For many Filipino motorists, car insurance is nothing more than a necessary evil. It is an added cost, an added hassle, and just another piece of paper to be signed. That is normally the case until we figure in an accident, which is likely the first time we will actually read the insurance policy we surreptitiously threw into our glovebox many months ago.
So, what is one to do? While insurance is complicated enough to be considered its own branch of law, there are a few important notes that I would like to highlight to give you a better understanding of its intricacies.
At its most basic level, an insurance contract is just that: a contract. But it is one imbued with public interest, so it is governed by a special law: Republic Act No. 10607, which amended Presidential Decree No. 612, otherwise known as the Insurance Code.
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Under the law, we must first answer the question, “What is an insurance contract?” Thankfully, that is simple enough. Section 2 of the Insurance Code reads: “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.”
Simply put: For a fee (known as the premium), the insurer agrees to pay the insured in case of loss, damage, or liability caused by an event that could not have been foreseen (generally an accident, but it can be theft or loss as well). Sounds simple enough, and this is generally understood by car owners, but there are some specifics you should know.
First off, you should read your insurance contract as well as your policy. This is not like the ‘terms and conditions’ you can blindly click through when selling your soul to Facebook. The consequences of your policy may be the difference between getting a shiny new car upon totaling yours, or not getting a cent.
The following rules are only general rules for insurance law. Your contract may say something else entirely, so please, please, please read your policy before reading on.
With that out of the way, let’s get started.
1) An insurance policy cannot be transferred (generally).
I always chuckle to myself when I read this line in vehicle-for-sale posts: “insured until next year,” or “comprehensive insurance until 2024.” Sellers include this statement thinking that it adds to the value of their car, but it is not necessarily true.
Again, you need to read your policy to make sure (check out the assignability clause), but the general rule is what the Insurance Code provides:
Section 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime. […]
Section 20. A change of interest in any part of a thing insured unaccompanied by a corresponding change of 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.
Simply put, when you sell your car to another person, there is a change of interest in the property, which, according to Section 20, would suspend the insurance. In other words, the person buying your car will not be able to claim from the insurer, since he was not a party to the insurance contract.
It has to be said that this is subject to some exceptions, some of which include either a change of interest by succession (Section 23), wherein you inherit your car from someone, or when the policy explicitly says that it will benefit whomsoever (Section 57), among others.
Some insurance companies even allow you to transfer the coverage, but this may require notice to the insurance company. This and the other exceptions reiterate how important it is to read your policy before committing to a specific insurer.
2) Subrogation is the whole point of insurance.
It is important to understand the concept of subrogation in insurance. In layman’s terms, it means “stepping into the shoes.” Once an insurer has paid you, subrogation occurs following the Civil Code of the Philippines:
Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
The concept of subrogation means that once you are paid by the insurer, it will “step into your shoes,” and can exercise the right to go after the person at fault in the accident. This cuts both ways, however, in that the insurance company that paid you is then the entity that any person injured in the accident will claim from (up to the extent of the coverage of the policy).
Basically, once you are paid by the insurer, it will generally be the one chased by anyone with claims. This is the essence of insurance as a form of personal protection and is the main reason it is so important to insure your car. The insurer gets sued, not you.
3) If you sell your car, the unused premium for the remaining time on your policy is generally refundable.
Here is something that may be handy for those who want to sell their cars but are worried about the premium they have just renewed: Did you know you can refund the premium on a pro-rata basis based on the unused amount?
For example, if you paid for 12 months of insurance but you sell your car after only six months, you are entitled to a return of the premium amounting to around 50%, give or take. The law provides:
Section 80. A person insured is entitled to a return of premium, as follows:
To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;
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. […]
This means if you sell your car before your coverage is over, you may ask your insurer to refund to you the unused premium (or part of it) for the corresponding time remaining on your policy.
This is, as in all things, subject to what your insurer provides in your policy, but this is a generally unknown fact that can save you that little bit of money when getting insurance for your new car.
4) Take note of your warranties and breaches thereof.
Warranties are statements or promises by the insured that are set forth in the policy itself (or incorporated in it by reference), the untruth or nonfulfillment of which (whether the insurer was prejudiced or not) allows the insurer to rescind the contract of insurance.
In plain English, a warranty is a clause in your policy wherein you promise to do (or not do) something. A common warranty clause is not to take your car racing or in timed events. If you breach this (by taking your car to a track, for example), the insurer may then decide to consider your policy voidable and refuse to pay out if a claim is made.
Remember, check your warranties, take note of these, and keep them in mind if you want a hassle-free claim later on.
5) Notifying your insurer isn’t as hard as it may seem.
After an accident, the first thing you would normally do is take a photo of the accident site and get the statements of any witnesses or responding police officers. This is when you usually need to get a police report that you will submit to your insurer to file a claim.
What people don’t realize is that the “preliminary proof of loss” required by the policy is not necessarily the same level of evidence as required by the courts. In fact, the law provides that it is sufficient to give the best evidence you have at the time:
Section 91. 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.
So, as long as you substantially comply with the proof of the loss, the insurer can be held liable to pay you. The law provides for no exact form for this notice, but your policy may require specifics like a police report (again, reiterating the need to read your policy). But what happens if the police officer refuses to issue a police report? The law has your back here:
Section 94. 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.
Hence, if the police officer or your witnesses refuse to issue a certificate or give their testimony (if required by your policy), you need to only show proof that you exercised reasonable diligence to obtain these.
While this standard of “reasonable diligence” can be subjective depending on the factors of the case and you can be sure some insurance companies will fight tooth and nail to resist your claim, you may rest easy a bit knowing that insurance law is construed liberally in favor of the insured, so you have a slightly better chance in court.
In conclusion, if there is one thing you need to take away from this article, it is this: Read your insurance policy! Take it into account before blindly signing up for car insurance. You would be surprised as to what some companies would insert as fine print in the hope that you are willing to blindly affix your signature thereto. Ignorance in this case may result in sleepless nights and a long legal battle if you are caught flat-footed just because you did not take the time to read a few pieces of paper.
