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Notes

II. Contract of Insurance

Insurance Code (P.D. 1460)

A. What May be insured (Sections 3,4, and 5) Section 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter. The consent of the husband is not necessary for the validity of an insurance policy taken out by the married woman on her life or that of her children. Any minor of the age of eighteen years or more, may notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minors estate or the minors father, mother, husband, wife, child, brother or sister. The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy. All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided in the policy.

NOTES: Requisites of a contract of Insurance. 1. SUBJECT MATTER in which the insured has an insurable interest. 2. EVENT or PERIL insured against which may be any contingent or unknown event, past or future, and a DURATION for the risk. 3. PROMISE to pay or INDEMNIFY in a fixed or ascertainable amount. 4. A consideration for the promise, called PREMIUM. 5. MEETING of the MIDS of the parties. Subject Matter of contract of insurance. 1. In General- anything having an appreciable pecuniary value, which is subject to loss or deterioration or of which one may be deprived so that his pecuniary interest is or may be prejudiced. 2. Property insurance 3. Life, health and accident insurance 4. Casualty insurance- against perils which may affect the person and/or property of the insured and give rise to liability on his part to pay damages to others; the SUBJECT MATTER is the risk in its use. Event or peril insured against. The following risks may be insured: 1. Any contingent or unknown event whether past or future which may cause damage to a person having an insurable interest; or 2. Any contingent or unknown event, whether past or future, which may create liability against the person insured. May a married woman take out an insurance? If so, on what? Yes. A married woman may take out an insurance on her life or that of her children even without the consent of her husband. She may likewise take out an insurance on the life of her husband, her paraphernal property, or on property given to her by her husband. May a minor take out an insurance? Third par of Sec. 3 is no longer applicable, since the age of majority is now 18 years old (RA 8809, Dec. 13, 1989). Problem: A, wanted to open a medicinal herb shop. He placed a long distance phone call to Taiwan and talked to an exporter who willingly agreed to consign several tons of ginsengs with him on the condition that he will come and pick the goods up. A then sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August 14, A insured the 5 vessels against perils of the South China Sea Lost or Not Lost with B Insurance Co. Without the knowledge of both parties, the ships had already sunk on Aug. 14. Is B Insurance Co. liable for the ships? Yes. This is an example of a past unknown event because the sinking of the ship is a past event at the time that the policy took effect. The contract is valid and B Insurance Co. is liable because he agreed to pay even though the ship be already lost. An insurance against an unknown past event is peculiar only to marine insurance. Is a contract of insurance a wagering or gambling contract? NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract. Although it is true that an insurance contract is also based on a contingency, it is not a contract of chance. Section 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for against any chance or ticket in a lottery drawing a prize. Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. What is the concept of a lottery?

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Insurance Code (P.D. 1460)

The term lottery extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling. What are the three essential elements of lottery? 1. Consideration 2. prizes 3. chance. There is consideration of price paid if it appears that the prizes offered by whatever name they may be called came out of the fund raised by the sale of chances among the participants in order to win the prizes. Are all prizes equivalent to a lottery? If the prizes do not come out of the fund or contributions by the participants, no consideration has been paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain products, resorts to a scheme which envisions the giving away for free of certain prizes for the purchase of said products, for the participants are not required to pay more than the usual price of the products. Can a sweepstakes holder insure himself against the failure of his ticket to win? NO. It cannot be said that he suffered a loss of prize when he did not win. The failure to win a prize would not damnify or create a liability against him. What are the distinctions between an insurance contract and a wagering contract? A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec. 25) White it is based on a contingency, it is not a contract of chance and is not used for profit. The distinctions are the following: Insurance Contract Gambling contract Parties seek to distribute loss by reason of Parties contemplate gain through mere chance mischance or the occurrence of a contingent event. Insured avoids misfortune. Gambler courts fortune Tends to equalize fortune. Tends to increase the inequality of fortune. What one insured gains is not at the expense of Essence is whatever one person wins from a another insured. The entire group of insureds wager is lost by the other wagering party. provides through the premiums paid, the funds which make possible the payment of all claims; Purchase of insurance does not create a new and As soon as a party makes a wager, he creates a non-existing risk of loss to the purchaser. In risk of loss to himself where no such risk existed purchasing insurance, the insurer faces an previously. already existing risk of economic loss. What are the similarities between an insurance contract and a gambling contract? They are similar in only one respect. In both, one party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a stipulated amount by the other party to the contract. In either case, one party may receive more, much more, than he paid or agreed to pay. Problems. A, B, C and D decided to join a bungee jumping competition. They contributed P1,000 each to a fund available for the use of any member who is injured in the contest. Is this insurance or gambling? This is an insurance contract. Each member contributes to a common fund, out of which one is reimbursed for the losses that he may suffer. Suppose A, B, C, and D agree that the whole amount of 4K would be given to the one who swings nearest to the ground. Is this insurance or gambling? This is now a gambling contract. The parties are now contemplating a gain based upon uncertain events. B. Parties to the contract (Sections 6, 7, 8 and 9) i. Who may be an insurer Section 6. Every person, partnership, association or corporation duly authorized to transact insurance business as elsewhere provided in this Code, may be an insurer. NOTES: Who are the parties to the contract of insurance? 1. Insurer- 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. Insured, or the second party to the contract, 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. It could be:

2.

Notes
1. Beneficiary designated in the policy. 2. Assignee of the insured.

Insurance Code (P.D. 1460)

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 benefit. 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 insured is also the assured where the proceeds are payable to him. Assured is also used sometimes as a synonym of beneficiary. The beneficiary is the person 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. Who may be an insurer? 1. 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. 187)

2.

individual may also be an insurer, provided he holds a certificate 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. 184-186) What does the term insurer and insurance company include? It includes individuals, partnerships, associations or corporations, including GOCCs or entities, engaged as principals in the insurance business, except mutual benefit associations. It shall also include professional reinsurers as defined in Sec. 280 (Sec. 184) 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. ii. Who may be insured Section 7. Anyone except a public enemy may be insured. NOTES: What are the requisites in order that a person may be insured in a contact of insurance? a) He must be competent to enter into a contract.

b) c)

He must possess an insurable interest in the subject of insurance. He must NOT be a public enemy.

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 effect of war on the existing insurance contracts between the Philippines and a citizen 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 be valid and enforceable as soon as the insured becomes a public enemy. What is the effect of war on the existing insurance contracts between the Philippines and a citizen or subject of a public enemy, with respect to life insurance? Three doctrines have arisen. (1) Connecticut Rule there are two elements in the consideration for which the annual premium is paid: a. The mere protection for the year; and b. The privilege of renewing the contract for each succeeding year by paying the 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 when the performance would be illegal) necessarily 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

Notes
(3)

Insurance Code (P.D. 1460)

premiums due by the insured or his representatives after the war has terminated revives the contract which becomes fully operative. 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. iii. Rules on insurance by mortgagor or mortgagee Section 8. Unless the policy otherwise provides, where a mortgagor of the property effects insurance in his own name providing that a 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. NOTES: Is it alright if both the mortgagor and the mortgage 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 favor 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? The mortgagor of the property, as owner has an insurable interest to the extent of the value of the property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction of the property insured will NOT extinguish the mortgage debt. What is the extent of the insurable interest of the mortgagee? The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of the debt secured, such interest continues until the mortgage debt is extinguished. Up to what extent can each recover? The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee cannot recover in excess of the credit at the time of the loss. Under Sec. 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 mortgage prior to the loss which would otherwise avoid 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; and (5) Upon recovery by 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 rules apply. 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. Problems. A is the owner of a house worth 10K which he mortgaged to B to secure a loan of 5 K. What is the insurable interests of each? Insurable interest of A, mortgagor is P10T, while the insurable interest of B, mortgagee is P5T. 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 P750K. 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 P750K, and he shall hold as trustee for A, mortgagor, the excess of P250T.

Notes

Insurance Code (P.D. 1460)

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. iv. Transfer of insurance from mortgagor to mortgagee 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 obligations on the assignee, making a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee. NOTES: What does this provision say? Under this section, where an insurer assents to the transfer of an insurance from a Mortgagor to a Mortgage, and at the time of his assent the insurer imposes further obligation on the Mortgagee, a new and distinct consideration passed from the Mortgagee to the insurer, and a new contract is created between them. The acts of the Mortgagor cannot anymore affect the rights of the Mortgagee. What is the significance of this provision? Remember we said in Sec. 8 that all acts of the mortgagor affects the mortgagee? Well, this provision provides the exception to the rule. CASES:

1. Filipinas Comnia de Seguros vs. Christern, Huenfeld & Co. (1951)


FACTS: -Christern, Huenfeld and Co., a German controlled company, obtained a fire insurance Policy from Filipinas Compania de Seguros for P100K covering the several merchandise located in a building in Manila. -At the outbreak of the war, the building and the merchandise were burned. The Company timely filed a notice of claim. -the Insurance company refused to pay because according to it, at the time of the fire, the policy ceased to be in force because the United States had declared war against Germany. -However, by virtue of the order from the Bureau of Financing, the company paid. Thus, a complaint for recovery was instituted. CFI/RTC decision: dismissed the petition. CA decision: affirmed the CFI. ISSUE: WON Christern, Huenfeld & Co. is entitled to the benefits of the policy. RULING: No. "Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or of receiving its protection; also, all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, and upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental to their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurances the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals, therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies." (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.) "In the case of an ordinary fire policy, which grants insurance only from year to year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested, lost." (Vance, the Law on Insurance, Sec. 44, p. 112.) The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforceable, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner.

2. Geagonia vs. CA (1995)


Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women

Notes

Insurance Code (P.D. 1460)

wear and other usual to assured's business." Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00 (on credit); totalling P392,130.50. The policy contained the following condition, that "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." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim under the policy. On 28 December 1990, Country Bankers denied the claim because it found that at the time of the loss Geagonia's stocks-intrade were likewise covered by fire insurance policies GA-28146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F-24758" The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in Country Bankers' policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the Insurance Commission found that Geagonia 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 which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he came to know of the PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission ordered Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20 August 1993, Country Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance Commission because it found that Geagonia knew of the existence of the two other policies issued by the PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review on certiorari. Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to deny Geagonia from recovering on the policy. Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. The fire insurance policies issued by the PFIC name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause, not a standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject policy 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. The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate; the two policies of the PFIC do not cover the same interest as that covered by the policy of Country Bankers, no double insurance exists. The non-disclosure then of the former policies was not fatal to Geagonia's right to recover on Country Bankers' policy. Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void. Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "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 hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in

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Insurance Code (P.D. 1460)

Country Bankers' policy F-14622 does not absolutely declare void any violation thereof. It expressly provides that the 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." 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, Country Bankers 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.

3. Palileo vs. Cosio (1955)


FACTS: -Palileo obtained a loan from Cosio. - To secure the payment of the aforesaid loan, defendant required plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to convey to defendant, with right to repurchase, a twostory building of strong materials belonging to plaintiff. This document did not express the true intention of the parties which was merely to place said property as security for the payment of the loan. - After the execution of the aforesaid document, defendant insured the building against fire with the Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued in the name of defendant. The building was partly destroyed by fire and, after proper demand, defendant collected from the insurance company an indemnity of P13,107.00. -Thus, Palileo filed a complaint against Cosio praying that the transaction entered into by them be declared that of loan and the document covering such that of equitable mortgage and that defendant credit the amount received from the insurance to the liability of the plaintiff. -because of several postponement and the failure of defendants lawyer to appear, RTC decision: granted the relief prayed for. ISSUE: WON the compensation of the amount received from the insurance by the mortgagee to the liability of the mortgagor proper. RULING: No. It is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an insurance taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, 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." (Vance on Insurance, 2d ed., p. 654) Or, stated in another way, "the mortgagee may insure his interest in the property independently of the mortgagor. In that event, upon the destruction of the property the insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The mortgagee, however, 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." (Vance on Insurance, 3rd ed., pp. 772-773) This is the same rule upheld by this Court in a case that arose in this jurisdiction. In the case mentioned, an insurance contract was taken out by the mortgagee upon his own interest, it being stipulated that the proceeds would be paid to him only and when the case came up for decision, this Court held that the mortgagee, in case of loss, may only recover upon the policy to the extent of his credit at the time of the loss. It was declared that the mortgaged had no right of action against the mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40 Phil., 674.) It is true that there are authorities which hold that "if a mortgagee procures insurance on his separate interest at his own expense and for his own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of the mortgage debt" (19 R. C. L., p. 405), and that, furthermore, the mortgagee "has still a right to recover his whole debt of the mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden, 9 Allen, 123; See also Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the minority view (See case note, 3 Lawyers' Report Annotated, new series, p. 79). "The general rule and the weight of authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under the mortgage. This is put upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages, Vol. I, pp. 671-672.)

i.

C. Insurable interest Insurable interest in life and health (Section 10) Section 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 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.

Notes
NOTES:

Insurance Code (P.D. 1460)

ii.

CASE: Rules on change of beneficiary (Section 11) Section 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived his right in the said policy. NOTES:

iii. iv.

v.
vi. vii. i. ii. iii. iv. v. i. ii. iii. iv. v. vi.

vii.

CASES: Forfeiture of beneficiarys interest (Section 12) Insurable interest in property (Sections 13, 14, 15, 16, 17, and 18) CASE: When Insurable interest must exist (Section 19) CASE: Rules in change of interest (Section 20, 21, 22, 23, 24) Void Stipulations (Section 25) D. Concealment Definition, effects (Sections 26-27) CASE: Concealment of Material fact in bad faith (Section 28) CASES: Concealment of matters proving falsity of a warranty (Section 29) What need not be disclosed unless required (Sections 30, 32-35) Test of Materiality in concealment (Section 31) CASES: E. Representation Definition, interpretation (Sections 36-39) What representation qualifies or not (Section 40) Sections 41-44 CASE: Misrepresentation , effect (Section 45) CASES: Materiality of Misrepresentation (Section 46) Rules on concealment and representation (Section 47) Right of rescission/incontestability (Section 48) CASES: F. Insurance Policy G. Warranties (Sections 67-76) H. Premium (Sections 77-82) I. Loss (Sections 83-87) J. Notice and proof of Loss (Sections 88-92) K. Double Insurance (Sections 93-94) L. Reinsurance (Sections 95-98) III. Classes of Insurance A. Marine Insurance (Sections 99-166) B. Fire Insurance (Sections 167-173) C. Life Insurance (Sections 179-183)