M a n i l a
PRESIDENTIAL DECREE No. 612 December 18, 1974
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 and order the following:
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 from 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 which, 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 Code, shall include (a) making or proposing to make, as insurer, any insurance contract; (b) 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; (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 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.
(3) As used in this code, the term “Commissioner” means the “Insurance Commissioner”.
THE CONTRACT OF INSURANCE
WHAT MAY BE INSURED
Section 3. Any contingent or unknown event, whether past or future, which 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 and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and 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 and privileges of an owner under a policy.
All rights, title and 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.
PARTIES TO THE CONTRACT
Section 6. Every person, partnership, association, or corporation 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, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.
Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.
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.
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 which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.
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.
Section 14. An insurable interest in property may consist in:
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.
Section 17. The measure of an insurable interest in property is the extent to which 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.
Section 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and 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.
Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.
Section 21. A change in interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the 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.
Section 23. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and 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.
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, and every policy executed by way of gaming or wagering, is void.
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.
Section 27. A concealment entitles the injured party to rescind a contract of insurance.
Section 28. Each party to a contract of insurance must communicated to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.
Section 29. An intentional and 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.
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 which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise material.
Section 31. 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 the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.
Section 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade.
Section 33. The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.
Section 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section fifty-one.
Section 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.
Section 36. A representation may be oral or written.
Section 37. A representation may be made at the time of, or before, issuance of the policy.
Section 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.
Section 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.
Section 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.
Section 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.
Section 42. A representation must be presumed to refer to the date on which the contract goes into effect.
Section 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.
Section 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.
Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false.
Section 46. The materiality of a representation is determined by the same rules as the materiality of a concealment.
Section 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.
Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance.
Section 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.
Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.
Section 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.
Section 53. The insurance proceeds shall 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. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.
Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.
Section 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.
Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.
Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.
Section 59. A policy is either open, valued or running.
Section 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss.
Section 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.
Section 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.
Section 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.
Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable; or
(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.
Section 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.
Section 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.
Section 67. A warranty is either expressed or implied.
Section 68. A warranty may relate to the past, the present, the future, or to any or all of these.
Section 69. No particular form of words is necessary to create a warranty.
Section 70. Without prejudice to section fifty-one, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it.
Section 71. A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.
Section 72. A statement in a policy which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place.
Section 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.
Section 74. The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.
Section 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
Section 76. A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.
Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
Section 78. An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.
Section 79. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.
Section 80. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.
Section 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.
Section 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.
Section 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.
Section 84. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause.
Section 85. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.
Section 86. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.
Section 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.
NOTICE OF LOSS
Section 88. In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay.
Section 89. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence which he has in his power at the time.
Section 90. All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.
Section 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or if he omits to take objection promptly and specifically upon that ground.
Section 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.
Section 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.
Section 94. Where the insured is overinsured by double insurance:
(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured;
(c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.
Section 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.
Section 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.
Section 97. A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.
Section 98. The original insured has no interest in a contract of reinsurance.
CLASSES OF INSURANCE
Section 99. Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder’s risks, and all personal property floater risks;
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles);
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise;
(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways.
(2) “Marine protection and indemnity insurance,” meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
Section 100. The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer.
Section 101. The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry.
Section 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others.
Section 103. The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage.
Section 104. The interest mentioned in the last section exists, in case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage.
Section 105. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits.
Section 106. The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss.
Section 107. In marine insurance each party is bound to communicate, in addition to what is required by section twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in Section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose.
Section 108. In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.
Section 109. A person insured by a contract of marine insurance is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication.
Section 110. A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
Section 111. If a representation by a person insured by a contract of marine insurance, is intentionally false in any material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract.
Section 112. The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance.
Section 113. In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.
Section 114. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy.
Section 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of commencement of the risk, except in the following cases:
(a) When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage, or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage.
Section 116. A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage.
Section 117. Where different portions of the voyage contemplated by a policy differ in respect to the things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion.
Section 118. When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner’s interest from liability from any loss arising therefrom.
Section 119. A ship which is seaworthy for the purpose of an insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo.
Section 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.
THE VOYAGE AND DEVIATION
Section 121. When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the voyage insured in one which conforms to the course of sailing fixed by mercantile usage between those places.
Section 122. If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine insurance policy is that way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural, direct and advantageous.
Section 123. Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.
Section 124. A deviation is proper:
(a) When caused by circumstances over which neither the master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.
Section 125. Every deviation not specified in the last section is improper.
Section 126. An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.
Section 127. A loss may be either total or partial.
Section 128. Every loss which is not total is partial.
Section 129. A total loss may be either actual or constructive.
Section 130. An actual total loss is cause by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.
Section 131. A constructive total loss is one which gives to a person insured a right to abandon, under Section one hundred thirty-nine.
Section 132. An actual loss may be presumed from the continued absence of a ship without being heard of. The length of time which is sufficient to raise this presumption depends on the circumstances of the case.
Section 133. When a ship is prevented, at an intermediate port, from completing the voyage, by the perils insured against, the liability of a marine insurer on the cargo continues after they are thus reshipped.
Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability.
Section 134. In addition to the liability mentioned in the last section, a marine insurer is bound for damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses incurred in saving cargo reshipped pursuant to the last section, up to the amount insured.
Nothing in this or in the preceding section shall render a marine insurer liable for any amount in excess of the insured value or, if there be none, of the insurable value.
Section 135. Upon an actual total loss, a person insured is entitled to payment without notice of abandonment.
Section 136. Where it has been agreed that an insurance upon a particular thing, or class of things, shall be free from particular average, a marine insurer is not liable for any particular average loss not depriving the insured of the possession, at the port of destination, of the whole of such thing, or class of things, even though it becomes entirely worthless; but such insurer is liable for his proportion of all general average loss assessed upon the thing insured.
Section 137. An insurance confined in terms to an actual loss does not cover a constructive total loss, but covers any loss, which necessarily results in depriving the insured of the possession, at the port of destination, of the entire thing insured.
Section 138. Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured.
Section 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding sub-paragraph. But freightage cannot in any case be abandoned unless the ship is also abandoned.
Section 140. An abandonment must be neither partial nor conditional.
Section 141. An abandonment must be made within a reasonable time after receipt of reliable information of the loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make inquiry.
Section 142. Where the information upon which an abandonment has been made proves incorrect, or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual.
Section 143. Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally, a written notice of such abandonment shall be submitted within seven days from such oral notice.
Section 144. A notice of abandonment must be explicit, and must specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof of interest or of loss.
Section 145. An abandonment can be sustained only upon the cause specified in the notice thereof.
Section 146. An abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity.
Section 147. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a formal abandonment.
Section 148. Upon an abandonment, acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit.
Section 149. Where notice of abandonment is properly given, the rights of the insured are not prejudiced by the fact that the insurer refuses to accept the abandonment.
Section 150. The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance.
Section 151. The acceptance of an abandonment, whether express or implied, is conclusive upon the parties, and admits the loss and the sufficiency of the abandonment.
Section 152. An abandonment once made and accepted is irrevocable, unless the ground upon which it was made proves to be unfounded.
Section 153. On an accepted abandonment of a ship, freightage earned previous to the loss belongs to the insurer of said freightage; but freightage subsequently earned belongs to the insurer of the ship.
Section 154. If an insurer refuses to accept a valid abandonment, he is liable as upon actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured.
Section 155. If a person insured omits to abandon, he may nevertheless recover his actual loss.
MEASURE OF INDEMNITY
Section 156. A valuation in a policy of marine insurance in conclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud on his part; except that when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
Section 157. A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured.
Section 158. Where profits are separately insured in a contract of marine insurance, the insured is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole.
Section 159. In case of a valued policy of marine insurance on freightage or cargo, if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part.
Section 160. When profits are valued and insured by a contract of marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they are expected to arise, and the valuation fixes their amount.
Section 161. In estimating a loss under an open policy of marine insurance the following rules are to be observed:
(a) The value of a ship is its value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured;
(b) The value of the cargo is its actual cost to the insured, when laden on board, or where the cost cannot be ascertained, its market value at the time and place of lading, adding the charges incurred in purchasing and placing it on board, but without reference to any loss incurred in raising money for its purchase, or to any drawback on its exportation, or to the fluctuation of the market at the port of destination, or to expenses incurred on the way or on arrival;
(c) The value of freightage is the gross freightage, exclusive of primage, without reference to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the value thus estimated.
Section 162. If cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port, of the thing so damaged, bears to the market price it would have brought if sound.
Section 163. A marine insurer is liable for all the expenses attendant upon a loss which forces the ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor for the recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either case, being in addition to a total loss, if that afterwards occurs.
Section 164. A marine insurer is liable for a loss falling upon the insured, through a contribution in respect to the thing insured, required to be made by him towards a general average loss called for by a peril insured against; provided, that the liability of the insurer shall be limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured.
Section 165. When a person insured by a contract of marine insurance has a demand against others for contribution, he may claim the whole loss from the insurer, subrogating him to his own right to contribution. But no such claim can be made upon the insurer after the separation of the interests liable to the contribution, nor when the insured, having the right and opportunity to enforce the contribution from others, has neglected or waived the exercise of that right.
Section 166. In the case of a partial loss of ship or its equipment, the old materials are to be applied towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for only two-thirds of the remaining cost of repairs after such deduction, except that anchors must be paid in full.
Section 167. As used in this Code, the term “fire insurance” shall include insurance 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.
Section 168. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Section 169. An alteration in the use or condition of a thing insured from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance.
Section 170. A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.
Section 171. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which at the time of the injury; but if there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of marine insurance.
Section 172. Whenever the insured desires to have a valuation named in his policy, insuring any building or structure against fire, he may require such building or structure to be examined by an independent appraiser and the value of the insured’s interest therein may then be fixed as between the insurer and the insured. The cost of such examination shall be paid for by the insured. A clause shall be inserted in such policy stating substantially that the value of the insured’s interest in such building or structure has been thus fixed. In the absence of any change increasing the risk without the consent of the insurer or of fraud on the part of the insured, then in case of a total loss under such policy, the whole amount so insured upon the insured’s interest in such building or structure, as stated in the policy upon which the insurers have received a premium, shall be paid, and in case of a partial loss the full amount of the partial loss shall be so paid, and in case there are two or more policies covering the insured’s interest therein, each policy shall contribute pro rata to the payment of such whole or partial loss. But in no case shall the insurer be required to pay more than the amount thus stated in such policy. This section shall not prevent the parties from stipulating in such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed.
Section 173. No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured.
Section 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding 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. It includes, but is not limited to, employer’s liability insurance, motor vehicle liability insurance, plate glassinsurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.
Section 175. A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.
Section 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (As amended by Presidential Decree No. 1455)
Section 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety; Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond; Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.
Section 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.
Section 179. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.
Section 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code
In the absence of a judicial guardian, the father, or in the latter’s absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor’s consent to any transaction on the policy.
Section 181. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.
Section 182. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health, unless thereby expressly required.
Section 183. Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.
THE BUSINESS OF INSURANCE
INSURANCE COMPANIES: ORGANIZATION, CAPITALIZATION AND AUTHORIZATION
Section 184. For purposes of this Code, the term “insurer” or “insurance company” shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. “Domestic company” shall include companies formed, organized or existing under the laws of the Philippines. “Foreign company” when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.
Section 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as “insurance corporations”.
The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.
Section 186. No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate.
Section 187. No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interest of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section one hundred eighty-eight, reasonably assure the safety of the interests of the policyholders and the public.
In order to maintain the quality of the management of the insurance companies and afford better protection to policyholders and the public in general, any person of good moral character, unquestioned integrity and recognized competence may be elected or appointed director or officer of insurance companies. The Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance companies for purposes of this section.
No person shall concurrently be a director and/or officer of an insurance company and an adjustment company.
Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of this decree, whichever is shorter.
Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public.
Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificates of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner.
No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently unless specifically authorized to do so; Provided, That the terms “life” and “non-life” insurance shall be deemed to include health, accident and disability insurance.
No insurance company shall have equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company.
Insurance companies and adjustment companies presently affected by the above provision shall have two years from the effectivity of this Decree within which to divest of their stockholdings. (As amended by Presidential Decree No. 1455).
Section 188. Except as provided in section two hundred eighty-one, no domestic insurance company shall, in a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital stock equal to at least five million pesos; Provided, That a domestic insurance company already doing business in the Philippines with a paid-up capital stock which is less than five million pesos shall have a paid-up capital stock of at least three million pesos by December thirty-one, nineteen hundred seventy-eight, four million pesos by December thirty-one, nineteen hundred seventy-nine and five million pesos by December thirty-one, nineteen hundred eighty; Provided, further, that the Secretary of Finance may, upon recommendation of the Insurance Commissioner, increase such minimum paid-up capital stock requirement, under such terms and conditions as he may impose, to an amount which, in his opinion, would reasonably assure the safety of the interests of the policyholders and the public.
The Commissioner may, as a pre-licensing requirement of a new insurance company, in addition to the paid-up capital stock, require the stockholders to pay in cash to the company in proportion to their subscription interests a contributed surplus fund of not less than one million pesos, in the case of a life insurance company, or not less than five hundred thousand pesos, in the case of an insurance company other than life. He may also require such company to submit to him a business plan showing the company’s estimated receipts and disbursements, as well as the basis therefor, for the next succeeding three years.
If organized as a mutual company, in lieu of such capital stock, it must have available cash assets of at least five million pesos above all liabilities for losses reported, expenses, taxes, legal reserve, and reinsurance of all outstanding risks, and the contributed surplus fund equal to the amounts required of stock corporations. A stock insurance company doing business in the Philippines may, subject to the pertinent law and regulations which now are of hereafter may be in force, alter its organization and transform itself into a mutual insurance company. (As amended by Presidential Decree No. 1455).
Section 189. Every company must, before engaging in the business of insurance in the Philippines, file with the Commissioner the following:
(a) A certified copy of the last annual statement or a verified financial statement exhibiting the condition and affairs of such company;
(b) If incorporated under the laws of the Philippines, a copy of the articles of incorporation and by-laws, and any amendments to either, certified by the Securities and Exchange Commission to be a copy of that which is filed in its Office;
(c) If incorporated under any laws other than those of the Philippines, a certificate from the Securities and Exchange Commission showing that it is duly registered in the mercantile registry of that Commission in accordance with the Corporation Law. A copy of the articles of incorporation and by-laws, and any amendments to either, if organized or formed under any law requiring such to be filed, duly certified by the officer having the custody of same, or if not so organized, a copy of the law, charter or deed of settlement under which the deed of organization is made, duly certified by the proper custodian thereof, or proved by affidavit to be a copy; also, a certificate under the hand and seal of the proper officer of such state or country having supervision of insurance business therein, if any there be, that such corporation or company is organized under the laws of such state or country, with the amount of capital stock or assets and legal reserve required by this Code;
(d) If not incorporated and of foreign domicile, aside from the certificate mentioned in paragraph (c) of this section, a certificate setting forth the nature and character of the business, the location of the principal office, the name of the individual or names of the persons composing the partnership or association, the amount of actual capital employed or to be employed therein and the names of all officers and persons by whom the business is or may be managed.
The certificate must be verified by the affidavit of the chief officer, secretary, agent, or manager of the company; and if there are any written articles of agreement of the company, a copy thereof must be accompany such certificate.
Section 190. The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company, that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent, on whom any notice provided by law or by any insurance policy, proof of loss, summons and other legal processes may be served in all actions or other legal proceedings against such company, and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. Any such foreign company shall, as further condition precedent to the transaction of insurance business in the Philippines, make and file with the Commissioner an agreement or stipulation, executed by the proper authorities of said company in form and substance as follows:
“The (name of company) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines, that if at any time said company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company.”
Whenever such service of notice, proof of loss, summons, or other legal process shall be made upon the Commission, he must, within ten days thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal process to the company at its home or principal office. The sending of such copy by the Commissioner shall be a necessary part of the service of the notice, proof of loss, or other legal process.
Section 191. No insurance company organized or existing under the government or laws other than those of the Philippines shall engage in business in the Philippines unless possessed of paid-up unimpaired capital or assets and reserve not less than that herein required of domestic insurance companies, nor until it shall have deposited with the Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines, securities satisfactory to the Commissioner consisting of good securities of the Philippines, including new issues of stock of “registered enterprises”, as this term is defined in Republic Act No. 5186, otherwise known as the Investment Incentives Act, as amended, to the actual market value of not less than the minimum paid-up capital required of domestic insurance companies: Provided, That at least fifty per centum of such securities shall consist of bonds or other evidences of debt of the Government of the Philippines, its political subdivisions and instrumentalists, or of government-owned or controlled corporations and entities, including the Central Bank. The total investment of a foreign insurance company in any registered enterprise shall not exceed twenty per centum of the net worth of said foreign insurance company nor twenty per centum of the capital of the registered enterprise, unless previously authorized in writing by the Commissioner.
For purposes of this Code, the net worth of a foreign insurance company shall refer only to its net worth in the Philippines.
Section 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the company’s making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines.
Section 193. Every foreign company doing business in the Philippines shall set aside an amount corresponding to the legal reserves of the policies written in the Philippines and invest and keep the same therein in accordance with the provisions of this section. The legal reserve therein required to be set aside shall be invested only in the classes of the Philippine securities described in section two hundred; Provided, however, That no investment in stocks or bonds of any single entity shall, in the aggregate exceed twenty per centum of the net worth of the investing company or twenty per centum of the capital of the issuing company, whichever is the lesser unless otherwise approved in writing by the Commissioner. The securities purchased and kept in the Philippines under this section, shall not be sent out of the territorial jurisdiction of the Philippines without the written consent of the Commissioner.
MARGIN OF INSOLVENCY
Section 194. An insurance company doing business in the Philippines shall at all times maintain a margin of solvency which shall be an excess of the value of its admitted assets exclusive of its paid-up capital, in the case of a domestic company, or an excess of the value of its admitted assets in the Philippines, exclusive of its security deposits, in the case of a foreign company, over the amount of its liabilities, unearned premium and reinsurance reserves in the Philippines of at least two per mille of the total amount of its insurance in force as of the preceding calendar year on all policies, except term insurance, in the case of a life insurance company, or of at least ten per centum of the total amount of its net premium written during the preceding calendar year, in the case of a company other than a life insurance company; Provided, That in either case, such margin shall in no event be less than five hundred thousand pesos; and Provided, further, That the term “paid-up capital” shall not include contributed surplus and capital paid in excess of par value. Such assets, liabilities and reserves shall exclude assets, liabilities and reserves included in separate accounts established in accordance with section two hundred thirty-seven. Whenever the aforementioned margin be found to be less than that herein required to be maintained, the Commissioner shall forthwith direct the company to make good any such deficiency by cash, to be contributed by all stockholders of record in proportion to their respective interest, and paid to the treasurer of the company, within fifteen days from receipt of the order; Provided, That the company in the interim shall not be permitted to take any new risk of any kind or character unless and until it make good any such deficiency; Provided, further, that a stockholder who aside from paying the contribution due from him, pays the contribution due from the another stockholder by reason of the failure or refusal of the latter to do so, shall have a lien on the certificates of stock of the insurance company concerned appearing in its books in the name of the defaulting stockholder on the date of default, as well as on any interests or dividends that have accrued or will accrue to the said certificates of stock, until the corresponding payment or reimbursement is made by the defaulting stockholder. (As amended by Presidential Decree No. 1455)
Section 195. No domestic insurance corporation shall declare or distribute any dividend on its outstanding stocks except from profits attested in a sworn statement to the Commissioner by the president or treasurer of the corporation to be remaining on hand after retaining unimpaired:
(a) The entire paid-up capital stock;
(b) The margin of solvency required by section one hundred ninety-four;
(c) In the case of life insurance corporation, the legal reserve fund required by section two hundred eleven;
(d) In the case of corporations other than life, the legal reserve fund required by section two hundred thirteen;
(e) A sum sufficient to pay all net losses reported, or in the course of settlement, and all liabilities for expenses and taxes.
Any dividend declared or distributed under the preceding paragraph shall be reported to the Commissioner within thirty days after such declaration or distribution.
If the Commissioner finds that any such corporation has declared or distributed any such dividend in violation of this section, he may order such corporation to cease and desist from doing business until the amount of such dividend or the portion thereof in excess of the amount allowed under this section has been restored to said corporation.
Section 196. In any determination of the financial condition of any insurance company doing business in the Philippines, there shall be allowed and admitted as assets only such assets owned by the insurance company concerned and which consist of:
1. Cash in the possession of the insurance company or in transit under its control, and the true and duly verified balance of any deposit of such company in a financially sound commercial bank or trust company.
2. Investments in securities, including money market instruments, and in real property acquired or held in accordance with and subject to the applicable provisions of this Code and the income realized therefrom or accrued thereon.
3. Loans granted by the insurance company concerned to the extent of that portion thereof adequately secured by non-speculative assets with readily realizable values in accordance with and subject to the limitations imposed by applicable provisions of this Code.
4. Policy loans and other policy assets and liens on policies, contracts or certificates of a life insurance company, in an amount not exceeding legal reserves and other policy liabilities carried on each individual life insurance policy, contract or certificate.
5. The net amount of uncollected and deferred premiums and annuity considerations in the case of a life insurance company which carries the full mean tabular reserve liability.
6. Reinsurance recoverable by the ceding insurer: (a) from an insurer authorized to transact business in this country, the full amount thereof; or (b) from an insurer not authorized in this country, in an amount not exceeding the liabilities carried by the ceding insurer for amounts withheld under a reinsurance treaty with such unauthorized insurer as security for the payment of obligations thereunder if such funds are held subject to withdrawal by, and under the control of, the ceding insurer. The Commissioner may prescribe the conditions under which a ceding insurer may be allowed credit, as an asset or as a deduction from loss and unearned premium reserves, for reinsurance recoverable from an insurer not authorized in this country but which presents satisfactory evidence that it meets the applicable standards of solvency required in this country.
7. Funds withheld by a ceding insurer under a reinsurance treaty, provided reserves for unpaid losses and unearned premiums are adequately provided.
8. Deposits or amounts recoverable from underwriting associations, syndicates and reinsurance funds, or from any suspended banking institution, to the extent deemed by the Commissioner to be available for the payment of losses and claims and values to be determined by him.
9. Electronic data processing machines, as may be authorized by the Commissioner to be acquired by the insurance company concerned, the acquisition cost of which to be amortized in equal annual amounts within a period of five years from the date of acquisition thereof.
10. Other assets, not inconsistent with the provisions of paragraphs 1 to 9 hereof, which are deemed by the Commissioner to be readily realizable and available for the payment of losses and claims at values to be determined by him.
Section 197. In addition to such assets as the Commissioner may from time to time determine to be non-admitted assets of insurance companies doing business in the Philippines, the following assets shall in no case be allowed as admitted assets of an insurance company doing business in the Philippines, in any determination of its financial condition:
1. Goodwill, trade names, and other like intangible assets.
2. Prepaid or deferred charges for expenses and commissions paid by such insurance company.
3. Advances to officers (other than policy loans), which are not adequately secured and which are not previously authorized by the Commissioner, as well as advances to employees, agents, and other persons on mere personal security.
4. Shares of stock of such insurance company, owned by it, or any equity therein as well as loans secured thereby, or any proportionate interest in such shares of stock through the ownership by such insurance company of an interest in another corporation or business unit.
5. Furniture, furnishing, fixtures, safes, equipment, library, stationery, literature, and supplies.
6. Items of bank credits representing checks, drafts or notes returned unpaid after the date of statement.
7. The amount, if any, by which the aggregate value of investments as carried in the ledger assets of such insurance company exceeds the aggregate value thereof as determined in accordance with the provisions of this Code and/or the rules of the Commissioner.
All non-admitted assets and all other assets of doubtful value or character included as ledger or non-ledger assets in any statement submitted by an insurance company to the Commissioner, or in any insurance examiner’s report to him, shall also be reported, to the extent of the value disallowed as deductions from the gross assets of such insurance company, except where the Commissioner permits a reserve to be carried among the liabilities of such insurance company in lieu of any such deduction.
Section 198. No insurance company shall loan any of its money or deposits to any person, corporation or association, except upon first mortgage or deeds of trust of unencumbered, improved or unimproved real estate, including condominiums, in cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of seventy per centum of the market value of such real estate; or upon the security of first mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines when the amount of such loan is not in excess of forty per centum of the market value of such land; or upon the purchase money mortgages or like securities received by it upon the sale or exchange of real property acquired pursuant to sections two hundred and two hundred two; or upon bonds or other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other evidences of debt of government-owned or controlled corporations and instrumentalities including the Central Bank or upon obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other evidences of debt as are specified in section two hundred.
A life insurance company, however, may lend to any of its policyholders upon the security of the value of its policy such sum as may be determined pursuant to the provisions of the policy.
Loans granted upon the security of real estate for a period longer than five years shall be amortized in monthly, quarterly, semi-annual or annual installments; Provided, That no such loans shall have a maturity in excess of twenty years.
The phrase “improved real estate” used above is hereby defined to mean land with permanent building or buildings erected or being erected thereon. Except as otherwise approved by the Commissioner, in case the building or buildings on land do not belong to the owner of the latter, no loan shall be granted on the security of the real estate in question unless both the owner of the building or buildings and the owner of the land sign the deed of mortgage, and unless the owner of the land is the Government of the Philippines or one of its political subdivisions, in which event the owner is not required to sign the deed of mortgage.
Section 199. No loan by any insurance company on the security of real estate shall be made unless the title to such real estate shall have first been registered in accordance with the existing Land Registration Act, or shall be a titulo real duly registered, or have been previously registered under the provisions of the existing Mortgage Law.
Section 200. (1) An insurance company may purchase, hold, own and convey such property, real and personal, as may have been mortgaged, pledged, or conveyed to it in good faith in trust for its benefit by reason of money loaned by it in pursuance of the regular business of the company, and such real or personal property as may have been purchased by it at sales under pledges, mortgages or deeds of trust for its benefit on account of money loaned by it; and such real and personal property as may have been conveyed to it by borrowers in satisfaction and discharge of loans made by the company to them: Provided, however, That any real estate purchased by an insurance company in payment or by reason of any loan made by it shall be sold by the company within twenty years after the title thereto has been vested in it.
(2) An insurance company may purchase, hold, own and convey real and personal property as follows:
(a) The lot with building thereon in which the company conducts and carries on its business.
(b) Bonds or other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds at the reasonable market value thereof.
(c) Bonds or other evidences of debt of the government-owned or controlled corporations and entities, including the Central Bank.
(d) Bonds, debentures or other evidences of indebtedness of any solvent corporations or institution created or existing under the laws of the Philippines; Provided, however, That the issuing, assuming or guaranteeing entity or its predecessors shall not have defaulted in the payment of interest on any of its securities and that during each of any three including the last two of the five fiscal years next preceding the date of acquisition by such insurance company of such bonds, debentures, or other evidences of indebtedness, the net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges, as hereinafter defined, shall have been not less than one and one-quarter times the total of its fixed charges for such year; and provided, further, that no life insurance company shall invest in or loan upon the obligations of any one institution in the kinds permitted under this sub-section an amount in excess of twenty-five per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.
As used in this sub-section the term “net earnings available for fixed charges” shall mean net income after deducting operating and maintenance expenses, taxes other than income taxes, depreciation and depletion; but excluding extraordinary non-recurring items of income or expense appearing in the regular financial statement of the issuing, assuming or guaranteeing institution. The term “fixed charges” shall include interest on funded and unfunded debt, amortization of debt discount, and rentals for leased properties.
(e) Preferred or guaranteed stocks of any solvent corporation or institution created or existing under the laws of the Philippines; Provided, however, That the issuing, assuming or guaranteeing entity or its predecessors has paid regular dividends upon its preferred or guaranteed stocks for a period of at least three years next preceding the date of investment in such preferred or guaranteed stock; Provided, further, That if the stocks are guaranteed, the amount of stocks so guaranteed is not excess of fifty per centum of the amount of the preferred or common stocks, as the case may be, of the guaranteeing corporation; And provided, finally, That no life insurance company shall invest in or loan upon obligations of any one institution in the kinds permitted under this sub-section an amount in excess of ten per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.
(f) Common stocks of any solvent corporation or institution created or existing under the laws of the Philippines upon which regular dividends shall have been paid for the three years next preceding the purchase of such stock; Provided, however, That no life insurance company shall invest in or loan upon the obligations of any one corporation or institution in the kinds permitted under this sub-section an amount in excess of ten per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.
(g) Certificates, notes and other obligations issued by the trustees or receivers of any institution created or existing under the laws of the Philippines which, or the assets of which, are being administered under the direction of any court having jurisdiction; Provided, however, That such certificates, notes or other obligations are adequately secured as to principal and interests.
(h) Equipment trust obligations or certificates which are adequately secured or other adequately secured instruments evidencing an interest in equipment wholly or in part within the Philippines; Provided, however, That there is a right to receive determined portions of rental, purchase or other fixed obligatory payments for the use or purchase of such equipment.
(i) Any obligation of any corporation or institution created or existing under the laws of the Philippines which is, on the date of acquisition by the insurer, adequately secured and has qualities and characteristics wherein the speculative elements are not predominant.
(j) Such other securities as may be approved by the Commissioner.
(3) Any domestic insurer which has outstanding insurance, annuity or reinsurance contracts in currencies other than the national currency of the Philippines may invest in, or otherwise acquire or loan upon securities and investments in such currency which are substantially of the same kinds, classes and investment grades as those eligible for investment under the foregoing subdivisions of this section; but the aggregate amount of such investment and of such cash in such currency which is at anytime held by such insurer shall not exceed one and one-half times the amount of its reserves and other obligations under such contracts or the amount which such insurer is required by the law of any country or possession outside the Republic of the Philippines to be invest in such country or possession, whichever shall be greater.
Section 201. An insurance company may (1) invest in equities of other financial institutions, and (2) engage in the buying and selling of short-term debt instruments; Provided, That any or all of such investments shall be with the prior approval of the Commissioner.
Section 202. Any life insurance company may:
(a) Acquire or construct housing projects and, in connection with any such project, may acquire land or any interest therein by purchase, lease or otherwise, or use land acquired pursuant to any other provision of this Code. Such company may thereafter own, maintain, manage, collect or receive income from, or sell and convey, any land or interest therein so acquired and any improvements thereon. The aggregate book value of the investments of any such company in all such projects shall not exceed at the time of such investments twenty five per centum of the total admitted assets of such company on the thirty-first day of December next preceding;
(b) Acquire real property, other than property to be used primarily for providing housing and property for accommodation of its own business, as an investment for the production of income, or may acquire real property to be improved or developed for such investment purpose pursuant to a program therefor, subject to the condition that the cost of each parcel of real property so acquired under the authority of this paragraph (b), including the estimated cost to the company of the improvement or development thereof, when added to the book value of all other real property held by its pursuant to this paragraph (b), shall not exceed twenty-five per centum of its admitted assets as of the thirty-first day of December next preceding.
Section 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the Philippines; Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section.
Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit under this section or held on deposit pursuant to the requirement of the Commissioner. (As amended by Presidential Decree No. 1455)
Section 204. After satisfying the requirements contained in the preceding section, any domestic non-life insurance company, shall invest, to an amount prescribed below, its funds in, or otherwise, acquire or loan upon, only the classes of investments described in section two hundred, including securities issued by any “registered enterprise”, as this term is defined in Republic Act No. 5186, otherwise known as the Investment Incentives Act, and such other classes of investments as may be authorized by the Commissioner for purposes of this section; Provided, That (a) no more than twenty per centum of the net worth of such company as shown by its latest financial statement approved by the Commissioner shall be invested in the lot and building in which the insurance company conducts its business and (b) the total investment of an insurance company in any registered enterprise shall not exceed twenty per centum of the net worth of said insurance company as shown by its aforesaid financial statement nor twenty per centum of the paid-up capital of the registered enterprise excluding the intended investment, unless previously authorized by the Commissioner; and, Provided, further, That such investments free from any lien or encumbrance, shall be at least equal in amount to the aggregate amount of (a) its legal reserve, as provided in section two hundred thirteen, and (b) its reserve fund held for reinsurance as provided for in the pertinent treaty provision in the case of reinsurance ceded to authorized insurers. (As amended by Presidential Decree No.1455)
Section 205. After satisfying the requirements contained in sections one hundred ninety-one, one hundred ninety-three, two hundred three and two hundred four, any non-life insurance company may invest any portion of its funds representing earned surplus in any of the investments described in sections one hundred ninety-eight, two hundred and two hundred one, or in any securities issued by a “registered enterprise” mentioned in the preceding sections; Provided, That no investment in stocks or bonds of any single entity shall in the aggregate, exceed twenty per centum of the net worth of the insurance company as shown in its latest financial statement approved by the Commissioner or twenty per centum of the paid-up capital of the issuing company, whichever is lesser, unless otherwise approved by the Commissioner.
Section 206. After satisfying the minimum capital investment required in section two hundred three, any life insurance company may invest its legal policy reserve, as provided in section two hundred eleven or in section two hundred twelve, in any of the classes of securities or types of investments described in sections one hundred ninety-eight, two hundred, two hundred one and two hundred two, subject to the limitations therein contained, and in any securities issued by any “registered enterprise” mentioned in section two hundred four, free from any lien or encumbrance, in such amounts as may be approved by the Commissioner. Such company may likewise invest any portion of its earned surplus in the aforesaid securities or investments subject to the aforesaid limitations.
Section 207. Any investment made in violation of the applicable provisions of this title shall be considered non-admitted assets.
Section 208. (1) All bonds or other evidences of indebtedness having a fixed term and rate of interest and held by any life insurance company authorized to do business in this country, if amply secured and if not in default as to principal or interest, shall be valued as follows: If purchased at par, at the par value; if purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made, or in the discretion of the Commissioner, on the basis of the method of calculation commonly known as the pro-rata method. In applying the foregoing rule the purchase price shall in no case be taken at a higher figure than the actual market value at the time of acquisition. The Commissioner shall have the power to determine the eligibility of any such investments for valuation on the basis of amortization, and may by regulation prescribe or limit the classes of securities so eligible for amortization. All bonds or other evidences of indebtedness which in the judgment of the Commissioner are not amply secured shall not be eligible for amortization and shall be valued in accordance with paragraph two. The Commissioner may, if he finds that the interest of policy holders so permit or require, by official regulation permit or require any class or classes of insurers, other than life insurance companies, authorized to do business in this country, to value their bonds or other evidences of indebtedness in accordance with the foregoing rule.
(2) The investments of all insurers authorized to do business in this country, except securities subject to amortization and except as otherwise provided in this chapter, shall be valued, in the discretion of the Commissioner, at their market value, or at their appraised value, or at prices determined by him as representing their fair market value. If the Commissioner finds that in view of the character of investments of any insurer authorized to do business in this country it would be prudent for such insurer to establish a special reserve for possible losses or fluctuations in the values of its investments, he may require such insurer to establish such reserve, reasonable in amount, and may require that such reserve be maintained and reported in any statement or report of the financial condition of such insurer. The Commissioner may, in connection with any examination or required financial statement of an authorized insurer, require such insurer to furnish him complete financial statements and audited report of the financial condition of any corporation of which the securities are owned wholly or partly by such insurer and may cause an examination to be made of any subsidiary or affiliate of such insurer.
(3) The stock of an insurance company shall be valued at the lesser of its market value or its book value as shown by its last approved annual statement or the last report on examination, whichever is more recent. The book value of a share of common stock of an insurance company shall be ascertained by dividing (a) the amount of its capital and surplus less the value of all of its preferred stock, if any, outstanding, by (b) the number of shares of its common stock issued and outstanding. Notwithstanding the foregoing provisions, an insurer may, at its option, value its holdings of stock in a subsidiary insurance company in an amount not less than acquisition cost if such acquisition cost is less than the value determined as hereinbefore provided.
(4) Real estate required by foreclosure or by deed in lieu thereof, in the absence of a recent appraisal deemed by the Commissioner to be reliable, shall not be valued at an amount greater than the unpaid principal of the defaulted loan at the date of such foreclosure or deed, together with any taxes and expenses paid or incurred by such insurer at such time in connection with such acquisition, and the cost of additions or improvements thereafter paid by such insurer and any amount or amounts thereafter paid by such insurer on any assessments levied for improvements in connection with the property.
(5) Purchase money mortgages received on dispositions of real property held pursuant to section one hundred ninety-eight shall be valued in an amount equivalent to ninety per centum of the value of such real property. Purchase money mortgages received on disposition of real property otherwise held shall be valued in an amount not exceeding ninety per centum of the value of such real property as determined by an appraisal made by an appraiser at or about the time of disposition of such real property.
(6) The stock of a subsidiary of an insurer shall be valued on the basis of the greater of (i) the value of only such subsidiary of the assets of such subsidiary as would constitute lawful investments for the insurer if acquired or held directly by the insurer or (ii) such other value determined pursuant to standards and cumulative limitations, contained in a regulation to be promulgated by the Commissioner.
(7) Notwithstanding any provision contained in this section or elsewhere in this chapter, if the Commissioner find that the interests of policyholders so permit or require, he may permit or require any class or classes of insurers authorized to do business in this country to value their investments or any class or classes thereof as of any date heretofore or hereafter in accordance with any applicable valuation or method.
Section 209. It shall be the duty of the officers of the insurance company to report within the first fifteen days of every month all such investments as may be made by them during the preceding month, and the Commissioner may, if such investments or any of them seem injudicious to him, require the sale or disposal of the same. The report shall also include a list of investments sold or disposed of by the company during the same period.
Section 210. Every life insurance company, doing business in the Philippines, shall annually make a valuation of all policies, additions thereto, unpaid dividends, and all other obligations outstanding on the thirty-first day of December of the preceding year. All such valuations shall be made upon the net premiums basis, according to the standard adopted by the company, which standard shall be stated in its annual report.
Such standard of valuation whether of the net level premium, full preliminary term, any modified preliminary term, or select and ultimate reserve basis, shall be according to a standard table of mortality with interest at not more than six per centum compound interest. When the preliminary term basis is used, the term insurance shall be limited to the first policy year.
The results of such valuations shall be reported to the Commissioner on or before the thirtieth day of April of each year accompanied by a sworn statement of the company’s actuary certifying to the figures and stating upon what mortality table it is based, upon what rate of interest the valuation is made, and the methods used in arriving at the result obtained.
Section 211. The aggregate net value so ascertained of the policies of such company shall be deemed its reserve liability, to provide for which it shall hold funds in secure investments equal to such net value, above all its other liabilities; and it shall be the duty of the Commissioner, after having verified, to such an extent as he may deem necessary, the valuation of all policies in force, to satisfy himself that the company has such amount in safe legal securities after all other debts and claims against it have been provided for.
The reserve liability for variable contracts defined in section two hundred thirty-two shall be established in accordance with actuarial procedures that recognize the variable nature of the benefits provided, and shall be approved by the Commissioner.
Section 212. Every domestic life insurance company, conducted on the mutual plan or a plan in which policyholders are by the terms of their policies entitled to share in the profits or surplus shall, on all policies of life insurance heretofore or hereafter issued, under the conditions of which the distribution of surplus is deferred to a fixed or specified time and contingent upon the policy being in force and the insured living at that time, annually ascertain the amount of the surplus to which all such policies as separate class are entitled, and shall annually apportion to such policies as a class the amount of the surplus so ascertained, and carry the amount of such apportioned surplus, plus the actual interest earnings and accretions to such fund, as a distinct and separate liability to such class of policies on and for which the same was accumulated, and no company or any of its officers shall be permitted to use any part of such apportioned surplus fund for any purpose whatsoever other than for the express purpose for which the same was accumulated.
Section 213. Every insurance company, other than life, shall maintain a reserve for unearned premiums on its policies in force, which shall be charged as a liability in any determination of its financial condition. Such reserve shall be equal to forty per centum of the gross premiums, less returns and cancellations, received on policies or risks having not more than a year to run, and pro rata on all gross premiums received on policies or risks having more than a year to run; Provided, That for marine cargo risks the reserve shall be equal to forty per centum of the premiums written in the policies upon yearly risks, and the full amount of the premiums written during the last two months of the calendar year upon all other marine risks not terminated.
Section 214. In addition to its liabilities and reserves on contracts of insurance issued by it, every insurance company shall be charged with the estimated amount of all of its other liabilities, including taxes, expenses and other obligations due or accrued at the date of statement, and including any special reserves required by the Commissioner pursuant to the provisions of this Code.
LIMIT OF SINGLE RISK
Section 215. No insurance company other than life, whether foreign or domestic, shall retain any risk on any one subject of insurance in an amount exceeding twenty per centum of its net worth. For purposes of this section, the term “subject of insurance” shall include all properties or risks insured by the same insurer that customarily are considered by non-life company underwriters to be subject to loss or damage from the same occurrence of any hazard insured against.
Reinsurance ceded as authorized under the succeeding title shall be deducted in determining the risk retained. As to surety risk, deduction shall also be made of the amount assumed by any other company authorized to transact surety business and the value of any security mortgage, pledged, or held subject to the surety’s control and for the surety’s protection.
Section 216. An insurance company doing business in the Philippines may accept reinsurances only of such risks, and retain risk thereon within such limits, as it is otherwise authorized to insure.
Section 217. No insurance company doing business in the Philippines shall cede all or part of any risks situated in the Philippines by way of reinsurance directly to any foreign insurer not authorized to do business in the Philippines unless such foreign insurer or, if the services of a non-resident broker are utilized, such non-resident broker is represented in the Philippines by a resident agent duly registered with the Commissioner as required in this Code.
The resident agent of such unauthorized foreign insurer or non- resident broker shall immediately upon registration furnish the Commissioner with the annual statement of such insurer, or of such company or companies where such broker may place Philippine business as of the year preceding such registration, and annually thereafter as soon as available.
Section 218. All insurance companies, both life and non-life, authorized to do business in the Philippines shall cede their excess risks to other companies similarly authorized to do business in the Philippines in such amounts and under such arrangements as would be consistent with sound underwriting practices before they enter into reinsurance arrangements with unauthorized foreign insurers.
Section 219. Any insurance company doing business in the Philippines desiring to cede their excess risks to foreign insurance or reinsurance companies not authorized to transact business in the Philippines may do so under the following conditions:
(1) Except in facultative reinsurance and excess of loss covers, the full amount of the reserve fund required by law shall be set up in the books of and held by the ceding company for so long as the risk concerned is in force; Provided, That in case of facultative insurance, the ceding company shall show to the satisfaction of the Commissioner that the Philippine market cannot provide the facilities sought abroad.
(2) The reserve fund withheld shall be invested in bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank, and/or other securities acceptable under section two hundred.
Should any reinsurance agreement be for any reason cancelled or terminated, the ceding company concerned shall inform the Commissioner in writing of such cancellation or termination within thirty days from the date of such cancellation or termination or from the date notice or information of such cancellation or termination is received by such company as the case may be.
Section 220. Every insurance company authorized to do business in the Philippines shall report to the Commissioner on forms prescribed by him the particulars of reinsurance treaties as of the first day of January of the year following the approval of this Code and shall thereafter similarly report to the Commissioner particulars of any new treaties or changes in existing treaties.
Section 221. No credit shall be allowed as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise becoming effective after January first, nineteen hundred seventy-five, unless the reinsurance shall be payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract or contracts reinsured without diminution because of the insolvency of the ceding insurer nor unless under the contract or contracts of reinsurance the liability for such reinsurance is assumed by the assuming insurer or insurers as of the same effective date; nor unless the reinsurance agreement provides that payments by the assuming insurer shall be made directly to the ceding insurer or to its liquidator, receiver, or statutory successor except (a) where the contract specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer and (b) where the assuming insurer with the consent of the direct insured or insureds has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payees.
Section 222. No life insurance company doing business in the Philippines shall reinsure its whole risk on any individual life or joint lives, or substantially all of its insurance in force, without having first obtained the written permission of the Commissioner.
Section 223. Every insurance company doing business in the Philippines shall terminate its fiscal period on the thirty-first day of December every year, and shall annually on or before the thirtieth day of April of each year render to the Commissioner a statement signed and sworn to by the chief officer of such company showing, in such form and details as may be prescribed by the Commissioner, the exact condition of its affairs on the preceding thirty-first day of December.
Any entry in the statement which is found to be false shall constitute a misdemeanor and the officer signing such statement shall be subject to the penalty provided for under section four hundred nineteen.
Section 224. Every insurance company authorized under title ten of this chapter to issue, deliver or use variable contracts shall annually file with the Commissioner separate annual statement of its separate variable accounts. Such statement shall be on a form prescribed or approved by the Commissioner and shall include details as to all of the income, disbursements, assets and liability items of and associated with the said separate variable accounts. Said statement shall be under oath of two officers of the company and shall be filed simultaneously with the annual statement required by the preceding section.
Section 225. Within thirty days after receipt of the annual statement approved by the Commissioner, every insurance company doing business in the Philippines shall publish in two newspapers of general circulation in the City of Manila, one published in English and one in Pilipino, a full sypnosis of its annual financial statement showing fully the conditions of its business, and setting forth its resources and liabilities.
Section 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.
Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:
(a) A provision that the policyholder is entitled to a grace period either of thirty days or of one month within which the payment of any premium after the first may be made, subject at the option of the insurer to an interest charge not in excess of six per centum per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in full force, but in case the policy becomes a claim during the said period of grace before the overdue premium is paid, the amount of such premium with interest may de deducted from the amount payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war;
(c) A provision that the policy shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so provided a copy of such application shall be indorsed upon or attached to the policy when issued, and in such case the policy shall contain a provision that the policy and the application therefor shall constitute the entire contract between the parties;
(d) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age;
(e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein;
(f) A provision specifying the options to which the policyholder is entitled to in the event of default in a premium payment after three full annual premiums shall have been paid. Such option shall consist of:
(1) A cash surrender value payable upon surrender of the policy which shall not be less than the reserve on the policy, the basis of which shall be indicated, for the then current policy year and any dividend additions thereto, reduced by a surrender charge which shall not be more than one-fifth of the entire reserve or two and one-half per centum of the amount insured and any dividend additions thereto;
(2) One or more paid-up benefits on a plan or plans specified in the policy of such value as may be purchased by the cash surrender value;
(g) A provision that at anytime after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefor is made;
(h) A table showing in figures cash surrender values and paid-up options available under the policy each year upon default in premium payments, during at least twenty years of the policy beginning with the year in which the values and options first become available, together with a provision that in the event of the failure of the policyholder to elect one of the said options within the time specified in the policy, one of said options shall automatically take effect and no policyholder shall ever forfeit his right to same by reason of his failure to so elect;
(i) In case the proceeds of a policy are payable in installments or as an annuity, a table showing the minimum amounts of the installments or annuity payments;
(j) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement.
Any of the foregoing provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein; and any such policy may be issued and delivered in the Philippines which in the opinion of the Commissioner contains provisions on any one or more of the foregoing requirements more favorable to the policyholder than hereinbefore required.
This section shall not apply to policies of group life or industrial life insurance.
Section 228. No policy of group life insurance shall be issued and delivered in the Philippines unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policy-holders:
(a) A provision that the policyholder is entitled to a grace period of either thirty days or of one month for the payment of any premium due after the first, during which grace period the death benefit coverage shall continue in force, unless the policyholder shall have given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The policy may provide that the policyholder shall be liable for the payment of a pro rata premium for the time the policy is in force during such grace period;
(b) A provision that the validity of the policy shall not be contested, except for non-payment of premiums after it has been in force for two years from its date of issue; and that no statement made by any insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person’s lifetime nor unless contained in written instrument signed by him;
(c) A provision that a copy of the application, if any, of the policyholder shall be attached to the policy when issued, that all statements made by the policyholder or by persons insured shall be deemed representations and not warranties, and that no statement made by any insured shall be used in any contest unless a copy of the instrument containing the statement is or has been furnished to such person or to his beneficiary;
(d) A provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage;
(e) A provision specifying an equitable adjustment of premiums or of benefits or of both to be made in the event that the age of a person insured has been misstated, such provision to contain a clear statement of the method of adjustment to be used;
(f) A provision that any sum becoming due by reason of death of the person insured shall be payable to the beneficiary designated by the insured, subject to the provisions of the policy in the event that there is no designated beneficiary, as to all or any part of such sum, living at the death of the insured, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of such sum not exceeding five hundred pesos to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred funeral or other expenses incident to the last illness or death of the person insured;
(g) A provision that the insurer will issue to the policyholder for delivery to each person insured an individual certificate setting forth a statement as to the insurance protection to which he is entitled, to whom the insurance benefits are payable, and the rights set forth in paragraphs (h), (i) and (j) following;
(h) A provision that if the insurance, or any portion of it, on a person covered under the policy ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits, provided application for the individual policy and payment of the first premium to the insurer shall be made within thirty days after such termination and provided further that:
(1) the individual policy shall be on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for an amount not in excess of the coverage under the group policy; and
(2) the premium on the individual policy shall be at the insurer’s then customary rate applicable to the form and amount of the individual policy, to the class of risk to which such person then belongs, and to his age attained on the effective date of the individual policy.
(i) A provision that if the group policy terminates or is amended so as to terminate the insurance of any class of insured persons, every person insured thereunder at the date of such termination whose insurance terminates and who has been so insured for five years prior to such termination date shall be entitled to have issued to him by the insurer an individual policy of life insurance subject to the same limitations as set forth in paragraph (h), except that the group policy may provide that the amount of such individual policy shall not exceed the smaller of (a) the amount of the person’s life insurance protection ceasing less the amount of any life insurance for what he is or becomes eligible under any group policy issued or reinstated by the same or another reinsurer within thirty days after such termination, and (b) two thousand pesos;
(j) A provision that if a person insured under the group policy dies during the thirty-day period within which he would have been entitled to an individual policy issued to him in accordance with (h) and (i) above and before such individual policy shall have become effective, the amount of life insurance which he would have been entitled to have issued to him as an individual policy shall be payable as a claim under the group policy whether or not application for the individual policy or the payment of the first premium has been made;
(k) In the case of a policy issued to a creditor to insure debtors of such creditor, a provision that the insurer will furnish to the policyholder for delivery to each debtor insured under the policy a form which will contain a statement that the life of the debtor is insured under the policy and that any death benefit paid thereunder by reason of his death shall be applied to reduce or extinguish indebtedness.
The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor to insure his debtors. If a group life policy is on a plan of insurance other than term, it shall contain a non-forfeiture provision or provisions which in the opinion of the Commissioner is or are equitable to the insured or the policyholder; Provided, That nothing herein contained shall be so construed as to require group life policies to contain the same non-forfeiture provisions as are required of individual life policies.
Section 229. The term “industrial life insurance” as used in this Code shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words “industrial policy” are printed upon the policy as part of the descriptive matter.
An industrial life policy shall not lapse for non-payment of premium if such non-payment was due to the failure of the company to send its representative or agent to the insured at the residence of the insured or at some other place indicated by him for the purpose of collecting such premium; Provided, That the provisions of this paragraph shall not apply when the premium on the policy remains unpaid for a period of three months or twelve weeks after the grace period has expired.
Section 230. In the case of industrial life insurance, the policy shall contain in substance the following provisions:
(a) A provision that the insured is entitled to a grace period of four weeks within which the payment of any premium after the first may be made, except that where premiums are payable monthly, the period of grace shall be either one month or thirty days; and that during the period of grace, the policy shall continue in full force, but if during such grace period the policy becomes a claim, then any overdue and unpaid premiums may be deducted from any amount payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a specified period, not more than two years from its date of issue, except for non-payment of premiums and except for violation of the conditions of the policy relating to naval or military service, or services auxiliary thereto, and except as to provisions relating to benefits in the event of disability as defined in the policy, and those granting additional insurance specifically against death by accident or by accidental means, or to additional insurance against loss of, or loss of use of, specific members of the body;
(c) A provision that the policy shall constitute the entire contract between the parties, or if a copy of the application is endorsed upon and attached to the policy when issued, a provision that the policy and the application therefor shall constitute the entire contract between the parties, and in the latter case, a provision that all statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties;
(d) A provision that if the age of the person insured, or the age of any person, considered in determining the premium, or the benefits accruing under the policy, has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium paid would have purchased at the correct age;
(e) A provision that if the policy is a participating policy, the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under the conditions specified therein;
(f) A provision that in the event of default in premium payments after three full years’ premiums have been paid, the policy shall be converted into a stipulated form of insurance, and that in the event of default in premium payments after five full years’ premiums have been paid, a specified cash surrender value shall be available, in lieu of the stipulated form of insurance, at the option of the policyholder. The net value of such stipulated form of insurance and the amount of such cash value shall not be less than the reserve on the policy and dividend additions thereto, if any, at the end of the last completed policy year for which premiums shall have been paid (the policy to specify the mortality table, rate of interest and method of valuation adopted to compute such reserve), exclusive of any reserve on disability benefits and accidental death benefits, less an amount not to exceed two and one-half per centum of the maximum amount insured by the policy and dividend additions thereto, if any, at the end of the last completed policy year for which premiums shall have been paid (the policy to specify the mortality table, rate of interest and method of valuation adopted to compute such reserve), exclusive of any reserve on disability benefits and accidental death benefits, less an amount not to exceed two and one-half per centum of the maximum amount insured by the policy and dividend additions thereto, if any, when the issue age is under ten years, and less an amount not to exceed two and one-half per centum of the current amount insured by the policy and dividend additions thereto, if any, if the issue age is ten years or older, and less any existing indebtedness to the company on or secured by the policy;
(g) A provision that the policy may be surrendered to the company at its home office within a period of not less than sixty days after the due date of a premium in default for the specified cash value, provided that the insurer may defer payment for not more than six months after the application therefor is made;
(h) A table that shows in figures the non-forfeiture benefits available under the policy every year upon default in payment of premiums during at least the first twenty years of the policy, such table to begin with the year in which such values become available, and a provision that the company will furnish upon request an extension of such table beyond the year shown in the policy;
(i) A provision that specifies which one of the stipulated forms of insurance provided for under the provision of paragraph (f) of this section shall take effect in the event of the insured’s failure, within sixty days from the due date of the premium in default, to notify the insurer in writing as to which one of such forms he has selected;
(j) A provision that the policy may be reinstated at any time within two years from the due date of the premium in default unless the cash surrender value has been paid or the period of extended term insurance expired, upon production of evidence of insurability satisfactory to the company and payment of arrears of premiums with interest at a rate not exceeding six per centum per annum payable annually;
(k) A provision that when a policy shall become a claim by death of the insured, settlement shall be made upon receipt of due proof of death, or not later than two months after receipt of such proof;
(l) A title on the face and on the back of the policy correctly describing its form;
(m) A space on the front or the back of the policy for the name of the beneficiary designated by the insured with a reservation of the insured’s right to designate or change the beneficiary after the issuance of the policy. The policy may also provide that no designation or change of beneficiary shall be binding on the insurer until endorsed on the policy by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. Such policy may also contain a provision that if the beneficiary designated in the policy does not surrender the policy with due proof of death within the period stated in the policy, which shall not be less than thirty days after the death of the insured, or if the beneficiary is the estate of the insured, or is a minor, or dies before the insured, or is not legally competent to give valid release, then the insurer may make any payment thereunder to the executor or administrator of the insured, or to any of the insured’s relatives by blood or legal adoption or connections by marriage or to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred expense for the maintenance, medical attention or burial of the insured; and
(n) A provision that when an industrial life insurance policy is issued providing for accidental or health benefits, or both, in addition to life insurance, the foregoing provisions shall apply only to the life insurance portion of the policy.
Any of the foregoing provisions or portions thereof not applicable to non-participating or term policies shall to that extent not be incorporated therein. The foregoing provisions shall not apply to policies issued or granted pursuant to the non-forfeiture provisions prescribed in provisions of paragraphs (f) and (i) of this section, nor shall provisions of paragraphs (f), (g), (h), and (i) hereof be required in term insurance of twenty years or less but such term policies shall specify the mortality table, rate of interest, and method of computing reserves.
Section 231. No policy of industrial life insurance shall be issued or delivered in the Philippines if it contains any of the following provisions:
(a) A provision that gives the insurer the right to declare the policy void because the insured has had any disease or ailment, whether specified or not, or because the insured has received institutional, hospital, medical or surgical treatment or attention, except a provision which gives the insurer the right to declare the policy void if the insured has, within two years prior to the issuance of the policy, received institutional hospital, medical or surgical treatment or attention and if the insured or the claimant under the policy fails to show that the condition occasioning such treatment or attention was not of a serious nature or was not material to the risk;
(b) A provision that gives the insurer the right to declare the policy void because the insured has been rejected for insurance, unless such right be conditioned upon a showing by the insurer that knowledge of such rejection would have led to a refusal by the insurer to make such contract;
(c) A provision that allows the company to pay the proceeds of the policy at the death of the insured to any person other than the named beneficiary, except in accordance with a standard provision as specified under the provisions of paragraph (m) of the preceding section;
(d) A provision that limits the time within which any action at law or in equity may be commenced to less than six years after the cause of action shall accrue; and
(e) A provision that specifies any mode of settlement at maturity of less value than the amount insured by the policy plus dividend additions, if any, less any indebtedness to the company on the policy and less any premium that may by the terms of the policy be deducted, payments to be made in accordance with the terms of the policy.
Nothing contained in this section nor in the provision of paragraph (b) of the preceding section, relating to incontestability, shall be construed as prohibiting the life insurance company from placing in its industrial life policies provisions limiting its liability with respect to: (1) death resulting from aviation other than as a fare-paying passenger on a regularly scheduled route between definitely established airports; and (2) military or naval