Marian Camille E.
Chavez
When insurable interest in life must exist
Sec 181 A policy of insurance upon life or health
may pass by transfer, ill or succession to any
person, whether he has an insurable interest
or not, and such person may recover upon it
whatever the insured might have recovered
All life insurance policies are declared by law to
be assignable regardless of whether the
assignee has an insurable interest in the life of
the insured or not.
To deny the right to assign a life
insurance except to a person having an
insurable interest, is to diminish
appreciably the investment value of
the contract to the owner
An assignment is to be distinguished from a
change in the designated beneficiary (Sec. 11).
Why is it necessary that there is the consent of
the beneficiary to assignment?
Right to change acquires a vested and
absolute interest
No waiver: insured may assign policy
without consent of beneficiary, who has
a mere expectancy
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Beneficiary
Sec 11 The insured shall have the right to
change the beneficiary he designated in the
policy, unless he has expressly waived this right
in said policy
Insured retains the right to receive the
cash value of the policy, to take out
loans against the cash value, to assign
the policy, or to surrender it without
the consent of the beneficiary
Beneficiary – only those persons, whether
natural or juridical, who, though not parties to
the contract, are mentioned in it as the
intended recipients of the proceeds or benefits
of the insurance if the insured risk occurs
Kinds of Beneficiary
1. Insured himself – the assured
2. Third person who paid a consideration – the
insured may have take the policy for the
benefit of a creditor or to secure some
other obligation
3. Third person through mere bounty of
insured – the one who gives no
consideration for any right that may be
acquired in the policy but is designated as
recipient of the proceeds of the policy
2nd and 3rd – Beneficiary not part of the contract
All 3 – Proceeds of the life insurance policy
become the exclusive property of the
beneficiary upon the death of the insured
Limitations in the Appointment of Beneficiary
Art 2012 Any person who is forbidden from
receiving donation under Art 739 cannot be
named beneficiary of a life insurance policy by
the person who cannot make any donation to
him according to said article
Art 739 The following donations shall be void:
1. Those made between persons who were
guilty of adultery or concubinage at the
time of the donation
2. Those made between persons found guilty
of the same criminal offense,
inconsideration thereof
Marian Camille E. Chavez
3. Those made to public officers or his wife,
descendants and ascendants by reason of
his office
A life insurance policy is no different from a civil
donation insofar as the beneficiary is
concerned. Both are founded on the same
consideration: liberality.
Insured’s power to extinguish the beneficiary’s
interest ceases at his death, and cannot be
exercised by his personal reps or assignees.
When beneficiary dies before insured, the
estate of the insured should be entitled to the
proceeds of the insurance, especially where the
designation is subject to the express condition
to pay the beneficiary if he survives the insured
or “if surviving”
Designation of beneficiary:
Children – includes adopted child, adult child
not forming part of the household of the
insured, after-born children even of a marriage
subsequently contracted; descendant of the 1st
degree and never intended to include
grandchildren
Wife – the fact that one who otherwise answers
the description does not have the legal status of
the wife of the insured does not prevent her
from taking as beneficiary, as when she is
designated by name, although the words “his
wife” are added
Their children – beneficiaries are limited to
children common to both
Wife and children – deemed for the benefit of
all children of the insured, whether by the
named wife or those of another
Family – whether that person was so regarded
by the insured
Heirs or legal heirs – not ordinarily merely the
heirs at law but that class of persons who would
take the property of the insured in case he died
intestate; includes widow, as well as children of
the deceased
Estate or legal representatives of deceased –
construed in strict technical sense, used to
mean executors or administrators
If no beneficiary is designated, the proceeds
will go to his legal heirs in accordance with law.
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Forfeiture of interest of beneficiary
Sec 12 The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice or
accessory in wilfully bringing about the death
of the insured; in which event, the nearest
relative of the insured shall receive the
proceeds of said insurance if not otherwise
disqualified
Interest here means right of the beneficiary to
receive the proceeds of the life insurance policy
Nearest relatives:
1. Legitimate children
2. The father and the mother, if living
3. The grandfather and grandmother, or
ascendants nearest in degree, if living
4. The illegitimate children
5. The surviving spouse
6. The collateral relatives
a. Brothers and sisters of the full blood
b. Brothers and sisters of the half blood
c. Nephews and nieces
7. In default of the above, the State shall be
entitled to receive the insurance proceeds
Marian Camille E. Chavez
In the absence of a valid policy exception, death
of the insured at the hands of the law, as by
legal execution, is one of the risks assumed by
the insurer under a life insurance policy.
Death by suicide is not by implication exempted
from the risks assumed by the insurer,
especially where the insurance is for the benefit
of another rather than the insured.
Death caused by beneficiary – public policy
prohibits anyone from profiting by his own
wrong
Except where the killing is self-defense
Death caused by violation of law – does not
warrant denial of liability
To avoid liability, the insurer must
further establish the violation of law
was the cause or had a causal
connection with the accident
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Insurable Interest in property insurance
Sec 13 Every interest in property, whether real
or personal, or any relation thereto, or liability
in respect thereof of such nature that a
contemplated peril might directly damnify the
insured, is an insurable interest
Property itself (ownership), any relation thereto
(interest of a trustee or a commission agent), or
liability in respect thereof (interest of a carrier
or depository of goods)
Anyone has an insurable interest in property
who derives a benefit from its existence or
would suffer loss from its destruction.
It is not necessary that the interest is such that
the event insured against would necessarily
subject the insured to loss
Although a person has no title, legal or
equitable, yet he has an insurable interest if he
so situated with respect to the property that
he will suffer loss as the proximate result of its
damage or destruction.
Mortgagor sells mortgaged premises to
vendee who assumes the payment of
the mortgaged debt, mortgagor yet had
an insurable interest in the property
because of his personal liability for the
debt
Vendor who retains lien retains an
insurable interest (retains ownership
merely to insure that the buyer will pay
the price
Insurable interest in property is not necessarily
an interest in property, but a concern in the
preservation of the property.
Such expectation not arising from any legal
right or duty in connection with the property
does not constitute an insurable interest.
Factual expectation, which will suffice
in life insurance
Sec 14 An insurable interest in property may
consist in:
a. 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
Need not be an existing interest!
Marian Camille E. Chavez
More than one insurable interest may exist
over the same property
Existing interest
a. Legal title – mortgagor of the property
mortgaged
Where legal title held in a rep capacity, the
rep has sufficient insurable interest of
taking out insurance on property under his
control, but any proceeds are to be held for
the benefit of those for whose benefit the
rep is acting
b. Equitable title – purchaser of property
before delivery
Inchoate Interest
Stockholder – existing interest from his
ownership of shares in the corporation;
insurable interest limited to the extent of the
value of his interest or to his share in the
distribution of the corporate asets upon
dissolution
Expectancy
Farmer – may insure future crops if they are to
be grown on land owned by him at the time of
the issuance of the policy, or if on land of
another, provided the crops will belong to him
when produced
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Insurable interest of carrier or depository
Sec 15 A carrier or depository of any kind has an
insurable interest in a thing held by him as such,
to the extent of his liability but not to exceed
the value thereof
Reason: the loss of the thing may cause liability
to the carrier or depository to the extent of its
value
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Contingent or expectant interest not an
insurable interest
Sec 16 A mere contingent or expectant interest
in anything, not founded on an actual right to
the thing, nor upon any valid contract for it, is
not insurable
A father cannot insure his son’s property nor
can a son insure the property that he expects to
inherit from his father as his interest is merely
an expectancy of inheriting
One named as beneficiary in a will has no
insurable interest in a property designated
before the testator’s death
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Measure of insurable interest
Sec 17 The measure of an insurable interest in
property is the extent to which the insured
might be damnified by loss or injury thereof
Any property insurance contract that gives the
insured more than indemnity against his actual
loss suffered is in the nature of a wagering
policy contrary to public policy and void.
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Effect where no insurable interest exists
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.
An insurance taken out by a person on property
in which he has no insurable interest is void.
Marian Camille E. Chavez
The premium is ordinarily returned to the
insured, unless he is in pari delicto with the
insurer.
Doctrine of estoppels cannot be invoked since
the public has an interest in the matter
independent of the consent or concurrence of
the parties.
Measure of indemnity in insurance contracts
Marine or fire insurance – not the exact
measure of indemnity, but the maximum
indemnity which he might obtain, and cannot
recover in excess of his actual loss; amount may
be determined after the loss or is previously
fixed in the contract
Liability insurance contracts – if the insured
suffers no loss because his liability to a third
person cannot be enforced, the insurer has no
obligation to pay the proceeds; insurer’s
promise is to pay the proceeds of the policy on
behalf of the insured to a third person to whom
the insured is liable
Life insurance contracts – the amount for which
a person is governed by the amount of
premium that he contracted to pay; the amount
fixed payable at the death of the insured is not
considered as the true value of the thing
insured because the life of a person is priceless,
but is simply the measure of indemnity which
the insurer has bound himself to pay the
insured
Personal accident insurance contracts – often
impossible exactly to assess the injury suffered
and a policy with mixed benefits may be issued;
not contracts of indemnity for life and limb are
not susceptible to exact or uniform valuation
Health insurance contracts – only medical
expenses incurred by the insured are paid
Health care agreement – payment should be
made to the party who incurred the expenses;
non-life insurance, contract of indemnity
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When insurable interest must exist
Sec 19 An interest in property insured must
exist when the insurance takes effect, and
when the loss occurs, but need not exist in the
meantime; and interest in the life or health of a
person insured must exist when the insurance
takes effect, but need not exist thereafter or
when the loss occurs.
General rule is applicable only to insurance on
property and not to life insurance except that
on the life of the debtor.
In life insurance, the insurable interest
requirement is satisfied if the interest exists at
the time the policy is procured, even if it has
ceased to exist at the time of the insured’s
death.
In liability insurance, questions of insurable
interest are not important. It necessarily exists
when the liability of the insured to a third party
attaches.
Need not exist during intervening period –
purpose of provision is to prevent the issue of
wagering policies
D insured house on May 15 for 1 year. Without
assigning his policy, he sold the house to B on
July 10. If house was accidentally burned on
Sept 15, D cannot recover because his insurable
interest was no longer existing when the loss
occurred. However if on Sept 11, D reacquired
the house from B, D may recover on the policy
because insurable interest need not exist during
intervening period from July 10 when he sold
the house to Sept 10.
Marian Camille E. Chavez

Existence of an insurable interest at the Contract is not rendered void, but is merely
inception of the contract is not at all necessary suspended by a change of interest.
to its validity. It is sufficient that insurable
interest exists at the time the risk attaches. Purpose: To provide against changes which
might supply a motive to destroy the property
Insurable interest in Insurable interest in or might lessen the interest
life property
Extent is unlimited Limited to the value of Sec 21 A change of interest in the thing
the interest thereon insured, after the occurrence of an injury
Enough that insurable Must exist when
which results in a loss, does not affect the right
interest exists at the insurance takes effect
time the policy takes and when the loss of the insured to indemnity for the loss.
effect and need not occurs, but need not
exist at the time of the exist in the meantime Another exception
loss
The expectation of The expectation of After a loss, the liability of the insurer becomes
benefit to be derived benefit...will not fixed. The insured has an absolute right to
from the continued afford a sufficient
assign his claim against the insurer as freely as
existence of life need insurable interest
not have any legal unless that any other money claim.
basis; reasonable expectation has a
probability sufficient basis of legal right. Sec 22 A change of interest in one or more
several distinct things, separately insured by
_______________________________________ one policy, does not avoid the insurance as to
the others
Change in interest in property
Another exception
Sec 20 Except in cases specified in the next four
sections, and in the cases of life, accident, and Divisible vs. Indivisible contract
health insurance, a change of interest in any Made up of several parts vs. Entire and single
part of a thing insured unaccompanied by a
corresponding change of interest in the Sec 23 A change of interest, by will or
insurance, suspends the insurance to an succession, on the death of the insured, does
equivalent extent, until the interests in the not avoid an insurance; and his interest in the
thing and the interest in the insurance are insurance passes to the person taking his
vested in the same person. interest in the thing insured.

Exception: In life, health and accident insurance Another exception

In accordance with Sec 19 that an insured must
have an insurable interest in the property
insured at the time of loss.
The insurance on property passes
automatically, on the death of the insured.
Sec 24 A transfer or interest by one of several
partners, joint owners, or owners in common,
Marian Camille E. Chavez

who are jointly insured, to the others, does not The insurer can always show lack of insurable
avoid an insurance, even though it has been interest after the issuance of a policy of
agreed that the insurance shall cease upon an insurance.
alienation of the thing inured. _______________________________________

Another exception

Such transfer will not avoid the insurance.

Principle is that each partner is interested in the
whole property and the hazard is not increased
because the purchasing partner has acquired a
greater interest in the property by a transfer of
his co-partner’s share.

But a policy will be avoided by a sale of an

interest in partnership property by the partner
to one of his co-partners, without the consent
of the insurer and before the loss occurs...

It is alienation to a stranger that will avoid the

policy.
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Prohibited in an insurance policy

Sec 25 Every stipulation in a policy of insurance

for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering,
is void.

Wager policy – a pretended insurance where

the insured has no interest in the thing insured
and can sustain no loss by the happening of the
misfortunes insured against; policy of law does
not admit of such however willing the parties
may be to enter it