Notes Insurable Interest

NOTES ON INSURANCE CODE
BY: ATTY. EDZ VENTURA
WHAT IS INSURABLE INTEREST?

It is that interest which the law requires the owner of an insurance
policy to have in the person or thing insured.
In general, a person is deemed to have an insurable interest in the
subject matter insured where he has 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.
ELEMENTS:
1. Relation, connection or concern of one person to another, a thin or
property;
2. He derives pecuniary advantage/benefit from its preservation;
3. He suffers pecuniary loss or damage from its destruction,
termination or injury.
Exception: in life insurance, the expectation of benefit from the
continued life of that person insured need not necessarily be of pecuniary
nature.
WHY MUST THERE BE AN INSURABLE INTEREST?
An insurable interest is necessary to the validity of an insurance
contract whatever the subject matter of the policy, whether upon property or
life. The existence of insurable interest gives a person a legal right to insure
the subject of the policy of insurance. A policy issued to a person without
interest in the subject matter is a mere wager policy or contract and is void.
The requirement of an insurable interest to support a contract of
insurance is based upon considerations of public policy which render wager
policies invalid. A wager policy is contrary to public interest. It is
demoralizing in that: a. it allows the insured to have an interest in the
destruction of the subject matter rather than in its preservation; b. it affords
a temptation or an inducement to the insured, having nothing to lose and
everything to gain, to bring to pass the event upon the happening of which
the insurance becomes payable.
It is also a measure of limit of recovery. (Expound)
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?
NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016
Page 1
The Insurance taken on A on his life is VALID, because the

benefi ciary 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 in the part of the person insuring is NOT sufficient ground to
qualify as insurable interest.
WHEN MUST INSURABLE INTEREST EXIST?

In case of property insurance, insurable interest in property must exist
when the contract of insurance takes effect and when the loss occurs but
need not exist in the meantime. Thus, it is well settled that in the absence of
special provision in the policy to the contrary, the alienation of the insured
property will not defeat a recovery if the insured has subsequently
reacquired the property and possesses an insurable interest at the time of
the loss.
In case of life insurance, insurable interest in the life and health of a
person insured must exist when the contract of insurance takes effect but
need not exist thereafter or when the loss occurs.
ILLUSTRATION 1
On November 1, 2011 Apple insured her house for 1 million for a period
of 1 year. At that time, she was the owner of the house. During the effectivity
of the policy, she sold the house to Orange for 2million on May 21, 2012, but
did not transfer the policy. A week later, Apple realized how much she missed the
house and bought it from Orange for 3 million. The next day, the house
burned down. Is the Insurer liable notwithstanding the transfer
of interest from Apple to Orange during the effectivity of the policy?
Yes. Apple 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
Orange. The law says Apple 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 Orange during the intervening period, as Apple had insurable
interest at the two points in time required by law, then the insurer is liable.
What if the house was burned on May 22, 2012, can Apple recover
from the insurance company?
Apple cannot recover since she does not have an insurable interest
when the loss occurred.
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Suppose that in the same example Grapes is an unsecured creditor of

Apple for the amount of 1 million and she insured Apples house on May 28,
2012 for the same amount. The house burned on May 30, 2012.
Has Grapes the right to collect the proceeds of the insurance? No.
because being a general creditor without any lien on Apples house, Grapes
has no insurable interest on the property when he insured it.
What if Apple sold the house to Grapes on May 29, 2012, can she
collect? No because Grapes does not have any insurable interest in the
house when the insurance took effect.
What if Grapes was a secured creditor, can she recover? No. section 19
(review)
I L L U S T R AT I O N 2
Ta i To n g C h u a C h e & C o . v . I n s u r a n c e C o m m i s s i o n 158
SCRA 366Facts:
-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 at the time of the occurrence of
the loss since Palomo had allegedly paid the mortgaged debt already. Aside
from its bare assertion, Travellers did not present any proof.
Issue:
WON Travellers insurance company is liable?
Held:
Each party must prove his own affirmative allegations. Travelers
insurance company advanced an affirmative defense of lack of insurable
interest on the part of Taitong alleging that before the occurrence of the peril
insured against the Palomos had already paid their credit due to Taitong.
Travelers has the burden of proof to show that Taitong has no insurable
interest at the time the contingency took place. Travellers did not present
any evidence to substantiate its claim. Hence, travellers having issued a
policy in favour of Taitong which policy was of legal force and effect at the
time of the fire, it is bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on the part of Taitong ,
Travellers insurance compny is and must be held liable.
DOES A PERSON HAVE AN INSURABLE INTEREST IN HIS OWN LIFE?
Every person has an unlimited insurable interest in his own life
whether the insurance is for the benefit of himself or another.
The presence of insurable interest is really required only as evidence of
the good faith of the parties, and it is contrary to human experience that a
person will insure his own life for the benefit of another for the purpose of
speculation, to be tempted to take his own life in order to secure the
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payment of money to another. Generally, the mere fact that a man on his
own motion insures his life for the benefit of either of himself or of another is
sufficient evidence of good faith to validate the contract. An exception to this
is in cases in which the court finds that a wagering policy has been taken out
by the inured on his life at the behest of a third person who is named as a
beneficiary. Evidence of wagering policy is usually found in such fact as: a.
that the original proposal to take out insurance was that of the beneficiary; b.
that the premiums are paid by the beneficiary; and c. that the beneficiary
has no interest economic or emotional in the continued life of the insured. On
finding that such a policy is primarily a wager, the court will generally void
the policy entirely.
In any case, there is no question that under our law, a person has an
insurable interest in his own life. But if the policy is applied for and owned by
someone other than the insured, the applicant-owner must have an insurable
interest in the life of the insured.
INSURABLE INTEREST IN LIFE OF ANOTHER
Under our law, in order that one may have an insurable interest in the
life of another, it must be one of those mentioned in section 10 of the
Insurance Code, to wit:
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 or 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.
Insurance for benefit of insured. a person cannot lawfully procure insurance
for his own benefit on the life of another in whose life he has no insurable
interest. Insurable interest exist in such a way that the assured has a
responsible expectation of deriving benefit from the continuation of the life
insured or of suffering detriment or incurring liability through its termination.
Assured should have an interest to preserve the life insured in spite of the
insurance, rather than destroy it because of the insurance.
Insurance for benefit of a third party. when the owner of the policy insures
the life of another the cestui que vie- and designates a third party as
beneficiary, both the owner and beneficiary must have an insurable interest
in the life of the cestui que vie. If the insurable interest requirement is
satisified, a life policy is assignable regardless of whether the assignee has
an insurable interest in the life of the cestui que vie.
ILLUSTRATION 1
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C o l . C . C a s t r o v . I n s u r a n c e C o m m i s s i o n e r 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 suffi cient 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.
ILLUSTRATION 2
X takes an insurance on his own life and names his friend Y as
beneficiary, and another insurance on Ys life with himself (X) as beneficiary:
The first insurance is valid because the beneficiary (Y) need not have
an insurable interest in the life of the insured. The second insurance is void
because X has no insurable interest on the life of Y.
Insurable interest in the life of person upon whom one depends for education
or support or in whom he has a pecuniary
Under our law there must be an expectation of pecuniary benefit in the
life of the insured to sustain the insurance, that is a risk of actual monetary
loss from his death. Hence, love and affection, gratitude or friendship by
itself is not sufficient.
The mere relationship of brother or sister, father or child is sufficiently
close to give either an insurable interest in the life of the other. REASON: the
natural affection in cases of this kind is considered sufficient, if not more
powerful, to protect the life of the insured than any other consideration.
What is important is that the policy shall be obtained in good faith and not
for the purpose of speculating upon the hazard of a life in which the insured
has no interest.
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In any event, the following have an insurable interest in each others

life since under the provisions of Article 195 of the Family Code, they are
obliged to support each other:
a. The spouses;
b. Legitimate ascendants and descendants;
c. Parents and their legitimate children and the legitimate or
illegitimate children of the latter;
d. Parents and their illegitimate children and the legitimate or
illegitimate children of the latter;
e. Legitimate brothers and sisters, whether of the full or half blood.
Brother and sisters not legitimately related, whether of the full or
half blood, are likewise bound to support each other EXCEPT only
when the need of support of the brother or sister being of age is due
to a cause of imputable to the claimants fault or negligence.
INSURABLE INTEREST OF A PERSON IN LIFE OF ANOTHER UNDER A

LEGAL OBLIGATION TO FORMER
ANY person so related to another, either by contract or commercial
relation, that a right possessed by him will be extinguished or impaired by
the death or illness of the other may lawfully procure insurance on the
others life. It must appear, however, that the death or illness of the insured
person who is under a legal obligation, might delay or prevent its
performance.
It is generally held that a corporation has an insurable interest in the
life of an officer on whose services the corporation depends for its prosperity,
and whose death will be the cause of a substantial pecuniary loss to it.
In the case of employees, insurable interest is dependent upon the
value of the employee to the business. One who could be easily replaced
would hardly be one in whom the employer could reasonably claim an
insurable interest. A business usually has an interest in other employees
occupying key positions, such as the president, executive officers and
department heads.
KEY MAN INSURANCE is an important form of business insurance. A
key man can be anyone directly associated with the business whose loss can
cause financial strain to the business. In general, key man insurance can be
described as an insurance policy taken by a business to compensate that
business for financial losses arise from the death or extended incapacity of a
member of the business specified on the policy. However, the policy term will
not extend beyond the period of the key persons usefulness to the business.
The aim of the key man insurance is to compensate the business for losses
and facilitate business continuity. However, key person insurance will not
indemnify the actual losses incurred but compensates with a fixed monetary
sum as specified on the insurance policy.
INSURABLE INTEREST OF CREDITOR IN THE LIFE OF HIS DEBTOR
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A creditor may not insure the life of his debtor unless the latter has a
legal obligation to him for payment of money.
Extent of interest. The creditor has unquestionably an insurable
interest in the life of his debtor under Section 10. Thus a creditor may
insure his debtors life for the purpose of protecting his debt but only to the
extent of the amount of the debt and the cost carrying the insurance on the
debtors life.
A creditor who insures the life of his debtor does not act as the agent
of the latter. The contract is one purely between the insurer and the insuring
creditor inasmuch as by law, the creditor is given an insurable interest on the
life of his debtor. The insurance does not inure to the benefit of the debtor,
unless, of course, the contrary is expressly stipulated.
The insuring creditor could only recover such amounts as remain
unpaid at the time of the death of the debtor. If the whole debt has already
been paid, then recovery on the policy is no longer permissible.
Where a debtor in good faith insures his life for the benefit of the
creditor, full payment of the debt does not invalidate the policy, in such case,
the proceeds should go to the estate of the debtor.
INSURABLE INTEREST IN THE LIFE OF PERSON UPON WHOM THE
ESTATE OR INTEREST DEPENDS
Section 10 (d) every person has an insurable interest in the life and
health of any person upon whose life any estate or interest vested in him
depends. This simply means that one may insure the life of a person where
the continuation of the estate or interest vested in him who takes the
insurance depends upon the life of the insured.
ILLUSTRATION
Suppose A receives a legacy, the usufruct of a house the ownership of
which is vested in B. it is provided in the legacy that should B die first, both
the usufruct and the ownership of the property will pass to C. In this case, A
has an insurable interest in the life of B for A will suffer pecuniary loss by Bs
death.
Is the consent of the person whose life is insured essential to the validity of
the insurance taken by another?
Under our law, the consent of the person insured is not essential to the
validity of the policy. So long as it could be proved that the assured has a
legal insurable interest at the inception of the policy, the insurance is valid
even without such consent. The presence of insurable interest takes the
contract out of the class of forbidden wagers.
INSURABLE INTEREST OF MORTGAGEE AND MORTGAGOR
WHO MAY INSURE MORTGAGED PROPERTY?
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When a property is mortgaged, the mortgagor and the mortgagee may

take out separate policies with the same or different insurance companies.
The mortgagor may insure the property mortgaged to the full value of such
property while the mortgagee can insure the same only to the extent of the
amount of his credit.
IS IT ALRIGHT IF BOTH THE MORTGAGOR AND THE MORTGAGEE
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 favour 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? as owner, has an insurable interest therein to the extent of is
value, even though the mortgage debt equals such value.
The mortgagor may insure his own interest as owner for his 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 in the same.
The mortgagor may also take out insurance for the benefit of the
mortgagee where he pays the insurance premium, making the loss payable
to the mortgagee.
The mortgagee may be made the beneficial payee in several ways:
a. He may become the assignee of the policy with the consent of the
insurer;
b. He may be the mere pledgee without such consent;
c. A rider making the policy payable to the mortgagee as his interest
may appear may be attached;
d. A standard mortgaged clause containing a collateral independent
contract between the mortgagee and the insurer may be attached;
or
e. The policy though
by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a
contract duty to insure for the mortgagees benefit, in which case
the mortgagee acquires an equitable lien upon the proceeds.
WHAT IS THE EXTENT OF THE INSURABLE INTEREST OF THE
MORTGAGEE? 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 is prima facie the value mortgaged and
extends only to the amount of debt, not exceeding the value of the
mortgaged property. Such interest continues until the mortgaged debt is
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extinguished. Thus, separate insurances covering different

interests may be obtained by the mortgagor and the mortgagee.
insurable
He is entitled to the proceeds of the policy in case of loss before

payment of the mortgage when he independently of the mortgagor insures
his own interest. In such a case , the 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. In other words, the payment of the
insurance to the mortgagee by reason of the loss doesnt relieve the
mortgagor from his principal obligation but only changes the creditor.
Example:
A, the owner of a house valued at 500,000 borrowed 300,000 from B
and to secure payment of the loan, mortgaged said house to B. Question:
who may secure the house mortgaged? as to what extent?
INSURANCE BY
MORTGAGEE
MORTGAGOR
WIHTOUT
ASSIGNING
LOSS
TO
Where the mortgagor insures the property mortgaged without makig

the loss payable to the mortgagee, upon occurrence of the loss, only the
mortgagor my recover from the insurer since the policy taken by the
mortgagor shall be applied exclusively to his interest. However, the
mortgage constituted shall extend to the proceeds of the indemnity paid by
the insurer of the mortgaged property upon occurrence of the loss and
therefore, the mortgagee has a lien on the proceeds of the policy.
INSURANCE BY MORTGAGOR MAKING LOSS PAYABLE TO MORTGAGEE:
Where the mortgagor insures the property mortgaged in his own name
providing that the loss shall be payable to the mortgagee or assigns the
policy to the mortgagee, the effects thereof are as follows:
1. The insurance is still deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract. It is an
insurance on the property of the mortgagor as owner and not on the interest
of the mortgagee, and accordingly, the contract is one between the insurer
and the mortgagor and not one between the insurer and the mortgagee.
Example:
A, the mortgagor insured his mortgaged building against fire and made
the loss payable to the mortgagee. Later on, the insurer cancelled the policy
pursuant to a stipulation thereon allowing either party to terminate the
contract by giving notice thereof to the other. The insurer gave notice of
cancellation to the mortgagee and not to the mortgagor. The building was
thereafter burned. Question: was the insurer liable? Answer: Yes, the insurer
was liable. The cancellation of the policy was not binding upon the
mortgagor since the insurer failed to comply with its duty to notify the
insured mortgagor of such cancellation of the policy so as to give the latter
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ample opportunity to negotiate for another insurance. The notice should be

personal to the insured.
2. Any act of the mortgagor, 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.
Example:
A mortgaged his house to B to secure the payment of a loan. A then
insured his house and made the loss payable to the mortgagee. A violated
the policy by storing inflammable materials within the insured premises, as a
result of which the house is burned. Question: May the mortgagee recover
from the insurer? Answer: No, because the act of the mortgagor in violation
of the policy avoided the contract although the loss was made payable to the
mortgagee.
3. Any act which, under the contract of insurance, is to be performed

by the mortgagor, may be performed by the mortgagee with the same effect
as if it has been performed by the mortgagor. As for example, the policy
requires the insured to give notice and proof of loss without unnecessary
delay. Notice or proof or loss may be given by the mortgagee to whom the
loss is made payable with the same effect as if the same is given by the
mortgagor.
4. Upon occurrence of the loss, the mortgagee is entitled to recover to
the extent of his credit and the balance, if any, is payable to the mortgagor
since such policy is for the benefit of both the mortgagor and mortgagee.
The mortgagee is the proper party to prosecute an action for a loss
sustained under a policy sustained under a policy of insurance where the loss
was made payable to him and such action may be brought by the mortgagee
even without including the mortgagor as party to the action.
Example:
A owned the house valued at 200,000. He mortgaged the said house to
B to secure a loan of 150,000. A then insured the house against the fire for
200,000 and made the loss payable to the mortgagee. Question: Upon
occurrence of the loss, who may recover from the insurer? Answer: The
mortgagee B, as beneficiary may recover to the extent of his credit 150,000
and as an insured, A may recover the balance of 50,000
ASSIGNMENT OF POLICY TO MORTGAGEE NOT A PAYMENT

In case the mortgagor insures the mortgaged property and assigns the
policy to thee mortgagee, such assignment is merely to afford the
mortgagee a greater security for the settlement of the mortgagors
obligation and should not be construed as payment in just the same way that
delivery
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RIGHT OF THE MORTGAGEE UNDER MORTGAGORS POLICY:

The contract of indemnity under such policy is primarily with the
mortgagor, but the mortgagee is a third party beneficiary.
Before loss: the 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.
After loss: if the loss happens when the 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 the loss happens after the credit has
matured, the mortgagee may apply the proceeds to the extent of his credit.
UP TO WHAT EXTENT CAN EACH RECOVER? the mortgagor cannot
recover upon the insurance beyond the full amount of his loss and the
mortgagee, in excess of the credit at the time of the loss nor the value of the
property mortgaged.
UNDER SECTION 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 mortgagor prior to the loss which would otherwise
avoids 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;
5. Upon recovery of 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 rule applies. 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.
Art. 2127 NEW CIVIL CODE. 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.
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ILLUSTRATION:
A is the owner of a house worth 100T which he mortgaged to B to
secure a loan of 50T. What is the insurable interests of each?
Insurable interest of A, mortgagor is P100T, while the insurable interest
of B, mortgagee is P50T.
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
ILLUSTRATION:
Grepalife v. CA316 SCRA 677
Facts:
A contract of group life insurance was executed between Grepalife and
DBP. Grepalife agreed to insurethe 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 lifeinsurance plan.
In an application form, Dr. Leuterio answered questions concerning his
health stating that he is in goodhealth 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 indebtednessamounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
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Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently,

DBP submitted a death claim toGrepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for aninsurance coverage and insisted that Dr.
Leuterio
did
not
disclose
that
he
had
been
suff ering
fromhypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.
The widow of the late Dr. Leuterio, fi led a complaint against
Grepalife for "Specifi c Performance with Damages." During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify.Dr.
Mejias fi ndings, based partly from the information given by the
widow, stated that Dr. Leuteriocomplained 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 notthe 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. O n t h e p a r t
o f t h e m o r t g a g e e , i t h a s t o e n t e r i n t o s u c h f o rm o f c o n t r a c t
s o t h a t i n t h e e v e n t o f t h e 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
Page 13
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, 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 affi rmed 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.
EFFECT OF STANDARD AND OPEN CLAUSES IN FIRE INSURANCE
POLICY
If the fire insurance policy contains a standard or union mortgage
clause, the acts of the mortgagor do not affect the mortgagee. The purpose
of the clause is to make a separate and distinct contract of insurance on the
interest of the mortgagee. Thus a mortgagee may procure a policy as a
contracting party in accordance with the terms of an agreement by which the
mortgagor is to pay upon such insurance.
An open or loss payable mortgage clause merely provides for the
payment of loss, if any, to the mortgagee as his interest may appear and
under it, the acts of the mortgagor affect the mortgagee.
If the policy is obtained by the mortgagor with a loss payable clause in
favor of the mortgagee as his interest may appear, the mortagee is only a
beneficiary under the contract and recognized as such by the insurer but not
made a party to the contract itself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. This kind of
policy covers only such interest as the mortgagee has at the issuing of the
policy. Thus, where the insurance policies issued by the insurer name the
mortgagor as the assured and contain a mortgage clause which reads; Loss,
if any, shall be payable to X (mortgagee) as its interest may appear subject
to the terms of this policy it was held that this is clearly a simple loss
payable clause, not standard mortgagee clause.
Page 14
INSURABLE INTEREST OF CARRIER OR DEPOSITORY

Under section 15 of the Insurance Code, 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.
REASON: the loss of the thing may cause liability to the carrier or depository
to the extent of its value.
It has been held by our SC that a policy effected by a bailee and
covering by its terms 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. (Lopez vs. Del Rosario, 44 Phil 98)
Under the General Bonded Warehouse Act, a warehouseman, licensed
to engage in the business of receiving commodities for storage, is required to
insure the same against fire. (ACT 3893)
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.
L o p e z v . D e l R o s a r i o 44 PHIL 98
Facts:
Benita Del Rosario is the owner of a bonded warehouse in Manila where
copra and other merchandise aredeposited.
Among those who had copra deposited in the warehouse was Froilan
Lopez, the owner of 14 warehousereceipts 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 inthe 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 effecta settlement between the Insurance
companies and Del Rosario, the latter authorized Atty. Fisher to
negotiate with the Companies.
Page 15
An agreement was reached to submit the matter to arbitration. The claims

by different people who hadstored 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 benefi t of
all owners of the property insure d. Even if one secured insurance
covering his own goods and goods stored with him, and even if the owner of
the stored goods didnot 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 maybe 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.
INSURABLE INTEREST IN PROPERTY

Section 13 defines insurable interest in property which provides that
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.
The interest maybe in the property itself or any relation thereto or
liability in respect thereof.
Anyone who derives a benefit from a propertys existence or would
suffer loss from destruction has an insurable interest in property.
Under the law it is not necessary that the occurrence of the law be
certain. Nor it is necessary that the interest in such that the event insured
against would necessarily subject the insured to loss. It is sufficient that it
might do so, and that pecuniary injury would be the natural consequence.
Insurable interest in property is not necessarily an interest in property
in the sense of title, but a concern in the preservation of the property and
such a relation to or connection with it as will necessarily entail a pecuniary
loss in case of its injury or destruction.
Page 16
Mere factual expectation of loss does not constitute an insurable

interest.
Section 14. -An 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.
What is existing interest?
Existing interest in property is the legal or equitable title on the property.
EQUITABLE TITLE This type of title refers to the actual enjoyment and
use of a property without absolute ownership .
LEGAL TITLE Legal title is the ownership of property that is
enforceable in a court of law, or one that is complete and perfect in
apparent right of ownership and possession, but that unlike equitable title,
carries no beneficial interest in the property. It interpreted legal title to
mean registered ownership and equitable title to mean beneficial ownership.
Examples: persons who have insurable interest arising from a legal title:
trustee [ as in the case of the seller of property not yet delivered], mortgagor
of the property mortgaged; lessor of the property leased; lessee and
sublessee may also insure the property leased or subleased and assignee of
property for the benefit of creditors;
Person who have insurable interest arising from an equitable title:
mortgagee of property mortgaged.. see page 108 insurance code
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:
S u t e r v . U n i o n S u r e t y 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: The properties were allegedly overvalued, it having been
proven that the juke boxes cost only P774.00
Page 17
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 insuredand 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 insuredwill benefi t in the propertys reservation or
continued existence, or suff er a direct pecuniary loss in
itsdestruction. Suter, being the managing partner will clearly benefit in the
juke boxes preservation and would also be affected by its destruction
ILLUSTRATION :
Tr a d e r s
826Facts:
Insurance
and
Surety
Co.
v.
G o l a n g c o 95 PHIL
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 fulland 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 rightto collect the rentals.
The building burned down in a fi re 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
insurableinterest in the same and consequently, he could not collect the
insurance proceeds.
Issue:
WON plaintiff can claim the insurance proceeds.
Held. YES.
Both at the time of the issuance of the policy and at the time of the
fi re, plaintiff Golangco was in legal possession of the premises, collecting
rentals from its occupant. It seems plain that if the premiseswere destroyed
as they were, by fire, Golangco would be, as he was, directly damnified
thereby; and hencehe had an insurable interest therein
CASE: CHA VS. CA, 277 SCRA 690
Issue: whether or not paragraph 18 of the lease contract entered into
between CKS and Cha spouses is valid insofar as it provides that any fire
insurance policy obtained by the lessee (Cha spouses) over their
merchandize inside the leased premises is deemed assigned or transferred
to the lessor (CKS) if said policy is obtained without the prior written consent
of the latter.
Page 18
Held: 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 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 such a case, the contract of insurance is mere wager which is
void under section 25 of the Insurance Code.
Therefore, respondent 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
Cha. The insurer cannot be compelled to pay the proceeds of the fire
insurance policy to a person who has no insurable interest in the property
insured.
MEASURE OF INDEMNITY
Section 17 provides that the measure of an insurable interest in
property is the extent to which the insured might be damnified by loss or
injury thereof.
CASE:
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 liable 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
Page 19
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.
EFFECT OF ABSENCE OF INSURABLE INTEREST IN PROPERTY
INSURED
SECTION 18 PROVIDes that no contract or policy of insurance on
property shall be enforceable except for the benefit of some person having a
an insurable interest in the property insured.
Simplified, the provision states that?
NO insurable interest = NO contract of Insurance
Where the insurance is invalidated on the ground that no insurable
interest exists, the premium is ordinarily returned to the insured unless he is
in pari delicto with the insurer.
Cases:
S h a r u ff a n d C o . v . B a l o i s e F i r e I n s u r a n c e C o . 64 SCRA
258Facts:
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 fi re.
Sharuff and Eskenazi fi led 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 notSharuff 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 actuallythe same. Furthermore, such change of firm
name was not made to defraud the insurance company or some other
person.
INSURABLE INTEREST IN LIFE AND PROPERTY DISTINGUISHED
1. As to the extent of insurable interest:
Life [except life insurance effected by creditor on the life of the debtor]
unlimited
Property limited to the actual value of the interest thereon.
2. As to the time when insurable interest must exist.

Life [ except creditor on the life of the debtor] enough that insurable
interest exists at the time the policy takes effect and need not exist at
the time of the loss;
Page 20
Property necessary that insurable interest must exist when the

insurance takes effect and when the loss occurs, but need not exist in
the meantime.
3. As to expectation of benefit derived.
Life the expectation of benefit to be derived from the continued
existence of life and need not have any legal basis whatever.
Property the expectation should have a legal basis.
CHANGE OF INTEREST
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 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.
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) after a loss has happened, the liability of the insurer
becomes fixed. The insured has a right to assign his claim against the insurer
as freely as any other money claim. This right is absolute and cannot be
delimited by agreement. The insurer has also the absolute right to transfer
the thing insured after the occurrence of the loss. Such change of interest
does not affect his right to indemnify for the loss.
ILLUSTRATION:
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.
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.
3.Change of interest in one or more of several things separately insured by

one policy (Sec. 22) it is important to make a distinction between a divisible
Page 21
contract and indivisible contract. DIVISIBLE CONTRACT: the cause or

consideration is made up of several parts while in INDIVISIBLE CONTRACT it
is entire and single. If the things are separately insured in one policy, the
contract is divisible and the violation of a condition which avoids the policy
with respect to one or more of the things does not affect the others. If the
things are insured under one policy for a gross sum and for an entire
premium, the contract is indivisible so that a change of interest in one or
more of the things will also 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 for which 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
4.Change of interest by will or succession on the death of the
insured (Sec. 23)- under section 23, the insurance on property
passes automatically on the death of the insured, to the heir,
legatee or devisee who acquired interest in the thing insured. The
rights to succession are transmitted from the moment of the death
of the decedent.
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.
5.Transfer of interest by one of several partners, joint owners or
owners in common who are jointly insured, to the other (Sec. 24)EFFECT WHERE TRANSFER IS TO THE OTHERS - 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 the thing insured. REASON: 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 coNOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016
Page 22
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
aff ected 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 arch-enemy 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.
6. When a policy is so framed that it will not inure to the benefit of
whomsoever, during the continuance of the risk, may become the owner of
the interest insured. (sec. 57)
7. When there is an express prohibition against alienation in the policy in case
of alienation, the contract of insurance is not merely suspended but is
avoided. (ART. 1306 CIVIL CODE)
So we have already discussed the first requisite in order for a contract

of insurance to be valid and enforceable, that is, it must have a subject
matter in which the insured has an insurable interest; as well as the
concept of insurable interest.
Remember that in general, anything that has an appreciable pecuniary
value, which is subject to loss or deteriotaion or of which one may be
deprived so that his pecuniary interest is or may be prejudiced, may properly
constitute the subject matter of insurance.
Page 23
We go now to the second requisite, that is, there must be an event or

peril insured against which may be any (future) contingent or
unknown event, past or future and a duration for the risk thereof.
PERIL is the contingent or unknown event which may cause a loss. It is
the contingency that one insures against. Its existence creates the risk, and
its occurrence results in loss. It may be covered or excluded by a policy of
insurance. Example. Fires, floods, theft, automobile accidents, illness death
and hundreds of other causes of uncertainty.
Under section 3, the contingency or unknown event must be such that its
happening will: 1) damnify or cause loss to a person having an insurable
interest or, 2) create a liability against him.
The event may be past or future. An insurance against an unknown past
event is peculiar only to marine insurance. In case of fire insurance, the fire
must be a future, not a past event.
Example: (PAST EVENT) Ys vessel left for voyage on June 15 from Manila to
USA. Y insured said vessel against the perils of the sea, lost or not Lost on
June 19 with X Insurance Co. Without the knowledge of both parties, the
vessel had already sunk on June 18. Here, the sinking of the vessel is a past
event at the time of the policy took effect. The contract is valid and the
insurer is liale because it agreed to pay even though the vessel be already
lost.
(FUTURE EVENT) Y owns a car which he drives himself. If he injures
pedestrians by the use of his car, he hereby incurs liabilty. Now he may
insure himself against liabilty to thrd persons that may be created by this
contigent event.
Generally speaking, all foreseeable losses or risks may be insured against
EXCEPT those the insurance of which would be repugnant to public policy or
positively prohibited, or those which are occasioned by the insureds own
fraud or misconduct.
In a contract of insurance, the insurer could be held liable for a fortuitous
event if it is the event or peril insured against and is the proximate cause of
the loss. LOSS may be defined as the injury damage or liablity sustained by
the insured in consequence of the happening of one or more perils against
which the insurer, in consideration of the premium, has undertaken to
indemnify the insured. The word loss in insurance law embraces bodily
injury, including death, or property damage or destruction. It also includes
loss of income or profits and legal liability to a third party.
NB: ART. 1174, CC, 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.
Page 24
The period during which the insurance is to continue must also be

stated because although the loss suffered by the insured was caused by the
risk/peril insured, the insurer would not be liable unless it occurred during
such duration of the insurance. The duration may be expressed in terms of
dates from one specified time to another as for example in marine insurance
from March 26, 2014 to March 25, 2015, or in terms of voyage, as for
example from Manila to Hongkong regardless of the time it takes to complete
the voyage. The period of time which the insurer assumes the risk of loss is
known as the LIFE OF THE POLICY.
THIRD REQUISITE: There must be a promise to pay or indemnify in a fixed
or ascertainable amount. FOURTH REQUISITE: There must be a
consideration for the promise known as PREMIUM. INSURANCE PREMIUM may
be defined as the agreed price for assuming and carrying the risk, that is the
consideration paid an insurer for undertaking to indemnify the insured
against a specified peril. Its amount is principally based on the probability of
loss and extent of liability for which the insurer may become liable under the
contract.
FIFTH REQUISITE: A meeting of minds of the parties upon all the foregoing
essentials. (Subject matter, peril/event insured against/amount of premium
promised to be paid). These parties must be competent to enter into the
contract. (Art. 1318, 1319, 1327-1329 CC, Sec. 6-7, IC)
PARTIES TO INSURANCE CONTRACT

WHAT ARE THE ESSENTIAL REQUISITES FOR A PERSON TO BE A PARTY TO AN
INSURANCE CONTRACT?
1. He must be competent to enter into a contract; (Under Art. 1327 CC,
the following cannot give consent to a contract: 1) unemancipated
minor; 2) insane or demented (one whose intellectual faculty is so
impaired as to unable to distinguish between right and wrong) persons
and deaf-mutes who do not know how to write); ART. 1328: insane
persons cannot enter into a contract unless during lucid interval;
contracts entered into in the state of drunkenness or during a hypnotic
spell are voidable)
2. Must possess an Insurable interest;
3. Must not be a public enemy.
JURIDICAL PERSON ; May take out an insurance on property owned by it.( Art.
44 CC: The following are juridical persons: 1, State and its political
subdivisions, 2. Other corporations, institutions and entities for public
interest or purpose created by law; their personality begins as soon as they
have been constituted according to la, 3. Corporations, partnerships and
associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or
Page 25
member.) a private corporation begins to exist as a juridical person from the

moment a certificate of incorporation is granted to it.
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 - 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 benefi t.
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. A s s u re d i s a l s o u s e d s o m e t i m e s a s a s y n o n y m o f
b e n e fi c i a r y. T h e beneficiary i s t h e p e r s o n 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.
Page 26
WHO MAY BE AN INSURER?

According to Sec. 6 of IC, Every corporation, partnership, association
duly authorized to transact insurance business 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. 190)
An individual may also be an insurer, provided he holds a certifi cate
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. 190-199)
What is an insurance company?
Include all partnerships, associations, cooperatives or corporations
including government-owned or controlled corporations or entities, engaged
as principals in the insurance business, excepting mutual benefits
associations. (Sec. 190 IC). It shall also include professional reinsurers. (Ibid).
The provisions of the Corporation Code as amended, shall apply to all
insurance corporations now or hereafter engaged in the business in the
Philippines in so far as they do not conflict with the provisions of this chapter.
(Sec. 191, IC)
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.
Domestic Company shall include companies
or existing under the laws of the Philippines.
formed,
organized
Foreign Company, when used without limitation, shall include companies

formed, organized, or existing under any laws other than those of the
Philippines.
GENERAL REQUIREMENTS BEFORE AN INSURANCE COMPAN MAY
TRANSACT INSURANCE BUSINESS:
1. DOMESTIC INSURANCE COMPANIES: before a domestic insurance
company may transact any insurance business in the Philippines
except as agent of a person or corporation authorized to do the
business of insurance in the Philippines, it must comply with the
following requirements:
a. It is possessed of the required paid-up capital and assets. Only
sufficiently capitalized insurance and re-insurance companies
can be competitive regionally and globally and sustain public
and investor confidence in the insurance industry. Non
compliant and failed insurance companies cause an alarming
number of unpaid insurance claims,causing iestimable
Page 27
damage and prejudice to the victims of unpaid insurance. The

result is a frustrated insurance policy holding public and
unfavorable public perception of the industry as a whole.
Hence, the new capitalization requirements are as follows:
Effective July 1, 2006, no new or non-life insurance company
shall be allowed to do business in the Philippines unless it has
a capitalization of 1billion paid in cash, of which at least 50%
consists of paid up capital and the remaining portion thereof
as contributed surplus which in no case shall be less than
P200 million; the above requirements are without prejudice to
other requirements that are to be imposed under any risk
based capital method that ma be adopted by the Insurance
Commission. DOF Order no. 19-06, May 15, 2006)
b. It shall have obtained a certificate of authority for that
purpose from the Insurance Commissioner upon application
therefore and payment of the fees prescribed. (Sec. 193) take
note that the Commissioner may refuse to issue a certificate
of authority to any insurance company if in his judgment such
refusal will best promote the interest of the people of this
country. No such certificate of authority shall be issued unless
the Commissioner shall have satisfied himself by such
examination as he may make any 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 reasonably assure the safety of the interests of the
holders and the public.
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.
The certificate of authority issued by the Commissioner
shall expire on the last day of December, 3 years following the
date of issuance and shall be renewable every 3 years
thereafter, subject to the companys continuing compliance
with the provisions of the Code, circulars, instructions, rulings
or decisions of the Commission. Every company receiving
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. (sec 193, IC)
c. It shall have filed with the Insurance Commissioner the
documents required under section 195.
Page 28
The Commissioner may as a pre-licensing requirement of a new

insurance company require the payment in cash by the stockholders,
in addition to the paid up capital stock of a contributed surplus fund of
not less than 100million and the submission by such company of a
business plan showing its estimated receipts and disbursements as
well as the basis therefore for the next succeeding 3 years. (Sec. 194,
IC) the contributed surplus is intended to prevent the diminution of the
required paid up capital by organizational expenses.
2. FOREIGN INSURANCE COMPANIES. In addition, if the insurer is a foreign
company it shall have filed with the insurance commissioner a written
power of attorney designating some person who shall be resident of
the Philippines as its agent and deposited with the Insurance
Commissioner for the benefit of the policy holders and creditors
satisfactory securities required under section 197.(not less than
1billion)
3. INDIVIDUAL , PARTNERSHIP OR ASSOCIATION. Any person, partnership
or association of persons may be given a certificate of authority if such
person, partnership or association 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.
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 eff ect of war on the existing insurance contracts
between the Philippines and acitizen 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 bevalid and enforceable as soon as the insured
becomes a public enemy.
What is the eff ect of war on the existing insurance contracts
between the Philippines and acitizen or subject of a public
enemy, with respect to life insurance?
Three doctrines have arisen.
Connecticut Rule- there are two elements in the consideration for which
the
annual
premium
is
paid:
a . T h e
m e r e
p r o t e c t i o n
f o r
t h e
y e a r ;
a n d
b . T h e p r i v i l e g e o f r e n e w i n g t h e c o n t r a c t f
o r
e a c h s u c c e e d i n g y e a r b y p a y i n g t h e premium
for that year at the time agreed upon. Accdg. to this view, the payments of
the premiums are a condition precedent, the non-performance of which (as
Page 29
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 non-payment 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.( 1 1 ) F i l i p i n a s C i a d e S e g u r o s v. C h r i s t e r n H u e n f e l d
& C o . 80 PHIL 54Facts:
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. T h e p u r p o s e o f t h e w a r i s
t o c r i p p l e t h e p o w e r a d e x h a u s t t h e re s o u rc e s o f t h e e n e m y ,
a n d i t i s inconsistent that one country should destroy its enemy property
and repay in insurance the value of what has been so destroyed, or that it
Page 30
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
What is a beneficiary?
A benefi ciary is a person whether natural or juridical for whose
benefi t 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
benefi ciaries 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
benefi ciary 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.
Page 31
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 ben a m e d a b e n e fi c i a r y
of a life insurance
policy by the
person who
c a n n o t m a ke a n y
donation
t o h i m , 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 designationwas not
made in consideration of an act done by the public offi cer by reason
of his offi ce in favor of theinsured.
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 fi nality of the decree of legal separation, the innocent
spouse may revoke thedesignation of the offending spouse as beneficiary
in any insurance policy. The revocation of or change inthe 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 casesto 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 toreceive 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 adulterousrelaions with Van. Jef secured a life
insurance and named Jane as beneficiary. When Jef dies, who will get the
insurance proceeds?
Page 32
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.
739is 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.
wife. Jane engages in adulterousrelations 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 donationunder Art. 739 is named a beneficiary of a life
insurance policy by the person who cannot make any donationto him,
according to said article. Notwithstanding that both parties are guilty of
adultery and concubinagerespectively, 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.
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 theinsurance
proceeds?
Pao. Since there is no law prohibiting Jef from donating to Pao, because both
of them are neither guiltyof adultery nor concubinage, then the only
solution to this problem is to consider the designation of
thebeneficiary 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
I n s u l a r L i f e v. E b r a d o
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.
Page 33
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 fi led her claim, although she a d m i t t e d t h a t s h e a n d
t h e i n s u re d w e re m e re l y l i v i n g
as husband and
w i f e w i t h o u t t h e b e n e fi t o f 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 specifi c 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 specifi cally 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 diff erent from civil donations insofar as the
benefi ciary 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 commonlaw spouses are barred from receiving donations, they are likewise barred
from receiving proceeds of a life insurance contract
S S S v . D a v a o
17 SCRA 863
Facts:
Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as
his beneficiary.
When he died, both his fi rst wife, Lourdes and his second wife,
Candelaria fi led 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:
Page 34
Candelaria.
Under the SSS Act, the benefi ciary as recorded by the employees
employer is the one entitled to the death benefi ts, 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 wasnot guilty of concubinage , there being NO proof that she
had actual knowledge of the previous marriage of her husband.
V d a . D e C o n s u e g r a v. G S I S
37 SCRA 315
Facts:
Jose Consuegra was employed as a shop foreman of the Offi ce of
the District Engineer in Surigao Del Norte.
When he was still alive, he contracted two marriages:
oFirst Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but
both predeceased him
o2nd 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
benefi ciary
named
in the
life insurance
does NOT
automatically become
the benefi ciary
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 fi le 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.
Page 35
Section 12.
The interest of a beneficiary in a life insurance policy shall be forfeited when
the benefi ciary is the principal, accomplice or accessory in wilfully
bringing
about the death of thei n s u re d ; i n w h i c h e v e n t , t h e n e a re s t re l a t i
v e o f t h e i n s u re d s h a l l re c e i v e t h e p r o c e e d s o f s a i d 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 . T h e i l l e g i t i m a t e c h i l d re n ;
5.The surviving spouse; and
6 . T h e c o l l a t e r a l re l a t i v e s , t o w i t :
a.Brothers and sisters of the full blood;
b . B ro t h e r s a n d s i s t e r s o f t h e h a l f- b l o o d ; a n d
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 ) Ku y a , b r o t h e r o f f u l l b l o o d
b ) A l f, b r o t h e r o f h a l f b l o o d
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
Page 36
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
benefi ciaries 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 nowclaims the proceeds of the
insurance. However, her claim is opposed by BB, Bills legitimate daughter
Page 37
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 tosurgically 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
HEIRS OF MARAMAG V. MARAMAG
GRN 181132, JUNE 5, 2009
FACTS:
Petitioner alleged that: (1) they were the legitimate wife and children
of Loreto Maramag (Loreto), while respondents were Loretos illegitimate
family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a
suspect in the killing of the latter, thus, she is disqualified to receive any
proceeds from his insurance policies from Insular Life Assurance Company,
Ltd. (Insular)and Great Pacific Life Assurance Corporation (Grepalife); (3) the
illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angeliewere
entitled only to one-half of the legitime of the legitimate children, thus, the
proceeds released to Odessa and those to be released to Karl Brian and
Trisha Angelie were inofficious and should be reduced; and (4) petitioners
could not be deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction,
petitioners alleged, among others, that part of the insurance proceeds had
already been released in favor of Odessa, while the rest of the proceeds are
to be released in favor of Karl Brian and Trisha Angelie, both minors, upon
the appointment of their legal guardian. Petitioners also prayed for the total
amount of P320,000.00 as actual litigation expenses and attorneys fees.
Insular admitted that Loreto misrepresented Eva as his legitimate wife
and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and
that they filed their claims for the insurance proceeds of the insurance
policies; that when it ascertained that Eva was not the legal wife of Loreto, it
disqualified her as a beneficiary and divided the proceeds among Odessa,
Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and
that it released Odessas share as she was of age, but withheld the release of
the shares of minors Karl Brian and Trisha Angelie pending submission of
letters of guardianship.
Insular alleged that the complaint or petition failed to state a cause of
action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No.
A001544070 and it disqualified her in Policy No. A001693029; and insofar as
it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha
Angelie, considering that no settlement of Loretos estate had been filed nor
had the respective shares of the heirs been determined. Insular further
claimed that it was bound to honor the insurance policies designating the
Page 38
children of Loreto with Eva as beneficiaries pursuant to Section 53 of the

Insurance Code.
ISSUE: (A)re the members of the legitimate family entitled to the
proceeds of the insurance for the concubine?
HELD:
It is evident from the face of the complaint that petitioners are not
entitled to a favorable judgment in light of Article 2011 of the Civil Code
which expressly provides that insurance contracts shall be governed by
special laws, i.e., the Insurance Code. Section 53 of the Insurance Code
states
SECTION 53. The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or
for whose benefit it is made unless otherwise specified in the
policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary, if
the insured is already deceased, upon the maturation of the policy. [20] The
exception to this rule is a situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the form
of favorable stipulations or indemnity. In such a case, third parties may
directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the
insurance proceeds to petitioners. The revocation of Eva as a beneficiary in
one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries
in Loretos insurance policies remains valid. Because no legal proscription
exists in naming as beneficiaries the children of illicit relationships by the
insured,[22] the shares of Eva in the insurance proceeds, whether forfeited by
the court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the
insured has not designated any beneficiary,[23] or when the designated
beneficiary is disqualified by law to receive the proceeds, [24] that the
insurance policy proceeds shall redound to the benefit of the estate of the
insured.
WHAT CONSTITUTES DOING OR TRANSACTING AN INSURANCE

BUSINESS?
The name by which a company or association or its certificates or
policies are designated are not determinative of the question of whether the
organization is an insurance company or association or is engaged in an
insurance business or its contracts are in the nature of insurance policies.
Page 39
Basically, insurance, whether fire, amrine or any other form, is that which the
law defines it to be.
The Code enumerates what constitutes doing or transacting an
insurance business, to wit:
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 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.
The fact that no profit is derived from the making of insurance
contracts or that no separate or direct consideration is received therefor,
indeed, the fact that the contract states that it is not an insurance policy, is
not conclusive to show that the making thereof does not constitute the doing
or transacting of an insurance business.
PRINCIPAL OBJECT AND PURPOSE TEST if the principal object is
indemnity the contract constitutes insurance, but if it is service risk transfer
and distribution being merely incidental then the arrangement is not
insurance and therefore not subject to laws regulating insurance.
CONSTRUCTION OF INSURANCE CONTRACTS
It is basic that all provisions of the insurance policy should be
examined and interpreted in consonance with each other. The policy cannot
be construed piece-meal. The various stipulations in the policy shall be
interpreted together, attributing to doubtful ones that sense which may
result from all of them taken jointly. (ART. 1374, Civil Code)
GR: contracts of insurance are to be construed or interpreted liberally in

favour of the insured and strictly against the insurer resolving all ambiguities
against the latter so as to effect its dominant purpose of indemnity or
payment to the insured especially where a forfeiture is involved.
An insurance contract should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is to insure
against risk of loss, damage or liability on the part of the insured.
Take note that a contract of insurance is a contract of adhesion.
SUN INSURANCE OFFICE LTD. VS. CA
195 SCRA 193
FACTS:
Page 40
On 8-15-83 PR Tan took from petitioner a P300K property insurance

policy to cover his interest in the electrical supply store of his brother housed
in a building in Iloilo City. 4 days after the issuance of the policy, the building
was burned including the insured store. On 8-20-83 PR Tan filed his claim for
fire loss with petitioner but it was denied (2-29-84). Despite MR Tans claim
was denied on 4-2-84. Thereafter Tan filed a civil case but petitioner moved
to dismiss on the ground that the cause of actions had already prescribed.
Petitioner cited condition 27 of the Insurance policy which states that: if a
claim be made and rejected and an action or suit be not commenced either
in the IC or in any court of competent jurisdiction within 12 months from
receipt of notice of such rejection, or in case of arbitration taking place as
provided herein, within 12 months after due notice of the award made by the
arbitrators or umpire, then the claim shall for all purposes be deemed to
have been abandoned and shall not thereafter be recoverable hereunder.
Court denied MD and subsequent MR.
iSSUE:
won the filing of the MR interrupts the 12 months prescriptive period to
contest the denial of the insurance claim.
HELD:
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally in favor of the insured and against
the insurer company, yet, contracts of insurance like other contracts are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous they
must be taken and understood in their plain, ordinary and popular sense. The
terms in condition 27 in the insurance policy are very clear and free from any
doubt or ambiguity whatsoever, it must be taken and understood in its plain
ordinary and popular sense.
It is clear that PR Tan received a copy of rejection on 4-2-84 as
admitted by him in his letter to petitioner. Thus, the 12 month prescriptive
period started to run from 4-2-84 for is such a plain meaning and intention
OF SECTION 27 of the insurance policy.
The contention of the respondents that the one-year prescriptive
period does not start to run until the petition for reconsideration has been
resolved by the insurer runs counter to the declared purpose for requiring
that an action or suit be filed in the Insurance Commission or in a court of
competent jurisdiction from the denial of the claim.
WHEN DOES THE CAUSE OF ACTION ACCRUE?
The insureds cause of action or his right to file a claim either in the
Insurance Commission or in a court of competent jurisdiction commences
from the time of the denial of his claim by the Insurer, either expressly or
impliedly.
But as pointed out the rejection referred to should be construed as the
rejection in the first instance for if what is being referred to is a reiterated
rejection conveyed in a resolution of a petition for reconsideration, such
should have been expressly stipulated.
VILLACORTA VS. INSURANCE COMMISSION
Page 41
100 SCRA 467

FACTS:
Petitioner was the owner of a car insured with Empire Insurance
Company effective May 16, 1977 to May 16, 1978. On May 9, 1978 the car
was brought to the Sunday Machine Works, Inc. for general check-up and
repair. On May 11, 1978 while it was in the custody of the Sunday Machine
Works, the car was allegedly taken by 6 persons and driven out to
Montalban, Rizal. While travelling along Burgos going North at Montalban,
Rizal, the car figured in an accident, hitting and bumping a gravel and sand
truck parked at the right side of the road. As a result the driver died and the
passengers suffered injuries, the car as well suffered extensive damage.
Petitioner then filed a claim for a total loss with respondents insurance
company but the claim was denied on the ground that the accident did not
fall within the provisions of the policy either or own damage or theft
coverage invoking the policy provision on authorized driver clause.
Insurance Commission upheld the respondent insurance company.
ISSUE:
Won the IC is correct.
HELD:
Respondent commissions ruling that the person who drove the vehicle
in the person of Benito Mabasa, who according to its own finding, was one of
the residents of the Sunday Machine Works, Inc., to whom the car had been
entrusted for general check-up and repairs was not an authorized driver of
petitioner-complainant is too restrictive and contrary to the established
principle that insurance contracts, being contracts of adhesion where the
only participation of the other party is the signing of his signature or his
adhesion thereto, obviously call for greater strictness and vigilance on the
part of courts justice with a view of protecting the weaker party from abuse
and imposition and prevent their becoming traps for the unwary.
Shop owner of established car service and repair shop and his
employees are presumed authorized driver where car owner entrusts his
car to said shop for check-up and repair Authorized Driver clause not
violated by shop owners employee who is qualified to drive and who used
the car for illicit purpose recovery for loss or damage of car not barred by
illegal use of car by shop employee.
Respondent insurer is liable and must pay insured for the total loss of
the insured vehicle under the theft clause of the policy.
SERRANO VS. CA
GRN L-35529, JULY 16, 1984
FACTS:
UPON application of the SSS, on or about 1-1-65, Group Mortgage
Redemption Policy No. GMR-1 was issued by Private Life Insurance
Companies operating in the Phil. For a group life insurance policy on the lives
of housing loan mortgagors of the SSS. Under said GMR scheme, a grantee of
a housing loan of the SSS is required to mortgage the house constructed out
of the loan and the lot on which it stands. SSS takes a life insurance on the
eligible mortgagor to the extent of the mortgage indebtedness such that if
the mortgagor dies, the proceeds of his life insurance under the GMR policy
Page 42
will be used to pay his indebtedness to the SSS and the deceaseds heirs will
thereby be relieved of the burden of paying for the amortization of the
deceaseds still unpaid loan to the SSS.
Petitioner was the widow of the late Bernardo G. Serrano who at the
time of his death was an airline pilot of Air Manila, Inc. and as such was a
member of the SSS. 11-10-67 the SSS approved the real estate mortgage
loan of the late Bernardo Serrano for the construction of the applicants
house. 12-6-67 a partial release of the loan was effected and devoted to the
construction of the house. As a consequence, a mortgage contract was
executed in favor of the SSS by the late Capt. Serrano with his wife as comortgagor. Capt. Serrano died in a plane crash and because of his death, SSS
closed his housing loan. Petitioner requested SSS that the benefits of GMR be
extended to her. SSS denied such on the ground that Capt. Serrano was not
yet covered by the GMR Insurance policy at the time of his death on 3-8-68.
Issue:
Won the interpretation of the GMR was correct.
HELD:
xxxx
DISTINCTIONS BETWEEN CONTRACT OF INSURANCE AND A WAGERING
CONTRACT
1. In a gambling contract, the parties contemplate gain through mere
chance while in a contract of insurance, the parties seek to distribute
possible loss by reason of mischance;
2. The gambler courts fortune while the insured seeks to avoid
misfortune;
3. The contract of gambling tends to increase the inequality of fortune
while the contract of insurance tends to equalize fortune;
TITLE 4
Section 26.
A neglect to communicate that which a party knows and ought to
communicate is called a concealment.
What are the four primary concerns of parties to an insurance
contract?
In making a contract so highly aleatory such as that of insurance, the parties
have four primary concerns to wit:
Page 43
1.The correct estimation of the risk which enables the insurer to decide
whether he is willing to assume it, and if so, at what rate or premium;
2 . T h e p re c i s e d e l i m i t a t i o n o f t h e r i s k w h i c h d e t e rm i n e s t h e
e x t e n t o f t h e c o n t i n g e n t d u t y t o p a y undertaken by the insurer;
3. Such control of the risk after it is assumed as will enable the
insurer to guard against the increase of the risk because of change in
conditions; and
4. Determining whether a loss occurred, and if so, the amount of
such loss.
WHAT ARE THE SEVERAL DEVICES

CONTROLLING RISK AND LOSS?
1. Concealment,
2. Representations,
3. Warranties;
4. Conditions; and
5. Exceptions.
FOR
ASCERTAINING
AND
The devices of concealment and representations were originally

developed for the purpose of enabling the insurer to secure the same
information with respect to the risk that was possessed by the
applicant for the insurance, so that he might be equally capable of
forming, a just estimate of its quality.
Warranties and Conditions so far as they are affirmative, that is,
dealing with conditions existing at the inception of the contract.
Exceptions are used for the purpose of making more definite and
certain the general words used to describe the risk the insurer
undertook to bear. The exception may be of certain property or of
certain peril within the general coverage.
What is concealment?
Concealment is a neglect to communicate that which a party knows and
ought to communicate. It is the intentional withholding by the insured of any
fact material to the risk.
What are the requisites of concealment?
There can be no concealment unless:
1)A party knows the fact which he neglects to communicate or
disclose to the other;
2)Such party concealing duty bound to disclose such fact to the
other
3)Such party concealing makes no warranty of the fact concealed;
and
4)The other party has no means of ascertaining the fact concealed
Section 27.
Page 44
A concealment whether intentional or unintentional entitles the

injured party to rescind a contract of insurance.
What is the effect of concealment?
BY THE INSURED - As a rule, failure on the part of the insured to disclose
conditions affecting the risk of which he is aware, makes the contract
voidable at the insureds option. The reason is that insurance policies are
traditionally contracts uberrime fidae , that is, contracts of the outmost good
faith. This doctrine is essential on account of the fact that the full
circumstances of the subject-matter of insurance are, as a rule, known to the
insured only, and the insurer, in deciding whether or not to accept a risk,
must rely primarily upon the information supplied to him by the applicant. It
is strictly interpreted by the courts and is not limited to material facts which
the applicant knows, but extends to those which he ought to know.
Therefore, it is no defense to plead mistake or forgetfulness.
By the insurer the contractual duty of disclosure imposed by utmost good
faith is not required of the insured alone, but is imposed with equal
stringency upon the insurer; in fact, it is more upon the latter since his
dominant bargaining position carries with it stricter responsibility.
Section 27, entitles the injured party to rescind a contract of insurance by
reason of concealment, implying that it is optional on his part whether or not
to exercise his right of rescission.
In order to rescind a contract on the ground of concealment, must
the insurer prove fraud?
NO. Under Sec. 27, the insurer need not prove fraud in order
to rescind a contract on the ground of concealment. The duty of
communication is independent of the intention and is violated by the
fact of concealment, even when there is no intention to deceive. Sec. 27
provides that the effect of concealment is the same regardless of whether
the concealment is intentional or unintentional.
What is the reason behind Sec. 27?

The reason behind the Sec. is that in cases of concealment,
the insurer is misled or deceived into accepting the risk , or accepting it
at the rate of premium agreed upon. The insurer, relying upon the belief that
the insured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does NOT
exist, and he is thereby induced to estimate the risk upon a false basis.
What is the criterion then if we were to apply Sec. 27?
We must ask ourselves the question: Was the insurer misled or
deceiving into entering a contract obligation or in fixing the premium of
insurance by the withholding of material information or facts within the
Page 45
insureds knowledge or presumed knowledge? The application of Sec 27,

necessarily depends on the answer to this question.
Problems.
In his application for life insurance, A did not reveal the fact that he was
suffering from a certain ailment. Is there concealment if the ailment was not
material to the contract?
Whether or not A was aware of the ailment, there is no concealment if the
ailment is not material to the contract.
Same facts as above but the ailment is material to the contract. Is there
concealment?
YES. There is concealment. However, we can distinguish. If A, was aware
of the ailment, but honestly believed that it was not material, the
concealment is not fraudulent or intentional. But if A was aware of the
materiality of the ailment, there is fraudulent concealment. Nevertheless,
the effect is the same. It entitles the insurer to rescind the contract.
Vda. De Canilang v. CA 223 SCRA 443 (1993)
Facts:
Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus
tachycardia." Mr. Canilang consulted the same doctor again on 3 August
1982 and this time was found to have "acute bronchitis."
On the next day, 4 August 1982, Canilang applied for a "non-medical"
insurance policy with Grepalife naming his wife, as his beneficiary. Canilang
was issued ordinary life insurance with the face value of P19,700.
On 5 August 1983, Canilang died of "congestive heart failure," "anemia,"
and "chronic anemia." The wife as beneficiary, filed a claim with Grepalife
which the insurer denied on the ground that the insured had concealed
material information from it.
Vda Canilang filed a complaint with the Insurance Commissioner against
Grepalife contending that as far as she knows her husband was not suffering
from any disorder and that he died of kidney disorder.
Grepalife was ordered to pay the widow by the Insurance
Commissioner holding that there was no intentional concealment on the
Part of Canilang and that Grepalife had waived its right to inquire into the
health condition of the applicant by the issuance of the policy despite the
lack of answers to "some of the pertinent questions" in the insurance
application. CA reversed.
Issue:
WON Grepalife is liable.
Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice
consulted Dr. Wilfredo B.Claudio who had found him to be suff ering
from "sinus
tachycardia"
and "acute
bronchitis. Under
there l e v a n t p ro v i s i o n s o f t h e I n s u r a n c e C o d e , t h e i n f o rm a t i o n
c o n c e a l e d m u s t b e i n f o rm a t i o n w h i c h t h e concealing party knew
and "ought to [have] communicate[d]," that is to say, information which was
"material to the contract. . Had Canilang disclosed his visits to his doctor,
thdiagnosis made
and the medicines prescribed by
such doctor,
Page 46
in The information which Canilang failed to disclose was material to

the ability of Grepalife to estimate the probable risk he presented
as a subject of life insurance the insurance application, it may be
reasonably assumed that Grepalife would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or,
at the very least, required a higher premium for the same coverage. The
materiality of the information withheld by Canilang from Grepalife did not
depend upon the state of mind of Jaime Canilang. A man's state of mind
or subjective belief is not capable of proof in our judicial process,
except through proof of external acts or failure to act from which
inferences as to his subjective belief may be reasonably drawn. Neither
does materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and reasonable
influence of the facts" upon the party to whom the communication
should have been made, in assessing the risk involved in making or
omitting
to
make
further
inquiries and in accepting the application for insurance; that
"probable and reasonable influence of the facts" concealed must,
of course, be determined objectively, by the judge ultimately.
S C f o u n d i t d i ffi c u l t t o t a ke s e r i o u s l y
t h e a r g u m e n t t h a t G re p a l i f e h a d w a i v e d i n q u i r y i n t o t h e
concealment by issuing the insurance policy notwithstanding Canilang's
failure to set out answers to some of the questions in the insurance
application. Such failure precisely constituted concealment on
the part of Canilang. Petitioner's argument, if accepted, would obviously
erase Section 27 from the Insurance Code of 1978.
Sun Life v. CA 245 SCRA 268 (1995)
Facts:
On April 15, 1986, Bacani procured a life insurance contract for himself
from Sun Life. He was issued a life insurance policy with double indemnity in
case of accidental death. The designated beneficiary was his
mother, Bernarda.
On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed
a claim with Sun Life, seeking the benefits of the insurance. Sun Life
conducted an investigation and its findings prompted it to reject the claim.
Sun Life discovered that 2 weeks prior to his application, Bacani was
examined and confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement, the deceased was
subjected to urinalysis, ultra-sonography and hematology tests. He did not
reveal such fact in his application.
In its letter, Sun Life informed Bernarda, that the insured did not disclosed
material facts relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the total premiums paid
in the amount of P10,172.00 was attached to said letter.
Bernarda and her husband, fi led an action for specifi c performance
against Sun Life. RTC ruled for Bernarda holding that the facts concealed
by the insured were made in good faith and under the belief that they need
Page 47
not be disclosed. Moreover, it held that the health history of the insured was
immaterial since the insurance policy was "non-medical." CA affirmed.
Issue:
WON the beneficiary can claim despite the concealment.
Held: NOPE.
Section 26 of the Insurance Code is explicit in requiring
a p a r t y t o a c o n t r a c t o f i n s u r a n c e t o communicate to the other,
in good faith, all facts within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other has
no means of ascertaining. Materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the facts upon the
party to whom communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries
(The Insurance Code, Sec 31) The terms of the contract are clear. The
insured is specifically required to disclose to the insurer matters
relating to his health. The information which the insured failed to
disclose were material and relevant to the approval and the
issuance of the insurance policy. The matters concealed
would have defi nitely aff ected petitioner's action on his
application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover a
disclosure may have warranted a medical examination of the
insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.
Thus, good faith is no defense in concealment. The insureds
failure to disclose the fact that he was hospitalized for two weeks
prior to filing his application for insurance, raises grave doubts
about his bona fides. It appears that such concealment was
deliberate on his part.
The waiver of a medical examination in a non-medical insurance
contract renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered.
It is well settled that the insured need not die of the disease he had
failed to disclose to the insurer, as it is insufficient that his non-disclosure
misled the insurer in forming his estimates of the risks of the proposed
insurance policy or in making inquiries.
Section 28. E a c h p a r t y t o a c o n t r a c t o f i n s u r a n c e m u s t
c o m m u n i c a t e t o t h e o t h e r , i n g o o d faith, all facts within his
knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
According to Sec. 28, what are the matters that must be
c o m m u n i c a t e d b y t h e p a r t y t o t h e other?
This section makes it the duty of each party to a contract of insurance to
communicate in good faith all facts within his knowledge only when:
1. they are material to the contract;
2. the other party has no means of ascertaining the said facts; and
Page 48
3. as to which the party with the duty to communicate makes no

warranty.
Any exceptions to the duty to communicate?
Those falling under Sec. 30.
What is the test to determine whether or not one must
c o m m u n i c a t e t h e f a c t s t o t h e o t h e r party?
The test is: If the applicant is aware of the existence of some
circumstance which he knows would influence the insurer in acting upon
his application, GOOD FAITH requires him to disclose that circumstance,
though unasked.
What if the insurer with reasonable diligence could have
known or discovered such facts for himself, can the Insured
be excused for his concealment and deny the remedy of
rescission to the insurer?
NO. The effect of the material concealment cannot be avoided by the
allegation that the insurer could have known and discovered a fact which the
insured had concealed. An allegation like this implies that there is an
obligation on the part of the insurance company to verify all the statements
made by the insured in his application. No such obligation exists on the part
of the insurer. The insurer has the right to rely upon the statements of the
insured for he knows the facts and the insurer does not.
What is deemed material?
See sec. 31.
Sec. 109. What does this provision say?
Sec. 109 provides that in marine insurance each party is bound to
communicate, in addition to what is required by section twenty-eight, all the
information which he possesses, material to the risk, except such as is
mentioned in Section 30, and to state the exact and whole truth in
relation to all matters that he represents, or upon inquiry discloses or
assumes to disclose.
F i e l d m a n s I n s u r a n c e v . S o n g c o 25 SCRA 70
Facts:
In 1960, Sambat, an agent of Fieldmans Insurance, induced Songco, a
man of scant education to enter into a common carrier insurance contract
with Fieldman.
During the inducement, a son of Songco butted in and said that
they could not accept the type of insurance offered because theirs was
an owner-type jeepney and not a common carrier.
S a m b a t a n s w e re d t h a t i t d i d n o t m a t t e r
because the insurance
company
was not
owned
by the
government and therefore had nothing to do with rules and regulations of
the latter (Fieldman).
Page 49
The insurance was executed and approved for a year from Sept. 19601961. It was renewed in 1961 for another year.
In Oct. 1961, the jeepney collided with a car in Bulacan and as
a result, Sonco died. The remaining members of the family claimed the
proceeds of the insurance with the company but it refused to pay on the
ground that the vehicle was not a common carrier.
Issue:
WON the Songcos can claim the insurance proceeds despite the fact that
the vehicle concerned was an owner and not a common carrier.
Held: Yes. This is a case where the doctrine of estoppel undeniably
calls for application.
It is now beyond question that where inequitable conduct is shown by
an insurance firm, it is "estopped from enforcing forfeitures in its favor, in
order to forestall fraud or imposition on the insured."
After petitioner Fieldmen's Insurance Co., Inc. had led the insured
Federico Songco to believe that he could qualify under the common carrier
liability insurance policy, and to enter into contract of insurance paying the
premiums due, it could not, thereafter, in any litigation arising out of such
representation, be permitted to change its stand to the detriment of the heirs
of the insured. As estoppel is primarily based on the doctrine of good faith
and the avoidance of harm that will befall the innocent party due to its
injurious reliance, the failure to apply it in this case would result in a gross
travesty of justice.
Section 29. An intentional and fraudulent omission, on the part of one
insured, to communicate information of matters proving or tending to prove
the falsity of a warranty, entitles the insurer to rescind.
NB: relate with sec. 27 and sections 67-76.
What type of concealment is referred to here?
The type of concealment referred to here relates to the falsity of a
warranty. Unlike the ordinaryco n c e a l m e n t p ro v i d e d f o r i n S e c . 2
7 , t h e n o n - d i s c l o s u re u n d e r t h i s s e c t i o n m u s t b e
intentional and fraudulent in order that the contract may be rescinded.
It is to be noted here that the omission is on the part of the insured and the
party entitled to rescind is the insurer.
What is an example of this kind of concealment?
In every contract of marine insurance, there is an implied warranty of
seaworthiness of the vessel. The intentional and fraudulent omission on
the part of the insured to communicate the fact that his ship is in
distress or in special peril entitles the insurer to rescind because the
concealment refers to matters proving or tending to prove the falsity of the
warranty that the ship is seaworthy.
Page 50
Section 30. Neither party to a contract of insurance is bound

to communicate information of the matters following, except in answer to the
inquiries of the other:
a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to
know, and of which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.
What is the general rule?
Communicate the necessary MATERIAL facts.
What is the exception?
Those provided for under Section 30.
When
will
the
insured
be
required
to
communicate
information covered by Sec. 30(exception to the exception)?
If the insurer asks about them, the insured becomes duty bound to
communicate such information
As a general proposition matters made the subject of inquiry must
be deemed material even though otherwise they might not be so
regarded and the insured is required to make full and true disclosure
to questions asked. The failure of an apparently complete answer to
make full disclosure will avoid the policy. But an answer incomplete
on its face will not defeat the policy in the absence of bad faith.
Example:
If one applying for insurance upon a building against fi re is
asked whether the property is encumbered and for what amount and
his answer discloses one mortgage when in fact there are two, the
policy issued thereon is avoided.
But if to the same question he merely answers that the
property
is
encumbered,
without
stating
the
amount
of
encumbrances, the issue of the policy without further inquiry is a
waiver of the omission to state the amount.
Section 31. Materiality is to be determined not by the event, but

solely by the probable and reasonable influence of the facts upon the
party to whom the communication is due, in forming his estimate of
the disadvantages of the proposed contract, or in making his inquiries.
Page 51
What is the test of materiality?

The test is in the effect which the knowledge of the fact in question
would have on the making of the contract. To be material, a fact need not
increase the risk or contribute to any loss or damage suffered. It is sufficient
if the knowledge of it would influence the parties in making the contract.
The test from the standpoint of the insurer is: IF the knowledge of a
fact would cause the insurer to reject the risk , or to accept it only at a
higher premium rate, that fact is material, though it may not even
remotely contribute to the contingency upon which the insurer would
become liable, or in any wise affect the risk.
The waiver of a medical examination in a non-medical insurance
contract renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered. ..It
is well settled that the insured need not die of the disease he had failed to
disclose to the insurer, as it is insufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed insurance policy
or in making inquiries. (SunLife case, supra)
TIME WHEN INFORMATION ACQUIRED
If the contract is already complete and binding before the information
in question is acquired, there can be no duty resting upon the insured to
disclose it even though the policy is yet to issue. In other words,
concealment must take place at the time the contract is entered into in order
that the policy may be avoided and not afterwards. The duty of disclosure
ends with the completion and effectivity of the contract.
If the contract is to be effective only upon the issuance of the policy,
an applicant for life insurance, for instance, is under a duty to disclose to the
insurer, changes his health occurring or coming to his knowledge between
the date of submitting his application after satisfactory medical examination
and the date the policy is delivered.
What is the principal question that must be asked?
The principal question in determining whether the concealment is material
is:
Was the insurer misled or deceived into entering a contract, obligation
or in fi xing the premium of insurance by a withholding of material
information or facts within the insureds actual or presumed knowledge?
If so, then the contract is avoided, even if the cause of the loss which
subsequently occurred be unconnected with the fact concealed
WHEN CONCEALMENT REGARDED AS INTENTIONAL?
In the case of Canilang vs. CA, supra, it was ratiocinated that the
nature of the facts not conveyed to the insurer may be such that the failure
of the insured to communicate must have been intentional rather than
inadvertent. It was also held in this case that the concealment was held
intentional on the part of the insured who could not have been unaware that
Page 52
his heart beat would at times rise to high and alarming levels and that he
had consulted a doctor twice in the 2 months before applying for nonmedical insurance. Indeed, the last medical consultation took place just the
day before the insurance application was filed. In all probability, [the insured]
went to visit his doctor precisely because of the discomfort and concern
brought about by his experiencing sinus tachycardia.
Case:
G r e a t Pa c i fi c L i f e A s s u r a n c e C o m p a n y v s . C o u r t o f
A p p e a l s [ G R L - 3 1 8 4 5 , 3 0 A p r i l 1 9 7 9 ] a l s o Mondragon vs. Court
of Appeals [GR L-31878]
First Division, De Castro (J): 4 concur, 1 took no part
Facts:
On 14 March 1957, Ngo Hing filed an application with the Great Pacific Life
Assurance Company for a 20-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter Helen Go. Ngo Hing
supplied the essential data which Lapu-lapu D. Mondragon, Branch Manager
of the Pacific Life in Cebu City wrote on the corresponding form in his own
handwriting . Mondragon finally type-wrote the data on the application
form which was signed by Ngo Hing. The latter paid the annual
premium, the sum ofP1,077.75 going over to the Company, but
he retained the amount of P1,317.00 as his commission for being a duly
authorized agent of Pacifi c Life. Upon the payment of the insurance
premium, the binding deposit receipt was issued to Ngo Hing.
Likewise, Mondragon handwrote at the bottom of the back page of
the application form his strong recommendation for the approval of the
insurance application. Then on 30 April1957, Mondragon received a letter
from Pacific Life disapproving the insurance application. The letter stated
that the said life insurance application for 20-year endowment plan is not
available for minors below 7 years old, but Pacific Life can consider the
same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the
Company. The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by Mondragon to Ngo Hing. Instead, on 6May
1957,
Mondragon
wrote
back
Pacifi c
Life
again
strongly
recommending the approval of the 20-year endowment life insurance on
the ground that Pacific Life is the only insurance company not selling the 20year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such
coverage. It was when things were in such state that on 28 May 1957 Helen
Godied of influenza with complication of broncho-pneumonia. Thereupon,
Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his eff ort, he fi led the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered a decision
against Pacific Life and Mondragon, ordering them to solidarily pay Ngo Hing
the amount of P50,000.00 with interest at 6% from the date of thefiling of
the complaint, and the sum of P10,000.00 as attorney's fees plus costs of
suits. On appeal, the Court of Appeals set aside the appealed decision of the
Court of First Instance of Cebu, and absolved Pacific Life and Mondragon
Page 53
from liability on the insurance policy, but ordered the reimbursement

to Ngo Hing the amount of P1,077.75, without interest. On reconsideration,
however, the appellate court affirmed in toto the decision of the Court of First
Instance of Cebu, ordering Pacific Life and Mondragon jointly and severally to
pay Ngo Hing. Two petitions for certiorari by way of appeal were filed by
Pacific Life and Mondragon. The petitions were consolidated by the
Supreme Court in a resolution dated 29 April 1979
Issue:
1. WON there is concealment.
2. Whether the binding deposit receipt constituted a temporary contract of
the life insurance in question, and thus negate the claim that the insurance
contract was perfected.
Held:
1. YES. This Court is of firm belief that private respondent had deliberately
concealed the state of health and physical condition of his daughter Helen
Go. When private respondent supplied the required essential data for the
insurance
2. YES. The provisions printed on the binding deposit receipt show that the
binding deposit receipt is intended to be merely a provisional or
temporary insurance contract and only upon compliance of the
following conditions: (1) that the company shall be satisfi ed that the
applicant was insurable on standard rates; (2) that if the company does
not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts
the policy off ered; otherwise, the deposit shall be refunded; and (3) that
if the applicant is not insurable according to the standard rates, and the
company disapproves the application, the insurance applied for shall
not be in force at any time, and the premium paid shall be returned
to the applicant. Clearly implied from the aforesaid conditions is that
the binding deposit receipt in question is merely an acknowledgment, on
behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject
for processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since Pacific Life disapproved the insurance
application of Ngo Hing, the binding deposit receipt in question had never
become in force at any time. Upon this premise, the binding deposit receipt
is, manifestly, merely conditional and does not insure outright. Where an
agreement is made between the applicant and the agent, no liability shall
attach until the principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional, and is subordinated to the act
of the company in approving or rejecting the application. Thus, in
life insurance, a "binding slip" or "binding receipt" does not insure by
itself. It bears repeating that through the intra-company communication of
30 April 1957, Pacific Life disapproved the insurance application in question
on the ground that it is not offering the 20-year endowment insurance policy
to children less than 7 years of age. What it offered instead is another plan
known as the Juvenile Triple Action, which Ngo Hing failed to accept.
In the absence of a meeting of the minds between Pacific Life and Ngo
Page 54
Hing over the 20-year endowment life insurance in the amount of

P50,000.00 in favor of the latter's one-year old daughter, and with
the non-compliance of the above-quoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance contract duly
perfected between them. Accordingly, the deposit paid by Ngo Hing shall
have to be refunded by Pacific Life
Section 32. Each party to a contract of insurance is bound to know all the
general causes which are open to his inquiry, equally with that of the other,
and which may affect the political or material perils contemplated; and all
general usages of trade.
Under this section, what is each party to a contract of
insurance bound to know?
There are two matters that each party to a contract of insurance is bound to
know, namely:
1.General clauses
2.General usages of trade.
A party however, is not bound to know all the classes of general
clauses but only such general causes:
a)Which are open to his inquiry, equally with that of the other;
b)Which may aff ect either the political or material perils
contemplated.
What is the significance of the aforementioned rules?
The insured need not communicate public events such as that the nation is
at war, or what the law is, or political conditions in other countries, the
sources of this information being equally open to the insurer who is also
presumed to know such events. Likewise, the insurer is charged with the
knowledge or general trade usages and rules of navigation, kinds of seasons
and all the risks connected with navigation.
Section 33. The right to information of material facts may be waived, either
by the terms of the insurance or by neglect to make inquiry as to such facts,
where they are distinctly implied in other facts of which information
is communicated.
May the right to information be waived?
Yes. The right to information of material facts may be waived either:
1)Expressly, by the terms of the insurance; or
2)Impliedly, by neglect to make inquiry as to the facts already
communicated. If the applicant has answered the questioned asked in the
application, he is justified in assuming that no further information is desired.
Example:
Page 55
The insurer asks the insured if he was ever confined in a hospital for more
than a month and the insured says YES. If the insurer does not inquire for
the cause of the long confinement, then he is deemed to have waived the
information.
Ng Gan Zee v. Asian Crusader Life 122 SCRA 61
Facts:
In 1962, Kwon Nam applied for a 20 yr endowment insurance on his life
with his wife, Ng Gan Zee as the beneficiary.
He stated in his application that he was operated on for tumor of the
stomach associated with ulcer.
In 1963, Kwong died of cancer of the liver with metastasis. Asian refused
to pay on the ground of false information. Asian alleged that the insured was
guilty of misrepresentation when he answered NO to the question
appearing in the application for life insurance: Has any life insurance
company ever refused your application for insurance or for reinstatement of
a lapsed policy or offered you a policy different from that applied for? Asian
rationalized that the insured in 1962 applied for reinstatement of his lapsed
life insurance policy with the Insular Life but this was declined by the
Insurance company although later approved with a very high premium.
Further Asian maintains that when the insured was examined in connection
with his application for life insurance, he gave the appellants medical
examiner false and misleading information as to his ailment and previous
operation.
It was found that prior to his application, Kwong was diagnosed to have
peptic ulcers, and that during the operation what was removed from Kwongs
body was actually a portion of the stomach and not tumor.
Issue:
WON the insured was guilty of concealment.
Held: NO. it bears emphasis that Kwong Nam had informed the appellants
medical examiner that the tumor for which he was operated on was
associated with ulcer of the stomach. In the absence of the evidence that
the insured has sufficient medical knowledge as to enable him to distinguish
between peptic ulcer and a tumor his statement that said tumor was
associated with ulcer of the stomach, should be construed as an
expression made in good faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to have been made by
him without the knowledge of its incorrectness and without any deliberate
intent on his part to mislead the appellant [Asian].
While it may conceded that, from the viewpoint of a medical expert ,
the information communicated was imperfect, the same was nevertheless
sufficient to have induced appellant to make further inquiries about the
ailment and operation of the insured.
SECTION 32
It has been held that where upon the face of the application a question
appears to be not answered at all or to be imperfectly answered and the
Page 56
insurer issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully
immaterial.
SECTION 34
. INFORMATION OF THE NATURE OR AMOUNT OF THE INTEREST
OF ONE INSURED NEED NOT BE COMMUNICATED UNLESS IN
ANSWER TO AN INQUIRY, EXCEPT AS PRESCRIBED BY SECTION FIFTYONE.
What does this provision provide?
Under Sec. 51(e), it is required that a policy of an insurance must specify the
interest of the insured inthe property insured, if he is not the
absolute owner
thereof. So a mortgagee must disclose his particularinterest even if no
inquiry is made by the insurer in relation thereto. Such requirement is made
so that theinsurer may determine the extent of the insureds insurable
interest. This section therefore says, that there is NO NEED to disclose the
interest in the property insured if theinterest is
absolute
. The exception of course is the insurer asks.
Problem:
A fi re insurance policy was issued in which Imeda (insured) was
described as the owner of the insured residential property. But actually,
Imelda was only given the privilege of occupying the house rent-free
for life. Imelda represented herself as owner. Is the policy valid?
NO. She is guilty of misrepresentation. She should have disclosed
the nature of her interest in the property in as much as she was not the
absolute owner thereof
Section 35. Neither party to a contract of insurance is bound to
communicate, even uponinquiry, information of his own judgment upon
the matters in question.
To what is the duty to disclose confined?
The duty to disclose is confi ned to
facts
. There is no duty to disclose mere opinion, speculation, intention or
expectation. This is true even if the insured is asked.
Example?
Beatrix Kiddo was asked by the insurer:
How long do you think you will live?
If Beatrix uses the 5-pointexploding heart technique on the insurer, she
will be convicted of murder. (not the point of the article) HOWEVER,
if she said,
As long as the moon rises over the grave of Pai Mei
and she dies the next day, hererror in answering that question which called
for an expression of an opinion does not constitute fraud in law.
Page 57
Atty. Quimsons asked us to look at Sec. 108. What does it say?

Section 108 provides that In marine insurance, information of the
belief or expectation of a thirdperson, in reference to a material fact, is
material.
TITLE V REPRESENTATION
Section 36.
A representation may be oral or written.
What is a representation?
A representation is a factual statement made by the insured at the time of,
or prior to, the issuance of the policy to give, information to the insurer and
otherwise induce him to enter into the insurance contract.
What is the difference between a representation and concealment?
A concealment is a negative act, meaning it is the failure to do
something which is required while representation is positive act as the
insured volunteers such facts.
Concealment usually occurs prior tomaking of the insurance contract,
while a
representation
may be made at the time of the issuance of thecontract.
What is a misrepresentation?
A Misrepresentation is a statement:1 . A s a f a c t o f s o m e t h i n g w h i c h i s
u n t r u e 2.Which the insured stated with knowledge that it is untrue
and with an intent to deceive or which he states as true without knowing
it to be true and which has the tendency to mislead; and3.Where such fact
in either case is material to the risk.
What is the effect of a misrepresentation?
A misrepresentation by the insured renders the insurance contract voidable
at the option of the insurer,although the policy is not thereby rendered void
ab initio.
Is misrepresentation synonymous with concealment?
NO. De Leon book says misrepresentation is an active form of concealment.
What is the duty of the person applying for insurance?
It is duty to give the insurer all such information concerning the risk
as will be of use to the latter inestimating its character and in
determining whether or not to assume it. This information may
be givenorally or written in papers not connected with the contract such as
in the application or examiners report.Sometimes, it may appear on the
policy itself.
Why is such information important?
The information forms the basis of the contract as made. It describes, marks
out and defines the riskassumed. Hence the untruthfulness of
any representation will necessarily avoid the contract
Page 58

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NOTES ON INSURANCE CODE

BY: ATTY. EDZ VENTURA

WHAT IS INSURABLE INTEREST?

The Insurance taken on A on his life is VALID, because the

WHEN MUST INSURABLE INTEREST EXIST?

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

Suppose that in the same example Grapes is an unsecured creditor of

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

In any event, the following have an insurable interest in each others

INSURABLE INTEREST OF A PERSON IN LIFE OF ANOTHER UNDER A

When a property is mortgaged, the mortgagor and the mortgagee may

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

extinguished. Thus, separate insurances covering different

He is entitled to the proceeds of the policy in case of loss before

Where the mortgagor insures the property mortgaged without makig

ample opportunity to negotiate for another insurance. The notice should be

3. Any act which, under the contract of insurance, is to be performed

ASSIGNMENT OF POLICY TO MORTGAGEE NOT A PAYMENT

RIGHT OF THE MORTGAGEE UNDER MORTGAGORS POLICY:

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently,

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

assured, if there is any, shall then be paid to the beneficiary/ies designated

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

INSURABLE INTEREST OF CARRIER OR DEPOSITORY

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

An agreement was reached to submit the matter to arbitration. The claims

INSURABLE INTEREST IN PROPERTY

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

Mere factual expectation of loss does not constitute an insurable

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

O -Suter had no insurable interest since the properties insured belong to

A decision was rendred in Civil Case No. 6306 granting Golangco

Held: sec. 18 of the Insurance Code provides, Sec. 18. No contract or

2. As to the time when insurable interest must exist.

Property necessary that insurable interest must exist when the

3.Change of interest in one or more of several things separately insured by

contract and indivisible contract. DIVISIBLE CONTRACT: the cause or

So we have already discussed the first requisite in order for a contract

We go now to the second requisite, that is, there must be an event or

The period during which the insurance is to continue must also be

PARTIES TO INSURANCE CONTRACT

member.) a private corporation begins to exist as a juridical person from the

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

WHO MAY BE AN INSURER?

Foreign Company, when used without limitation, shall include companies

damage and prejudice to the victims of unpaid insurance. The

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

The Commissioner may as a pre-licensing requirement of a new

What is a public enemy?

NOTES: INSURANCE BY MEAZV 1st Semester SY 2015-2016

Ebrado designated Carponia Ebrado as the revocable beneficiary in his

succession, the proceeds must be divided between the legitimate

who contends that according to Sec. 12, it is the nearest relative

children of Loreto with Eva as beneficiaries pursuant to Section 53 of the

WHAT CONSTITUTES DOING OR TRANSACTING AN INSURANCE

GR: contracts of insurance are to be construed or interpreted liberally in

On 8-15-83 PR Tan took from petitioner a P300K property insurance

100 SCRA 467

WHAT ARE THE SEVERAL DEVICES

The devices of concealment and representations were originally

A concealment whether intentional or unintentional entitles the

What is the reason behind Sec. 27?