Sec.

8
Insurable interest of mortgagee and mortgagor
[1] Separate insurable interests
-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.
[2] Extent of insurable interest of the mortgagor
-the mortgagor of property, as owner, has an insurable interest for the reason that
the loss or
destruction of the property insured will not extinguish his
mortgage debt.
[3] Extent of insurable interest of mortgagee
-the mortgagee (or his assignee) as such has an insurable interest in the mortgaged
property to the extent of the debt secured , since the property is relied upon as
security, thereof , and in insuring , he is not insuring the property itself but his
interest or lien thereon. His insurable interest (Sec.10) is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the value of
the mortgaged property. Such interest continues until the mortgage debt is
extinguished.
[4] Extent of the amount of recovery
Mortgagor: cannot recover upon the insurance beyond the full amount of his loss
Mortgagee: cannot recover the excess of credit at the time of the loss nor the value
of the property mortgaged
Example:
R is the owner of a house worth P1, 000,000 which he mortgaged to E to secure a
loan of P500, 000. The insurable interest of R, mortgagor, is P 1,000,000, while that
of E, mortgagee, is P500, 000
The insurance taken by R upon his own interest only does not inure to the benefit of
E. R may claim in case of loss , the entire proceeds or amount of his loss and may
sue thereon in his own name. E has no right to claim the proceeds of the policy.
Conversely, R has no interest in the insurance taken out by E on his own interest.
But if the loss occurs after the debt has been discharged by payment or otherwise,
E may not recover because insurance is merely a contract of indemnity.

Insurance by mortgagee of his own interest

[1] Right of mortgagee in case of loss

-entitled to the proceeds of the policy in case of loss before payment of the
mortgage
[2] Subrogation of insurer to right of mortgagee
-mortgagee is not allowed to retain his claim against the mortgagor but it passes by
subrogation to the insurer to the extent of the insurance money paid.
[3] Change of creditor
- payment of the insurance to the mortgagee by reason of the loss does not relieve
the mortgagor from his principal obligation but only changes the creditor.
So, insurer can collect from R, mortgagor, to the extent of the amount paid to E,
creditor- mortgagee. E cannot collect both the insurance and the mortgage debt.

Insurance by mortgagor of his own interest

[1] For his own benefit
- in case of loss, the insurance proceeds do not inure to the benefit of the
mortgagee who has no greater right than unsecured creditors.
[2] For the benefit of mortgagee
-the mortgagor pays the insurance premium, making the loss payable to the
mortgagee. This is the usual practice.

Standard or union mortgage clause the acts of the mortgagor do not affect the
mortgagee. Its purpose is to make a separate and distinct contract of insurance on
the interest of the mortgagee.
Open or loss-payable clause the acts of the mortgagor affect the mortgagee

Right of mortgagee under the mortgagors policy

The contract of indemnity under such policy is primarily with the mortgagor, but the
mortgagee is a third party beneficiary.
[1] Before loss : mortgagee is a conditional appointee of the mortgagor entitled to
receive so much of any sum that may become due under the policy as does not
exceed his interest as mortgagee. Such right becomes absolute upon the
occurrence of the loss.
[2] After loss:
if loss happens when credit is not due : the mortgagee is entitled to receive the
money to apply to the extinguishment of the debt as fast as it becomes due.

if loss happens after the credit has matured : the mortgagee may apply the
proceeds to the extent of his credit.

Sec. 9
Assignment or transfer of insurance policy
The assignee, unless he makes a new contract with the insurer, acquires no greater
right under the insurance than the assignor had, subject to insurers defenses.
[1] As to fire policy: not assignable
[2] As to marine policy: not assignable
[3] As to casualty policy: not assignable
[4] As to life policy: may freely be assigned before or after the loss occurs, to any
person whether he has an insurable interest or not; except when it is assigned to a
person without an insurable interest and under circumstances where the insured
makes such an assignment in bad faith.

Right of mortgagor to assign insurance policy to mortgage

-the right of the mortgagor to assign or transfer an insurance policy is recognized in
Sec. 8 of the Code. Section 9 only give the effect if the insurer agrees to the transfer
of the policy and , at the time of his assent, imposes new obligations on the
assignee.
However, neither section makes a distinction as to the kind of insurance policy that
is assignable.

Effect of new contract between insurer and mortgagee- assignee

-the assignment operates merely as an equitable transfer of the policy so as to
enable the mortgagee to recover the amount due in caSe of loss subject to the
conditions of the policy.
-however, when a new and distinct consideration passes from the mortgagee to the
insurer, a new contract is created between them. A novation of the original contract
takes place.
-acts of the mortgagor cannot affect the rights of the mortgagee , the assignee.