The Insurance and Pre-need Codes

Section 26

A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

Section 27

A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

Section 28

Each party to a contract of insurance must communicate 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 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 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 51.

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 177

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 178

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.

Section 179

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 a reasonable amount, not exceeding fifty percent (50%) 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 180

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 204

A life insurance company 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. No insurance company shall loan any of its money or deposits to any person, corporation or association, except upon the security of any of the following: (a) First mortgage or deeds of trust of registered, unencumbered, improved or unimproved real estate, including condominiums; (b) First mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines; (c) Purchase money mortgages, lease purchase agreements or similar securities executed or received by it on account of the sale or exchange of real property acquired pursuant to Sections 206 and 208; (d) Bonds or other instruments of indebtedness issued or guaranteed by the Government of the Philippines or its political subdivisions authorized by law to incur such obligations or issue such guarantees or of government-owned or -controlled corporations and instrumentalities including the Bangko Sentral ng Pilipinas; or (e) Obligations issued or guaranteed by universal banks, commercial banks, offshore banking units, investment houses or other financial intermediaries duly registered with the Bangko Sentral ng Pilipinas; or (f) Obligations issued or guaranteed by foreign banks or corporations, each of which shall have total net worth of at least One hundred fifty million US dollars ($US150,000,000.00) or such other higher net worth as may be prescribed by the Insurance Commission, as shown in their financial statements as of the immediately preceding fiscal year; or (g) Assignments of monetary instruments such as cash deposits, deposit certificates or other similar instruments of universal banks, commercial banks, investment houses or other financial intermediaries duly registered with the Bangko Sentral ng Pilipinas; or (h) Pledges of shares of stock, bonds or other instruments of indebtedness specified in Section 209; or (i) Chattel mortgages over equipment not more than three (3) years old; and (j) Such other security as may be approved by the Commissioner. The loans provided in the preceding subsection shall be subject to the following conditions: (1) The amount of loan secured by real estate mortgage over a non-agricultural land shall not exceed seventy percent (70%) of its appraised value, and in the case of a loan secured by a real estate mortgage over an agricultural land, the amount of loan shall not exceed forty percent (40%) of its market value: Provided, That, in no case shall such loan have a maturity period in excess of twenty-five (25) years; (2) Unless approved by the Commissioner, no loan may be granted upon the security of a mortgage on improved real estate if the improvements thereon do not belong to the owner of the land, and the owner of the improvements does not sign the deed of mortgage. However, if the owner of the land is the Government of the Philippines or any of its political subdivisions and a long-term lease has been executed in favor of the owner of the improvements, the owner of the land need not be a party to the deed of mortgage. The expiration date of the lease shall not, however, precede the maturity of the loan. The phrase 'improved real estate' as used herein shall mean land with permanent building or buildings erected thereon; (3) Lease-agreements or similar securities received on the sale of real estate property shall not exceed one hundred percent (100%) of the selling price of said property, or one hundred percent (100%) of its market value at the time of its disposition, whichever amount is lower. However, in no case shall such agreement have a maturity period not exceeding thirty (30) years; (4) Loans secured by shares of stock of solvent corporations or institutions shall not exceed fifty percent (50%) of: (i) The weighted average market price for the one hundred eighty (180) days preceding the approval of the loan for shares listed in the stock exchange; and (ii) For unlisted shares, the adjusted book value of such shares. (5) Loans secured by the chattel mortgages over equipment shall not exceed seventy percent (70%) of the market value of said equipment.

Section 205

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 have been previously registered under the provisions of the existing Mortgage Law and the lien or interest of the insurance company as mortgagee has been registered.

Section 206

(a) 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 in payment or by reason of any loan made by the company in payment or by reason of any loan made by it shall be sold by the company within twenty (20) years after the title thereto has been vested in it. (b) An insurance company may purchase, hold, and own the following: (1) Real properties which serve as its main place of business and/or branch offices: Provided, That such investment shall not in the overall exceed twenty percent (20%) of its net worth as shown by its latest financial statement approved by the Commissioner. (2) Bonds or other instruments of indebtedness of the Government of the Philippines or its political subdivisions authorized by law to issue bonds at the reasonable market value thereof. (3) Bonds or other instruments of debt of government-owned or -controlled corporations and entities, including the Bangko Sentral ng Pilipinas. (4) Bonds, debentures or other instruments of indebtedness 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 shall not have defaulted in the payment of interest on any of its securities and that during each of any three (3) including the last two (2) of the five (5) fiscal years next preceding the date of acquisition by such insurance company of such bonds, debentures, or other instruments 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 (1 1/4) times the total of its fixed charges for such year: 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 subsection an amount in excess of twenty-five percent (25%) of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment. As used in this subsection 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 nonrecurring 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. (5) Preferred or guaranteed stocks of any solvent corporation or institution created or existing under the laws of the Philippines: Provided, That if the stocks are guaranteed, the amount of stocks so guaranteed is not in excess of fifty percent (50%) of the amount of the preferred or common stocks, as the case may be, of the guaranteeing corporation: Provided, finally, That no life insurance company shall invest in or loan upon obligations of any one institution in the kinds permitted under this subsection an amount in excess of ten percent (10%) of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment. (6) Common stocks of any solvent corporation or institution created or existing under the laws of the Philippines: 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 subsection an amount in excess of ten percent (10%) of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment. (7) Securities issued by a registered enterprise, as this term is defined in Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, as amended: Provided, That the total investment of a domestic non-life insurance company in any registered enterprise shall not exceed twenty percent (20%) of the net worth of said insurance company as shown by its aforesaid financial statement unless previously authorized by the Commissioner. (8) 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. (9) 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. (10) 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. (11) Such other securities as may be approved by the Commissioner. (c) 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 investments and of such cash in such currency which is at any time held by such insurer shall not exceed one and one-half (1 1/2) 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 invested in such country or possession, whichever shall be greater.

Section 207

An insurance company may: (1) Invest in equities of other financial institutions; and (2) Engage in the buying and selling of long-term debt instruments: Provided, That any or all of such investments shall be with the prior approval of the Commissioner. Insurance companies may, however, invest in listed equities of other financial institutions without need of prior approval by the Commissioner.

Section 208

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 percent (25%) of the total admitted assets of such company on the thirty-first day of December next preceding: Provided, That the funds of the company for the payment of pending claims and obligations shall not be used for such investments. (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 it pursuant to this paragraph (b), shall not exceed twenty-five percent (25%) of its admitted assets as of the thirty-first day of December next preceding.

Section 209

Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five percent (25%) of the minimum net worth required under Section 194, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other instruments 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 Bangko Sentral ng Pilipinas: Provided, That such investments shall at all times be maintained free from any lien or encumbrance: 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 198 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.

Section 210

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 206, including securities issued by any registered enterprise, as this term is defined in Executive Order No. 226, otherwise known as 'The Omnibus Investments Code of 1987' 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 percent (20%) 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 percent (20%) of the net worth of said insurance company as shown by its aforesaid financial statement nor twenty percent (20%) of the paid-up capital of the registered enterprise excluding the intended investment, unless previously authorized by the Commissioner: Provided, further, That such investments, free from any lien or encumbrance, shall be at least equal in amount to the aggregate amount of: (1) its legal reserve, as provided in Section 219, and (2) its reserve fund held for reinsurance as provided for in the pertinent treaty provision in the case of reinsurance ceded to authorized insurers.

Section 211

After satisfying the requirements contained in Sections 197, 199, 209 and 210, any non-life insurance company may invest any portion of its funds representing earned surplus in any of the investments described in Sections 204, 206 and 207, 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 percent (20%) of the net worth of the insurance company as shown in its latest financial statement approved by the Commissioner or twenty percent (20%) of the paid-up capital of the issuing company, whichever is lesser, unless otherwise approved by the Commissioner.

Section 212

After satisfying the minimum capital investment required in Section 209, any life insurance company may invest its legal policy reserve, as provided in Section 217 or in Section 218, in any of the classes of securities or types of investments described in Sections 204, 206, 207 and 208, subject to the limitations therein contained, and in any securities issued by any registered enterprise mentioned in Section 210, 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 213

Any investment made in violation of the applicable provisions of this title shall be considered non-admitted assets.

Section 214

(a) All bonds or other instruments 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 based on their amortized cost using effective interest method less impairment and unrecoverable amount based on appropriate measurement methods which are generally accepted in the industry and accepted by the Commissioner. 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 instruments 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 policyholders 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 instruments of indebtedness in accordance with the foregoing rule. (b) 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 amortized cost using effective interest method less impairment and unrecoverable amount or at valuation 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 include a report thereon 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 as appropriate to specific investments as provided in appropriate circulars issued by the Commissioner. (c) Investments in equity of an insurance company shall be valued as follows: (1) Listed stocks shall be valued at market value and periodically adjusted to reflect market changes through a special valuation account to reflect their realizable value when sold; (2) Unlisted stocks shall be valued at adjusted book value based on the latest unqualified audited financial statements of the company which issued such stocks; and (3) Stocks of a corporation under the control of the insurer shall be valued using the equity method which is the cost plus or minus the share of the controlling company in the earnings or losses of the controlled company after acquisition of such stocks. (d) 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 audited financial 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 (1) the amount of its capital and surplus less the value of all of its preferred stock, if any, outstanding, by (2) 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. (e) Real estate acquired 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 or any assessments levied for improvements in connection with the property. (f) Purchase money mortgages received on dispositions of real property held pursuant to Section 208 shall be valued in an amount equivalent to ninety percent (90%) 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 percent (90%) 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. (g) The stock of a subsidiary of an insurer shall be valued on the basis of the greater of: (1) The value of only such of the assets of such subsidiary as would constitute lawful investments for the insurer if acquired or held directly by the insurer; or (2) Such other value determined pursuant to standards and cumulative limitations, contained in a regulation to be promulgated by the Commissioner. (h) Notwithstanding any provision contained in this section or elsewhere in this chapter, if the Commissioner finds 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 215

It shall be the duty of the officers of the insurance company to report within the first fifteen (15) 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 327

No person shall act, and no company shall employ any person, as non-life company underwriter, whose duty and responsibility it shall be to select, evaluate and accept risks for, and to determine the terms and conditions, including those pertaining to amounts of retentions, under which such risks are to be accepted by the company, unless such underwriter is registered as such with the Commissioner.

Section 328

Every non-life insurance company doing business in the Philippines must maintain at all times a register of risks accepted and a claims register for each line of risks engaged in by such non-life insurance company with such entries therein as are now or as may hereafter be required by the Commissioner, and it shall be the responsibility of the underwriter on the particular line of risk involved to see to it that the said registers are well maintained and kept, and that all entries therein are properly and correctly recorded. Such registers shall be open to inspection and examination of duly authorized representatives of the Commissioner at all times during business hours.

Section 329

No person shall be registered with the Commissioner, unless such person shall be at least twenty-one (21) years of age on the date of such registration; a resident of the Philippines; of good moral character and with no conviction of any crime involving moral turpitude; has had at the time such registration is made at least two (2) years of underwriting work in the particular line of risk involved; and has passed such qualifying written examination that the Commissioner shall conduct at such time and in such place as he may decide to hold for applicants desiring to act as underwriters. Such examination shall not be required of any person who has served as non-life company underwriter for a period of at least five (5) years, if the Commissioner is satisfied of the applicant's competence as shown by the results of his underwriting work in the non-life insurance company or companies that employed him in that capacity. The minimum underwriting experience herein required may be reduced or waived if it is shown to the satisfaction of the Commissioner that the non-life company underwriter has undergone extensive education and/or training in insurance.

Section 330

Any applicant who misrepresents or omits any material fact in his application for registration as a non-life company underwriter, or commits any dishonest act in taking or in connection with the qualifying written examination for underwriters, shall be barred from being registered as such non-life company underwriter and, if already registered, his registration shall be cancelled and the certificate of registration issued in his favor shall be recalled immediately by the Commissioner. In the event that the certificate of authority of a non-life insurance company to transact business is suspended or revoked due to business failure arising largely from the imprudent and injudicious acceptance of risks by the underwriter concerned, the registration of such underwriter shall likewise be cancelled and his certificate of registration shall be recalled by the Commissioner, and no similar certificate shall thereafter be issued in his favor.

Section 331

No certificate of registration issued to an underwriter shall be valid after December 31 of the third year following its issuance unless it is renewed. The Commissioner may, after due notice and hearing, also suspend or cancel such certificate for violation of existing laws, rules and regulations or of any provisions of this Code.