Theorosa N. Madamba, J.D.

II
Insurance Law: Insurable Interest

INSURABLE INTEREST

Case# 1: Lalican vs Insular Life 597 SCRA 159 (2009);

DOCTRINE: Mercantile Law; Insurance Law; Insurable Interest; An insurable interest is that interest
which a person is deemed to have in the subject matter insured, where he has a relation or connection with
or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the
subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury
by the happening of the event insured against.—An insurable interest is one of the most basic and essential
requirements in an insurance contract. In general, an insurable interest is that interest which a person is
deemed to have in the subject matter insured, where he has a relation or connection with or concern in it,
such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. The existence of an insurable interest gives a person the legal right
to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that
every person has an insurable interest in his own life. Section 19 of the same code also states that an 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.

Insurance Law; Statutory Construction; Cardinal principle of insurance law that a policy or contract of
insurance is to be construed liberally in favor of the insured and strictly as 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.—Violeta did not adduce any evidence that Eulogio might
have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or
Application

FACTS:

Eulogio, the husband of herein petitioner, applied for an insurance policy the value of which is
P1,500,000.00. Under the policy terms, Eulogio is obliged to pay the premiums on a quarterly basis, until
the end of the 20-year period of the policy. It was likewise stated therein that the insured has 31-day grace
period for the payment of each premium subsequent to the first and that default in any payment of said
premiums shall result in the automatic lapse of the said policy. Eulogio failed to pay a premium even after
the lapse of the 31-day grace period. Hence, the policy lapsed and became void. He filed an Application for
Reinstatement of said policy and paying the amount of the premium due. However, Insular Life notified him
that they could not fully process his application because the amount he paid is inadequate to cover the
accrued interests. Hence, he again applied for the reinstatement of said policy this time, together with the
required amount. The husband of the insurance agent was the one who received his application because the
agent was away at that time. Within the same day, the insured died. This fact was unknown to the agent who
then submitted Eulogio’s application for reinstatement to the Insular Life Regional Office.

Violeta then filed a claim for payment of the full proceeds of the policy. However, the company said that
she is not entitled to the insurance proceeds because they claimed that the policy was not reinstated during
her husband’s lifetime and good health.

ISSUE:

Whether or not Eulogio was able to reinstate the lapsed insurance policy before his death.
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

HELD:

NO. The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and
Application for Reinstatement were written in clear and simple language, which could not admit of any
meaning or interpretation other than those that they so obviously embody. Violeta did not adduce any
evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his
Policy Contract and/or Application for Reinstatement both of which he voluntarily signed. 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 strictly as 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.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under
Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the
RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican’s Notice of
Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and
executor. No costs.

Note: Public Policy requires an insurable interest to prevent wagering under the guise of insurance, and to
reduce to the safe level the temptation to destroy the insured property. Lack of insurable interest is a
defense created for the benefit of society not for the benefit of any insurance company.

What is the purpose of the law in requiring that the insured must have an insurable interest in the life of the
person insured?
The purpose of the law in requiring the existence of insurable interest in the life of the insured is to
eliminate the temptation to destroy the life of the insured on account of his life insurance.

If the insured has no insurable interest over the life or property he insures, the insurance contract is
considered unenforceable. If it can be established that the contract is considered a wager, the same can be
considered void for being against public 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.

INSURABLE INTEREST IN LIFE

That one who takes out insurance over the life of another stands to benefit from its continuation and is not
interested in one’s death.

Sec. 10. Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children;

(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable 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.

Insurable interest may be insurable interest (1) in the insured’s own life or (2) in the life of another
person. the owner may be the beneficiary of the beneficiary may be the other person.

Insurable interest in the life of another person may be based on:

a. Blood Relationship. It is limited to the Spouse or one’s children. When mere blood relationship is not
sufficient, it may be a basis of pecuniary interest. ex. a person has insurable interest over the life of his
parents because his parents are legally obligated to him under the Family Code.
b. Education or support. In person he depends wholly or in part in education or support even if the law
does not require to be obligated with. ex. A, a mere family friend, without obligated to do so, pays the
education or supporting B, the latter may take out the life insurance on the life of A (Art. 195, Family Code)
c. Pecuniary Interest. On a reasonable expectation of financial benefit from the continuation of the life of
the insured or a reasonable expectation of expenses upon the death of the insured. ex. a company has an
insurable interest in the life of its officers. One has insurable interest over the life of his partner or his
employee, in which he is legally obligated.
d. Debtor’s Life. The Creditor shall have insurable interest over the life of the debtor who may be obligated
to deliver the money or property, or to provide some service. The debtor cannot insure the life of the creditor
because he will not be damnified by the loss of the creditor’s life.
e. One Whose Life Of Any Estate Depends. ex. a person who will become the owner of the property as
soon as another attains a certain age; A may insure life of B in order to compensate himself for the loss
which he will suffer through the latter’s death if A receives as a legacy the usufruct of a property that
ownership of which is vested in B, on the condition that at the death of the latter, the legacy is extinguished,
the ownership and usufruct of the property passing to C.
f. Mortgage Redemption Insurance (MRI).For the protection of both the mortgagee and the mortgagor. Is
a form of life insurance that pays off a part or the whole of the insured's outstanding mortgage balance in
case of his or her death or total disability.

Case# 2: Great Pacific Life Insurance vs CA 89 SCRA 543;

Doctrine: Insurance; Binding deposit receipt; Concept and Nature; When binding deposit receipt not
effective.—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 petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at
any time. Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and
does not insure outright. As held by this Court, 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.
Same; Same; No insurance contract between private person and insurance company for non-acceptance of
alternative insurance plan of the company and non-compliance of conditions in binding deposit receipt;
Refund of deposit proper.—It bears repeating that through the intra-company communication of April 30,
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground that it is
not offering the twenty-year endowment insurance policy to children less than seven years of age. What it
offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo
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 abovequoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance contract duly perfected between them.
Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.

Completed Contract; Concept Of; Contract of insurance must be completed contract to be binding.—As
held in De Lim vs. Sun Life Assurance Company of Canada, supra, ―a contract of insurance, like otter
contracts, must be asserted to by both parties either in parson or by their agents. x x x. The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing to be
done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement.

Facts:

Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific
Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner
Lapulapu D. Mondragon, the branch manager, prepared application form using the essential data supplied
by respondent. Thelatter paid the annual premium and Mondragon retained a portion of it as his
commission. The binding deposit receipt was issued to respondent.Mondragon wrote his strong
recommendation for the approval of the insurance application. However, Pacific Life disapproved the
application since the plan was not available for minors below 7 years old but it can consider the same under
another plan. The non- acceptance of the insurance plan was allegedly not communicated by Mondragon to
respondent. Mondragon again asserted his strong recommendation. Helen Go died of influenza. Thereupon,
respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed an
action for the recovery of the same. Hence the case at bar.

Issue:

Whether or not the insurance contract has been perfected on the ground that a binding receipt has been
issued?

Held:

NO, it was not perfected. The binding deposit receipt is merely an acknowledgement, 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. The
binding deposit receipt is 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.

CONSENT OF THE INSURED.

That consent is not necessary .It seems not to be yet clearly settled whether the consent of the
insured is necessary to the validity of the policy procured by another, especially in view of the undoubted
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

extensive practice of insurer now to grant insurance in large amounts on the lives of persons who have no
knowledge of the contract and have given no consent to it.

EXAMPLES:
1. On January 4, 1983, Mr. P joined Alpha Corporation (ALPHA) as the president of the company.
ALPHA took out a life insurance policy on the life of Mr. P with Mutual Insurance Company, designating
ALPHA as the beneficiary. ALPHA also carried a fire insurance with Beta Insurance Company on a house
owned by it but temporarily occupied by Mr. P, again with ALPHA as the beneficiary. On September 1,
1983, Mr. P resigned with ALPHA and purchased the company house he had been occupying. A few days
later, fire occurred resulting in the death of Mr. P and the destruction of the house.
a) What are the rights of ALPHA against Mutual Life Insurance Company on the life insurance policy?
b) What are the rights of ALPHA against Beta Insurance Company on the fire insurance?

a) ALPHA can recover from Mutual Life Insurance Company on the life insurance policy. ALPHA had
insurable interest of ALPHA in the life of the person insured, Mr. P, at the time the insurance took
effect. Mr. O was an employee of ALPHA at the time the insurance policy was taken. The fact that
he was no longer an employee at the time of his death will not defeat the claim because in life
insurance, insurable interest need not exist thereafter or when the loss occurred. (Section 19, I.C.)
b) ALPHA cannot recover from Beta Insurance Company. In property insurance, insurable interest
in the property insured must be exist not only when the insurance takes effect but also when the loss
occurs. In the given problem, the fire that destroyed the insured house took place after ALPHA had
sold the house to Mr. P. Hence, insurable interest of ALPHA in the property insured no longer
existed when the loss occurred. (Section 19, I.C.)

2. On July14, 2005, X, took an insurance policy on the life of his friend, Y. In the insurance
application, X misrepresented that Y was in perfect health although he knew all time that Y was afflicted
with AIDS. On October 18, 2007, Y died in a motor accident. Shortly thereafter, X filed his insurance claim.
Should the insurance pay? Reasons.
A. No. The insurance need not pay the claim of X. The insurance does not have any legal obligation to
make such payment because X does not have insurable interest over the life of Y. The friendship of X
alone is not the insurable interest contemplated in the life insurance. Insurable interest is the life of
others ( other then one’s spouse or children) is merely to the extent of the pecuniary interest in that
life which interest in that life interest is not shown in the facts presented.

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.

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 willfully bringing about the death of the insured; in which
event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise
disqualified.

INSURABLE INTEREST IN PROPERTY INSURANCE

A pecuniary reason for desiring the continued existence of property, arising out of right out or a liability,
connected with property, which the law can perceive.

Basic Rule in Property Insurance:

Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Section 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.

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.

Test in determining Insurable Interest in Property

Whether one will derive pecuniary benefit or advantage from its preservation, or will suffer
pecuniary loss or damage from its destruction, termination, injury by the happening of the event insured
against.

Note: Any title to, or interest in property, legal or equitable, will support a contract will be upheld if his
interest in or his relation to, the property is such that he will, or may be benefited by his continued existence
or suffer a direct pecuniary loss from its destruction or injury.

Sec. 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.

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.

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.

Kinds of the insurable interest.

a. Existing Interest. Includes interest of the owner. Title or ownership is not essential; hence, the (1) lessee,
(2) depositary, (3) usufructuary, and/or (4) borrower in commodatum have insurable interest over the
property.
b. A possessor who is holding the property without consideration of the owner has insurable interest in the
property he is occupying.
c. In sale, unpaid seller retains insurable interest over the goods even if ownership had already been
transfered to vendee upon delivery.
d. The vendee or buyer has insurable interest over the goods even while the goods are still in transit.
e. Insurable interest in property exists in any of the following cases because the person is so situated that he
will suffer because of the loss due to a peril against:
(1) when the insured possesses a legal title to the property insured, whether vested or contingent, defeasible
or undefeasible;
(2) when he has equitable title of whatever character and in whatever manner acquired;
(3) when he possesses a qualified property or possessory right in the subject of the insurance;
(4) when he has mere possession or right of possession;
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

(5) when he has neither possession of the property nor any other legal interest in it but stands in such
relation with respect to it that he that he may suffer from his destruction, loss of a legal right upon its
continued existence.
f. Inchoate Interest. This must be founded on an existing interest; otherwise, the loss of the property will
not directly damnify the insured. Examples of which includes the stockholder’s interest in the property of the
corporation and partner’s interest in the partnership’s property; the interest of the purchaser of a property
in a judicial sale subject to redemption.

g. Expectancy. It must likewise be coupled with existing interest. example; the interest of the heir over the
properties of his successor who is still alive is a mere expectancy that is not coupled with an existing
interest. hence, the heir does not have insurable interest over the properties of his successor-in-interest;
interests over the profits that are to be earned by a business establishment; interest over future crops of
farmers; expected commissions of agents. section 105 of the Insurance Code likewise expressly provides
that the owner of a ship has an insurable interest in the future freightage.

Distinctions between insurable interest in property insurance and life insurance

Insurable interest in property Insurable interest in life
As to extent
Limited up to value of the property. Unlimited except if secured by the creditor.
Time when it must exist
At the time of perfection of the contract and at the At the time of the perfection of the insurance
time of the loss. contract.
Need for legal basis
Expectation of benefit must have legal basis Expectation of benefit need not have legal basis or
need not be based on legally enforceable
obligation.
Beneficiary’s interest
Beneficiary must have insurable interest. Insurable interest is not necessary if the insured
took out the policy on his own life and designated
another. Beneficiary must have insurable interest if
one took out the insurance on the life of another.

ex. A piece of machinery was shipped to Mr. Pablo on the basis of C&F, Manila. Mr. Pablo insured the said
machinery with Talaga Merchants Insurance Corp. (TAMIC) for loss or damage during the voyage. The
vessel sank en route to Manila. Mr. Pablo then filed a claim with TAMIC which was denied for the reason
that prior to delivery, Mr. Pablo had no insurable interest..

The reasoning of the insured is untenable. The purchase of goods under a perfected contract of sale
already vests equitable interest on the property in favor of the buyer pending the delivery.

Case #3 Filipino Merchants Insurance v. Court of Appeals

G.R. No. 85141, 28 November 1989, 179 SCRA 638

Facts:

Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok, Thailand to Manila against all
risks under warehouse to warehouse terms. What was imported in the SS Bougainville was 59.940 metric
tons at $395.42 a ton. The cargo was unloaded from the ship and 227 bags were found to be in bad condition
by the arrastre.
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Choa made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 He
also presented a claim against the ship, but the defendant Filipino Merchants Insurance Company refused to
pay the claim. The plaintiff brought an action against the company and presented a third party complaint
against the vessel and the arrastre contractor.

The court below, after trial on the merits, rendered judgment in favor of private respondent, for the sum of
P51,568.62 with interest at legal rate.

The common carrier, Compagnie, was ordered to pay as a joint debtor.

On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the
complaint is concerned and modified the same with regard to the adjudication of the third-party complaint.
A motion for reconsideration of the aforesaid decision was denied. The AC made Filipino Merchants pay
but absolved the common carrier, Compagnie. Hence this petition.

Issues:

1. Whether or not the "all risks" clause of the marine insurance policy held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous
event, casualty, or accidental cause to which the loss is attributable.

2. Whether or not The Court of Appeals erred in not holding that the private respondent had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by private respondent is null and
void.

Held: No. No. Petition denied.

1. The "all risks clause" of the Institute Cargo Clauses read as follows:

“5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be
deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature
of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage.“

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by
an accidental cause of any kind. “Accident” is construed by the courts in their ordinary and common
acceptance.

The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any
loss other than a willful and fraudulent act of the insured. This is pursuant to the very purpose of an "all
risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or
some mystery surround the loss or damage to property.

Institute Cargo Clauses extends to all damages/losses suffered by the insured cargo except (a) loss or
damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by
the inherent vice or nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which
it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving
that the cargo was in good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel. The burden then shifts to the insurer to show the exception to the coverage.
This creates a special type of insurance which extends coverage to risks not usually contemplated and avoids
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

putting upon the insured the burden of establishing that the loss was due to the peril falling within the
policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage.

Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by
some accidental cause of any kind, and there is no necessity to point to any particular cause.

2. Section 13 of the Insurance Code- anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction

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.

Choa, as vendee/consignee of the goods in transit, has such existing interest as may be the subject of a valid
contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected
contract of sale between him and the shipper of the goods operates to vest in him an equitable title even
before delivery or before conditions have been performed.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the goods to a carrier, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer. The Court has heretofore
ruled that the delivery of the goods on board the carrying vessels partake of the nature of
actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the
insurance premium covering them.

Case #4 Lampano V. Jose , G.R. No. L-9401 March 30, 1915

Lessons Applicable: Existing Interest (Insurance)
FACTS:
 Mariano R. Barretto, constructed a house for Placida A. Jose sold the house to Antonina Lampano for
P6,000
 The house was destroyed by fire during which Lampano still owed Jose P2,000 as evidenced by a
promissory note. Jose also owed Barretto P2,000 for the construction.
 After the completion of the house and before it was destroyed, Mariano R. Barretto took out an
insurance policy upon it in his own name, with the consent of Placida A. Jose, for the sum of P4,000.
After its destruction, he collected P3,600 from the insurance company, having paid in premiums the
sum of P301.50
 Lampano filed a complaint against Barreto and Jose alleging that Jose in a verbal agreement told her
that the policy will be delivered to her so she should collected P3,600 from each of them
 RTC: favored Jose ordering Barreto to pay him P1,298.50 and offsetting the P2,000
 Barreto alone appealed

ISSUE: W/N Barreto had insurable interest in the house and could insure it for his it for his own protection.

HELD: YES. reversed and Barretto is absolved.

Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

 Where different persons have different interests in the same property, the insurance taken by one in his
own right and in his own interest does not in any way insure to the benefit of another
 A contract of insurance made for the insurer's (insured) indemnity only, as where there is no agreement,
express or implied, that it shall be for the benefit of a third person, does not attach to or run with the title
to the insured property on a transfer thereof personal as between the insurer and the insured.
 Barretto had an insurable interest in the house. He construed the building, furnishing all the materials
and supplies, and insured it after it had been completed.

Case #5: Ang Ka Yu v. Phoenix Assurance Co. Ltd 1961, 1 SCRA 704

FACTS:
 Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.
 The property was lost, so Ang Ka Yu sought to claim the proceeds.
 Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such, had
no insurable interest over the property.

ISSUE:
Whether or not a mere possessor has insurable interest over the property.

HELD:

Yes. A person having a mere right or possession of property may insure it to its full value and in his
own name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT
interested in the safety and preservation of material in his possession because they belong to third parties,
said person still has insurable interest, because he stands either to benefit from their continued existence or
to be prejudiced by their destruction.
A person is said 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.

INSURABLE INTEREST OF THE BAILEE

Insurable insurance of bailee. In a contract of carriage, the carrier may be damnified by the loss of
the goods because he may be obligated to pay the shipper any damage to the property. Similiarly, a
depository is obligated to pay the shipper any damage to the thing deposited and he can be made liable if the
thing deposited is damaged.

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.

Included in insurance policies taken by depositories are so called bailee policies that are involved in
transportation of goods.” any bailee or person in custody of property and responsible for it may take
insurance in his own name, and may recover not only a sum equal to his own interest in the property by
reason of any lien for advances or charges, but the full amount named in the policy up to the value of the
property. HOWEVER, in Section 15, that amount may be recovered is limited to amount that is equivalent
to the extent of liability of the carrier or depository; the value of the property is fixed as the upper limit of
the amount that can be recovered by the bailee or carrier and not necessary the mount can be recovered.
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Case #6: Lopez V. Del Rosario And Quiogue, G.R. No. L-19189 November 27, 1922
Lessons Applicable: Carrier or Depositary (Insurance)

FACTS:
 Benita Quiogue de V. del Rosario (Mrs. del Rosario), owner of a bonded warehouse where Froilan
Lopez, holder or 14 waehouse receipts and Elias Zamora had their copra deposited
 The warehouse recipts states an insurance of 1% their declared value which can be increase or decrease
by giving 1 month's notice in writing
 Lopez paid the insurance to May 18, 1920, but not thereafter
 June 6, 1920: the warehouse was destroyed by fire. Only copra worth P49,985 was salvaged. At that
time Lopez was still liable for the storage and insurance of P315.90
 Mrs. Del Rosario submitted the insurance with the arbitrators and seems to have satisfied all of the
persons who had copra stored in her warehouse, including the stockholders in the Compañia Coprera de
Tayabas (whose stock she took over), with the exception of Froilan Lopez
 Ineffectual attempts by Mrs. Del Rosario to effect a compromise with Lopez first for P71,994, later
raised to P72,724, and finally reduced to P17,000, were made. But Lopez stubbornly contended, or, at
least, his attorney contended for him, that he should receive not a centavo less than P88,595.43 (from
originally P107,990.40)

ISSUE: W/N Mrs. Del Rosario should be held liable to Lopez even if he has not paid the insurance at the
time of the fire

HELD: YES. entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus P315.90, due for
insurance and storage, or approximately a net amount of P81,093.65, with legal interest.
*this case is not contemplated under section 15 of the I.C. because insurance under this provision is an
insured to be taken by the carrier or the depositary on his own behalf. *

INSURABLE INTEREST OF THE MORTGAGOR AND MORTGAGEE. Both of them have insurable
interest over the mortgaged property. Mortgagor, the owner of the mortgaged property, has an existing
interest that may subject of an insurance.

Section 8 - Unless the policy otherwise provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a
party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interest may be covered by one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times. The mortgagor’s insurable interest is to the
extent of the debt, since the property is relied upon the as security thereof, and in insuring he is not insuring
the property but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and
extends only to the amount of the debt, not exceeding the value of the mortgaged property.
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Case #7: Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00.
The 1 year policy and covered thestock trading of dry goods. The policy noted the requirement that "3. The
insured shall give notice to the Company of any insurance or insurances already effected, or which may
subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in
process and/or inventories only hereby insured, and unless notice be given and the particulars of such
insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." The
petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied because the
petitioner’s stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The
basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for the
recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of
the other two policies. But, he said that he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies and this requirement was not mentioned to him by the
private respondent's agent. The Insurance Commission found that the petitioner did not violate Condition 3
as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it
was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and
that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The Insurance Commission
then ordered the respondent company to pay complainant the sum of P100,000.00 with interest and
attorney’s fees. CA reversed the decision of the Insurance Commission because it found that the petitioner
knew of the existence of the two other policies issued by the PFIC.

Issues:

1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and
thereby violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held:

1. Yes. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His
letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the
contrary before, the Insurance Commissioner and which the latter relied upon cannot prevail over a written
admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies
since these policies were not new or original.

2. No. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly against those for whose benefits they are inserted, and
most favorably toward those against whom they are intended to operate. With these principles in mind,
Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of
the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by
stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time
of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability
up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the
rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance
and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more
insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy
the property for the purpose of collecting the insurance. The public as well as the insurer is interested in
preventing a situation in which a fire would be profitable to the insured.

The usual practice and contractual stipulation is for the mortgagor to take out insurance for the
benefit of the mortgagee. The mortgagee may be made the beneficial payee in the following ways:
(1) he may become the assignee of the policy with the consent of the insurer; or
(2) a mere pledge without such consent, or the original policy may contain a mortgage clause; or
(3) a rider making the policy payable to the mortgagee “as his interest may appear” may be attached; or
(4)a “standard mortgage clause” containing a collateral independent contract between the mortgagee and
insurer, may be attached; or
(5) the policy, though by its terms payable absolutely to the mortgagor, may have been procured by the
mortgagor under a contract duty to insure for the mortgagee’s benefit in which case the mortgagee acquires
an equitable lien upon the proceeds; or
(6) the policy may provide for a loss payable clause in favor of the mortgagee.

In the policy obtained by the mortgagor with “loss payable clause” in favor of the mortgagee as his
interest may appear, the mortgagee is only beneficiary under the contract, and recognized as such by the
insurer but not only made a contract by 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 the insurance of the policy. The typical “loss payable clause” is also known as the “open
mortgage clause”.

A “loss payable clause” should be distinguished from “union mortgage clause” where there is a
transfer of an insurance from the mortgagor to the mortgagee with the assent of insurer.

Section 9 - If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and,
at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the
act of the mortgagor cannot affect the rights of said assignee.

Loss Payable Clause explained (prof. Vance):

“In the first class are those that merely designate the mortgagee as payee, to the extent of his
interest, of such sum as may become payable under the provisions and conditions of the policy. Under such
clause, the mortgagee is made merely a beneficiary under the contract, recognize as such by the insurer, but
not made a party to the contract itself. Any default on the part of the mortgagor, which by terms of the
policy defeat his rights, will also defeat all rights of the mortgagee under the contract, even though the
latter may not have been in any fault”.
In the second class are the clause, known in their more usual forms, as “standard” or “union”
mortgage clause, which create collateral independent contracts between the insurer and mortgagee, and
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

provide that the rights of the mortgagee shall not be defeated by the acts or defaults of the mortgagee’s
rights remain unaffected by any default or breach of condition by the mortgagor to which the mortgagee is
not a party”.

INSURABLE INTEREST OF MORTGAGEE.

General rule: a mortgagee may, independently of the mortgagor, insure the mortgaged property in his own
name and for his own interest.

When must Insurable Interest exist differs between property insurance and life insurance.

Case #8: Cherie Palileo vs Beatriz Cosio 97 Phil 919 28 Nov 1955

Facts:

Palileo filed a complaint against Cosio in the CFI of Manila raising the ground that, the transaction entered
by them be declared as one of loan and that the said transaction be one of equitable mortgage to secure the
payment of the loan.
Cosio filed her answer setting up a defense that the transaction between them is one of sale with option to
repurchase. However, the period for repurchase had expired which resulted to the ownership of Cosio. The
latter set up counterclaims but failed to appear in court in which judgment was granted in favor of the
evidence presented by Palileo.

2 Feb 1954, the original counsel of Cosio was substituted and the new counsel immediately moved that the
judgment be set aside. The motion has been denied making Cosio to take an appeal.

Coming to the merits of the case, the Court find out that pursuant to the agreement of both, Palileo paid to
Cosio an interest on the total loan exceeding the maximum interest authorized by law. To secure the
payment, the parties executed a document purporting to convey to Cosio a two-storey building insured the
same against fire which is issued in the name of Cosio the insurance policy.

The building was partly destroyed by fire. Cosio on a proper demand, collected indemnity from the
insurance company and on the other hand, Palileo demanded from Cosio that she be credited with the
necessary amount to pay her obligation out of the insurance proceeds. Cosio refused to pay.

Issue:

Effect where mortgaged property was insured by the mortgagee in his own name

Ratio decidendi:

Where a mortgage, independently of the mortgagor, insures the mortgaged property in his own name and for
his own interest, he is entitled to the issuance proceeds in case of loan, but in such case, he is not allowed to
retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money
paid.

Case#9: San Miguel Brewery V. Law Union and Rock Insurance Co. G.R. No. L-14300 January 19,
1920

Lessons Applicable:
 Mortgagor (Insurance)
 Measure of Insurable Interest (Insurance)
 Effect of Change of Interest in Thing Insured (Insurance)
 Effect of transfer of thing insured (Insurance)
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old
law)

FACTS:
 In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the policies in such manner as to authorize the
Brewery Company to receive the proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt. Instead, however, of effecting the
insurance himself Dunn authorized and requested the Brewery Company to procure insurance on the
property in the amount of P15,000 at Dunn's expense.
 San Miguel insured the property only as mortgagee.
 Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguelto the extent of the mortgage
credit.
 RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the difference
between the mortgage credit and the face value of the policies.
 Henry Harding appealed.
ISSUE:
1. Whether or not San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit -
YES
2. Whether or not Harding has insurable interest as owner - NO

HELD: affirmed
Section 19, a change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the
thing and the interest in the insurance are vested in the same person.
Section 55, the mere transfer of a 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.
Undoubtedly, these policies of insurance might have been so framed as to have been "payable to the
San Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.)
Such a clause would have proved an intention to insure the entire interest in the property, not
merely the insurable interest of the San Miguel Brewery, and would have shown exactly to whom the
money, in case of loss, should be paid. But the policies are not so written.
The blame for the situation thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make themselves liable
to that extent.
If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the policy, the
parties are entitled to have it reformed. But to justify the reformation of a contract, the proof must be of the
most satisfactory character, and it must clearly appear that the contract failed to express the real agreement
between the parties. In the case now before us the proof is entirely insufficient to authorize reformation.

SUBROGATION. Where a mortgagee insures the mortgaged property at his own expense and the for his
own benefits and a loss occurs, the insurer on paying the loss to the mortgagee is subrogated, to the extent of
the amount thus paid, to the means of enforcing payment of the original obligation by the debtor, the claim
not being extinguished until payment in the policy.
a) However, where the mortgagor obtain an insurance on the mortgaged property or the
insurance was obtained at his request and expense, the insurer is not entitle to subrogation to
the rights of the mortgagee on the payment of the loss in the absence of ta specific provision
therefor in the policy
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

FINANCIAL LEASE. Both the financial lessor and the lessee in the financial lease have insurable interest
over the property that is the object of the lease. The financial lessor has insurable interest because the legal
title to the leased equipment is lodged in the financial lessor. The financial lessee likewise has insurable
equipment.

TIME 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 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.

PROPERTY INSURANCE. In Property Insurance, insurable interest in the subject property must
exist when the insurance takes effect and when the loss occurs. It need not exists continuously from the time
the insurance takes effect until the time of the loss; the law provides that it need not exist in the meantime.
The insured can recover even if he lost his insurable interest after the perfection of the insurance contract so
long as he recovers the same before the loss occurs. For example, Mr. A is the owner of a car which he
insured with X Company. After the issuance of the policy, Mr. A sold and delivered the car to Mr.B Later,
Mr.A re-acquired the car from Mr.B. It was after the re –acquisition that the car was destroyed. In this case,
Mr. A can recover even if there is a period between the time of the taking of the insurance and the time of
the loss that Mr. A had no insurable interest over the car. The insurance is deemed suspended during the
intervening period in accordance with Section 20 of the Insurance Code.

Sec. 20. Except in the cases specified in the next four sections, and in the cases of life, accident, and
health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding
change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person.

Thus, in the given example, the insurance is suspended when Mr. B became the owner and possessor of the
car. The insurance is automatically reinstated when Mr. A re-acquires the property.

Sec. 21. A change in interest in a thing insured, after the occurrence of an injury which results in a loss,
does not affect the right of the insured to indemnity for the loss.

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.

Sec. 23. A change on interest, by will or succession, on the death of the insured, does not avoid an
insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.

Sec. 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are
jointly insured, to the others, does not avoid an insurance even though it has been agreed that the
insurance shall cease upon an alienation of the thing insured.

In Section 22, Two or more properties are insured but they are insured separately. Thus, if two
buildings are insured in one policy but they are insured separately, the change of interest in one building
does not suspend the insurance as to the other building.

A change in the interest in property Insurance will not suspend the insurance in the following cases:
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

1. If there is change in interest in the thing insured after the occurrence of the loss;
2. If the change in interest in one or more of several things that are separately insured( as to things
not transferred;
3. Change of interest through succession;
4. Transfer of interest from one partner to another partner of interest over a property jointly insured;
and
5. Transfer of interest from one joint or co-owner to another of the jointly or co-owned property
insured.
Note: the policy is avoided, and not merely suspended, if there is an express prohibition to alienate
but the insured breached the contractual prohibition.

Life insurance. All that is required is that the insured has insurable interest over the life that is insured at
the time the insurance is not a contract of indemnity.

For example, a spouse can insure the life of the other spouse. The spouse who took out the insurance
can still recover if at the timeof the death of the spouse whose life was insured, their marriage was already
annulled.

On February 3, 2018, while Jose Palacio was in the hospital preparatory to a heart surgery, he called his
only son, Boy Palacio, and showed the latter a will naming his son as the sole heir to all the father’s estate
including the family mansion in Forbes Park. The following day, Boy Palacio took out a fire insurance on
the Forbes Park mansion. One week later, the father died. After the father’s death, Boy Palacio moved his
wife and his children to the family mansion which he inherited. On March 30, 2019, a fire occurred razing
the mansion to the ground. Boy Palacio then proceeded to collect on the fire insurance he took earlier on
the house. Should the insurance company pay?

No. In property insurance, the insured is required to have insurable interest over the property at the
inception of the policy and at the time of the loss. At the time the policy was issued, the owner of the
mansion is his father Palacio.

Also, the insurable interest must be an existing. Unfortunately for Boy Palacio, the fact that he was
the expected sole heir of the property does not give rise to an existing interest over the mansion prior
to the death of his father Palacio.

In a civil suit, the Court ordered Tony to pay Steve P500,000.00. To execute the judgment, the sheriff
levied upon to Tony’s highest bidder. The latter, on March 18,2018 registered with the Register of Deeds
the certificate of sale issued to him by the sheriff. Meanwhile, on January 27, 2019, Tony insured with
Vengers Insurance for P1,000,000.00 the same building that was sold at public auction to Steve. Tony failed
to redeem the property by March 18, 2019.

On March 19, 2019, a fire razed the building to the ground. Vengers Insurance refused to make good
its obligation to Tony under the insurance contract. 1) Is Vengers Insurance legally justified in
refusing payment to Tony? 2) Is Steve entitled to collect on the insurance policy?

1) Yes. Because at the time of the loss, Tony was no longer the owner of the property insured because
of his failure to redeem the property. Insurable interest must be present at the time of the issuance of
the policy and also at the time when the loss occurs in order to successfully claim against the policy.
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

Unfortunately, at the time of loss, Tony no longer had insurable interest in the property insured.

2) No. While at the time of the loss he had insurable interest in the building by virtue of ownership, he
has no legal personality to file a claim against the policy. Insurance is a personal contract. There was
no automatic transfer clause in the policy that would give him such interest in the policy.

Insurable interest of beneficiary in property insurance. The beneficiary must have insurable interest in
the property that is the object of the insurance. The contract will be considered a wagering contract if the
beneficiary will be allowed to recover even if he has no insurable interest on the subject property.

Insurable Interest of beneficiary in life insurance. If the insured takes out an insurance on his own life, he
can designate anybody whether or not the beneficiary has insurable interest over his (insured) life. However,
if the insured takes out an insurance on the life of another designating himself or herself as beneficiary,
insurable interest of the part of the insured is necessary. Insurable interest on the part of the beneficiary is
likewise necessary if one takes out an insurance on the life of another and designates a third person as the
beneficiary.

Assignee in Life Insurance. A life insurance policy can be transferred even without the consent or of notice
to the insurer. According to the section 184 of the insurance code, it is not necessary that the transferee has
insurable interest.

Since a policy of insurance upon life or health may pass by transfer, wll or succession to any person whether
he has insurance interest or not, the transferee may recover whatever the insured may have recovered under
the policy.

Assignee in property insurance. It is necessary that the transferee has insurable interest over the thing
insured. That is consistent with section 18 of the insurance code. The requirement of insurable interest may
likewise be inferred from section 58 of the insurance Code.

Accordingly, a clause in an agreement, providing for an automatic assignment of the policy is void, if the
assignee does not have any insurable interest over the insured property, if the assignee does not have any
insurable interest over the insured property.

Case#10: Spouses Nilo Cha vs. Court of Appeals, G.R. No. 124520 August 18, 1997
Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:
 Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease contract
with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and effects placed
at any stall or store or space in the leased premises without first obtaining the written consent and
approval of the lessor. But it insured against loss by fire their merchandise inside the leased premises
for P500,000 with the United Insurance Co., Inc. without the written consent of CKS
 On the day the lease contract was to expire, fire broke out inside the leased premises and CKS learning
that the spouses procured an insurance wrote to United to have the proceeds be paid directly to them.
But United refused so CKS filed against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary
damages, P20,000 as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest

ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the stipulation?

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

 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 a
t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code.
 SECTION 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
 Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof
 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. The liability of the Cha spouses to CKS for violating their lease
contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.

If the transfer of the property insurance policy is made after the loss, insurable interest on the part of the
beneficiary is no longer necessary. In fact, the policy cannot prohibit the transfer of the policy after the loss
has occurred.

Section 85 - An insurer is liable where the thing insured is rescued from a peril insured against that
would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not
insured against, which permanently deprives the insured of its possession, in whole or in part; or where a
loss is caused by efforts to rescue the thing insured from a peril insured against.

Example
‘N’ owns a condominium unit presently insured with Holy Insurance Company for P1 Million. ‘N’ later
sells the condominium unit to ‘O.’ Somehow, ‘O’ fails to obtain the transfer of the insurance policy to his
name from ‘N.’ Subsequently, a fire of unknown origin destroys completely the condominium unit. Who may
collect the insurance?
A: Nobody can collect the insurance proceeds. While N had insurable interest at the time the
insurance policy was taken, he no longer had insurable interest at time of the loss. On the other hand, ‘O’ is
not a party to the insurance contract and there was no valid assignment of the policy to ‘O.’
Theorosa N. Madamba, J.D. II
Insurance Law: Insurable Interest