A. General Principles

Insurance

Insurance is essentially a contract by which one party (the insurer), for a consideration that is usually paid in money, either in a lump sum or at different times during the continuance of the risk, promises to make a certain payment, usually of money, upon the destruction or injury of “something” in which the other party (the insured) has an interest [Carale, The Philippine Insurance Law (2014)].

Insurance Defined: Insurance is a contract in which one party (the insurer) agrees to indemnify another party (the insured) against a predefined category of risks in exchange for a premium.

On August 15, 2013, RA 10607¹ (An Act Strengthening the Insurance Industry, Further Amending Presidential Decree No. 612², Otherwise Known as “The Insurance Code,” as Amended by Presidential Decree Nos. 1141³, 1280⁴, 1455⁵, 1460⁶, 1814⁷ and 1981⁸, and Batas Pambansa Blg. 874⁹, and for Other Purposes) was signed into law. It is a restatement of the Insurance Code (PD 612), with amendments.

The section numbers hereinafter generally pertain to RA 10607, unless otherwise indicated.

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 [Sec. 2(a)]¹².

Note: A contract of suretyship shall be deemed to be an insurance contract, within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

Thus, a contract of insurance is:

• A contract of indemnity;
• Wherein one undertakes for a consideration;
• To indemnify another against loss, damage, or liability;
• Arising from an unknown or contingent event.

General Rule: A past event cannot be a designated event in an insurance contract.

Exception: A past event unknown to the parties may be a designated event if it may cause loss to a person with an insurable interest, e.g., prior loss of a ship at sea [Sec. 3; De Leon, The Insurance Code of the Philippines Annotated (2014)].

The unknown event may be past or future. Even if the proximate cause of the loss is a fortuitous event, the insurer may still be liable if it is the event or peril insured against [De Leon].

Definition

Casualty insurance is insurance covering loss or liability arising from accident or mishap.

Casualty insurance 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.

Casualty insurance does not include 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 [Sec. 176]¹¹.

Form

There is no particular form required for a contract of insurance.

May an Insurance Contract be Oral?

The Insurance Code has no provision requiring a particular form for the validity of an insurance contract. In our jurisdiction, the Supreme Court has not made a categorical ruling against the validity of an oral contract of insurance [Carale].

Note: An insurance policy is different from the contract of insurance. The policy is the written instrument in which an insurance contract is set forth [Insurance Code, Sec. 49]¹⁵.

Divisions

• Liability Insurance

This is insurance against specified perils which may give rise to liability on the part of the insured.

The insurer assumes the obligation to pay the third party in whose favor the liability of the insured arises. The liability of the insurer attaches as soon as the liability of the insured to the third party is established. It covers liability incurred from quasi-delict or criminal negligence but cannot cover deliberate criminal acts [De Leon].

• Indemnity Insurance

This is insurance against specified perils which may affect the persons.

Under this kind of insurance, no action will lie against the insurer unless brought by the insured for loss actually sustained and paid by him. Liability of the insurer attaches only after the insured has paid his liability to the third party [De Leon].

Note: Except with respect to compulsory motor vehicle liability insurance, the Insurance Code¹³ contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law [Fortune Insurance and Surety Co., Inc. v. COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, G.R. No. 115278, 23 May 1995]¹⁴.

Doing or Transacting Insurance Business

The term “doing an insurance business or transacting an insurance business” includes:

• Making or proposing to make, as insurer, any insurance contract;
• 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;
• Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of the Insurance Code;
• 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 [Sec. 2(b)]¹⁶.

Note: 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 [Sec. 2(b)].

General Rule: An insurance business consists in undertaking, for a consideration, to indemnify another against loss, damage or liability arising from an unknown or contingent event.

Exception: Those not formally designated as insurance businesses but are deemed “doing or transacting an insurance business” as listed in Sec. 2(b).

Principal Object and Purpose Test

• Determines:
• Whether the assumption of risk and indemnification of loss are the principal object and purpose of the organization; or
• Whether they are merely incidental to its business.
• From such determination, it concludes that:
• If these are the principal objectives, the business is that of insurance.
• But if they are merely incidental and service is the principal purpose, then the business is not insurance.

Collateral Source Rule

Under this rule, if an injured person receives compensation for his injuries from a source wholly independent of the tortfeasor, the payment should NOT be deducted from the damages which he would otherwise collect from the tortfeasor.

This applies in Life Insurance, but NOT in Property Insurance. (Aquino, 2020)

Nature of Contract

It shall be deemed as insurance contract if the surety’s main business is that of suretyship, and not where the contract is merely incidental to any other legitimate business or activity of the surety.

It is an accessory contract unlike a contract of insurance which is the principal contract itself.

The contract of a surety is evidenced by a document called surety bond which is essentially a promise to guarantee the obligation of the obligor. In turn, the obligor executes an indemnity agreement in favor of the insurer [De Leon].

When the obligee accepts the bond, the bond becomes valid and enforceable, whether or not the premium has been paid by the obligor, unlike in an insurance contract where payment of premium is generally necessary for the contract to be valid, subject to the exceptions recognized by the Insurance Code and jurisprudence. If the obligee has not yet accepted, then payment of premium is still necessary for the contract of suretyship to be valid.

Governing Law

General Rule: The Insurance Code¹⁷ primarily governs insurance contracts.

Exception: When there is a special law which specifically governs (e.g., insurance governed by a special law, such as the Social Security Act of 2018 (RA 11199¹⁸)), in which case, the Insurance Code governs subsidiarily.

Matters not expressly provided for in the Insurance Code and special laws are regulated by the Civil Code¹⁹.

Other Special Laws:

• National Health Insurance Act of 2013 (RA 10606²⁰, amending RA 7875²¹)
• The Revised Government Service Insurance Act of 1997 (RA 8291²²)
• The Social Security Act of 2018 (RA 11199²³)
• The Property Insurance Law (RA 656²⁴, as amended by PD 245²⁵)
• The Philippine Deposit Insurance Act of 1963 (RA 3591²⁶).
• RA 4898²⁷, as amended by RA 5756²⁸ providing life, disability, and accident insurance to barangay officials
• Universal Health Care Act (RA 11223²⁹)

Insurer

The insurer is the party who assumes or accepts the risk of loss and undertakes for consideration to indemnify the insured or to pay a certain lump sum on the happening of the event or peril insured against. May be any person, partnership, association, or corporation, duly authorized to transact insurance business [Sec. 6]³⁰.

Types

• Individual Life

Individual life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. It may be made payable on the death of the person, or after his surviving a specified period (as an annuity or endowment), or otherwise contingently on the continuation or cessation of life.

• Group Life

Group life insurance is a blanket policy covering a number of individuals who are usually a cohesive group (e.g. employees of a company) and are subjected to a common risk. No medical examination is usually required of each person insured (in contrast to individual life insurance).

Group insurance is a single insurance contract that provides coverage for many individuals. The employer-policy holder is the agent of the insurer in collecting the premium [Pineda v. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, G.R. No. 105562, 27 September 1993]³¹.

Typically, the policy owner is an employer, and the policy covers the employees or members of the group, with one master contract kept by the employer. Where the employee is required to pay a portion of the premium, the arrangement is called a contributory plan, wherein his share is deducted from his wages [Carale].

• Industrial Life

Industrial life insurance refers to an insurance policy under which the premiums are payable either monthly or oftener, if:

• The face amount of insurance provided in any policy is not more than 500 times that of the current statutory minimum daily wage in the City of Manila; and
• The words “industrial policy” are printed upon the policy as part of the descriptive matter [Sec. 235]³².

It provides insurance coverage to industrial workers or people who are unable to afford insurance for bigger amounts.

It shall not lapse after non-payment of premiums in 3 months after the expiration of the grace period if such non-payment is due to the failure of the company to send its representatives to the insured to collect premium [Sec. 235].

Insured

The insured is the person in whose favor the contract is operative and whose loss is the occasion for the payment of the insurance proceeds by the insurer [Carale].

Other Classifications of Life Policies

• Ordinary or Whole Life Policy
• Term Life Insurance
• Modified Life Insurance

Ordinary or whole life policy is where the insurer agrees to pay the face value of the policy upon the death of the insured.

The following are distinct variations of whole life policy:

• Ordinary Life Insurance — Premiums are paid throughout the lifetime of the person insured or until the person reaches a predetermined specified age at which point the coverage continues without the payment of additional premiums.
• Limited Payment Life Insurance — Premiums are paid only during a specified number of years or until a specified event occurs.
• Single Premium Life Insurance — The coverage is acquired by the payment of a single premium.
• Joint Life Insurance — Coverage is payable upon the first death among two or more insured (normally purchased by business partners or spouses) and paid to the survivor.
• Universal Life Insurance — Emphasizes the separation of the portion of the premium that is used to cover the insurance protection from the portion of the premium allocated to an investment.
• Variable Life Insurance — Some amount of death benefit provided by a variable life insurance policy is guaranteed by the insurer, but the total death benefit and the cash value of the insurance before death depend on the investment performance of that portion of the premium which is allocated to a separate fund.
• Pure Endowment Policy — Where the insurer pays the insured if the insured survives a specified period. If the insured dies within the period, the insurer is released from liability and unless the contract otherwise provides, need not reimburse any part of the premiums paid.
• Endowment Policy — Where the insured is paid the face value of the policy if he outlives the designated period. If he dies within said period, the insurer pays the proceeds to the beneficiary. This is a combination of term policy and pure endowment policy.

Term life insurance provides for the payment of a specified amount if death occurs within the period designated in the policy, usually for periods of one to five years.

Modified life insurance is a policy that combines term and whole life insurance into a single insurance policy. Premiums paid by the insured are substantially lower during the first few years and then increase during the remaining term of the policy [Carale].

Exception

Anyone except a public enemy may be insured [Sec. 7]³³.

Under insurance law, a public enemy refers to the enemy country as well as its citizens during a state of war, Specifically:

• In times of war, public enemies are not allowed to enter into insurance contracts
• An insurance policy ceases to be valid if the insured becomes an enemy corporation during the war
• The purpose of war is to cripple the power and exhaust the resources of the enemy, so it is inconsistent for one country to insure the property of its enemy or increase their resources

There is no definition of what a “public enemy” is, but a definition that is generally accepted and in keeping with the nature of an insurance contract is one where a person possesses the nationality of the state with which another is at war [Carale].

Five important risks:

• Death or Survival;
• Suicide
• Death at the hands of the law;
• Killing by the beneficiary; and
• Accidental Death

Elements of An Insurance Contract

Elements of an Insurance Contract

• Risk covered: The contingent or unknown event insured against;
• Consideration: The payment of premiums rendered by the insured;
• Assumption of risk: The insurer undertakes the risk of damage or loss;
• Risk-distributing mechanism: A system through which the insurer transfers and disperses the hazard of loss, damage, or liability across individuals exposed to comparable risks;
• Insurable interest: An interest recognized by law in the life or property insured; in life insurance, it need not be capable of exact pecuniary measurement; and
• Mutual agreement: A meeting of the minds between the parties covering all of the foregoing essential requisites.

Cause

Cause refers to an event or peril insured against.

1. Death or Survival

Life insurance may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuation or cessation of life [Campos].

Death of the insured must be proven by the beneficiary before the insurer can be made to pay.

2. Suicide

Insurer is liable only when:

• Suicide is committed after the policy has been in force for a period of 2 years from the date of its issue or of its last reinstatement unless the policy provides a shorter period.

Note: Any stipulation extending the 2-year period is void.

• Suicide is committed in a state of insanity, regardless of the date of the commission, unless suicide is an excepted peril [Sec. 183]³⁴.

Since suicide is contrary to the laws of nature and the ordinary rules of conduct, it is never presumed. The burden of proving lies with the insurer, who seeks to avoid liability under a life policy, excepting it from coverage [Campos].

Suicide as an Excepted Risk vs. Willful Exposure to Needless Peril

Suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as 'willfully exposing himself to needless peril [Sun Insurance Office, Ltd. v. Court of Appeals, G.R. No. 92383, 17 July 1992]³⁵.

3. Death at the Hands of the Law

Death at the hands of the law (e.g. legal execution) is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy exception [Campos].

Risk of Loss or Damage

Peril is any contingent or unknown event which may cause a loss. Its existence creates a risk and its occurrence results in loss.

The event or peril insured against must be such that its happening will:

• Damnify or cause loss to a person; or
• Create liability against him [Sec. 3]³⁶

4. Killing by the Beneficiary

General Rule: 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 such an event, the other beneficiaries so named shall receive their share and divide among them the forfeited share of the “guilty” beneficiary. In the absence of other beneficiaries, proceeds shall be paid according to the policy contract, and if silent, it shall be paid to the estate of the insured [Sec. 12]³⁷.

Risk-Distributing Scheme

Insurance contracts serve to distribute the risk of economic loss, damage or liability among as many as possible of those who are subject to the same kind of risk.

Scheme:

• The payment of premiums by all will inure to a general fund, out of which payment will be made for anyone who has suffered an economic loss.
• Hence, each member contributes to a small degree toward compensation for losses suffered by any member of the group.

Exceptions:

• Accidental killing
• Self-defense
• Insanity of the beneficiary at the time he killed the insured
• Negligence

A beneficiary’s interest in a life insurance policy is forfeited if the beneficiary was a principal, accomplice, or accessory in willfully bringing about the insured’s death; a criminal conviction is not required. The nearest relative of the insured shall receive the proceeds if not otherwise disqualified under Sec. 12³⁸.

5. Accidental Death

The terms “accident” and “accidental means” have been taken to mean that they happen by chance or fortuitously, without intention and design and are unexpected, unusual, and unforeseen.

Where the death or injury is not the natural or probable result of the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident [Carale].

General Rule: Death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured’s voluntary act, unaccompanied by anything unforeseen except the death or injury.

There is no accident when a deliberate act is performed, unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death [Finman General Assurance Corporation v. Court of Appeals, G.R. No. 100970, 2 September 1992]³⁹.

An injury intentionally inflicted by a third party may still be accidental from the insured’s standpoint, subject to any applicable policy exclusion. In the absence of proof that the incident was intentional, the insurer shall pay the beneficiary the value of the supplemental policy covering death by accident [Calanoc v. Court of Appeals, G.R. No. L-8151, 16 December 1955]⁴⁰.

In Biagtan, the nine stab wounds showed that the injuries were intentionally inflicted by third parties; the Court applied the supplemental policy’s exclusion for such injuries. Third-party intent alone does not determine coverage under every accident policy [Biagtan v. Insular Life Assurance Company, Ltd., G.R. No. L-25579, 16 December 1965]⁴¹.

Meeting of the Minds

The two parties to a contract of insurance whose minds need to meet regarding the essential elements are the insurer and the applicant or policyholder, who need not be the person insured.

The insured is not always the person to whom the proceeds are paid. Such person is the beneficiary [Vance].

Microinsurance

Microinsurance is a financial product or service that meets the risk protection needs of the poor, where:

• The number of contributions, premiums, fees, or charges, computed on a daily basis, does not exceed 7.5% of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and
• The maximum sum of guaranteed benefits is not more than 1,000 times of the said current daily minimum wage rate [Sec. 187]⁴².

No insurance company or mutual benefit association shall engage in the business of microinsurance unless it possesses all the requirements as may be prescribed by the Commissioner [Sec. 188]⁴³.

Compulsory Motor Vehicle Insurance

R.A. No. 10607, Sections 386-402

"COMPULSORY MOTOR VEHICLE

LIABILITY INSURANCE

"Section 386.⁴⁴ For purposes of this chapter:

"(a) Motor Vehicle is any vehicle as defined in Section 3, paragraph (a) of Republic Act No. 4136⁴⁵, otherwise known as the ‘Land Transportation and Traffic Code’. "(b) Passenger is any fare paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle’s operator or his agents to ride without fare. "(c) Third party is any person other than a passenger as defined in this section and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course of employment. "(d) Owner or motor vehicle owner means the actual legal owner of a motor vehicle, in whose name such vehicle is duly registered with the Land Transportation Office; "(e) Land transportation operator means the owner or owners of motor vehicles for transportation of passengers for compensation, including school buses. "(f) Insurance policy or Policy refers to a contract of insurance against passenger and third-party liability for death or bodily injuries and damage to property arising from motor vehicle accidents.

"Section 387.⁴⁶ It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger, as the case may be, arising from the use thereof.

"Section 388.⁴⁷ The Commissioner shall furnish the Land Transportation Office with a list of insurance companies authorized to issue the policy of insurance or surety bond required by this chapter.

"Section 389.⁴⁸ The Land Transportation Office shall not allow the registration or renewal of registration of any motor vehicle without first requiring from the land transportation operator or motor vehicle owner concerned the presentation and filing of a substantiating documentation in a form approved by the Commissioner evidencing that the policy of insurance or guaranty in cash or surety bond required by this chapter is in effect.

"Section 390.⁴⁹ Every land transportation operator and every owner of a motor vehicle shall, before applying for the registration or renewal of registration of any motor vehicle, at his option, either secure an insurance policy or surety bond issued by any insurance company authorized by the Commissioner or make a cash deposit in such amount as herein required as limit of liability for purposes specified in Section 387.

"(a) In the case of a land transportation operator, the insurance guaranty in cash or surety bond shall cover liability for death or bodily injuries of third-parties and/or passengers arising out of the use of such vehicle in the amount not less than Twelve thousand pesos (P12,000.00) per passenger or third-party and an amount, for each of such categories, in any one accident of not less than that set forth in the following scale:"(1) Motor vehicles with an authorized capacity of twenty-six (26) or more passengers: Fifty thousand pesos (P50,000.00); "(2) Motor vehicles with an authorized capacity of from twelve (12) to twenty-five (25) passengers: Forty thousand pesos (P40,000.00); "(3) Motor vehicles with an authorized capacity of from six (6) to eleven (11) passengers: Thirty thousand pesos (P30,000.00); "(4) Motor vehicles with an authorized capacity of five (5) or less passengers: Five thousand pesos (P5,000.00) multiplied by the authorized capacity. "Provided, however, That such cash deposit made to, or surety bond posted with, the Commissioner shall be resorted to by him in cases of accidents the indemnities for which to third-parties and/or passengers are not settled accordingly by the land transportation operator and, in that event, the said cash deposit shall be replenished or such surety bond shall be restored within sixty (60) days after impairment or expiry, as the case may be, by such land transportation operator, otherwise, he shall secure the insurance policy required by this chapter. The aforesaid cash deposit may be invested by the Commissioner in readily marketable government bonds, and/or securities. "(b) In the case of an owner of a motor vehicle, the insurance or guaranty in cash or surety bond shall cover liability for death or injury to third-parties in an amount not less than that set forth in the following scale in any one accident:"(1) Private Cars"(i) Bantam: Twenty thousand pesos (P20,000.00); "(ii) Light: Twenty thousand pesos (P20,000.00); and "(iii) Heavy: Thirty thousand pesos (P30,000.00). "(2) Other Private Vehicles"(i) Tricycles, motorcycles and scooters: Twelve thousand pesos (P12,000.00); "(ii) Vehicles with an unladen weight of 2,600 kilos or less: Twenty thousand pesos (P20,000.00); "(iii) Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos: Thirty thousand pesos (P30,000.00); and "(iv) Vehicles with an unladen weight over 3,930 kilos: Fifty thousand pesos (P50,000.00). "The Commissioner may, if warranted, set forth schedule of indemnities for the payment of claims for death or bodily injuries with the coverages set forth herein.

"Section 391.⁵⁰ Any claim for death or injury to any passenger or third-party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind: Provided, That for purposes of this section:

"(a) The total indemnity in respect of any person shall not be less than Fifteen thousand pesos (P15,000.00); "(b) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim:"(1) Police report of accident; and "(2) Death certificate and evidence sufficient to establish the proper payee; or "(3) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; "(c) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim, shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.

"Section 392. No land transportation operator or owner of motor vehicle shall be unreasonably denied the policy of insurance or surety bond required by this chapter by the insurance companies authorized to issue the same, otherwise, the Land Transportation Office shall require from said land transportation operator or owner of the vehicle, in lieu of a policy of insurance or surety bond, a certificate that a cash deposit has been made with the Commissioner in such amount required as limits of indemnity in Section 390 to answer for the passenger and/or third-party liability of such land transportation operator or owner of the vehicle.

"No insurance company may issue the policy of insurance or surety bond required under this chapter unless so authorized under existing laws.

"The authority to engage in the casualty and/or surety lines of business of an insurance company that refuses to issue or renew, without just cause, the insurance policy or surety bond therein required shall be withdrawn immediately.

"Section 393. No cancellation of the policy shall be valid unless written notice thereof is given to the land transportation operator or owner of the vehicle and to the Land Transportation Office at least fifteen (15) days prior to the intended effective date thereof. Upon receipt of such notice, the Land Transportation Office, unless it receives evidence of a new valid insurance or guaranty in cash or surety bond as prescribed in this chapter, or an endorsement of revival of the cancelled one, shall order the immediate confiscation of the plates of the motor vehicle covered by such cancelled policy. The same may be reissued only upon presentation of a new insurance policy or that a guaranty in cash or surety bond has been made or posted with the Commissioner and which meets the requirements of this chapter, or an endorsement or revival of the cancelled one.

"Section 394. If the cancellation of the policy or surety bond is contemplated by the land transportation operator or owner of the vehicle, he shall, before the policy or surety bond ceases to be effective, secure a similar policy of insurance or surety bond to replace the policy or surety bond to be cancelled or make a cash deposit in sufficient amount with the Commissioner, and without any gap, file the required documentation with the Land Transportation Office, and notify the insurance company concerned of the cancellation of its policy or surety bond.

"Section 395. In case of change of owner ship of a motor vehicle, or change of the engine of an insured vehicle, there shall be no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and: Provided, That the insurance company shall agree to continue the policy, such change of ownership or such change of the engine shall be indicated in a corresponding endorsement by the insurance company concerned, and a signed duplicate of such endorsement shall, within a reasonable time, be filed with the Land Transportation Office.

"Section 396. In the settlement and payment of claims, the indemnity shall not be availed of by any accident victim or claimant as an instrument of enrichment by reason of an accident, but as an assistance or restitution insofar as can fairly be ascertained.

"Section 397. Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six (6) months from the date of accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the courts within one (1) year from denial of the claim, otherwise, the claimant’s right of action shall prescribe.

"Section 398. The insurance company concerned shall forthwith ascertain the truth and extent of the claim and make payment within five (5) working days after reaching an agreement. If no agreement is reached, the insurance company shall pay only the no-fault indemnity provided in Section 391 without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit claim or document releasing it from liability under the policy of insurance or surety bond issued.

"In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter, the adjudication of such dispute shall be within the original and exclusive jurisdiction of the Commissioner, subject to the limitations provided in Section 439.

"Section 399. It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums.

"Section 400. No government office or agency having the duty of implementing the provisions of this chapter nor any official or employee thereof shall act as agent in procuring the insurance policy or surety bond provided for herein. The commission of an agent procuring the said policy or bond shall in no case exceed ten percent (10%) of the amount of the premiums therefor.

"Section 401. Any land transportation operator or owner of motor vehicle or any other person violating any of the provisions of the preceding sections shall be punished by a fine of not less than Five hundred pesos (P500.00) and/or imprisonment for not more than six (6) months. The violation of Section 390 by a land transportation operator shall be a sufficient cause for the revocation of the certificate of public convenience issued by the Land Transportation Franchising and Regulatory Board covering the vehicle concerned.

"Section 402. Whenever any violation of the provisions of this chapter is committed by a corporation or association, or by a government office or entity, the executive officer or officers of said corporation, association or government office or entity who shall have knowingly permitted, or failed to prevent, said violation shall be held liable as principals.

Compulsory motor vehicle liability insurance is a policy of insurance or guaranty in cash or surety bond to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger arising from the use of a motor vehicle.

It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force, a policy of insurance or guaranty in cash or surety bond:

• Issued in accordance with the provisions of this chapter;
• To indemnify against death, bodily injury and/or damage to property of a third-party or passenger arising from the use thereof [Sec. 387].

It is a requisite for registration or renewal of registration of a motor vehicle by every land transportation operator or owner [Sec. 390]. It is the only type of compulsory insurance provided for under the Insurance Code.

It applies to all vehicles whether public or private.

To the extent that motor vehicle insurance is compulsory, it must be a liability policy, and the provision making it merely an indemnity insurance contract cannot have any effect [Campos].

The insurer’s liability is direct and primary, so the insurer need not wait for final judgment in the criminal case to be liable. The purpose is to give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained [Shafer v. Judge, RTC Olongapo, G.R. No. 78848 (1988)].

The claimants/victims may be a passenger or a third party. Under compulsory motor vehicle liability insurance, the insured owner or operator is covered for liability arising from a passenger’s or third party’s death, bodily injury, or property damage, as applicable [Secs. 387, 390]. Coverage for the insured’s own injury requires applicable separate first-party coverage.

The following clauses are relevant to compulsory motor vehicle liability insurance:

• Authorized Driver Clause is a stipulation in a motor vehicle insurance policy which provides that the driver, other than the insured owner, must be duly licensed to drive the motor vehicle, otherwise the insurer is excused from liability;
• Theft Clause is a stipulation including theft as one of the risks insured against. If there is such a provision and the vehicle was unlawfully taken, the insurer is liable under the theft clause and the authorized driver clause does not apply. The insured can recover even if the thief has no driver’s license.
• No Fault Clause is a provision required in every compulsory motor vehicle liability insurance regarding claims for death or injury to a passenger or third party on a liability insurance policy covering the vehicle.

Any claim for death or injury to any passenger or third party shall be paid without the necessity of proving fault or negligence of any kind, provided the total indemnity in respect of any person shall not be less than P15,000.

The claim shall be made against only one motor vehicle. For an occupant riding in, mounting, or dismounting from a vehicle, the no-fault claim lies against that vehicle’s insurer. In any other case, it lies against the insurer of the directly offending vehicle [Sec. 391(c)]. The claimant is not free to choose from which insurer he will claim the no fault indemnity [Perla Compania de Seguros v. Ancheta, G.R. No. L-49699 (1988)].

Definition

Fire insurance is a contract of indemnity by which the insurer, for a stipulated premium, agrees to indemnify the insured 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 [Sec. 169]⁵².

Fire is oxidation which is so rapid as to produce either a flame or a glow. Spontaneous combustion is usually rapid oxidation. Fire is always caused by combustion, but combustion does not always cause fire [Western Woolen Mills Co. v. Northern Assurance Co., 139 F. 637]⁵³.

General Rule: Fire cannot be considered a natural disaster or calamity or an act of God since it almost always arises from acts of man or by human means.

Exception: It is caused by lightning or a natural disaster or casualty not attributable to human agency [Philippine Home Assurance Corporation v. Court of Appeals and Eastern Shipping Lines, Inc., G.R. No. 106999, 20 June 1996]⁵⁴.

Fire or other so-called “allied risks” enumerated in Sec. 169 must be the proximate cause of the damage or loss.