Sie sind auf Seite 1von 33

THE INSURANCE CODE OF 1976 (Presidential Decree No. 1460) GENERAL PROVISIONS Section 1.

This decree shall be known as the Insurance Code of 1978 What is the principle behind insurance? Insurance is based upon the principle of aiding another from a loss caused by an unfortunate event. How old is the concept of insurance? Very old. Benevolent societies organized for the purpose of extending aid to their unfortunate members from a fund contributed by all, have been in existence from the earliest times. They existed among the Egyptians, the Chinese, the Hindus, the Romans, and are known to have been established among the Greeks as early as, believe it or not, 3 B.C. How did insurance develop in the Philippines? Pre-Spanish Era - there was no insurance; every loss was borne by the person or the family who suffered the misfortune. Spanish era Insurance, in its present concept, was introduced in the Philippines when Lloyds of London appointed Strachman, Murray & Co., Inc. as its representative here. 1898 Life insurance was introduced in this country with the entry of Sun Life Assurance of Canada in the local insurance market. 1906 First domestic non-life insurance company, the Yek Tong Lin Insurance Company, was organized 1910 First domestic life insurance company, the Insular Life Assurance Co., Ltd., was organized 1939 Union Insurance Society of Canton appointed Russel & Surgis as its agent in Manila. The business transacted the Philippines was then limited to nonlife insurance. 1936 Social insurance was established with the enactment of Commonwealth Act no. 186 which created the Government Service Insurance System (GSIS) which started operations in 1937. The Act covers govt employees. 1949 Government agency was formed to handle insurance affairs, where the Insular Treasurer was appointed commissioner ex-officio. 1950 Reinsurance was introduced by the Reinsurance Company of the Orient when it wrote treaties for both life and non life. 1951 First workmens compensation pool was organized as the Royal Group Incorporated. 1954 RA 1161 was enacted which provided for the organization of the Social Security System (SSS) covering employees of the private sector. At present, there are 130 insurance companies registered with the Office of the Insurance Commissioner. Of these, 2 are composite insurance companies (engaged in both life and non-life insurance), 23 are life insurance companies, 101 are non-life insurance companies and 4 are reinsurance companies. How did insurance laws develop in the Philippines? During the Spanish Period, the laws on insurance were found in Title VII of Book II and Section III of Title III of Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile XII of Book IV of the Spanish Civil Code of 1889 (whew!)

During the American Regime, on Dec. 11, 1914, the Phil Legislature enacted the Insurance Act (Act 2427). This Act which took effect on July 1, 1915 repealed the provisions of the Spanish Code of Commerce on Insurance. When the Civil Code of the Philippines (RA 386) took effect on August 30, 1950, the provisions of the Spanish Civil Code of 1889 were likewise repealed. For quite a long time, the Insurance Act was the governing law on insurance in the Philippines. On Dec. 18, 1974, PD 612 was promulgated, ordaining and instituting the Insurance Code of the Philippines, thereby repealing Act 2427. PDs 63, 123 and 317 were issued, amending PD 612. Finally PD 1460 which took effect on June 11, 1976 consolidated all insurance laws into a single code and this is what we know now as the Insurance Code of 1978. What are the present laws that govern insurance (also known as the laws we have to know for exams)? The laws we have to know are, of course, PD 1460, and Articles 2011-2012, 2021-2027 and 2166 of the New Civil Code. What do these Civil Code Provisions say? Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. Art. 2012. Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of income. Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third person, or upon the lives of various persons, all of whom must be living at the time the annuity is established. It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons. Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at the that time suffering from an illness which caused his death within twenty days following said date. Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary. Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the

time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for execution or attachment of the property. Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. What is so important about the Civil Code Provisions? Atty. Quimson never fails to ask about Art. 2012. Are there special laws that govern insurance? Yes, but Atty. Quimson did not tell us to look them up. However, for reference they are: 1. Revised GSIS Act of 1977 (PD 1146, as amended) 2. Social Security Act of 1954 ( RA 1161, (as amended) 3. The Property Insurance Law ( RA 656, as amended by PD 245) 4. Republic Act No. 4898 5. EO 250; and 6. RA 3591 How do we construe the provisions of the Insurance Code (IC)? Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from the law of California (except for Chap V, which was taken from the law of NY), the courts should follow in fundamental points, at least, the construction placed by California Courts on California law (and the construction placed by the NY Courts on NY law). This is in accordance with the well settled rule in statutory construction that when a statute has been adopted from some other state or country, and said statute has previously been construed by the courts of such state or country, the statute is usually deemed to have been adopted with the construction so given. Cases: (1) Constantino v. Asia Life 87 PHIL 248 Facts: Appeal consolidates two cases. Asia life insurance Company (ALIC) was incorporated in Delaware. For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No. 93912 whereby it insured the life of Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary. o First premium covered the period up to Sept. 26, 1942. No further premiums were paid after the first premium and Arcadio died on Sept. 22, 1944. Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 1942-1945. On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and Agustina Peralta for the sum of P3T for 20 years. The annual premium stipulated was regularly paid from Aug. 1, 1938 up to and including Sept. 30, 1940. o Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such quarterly premiums were paid until Nov. 18, 1941. o Last payment covered the period until Jan. 31, 1942. o Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary. Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside from this the insured borrowed from the policy P234.00

such that the cash surrender value of the policy was sufficient to maintain the policy in force only up to Sept. 7, 1942. Both policies contained this provision: All premiums are due in advance and any unpunctuality in making such payment shall cause this policy to lapse unless and except as kept in force by the grace period condition. Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive the proceeds of the policies less all sums due for premiums in arrears. They also allege that nonpayment of the premiums were caused by the closing of ALICs offices during the war and the impossible circumstances by the war, therefore, they should be excused and the policies should not be forfeited. Lower court ruled in favor of ALIC. Issue: May a beneficiary in a life insurance policy recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums, such failure being caused by war? Held: NO. Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga v. Sun Life, it was held that a life policy was avoided because the premium had not been paid within the time fixed; since by its express terms, non-payment of any premium when due or within the 31 day grace period ipso fact caused the policy to lapse. When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war does NOT excuse non-payment and does not avoid forfeiture. Essentially, the reason why punctual payments are important is that the insurer calculates on the basis of the prompt payments. Otherwise, malulugi sila. It should be noted that the parties contracted not only as to peace time conditions but also as to wartime conditions since the policies contained provisions applicable expressly to wartime days. The logical inference therefore is that the parties contemplated the uninterrupted operation of the contract even if armed conflict should ensue. (2) Insular Life v. Ebrado 80 SCRA 181 Facts: Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife. Ebrado died when he was accidentally hit by a falling branch of tree. Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage. Pascuala Ebrado also filed her claim as the widow of the deceased insured. Insular life filed an interpleader case and the lower court found in favor of Pascuala. Issue: Between Carponia and Pascuala, who is entitled to the proceeds? Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific

provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract. (3) Qua Chee Gan v. Law Union Rock 98 PHIL 85 Facts: Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or copra and hemp in which the appelle deals with exclusively. The warehouses together with the contents were insured with Law Union since 1937 and the loss made payable to PNB as mortgagee of the hemp and copra. A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole week. Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely. Insured then informed insurer of the unfortunate event and submitted the corresponding fire claims, which were later reduced to P370T. Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims and that the fire had been deliberately caused by the insured. Insured filed an action before CFI which rendered a decision in favor of the insured. Issues and Resolutions: (1) WON the policies should be avoided for the reason that there was a breach of warranty. Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of external wall measurements of the compound, and since bodegas insured had an external wall per meter of 1640 feet, the insured should have 11 hydrants in the compound. But he only had 2. Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because knowing that the number of hydrants it demanded never existed from the very beginning, appellant nevertheless issued the policies subject to such warranty and received the corresponding premiums. The insurance company was aware, even before the policies were issued, that in the premises there were only 2 hydrants and 2 others were owned by the Municipality, contrary to the requirements of the

warranties in question. It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the policies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed, and after it had misled the insured into believing that the policies were effective. Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of a policy has the knowledge of existing facts, which if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with known facts, and the insurer is stopped thereafter from asserting the breach of such conditions. The reason for the rule is: To allow a company to accept ones money for a policy of insurance which it knows to be void and of no effect, though it knows as it must that the insured believes it to be valid and binding is so contrary to the dictates of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to fairminded men. It would be to allow the company to treat the policy as valid long enough to get the premium on it, and leave it at liberty to repudiate it the next moment. Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars the latter from questioning the existence of the appliances called for, since its initial expression the undernoted appliances for the extinction of fire being kept on the premises insured hereby.. admits of the interpretation as an admission of the existence of such appliances which insurer cannot now contradict, should the parole evidence apply. (2) WON the insured violated the hemp warranty provision against the storage of gasoline since insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and not affected by the fire. It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the so called hemp warranty. The clause relied upon by the insurer speaks of oils. Ordinarily, oils mean lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance company over the terms of the contract, the ambiguity must be held strictly against the insurer and liberally in favor of the insured, specially to avoid a forfeiture. Furthermore, the gasoline kept was only incidental to the insureds business. It is a well settled rule that keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such keeping is incidental to the business. Also, the hemp warranty forbade the storage only in the building to which the insurance applies, and/or in any building communicating therewith; and it is undisputed that no gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found stood isolated from the other bodegas. (4) Ty v. Filipinas Compaia de Seguros 17 SCRA 364 Facts: Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park, Caloocan.

In 1953, he took personal accident policies from 7 insurance companies (6 defendants), on different dates, effective for 12 mos. On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A hevy object fell on his hand when he was trying to put out the fire. From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Natl Orthopedic Hospital for six listed injuries. The attending surgeon certified that these injuries would cause the temporary total disability of Tys left hand. Insurance companies refused to pay Tys claim for compensation under the policies by reason of said disability of his left hand. Ty filed a complaint in the municipal court who decided in his favor. CFI reversed on the ground that under the uniform terms of the policies, partial disability due to loss of either hand of the insured, to be compensable must be the result of amputation. Issue: WON Ty should be indemnified under his accident policies. Held. NO. SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial disability as loss of either hand by amputation through the bones of the wrist, the insured cannot recover under said policies for temporary disability of his left hand caused by the fractures of some fingers. The provision is clear enough to inform the party entering into that contract that the loss to be considered a disability entitled to indemnity, must be severance or amputation of the affected member of the body of the insured. In the words of Atty. Quimson: Aba gago pala siya, Sinabi ng loss by amputation, pinagpipilitan pa nyang fracture lang ang kailangan. (5) Del Rosario v. Equitable Insurance 118 PHIL 349 Facts: Equitable Insurance issued a life Insurance policy to del Rosario binding itself to pay P1,000 to P3,000 as indemnity. Del Rosario died in a boating accident. The heirs filed a claim and Equitable paid them P1,000. The heir filed a complaint for recovery of the balance of P2,000, claiming that the insurere should pay him P3,000 as stated in the policy. Issue: WON the heir is entitled to recover P3,000. Held: YES. Generally accepted principles or ruling on insurance, enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same shall be resolved against the one responsible thereof. The insured has little, if any, participation in the preparation of the policy. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity. (6) Misamis Lumber v. Capital Insurance 123 Phil 1077 Facts: Misamis lumber insured its motor car for P14T with Capital Insurance. The policy stipulated that the insured may authorize the repair of the vehicle necessitated by damage and the liability of the insured is limited to 150.

Car met an accident and was repaired by Morosi Motors at a total cost of P302.27. Misamis made a report of the accident to Capital who refused to pay the cost of the repairs. Issue: WON the insurer is liable for the total amount of the repair. Held: NO. The insurance policy stipulated that if it is the insured who authorized the repair, the liability of the insurer is limited to 150. The literal meaning of the stipulation must control, it being the actual contract, expressly and plainly provided for in the policy. (7) Verendia v. CA 217 SCRA 1993 Facts: Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 and The Development Insurance for P400,000.00. While the three fire insurance policies were in force, the insured property was completely destroyed by fire. Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of the loss. Despite demands, Fidelity refused payment under its policy, thus prompting Verendia to file a complaint for the recovery of 385,000 Fidelity, averred that the policy was avoided by reason of over-insurance, that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee. Issue: WON Verendia can claim on the insurance despite the misrepresentation as to the lessee and the overinsurance. Held: NOPE. The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground, it appears that Robert Garcia was still within the premises. However, according to the investigation by the police, the building appeared to have "no occupants" and that Mr. Roberto Garcia was "renting on the otherside of said compound" These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the real lessee, was occupying the building when it was burned. Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract but it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact he was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflect responsibility

for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the. As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it. Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy, the terms of the policy should be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision. There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the parties 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 withing 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 distinct 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. Is the definition of a contract of insurance under Sec. 2 sufficient? De Leon believes that it is not. He opines that the definition does Not include Life insurance which is a contract upon a condition rather than a contract to indemnify for nor recovery can fully repay a beneficiary for the loss of life which is beyond pecuniary value. A better definition he thinks, is that of Vance who said that a contract of insurance is an agreement by which one party, for a consideration, promises to pay money or its equivalent, or to do some act valuable to the insured or his nominee, upon the happening of a loss, damage, liability or disability arising from an unknown or contingent event. What are the characteristics of an insurance contract? A contract of insurance has the following characteristics: 1. Consensual perfected by the meeting of the minds of the parties 2. Voluntary it is not compulsory and the parties may incorporate such terms and conditions as they may deem convenient which will be binding provided they are not against the law or public policy 3. Aleatory depends upon some contingent event 4. Executed as to the insured after the payment of the premium 5. Executory as to the insurer as it is not executed until payment for a loss 6. Conditional subject to conditions the principal one of which is the happening of the event insured against 7. Personal each party in the contract have in view the character, credit and conduct of the other What are the elements of an insurance contract? Like any other contract, an insurance contract must have consent of the parties, object and cause or consideration. The parties who give their consent in this contract are the insurer and insured. The object of the contract is the transferring or distributing of

the risk of loss, damage, liability or disability from the insured to the insurer. The cause or consideration of the contract is the premium which the insured pays the insurer. What is an additional element of an insurance contract? Insurable Interest. This means that the insured possesses an interest of some kind susceptible of pecuniary estimation. How are insurance contracts classified? Insurance contracts are classified as follows? 1) Life insurance contracts a) Individual (Sections 179-183, 227) b) Group Life (Sections 50 and 228) c) Industrial Life (Sections 229-231) 2) Non-Life Insurance Contracts a) Marine (Sections 99-166) b) Fire (Sections 167-173) c) Casualty (Section 174) 3) Contracts of Suretyship and bonding (Sections 175-178) How are insurance contracts construed? Ambiguities or obscurities must be strictly interpreted against the party that caused them. As the insurance policy is prepared solely by the insurer, the ambiguities shall be construed against it and in favor of the insured. (Qua Chee Gan) What does the term doing insurance business include? The term doing an insurance business or transacting an insurance business includes: 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. Does the fact that no profit was derived from the transaction nor a separate consideration received therefore mean that no insurance business was transacted? No. Fact that no profit is derived from the contract or transaction or that no separate or direct consideration is received for such contract or transaction is NOT deemed conclusive to show that no insurance business was transacted. Will any suretyship agreement amount to an insurance contract? No. In order for a suretyship agreement to come under the purview of the Insurance Code, the Surety undertaking to ensure the performance of the obligations must be registered with the Insurance Commissioner and must have been issued by the latter with a certificate of authority. Furthermore, the person acting as a surety is habitually engaged as such for a livelihood.

Cases: (8) Philamlife v. Ansaldo 234 SCRA 509 Facts: Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging certain problems encountered by agents, supervisors, managers and public consumers of the Philamlife as a result of certain practices by said company. Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter. The complaint prays that provisions on charges and fees stated in the Contract of Agency executed between Philamlife and its agents, as well as the implementing provisions as published in the agents' handbook, agency bulletins and circulars, be declared as null and void. He also asked that the amounts of such charges and fees already deducted and collected by Philamlife in connection therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from the date when they were deducted Manuel Ortega, Philamlife's Senior Assistant VicePresident and Executive Assistant to the President, asked that the Commissioner first rule on the questions of the jurisdiction of the Insurance Commissioner over the subject matter of the letterscomplaint and the legal standing of Paterno. Insurance Commissioner set the case for hearing and sent subpoena to the officers of Philamlife. Ortega filed a motion to quash the subpoena alleging that the Insurance company has no jurisdiction over the subject matter of the case and that there is no complaint sufficient in form and contents has been filed. The motion to quash was denied. Issue: WON the insurance commissioner had jurisdiction over the legality of the Contract of Agency between Philamlife and its agents. Held: No, it does not have jurisdiction. The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code, to wit: "The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code,." On the other hand, Section 415 provides: "In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, instruction, regulation or ruling of the Insurance Commissioner, or any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Insurance Commissioner, the following: a) fines not in excess of five hundred pesos a day; and b) suspension, or after due hearing, removal of directors and/or officers and/or agents."

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to regulate the business of insurance, which is defined as follows: "(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 insurancecontract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental 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. (Insurance Code, Sec. 2 [2]) Since the contract of agency entered into between Philamlife and its agents is not included within the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius. (9) Philamcare v. CA 379 SCRA 356 (2002) Facts: Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00 After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very

weak. Julita was constrained to bring him back to the CGH where he died on the same day. Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed. Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such

statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. CHAPTER 1 CONTRACT OF INSURANCE TITLE I 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 the 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 minors estate or the minors 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 in the policy. What perils or risk may be insured? The following risks may be insured: 1. Any contingent or unknown event whether past or future which may cause damage to a person having an insurable interest; or 2. Any contingent or unknown event, whether past or future, which may create liability against the person insured. May a married woman take out an insurance? If so, on what? Yes. A married woman may take out an insurance on her life or that of her children even without the consent of her husband. She may likewise take out an insurance on the life of her husband, her paraphernal property, or on property given to her by her husband. May a minor take out an insurance? Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA 8809, Dec. 13, 1989). Atty Quimson asked us to look at a few provisions of law with respect to this section. What are they? Art. 1174 (NCC). Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen, were inevitable. Art. 110 (FC). The spouses retain the ownership, possession, administration and enjoyment of their exclusive properties. Either spouse may during the marriage, transfer the administration of his or her exclusive property to the other by means of a public instrument, which shall be recorded in the registry of property of the place where the property is located. Art. 1327 (NCC). The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390 (NCC). The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Problem: A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and talked to an exporter who willingly agreed to consign several tons of ginsengs with him on the condition that he will come and pick the goods up. A then sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August 14, A insured the 5 vessels against perils of the South China Sea Lost or Not Lost with B Insurance Co. Without the knowledge of both parties, the ships had already sunk on Aug. 14. Is B Insurance Co. liable for the ships? Yes. This is an example of a past unknown event because the sinking of the ship is a past event at the time that the policy took effect. The contract is valid and B Insurance Co. is liable because he agreed to pay even though the ship be already lost. An insurance against an unknown past event is peculiar only to marine insurance. However, Atty. Quimson said in class that nowadays, most if not all insurance companies no longer insure a past event since technology has progressed in such a manner that a ships current status can easily be known while the application is being processed. Case. (10) Philamcare v. CA (repeat Case #09) 379 SCRA 356 Facts: Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void.

According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00 After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day. Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed. Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,

ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. Section 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for against any chance or ticket in a lottery drawing a prize. Is a contract of insurance a wagering or gambling contract? NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract. Although it is true that an insurance contract is also based on a contingency, it is not a contract of chance. What is the concept of a lottery? The term lottery extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling. What are the three essential elements of lottery? Consideration, prizes and chance. There is consideration of price aid if it appears that the prizes offered by whatever name they may be called came out of the fund raised by the sale of chances among the participants in order to win the prizes. Are all prizes equivalent to a lottery? If the prizes do not come out of the fund or contributions by the participants, no consideration has been paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain products, resorts to a scheme which envisions the giving away for free of certain prizes for the purchase of said products, for the participants are not required to pay more than the usual price o the products. Can a sweepstakes holder insure himself against the failure of his ticket to win? NO. It cannot be said that he suffered a loss of prize when he did not win. The failure to win a prize would not damnify or create a liability against him. What are the distinctions between an insurance contract and a wagering contract? A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25) White it is based on a contingency, it is not a contract of chance and is not used for profit. The distinctions are the following: Insurance Contract Parties seek to distribute loss gain by reason of mischance or Gambling contract Parties contemplate through mere chance the occurrence of a contingent event. Insured avoids misfortune. courts fortune Gambler

Tends to equalize fortune. increase the

Tends to inequality of fortune.

Section 6. Every person, partnership, association or corporation duly authorized to transact insurance business as elsewhere provided in this Code, may be an insurer. Who are the parties to the contract of insurance? The Insurer is the party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured or to pay him a certain sum on the happening of a specified contingency or event. The business of insurance may be carried on by individuals just as much as by corporations and associations. The state itself may go into insurance business. The insured, or the second party to the contract, is the person in whose favor, the contract is operative and who is indemnified against, or is to receive a certain sum upon the happening of a specified contingency or event. He is the person whose loss is the occasion for the payment of the insurance proceeds by the insurer. Is the insured always the person to whom the proceeds are paid? No. The person paid may be the beneficiary designated in the policy. A common example of this situation is a life insurance policy where the proceeds are not given to the insured but to a third party designated by the insured. What is the nature of the relationship between the insurer and the insured? It is that of a contingent debtor and creditor, subject to the conditions of the policy and NOT that of trustee and cestui que trust. How are the terms assurer, insured and assured used in insurance? Accdg to Blacks Law, Insurer is synonymous with the term assurer or underwriter. The terms insured and assured are generally used interchangeably; but strictly speaking, the term insured refers to the owner of the property insured or the person whose life is the subject of the contract of insurance, while assured refers to the person for whose benefit the insurance is granted. For ex: A wife insures the life of her husband for her own benefit. The wife is the assured, and the husband the insured. The wife is the owner of the policy but she is not the insured. In property insurance, like fire insurance, the insure is also the assured where the proceeds are payable to him. Assured is also used sometimes as a synonym of beneficiary. The beneficiary is the person designated by the terms of the policy as the one to receive the proceeds of the insurance. He is the third party in a contract of life insurance, whose benefit the policy is issued and to whom the loss is payable. Who may be an insurer? A foreign or domestic insurance company may transact business in the Philippines but must first obtain a certificate of authority for that purpose from the Insurance Commissioner who has the discretion to refuse to issue such certificate if it will best promote the interests of the people of this country. (Sec. 187) An individual may also be an insurer, provided he holds a certificate of authority from the Insurance Commissioner, and provided further that he is possessed of the capital assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner. (Secs. 184- 186)

What one insured against is not Essence is whatever one at the expense of another person wins from a wager insured. The entire group of lost by the other wagering insureds provides through the party. premiums paid, the funds which make possible the payment of all claims; Purchase of insurance does not As soon as a party makes create a new and non-existing a wager, he creates a risk risk of loss to the purchaser. of loss to himself where no In purchasing insurance, the such risk existed insurer faces an already existing previously. risk of economic loss. What are the similarities between an insurance contract and a gambling contract? They are similar in only one respect. In both, one party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a stipulated amount by the other party to the contract. In either case, one party may receive more, much more, than he paid or agreed to pay. Problems. A, B, C and D decided to join a bungee jumping competition. They contributed P1,000 each to a fund available for the use of any member who is injured in the contest. Is this insurance or gambling? This is an insurance contract. Each member contributes to a common fund, out of which one is reimbursed for the losses that he may suffer. Suppose A, B, C, and D agree that the whole amount of 4T would be given to the one who swings nearest to the ground. Is this insurance or gambling? This is now a gambling contract. The parties are now contemplating a gain based upon uncertain events. Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. What is the applicability of the provisions of Chapter 1? Provisions of Chap 1 on The Contract of Insurance (Secs 1-98) are also applicable to marine Insurance (Secs. 99-166), Fire insurance (Secs. 167-173), Casualty Insurance (Sec. 174), Suretyship (Secs. 175178), Life Insurance (Secs. 179-183), and to any other kind of insurance (Sec. 2) so far as said provisions can apply. Matters not expressly provided for in the Insurance Code and special laws are regulated by the CC. So, an insurance contract under RA 1611 (Social Security Act of 1954) shall be governed primarily by the said law and subsidiarily by Chap. 1 of the Insurance Code, and in the absence of the applicable provisions in both laws, the pertinent provisions of the CC shall be applied. TITLE II PARTIES TO THE CONTRACT

What is an insurance corporation? IC defines it as one 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 debts of others. (Sec. 185) The last part of the statement refers to suretyship. (Sec. 175) What does the term insurer and insurance company include? It includes individuals, partnerships, associations or corporations, including GOCCs or entities, engaged as principals in the insurance business, except mutual benefit associations. It shall also include professional reinsurers as defined in Sec. 280 (Sec. 184) Is the Business of Insurance affected with public interest? Yes. It is therefore, subject to regulation and control by the state by virtue of the exercise of its police power or in the interest of public convenience and the general good of the people. Atty. Quimson asked us to look at Sec. 184-185 for the meaning of insurer, insurance company, and Insurance corporation; and Sec. 187 for the certificate of authority required to transact insurance business. What do these sections provide? Sec. 184. For the 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 term shall also include professional reinsurers defined in Sec. 280. 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 lws other than those of the Philippines. Sec. 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 debts 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 in so far as they do not conflict with the provisions of this chapter. Sec. 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 therefore 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 interests 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 local 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 188, reasonably assure the safety of the interests of the policyholders and the public. In order to maintain the quality of the management of insurance companies and afford better protection of 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 the 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 the 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 certificate 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 however, that the terms life and non-life insurance shall e deemed to include health, accident and disability insurance. No insurer company shall have any 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 provisions shall have two years from the effectivity of the Decree within which to divest of their stockholdings. Section 7. Anyone except a public enemy may be insured. What are the requisites in order that a person may be insured in a contact of insurance? There are 3 requisites namely: c) He must be competent to enter into a contract.

d) He must possess an insurable interest in the subject of insurance. e) He must NOT be a public enemy. What is a public enemy? It is a nation with whom the Philippines is at war, and it includes every citizen or subject of such nation. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to property insurance? With respect to property insurance, the rule adopted in the Phil is that an insurance policy ceases to be valid and enforceable as soon as the insured becomes a public enemy. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to life insurance? Three doctrines have arisen. (1) Connecticut Rule there are two elements in the consideration for which the annual premium is paid: a. The mere protection for the year; and b. The privilege of renewing the contract for each succeeding year by paying the premium for that year at the time agreed upon. Accdg. to this view, the payments of the premiums are a condition precedent, the nonperformance of which (as when the performance would be illegal) necessary defeats the right to renew the contract. (2) New York Rule apparently followed by the number of decisions. War between the states in which the parties reside merely suspends the contracts of life insurance and that upon the tender of premiums due by the insured or his representatives after the war has terminated revives the contract which becomes fully operative. (3) US Rule declared the contract not merely suspended but is abrogated by reason of nonpayment of premiums, since the time of the payment is peculiarly of the essence of the contract. However, the insured is entitled to the cash or reserve value of the policy (if any) which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. We follow the US Rule. Problem. B is sideswiped by a balut vendor. Because he was previously indicted for many other crimes including illegal possession of balisongs, he was declared Metro Manilas Public Enemy No.1. If A wants to secure insurance on the life of B, may the insurer refuse on the grounds that B is a public enemy and therefore may not be insured under Sec. 7 of the IC? NO. Sec. 7 speaks of a public enemy only in reference to a nation with whom the Phil is at war and every citizen and or subject thereof. Cases. (11) Filipinas Cia Huenfeld & Co. 80 PHIL 54 Facts: de Seguros v. Christern

Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas, fire policy no. 29333 for P100T covering merchandise contained in a building located in Binondo. On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were burned. Christern submitted to Filipinas its claim. Salvaged goods were sold and the total loss of Christern was P92T. Filipinas denied liability on the ground that Christern was an enemy corp and cannot be insured. Issue: WON Filipinas is liable to Christern, Huenfeld & Co. Held: NO. Majority of the stockholders of Christern were German subjects. This being so, SC ruled that said corporation became an enemy corporation upon the war between the US and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a public enemy may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy or render it aid. All individuals who compose the belligerent powers, exist as to each other, in a state of utter exclusion and are public enemies. Christern having become an enemy corporation on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid and enforceable, and since the insured goods were burned after Dec. 10, 1941, and during the war, Christern was NOT entitled to any indemnity under said policy from Filipinas. Elementary rules of justice require that the premium paid by Christern for the period covered by the policy from Dec. 10, 1941 should be returned by Filipinas. Section 8. Unless the policy otherwise provides, where a mortgagor of the property effects insurance in his own name providing that a 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. Is it alright if both the mortgagor and the mortgage insure the same property? YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged, and this interest is separate and distinct from the other. Consequently, insurance taken by one in his own name only and in his favor alone does not inure to the benefit of the other. And in case both of them take out separate insurance policies on the same property, or one policy covering their respective interests, the same

is not open to the objection that there is double insurance. What is the extent of the insurable interest of the mortgagor? The mortgagor of the property, as owner has an insurable interest to the extent of the value of the property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction of the property insured will NOT extinguish the mortgage debt. What is the extent of the insurable interest of the mortgagee? The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of the debt secured, such interest continues until the mortgage debt is extinguished. Up to what extent can each recover? The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee cannot recover in excess of the credit at the time of the loss. Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee? The legal effects of this are: (1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be a party to the contract; (2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee; (3) Any act which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee; (4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and (5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. What is the effect if the mortgagee effects insurance on behalf of the mortgagor? Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the debt. Atty. Quimson wants us to look at Art. 2127 CC. What does it say? Art. 2127. The mortgage extends to the natural accession, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. Problems. A is the owner of a house worth 10T which he mortgaged to B to secure a loan of 5T. What is the insurable interests of each? Insurable interest of A, mortgagor is P10T, while the insurable interest of B, mortgagee is P5T. A insured

for 1M her house with the policy providing that the loss shall be payable to B. The house was mortgaged to B as security for a loan of P750T. It was totally destroyed by accidental fire. Who may recover on the policy? B, the mortgagee may receive the 1M but is entitled only to the extent of his credit of P750T, and he shall hold as trustee for A, mortgagor, the excess of P250T. Supposing before the fire occurred B had already been paid, who, if at all, will receive the proceeds? A will receive the proceeds. The reason is that A effected the insurance in his own name and he did NOT cease to be a party to the contract although it was provided that the indemnity be paid to B. Suppose it was B, mortgagee who insured the house for 1M. If the loss occurred before B was paid who is entitled to receive the proceeds? B. But B can only recover P750T, the amount of her credit. What if the loss occurred after B was paid, can he still receive the proceeds? No. Upon payment of the debt, B lost his insurable interest in the property. Will A get the proceeds? No. Because A was never a party to the contract. It is important to note that it was B, mortgagee who effected the insurance. Cases: (12) San Miguel Brewery v. Law Union Rock Insurance Company 40 PHIL 674 Facts: On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T. Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt. Dunn likewise authorized SMB to take out the insurance policy for him. Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMBs interest in the property was merely that of a mortgagee. Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy. Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed. In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMBs name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.

Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. SMB eventually reached a settlement with the insurance companies and was paid the balance of its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured, it would have proved an intention to insure the entire interest in the property, NOT merely SMBs and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owners interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. (13) Saura Import Export Co. v. Philippine International Surety 118 PHIL 150 Facts: On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao to secure the payment of a promissory note of P27T. A building of strong materials which was also owned by Saura, was erected on the parcel of land and the building had always been covered by insurance even before the execution of the mortgage contract. Pursuant to the mortgage agreement which required Saura to insure the building and its contents, it obtained a fire insurance for P29T from PISC for a period of 1 year starting Oct. 2, 1954. The mortgage also required Saura to endorse the insurance policy to PNB. The memo stated: Loss if any, payable to PNG as their interest may appear,

subject to the terms, conditions and warranties of this policy. The policy was delivered to PNB by Saura. On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC canceled the same, effective as of the date of issue. Notice of the cancellation was sent to PNB in writing and was received by the bank on Nov. 8, 1954. On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April 11, 1985, Saura filed a claim with PISC and mortgagee bank. Upon presentation of notice of loss with PNB, Saura learned for the first time that the policy had been previously canceled by PISC, when Sauras folder in the banks file was opened and the notice of the cancellation by PISC was found. Issue: WON there was proper cancellation of the policy? Held. NO. The policy in question does NOT provide for the notice of cancellation, its form or period. The Insurance Law does not likewise provide for such notice. This being the case, it devolves upon the Court to apply the generally accepted principles of insurance, regarding cancellation of the insurance policy by the insurer. Actual notice of cancellation in a clear and unequivocal manner, preferably in writing should be given by the insurer to the insured so that the latter might be given an opportunity to obtain other insurance for his own protection. The notice should be personal to the insurer and not to and/or through any unauthorized person by the policy. Both the PSIC and the PNB failed, wittingly or unwittingly to notify Saura of the cancellation made. The insurer contends that it gave notice to PNB as mortgagee of the property and that was already substantial compliance with its duty to notify the insured of the cancellation of the policy. But notice to the bank, as far as Saura herein is concerned, is not effective notice. PISC is then ordered to pay Saura P29T, the amount involved in the policy subject matter of this case. (14) Palilieo v. Cosio 97 PHIL 919 Facts: On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T. To secure payment, Cosio required Palileo to sign a document known as conditional sale of residential building, purporting to convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story building of strong materials belonging to Palileo. After execution of the document, Cosio insured the building against fire with Associated Insurance & Surety Co. (Associated) for 15T. The insurance policy was issued in the name of Cosio. The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the insurance company an indemnity of P13,107. Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insurance proceeds, but Cosio refused to do so. Trial Court found that the debt had an unpaid balance of P12T. It declared the obligation of Palileo to Cosio fully compensated by virtue of the proceeds collected by Cosio and further held that the excess of P1,107 (13,107 12,000) be refunded to Palileo

Issue: WON the trial court was justified in considering the obligation of Palileo fully compensated by the insurance amount that Cosio was able to collect from Associated, and WON the trial court was correct in requiring Cosio to refund the excess of P1,107 to Palileo. Held. NO and NO. The rule is that where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid. The lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property insured to the benefit of Palileo and in ordering the former to deliver to the latter, the difference between the indebtedness and the amount of insurance received by Cosio. In the light of this ruling, the correct solution would be that the proceeds of the Insurance be delivered to Cosio, but her claim against Palileo should be considered assigned to the insurance company who is deemed subrogated to the rights of Cosio to the extent of the money paid as indemnity. (15) Grepalife v. CA 316 SCRA 677 Facts: A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment. Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim. The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

Issue: WON the widow is the real party in interest, (not DBP) and has legal standing to file the suit. Held: YES. Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit. To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent And since 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 it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterios medical history.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance 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 obligations on the assignee, making a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee. What does this provision say? Under this section, where an insurer assents to the transfer of an insurance from a Mortgagor (Mor) to a Mortgage (Mee), and at the time of his assent the insurer imposes further obligation on the Mee, a new and distinct consideration passed from the Mee to the insurer, and a new contract is created between them. The acts of the Mor cannot anymore affect the rights of the Mee. What is the significance of this provision? Remember we said in Sec. 8 that all acts of the mortgagor affects the mortgagee? Well, this provision provides the exception to the rule. TITLE III INSURABLE INTEREST 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 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. Why is this section important? Other than it discusses the concept of keyman insurance, Atty. Quimsons asked this in a past midterm exam, asking the students to Quote the provision. What is insurable interest? Insurable interest is one the most basic of all requirements in insurance. In general, a person is deemed to have insurable interest in the subject matter insured where he ha a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Why must there be an insurable interest? It is essential for validity and enforceability of the contract or policy. A policy issued to a person without interest in the subject matter is a mere wager policy or contract. When is there insurance? insurable interest in life

In life insurance, Insurable interest exists where there is reasonable ground founded on the relations of the parties whether pecuniary, contractual or by blood or affinity, and to expect some benefit or advantage from the continuance of the life of the insured. Problem. A takes an insurance policy on his life and names his friend X as beneficiary, and another insurance on the life of Y in consideration of love and affection with A as a beneficiary. Which of the two insurances, if any, is valid and which, if any, is void? The Insurance taken on A on his life is VALID, because the beneficiary need not have an insurable interest in the life of the insured. It must be the one insuring who has an insurable interest in the life of the person he is insuring, and of course, it goes without saying that one has an insurable interest in his own life and health. ON the other hand, the insurance taken by A on the life of Y is VOID because love and affection for the insured n the part of the person insuring is NOT sufficient ground to qualify as insurable interest. Cases: (16) Col. C. Castro v. Insurance Commissioner GR. 55836, Feb. 16, 1981 Facts: Castro applied for insurance on the life of his driver. On the basis of such application, Insular Life issued policy No. 934943 effective July 18, 1979. The policy applied for and issued was on a 20-yr endowment plan for the sum of P25T with double indemnity in case of accidental death. Castro paid the first quarterly premium of P309.95. About 3 months later, on Oct. 16, 1959, the insured driver was allegedly shot to death by unknown persons. (hmmm sounds fishy) Castro then filed a claim for the total benefits of 50T under the policy. Insular life denied the claim on the ground that the policy was VOID. Insular instead refunded to Castro the premiums he had paid. Issue: WON Castro has an insurable interest in his driver. Held: NO. The requirement of insurable interest to support a contract of insurance is based upon consideration of public policy which renders wager policies INVALID. To sustain a contract of this character it must appear that there is a real concern in the life of the party whose death would be the cause of substantial loss to those who are named as a beneficiary. Mere relationship of uncle and nephew, employer and employee is NOT sufficient to provide an insurable interest on the life of the insured. It must be shown that the destruction of the life of the insured would cause pecuniary loss to the complainant. This, Castro failed to prove. (17) Lincoln National Life v. San Juan CA GR 34588-88, Nov. 27, 1971 Facts: An employer insured the life of the employee with two insurance companies. The insurance totaled 200T and the only beneficiaries were the employer and his wife.

A severed head was later found, purportedly that of the insured employee. The insurance companies refused to pay on the ground that the employer had no insurable interest in the life of the employee. Issue: WON the employer can recover the proceeds of a life insurance policy of his employee. Held. NOPE. The insured was a tenant in a coconut land owned by the employer and his earning were barely that of a farm laborer. It was established that the insured could not have afforded the insurance policies drawn on his life. Many more policies were found to have been issued with the employee/tenant as insured and the employer and his wife as beneficiaries. The policies were also found to have been acquired in quick succession. It was found that the various postal money orders issued in payment of the premiums were made by the employer. It appears that, based on the circumstances and evidence, the insurance was really taken out by the employer. (18) Gercio v. Sun Life 48 PHIL 53 Facts: Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio for 2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife Andrea, should she survive him; otherwise to the executor, administrator of Gercio. The policy did not include any provision reserving to Gercio the right to change the beneficiary. The wife was convicted of adultery and a decree of divorce was issued. Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had designated his present wife Adela as his beneficiary. Sunlife refused to change the beneficiary. Issue: WON Gercio may change the beneficiary in the policy. Held. NO. If the policy contains no provision authorizing a change of beneficiary without the beneficiarys consent, the insured cannot make such change. It is held that a life insurance policy of a husband made payable to his wife as a beneficiary is the separate property of the beneficiary and beyond the control of the husband. (NOTE: this case is based on the old rule under the Insurance Act) Court also held that the designation of a beneficiary that is originally valid does NOT render it invalid dut to a subsequent cessation of the interests between the beneficiary and insured. (19) El Oriente v. Posadas 56 PHIL 147 (1931) Facts: El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippines, procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the said A. Velhagen

for the sum of $50,000, United States currency designating itself as the beneficiary. El Oriente paid for the premiums due thereon and charged as expenses of its business all the said premiums and deducted the same from its gross incomes as reported in its annual income tax returns, which deductions were allowed upon a showing that such premiums were legitimate expenses of its business. Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life insurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88 CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds received from the insurance. Issue: WON the proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law Held: NOT TAXABLE. In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes shall be exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured . . ." Section 10, as amended, in Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation . . .a tax of three per centum upon such income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any other section is reference made to the provisions of section 4 in Chapter I. Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the proceeds of life insurance policies received by corporations constitute income which is taxable It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager. (20) Philamcare v. CA (repeat Case # 09) 379 SCRA 356

Facts: Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, there was concealment regarding Ernani's medical history. o Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00 After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day. Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed. Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the

agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. Section 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived his right in the said policy. What is a beneficiary? A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the recipient of the proceeds in the insurance. Who can be a beneficiary? Any person in general can be a beneficiary. Are there any exceptions? Yes. The only persons disqualified from being a beneficiary are those not qualified to receive donations under Art. 739. They cannot be named beneficiaries of a life insurance policy by the person who cannot make any donation to him. In case of adultery, concubinage does the disqualification extend to the illegitimate children? NO. The disqualification does not extend to the children, and as such, they may be made beneficiaries. What is the old rule regarding revocability of designation of beneficiary as enunciated in the case of Gercio v. Sunlife?

The OLD rule is: When the insured did NOT expressly reserve his right to revoke the designation of his beneficiary, such designation is irrevocable and he cannot change his beneficiary without the consent of the latter. What is the current rule? The rule now is: The insured has the power to revoke the designation of the beneficiary even without the consent of the latter, whether or not such power is reserved in the policy. Such right must be exercised specifically in the manner set forth in the policy or contract. It is of course, extinguished at his death and CANNOT be exercised by his personal representatives or assignees. Under the current rule, when does the insured lose the right to change the beneficiary? When the right to change the beneficiary is expressly waived in the policy, the insured has no power to make such change without the consent of the beneficiary. What if the beneficiary dies before the insured and the insured did not change the designation, who gets the proceeds? There is a divergence of opinion, but the general trend is to give it to the estate of the beneficiary. What are the other provisions of law that Atty. Quimson required us to read? Art. 2012, CC. Any person who is forbidden from receiving any donation under Art. 739 cannot be named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer, or his wife, descendants and ascendants by reason of his office.* *Atty. Quimson said that the designation of the public officer MUST be by reason of his office and NOT all public officers are disqualified from being beneficiaries of a life insurance policy, as long as the designation was not made in consideration of an act done by the public officer by reason of his office in favor of the insured. Art. 43, FC. The termination of subsequent marriage produces the following effects: xxx. (4) The innocent spouse may revoke the designation of the other spouse who acted in bad faith as a beneficiary in any insurance policy even if such designation be stipulated as irrevocable. Art. 64, FC. After the finality of the decree of legal separation, the innocent spouse may revoke the designation of the offending spouse as beneficiary in any insurance policy. The revocation of or change in the designation of the insurance beneficiary shall take effect upon written notification to the insured. Art. 50, FC. The effects provided for by paragraph (4) of Art. 43 xxx shall also apply in the proper cases to marriages which are declared void ab initio or annulled by final judgment under Art. 40 & 45. Problems.

Pao and Jane are husband and wife. Jef and Jojo are also husband and wife (yihee). Jef and Jane engaged in adulterous relations. Jef secured a life insurance policy and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jojo. Jane cannot be named as a beneficiary in a life insurance policy because she is forbidden by law to receive a donation from Jef since they were both guilty of adultery. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jane engaged in adulterous relaions with Van. Jef secured a life insurance and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jane. The law prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. In other words, notwithstanding the fact that Jane is guilty of adultery, Jane can still be a beneficiary of Jef since the law provides that Jane cannot be a beneficiary of a life insurance policy if the person who names her as beneficiary is forbidden to give her a donation under Art. 739. Art. 739 is therefore not applicable in the situation at bar. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jef has a concubine named Maui Taylor. Jef thereafter secured a life insurance policy and named Jane as beneficiary. When Jef dies, who will get the insurance proceeds? Jane. The law only prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Notwithstanding that Jef is guilty of concubinage, Jane can still be a beneficiary. Since Jane is not the concubine, Art. 739 will not apply and Jef is not forbidden from giving a donation to Jane. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jane engages in adulterous relations with Van. Jef has a concubine named Maui Taylor. Jef thereafter secures a life insurance policy and names Jane as a beneficiary. WhenJef dies, who will get the insurance proceeds? Jane. The law only prohibits the situation wherein a person who is forbidden from receiving a donation under Art. 739 is named a beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Notwithstanding that both parties are guilty of adultery and concubinage respectively, they are not forbidden because Jef is not the one engaged in an adulterous relationship with Jane, and she is not the concubine of Jef. Art. 739 does not apply. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jef and Pao become lovers. Jef thereafter secures a life insurance policy and names Pao as his beneficiary. When Jef dies who will get the insurance proceeds? Pao. Since there is no law prohibiting Jef from donating to Pao, because both of them are neither guilty of adultery nor concubinage, then the only solution to this problem is to consider the designation of the beneficiary as a contract which is valid and binding between the insurer and the insured.

Disclaimer: Any resemblance to real and living persons are purely coincidental. Hahahaha.. right. Cases. (21) Insular Life v. Ebrado (repeated case case #2) 80 SCRA 181 Facts: Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife. Ebrado died when he was accidentally hit by a falling branch of tree. Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage. Pascuala Ebrado also filed her claim as the widow of the deceased insured. Insular life filed an interpleader case and the lower court found in favor of Pascuala. Issue: Between Carponia and Pascuala, who is entitled to the proceeds? Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract. (22) Souther Luzon Employees Association v. Golpeo 96 PHIL 83 Facts: SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of its purposes is mutual aid of its members and their dependents in case of death.

Roman Concepcion was a member until his death in 1950. In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his common law wife and/or children he had with her as his beneficiaries; and such person so named by the member will be the sole persons to be recognized by SLEA regarding claims for condolence contributions. Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was able to collect voluntary contribution from its members amounting to P2,205. Three sets of claimants to the amount presented themselves to the association namely: o Juanita Golpeo, legal wife, and her children o Aquilina Maloles, the common law wife, and her children o Elsie Hicban, another common law wife of Roman, and her child. SLEA then filed an action for interpleader against the 3 conflicting claimants. Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the amount citing Del Val v. Del Val. Only Golpeo appealed. She argues that: o The insurance code does not apply since the association is not an insurance company but a mutual benefit association. o The stipulation between SLEA and Roman was void for being contrary to law, public morals and public policy, pursuant to Art. 739 of the CC ( donations between persons guilty of concubinage at the time of donation are void) Issue: WON Golpeo, the legal wife is entitled to the amount. Held: NO. First of all, the lower court did not consider the association as a regular insurance company, but merely ruled that the death benefit in question is analogous to insurance. Besides, even the Administrative Code describes a mutual benefit company as one which provides any method of life insurance among its members out of dues or assessments collected from its membership. Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and actions had acquiesced in the illicit relations between her husband and Maloles, Golpeos argument would certainly NOT apply to the children of Maloles likewise named beneficiaries by the deceased. As a matter of fact, the NCC recognizes certain successional rights of illegitimate children. (23) Nario v. Philamlife Insurance Company 20 SCRA 434 Facts: Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by PHILAMLIFE under a 20-yr endowment plant, with a face value of 5T. Her husband Delfin and their unemancipated son Ernesto were her revocable beneficiaries. Mrs. Nario then applied for a loan on the above policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policy has been in force for 3 years. The purpose of such loan was for the school expenses of Ernesto. The application bore the written signature and consent of Delfin in 2 capacities o As one of the irrevocable beneficiaries of the policy

o As father-guardian of Ernesto and also the legal administrator of the minors properties pursuant to Art. 320 of the CC. PHILAMLIFE denied the loan application contending that written consent of the minor son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship proceeding. Mrs. Nario then signified her decision to surrender her policy and demand its cash value which then amounted to P 520. PHILAMLIFE also denied the surrender of the policy on the same ground as that given in disapproving the loan application. Mrs. Nario sued PHILAMLIFE praying that the latter grant their loan application and/or accept the surrender of said policy in exchange for its cash value. PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, said acts are not within the power of administrator granted under Art. 320 in relation to art. 326 CC, hence court authority is required. Issue: WON PHILAMLIFE was justified in refusing to grant the loan application and the surrender of the policy. Held: YES. SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy should be measured on its full face value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options and that said vested right under the policy cannot be divisible at any given time. SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition or alienation of property rights and not merely management or administration because they involve the incurring or termination of contractual obligations. Under the laws (CC and rules of Court) The father is constituted as the minors legal administrator of the propty, and when the propty of the child is worth more than P2T (as in the case at bar, the minors propty was worth 2,500 his share as beneficiary), the father a must file a petition for guardianship and post a guardianship bond. In the case at bar, the father did not file any petition for guardianship nor post a guardianship bond, and as such cannot possibly exercise the powers vested on him as legal administrator of the minors property. The consent give for and in behalf of the son without prior court authorization to the loan application and the surrender was insufficient and ineffective and PHILAMLIFE was justified in disapproving the said applications. Assuming that the propty of the ward was less than 2T, the effect would be the same, since the parents would only be exempted from filing a bond and judicial authorization, but their acts as legal administrators are only limited to acts of management or administration and not to acts of encumbrance or disposition. (24) Villanueva v. Oro

81 PHIL 464 Facts: West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza Villanueva, one for 2T, maturing April 1, 1943; and other for 3T maturing Mar. 31, 1943. In both policies, West agreed to pay 2T either to Esperanza if still living on Apr 1, 1943; or to beneficiary Bartolome Villanueva, or the father of the insured immediately upon receipt of the proof of death of Esperanza. The policy also gave her the right to change the beneficiary. In 1940, Bartolome died, and he was substituted as beneficiary under the policies by Mariano, Esparanzas brother. Esperanza died in 1944 without having collected the insurance proceeds. Adverse claims for the proceeds were presented by the estate of Esperanza on one hand and by Mariano on the other. CFI held that the estate of Esperanza was entitled to the proceeds to the exclusion of the beneficiary. Issue: WON the beneficiary is entitled to the proceeds. Held: NO. Under the policies, the insurer obligated itself to pay the insurance proceeds to: (1) the insured if the latter lived on the dates of maturity; or (2) the beneficiary if the insured died during the continuance of the policies. The first contingency excludes the second, and vice versa. In other words, as the insured Esperanza was living on April 1 and March 31, 1943, the proceeds are payable exclusively to her or to her estate unless she had before her death otherwise assigned the matured policies. The beneficiary could be entitled to said proceeds only in default of the first contingency. To sustain the beneficiarys claim would be to altogether eliminate from the policies the condition that the insurer agrees to pay to the insured if living. This conclusion tallies with American Authorities who say that: The interest of the insured in the proceeds of the insurance depends upon his survival of the expiration of the endowment period. Upon the insureds death, within the period, the beneficiary will take, as against the personal representatives the endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in the policy. (AmJur and Couch Cyclopedia of Insurance Law) (25) Philamlife v. Pineda 175 SCRA 416 Facts: On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and designated his wife and children as irrevocable beneficiaries. On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the beneficiaries in his policy from irrevocable to revocable. Lower Court granted the petition. Issue: WON the court erred in granting Dimayugas petition. Held: YES. Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be changed

without the consent of the beneficiary because he has a vested interest in the policy. The policy contract states that the designation of the beneficiaries is irrevocable. Therefore, based on the said provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or amendment in the poicy may be legally and validly effected. The contract between the parties is the law binding on them. (This case rule is no longer controlling under the Insurance Code.) (26) SSS v. Davao 17 SCRA 863 Facts: Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as his beneficiary. When he died, both his first wife, Lourdes and his second wife, Candelaria filed claims for the death benefits. Due to the conflicting claims, the SSS filed a petition praying that both of them be required to interplead and litigate the conflicting claims. The death benefits were awarded to Candelaria Davac. Issue: Who is entitled to the SSS benefits? Held: Candelaria. Under the SSS Act, the beneficiary as recorded by the employees employer is the one entitled to the death benefits, hence they should go to Candelaria. Lourdes contends that the designation made in the person of Candelaria who is party in a bigamous marriage is null and void for being against Art. 739 of the CC. SC held that the disqualification mentioned in Art. 739 is NOT applicable to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had actual knowledge of the previous marriage of her husband. (27) In Re: Mario Chanliongco 79 SCRA 364 Facts: Atty. Changliongco, an atty of the SC and a GSIS member, died ab intestate. He failed or overlooked to state in his application for membership with the GSIS the beneficiary or beneficiaries of his retirement benefits should he die before the retirement. Issue: Who will benefit from the proceeds? Held: The retirement benefits shall accrue to his estate and be distributed among his legal heirs in accordance with the law on intestate succession, as in the case of a life insurance policy if NO beneficiary is named in the insurance policy. (28) Vda. De Consuegra v. GSIS 37 SCRA 315 Facts: Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao Del Norte. When he was still alive, he contracted two marriages: o First Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him

o 2nd Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted) Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to Berdin and her children who were the beneficiaries named in the policy. Since he was in the govt service for 22.5028 years, he was entitled to retirement insurance benefits, for which no beneficiary was designated. Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the remaining half, each to receive an equal share of 1/16. Berdin went to CFI on appeal. CFI affirmed GSIS decision. Issue: To whom should the retirement insurance benefits be paid? Held: Both families are entitled to half of the retirement benefits. The beneficiary named in the life insurance does NOT automatically become the beneficiary in the retirement insurance. When Consuegra, during the early part of 1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18, 1951. Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement insurance benefits when he becomes a GSIS member and to state his beneficiary. The life insurance and the retirement insurance are two separate and distinct systems of benefits paid out from 2 separate and distinct funds. In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of the insured. And when there exists two marriages, each family will be entitled to one-half of the estate. (29) Gercio v. Sun Life (repeat, case #18) 48 PHIL 53 Facts: Sunlife issued a life insurance policy to Gercio, the former agreeing to insure the life of Gercio for 2T to be paid to him on Feb. 1, 1930 or if he should die before said date, then to his wife Andrea, should she survive him; otherwise to the executor, administrator of Gercio. The policy did not include any provision reserving to Gercio the right to change the beneficiary. The wife was convicted of adultery and a decree of divorce was issued. Gercio notified Sunlife that he had revoked his donation in favor of Andrea and that he had designated his present wife Adela as his beneficiary. Sunlife refused to change the beneficiary. Issue: WON Gercio may change the beneficiary in the policy. Held. NO. If the policy contains no provision authorizing a change of beneficiary without the beneficiarys consent, the insured cannot make such change. It is held that a life insurance policy of a husband made payable to his wife as a beneficiary is the separate

property of the beneficiary and beyond the control of the husband. (NOTE: this case is based on the old rule under the Insurance Act) Court also held that the designation of a beneficiary that is originally valid does NOT render it invalid dut to a subsequent cessation of the interests between the beneficiary and insured. 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 qualified. Who are the nearest relatives mentioned here? Those related to the decedent in the order mentioned under the rules of intestate succession such as: (the order of the following relatives are as follows) 1. The legitimate children; 2. The father and mother, if living; 3. The grandfather and grandmother; or ascendants nearest in degree, if living; 4. The illegitimate children; 5. The surviving spouse; and 6. The collateral relatives, to wit: a. Brothers and sisters of the full blood; b. Brothers and sisters of the half-blood; and c. Nephews and nieces 7. In default of the above, the STATE shall be entitled to receive the insurance proceeds. Problem: Clark is insured. His nearest relatives are: 1) Anakin, the legitimate child 2) Jor-el and Kyla, the legitimate father and mother 3) Lolo and Lola, grandfather and grandmother (or ascendants in the nearest degree) 4) Bastardo, the illegitimate child 5) Lois Lane, the surviving spouse 6) Collateral relatives to wit: a) Kuya, brother of full blood b) Alf, brother of half blood c) Nep, nephew What if all of the above are nowhere to be found? Then the State of Krypton is entitled to the proceeds. Suppose that Lois Lane masterminded a plan to kill Clark and Anakin carried it out. Anakin and Lois were convicted of murder. However, they are also instituted as beneficiaries in the insurance policy of Clark, and the proceeds are the only properties available for distribution to the heirs. In case all three are convicted who gets the proceeds? Since Anakin, the legitimate child and Lois, the surviving spouse are no longer entitled to the proceeds, then following the rules on intestate succession, the proceeds must be divided between the legitimate parents (Jor-el and Kyla) who get of the proceeds and the Illegitimate child (Bastardo) who gets the other half. Same facts above, but it was only Lois Lane who was instituted as beneficiary. Is Anakin still entitled to the insurance proceeds? At first glance the answer might be YES, because according to Section 12, it is only the interest of the beneficiary which is forfeited, and since Anakin was not instituted as beneficiaries, then his interest is still intact. HOWEVER, there is a proviso in Sec. 12, which

states: the nearest relative of the insured shall received the proceeds of said insurance if not otherwise qualified. Meaning, in order to find out if Anakin is qualified, reference must be made to laws of succession. According to Art. 1024 of the CC, the provisions relating to incapacity by will are equally applicable to intestate succession; and according to Art. 1032 (2), any person who has been convicted of an attempt against the life of the testator is incapable of succeeding by reason of unworthiness. Hence, the correct answer to this problem is NO. Anakin is not entitled to the proceeds and subsequently the insurance proceeds will be divided as provided for in the first answer. In case Anakin and Lois are not convicted, but both are instituted as beneficiaries of Clark, can they still collect the proceeds? There is no law or jurisprudence that treats of this situation. However, Atty. Quimson said in class that there must be a conviction before Sec. 12 can operate to disqualify or forfeit the interests of Anakin and Lois. Sec. 12 speaks of principals, accomplice or accessory, and there must therefore be a conviction of the beneficiaries as either of the three to the crime against the insured. Suppose Anakin and Lois are not convicted and they are not instituted as beneficiaries of Clark, can they now collect the proceeds? In this case, Sec. 12 is no longer the relevant provision, but Art. 1032 (2) of the CC. However, it is submitted (by JohnBee Sioson) that there must be a final conviction in order for Art. 1032 to apply, i.e., to bar Anakin and Lois from collecting on the ground of unworthiness. Furthermore, Art. 1034 says: In order to judge the capacity of the heir, devisee or legatee, his qualifications at the time of the death of the decedent shall be the criterion. In cases falling under Nos. 2, 3 & 5 of Art. 1032, it shall be necessary to wait until final judgment is rendered. Elle Driver, Beatrix Kiddo & O-Ren Ishi are all creditors of Bill. All three are instituted as beneficiaries of Bill. Elle fails to qualify since she is Bills concubine. Beatrix on the other hand, eager to claim the insurance proceeds, used the 5 point exploding heart technique she learned from Pai Mei, killing Bill. O-Ren now claims the proceeds of the insurance. However, her claim is opposed by BB, Bills legitimate daughter who contends that according to Sec. 12, it is the nearest relative who should get the proceeds, meaning her. Between BB and O-Ren, who is entitled to get the proceeds? O-Ren Ishi gets the proceeds because it was stipulated in the contract of insurance (I think shell use it to surgically graft her scalp back since it was sliced by Beatrix using a Hatori Hanzo Sword). Remember that the insurance contract is the law between the parties and hence it must be followed by the insurance company. Sec. 12 ONLY applies if there is NO stipulation in the contract of insurance as to who are the other beneficiaries of the proceeds. (Cue Kill Bill soundtrack) 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.

What is the importance of this provision? It defines insurable interest in PROPERTY. Cases: (30) Harvardian Colleges v. Country Bankers Insurance Corp. 1 CARA 2 Facts: Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children. Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500. On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I was born hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges. Issue: WON Harvardian colleges has a right to the proceeds. Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. Section 14. An insurable ineters in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. What is existing interest? Existing interest in property is the legal or equitable title on the property. What is an inchoate interest?

It is an interest which has not yet ripened, such as the interest of a stockholder in the property of the corporation which he owns stocks. In what kind of expectancy may insurable interest consist? The expectancy MUST be coupled with an existing interest in that, out of which such expectancy arises. Examples would be: a farmer insuring future crops that he will grow on his land, or a workman insuring the building which he was contracted to repair. Cases: (31) Suter v. Union Surety 51 OG 1905 Facts: Suter, the managing partner of Morcoin Co., insured two juke boxes with Union Surety for P4,000. (btw, siya din yung sa Tax 2 diba? Yung pinakasalan yung partner niyang si Spirig?) Subsequently, the two juke boxes were destroyed by fire. Suter now claims from Union Surety, the latter denying the claims on the grounds that: o The properties were allegedly overvalued, it having been proven that the juke boxes cost only P774.00 o Suter had no insurable interest since the properties insured belong to Morcoin Co. Issues and Resolutions: (1) Whether or not the juke boxes were overvalued. No. While acquisition cost is only P774.00, this does not include taxes, freight insurance, shipping cost, and other improvements made thereon. The value of the property is determine at the time it was insured and not the time it was acquired. (2) WON Suter had insurable interest. YES, Suter had insurable interest. The test for insurable interest in property is whether or not the insured will benefit in the propertys reservation or continued existence, or suffer a direct pecuniary loss in its destruction. Suter, being the managing partner will clearly benefit in the juke boxes preservation and would also be affected by its destruction. (32) Traders Golangco 95 PHIL 826 Insurance and Surety Co. v.

Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal possession of the premises, collecting rentals from its occupant. It seems plain that if the premises were destroyed as they were, by fire, Golangco would be, as he was, directly damnified thereby; and hence he had an insurable interest therein. (33) Zenith Insurance Insurance Commission 87 OG 6249 Corporation v. The

Facts: A decision was rendred in Civil Case No. 6306 granting Golangco the right to collect rentals from a building in Sta. Cruz, Manila. Golangco then sought fire insurance from Traders. Before the policy was issued, Golangco made a full and clear exposal of his interests in the premises, i.e. that he was not the owner. The fire policy that defendant issued covered only all of Golangcos interest in the premises and his right to collect the rentals. The building burned down in a fire and Golangco sought to collect from Traders. Traders denied any liability on the ground that since Golangco was not the owner of the premises then he had no insurable interest in the same and consequently, he could not collect the insurance proceeds. Issue: WON proceeds. Held. YES. plaintiff can claim the insurance

Facts: Zenith entered into an insurance contract, denominated as Equipment Floater Policy covering a Kato Bachoe including its accessories and appurtenances thereof, from loss of damage. Complainant paid the stipulated premiums therefore. Within the period of effectivity of the policy, the two pieces of hydraulic wheel gear pumps, which are considered appurtenances and/or parts attached to and/or installed in the Kato BAchoe were lost, stolen and/or illegally detached by unknown thieves or malefactors Despite repeated assurances by Zeniths soliciting agent, it refused and failed to settle and pay complainants insurance claim. Complainant seeks not only the payment of said insurance claim of 70T plus legal interest, attys fees, and litigation expenses, but also the revocation or cancellation of the license of Zenith to do insurance business. Zenith on the other hand contends that: o Complainant is not the real party in interest since the policy carries with it a designated loss payee, the BA Finance Corp o The policy insures against loss or damage caused by fire and lightning, etc, while theft or robbery is NOT insured against in the policy, it not having been expressly mentioned o Loss nevertheless is excluded under the exception of infidelity exclusion by the operator who left it unguarded, unattended and deserted while entrusted to him, and for failure to give timely notice of loss o Complainant and/or BA Finance is guilty of concealment and misrepresentation at the time they secured the policy, because at the time it became operative, the complainant was NOT yet the owner of the property insured, the property still hot having been delivered to him, and BA finance had no insurable interest yet, henceforth, the contract of insurance was VOID AB INITIO for lack of insurable interest at the time the insurance took effect. Issues and Resolutions: (1) WON the loss through theft or robbery claimed is within the coverage of the policy. The Insurance Commissioner, as reiterated by the SC, found for the complainant in this wise: While the policy enumerated the risks covered, it does NOT, however, in its express terms, limit compensability to that stated in the enumeration. The enumerated risks excluded did not include theft or robbery committed or perpetrated by an unidentified culprit, hence the complainants claim for damages is compensable. The foregoing policy is supported by the long time honored doctrine of contra proferentem: which provides that: any ambiguity in the policy shall be resolved in favor of the insured and against the insurer. This is true because insurance contracts are essentially contracts of adhesion and applicants for insurance have no choice but to accept the terms

and conditions in the policy even if they are not in full accord therewith. (2) WON the complainant was with insurable interest therein when the said policy contract was procured. The complainant has insurable interest in the insured property at the time of the procurement of the insurance policy. As the CC provides, the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price, and Sec. 15 of the IC allows the insurance of a mere contingent or expectant interest in anything if the same is founded on an actual right to the thing, or upon any valid contract. As this is the case, mere possession of an equitable title, like that pertaining to the buyer, gives rise to insurable interest in the property in which such title inheres. Furthermore, considering that Zeniths agent had been fully apprised of the circumstances prior to the actual issuance of the policy and the endorsement, it cannot now allege that complainant has no insurable interest on the property insured. Zenith is now precluded by the equitable principle of estoppel from impugning and dishonoring the very insurance policy contract it issued and the endorsement and increase in the coverage made through its duly authorized agent. (34) Filipino Merchants v. CA 179 SCRA 638 Facts: The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages to said shipment which has been insured by Filipino. Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against it. It appears from the evidence presented that Chao insured said shipment with Filipino for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton. The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A formal claim statement was also presented by the plaintiff against the vessel, but the Filipino refused to pay the claim. Issues & Resolutions: Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before a claimcan be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a

fortuitous event precludes his right to recover from the insurance policy. SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy Filipino contends that Chao does not have insurable interest, being only a consignee of the goods. Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as 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. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of

shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance 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. What is the reason for this provision? The loss of the thing may make the carrier or depositary liable to the owner of the goods, to the extent of the value of the goods, and the law therefore allows such a carrier or depositary to insure his possible liability therefor. Problem. M/V Mary Jane, a common carrier, insured Peter Parkers goods, valued at 1M with A.MAY Insurance Company for 2M. The vessel was hit by lightning, caught fire, and sank. Mary Jane is now claiming 2M from A.MAY because the policy stated that the loss due to lightning is compensable. A.MAY denies liability on the ground that: (1) Mary Jane is not the owner of the goods and therefore has no insurable interest; and (2) Mary Jane cannot claim more than the value of the goods lost. Decide. According to Sec. 15, a carrier has insurable interest in a thing held by him as such. Hence, Mary Jane has insurable interest over the goods of Peter Parker. However, the same provision also states that such insurable interest is only up to the extent of his liability and not to exceed the value of the thing. Since the value of the goods is only 1M, then Mary Jane can only collect 1M. Case: (35) Lopez v. Del Rosario 44 PHIL 98 Facts: Benita Del Rosario is the owner of a bonded warehouse in Manila where copra and other merchandise are deposited. Among those who had copra deposited in the warehouse was Froilan Lopez, the owner of 14 warehouse receipts with a declared value of P107,990.40 in his name. Del Rosario secured insurance on the warehouse and its contents with 5 different insurance companies in the amount of P404,800. All policies were in the name of Del Rosario, except for one (with Natl Insurance Co.) for 40T, in favor of Compania Copra de Tayabas. The warehouse and its contents were destroyed by fire. When Bayne, a fire loss adjuster, failed to effect a settlement between the Insurance companies and Del Rosario, the latter authorized Atty. Fisher to negotiate with the Companies. An agreement was reached to submit the matter to arbitration. The claims by different people who had stored copra in the warehouse were settled with the exception of Friolan Lopez. A case was filed in CFI by Lopez. The court awarded him the sum of P88,492.21 with legal interest.

Issue: WON Del Rosario acted as the agent of Lopez in taking out the insurance on the contents of the warehouse or whether she acted as the reinsurer of the copra. Held: She acted as the agent of Lopez. The agency can be deduced from the warehouse receipts, the insurance policies and the circumstances surrounding the transaction. Under any aspect, Del Rosario is liable. The law is that a policy effected by a bailee and covering by its terms in his own property and property held in trust, inures, in the event of loss, equally and proportionately to the benefit of all owners of the property insured. Even if one secured insurance covering his own goods and goods stored with him, and even if the owner of the stored goods did not request or know the insurance, and did not ratify it before the payment of the loss, it has been held by a reputable court that the warehouseman is liable to the owner of such stored goods for his share. In a case of contributing policies, adjustments of loss made by an expert or by a board of arbitrators may be submitted to the court NOT as evidence of the facts stated therein, or as obligatory, but for the purpose of assisting the court in calculating the amount of liability. 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. What does this section mean? Mere hope or expectation of benefit which may be frustrated by the happening of some event uncoupled with any present legal right will not support a contract of insurance. Examples: A son cannot insure the property of his father which he expects to inherit from the latter, or a husband insuring the paraphernal property of his wife; the reason being, their interest is merely an expectancy of inheriting, and the rights to succession are transmitted only from the moment of the death of the decedent. Section 17. The measure of an insurable interest in the property is the extent to which the insured might be damnified by loss or injury thereof. Problems. A insured his property valued at P100,000 for P120,000. A suffered a total loss. How much is he entitled to recover? A is entitled to recover only the value of his loss which is 100T and not 120T because it is against public policy to profit from a loss. What if the one who caused the damage, B paid A P80,000? What is the liability of the Insurance Company? The insurance claim is reduced in the same amount of 80T. Anything that reduces or diminishes the loss, reduces and diminished the amount which the insurer is bound to pay. Hence the insurer is liabile for 20T. Under a building contract, A constructed a house in Ayala Alabang for 4M for Z who made an advance payment of 1M, the balance to be paid upon deliver of the house on Aug. 13, 1993. A finished the house

on July 13, 1993 so he insured the house against fire for 4M. Before delivery of the house in August, the house burned down. What is the extent of the insurable interest of A? It is still 4M, notwithstanding the fact that he has received from Z 1M as advance payment. The reason why he is entitled to the whole 4M is, he has to replace the house destroyed with another house worth 4M as per the contract, not one valued at only 3M. In other words, 4M was the extent to which A was damnified by the loss of the house. Cases: (36) San Miguel Brewery v. Law Union Rock Insurance Company (repeat case #12) 40 PHIL 674 Facts: On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T. Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt. Dunn likewise authorized SMB to take out the insurance policy for him. Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMBs interest in the property was merely that of a mortgagee. Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy. Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed. In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMBs name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding. Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. SMB eventually reached a settlement with the insurance companies and was paid the balance of its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT,

an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured, it would have proved an intention to insure the entire interest in the property, NOT merely SMBs and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owners interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. (37) Ang Ka Yu v. Phoenix Assurance 1 CARA 704 Facts: Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix. The property was lost, so Ang Ka Yu sought to claim the proceeds. Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such, had no insurable interest over the property. Issue: WON a mere possessor has insurable interest over the property. Held: Yes. A person having a mere right or possession of property may insure it to its full value and in his own name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT interested in the safety and preservation of material in his possession because they belong to 3rd parties, said person still has insurable interest, because he stands either to benefit from their continued existence or to be prejudiced by their destruction. (38) Cha v. Cha 277 SCRA 690 (1997) Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor. One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without

the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ." Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United. Issue: WON CKS can claim the proceeds of the fire insurance. Held: NO. CKS has no insurable interest. Sec. 18 of the Insurance Code provides: "Sec. 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." A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: "Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof." Therefore, CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy- Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. Section property of some property 18. No contract or policy of insurance on shall be enforceable except for the benefit person having an insurable interest in the insured.

(39) Sharuff and Co. v. Baloise Fire Insurance Co. 64 SCRA 258 Facts: Sharuff and Eskenazi were doing business under the firm name Sharuff and Co. They insured their merchandise with Baloise. Later on, Sharuff and Eskenazi entered into a contract of partnership and thereby changed the firm name to Sharuff and Eskenazi. The merchandise insured was subsequently destroyed by fire. Sharuff and Eskenazi filed their claim against the insurance company. Baloise refused to pay on the ground that the policy was issued in the name of Sharuff and Co. and not Sharuff and Eskenazi. Issue: WON the partnership can claim the proceeds of the policy. Held: YUP. The subsequent partnership did not alter the composition of the firm. The people involved are actually the same. Furthermore, such change of firm name was not made to defraud the insurance company or some other person. (40) Garcia v. Insurance Co. 45 PHIL 122 HongKong Fire and Marine

Facts: Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co. The insurance company however made a mistake and issued a policy covering the building where the merchandise was stored. (The building was not owned by Garcia) The policy was written in English, of which Garcia was ignorant, so he could not have noticed the error of the insurance company. Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged receipt of said policy, referring to it as a policy covering the merchandise. The insurance company made the necessary endorsements to PNB. The building which housed the merchandise was later razed by fire. The insurance company refused to pay due to the fact that the policy indicates insurance on the building and not on the merchandise. Issue: WON Garcia can collect. Held: YES. The defense of the insurer is purely technical. The mistake was obviously on the part of the insurer when it issued a wrong policy. It cannot deny such allegation due to the fact that it even confirmed with PNB the nature of said policy when it was endorsed. Garcia could not have noticed the mistake due to his ignorance of the English language. 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; 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. When must insurable interest exist?

Simplified, the provision states that? NO insurable interest = NO contract of Insurance. Cases:

In case of life insurance at the time the insurance takes effect. In case of property insurance, at the time the insurance takes effect AND at the time of the loss, but it need not exist in the meantime. Problem. Beatrix insured her house for 1T. At that time, she was the owner of the house. During the effectivity of the policy, she sold the house to Bill for 2T, but did not transfer the policy. Because of the effects of Sec. 20, the insurance was suspended. A week later, Beatrix realized how much she missed the house and bought it from Bill for 3T. The next day, the house burned down. Is the Insurer liable notwithstanding the transfer of interest from Beatrix to Bill during the effectivity of the policy? Yes. Beatrix had insurable interest on the house as she was the owner at the time the insurance took effect. She also had insurable interest on the house at the time of the loss since she had already reacquired it from Bill. The law says Beatrix need not have insurable interest in the meantime, or during the intervening period between the time of effectivity of the insurance, and the time of the loss. Therefore, notwithstanding the ownership of Bill during the intervening period, as Beatrix had insurable interest at the two points in time required by law, then the insurer is liable. Cases: (41) Tai Tong Chua Che & Co. v. Insurance Commission 158 SCRA 366 Facts: Palomo obtained a loan from Taitong for 100T. To secure this, he mortgaged a parcel of land with a building. Taitong insured the mortgaged property with Travelers Multi-Indemnity Corp for 100T. The insured property was razed by fire. Taitong claimed the proceeds from the insurance company. Travelers refused to pay, claiming that Taitong had no more insurable interest in the property since Palomo had allegedly paid the mortgaged debt already. Issue: WON Taitong can collect the proceeds. Held: Yes. The allegation of the insurance company that the debt had already been paid was NOT proved. Taitong on the other hand presented evidence, namely the contract of mortgage which does not appear to have been canceled or released. 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 of interest in the insurance, suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. What is the general rule embodied in this section? The General Rule is that the mere transfer of the 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. The term change of interest in this section means absolute transfer of the property insured such as the

conveyance of the property insured by means of an absolute deed of sale. What are the exceptions to the general rule? The exceptions, where a change of interest does NOT suspend the insurance are: 1. Life, health and accident insurance (Sec. 20) 2. Change of interest in the thing insured occurs after the injury which results in a loss (Sec. 21) 3. Change of interest in one or more of several things separately insured by one policy (Sec. 22) 4. Change of interest by will or succession on the death of the insured (Sec. 23) 5. Transfer of interest by one of several partners, joint owners or owners in common who are jointly insured, to the other (Sec. 24) What is the reason for this provision suspending the insurance in case of change of interest? The object of the provision is to provide against changes which might supply a motive to destroy the property, or might lessen the interest of the insurer in protecting and guarding it. Case: (42) Bachrach v. British American Insurance Co. 17 PHIL 555 Facts: Bachrach insured properties of its general furniture shop with British. The properties were subsequently destroyed by fire. Bachrach claims from the insurance company. The claim was denied on the ff grounds: o The policy was allegedly forfeited because the insured stored varnishes and paints within the premises; o Insured stored gasoline in the building; and o Bachrach executed a chattel mortgage on the properties insured without the consent of the insured. Issue: WON Bachrach can claim the proceeds of the policy. Held: Yes. The policy was NOT forfeited due to the strong paints and varnishes. There was no express provision pertaining to it and these paints and varnishes are incidental to the business of the insured to keep the furniture in a saleable condition. The gasoline stored within the premises was in the reservoir of the car and thus does not violate any provision in the policy. There is no express prohibition against the execution of a chattel mortgage on the property insured. (43) San Miguel Brewery v. Law Union Rock Insurance Company (repeat case #12) 40 PHIL 674 Facts: On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T. Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt. Dunn likewise authorized SMB to take out the insurance policy for him.

Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMBs interest in the property was merely that of a mortgagee. Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy. Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed. In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMBs name. SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding. Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. SMB eventually reached a settlement with the insurance companies and was paid the balance of its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies. Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured, it would have proved an intention to insure the entire interest in the property, NOT merely SMBs and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owners interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no

clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts. Section 21. A change of 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. Problem: A insured his house for 10T. On Aug. 10, 2004, the house was partially damaged by fire. On Aug. 15, 2004, he sold the same house so partially damaged to C. Can A collect on the insurance after selling the house? Z Yes. The change of interest was made after the occurrence of the injury which resulted in a partial loss. Upon the occurrence of the risk insured against, the liability of the insurer became fixed and from that day onward, he became duty bound to indemnify A for his loss. Section 22. A change in interest in one or more of several distinct things, separately insured by one policy, does not avoid the insurance as to the others. Problem. A is the owner of a Feroza and a Civic. He insures the Feroza for 200T and the Civic for 150T under a single policy for which he paid a total premium of 20T. If he sells the Feroza without the insurers consent, is the insurer liable in case the Civic is lost? Yes. Since the vehicles are separately insured. Under Sec. 22, the sale of one distinct thing does NOT avoid the insurance as to the others. A is the owner of a Feroza and a Civic. He insured the Feroza and the Civic for 350T under a single policy forwhich he paid a premium of 20T. In case he sells the Feroza without the insurers consent, is the insurer liable in case the Civic is lost? NO. Since the two cars are not separately valued in the policy and the premium was meant to cover both vehicles. In this case, the sale of one thing affects the insurance of the others. Section 23. A change of interest, by will or succession on the death of the insured, does not avoid the insurance; and his interest in the insurance passes to the person taking his interest in the thing insured. Problem. A insures his nipa hut, his only property. He has no compulsory heirs. He institutes B as his universal heir. Thereafter, A dies and B inherits the hut. If the hut burns down can B collect? Yes. Sec. 23 says so. 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 the insurance, even though it has been agreed that the insurance shall cease upon the alienation of the thing insured. What does this section provide? It provides that a transfer of interest in the insured property by a partner, joint owner, or owner in common to the others who are jointly insured, will NOT avoid the insurance. The rule is the same even if there is a stipulation that the insurance will cease upon the alienation of th thing insured.

What is the reason for the rule? The underlying principle is that each partner, or owner or owner in common is interested in the whole property and hazard is NOT increased because the purchasing partner has acquired a greater interest in the property by a transfer of his co-partners chare. In other words, the transfer does not affect the risk because NO NEW PARTY is brought into the contractual relationship with the insurer. Is there an exception to the rule? Yes. If the policy contains the stipulation that in case of ANY sale or transfer or change of title of any property insured by this company, or of any undivided interest therein, such insurance will be void and cease. What is the effect if the sale was made to a stranger? All the more, the contract will be avoided because the risk is already affected since a new party is brought into the contract of insurance. However, such sale to a stranger ends the contract of insurance only as to the interest of the transferor and does NOT affect the insurance of the other partners, joint owners or owners in common. Problems. A fire insurance policy was issued by Spiderman Insurance Co. to Peter, MJ, and Harry, who are partners. Harry sold his interest to Doc Ock. In case of fire is the insurer liable to Doc Ock? NO, since Doc Ock is a stranger.(Furthermore archenemy siya ni spidermanhehehe) However, the insurer is liable to Peter and MJ whose insurance was not affected by the sale of Harry. If using the same facts, Harry sells to Peter. Is the insurer liable to Peter? Yes. Peter is a partner. What must the insurer do to avoid the policy? Spiderman Insurance Co. must stipulate in the policy that any sale of the property or any interest therein avoids the policy. This is the only way the insurer cannot be held liable. Section 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or 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. This section avoids two types of stipulations in an insurance policy. What are they? 1. Stipulation for the payment of loss WON the person insured has any interest in the subject matter of the insurance (exception: life insurance) 2. Stipulation that the policy will be received as proof of insurable interest What is the reason for voiding such stipulations? As to the 1st stipulation, we must remember that insurable interest is a requisite of a valid contract of insurance. Lack of this requisite avoids the contract. As to the 2nd stipulation, the law permits the insurer to show lack of insurable interest on the part of the insured, even after the issuance of a policy of insurance to avoid liability. (Sec. 83)