Philippine Insurance Code of 1974

Policy: what can be insured and who

Section 3 authorizes insurance for any contingent or unknown event, whether past or future, that may damnify a person having an insurable interest or create a liability against him, subject to the contract rules.
Section 3 removes spousal consent barriers by providing that the consent of the husband is not necessary for the validity of a married woman’s policy on her life or that of her children.
Section 3 allows an 18-years-or-more minor to contract for life, health, and accident insurance, provided the policy is taken on the minor’s own life and the beneficiary appointed is the minor’s estate or specific family relations enumerated in the section.
Section 3 grants the married woman or minor the rights and privileges of an owner of the policy.
Section 3 provides that all rights, title, and interest in the policy taken out by the original owner of the life or health of a minor automatically vest in the minor upon the original owner’s death, unless the policy provides otherwise.
Section 4 prohibits authorization for insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.
Section 6 permits any person, partnership, association, or corporation duly authorized to transact insurance business to be an insurer.
Section 7 allows anyone except a public enemy to be insured.
Section 8 governs mortgagor-mortgagee insurance: where a mortgagor effects insurance in his own name payable to the mortgagee, the insurance is deemed on the interest of the mortgagor, who remains a party; the mortgagor’s acts before loss that would avoid the insurance have the same effect, but acts required by the contract from the mortgagor may be performed by the mortgagee with the same effect as if done by the mortgagor.
Section 9 provides that if an insurer assents to transfer from mortgagor to mortgagee and imposes further obligations on the assignee by making a new contract, the mortgagor’s acts cannot affect the assignee’s rights.

Insurable interest and beneficiary limits

Section 10 establishes that every person has insurable interest in life and health of (a) himself, spouse, and children; (b) persons wholly or partly dependent for education or support or in whom he has pecuniary interest; (c) persons under legal obligation to him for money payment or respecting property/services where death or illness may delay performance; and (d) persons on whose life an estate or interest vested in him depends.
Section 11 grants the insured the right to change the beneficiary unless the insured expressly waives the right in the policy.
Section 12 requires forfeiture of the beneficiary’s interest when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the insured’s death; it directs that the nearest relative receives proceeds unless disqualified.
Section 13 defines insurable interest in property as any interest, relation, or liability of a nature that a contemplated peril might directly damnify the insured.
Section 14 allows insurable interest in property to consist of (a) existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy coupled with an existing interest from which the expectancy arises.
Section 15 recognizes a carrier or depository as having insurable interest to the extent of its liability but not exceeding the value held.
Section 16 denies insurability for mere contingent or expectant interests not founded on an actual right or valid contract.
Section 17 sets the measure of insurable interest in property as the extent the insured might be damaged by loss or injury.
Section 18 requires property insurance enforceability only for the benefit of some person having an insurable interest.
Section 19 requires insurable interest existence at the moment insurance takes effect and at the moment the loss occurs for property, but allows life/health interest to exist at inception without existing thereafter or when loss occurs.
Section 20 provides a rule where change of interest unaccompanied by a corresponding change in insurance suspends the insurance to an equivalent extent, except in specified cases and for life, accident, and health insurance.
Section 21 states that change of interest after the occurrence of injury resulting in loss does not affect the right to indemnity.
Section 22 provides that change of interest in one of several distinct things separately insured by one policy does not avoid insurance as to the others.
Section 23 provides that change of interest by will or succession upon death of the insured does not avoid insurance; the insured’s interest passes to the person taking the insured’s interest in the thing insured.
Section 24 provides that transfer by one of several partners, joint owners, or owners in common who are jointly insured does not avoid insurance even if insurance agreed to cease upon alienation.
Section 25 declares void stipulations requiring payment of loss whether the insured has no interest, or taking the policy as proof of such interest, and voids any policy executed by way of gaming or wagering.

Concealment and representations

Section 26 defines concealment as neglect to communicate what a party knows and ought to communicate.
Section 27 provides that concealment entitles the injured party to rescind the contract of insurance.
Section 28 requires each party to communicate in good faith all material facts known within the party’s knowledge, which the party makes no warranty about and which the other has no means of ascertaining.
Section 29 entitles the insurer to rescind when one insured intentionally and fraudulently omits to communicate information proving or tending to prove the falsity of a warranty.
Section 30 relieves either party from communicating certain matters unless answering inquiries, including matters the other knows, matters the other ought to know through ordinary care, matters the other waives, and matters relating to excluded or non-material risks.
Section 31 determines materiality based on the probable reasonable influence of facts upon the party to whom communication is due in forming an estimate of disadvantages or in making inquiries.
Section 32 binds each party to know general causes open to both parties’ inquiry and general usages of trade affecting political or material perils contemplated.
Section 33 allows waiver of the right to information of material facts by policy terms or by neglect to inquire when facts are distinctly implied in other communicated facts.
Section 34 provides that information about the nature or amount of interest of one insured need not be communicated unless answered to an inquiry, except as prescribed in Section 51.
Section 35 states neither party is bound to communicate its own judgment on matters in question even upon inquiry.
Section 36 provides that a representation may be oral or written.
Section 37 allows representation at the time of or before issuance.
Section 38 requires representations’ language interpreted by the same rules as contracts in general.
Section 39 treats representations as promises when about the future unless it appears merely belief/expectation.
Section 40 states representation cannot qualify an express provision but may qualify an implied warranty.
Section 41 permits alteration or withdrawal before the insurance is effected, but not afterwards.
Section 42 presumes a representation refers to the date the contract goes into effect.
Section 43 allows insured without personal knowledge to repeat information believed true with explanation or submit entire information; the insured is not responsible for truth unless from an agent whose duty includes giving the information.
Section 44 treats a representation as false when facts fail to correspond with its assertions or stipulations.
Section 45 grants rescission when a representation is intentionally false in a material point, whether affirmative or promissory.
Section 46 determines materiality of a representation by the same rules as concealment.
Section 47 applies the chapter to modification of an insurance contract as well as original formation.
Section 48 requires any insurer rescission right under the chapter to be exercised before commencement of an action on the contract.
Section 48 adds a life insurance limitation: after a life insurance policy payable on death has been in force during the insured’s lifetime for two years from the policy’s issue or last reinstatement, the insurer cannot prove the policy void ab initio or rescind based on fraudulent concealment or misrepresentation by the insured or agent.

Policy form, contents, cover notes, cancellation, and renewal

Section 49 defines a policy of insurance as the written instrument setting forth the contract.
Section 50 requires the policy be in printed form with blank spaces, with essential completion words written on the blank spaces; attached riders/clauses/warranties/endorsements are not binding unless their descriptive title/name is also mentioned and written in the blanks.
Section 50 requires countersignature by the insured or owner for riders issued after the original policy unless applied for by the insured/owner, and takes countersignature as agreement to contents.
Section 50 permits group insurance and group annuity policies to be typewritten and not printed.
Section 51 requires the policy specify: parties; amount insured (except for open/running policies); premium or basis/rates where exact premium depends on termination; property/life insured; insured’s interest in property if not absolute owner; risks insured against; and period of coverage.
Section 52 allows cover notes to bind insurance temporarily pending policy issuance, and requires that within sixty days after issue of a cover note, a policy shall be issued including identical insurance bound and the premium.
Section 52 allows cover note extension/renovation beyond sixty days only with the Commissioner’s written approval when not contrary to and not for violating the Code; the Commissioner may issue rules governing extensions and may dispense with written approval for extensions complying with such rules.
Section 53 requires insurance proceeds to 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 permits execution with an agent or trustee as insured and allows indicating real party in interest by describing the insured as agent or trustee or by general words.
Section 56 states that if the insured description is general enough to comprehend any person or class, only the one who shows it was intended to include him may claim policy benefit.
Section 57 allows framing to insure to the benefit of whomever becomes the owner of the insured interest during the risk period.
Section 58 provides that mere transfer of the thing insured does not transfer the policy and suspends it until the same person becomes owner of both policy and thing insured.
Sections 59–62 classify policies:
- Open: value not agreed, left to be ascertained in case of loss.
- Valued: specified sum on the face.
- Running: successive insurances with object defined by additional statements/endorsements.
Section 63 voids any policy condition limiting time to commence an action to less than one year from when cause of action accrues.
Section 64 prohibits cancellation of non-life policies except on prior notice to the insured and requires cancellation notice be effective only on specified grounds based on occurrences after the effective date:
- non-payment 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 hazard;
- physical changes making property uninsurable; or
- a Commissioner determination that continuation would violate or place insurer in violation of the Code.
Section 65 requires cancellation notices in writing, mailed or delivered to the named insured at the address shown in the policy, stating (a) the relied-upon ground under Section 64, and (b) that upon written request the insurer will furnish the facts on which cancellation is based.
Section 66 grants renewal protection for non-life policies:
- If insurer does not mail or deliver notice of non-renewal or conditioned renewal (reduced limits or elimination of coverages) at least 45 days in advance of end of policy period, the named insured is entitled to renew upon payment of the premium due on the effective date of renewal.
- Policies for a term less than one year are treated as one year; policies longer than one year or without fixed expiration are treated as successive one-year terms.

Warranties and premiums binding effect

Section 67 defines warranties as expressed or implied.
Section 68 allows warranties to relate to past, present, future, or any/all.
Section 69 states no special form of words is necessary to create a warranty.
Section 70 requires that every express warranty made at or before execution must be contained in the policy itself or in another instrument signed by the insured and referred to in the policy as part of it (without prejudice to Section 51).
Section 71 deems statements in the policy of matters relating to the person/thing insured or to the risk as fact as express warranties.
Section 72 treats policy statements intended to do or not do acts materially affecting risk as warranties that the act/omission shall take place.
Section 73 provides that when loss happens before performance time of a future warranty, or performance becomes unlawful/impossible at contract place, omission to fulfill the warranty does not avoid the policy.
Section 74 states violation of a material warranty or other material policy provision by either party entitles the other to rescind.
Section 75 allows policies to declare specified violations avoid the policy; otherwise breach of an immaterial provision does not avoid.
Section 76 provides that breach of warranty without fraud merely exonerates the insurer from the time it occurs, or prevents the policy from attaching to the risk where broken in inception.
Section 77 entitles insurer to premium as soon as the thing insured is exposed to the peril insured against, and provides that no policy issued by an insurance company is valid and binding unless and until the premium has been paid, except for life or industrial life where a grace period provision applies.
Section 78 makes an acknowledgment of premium receipt in a policy conclusive evidence of payment to make the policy binding, notwithstanding a stipulation that binding depends on actual payment.
Section 79 grants return of premium rules:
- whole premium if no part of insured interest is exposed to any covered perils;
- for definite-period insurance, if insured surrenders policy, pro rata unexpired time (short period rate only if agreed and appears on face), after deducting any already-accrued claim for loss/damage under the policy; and
- a life policy holder may not avail this paragraph without sufficient cause as provided by law.
Section 80 denies return if a peril insured against existed and insurer was liable even for a short period for that risk.
Section 81 entitles return of premium when contract is voidable due to fraud/misrepresentation by insurer/agent or due to insured ignorance without fault; or when due to insured default other than actual fraud, insurer never incurred liability.
Section 82 provides ratable return in over-insurance by several insurers where aggregate sums exceed insurable value, proportioned to the excess.

Loss, proximate cause, notice, and double insurance

Section 83 declares agreements not to transfer the insured’s claim after loss is void if made before loss, except for life insurance.
Section 84 requires insurer liability for loss where a peril insured against is proximate cause, even if an uncontracted peril is a remote cause; insurer is not liable where insured peril is only a remote cause.
Section 85 imposes liability when the insured thing is rescued from a peril insured against that would have caused loss, and during rescue the thing is exposed to an uninsured peril that permanently deprives the insured of possession wholly or partly, or where loss is caused by efforts to rescue from an insured peril.
Section 86 provides that if a peril is especially excepted, losses that would not have occurred but for that peril are excepted even if immediate cause was an unexcepted peril.
Section 87 bars insurer liability for loss caused by willful act or connivance of the insured, and clarifies insurer is not exonerated by negligence of the insured, agents, or others.
Section 88 provides notice exoneration for fire loss: insured is exonerated if notice is not given to the insured (or person entitled to benefit) without unnecessary delay when not given by the insured or someone entitled.
Section 89 states that where preliminary proof of loss is required, insured need not give proof necessary in court; best evidence available at the time suffices.
Section 90 waives defects in notice or preliminary proof that insured could remedy when insurer omits to specify objections without unnecessary delay.
Section 91 waives delay in presenting notice or proof if caused by insurer’s act or if insurer fails to object promptly and specifically on that ground.
Section 92 requires reasonable diligence to procure certificates/testimony of a person other than the insured if policy requires it; if refusal occurs, insured furnishes reasonable evidence of refusal not induced by just grounds of disbelief.
Section 93 defines double insurance as when the same person is insured by several insurers separately for the same subject and interest.
Section 94 provides rules on over-insurance by double insurance:
- unless policy provides otherwise, insured may claim payment from insurers in any order up to amounts each insurer is severally liable for;
- if claiming policy is valued, insured must give credit for sums received under other policies against the valuation without regard to actual value;
- if claiming policy is unvalued, insured must give credit against full insurable value for sums received under other policies;
- excess over valuation (valued) or insurable value (unvalued) must be held in trust for insurers according to contribution rights; and
- each insurer must contribute ratably in proportion to its contract liability.

Reinsurance and marine insurance coverage rules

Section 95 defines reinsurance as a contract where an insurer procures a third person to insure it against loss or liability by reason of original insurance.
Section 96 requires communication of original insured representations and material knowledge/information possessed by reinsured insurer except under automatic reinsurance treaties.
Section 97 presumes reinsurance is indemnity against liability, not merely damage.
Section 98 provides the original insured has no interest in a contract of reinsurance.
Section 99 defines marine insurance broadly to include insurance against loss/damage involving vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debt, valuable papers, bottomry and respondentia interests, and other property/interests connected with risks or perils of navigation, transit, transportation, assembly/packing/creting/baling/compression or preparation for shipment, awaiting shipment, and delays/storage/trans-shipment/reshipment incident thereto (including war risks, marine builder’s risks, and personal property floater risks).
Section 99 also includes marine-related insurance interests such as liability arising from construction/repair/operation/maintenance/use of the subject matter, while excluding life insurance or surety bonds and excluding bodily injury to persons arising out of automobile ownership/maintenance/use.
Section 99 covers precious stones, jewels, jewelry, and precious metals, whether in transportation or otherwise.
Section 99 includes insurance on bridges, tunnels, and other instrumentalities of transportation and communication, excluding certain categories of buildings and related contents while including aids to navigation and transportation and related equipment.
Section 99 defines marine protection and indemnity insurance as insurance against or against legal liability for loss/damage/expense incident to ownership/operation/chartering/maintenance/use/repair/construction of a vessel/instrumentality in ocean or inland waterways, including liability for personal injury, illness, death, or property loss/damage of another person.

Seaworthiness, voyage, deviations, and marine losses

Section 113 implies warranty in every marine insurance upon a ship or freight or upon any subject of marine insurance that the ship is seaworthy.
Section 114 defines seaworthiness as reasonable fitness to perform contemplated service and encounter ordinary perils of the voyage.
Section 115 clarifies seaworthiness timing:
- if insurance for a specified length of time, seaworthiness must exist at commencement of every voyage undertaken during that time; and
- if cargo to be transshipped at an intermediate port, seaworthiness must exist at commencement of each particular voyage for each vessel used for cargo shipping/trans-shipment.
Section 116 extends seaworthiness to proper lading, competent master/officers/seamen, and requisite appurtenances/equipment/stores for the voyage.
Section 118 provides insurer exoneration when ship becomes unseaworthy during the voyage and unreasonable delay in repairing the defect causes loss, at least on ship or shipowner’s interest.
Section 119 provides ship may be seaworthy for ship insurance yet unseaworthy for cargo insurance if unfit to receive cargo.
Section 120 provides that if nationality or neutrality is expressly warranted, implied warranties require carrying requisite documents showing such nationality/neutrality and not carrying documents casting reasonable suspicion.
Section 121 provides the voyage conforms to the mercantile-usage course between places of beginning and ending.
Section 122 provides if course not fixed by mercantile usage, voyage is the natural, direct, and advantageous way between specified places as understood by a master of ordinary skill and discretion.
Section 123 defines deviation as departure from the insured voyage course, unreasonable delay in pursuing it, or commencement of an entirely different voyage.
Section 124 states deviation is proper when caused by circumstances beyond master/owner control; when necessary to comply with a warranty or avoid peril whether peril insured or not; when made in good faith on reasonable grounds; or when made in good faith to save human life or relieve a vessel in distress.
Section 125 provides any deviation not within Section 124 is improper.
Section 126 provides insurer is not liable for losses happening after an improper deviation.
Section 127 provides marine losses may be total or partial.
Section 128 provides non-total losses are partial.
Section 129 provides total losses may be actual or constructive.
Section 130 defines actual total loss as total destruction; irretrievable loss by sinking/broken up; damage rendering it valueless for intended purpose; or any event effectively depriving owner of possession at port of destination.
Section 131 defines constructive total loss as giving a right to abandon under Section 139.
Section 132 provides actual loss may be presumed from continued absence of a ship without being heard of, with sufficiency of time depending on circumstances.
Section 133 extends cargo liability where voyage prevented at an intermediate port by perils insured against and cargo reshipped, and allows an additional premium if hazard increased by extension.
Section 134 requires the marine insurer to pay damages, expenses of discharging, storage, reshipment, extra freightage, and other expenses incurred in saving reshipped cargo up to the amount insured, and limits liability to insured value or insurable value if any.
Section 135 provides that upon actual total loss, insured is entitled to payment without notice of abandonment.
Section 136 governs free-from-particular-average arrangements, stating insurer is not liable for particular average losses that do not deprive possession of the whole thing/class at port of destination even if entirely worthless, but remains liable for proportion of all general average assessed on the insured thing.
Section 137 provides that insurance confined to actual total loss does not cover constructive total loss but covers any loss that necessarily deprives possession of the entire thing insured at port of destination.

Marine abandonment and indemnity measures

Section 138 defines abandonment in marine insurance as an insured act, after constructive total loss, declaring relinquishment of the insured’s interest in the thing to the insurer.
Section 139 allows abandonment and recovery for total loss when cause is a peril insured against:
- if more than three-fourths in value is actually lost or would have to be expended to recover it;
- if injured to such extent as to reduce value more than three-fourths;
- if the thing insured is a ship and contemplated voyage cannot lawfully be performed without incurring expense to the insured of more than three-fourths the value abandoned or incurring a risk a prudent man would not take; or
- if the thing insured is cargo or freightage and the voyage cannot be performed (or another ship procured) within a reasonable time with reasonable diligence without incurring like expense or risk; and freightage cannot be abandoned unless the ship is also abandoned.
Section 140 requires abandonment be neither partial nor conditional.
Section 141 requires abandonment be made within a reasonable time after receipt of reliable information; if information is doubtful, insured gets reasonable time to inquire.
Section 142 provides abandonment becomes ineffectual if information proves incorrect or the thing was restored such that no total loss existed when abandonment was made.
Section 143 allows notice of abandonment orally or in writing, but if oral, a written notice must be submitted within seven days.
Section 144 requires notice explicit and specifying the particular cause, but it need not include proof of interest or loss—only enough to show probable cause.
Section 145 limits abandonment to the cause specified in notice.
Section 146 provides abandonment is equivalent to transfer by insured of its interest to the insurer with chances of recovery and indemnity.
Section 147 grants insurer-paid treatment: if insurer pays as if actual total loss, insurer is entitled to what remains of the thing, proceeds, or salvage as if there had been formal abandonment.
Section 148 places post-loss good-faith acts of the insured’s agents regarding the thing insured at insurer’s risk and for insurer’s benefit after abandonment.
Section 149 provides that proper notice does not prejudice insured rights by insurer’s refusal