Insurance code of the philippines (PD No. 602)

- Pd no. 602 was ameded by pd nos. 1141, 1280, 1455, 1460, 1814, and 1982 and bp blg. 874.
- Most recent amendment : RA No. 10607 dated August 15, 2013. Published in genereal circulation on
September 5, 2013.

 New civil code provisions governs suppletorily

o Right of subrogations: the new civil code specifically deals with the right of the insurer to subrogation
(Article 2207)
  Corporation code: by express provisions of Sections 191 of the Insurance Code, the provisions of the Corporation
Code of the Philippines shall apply to all insurance corporations engaged in the business in the Philippines
insofar as they do not conflict with the provisions of the Insurance Code.

ELEMENTS

 The insured has an insurable interest

 The insured is subject to risk of loss by the happening of the designated peril
 The insurer assumes the risk
 Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk; and
 In consideration of the insurer’s promise, the insured pays a premium

It should be noted however that insurance must have all the essential elements of a valid contract.

DISTRIBUTION OF LOSSES

 It is required that the assumption of risk by the insurer is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk. This is an affirmation of the fact that insurance is a “risk-
spreading” device.

RISK: Element of an insurance contract that the iinsured is subject to a risk by the happening of the designated peril.

 Sec 3. Any contingent or unknwon event, whether past or future, which may damnify a person having an
insurable interest, or create a liability against him, may be insured against...

Requirement of insurable interest

1. There must be a large number of homogenous exposure units

2. The loss must be accidental and unintentional
3. The loss must be determinate and measurable
4. The loss should not be catastrophic
5. The chance of loss must be calculable
6. The premium must be economically feasible

PURE RISK vs. SPECULATIVE RISK

PURE RISK: Defines as a situation where the possibility is either the person involved will suffer a loss or he will not suffer
a loss. This involves the possibility that one’s property may be destroyed or the possibility that one may suffer economic
loss because of premature death or injury.

SPECULATIVE RISK: May either result in gain or loss

Eg: gambling

Pure risk results in either loss or “no loss” while speculative risk may results in either loss or gain.