The Insurance Code Code, shall include (a) making or proposing to make, as insurer,
CHAPTER I any insurance contract; (b) making or proposing to make, as
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
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 corporation, partnership, or association
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.
Is it alright if both the mortgagor and the mortgage
insure the same property?
YES. The mortgagor and the mortgagee have each an
insurable interest in the property mortgaged, and this
interest is separate and distinct from the other.
Consequently, insurance taken by one in his own name
only and in his favor alone does not inure to the benefit
of the other. And in case both of them take out separate
insurance policies on the same property, or one policy
covering their respective interests, the same is not open
to the objection that there is double insurance.
What is the extent of the insurable interest of the
mortgagor?
The mortgagor of the property, as owner has an
insurable interest to the extent of the value of the
property, even if the mortgage debt is equal to such
value. The reason is that the loss or destruction of the
property insured will NOT extinguish the mortgage debt.
What is the extent of the insurable interest of the
mortgagee?
The mortgagee or his assignee has an insurable interest
in the mortgaged property to the extent of the debt
secured, such interest continues until the mortgage debt
is extinguished.
Up to what extent can each recover?
The mortgagor cannot recover upon the insurance
beyond the full amount of the loss, and the mortgagee
cannot recover in excess of the credit at the time of the
loss.
Under Sec. 8, what are the effects of insurance when
the mortgagor effects insurance in his own name and
provides that the loss be payable to the mortgagee?
The legal effects of this are:
(1)The contract is deemed to be upon the interest of the
mortgagor; hence he does NOT cease to be a party to
the contract;
(2)Any action of the mortgage prior to the loss which
would otherwise avoid the insurance affects the
mortgagee even if the property is in the hands of the
mortgagee;
(3)Any act which under the contract of insurance is to be
performed by the mortgagor may be performed by the
mortgagee;
(4)In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit; and
(5)Upon recovery by the mortgagee to the extent of his
credit, the debt is extinguished.
What is the effect if the mortgagee affects insurance
on behalf of the mortgagor?
Practically the same rules apply. Upon the destruction of
the property, then the mortgagee is entitled to receive
 the proceeds equal to the amount of the mortgage
credit. Such payment operates to discharge the debt.
TAKE NOTE: Art. 2127. The mortgage extends to the
natural accession, to the improvements, growing
fruits, and the rents or income not yet received when
the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from
the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the
declarations, amplifications and limitations
established by law, whether the estate remains in
the possession of the mortgagor, or it passes into the
hands of a third person.
PROBLEMS:
Baobei is the owner of a house worth 10K which he mortgaged
to Moochi to secure a loan of 7K. What are the insurable
interests of each?
Insurable interest of Baobei, mortgagor is P10K, while the
insurable interest of Moochi, mortgagee is P7K.
Moochi insured for 1M her house with the policy providing that
the loss shall be payable to Baobei. The house was mortgaged to
Baobei as security for a loan of P750K. It was totally destroyed
by accidental fire. Who may recover on the policy?
Baobei, the mortgagee may receive the 1M but is entitled only
to the extent of his credit of P750T, and he shall hold as
trustee for A, mortgagor, the excess of P250T.
Supposing before the fire occurred Baobei had already been
paid, who, if at all, will receive the proceeds?
MOOCHI will receive the proceeds. The reason is that Moochi
effected the insurance in her own name and she did NOT cease
to be a party to the contract although it was provided that the
indemnity be paid to Baobei.
Suppose it was Baobei, mortgagee who insured the house for
1M. If the loss occurred before Baobei was paid who is entitled
to receive the proceeds?
Baobei, but Baobei can only recover P750T, the amount of his
credit.
What if the loss occurred after Baobei was paid, can he still
receive the proceeds?
No. Upon payment of the debt, B lost his insurable interest in
the property.
Will Moochi get the proceeds?
No. Because Moochi was never a party to the contract. It is
important to note that it was Baobei, mortgagee who effected
the insurance.
SECTION 9. If an insurer assents to the transfer of an
insurance from 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.
(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.

*KEYMAN INSURANCE
Under this section, where an insurer assents to the
transfer of insurance from a Mortgagor (Mor) to a
What is insurable interest?
Mortgage (Mee), and at the time of his assent the insurer
imposes further obligation on the Mee, a new and
Insurable interest is one the most basic of all
distinct consideration passed from the Mee to the
requirements in insurance. In general, a person is
insurer, and a new contract is created between them.
deemed to have insurable interest in the subject matter
The acts of the Mor cannot anymore affect the rights of
insured where he has a relation or connection with or
the Mee.
concern in it that he will derive pecuniary benefit or
advantage from its preservation and will suffer
This provision provides the exception to the rule IN Sec.
pecuniary loss or damage from its destruction,
8 that all acts of the mortgagor affects the mortgagee.
termination or injury by the happening of the event
insured against.
Title III INSURABLE INTEREST
SECTION 10. Every person has an insurable interest in the
Why must there be an insurable interest?
life & health:
It is essential for validity and enforceability of the
(a) Of himself, of his spouse & of his children;
contract or policy. A policy issued to a person without
(b) Of any person on whom he depends wholly or in part interest in the subject matter is a mere wager policy or
for education or support, or in whom he has a pecuniary contract.
interest;
 When is there insurable interest in life insurance?
In life insurance, Insurable interest exists where there
is reasonable ground founded on the relations of the
parties whether pecuniary, contractual or by blood or
affinity, and to expect some benefit or advantage from
the continuance of the life of the insured.
Baobei takes an insurance policy on his life and
names his friend Matti as beneficiary, and another
insurance on the life of Moochi in consideration of
“love and affection” with Baobei as a beneficiary.
Which of the two insurances, if any, is valid and
which, if any, is void?
The Insurance taken on Baobei on his life is VALID,
because the beneficiary need not have an insurable
interest in the life of the insured. It must be the one
insuring who has an insurable interest in the life of the
person he is insuring, and it goes without saying that
one has an insurable interest in his own life and health.
ON the other hand, the insurance taken by Baobei on
the life of Moochi is VOID because “love and affection
for the insured” in the part of the person insuring is
NOT sufficient ground to qualify as insurable interest.
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.
What is a beneficiary?
A beneficiary is a person whether natural or juridical
for whose benefit the policy is issued and is the
recipient of the proceeds in the insurance.
Who can be a beneficiary?
Any person in general can be a beneficiary.
XPN: The only persons disqualified from being a
beneficiary are those not qualified to receive donations
under Art. 739. They cannot be named beneficiaries of a
life insurance policy by the person who cannot make any
donation to him.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation; (2) Those made
between persons found guilty of the same criminal offense, in
consideration thereof; (3) Those made to a public officer or his
wife, descedants and ascendants, by reason of his office. In the
case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the
guilt of the donor and donee may be proved by preponderance
of evidence in the same action.
In case of adultery, concubinage does the
disqualification extend to the illegitimate children?
NO. The disqualification does not extend to the
children, and as such, they may be made beneficiaries.
What is the old rule regarding revocability of designation
of beneficiary?
The OLD rule is: When the insured did NOT expressly
reserve his right to revoke the designation of his
beneficiary, such designation is irrevocable and he
cannot change his beneficiary without the consent of
the latter.
What is the current rule?
The rule now is: The insured has the power to revoke
the designation of the beneficiary even without the
consent of the latter, whether or not such power is
reserved in the policy. Such right must be exercised
specifically in the manner set forth in the policy or
contract. It is of course, extinguished at his death and
CANNOT be exercised by his personal representatives or
assignees.
Under the current rule, when does the insured lose the
right to change the beneficiary?
When the right to change the beneficiary is expressly
waived in the policy, the insured has no power to make
such change without the consent of the beneficiary.
What if the beneficiary dies before the insured and the
insured did not change the designation, who gets the
proceeds?
There is a divergence of opinion, but the general trend
is to give it to the estate of the beneficiary.
** ARTICLES 43, 50, 64 OF FC.
PROBLEMS:
1. Pingping and Mumble are husband and wife. Sun and
Moon are also husband and wife. Sun and Mumble
engaged in adulterous relations. Sun secured a life
insurance policy and named Mumble as beneficiary.
When Sun dies, who will get the insurance proceeds?
MOON. Mumble cannot be named as a beneficiary in a life
insurance policy because she is forbidden by law to receive
a donation from Sun since they were both guilty of adultery.
2. Ram and Dayli are husband and wife. Matt and Allena
are also husband and wife. Dayli engaged in
adulterous relations with Papaya. Matt secured a life
insurance and named Dayli as beneficiary. When Matt
dies, who will get the insurance proceeds?
Dayli. The law prohibits the situation wherein a person who
is forbidden from receiving a donation under Art. 739 WAS
named a beneficiary of a life insurance policy by the person
 who cannot make any donation to him, according to said
article. In other words, notwithstanding the fact that DAYLI
is guilty of adultery, SHE can still be a beneficiary of MATT
since the law provides that DAYLI cannot be a beneficiary of
a life insurance policy if the person who names her as
beneficiary is forbidden to give her a donation under Art.
739. Art. 739 is therefore not applicable in the situation at
bar.
a. What IF MATT has a concubine named RICA?
DAYLI can be designated as beneficiary since she
is not the concubine.
b. What if Matt has a concubine named Rica. Dayli
engages adulterous relationship with Ching? Still
Dayli.
c. WHAT IF MATT AND RAM BECOME LOVERS,
(same sex relationship), and Matt named Ram as
beneficiary? RAM can be designated as
beneficiary because both of them ARE NEITHER
GUILTY OF ADULTERY AND CONCUBINAGE.
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.
NEAREST RELATIVES ARE: legitimate children, father
and mother, grandparents, ascendants in the nearest
degree, illegitimate children, surviving spouse,
collateral relatives, and STATE in case of default.
Veronica, Archie & JugHead are all creditors of Trillanes. All
three are instituted as beneficiaries of Trillanes. Veronica
fails to qualify since she is Trillane’s concubine. Archie on
the other hand, eager to claim the insurance proceeds, used
a stolen pistol shot and killed Trillanes. Jughead, now
claims the proceeds of the insurance. However, his claim is
opposed by Mari Roxas, Trillanes’s legitimate daughter who
contends that according to Sec. 12, it is the nearest relative
who should get the proceeds, meaning her. Between Jughead
and Mari Roxas, who is entitled to get the proceeds?
JUGHEAD gets the proceeds because it was stipulated in
the contract of insurance. The insurance contract is the
law between the parties and hence it must be followed
by the insurance company. Sec. 12 ONLY applies if there
is NO stipulation in the contract of insurance as to who
are the other beneficiaries of the proceeds.
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.
This defines only the INSURABLE INTEREST in property.
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.
What is existing interest?
Existing interest in property is the legal or equitable
title on the property.
What is an inchoate interest?
It is an interest which has not yet ripened, such as the
interest of a stockholder in the property of the
corporation which he owns stocks.
In what kind of expectancy may insurable interest
consist?
The expectancy MUST be coupled with an existing
interest in that, out of which such expectancy arises.
Examples would be: a farmer insuring future crops that
he will grow on his land, or a workman insuring the
building which he was contracted to repair.
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.
A son cannot insure the property of his father which he
expects to inherit from the latter, or a husband insuring
the paraphernal property of his wife; the reason being,
their interest is merely an expectancy of inheriting, and
the rights to succession are transmitted only from the
moment of the death of the decedent.
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.
NO insurable interest = NO contract of Insurance.
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.
 When must insurable interest exist? XPN: where a change of interest does NOT suspend the
insurance are:
In case of life insurance at the time the insurance takes
effect. In case of property insurance, at the time the 1. Life, health and accident insurance (Sec. 20)
insurance takes effect AND at the time of the loss, but
it need not exist in the meantime. 2. Change of interest in the thing insured occurs after
the injury which results in a loss (Sec. 21)
Notwithstanding the ownership of the property is
transferred during the intervening period, as insured/ 3. Change of interest in one or more of several things
previous owner had insurable interest at the two points separately insured by one policy (Sec. 22)
in time required by law, then the insurer is liable.
4. Change of interest by will or succession on the death
SECTION 20. Except in the cases specified in the next four of the insured (Sec.23)
sections, & in the cases of life, accident, & health insurance, a
change of interest in any part of a thing insured unaccompanied 5. Transfer of interest by one of several partners, joint
by a corresponding change in interest in the insurance, suspends owners or owners in common who are jointly insured, to
the insurance to an equivalent extent, until the interest in the the other (Sec. 24)
thing & the interest in the insurance are vested in the same
SECTION 21. A change in interest in a thing insured, after
person.
the occurrence of an injury w/c results in a loss, does not
affect the right of the insured to indemnity for the loss.
GN: The mere transfer of the thing insured does not
A insured his house for 10T. On Aug. 10, 2004, the house was partially damaged by
transfer the policy but suspends it until the same
fire. On Aug. 15, 2004, he sold the same house so partially damaged to C. Can A
person becomes the owner of both the policy and the
collect on the insurance after selling the house?
thing insured.

Yes. The change of interest was made after the occurrence of the injury
CHANGE IN INTEREST – ABSOLUTE transfer such as
which resulted in a partial loss. Upon the occurrence of the risk insured
conveyance by means of absolute deed of sale.
against, the liability of the insurer became fixed and from that day
onward, he became duty bound to indemnify A for his 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.
I insured CAR X for 300K and CAR Z for 500 in a single
policy. –YES
I insured CAR X and Car Y for 800K in a single policy- NO
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.
A transfer of interest in the insured property by a partner,
joint owner, or owner in common to the others, who are jointly
insured, will NOT avoid the insurance. The rule is the same
even if there is a stipulation that the insurance will cease upon
the 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 concealment.
What are the four primary concerns of parties to an
insurance contract?
In making a contract so highly aleatory such as that of
insurance, the parties have four primary concerns to
wit:
1. The correct estimation of the risk which enables the
insurer to decide whether he is willing to assume it, and
if so, at what rate or premium;
2. The precise delimitation of the risk which determines
the extent of the contingent duty to pay undertaken by
the insurer;
3. Such control of the risk after it is assumed as will
enable the insurer to guard against the increase of the
risk because of change in conditions; and
4. Determining whether a loss occurred, and if so, the
amount of such loss
 What are the requisites of concealment?
There can be no concealment unless:
1) A party knows the fact which he neglects to
communicate or disclose to the other;
2) Such party concealing duty bound to disclose such
fact to the other
3) Such party concealing makes no warranty of the fact
concealed; and
4) The other party has no means of ascertaining the fact
concealed
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)
The reason is that insurance policies are traditionally
contracts uberrime fidae, that is, contracts of the
outmost good faith.
The insurer need not prove fraud in order to rescind a
contract on the ground of concealment. The duty of
communication is independent of the intention and is
violated by the fact of concealment, even when there is
no intention to deceive.
Why does the law make no distinction between
international and unintentional concealment?
Because you have to prove fraud. And if you have to
prove fraud, you have to prove intention to deceive.
And it is so hard to prove intention to deceive because
we are not mind-readers.
*there is no concealment if the ailment is not material
to the contract.
** If the would be insurer was aware of the ailment, but
honestly believed that it was not material, the
concealment is not fraudulent or intentional. But if A
was aware of the materiality of the ailment, there is
fraudulent concealment. Nevertheless, the effect is the
same. It entitles the insurer to rescind the contract.
***Failure to read the policy is negligence, and the
insured is regarded as having assumed the risk of the
falsity or misstatements of its contents.
***Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (The
Insurance Code, Sec 31)
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.
XPN: Those falling in Article 30.
How will you know if the fact is material or not?
The fact must be related to the insurance applied for.
What if the insurer with reasonable diligence could have
known or discovered such facts for himself, can the
Insured be excused for his concealment and deny the
remedy of rescission to the insurer?
NO. The effect of the material concealment cannot be
avoided by the allegation that the insurer could have
known and discovered a fact which the insured had
concealed. An allegation like this implies that there is
an obligation on the part of the insurance company to
verify all the statements made by the insured in his
application. No such obligation exists on the part of the
insurer.
The insurer has the right to rely upon the statements of the
insured for he knows the facts and the insurer does not.
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.
EXAMPLE: In every contract of marine insurance, there
is an implied warranty of seaworthiness of the vessel.
The intentional and fraudulent omission on the part of
the insured to communicate the fact that his ship is in
distress or in special peril entitles the insurer to rescind
because the concealment refers to matters proving or
tending to prove the falsity of the warranty that the
ship is seaworthy.
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.