2005 INSURANCE BAR

QUESTIONS AND ANSWERS

MERCANTILE LAW

GROUP 6:
Franz Jacaban
Bryner Diaz
Mira Sible
- IX (1.) What are the effects of an irrevocable designation of a
beneficiary under the Insurance Code? Explain. (2%)
(2.) Jacob obtained a life insurance policy for P1 Million
designating irrevocably Diwata, a friend, as his beneficiary.
Jacob, however, changed his mind and wants Yob and Jojo, his
other friends, to be included as beneficiaries considering that
the proceeds of the policy are sufficient for the three friends.
Can Jacob still add Yob and Jojo as his beneficiaries? Explain.
(2%)
1. Answer:
Under the Insurance Code of the Philippines, the irrevocable
designation gives the beneficiary a vested right over Life Insurance.

The Insured cannot act to divest the irrevocable beneficiary, in whole

or in part, without the beneficiary's consent. To be specific, the
following are:
a. 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 (Philamlife v. Pineda,);
b. Neither can the Insured take the cash surrender value,
assign or even borrow on said policy without the beneficiary's
consent (Nario v. Philamlife, G.R. No. 22796, June 26, 1967);
c. The Insured cannot add another beneficiary because that
would reduce the amount which the first beneficiary may recover and
therefore adversely affect his vested right;
d. Unless the policy allows, the Insured cannot even designate
another beneficiary should the original beneficiary predecease him.
His estate acquires the beneficiary's vested right upon his death; and
e. The Insured cannot allow his creditors to attach or execute
on the policy.
Therefore, irrevocable designation gives the beneficiary a
vested right over Life Insurance.
2. Answer:
No, Jacob can no longer add Yob and Jojo as his beneficiaries
in addition to Diwata.

Under Section 11 of the Insurance Code of the Philippines, the

insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in said policy.
In the case at bar, Jacob irrevocably designates Diwata as the
beneficiary, meaning the former already expressly waived his right
under the aforestated Law. As the irrevocable beneficiary, Diwata has
acquired a vested right over Jacob's life insurance policy. Any
additional beneficiaries will reduce the amount which Diwata, as the
first beneficiary, may recover, which will adversely affect her vested
right.
Therefore, the insured can no longer change the designation of
his beneficiary if he already expressly waived such right.
X.
M/V Pearly Shells, a passenger and cargo vessel was insured for
P40, 000,000.00 against constructive total loss. Due to a
typhoon, it sank near Palawan. Luckily, there were no casualties,
only injured passengers. The ship owner sent a notice of
abandonment of his interest over the vessel to the insurance
company which then hired professionals to afloat the vessel for
P900,000.00. When re-floated, the vessel

needed repairs

estimated at P2,000,000.00. The insurance company refused to

pay the claim of the ship owner, stating that there was no
constructive total loss.

a)

Was there constructive total loss to entitle the ship

owner to recover from the insurance company? Explain.

b)

Was it proper for the ship owner to send a notice of

abandonment to the insurance company? Explain. (5%)

c)

Was there constructive total loss to entitle the ship

owner to recover from the insurance company? Explain.

Answer:
No, there was no constructive total loss.
Under Sec.131 of Insurance Code of the Philippines, a
constructive total loss is one which gives to a person insured a right
to abandon. Furthermore, under Sec. 139 of the same Code, there
was no constructive total loss if the loss is not more than the value
of the vessel.
In the case at bench, the vessel was refloated and the costs of
refloating plus the needed repairs will not be more than three-fourths
of the value of the vessel.
Therefore, there was no constructive total loss if the loss is not
more than the value of the vessel.
B.

Was it proper for the ship owner to send a notice of

abandonment to the insurance company? Explain. (5%)

No, it was not proper for the ship owner to send a notice of
abandonment to the insurance company.

Under Sec. 139 of the Insurance Code of the Philippines,

abandonment can only be availed of when, in a marine insurance
contract, the amount to be expended to recover the vessel would
have been more than three-fourths of its value.
In the given circumstance, M/V Pearly Shells needed only P2.9
Million, which does not meet the required three-fourths of its value to
merit abandonment.
Therefore, the three-fourths of its value is required to avail
abandonment.
(2.) a) When does double insurance exist? (2%)
Under Section 93 of the Insurance Code, there is double
insurance when there is over-insurance with two or more companies,
covering the same property, the same insurable interest and the
same risk. Double insurance exists where the same person is insured
by several insurers separately in respect of the same subject matter
and interests.
b) What is the nature of the liability of the several insurers in
double insurance? Explain. (2%)
Under Sec. 94 of Insurance Code, the nature of the liability of
the several insurers in double insurance is that each insurer is bound
to contribute ratably to the loss in proportion to the amount for which
he is liable under his contract. The ratable contribution of each of
each insurer will be determined based on the following formula:

AMOUNT OF POLICY divided by TOTAL INSURANCE TAKEN

multiplied by LOSS = LIABILITY OF THE INSURER.
- XIV (1.) On a clear weather, M/V Sundo, carrying insured cargo, left
the port of Manila bound for Cebu. While at sea, the vessel
encountered a strong typhoon forcing the captain to steer the
vessel to the nearest island where it stayed for seven days. The
vessel ran out of provisions for its passengers. Consequently,
the vessel proceeded to Leyte to replenish its supplies.
(a) Assuming that the cargo was damaged because of such
deviation, who between the insurance company and the owner
of the cargo bears the loss? Explain.
The Insurance Company should bear the loss.
Under Sec. 126 of Insurance Code of the Philippines, a
deviation is proper when caused by circumstances over which neither
the master nor the owner of the ship has any control; or when
necessary to comply with a warranty, or to avoid a peril whether
insured against or not.
In the case at bench, the deviation of the vessel was proper in
order to avoid a peril, which was the strong typhoon. The running out
of provisions was a direct consequence of the proper deviation in
order to avoid the peril of the typhoon.
Therefore, the Insurance Company is liable.

b) Under what circumstances can a vessel properly proceed to a

port other than its port of destination? Explain. (4%)
SUGGESTED ANSWER:
In a capsule form, under Sec. 126 of Insurance Code of the
Philippines, a deviation is proper when:
a.
nor the
b.

caused by circumstances over which neither the master

owner of the ship has any control;
necessary to comply with a warranty, or to avoid a peril,

whether or not the peril is insured against;

c.

made in good faith, and upon reasonable grounds of

belief in its necessity to avoid a peril; or

d.

made in good faith, for the purpose of saving human life

or relieving another vessel in distress.

Thus, every deviation not specified above is improper.