INSURANCE MIDTERMS (Weeks 1 to 8)
WEEK 1
GENERAL
Laws Governing contracts of insurance in the Philippines:
1. RA 10607
2. New Civil Code
3. Special Laws
Sec. 2. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:
(1) A "contract of insurance" is an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within
the meaning of this Code, only if made by a surety who or which, as such, is doing
an insurance business as hereinafter provided.
Requisites:
1. Subject Matter (Object)
2. Meeting of the Minds (Consent)
3. Consideration, which is the premium paid by the insured, for the insurer’s
promise to indemnify the former upon the happening of the event or peril
insured against.
NATURE AND CHARACTERISTICS
1. CONSENSUAL – perfected by the meeting of the minds fo the parties.
There should be acceptance of the application for insurance.
2. VOLUNTARY – the parties may incorporate such terms and conditions as
they may deem convenient: provided they do not contravene any
provision of law and are not opposed to public policy, law, morals, good
customs, or public order.
GR: The taking out of an insurance contract is not compulsory.
3 – EXECUTIVE | Ab Initio Group
XPN: Liability insurance may be required by law in certain
instances.
3. ALEATORY – the liability of the insurer depends upon some contingent
event.
4. UNILATERAL – it imposes legal duties only on the insurer who promises to
indemnify in case of loss.
5. CONDITIONAL – it is subject to conditions, the principal one of which is
the happening of the event insured against.
6. CONTRACT OF INDEMNITY – recovery is commensurate with the amount
of the loss suffered.
GR: The insurer promises to make good only the loss of the
insured.
XPN: the principle is not applicable to life and accident insurance
where the result is death because life is not capable of pecuniary
estimation. The only situation where the principle of indemnity is
applicable to life insurance is when the interest of a person
insured is capable of exact pecuniary measurement.
7. PERSONAL – Each party having in view the character, credit and conduct
of the other.
8. PROPERTY – since insurance is a contract, it is property in legal
contemplation.
9. RISK-DISTRIBUTING DEVICE – insurance serves to distribute the risk of
economic loss among as many as possible of those who are subject to the
same kind of loss.
10. ONEROUS – there is a valuable consideration called the premium.
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. 
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.
Art. 1353. The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is true
and lawful.
Enriquez v. Sun Life Assurance, GR 15895, 29 Nov. 1920
FACTS:
 September 24, 1917: Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life
annuity
 2 days later: he paid P6,000 to the manager of the company's Manila
office and was given a receipt
 according to the provisional receipt, 3 things had to be accomplished by
the insurance company before there was a contract:  forwarded to the Manila office.
 (1) There had to be a medical examination of the applicant;
-check
 (2) there had to be approval of the application by the head office
of the company; and - check
 (3) this approval had in some way to be communicated by the
company to the applicant - ?
 November 26, 1917: The head office at Montreal, Canada gave notice of
acceptance by cable to Manila but this was not mailed
 December 4, 1917: policy was issued at Montreal
 December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office
of the company stating that Herrer desired to withdraw his application
 December 19, 1917: local office replied to Mr. Torres, stating that the
policy had been issued, and called attention to the notification of
November 26, 1917
 December 21, 1917 morning: received by Mr. Torres
 December 20, 1917: Mr. Herrer died
 Rafael Enriquez, as administrator of the estate of the late Joaquin Ma.
Herrer filed to recover from Sun Life Assurance Company of
Canada through its office in Manila for a life annuity
 RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his application
thereby perfecting his life annuity
3 – EXECUTIVE | Ab Initio Group
HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from
the Sun Life the sum of P6,000 with legal interest from November 20, 1918, until
paid, without special finding as to costs in either instance. So ordered.
Perez v. CA, GR 112329. 28 January 2000
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for
P20,000.00. Sometime in October 1987, an agent of the insurance corporation,
visited Perez in Quezon and convinced him to apply for additional insurance
coverage of P50,000.00. Virginia A. Perez, Primitivo’s wife, paid P2,075.00 to the
agent. The receipt issued indicated the amount received was a "deposit."
Unfortunately, the agent lost the application form accomplished by Perez and he
asked the latter to fill up another application form. The agent sent the application
for additional insurance of Perez to the Quezon office. Such was supposed to
Perez drowned. His application papers for the additional insurance of P50,000.00
were still with the Quezon. It was only after some time that the papers were
brought to Manila. Without knowing that Perez died, BF Lifeman Insurance
Corporation approved the application and issued the corresponding policy for the
P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the insurance
policies of the deceased. She was paid P40,000.00 under the first insurance policy
for P20,000.00 but the insurance company refused to pay the claim under the
additional policy coverage of P50,000.00, the proceeds of which amount to
P150,000.00.
The insurance company maintained that the insurance for P50,000.00 had not
been perfected at the time of the death of Primitivo Perez. Consequently, the
insurance company refunded the amount paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking
the rescission and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had
fulfilled all his prestations under the contract and all the elements of a valid
contract are present.
On October 25, 1991, the trial court rendered a decision in favor of petitioner
ordering respondent to pay 150,000 pesos. The Court of Appeals, however,
reversed the decision of the trial court saying that the insurance contract for
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 INSURANCE MIDTERMS (Weeks 1 to 8)
P50,000.00 could not have been perfected since at the time that the policy was
issued, Primitivo was already dead.
Petitioner’s motion for reconsideration having been denied by respondent court,
the instant petition for certiorari was filed on the ground that there was a
consummated contract of insurance between the deceased and BF Lifeman
Insurance Corporation.
Issue: WON the widow can receive the proceeds of the 2 nd insurance
policy
Held: No. Petition dismissed.
Ratio:
Perez’s application was subject to the acceptance of private respondent BF
Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned with
the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has
been paid and the policy delivered to and accepted by me/us in person while
I/We, am/are in good health."
BF Lifeman didn’t give its assent when it merely received the application form and
all the requisite supporting papers of the applicant. This happens only when it
gives a policy.
It is not disputed, however, that when Primitivo died on November 25, 1987, his
application papers for additional insurance coverage were still with the branch
office of respondent corporation in Quezon. Consequently, there was absolutely no
way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already
dead.
Petitioner insists that the condition imposed by BF that a policy must have been
delivered to and accepted by the proposed insured in good health is potestative,
being dependent upon the will of the corporation and is therefore void. The court
didn’t agree. A potestative condition depends upon the exclusive will of one of the
parties and is considered void. The Civil Code states: When the fulfillment of the
3 – EXECUTIVE | Ab Initio Group
condition depends upon the sole will of the debtor, the conditional obligation shall
be void.
The following conditions were imposed by the respondent company for the
perfection of the contract of insurance: a policy must have been issued, the
premiums paid, and the policy must have been delivered to and accepted by the
applicant while he is in good health.
The third condition isn’t potestative, because the health of the applicant at the
time of the delivery of the policy is beyond the control or will of the insurance
company. Rather, the condition is a suspensive one whereby the acquisition of
rights depends upon the happening of an event which constitutes the condition. In
this case, the suspensive condition was the policy must have been delivered and
accepted by the applicant while he is in good health. There was non-fulfillment of
the condition, because the applicant was already dead at the time the policy was
issued.
As stated above, a contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding from the date of
application, must have been a completed contract.
The insurance company wasn’t negligent because delay in acting on the
application does not constitute acceptance even after payment. The corporation
may not be penalized for the delay in the processing of the application papers due
to the fact that process in a week wasn’t the usual timeframe in fixing the
application. Delay could not be deemed unreasonable so as to constitute gross
negligence.
De Lim v. Sun Life of Canada, GR 15774, Nov. 29, 1920
Facts:
Luis Lim of Zamboanga applied for a Sun Life policy for Php 5,000. He designated
his wife, Pilar, as beneficiary. The first premium of P433 was paid by Lim, then the
company issued a "provisional policy." Lim died after the issuance of the
provisional policy but before approval of the application.
Pilar brought an action to recover from Sun Life the sum of P5,000, the
amount named in the provisional policy. She lost in the trial court hence this
appeal.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
The "provisional policy" reads as follows:
The above-mentioned life is to be assured in accordance with the terms
and conditions contained or inserted by the Company in the policy which may be
granted by it in this particular case for four months only from the date of the
application, provided that the Company shall confirm this agreement by issuing a
policy on said application when the same shall be submitted to the Head Office in
Montreal. Should the Company not issue such a policy, then this agreement shall
be null and void ab initio, and the Company shall be held not to have been on the
risk at all, but in such case the amount herein acknowledged shall be returned.
Issue: WON there was a perfected contract of insurance
Held: No. Petition dismissed.
Ratio:
The policy for four months is expressly made subjected to the affirmative condition
that "the company shall confirm this agreement by issuing a policy on said
application when the same shall be submitted to the head office in Montreal."
  Should the company not issue such a policy, then this agreement shall be null
and void ab initio, and the company shall be held not to have been on the risk."
This means that the agreement should not go into effect until the home office of
the company should confirm it by issuing a policy. The provisional
policy amounts to nothing but an acknowledgment on behalf of the company, that
it has received from the person named therein the sum of money agreed upon as
the first year's premium upon a policy to be issued upon the application, if the
application is accepted by the company.
There can be no contract of insurance unless the minds of the parties have met
in agreement. In this case, the contract of insurance was not consummated by the
parties.
The general rule concerning the agent's receipt pending approval or issuance of
policy is in several points, according to Joyce:
Where an agreement is made between the applicant and
the agent whether by signing an application containing such condition, or
otherwise, that no liability shall attach until the principal approves the risk and a
receipt is given buy the agent, such acceptance is merely conditional, and it
3 – EXECUTIVE | Ab Initio Group
subordinated to the act of the company in approving or rejecting; so in life
insurance a "binding slip" or "binding receipt" does not insure of itself.
The court held that this second point applied to the case.
Steinle vs. New York Life Insurance Co.-  the amount of the first premium
had been paid to an insurance agent and a receipt was given. The paper declared
that if the application was accepted by the company, the insurance shall take
effect from the date of the application but that if the application was not accepted,
the money shall be returned. The court held that there was no perfection of the
contract.
Cooksey vs. Mutual Life Insurance Co.- the person applying for the life
insurance paid and amount equal to the first premium, but the application and the
receipt for the money paid, stipulated that the insurance was to become effective
only when the application was approved and the policy issued. There was also no
perfection.
A binding receipt is a custom where temporary insurance pending the
consideration of the application was given until the policy be issued or the
application rejected, and such contracts are upheld and enforced when the
applicant dies before the issuance of a policy or final rejection of the application.
However, there was no perfected contract because of the clause in the
application and the receipt stipulate expressly that the insurance shall become
effective only when the "application shall be approved and the policy duly signed
by the secretary at the head office of the company and issued." The premium of
433 must be returned.
Musngi v. West Coast Life, GR 41794,30 Aug. 1935
Facts: Plaintiffs Musngi and Garia filed a suit against West Coast Life to recover
the value of the two insurance policies applied for by Arsenio Garcia (the insured).
In applying for the said insurance, the insured was asked if he consulted a
physician or practitioner, and if so, for what ailment or illness; he answered
“None” and “No”, respectively. These answers were one of the causes or
considerations for the issuance of the policies. Upon the death of the insured, the
plaintiffs, as beneficiaries, demanded West Coast to pay the value of the policies.
However, West Coast found out that the insured had been treated by a lady
physician in the General Hospital in Manila for different ailments such as incipient
pulmonary tuberculosis, chronic bronchitis, and chronic suppurative pyelocystisis.
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It contended that the two policies did not create any valid obligation because they
were fraudulently obtained by the insured. The appealed decision held that the
health of the insured, before acceptance of his application and the issuance of the
policies, could neither be discussed nor questioned by the defendant company
because three physicians of the company examined the insured; however, all the
physicians signified that the insured was in good health. Nevertheless, the findings
of the company physicians were nit the main cause for the issuance (or non-
issuance) of the policies.
Issues:
1.) W/N the statements of the insured regarding his health were
false
2.) W/N such statements were the causes which induced the
defendant company to issue the policies
Held/Ratio:
1.) Yes, the statements of the insured regarding his health were
false because at the time of application, he already knew that
he had been suffering from ailments.
2.) Yes, such statements were the causes which induced the
defendant company to issue the policies. The concealment
and false statements of the insured constituted fraud; the
insurance company, by reason of such statement, accepted
the risk associated with the policy nut for which it could have
rejected. It was further held that the principal question must
be whether the assurer (the insurance company) was misled
or deceived into entering a contract of obligation or in fixing
the premium of the insurance by withholding of material
information or facts within the assured’s knowledge or
presumed knowledge. Under Art. 1276 of the Civil Code, the
statement of a false consideration shall render the contract
void. Such matter is not specifically provided for by the
Insurance Law, and so the general rules of the civil law
regarding contracts (there being a life insurance contract)
shall apply. Thus, a valid cause or consideration is a requisite
for a valid insurance contract.
3 – EXECUTIVE | Ab Initio Group
WEEK 2
ESSENTIAL ELEMENTS
Gulf Resorts v. Philippine Charter lns., GR 156167, 16 May 2005
Facts – Petitioner Gulf Resorts owned Playa Resorts at Agoo, La Union, and it
entered into an insurance contract with the respondent American Home Assurance
Company which insured Plaza Resort’s properties against loss or damage due to
earthquakes. On 16 July 1990, an earthquake struck Central Luzon and Northern
Luzon and the properties in Playa Resort were damaged including the two (2)
swimming pools. On 11 August 1990, Gulf Resorts filed its formal demand for
settlement of the damage to all of its properties in the Agoo Playa Resort, but on
23 August 1990, American Home Assurance Company denied Gulf Resorts’ claim
on the ground that its insurance policy only covered the two swimming pools of
Playa Resort against earthquake shock, and not the other properties damaged by
the said earthquake. Gulf Resorts contended that pursuant to this rider, no
qualifications were placed on the scope of the earthquake shock coverage, and
thus, the policy extended earthquake shock coverage to its properties.
On 24 January 1991, Gulf Resorts filed a complaint with the RTC Pasig where it
asked for payment for P5, 427,779.00 as amount of the lost/damaged properties,
attorney fees, lost income, etc. However, on 21 February 1994, the said RTC ruled
in favor of American Home Assurance Company, where it ruled that the insurance
coverage against earthquake is limited only to the two swimming pools of Gulf
Resorts’ Playa Resort and does not extend against the other properties damaged
by the earthquake.
Gulf Resort filed a motion for the trial court to reconsider its decision, but to no
avail. Gulf Resorts filed an appeal with the Court of Appeals, but the Court of
Appeals affirmed the trial court’s decision.
Issue – W/N the insurance policy issued by American Home Assurance
Company (AHAC-AIU) to Gulf Resort’s coverage is not limited only to the
two swimming pools of Gulf Resorts’ Playa Resort?
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Held – The Supreme Court held that the insurance policy issued to Gulf Resorts is
only limited to the two swimming pools and the other properties of Playa Resort
are not covered by the property insurance issued by American Home Assurance
Company (AHAC-AIU). The Court held that there is no ambiguity in the insurance
contract and the earthquake shock rider, as Gulf Resorts stated that the swimming
pools are the only items covered by the insurance against loss due to earthquakes.
The Court stated that provisions in the insurance policy should be examined and
interpreted in consonance with each other, and should not be construed
piecemeal. All parts of the insurance contract reflect the true intent of the parties.
The Supreme Court also defined contracts of adhesion as contracts where one
party prepares the stipulations in the contract while the other party merely affixes
his/her signature thereto, citing the case of Philippine National Bank vs. Court of
Appeals (196 SCRA 536). Any ambiguity is resolved against the insurer (who
prepared the contract) and construed liberally in the insured’s favor. However,
since the policy and its riders are clear about the insurance coverage against
earthquake shock, the Gulf Resorts cannot use the doctrine of contract of adhesion
and liberal interpretation of insurance contract in the insured’s favor in case of
ambiguity.
Philamcare Health Systems v. CA, GR 125678, 18 March 2002
FACTS - Ernani Trinos applied for a health care coverage with Philamcare Health
Systems, Inc. To the question ‘Have you or any of your family members ever
consulted or been treated for high blood pressure, heart trouble, diabetes, cancer,
liver disease, asthma or peptic ulcer?’, Ernani answered ‘No’. Under the
agreement, Ernani is entitled to avail of hospitalization benefits and out-patient
benefits. The coverage was approved for a period of one year from March 1, 1988
to March 1, 1989. The agreement was however extended yearly until June 1, 1990
which increased the amount of coverage to a maximum sum of P75,000 per
disability.
During the period of said coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month. While in the hospital,
his wife Julita tried to claim the benefits under the health care agreement.
However, the Philamcare denied her claim alleging that the agreement was void
because Ernani concealed his medical history. Doctors at the MMC allegedly
discovered at the time of Ernani’s confinement that he was hypertensive, diabetic
and asthmatic, contrary to his answer in the application form. Thus, Julita paid for
all the hospitalization expenses.
3 – EXECUTIVE | Ab Initio Group
After Ernani was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak.
Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.
Julita filed an action for damages and reimbursement of her expenses plus moral
damages attorney’s fees against Philamcare and its president, Dr. Benito
Reverente. The Regional Trial court or Manila rendered judgment in favor of Julita.
On appeal, the decision of the trial court was affirmed but deleted all awards for
damages and absolved petitioner Reverente. Hence, this petition for review raising
the primary argument that a health care agreement is not an insurance contract;
hence the “incontestability clause” under the Insurance Code does not apply.
ISSUES –
(1) Whether or not the health care agreement is not an insurance
contract
(2) Whether or not there is concealment of material fact made by Ernani
HELD - (1)YES. Section2 (1)of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown or contingent event.
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which my damnify a person having an insurable against
him, may be insured against. Every person has an insurable interest in the life and
health of himself.
Section 10 provides that every person has an insurable interest in the life and
health (1) of himself, of his spouse and of his children.
The insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of
non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
(2) NO. The answer assailed by petitioner was in response to the question relating
to the medical history of the applicant. This largely depends on opinion rather than
fact, especially coming from respondent’s husband who was not a medical doctor.
Where matters of opinion or judgment are called for answers made I good faith
and without intent to deceive will not avoid a policy even though they are untrue.
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer to the extent
agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or
wherever he avails of the covered benefits which he has prepaid.
Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer. By
reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially to avoid
forfeiture. This is equally applicable to Health Care Agreements.
Art. 2011. The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code.
Art. 2012. Any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said article.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage
at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense,
in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by
reason of his office.
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In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action.
lnsular Life v. Ebrado, GR 44059, 28 October 1977
FACTS - Buenaventura Cristor Ebrado was married to Pascuala Ebrado. During his
lifetime, he was living with his common-law wife, Carponia Ebrado, although he
was not legally separated from his legal wife. Buenaventura was issued by The
Insular Life Assurance Co., Ltd., Policy No. 009929 on a whole-life plan for PhP
5,8882.00 with a rider for Accidental Death Benefits for the same amount.
Buenaventura designated Carponia Ebrado as the revocable beneficiary in his
policy. Buenaventura died as a result of an accident when he was hit by a falling
branch of a tree. As the insurance policy was still in force, The Insular Life
Assurance Co., Ltd stands liable to pay the coverage.
Carponia Ebrado, his common-law wife, filed with the insurer a claim for the
proceeds of the policy as the designated beneficiary therein. Pascuala Vda. de
Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular
Life Assurance Co., Ltd, commenced an action for Interpleader before the CFI of
Rizal.
ISSUE - Can a common-law wife of a man who was not legally separated
from his legal wife be a beneficiary of his life insurance plan?
HELD/RULING - No.
The Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD
No. 612, as amended) does not contain any specific provision grossly resolutory to
the question at hand. Section 50 of the Insurance Act, which provides that “(t)he
insurance shall be applied exclusively to the proper interest of the person in whose
name it is made,” cannot be interpreted that it includes the beneficiary because a
contract of insurance is personal in character. The general rules of civil law should
be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil
Code states: “The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code.” Article
2012 of the same Code states that, “any person who is forbidden from receiving
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 INSURANCE MIDTERMS (Weeks 1 to 8)
any donation under Article 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make a donation to him.” Therefore, common-
law spouses are barred from receiving donations from each other.
Article 739 provides:
“The following donations shall be void:
Those made between persons who were guilty of adultery or concubinage at the
time of the donation; Those made between persons found guilty of the same
criminal offense, in consideration thereof; Those made to a public officer or his
wife, descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same action.”
In essence, a life insurance policy is no different from a civil donation insofar as
the beneficiary is concerned. Both are founded upon the same consideration:
liberality. As a consequence, the proscription in Art. 739 of the New Civil Code
should equally operate in life insurance contracts.
In the case at bar, the requisite proof of common-law relationship between the
insured and the beneficiary has been supplied by the stipulations between the
parties in the pre-trial conference. It was agreed an stipulated that the deceased
insured Buenaventura Ebrado was married to Pascuala Ebrado and that, during the
lifetime of the deceased insured, he was living with his common-law wife,
Carponia Ebrado. Based on the foregoing, Carponia Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura Ebrado in his life
insurance policy. The proceeds of the policy are hereby held payable to the estate
of the deceased insured.
Zenith lnsurance v. CA, GR 85296, 14 May 1990
FACTS - On January 25, 1983, private respondent Lawrence Fernandez insured
with the insurer his car for "own damage". The car figured in an accident and
suffered actual damages in the amount of P3,640.00. The insurer offered to pay
the claim of Fernandez pursuant to the terms and conditions of the contract which,
the private respondent rejected. After allegedly being given a run around by Zenith
for two (2) months, Fernandez filed a complaint with the Regional Trial Court for
sum of money and damages resulting from the refusal of Zenith to pay the
amount claimed. Aside from actual damages and interests, Fernandez also prayed
3 – EXECUTIVE | Ab Initio Group
for moral damages in the amount of P10,000.00, exemplary damages of
P5,000.00, attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
On June 4, 1986, a decision was rendered by the trial court ordered the insurance
company to pay the insured the damage incurred plus interest at the rate of twice
the prevailing interest rates, moral damages (20,000, that is twice the amount the
insured prayed for), exemplary damages, attorney's fees, litigation expenses and
costs. The CA affirmed the decision of the trial court.
ISSUE - Whether the insurer is liable to the insured for moral and
exemplary damages as ordered by the trial court
HELD - The decision of the lower court is modified to which, the moral damages is
reduced to 10,000 and the award of exemplary damages is deleted
In case of unreasonable delay in the payment of the proceeds of an insurance
policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the injured; and 4) the amount of the claim.
(Insurance Code Sec. 244) In awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and deliberately
injurious or the one responsible acted fraudulently or in bad faith. The act of
petitioner of delaying payment for two months cannot be considered as so wanton
or malevolent to justify an award of P20,000.00 as moral damages, taking into
consideration the actual damage. The reason for petitioner's failure to indemnify
private respondent within the two-month period was that the parties could not
come to an agreement as regards the amount of the actual damage on the car.
On the other hand, exemplary or corrective damages are imposed by way of
example or correction for the public good (Art. 2229, NCC). In the case of Noda v.
Cruz-Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages
were not awarded as the insurance company had not acted in wanton, oppressive
or malevolent manner. The same is true in the case at bar.
Art. 2027. No annuity shall be claimed without first proving the existence of the
person upon whose life the annuity is constituted.
Fireman's Fund et al v Jamila et al., GR27427, 7 April 1976
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 INSURANCE MIDTERMS (Weeks 1 to 8)
FACTS - Jamila or the Veterans Philippine Scouts Security Agency contracted to
supply security guards to Firestone; that Jamila assumed responsibility for the acts
of its security guards; that First Quezon City Insurance Co., Inc. executed a bond
in the sum of P20,000 to guarantee Jamila's obligations under that contract; that
on May 18, 1963 properties of Firestone valued at P11,925 were lost allegedly due
to the acts of its employees who connived with Jamila's security guard; that
Fireman's Fund, as insurer, paid to Firestone the amount of the loss; that
Fireman's Fund was subrogated to Firestone's right to get reimbursement from
Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed
to pay the amount of the loss in spite of repeated demands.
Upon defendant's motions, the lower court in its order of July 22, 1966 dismissed
the complaint as to Jamila on the ground that there was no allegation that it had
consented to the subrogation and, therefore, Fireman's Fund had no cause of
action against it.
ISSUES -
1) Whether the complaint of Firestone states a cause of action against
Jamila?
2) Whether the complaint of Fireman's Fund states a cause of action
against Jamila?
3) Whether Jamila should reimburse Fireman’s Fund?
HELD - CFI Decision's order of dismissal is legally untenable so it was
SET ASIDE with costs against Jamila & Co., Inc.
RATIO -
[F&F’s counsel gratuitously alleged in their brief that Firestone and Jamila entered
into a "contract of guard services" on June 1, 1965. That allegation was uncalled
for because it is not found in the complaint and so created confusion which did not
exist. No copy of the contract was annexed to the complaint. That confusing
statement was an obvious error since it was expressly alleged in the complaint
that the loss occurred on May 18, 1963. The fact that such an error was
committed is another instance substantiating the observation that F&F's counsel
had not exercised due care in the presentation of his case.]
1) Firestone is really a nominal party in this case as it had already been
indemnified for the loss which it had sustained. It joined as a party-plaintiff in
3 – EXECUTIVE | Ab Initio Group
order to help Fireman's Fund to recover the amount of the loss from Jamila and
First Quezon City Insurance Co., Inc. Firestone had tacitly assigned to Fireman's
Fund its cause of action against Jamila for breach of contract. Sufficient ultimate
facts are alleged in the complaint to sustain that cause of action.
2) Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As
the insurer, Fireman's Fund is entitled to go after the person or entity that violated
its contractual commitment to answer for the loss insured against (PAL vs. Heald
Lumber Co).
CFI erred in applying to this case the rules on novation. F&F in alleging in their
complaint that Fireman's Fund "became a party in interest in this case by virtue of
a subrogation right given in its favor by" Firestone, were not relying on the
novation by change of creditors as contemplated in NCC 1291 and 1300 to 1303
but rather on NCC 2207.
Article 2207 is a restatement of a settled principle of American jurisprudence.
Subrogation has been referred to as the doctrine of substitution. It "is an arm of
EQUITY that may guide or even force one to pay a debt for which an obligation
was incurred but which was in whole or in part paid by another" (83 C.J.S. 576).
"Subrogation is founded on principles of JUSTICE AND EQUITY, and its operation
is governed by principles of equity. It rests on the principle that substantial justice
should be attained regardless of form, that is, its basis is the doing of complete,
essential, and perfect justice between all the parties without regard to form"(83
C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs
Moses). Upon payment of the loss, the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against the third person
whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745).
The right of subrogation is of the highest EQUITY. The LOSS IN THE FIRST
INSTANCE is that of the INSURED but AFTER reimbursement or compensation, it
becomes the LOSS OF THE INSURER (44 Am. Jur. 2d 746).
"Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the
equitable right of subrogation as the legal effect of payment inures to the insurer
9
 INSURANCE MIDTERMS (Weeks 1 to 8)
without any formal assignment or any express stipulation to that effect in the
policy" (44 Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to the insured makes the insurer an assignee in
equity (Shambley v. Jobe-Blackley Plumbing and Heating Co).
3) Whether the plaintiffs would be able to prove their cause of action against
Jamila is another question.
Pan Malayan lnsurance v CA, GR 81026, 3 April 1990
FACTS - Canlubang Automotive Resources Corp. obtained from Pan Malay a
motor vehicle insurance policy for its Mitsubishi Colt Lancer. While the policy was
still in effect, the insured car was allegedly hit by a pick-up owned by Erlinda Fabie
but driven by another person. The car suffered damages in the amount of P42K.
Pan Malay defrayed the cost of repair of the insured car. It then demanded
reimbursement from Fabie and her driver of said amount, but to no avail. Pan
Malay filed a complaint for damages with the RTC of Makati against Fabie and the
driver. It averred that the damages caused to the insured car was settled under
the “own damage” coverage of the insurance policy. Private respondents filed a
motion to dismiss alleging that Pan Malay had no cause of action since the “won
damage” clause of the policy precluded subrogation under Art. 2207 of the Civil
Code. They contended that indemnification under said article is on the assumption
that there was no wrongdoer or no 3rd party at fault. The RTC dismissed Pan
Malay’s complaint and ruled that payment under the “own damage” clause was an
admission by the insurer that the damage was caused by the assured and/or its
representatives. CA affirmed but on different ground. Applying the ejusdem
generis rule, CA held that Section III-I of the policy, which was the basis for the
settlement of the claim against insurance, did not cover damage arising from
collision or overturning due to the negligence of 3rd parties as one of the insurable
risks.
ISSUE - Was Pan Malay subrogated to the rights of Canlubang against
the driver and his employer?
HELD - Yes.
3 – EXECUTIVE | Ab Initio Group
The Supreme Court remanded the case back to the trial court.
Right of Subrogation of the Insurer
• Article 2207 of the Civil Code is founded on the well-settled principle
of subrogation. If the insured property is destroyed or damaged
through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured, will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that
the insurer has been obligated to pay.
• Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused the
loss.
• The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.
There are three exceptions to this rule:
1. where the assured by his own act releases the wrongdoer or third
party liable for the loss or damage
2. where the insurer pays the assured the value of the lost goods without
notifying the carrier who has in good faith settled the assured's claim
for loss
3. where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment"
None of these exceptions are present in this case.
As to the trial court’s ruling:
When PanMalay utilized the phrase "own damage" — a phrase which is not found
in the insurance policy — to define the basis for its settlement of Canlubang's
claim under the policy, it simply meant that it had assumed to reimburse the costs
for repairing the damage to the insured vehicle. It is in this sense that the so-
called "own damage" coverage under Section III of the insurance policy is
differentiated from Sections I and IV-1 which refer to "Third Party Liability"
coverage (liabilities arising from the death of, or bodily injuries suffered by, third
parties) and from Section IV-2 which refer to "Property Damage" coverage
(liabilities arising from damage caused by the insured vehicle to the properties of
third parties).
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 INSURANCE MIDTERMS (Weeks 1 to 8)
As to the Court of Appeals’ ruling:
The Court of Appeals' ruling on the coverage of insured risks stems from an
erroneous interpretation of the provisions of the policy. It violates a fundamental
rule on the interpretation of property insurance contracts where interpretation
should be liberally in favor of the assured and strictly against the insurer in cases
of disagreement between the parties. The meaning advanced by PanMalay
regarding the coverage of the policy is undeniable more beneficial to Canlubang
than that insisted upon by the CA. In any case, the very parties to the policy were
not shown to be in disagreement regarding the meaning and coverage of Section
III-I. Hence, it was improper for CA to assert its own interpretation of the contract
that is contrary to the clear understanding and intention of the parties to it.
* Even assuming for the sake of argument that the insurance policy does not
cover damage to the insured vehicle caused by negligent acts of third parties, and
that PanMalay's settlement of Canlubang's claim for damages allegedly arising
from a collision due to private respondents' negligence would amount to
unwarranted or "voluntary payment", insurer may still recover from the third party
responsible for the damage to the insured property under Article 1236 of the Civil
Code.
Sveriges Anfartygs Assurance v Qua Chee Gan, L-22146, 5 Sept 1967
FACTS:
  Qua Chee Gan, shipped on board the S.S. NAGARA, 2,032,000 kilos of bulk
copra at Quezon, consigned to DAL International Trading Co., in Gdynia,
Poland.  The vessel first called at the port of Karlshamn, Sweden, where it unload-
ed 696,419 kilos of bulk copra.  Then, it proceeded to Gdynia where it unloaded
the remaining copra shipment.  The actual outturn weights in the latter port
showed that only 1,569,429 kilos were discharged. Because of the alleged
confirmed cargo shortage, the Polish cargo insurers had to indemnify the
consignee for the value thereof.  Thereafter, the former sued the ship-owner.   from defendant shipper under Art. 1236 of the Civil Code which allows
Settlement was effected between the Polish cargo insurers and the ship owner.   a third person who pays on behalf of another to recover from the
On August 16, 1954, claiming to have been subrogated to the rights of the carrier,
plaintiff sued defendant before the Court of First Instance of Manila to
recover U.S. $60,733.53 plus 17% exchange tax, with legal interest, as the value
of the alleged cargo short shipment and P10,000 as attorney's fees.  Defendant
answered in due time and countered with a P15,000 counterclaim for attorney's
fees.
3 – EXECUTIVE | Ab Initio Group
After trial the lower court September 28, 1963, rendered its decisions dismissing
the complaint and awarding P10,000 as attorney's fees to defendant.  
ISSUE:
1. W/N there was shortshipment on defendants part?
2. W/N the non-presentation of the insurance policy fatal to
plaintiff's case?
3. W/N defendant was merely acting as an agent of
Louis Dreyfus & Co., who was the real shipper?
RULING:
1. None. Plaintiff's cause of action suffers from several fatal defects and
inconsistencies.  The alleged existence of the Karlshamn bills of lading
is negative by the fact that Exhibits A and B - the bills of lading
presented by plaintiff - show that the 2,032,000 kilos of copra loaded
in Siain were for Gdynia only.  Further destroying its case is the
testimony of plaintiff's own witness, Mr. Claro Pasicolan, who on direct
examination affirmed[5] that these two exhibits constituted the
complete set of documents which them shipping agent in charge of
the vessel S.S. NAGARA issued covering the copra cargo loaded at
Slain.  In view of this admission and for want of evidentiary support,
plaintiff's belated claim that there is another complete set of
documents cannot be seriously taken.
2. No. The lower court ruled so, reasoning that unless the same — as the
best evidence — were presented, it could not be conclusively
determined if "liability for short shipment" was a covered risk. And the
rule is that an insurer who pays the insured for loss or liability not
covered by the policy is not subrogated to the latter. 2 However, even
assuming that there was unwarranted — or "volunteer" — payment,
plaintiff could still recover what it paid — in effect — to the carrier
latter, although there is no subrogation. But since the payment here
was without the knowledge and consent of defendant, plaintiff's right
of recovery is defeasible by the former's defenses since the Code is
clear that the recovery is only up to the amount by which the
defendant was benefited.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
3. Yes, suffice it to say that although on Exhibit A and B his name
appears as the shipper, yet the very loading certificate, Exhibit 3 [5-
Deposition of Horle], issued and signed by the Chief Mate, and Master
of the S.S. NAGARA shows that defendant was acting merely for
account of Louis Dreyfus & Co.  The other documentary
exhibits[7] confirm this.  Anyway, in whatever capacity defendant is
considered, it cannot be liable since no shortshipment was shown.
Plaintiff's action against defendant cannot, however, be considered as clearly
unfounded as to warrant an award of attorney's fees as damages to defendant
under par. 4, Art. 2208 of the Civil Code.  The facts do not show that plaintiff's
cause of action was so frivolous or untenably as to amount to gross and evident
bad faith.[8]
WHEREFORE, but for the award of attorney's fees to defendant which is
eliminated, the decision appealed from is, in all other respects, hereby
affirmed.  Costs against plaintiff-appellant.
Rizal Surety v Manila Railroad, GR L-24043,25 April 1968
Facts:
On Nov 29, 1960, a vessel named SS Flying Trader, loaded on board a cargo
which is an offset press machine, from Italy to Manila. Upon reaching the port of
destination and upon unloading it, it was dropped b the crane which resulted to
damages of the machine. The plaintiff as the insurer had paid the consignee,
Suter, Inc. the amount of P16.5k for the machine and P180.70 for the
International Adjustment Bureau as adjuster’s fee. However, the arrastre charges
in this particular shipment was paid on the weight or measurement basis
whichever is higher, and not on the value thereof.
Issue:
Can the insurance get an amount greater than what was declared?
Held:
Plaintiff Insurance Company cannot recover from defendants an amount greater
than that to which the consignee could lawfully lay claim. The management
contract is clear, the amount is limited to P500.
If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of
3 – EXECUTIVE | Ab Initio Group
contract complained of, the insurance company shall be subrogated to the right of
the insured against the wrong-doer or the person who has violated the contract. If
the amount paid by the insurance company doer not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
The insurance have no greater right than the party in interest thereof.
St. Paul Fire v Macondray, GR L-27796,25 March 1976
Facts:
-Winthrop Products, Inc., of New York shipped aboard the SS “Tai Ping”, owned
and operated by Wilhelm Wilhelmsen218 cartons and drums of drugs and
medicine with Winthrop-Stearns Inc., Manila, Philippines as consingee.
BarberSteamship Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading No.
34, in the name of Winthrop Products.
-The shipment was insured by the shipper against loss and/or damage with the St.
Paul Fire & Marine InsuranceCompany.
-“Tai Ping” arrived at the Port of Manila.
-The said shipment was discharged complete and in good order with the exception
of one (1) drum and several cartonswhich were in bad condition.
-Because consignee failed to receive the whole shipment and as several cartons of
medicine were received in badorder condition, Winthrop-Sterns Philippines filed
the corresponding claim in the amount of Pl,109.67 representingthe C.I.F. value of
the damaged drum and cartons of medicine with the carrier and the arrestre.
-However, both refused to pay.
-Winthrop-Sterns Philippines filed its claim with the insurer, St. Paul Fire & Marine
insurance.
-The insurance company, on the basis of such claim, paid to the consignee the
insured value of the lost and damagedgoods, including other expenses in
connection therewith, in the total amount of $1,134.46.
-As subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul
Fire & Marine Insurance Co., instituted with the Court of First Instance the present
action against the defendants for the recovery of said amount of $1,134.46, plus
costs.
-The Lower court rendered judgment ordering defendants Macondray & Co., Inc.,
Barber Steamship Lines, Inc. andWilhelm Wilhelmsen to pay to the plaintiff
P300.00. It also held defendants Manila Railroad Company and Manila PortService
to pay to plaintiff, jointly and severally, the sum of P809.67.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
-The Insurer, , contending that it should recover the amount of $1,134.46 or its
equivalent in pesos (the rate of P3.90,instead of P2.00, for every US$1.00), filed
a motion for reconsideration, but this was denied.
-The Insurer argues that, as subrogee of the consignee, it should be entitled to
recover from the defendants-appelleesthe amount of $1,134.46 which it actually
paid to the consignee and which represents the value of the lost anddamaged
shipment as well as other legitimate expenses such as the duties and cost of
survey of said shipment, andthat the exchange rate on the date of the judgment,
which was P3.90 for every US$1.00.
-Defendants-appellees countered that:
o   Their liability is limited to the C.I.F. value of the goods, pursuant to contract of
sea carriage embodied in the bill of lading that the consignee’s (Winthrop-Stearns
Inc.) claim against the carrier (Macondray & Co., Inc.,Barber Steamship Lines,
Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port Service and
Manila Railroad Company) was only for the sum of Pl,109.67
ISSUE(S):
1.Whether or not, in case of loss or damage, the liability of the carrier to
the consignee is limited to the C.I.F value of the goods which were lost
or damaged
2.Whether the insurer who has paid the claim in dollars to the consignee
should be reimbursed in its peso equivalent on the date of discharge of
the cargo or on the date of the decision.
HELD:
The appeal is without merit and the judgement of the lower court is affirmed.
-The purpose of the bill of lading is to provide for the rights and liabilities of the
parties in reference to the contract tocarry.
-The stipulation in the bill of lading limiting the common carrier’s liability to the
value of the goods appearing in thebill, unless the shipper or owner declares a
greater value, is valid and binding.
-This limitation of the carrier’s liability is sanctioned by the freedom of the
contracting parties to establish suchstipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to law,morals, good
customs and public policy.
-A stipulation fixing or limiting the sum that may be recovered from the carrier on
the loss or deterioration of the goods is valid, provided it is:
(a) reasonable and just under the circumstances, and
(b) has been fairly and freely agreed upon.
3 – EXECUTIVE | Ab Initio Group
-In the case at bar, the liabilities of the defendants- appellees with respect to the
lost or damaged shipments areexpressly limited to the C.I.F. value of the goods as
per contract of sea carriage embodied in the bill of lading, whichreads:
o Whenever the value of the goods is less than $500 per package or other freight
unit, their value in the calculation and adjustment of claims for which the Carrier
may be liable shall for the purpose of avoiding uncertainties and difficulties in
fixing value be deemed to be the invoice value, plus freight and insurance if paid,
irrespective of whether any other value is greater or less.
National Union Fire lnsurance v. Stolt Nielsen, GR 87958, 26 April 1990
EMERGENCY RECIT: United Coconut Chemicals (SHIPPER) shipped distilled fatty acid on
board MT “StoltSceptre” (CARRIER). The shipment was insured under a marine cargo
policy with National Union Fire Insurance Co (INSURER). Upon receipt of the cargo by the
consignee in Netherlands, it was totally contaminated. Hence, claim was made on the
INSURER of the cargo. The INSURER as subrogee filed a claim for damages against the
CARRIER with RTC Manila. The CARRIER invoked that arbitration must be done pursuant
to the Charter. The INSURER opposed, arguing that the provision on arbitration was not
included in the Bill of Lading. SC: The INSURER cannot avoid the binding effect of the
arbitration clause. By subrogation, it became privy to the Charter Party as fully as the
SHIPPER before the latter was indemnified, because as subrogee it stepped into the shoes
of the SHIPPER and is subrogated merely to the latter's rights.
FACTS:
On 9 January 1985, United Coconut Chemicals, Inc. shipped 404.774 metric tons
of distilled C6-C18 fatty acid on board MT "StoltSceptre," a tanker owned by Stolt-
Nielsen Philippines Inc., from Bauan, Batangas, Philippines, consigned to
"NieuweMatex" at Rotterdam, Netherlands, covered by Tanker Bill of Lading BL
No. BAT-1.
The shipment was insured under a marine cargo policy with Petitioner National
Union Fire InsuranceCompany of Pittsburg (hereinafter referred to as INSURER), a
non-life American insurance corporation, through its settling agent in the
Philippines, the American International Underwriters (Philippines), Inc., the other
petitioner herein.
Upon receipt of the cargo by the consignee in the Netherlands, it was found to be
discoloured and totally contaminated. Hence, a claim was made on the Insurer of
the cargo. The insurer as subrogee filed a claim for damages against the carrier
with the RTC of Manila.
The carrier filed a motion to dismiss on the ground that the case was arbritrable
and pursuant to the charter party as embodied in the bill of lading, arbitration
must be done. The insurer opposed the motion by arguing that the provision on
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 INSURANCE MIDTERMS (Weeks 1 to 8)
arbitration was not included in the bill of lading and even if it was included, it was
nevertheless unjust and unreasonable.
The RTC denied the motion but upon reconsideration, the resolution on the motion
to dismiss was suspended or deferred.
The carrier then filed a petition for review on certiorari with preliminary
injunction/TRO which was granted by the CA.
ISSUE:
Are the terms of the Charter Party, particularly the provision on
arbitration, binding on the INSURER?
HELD:
Yes. The pertinent portion of the Bill of Lading in issue provides in part:
xxx [A]ll the terms whatsoever of the said Charter  except the rate and payment of
freight specified therein apply to and govern the rights of the parties concerned in
this shipment.xxx
The provision on arbitration in the Charter Party reads:
4. Arbitration. Any dispute arising from the making, performance or termination of
this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual experienced
in the shipping business; the two thus chosen, if they cannot agree, shall nominate
a third arbitrator who shall be an admiralty lawyer. Such arbitration shall be
conducted in conformity with the provisions and procedure of the United States
arbitration act, and a judgment of the court shall be entered upon any award
made by said arbitrator. Nothing in this clause shall be deemed to waive Owner's
right to lien on the cargo for freight, deed of freight, or demurrage.
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party.
It is settled law that the charter may be made part of the contract under which the
goods are carried by an appropriate reference in the Bill of Lading. As the
respondent Appellate Court found, the INSURER "cannot feign ignorance of the
arbitration clause since it was already charged with notice of the existence of the
charter party due to an appropriate reference thereof in the bill of lading and, by
the exercise of ordinary diligence, it could have easily obtained a copy thereof
either from the shipper or the charterer.
We hold, therefore, that the INSURER cannot avoid the binding effect of the
arbitration clause. By subrogation, it became privy to the Charter Party as fully as
the SHIPPER before the latter was indemnified, because as subrogee it stepped
into the shoes of the SHIPPER-ASSURED and is subrogated merely to the latter's
3 – EXECUTIVE | Ab Initio Group
rights. It can recover only the amount that is recoverable by the assured. And
since the right of action of the SHIPPER-ASSURED is governed by the provisions of
the Bill of Lading, which includes by reference the terms of the Charter Party,
necessarily, a suit by the INSURER is subject to the same agreements. It has not
been shown that the arbitral clause in question is null and void, inoperative, or
incapable of being performed. Nor has any conflict been pointed out between the
Charter Party and the Bill of Lading.
Cebu Shipyard vWilliam Lines, GR 132607,5 May 1999
FACTS:
Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the business of
dry-docking and repairing of marine vessels while the Prudential Guarantee and
Assurance, Inc. (Prudential) is in the non-life insurance business.
William Lines, Inc. is in the shipping business. It was the owner of M/V Manila City,
a luxury passenger-cargo vessel, which caught fire and sank.
At the time of the unfortunate occurrence sued upon, subject vessel was insured
with Prudential for P45M for hull and machinery. The Hull Policy included an
“Additional Perils (INCHMAREE)” Clause covering loss of or damage to the vessel
through the negligence of, among others, ship repairmen
Petitioner CSEW was also insured by Prudential for third party liability under a
Shiprepairer’s Legal Liability Insurance Policy. The policy was for P10 million only,
under the limited liability clause
On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the
Cebu Shipyard in Lapulapu City for annual dry-docking and repair.
On Feb. 6, 1991, an arrival conference was held between representatives of
William Lines, Inc. and CSEW to discuss the work to be undertaken on the M/V
Manila City. The contracts, denominated as Work Orders, were signed thereafter.,
with the following stipulations:
10. The Contractor shall replace at its own work and at its own cost any  work or
material which can be shown to be defective and which is communicated in writing
20. The insurance on the vessel should be maintained by the customer and/or
owner of the vessel during the period the contract is in effect.
The total liability of the Contractor to the Customer or of any sub-contractor shall
be limited in respect of any defect or event to the sum of 1M.
While the M/V Manila City was undergoing dry-docking and repairs within the
premises of CSEW, the master, officers and crew of M/V Manila City stayed in the
vessel, using their cabins as living quarters. Other employees hired by William
Lines to do repairs and maintenance work on the vessel were also present during
the dry-docking.
14
 INSURANCE MIDTERMS (Weeks 1 to 8)
On February 16, 1991, after subject vessel was transferred to the docking quay, it
caught fire and sank, resulting to its eventual total loss
On February 21, 1991, William Lines, Inc. filed a complaint for damages against
CSEW, alleging that the fire which broke out in M/V Manila City was caused by
CSEWs negligence and lack of care.
Prudential was impleaded as co-plaintiff, after it paid William Lines, Inc. the value
of the hull and machinery insurance on the M/V Manila City. As a result of such
payment Prudential was subrogated to the claim of P45 million, representing the
value of the said insurance it paid.
Trial Court:   CSEW to pay William Lines and Prudential (45M)
CA: Affirmed TC. Ordered the partial dismissal of the case insofar as CSEW and
William Lines were concerned.
CSEW claims that the insurance policy does not cover loss resulting from the fault
of negligent charterers that are assured in the same policy and by virtue of clause
20, it is deemed a co-assured.
ISSUE/S & RATIO:
WON CSEW is co-assured, thus losses caused by it are not covered by
the policy-NO
The fact that clause 20 benefited petitioner, does not automatically
make it a co-assured of William Lines.
Intention of parties to make each other co-assured is to be gleaned from
the insurance policy itself and not from any other contract because the
policy denominates the assured and the beneficiaries.
Prudential named only William Lines, Inc. as the assured. There was no
manifestation of any intention of William Lines Inc to make CSEW a co-
assured. When the terms of a contract are clear, its stipulations control.
If CSEW were deemed co-assured, it would nullify any claim of William
Lines Inc. No shipowner would agree to make shiprepairer a co-assured
because any claim it has under the policy would be invalidated. Such
result could not have been intended by William Lines Inc.
WON CSEW had “management and supervisory control“ of the ship at
the time the fire broke out- YES
3 – EXECUTIVE | Ab Initio Group
The factual findings by the CA are conclusive on the parties and are not
reviewable by this Court. 
WON the doctrine of res ipsa loquitur applies against the crew- YES
For the doctrine of res ipsa loquitur to apply to a given situation, the
following conditions must concur: (1) the accident was of a kind which
does not ordinarily occur unless someone is negligent; and (2) that the
instrumentality or agency which caused the injury was under the
exclusive control of the person charged with negligence.
The facts and evidence reveal the presence of these conditions. First, the
fire would not have happened in the ordinary course of things if
reasonable care and diligence had been exercised.
WON the provisions limiting CSEW’s liability for negligence to a
maximum of Php 1 million are valid- NO
Although contracts of adhesion have been consistently upheld as valid,
reliance on such contracts cannot be favored especially where the facts
and circumstances warrant that subject stipulations be disregarded.
Tthe facts and circumstances vis-a-vis the nature of the provision sought
to be enforced should be considered, bearing in mind the principles of
equity and fair play.
RULING: Petition denied
Manila Mahogany v CA, GR L-52756,12 October 1987
FACTS:
Petitioner Manila Mahogany Manufacturing Corporation insured its Mercedes
Benz 4-door sedan withrespondent Zenith Insurance Corporation. The insured
vehicle was bumped and damaged by a truck owned bySan Miguel Corporation.
For the damage caused, respondent company paid petitioner five thousand
pesos(P5,000.00) in amicable settlement. Petitioner's general manager executed a
Release of Claim, subrogatingrespondent company to all its right to action against
San Miguel Corporation.Thereafter, respondent company wrote Insurance
Adjusters, Inc. to demand reimbursement from SanMiguel Corporation of the
amount it had paid petitioner. Insurance Adjusters, Inc. refused
reimbursement,alleging that San Miguel Corporation had already paid petitioner
P4,500.00 for the damages to petitioner'smotor vehicle, as evidenced by a cash
15
 INSURANCE MIDTERMS (Weeks 1 to 8)
voucher and a Release of Claim executed by the General Manager of  petitioner
discharging San Miguel Corporation from "all actions, claims, demands the rights
of action that nowexist or hereafter develop arising out of or as a consequence of
the
accident."Respondent insurance company thus demanded from petitioner reimburs
ement of the sum of P4,500.00 paid by San Miguel Corporation. Petitioner refused;
hence, the instant case.
ISSUE:
Whether or not the respondent insurance company is subrogated to the
rights of the petitioner againstSan Miguel Corporation.
HELD:
YES
RULING:
The Supreme Court held that if a property is insured and the owner receives the
indemnity from theinsurer, it is provided in [Article 2207 of the New Civil Code]
that the insurer is
deemed subrogated  amount should be deducted from the award of damages in accordance with Art
to therights of the insured against the wrongdoer and if the amount paid by the
insurer does not fully cover the loss,then the aggrieved party is the one entitled to
recover the deficiency. Under this legal provision,
the real partyin interest with regard to the portion of the indemnity paid is the
insurer and not the insured.
Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel
Corporation under itsclear right to file a deficiency claim for damages incurred,
against the wrongdoer, should the insurancecompany not fully pay for the injury
caused (Article 2207, New Civil Code).
However, when petitioner  released San Miguel Corporation from any liability,
petitioner's right to retain the sum  of P5,000.00 no longer  existed, thereby
entitling private respondent to recover the same
.The right of subrogation can only exist after the insurer has paid the insured
otherwise the insured will be deprived of his right to full indemnity. If the
insurance proceeds are not sufficient to cover the damagessuffered by the insured,
then he may sue the party responsible for the damage for the remainder. To the
extentof the amount he has already received from, the insurer enjoys the right of
subrogation.Since the insurer can be subrogated to only such rights as the insured
may have,
  should the insured,after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses hisrights against the latter. But
3 – EXECUTIVE | Ab Initio Group
in such a case, the insurer will be entitled to recover from the insured whatever
it  has paid to the latter, unless the release was made with the consent of the
insurer 
F .F . Cruz v CA, GR L-52732, 29 August 1988
Facts:
A fire broke up from the furniture shop of the petitioner in Caloocan city early
September 6, 1974. Prior to that, neighbor of the said shop requested that the
petitioner should build a firewall but failed to do so. The cause of the fire was
never discovered. Private respondent got P35k from the insurance on their house
and contents thereof.
Issue:
Whether or not the 35k be deducted from the damages thereof
Ruling:
Since P35k had already been claimed by the respondents, the court held that such
2207 NCC
Art. 2207. If the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Having been indemnified by their insurer, private respondents are entitled only to
recover the deficiency from the petitioner.
Whether or not the insurer should exercise the rights of the insured to which it
had been subrogated lies solely within the former’s sound discretion. Since the
insurer is not a party to the case, its identity is not of record and no claim is made
on its behalf, the private respondent’s insurer has to claim his right to
reimbursement of the P35,000.00 paid to the insured.
WEEK 3
Construction of insurance contracts
16
 INSURANCE MIDTERMS (Weeks 1 to 8)
De la Cruz v. Capital lnsurance, GR L-21 574, 30 June 1966
FACTS:
 Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines,
Inc. in Baguio, was the holder of an accident insurance policy "against
death or disability caused by accidental means"
 January 1, 1957: For the celebration of the New Year, the Itogon-Suyoc
Mines, Inc. sponsored a boxing contest for general entertainment wherein
Eduardo, a non-professional boxer participated
 In the course of his bout with another non-professional boxer of the same
height, weight, and size, Eduardo slipped and was hit by his opponent on
the left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring
 He was brought to the Baguio General Hospital the following day.  He died
due to hemorrhage, intracranial.
 Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the insurance
company
 The Capital Insurance and Surety co., inc denied stating that the death
caused by his participation in a boxing contest was not accidental
 RTC: favored Simon
 Facts:
ISSUE: W/N the cause of death was accident
HELD:YES.
 Eduardo slipped, which was unintentional
 The terms "accident" and "accidental"
 as used in insurance contracts, have not acquired any technical
meaning and are construed by the courts in their ordinary and
common acceptation
 happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen
 event that takes place without one's foresight or expectation
 event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected
 where the death or injury is not the natural or probable result of the
insured's voluntary act, or if something unforeseen occurs in the doing of
3 – EXECUTIVE | Ab Initio Group
the act which produces the injury, the resulting death is within the
protection of policies insuring against death or injury from accident
 while the participation of the insured in the boxing contest is voluntary,
the injury was sustained when he slid, giving occasion to the infliction by
his opponent of the blow that threw him to the ropes of the ring is not
 The fact that boxing is attended with some risks of external injuries does
not make any injuries received in the course of the game not accidental
 In boxing as in other equally physically rigorous sports, such as basketball
or baseball, death is not ordinarily anticipated to result. If, therefore, it
ever does, the injury or death can only be accidental or produced by some
unforeseen happening or event as what occurred in this case
 Furthermore, the policy involved herein specifically excluded from its
coverage —
(e) Death or disablement consequent upon the Insured engaging in football,
hunting, pigsticking, steeplechasing, polo-playing, racing of any kind,
mountaineering, or motorcycling.
 Death or disablement resulting from engagement in boxing
contests was not declared outside of the protection of the
insurance contract 
Sun lnsurance Office Ltd v CA, GR 92383, 17 July 1992
Lim accidentally killed himself with his gun after removing the magazine, showing
off, pointing the gun at his secretary, and pointing the gun at his temple. The
widow, the beneficiary, sued the petitioner and won 200,000 as indemnity with
additional amounts for other damages and attorney’s fees. This was sustained in
the Court of Appeals then sent to the Supreme court by the insurance company.
Issue:
1. Was Lim’s widow eligible to receive the benefits?
2. Were the other damages valid?
Held:
1. Yes  2. No
Ratio:
1. There was an accident.
De la Cruz v. Capital Insurance says that "there is no accident when a
deliberate act is performed unless some additional, unexpected,
17
 INSURANCE MIDTERMS (Weeks 1 to 8)
independent and unforeseen happening occurs which produces or brings
about their injury or death." This was true when he fired the gun.
Under the insurance contract, the company wasn’t liable for bodily injury
caused by attempted suicide or by one needlessly exposing himself to
danger except to save another’s life.
Lim wasn’t thought to needlessly expose himself to danger due to the
witness testimony that he took steps to ensure that the gun wasn’t
loaded. He even assured his secretary that the gun was loaded.
There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown
to have contributed to his own accident.
2. “In order that a person may be made liable to the payment of moral
damages, the law requires that his act be wrongful. The adverse result
of an action does not per se make the act wrongful and subject the act
or to the payment of moral damages. The law could not have meant
to impose a penalty on the right to litigate; such right is so precious that
moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs.”
If a party wins, he cannot, as a rule, recover attorney's fees and
litigation expenses, since it is not the fact of winning alone that entitles
him to recover such damages of the exceptional circumstances
enumerated in Art. 2208. Otherwise, every time a defendant wins,
automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For
those expenses, the law deems the award of costs as sufficient.”
Ty v Filipinas Cia de Seguros, GR L-21821-22 and L-21824-27, 31 May
1966
FACTS:
 2 months prior to December 24, 1953: Diosdado C. Ty, employed as
operator mechanic foreman in the Broadway Cotton Factory insured
himself in 18 local insurance companies with Broadway Cotton Factory as
his beneficiary
 December 24, 1953: fire broke out at the Broadway Cotton Factory where
Ty, fighting his way out, injured his left hand by a heavy object.  
3 – EXECUTIVE | Ab Initio Group
 He was brought to the Manila Central University hospital, and after
receiving first aid there, he went to the National Orthopedic Hospital for
treatment of his injuries.
 His injuries caused temporary total disability on his left hand so he filed a
claim against all defendants who rejected the claim reasoning that there it
was not covered in his policy because there was no severance of
amputation of the left hand
 Trial Court: absolved the defendants

ISSUE: W/N Ty can claim 
HELD: NO. Affirmed.
 can not go beyond the clear and express conditions of the insurance
policies, all of which define partial disability as loss of either hand
by amputation through the bones of the wrist
 Note that the disability of plaintiff's hand was merely temporary, having
been caused by fracture of the index, the middle and the fourth fingers of
the left hand
 agreement contained in the insurance policies is the law between the
parties
Calanoc v CA, GR 81 51 , 16 Dec,ember 1955
Doctrine: In case of ambiguity in an insurance contract covering accidental
death, the Supreme Court held that such terms shall be construed strictly against
the insurer and liberally in favor of the insured in order to effect the purpose of
indemnity.
Facts:
Melencio Basilio, a watchman of the Manila Auto Supply, secured a life insurance
policy from the Philippine American Insurance Company in the amount of P2,000
to which was attached a supplemental contract covering death by accident. He
later died from a gunshot wound on the occasion of a robbery committed;
subsequently, his widow was paid P2,000 representing the face value of the policy.
The widow demanded the payment of the additional sum of P2,000 representing
the value of the supplemental policy which the company refused because the
deceased died by murder during the robbery and while making an arrest as an
officer of the law which were expressly excluded in the contract. The company’s
contention which was upheld by the Court of Appeals provides that the
18
 INSURANCE MIDTERMS (Weeks 1 to 8)
circumstances surrounding Basilio’s death was caused by one of the risks excluded
by the supplementary contract which exempts the company from liability.
Issue:
Is the Philippine American Life Insurance Co. liable to the petitioner for
the amount covered by the supplemental contract?
Held:
Yes. The circumstances of Basilio’s death cannot be taken as purely
intentional on the part of Basilio to expose himself to the danger. There is no proof
that his death was the result of intentional killing because there is the possibility
that the malefactor had fired the shot merely to scare away the people around. In
this case, the company’s defense points out that Basilio’s is included among the
risks excluded in the supplementary contract; however, the terms and phraseology
of the exception clause should be clearly expressed within the understanding of
the insured. Art. 1377 of the New Civil Code provides that in case ambiguity,
uncertainty or obscurity in the interpretation of the terms of the contract, it shall
be construed against the party who caused such obscurity. Applying this to the
situation, the ambiguous or obscure terms in the insurance policy are to be
construed strictly against the insurer and liberally in favor of the insured party. The
reason is to ensure the protection of the insured since these insurance contracts
are usually arranged and employed by experts and legal advisers acting exclusively
in the interest of the insurance company. As long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal their
own intentions, the courts must, in fairness to those who purchase insurance,
construe every ambiguity in favor of the insured.
Biagtan v lnsular Life, GR L-25579,29 March 1972
FACTS:
1. Juan Biagtan was insured with defendant Insular Life Assurance Company
(Insular) under policy no. 398075 for the sum of P5,000.00 and under a
supplementary contract named “Accidental Death Benefit Clause, for an additional
sum of P5,000.00 if “death of the insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident…and
independently of all other causes.” The clause however expressly provided that it
3 – EXECUTIVE | Ab Initio Group
would not apply where death resulted from an injury “intentionally inflicted by
another party.”
2. May 20, 1964: While the said life policy and supplementary contract were in full
force and effect, the house of insured Juan Biagtan was robbed by a band of
robbers who were charged in and convicted for robbery with homicide; that in
committing the robbery, the robbers rushed towards the door of the second floor
room, where they suddenly met a person near the door of one of the rooms who
turned out to be Juan Biagtan who received thrusts from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his
death at about 7 a.m. on the same day, May 21, 1964
3. Plaintiffs, as beneficiaries of the insured, filed a claim under the policy.
4. Insular paid P5,000.00 but refused to pay the additional sum of P5,000.00
under the accidental death benefit clause, on the ground that the insured’s death
resulted from injuries intentionally inflicted by third parties and therefore was not
covered.
5. Lower court: Rendered judgment in favor of plaintiff beneficiaries since the
parties presented no evidence, there was no "proof that the act of receiving thrust
from the sharp-pointed instrument of the robbers was intended to inflict injuries
upon the person of the insured or any other person or merely to scare away any
person so as to ward off any resistance or obstacle that might be offered in the
pursuit of their main objective which was robbery.
ISSUE:
1. WON the wounds received by the insured at the hands of the robbers
– nine in all, five of them mortal and four non-mortal – were inflicted
intentionally, hence the benefit clause cannot apply.
HELD:
1. Yes. The decision appealed from is reversed and the complaint
dismissed.
RATIO:
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 INSURANCE MIDTERMS (Weeks 1 to 8)
1. Whether the robbers had the intent to kill or merely to scare the victim or to
ward off any defense he might offer, it cannot be denied that the act itself of
inflicting the injuries was intentional. It should be noted that the exception in the
accidental benefit clause invoked by the appellant does not speak of the purpose
— whether homicidal or not — of a third party in causing the injuries, but only of
the fact that such injuries have been "intentionally" inflicted — this obviously to
distinguish them from injuries which, although received at the hands of a third
party, are purely accidental.
But where a gang of robbers enter a house and coming face to face with the
owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and
logic to say that his injuries are not intentionally inflicted, regardless of whether
they prove fatal or not.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial
court in support of its decision.
For while a single shot fired from a distance, and by a person who was not even
seen aiming at the victim, could indeed have been fired without intent to kill or
injure, nine wounds inflicted with bladed weapons at close range cannot
conceivably be considered as innocent insofar as such intent is concerned. The
manner of execution of the crime permits no other conclusion.
Thus, it has been held that "intentional" as used in an accident policy excepting
intentional injuries inflicted by the insured or any other person, etc., implies the
exercise of the reasoning faculties, consciousness and volition.
Where a provision of the policy excludes intentional injury, it is the intention of the
person inflicting the injury that is controlling. If the injuries suffered by the
insured clearly resulted from the intentional act of a third person the insurer is
relieved from liability as stipulated.
Finman GeneralAssurance v CA, GR 100970, 2 September 1992
FACTS:
[P]etitioner filed this petition alleging grove abuse of discretion on the part of the
appellate court in applying the principle of “ expresso unius exclusio alterius” in a
personal accident insurance policy since death resulting from murder and/or
assault are impliedly excluded in said insurance policy considering that the cause
of death of the insured was not accidental but rather a deliberate and intentional
act of the assailant in killing the former as indicated by the location of the lone
3 – EXECUTIVE | Ab Initio Group
stab wound on the insured. Therefore, said death was committed with deliberate
intent which, by the very nature of a personal accident insurance policy, cannot be
indemnified.
ISSUE:
Whether or not death petitioner is correct that results from assault or
murder deemed are not included in the terms “accident” and
“accidental”.
HELD:
NO. Petition for certiorari with restraining order and preliminary injunction was
denied for lack of merit.
RATIO:
The terms “accident” and “accidental” as used in insurance contracts
have not acquired any technical meaning, and are construed by the
courts in their ordinary and common acceptation. Thus, the terms have
been taken to mean that which happen by chance or fortuitously,
without intention and design, and which is unexpected, unusual, and
unforeseen. An accident is an event that takes place without one’s
foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not
expected.
[I]t is well settled that contracts of insurance are to be construed
liberally in favor of the insured and strictly against the insurer. Thus
ambiguity in the words of an insurance contract should be interpreted in
favor of its beneficiary.
Qua Chee Gan v Law Union and Rock, GR L-4611,17 December 1955
FACTS:
 Qua Chee Gan, a merchant of Albay, owned four bodegas which he
insured with Law Union & Rock Insurance Co., Ltd (Law Union) since
1937 and the lose made payable to the Philippine National Bank (PNB) as
mortgage of the hemp and crops, to the extent of its interest
 July 21, 1940 morning: fire broke out in bodegas 1,2 and 4 which lasted
for almost a week. 
 Qua Chee Gan informed Law Union by telegram
20
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Law Union rejected alleging that it was a fraudulent claim that the fire had
been deliberately caused by the insured or by other persons in connivance
with him
 Que Chee Gan, with his brother, Qua Chee Pao, and some employees of
his, were indicted and tried in 1940 for the crime of arson but was
subsequently acquitted
 During the pendency of the suit, Que Chee Gan paid PNB
 Law Union states that ff. assignment of errors:
 1. memo of warranty requires 11 hydrants instead of 2  the RTC for the P2,000 balance stating that under the policy they are
 2. violation of hemp warranty against storage of gasoline since it
prohibits oils
 3. fire was due to fraud
 4. burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims
 
ISSUE: W/N Qua Chee Gan should be allowed to claim.
HELD: YES. Affirmed.
 1. It is a well settled rule of law that an insurer which with knowledge of
facts entitling it to treat a policy as no longer in force, receives and
accepts a preium on the policy, estopped to take advantage of the
forfeiture
 2. oils (animal and/or vegetable and/or mineral and/or their liquid
products having a flash point below 300o Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance, "Oils" mean
"lubricants" and not gasoline or kerosene
 by reason of the exclusive control of the insurance company over
the terms and phraseology of the contract, the ambiguity must be
held strictly against the insurer and liberraly in favor of the
insured, specially to avoid a forfeiture
 3. trial Court found that the discrepancies were a result of the insured's
erroneous interpretation of the provisions of the insurance policies and
claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud.
 4. Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock,
was explained by the insured as caused by his belief that he was entitled
to include in the claim his expected profit on the 70 per cent of the hemp,
because the same was already contracted for and sold to other parties
before the fire occurred
3 – EXECUTIVE | Ab Initio Group
Del Rosario v. Equitable lnsurance and Casualty, GR L-16215, 29 June
1963
FACTS:
 April 13, 1957: Simeon del Rosario, father of the insured who died from
drowning filed a claim for payment with Equitable Ins. and Casualty Co.,
Inc. but it refused to pay more than P1,000 php so a case was filed with
entitled to P1,000 to P3,000 as indemnity
 RTC: entitled to recover P3,000 - policy does not positively state any
definite amount, there is an ambiguity in this respect in the policy, which
ambiguity must be interpreted in favor of the insured and strictly against
the insurer so as to allow greater indemnity
ISSUE: W/N Simeon is entitled to recover P3,000 
HELD: YES.
 terms in an insurance policy, which are ambiguous, equivocal or uncertain
are to be construed strictly against, the insurer, and liberally in favor of
the insured so as to effect the dominant purpose of indemnity or payment
to the insured, especially where a forfeiture is involved
 reason for this rule is that the "insured usually has no voice in the
selection or arrangement of the words employed and that the language of
the contract is selected with great care and deliberation by expert and
legal advisers employed by, and acting exclusively in the interest of, the
insurance company
Verendia v CA, GR 75605, 22 January 1993
FACTS:
 Rafael (Rex) Verendia's residential building was insured with Fidelity and
Surety Insurance Company, Country Bankers Insurance and Development
Insurance with Monte de Piedad & Savings Bank as beneficiary
 December 28, 1980 early morning: the building was completely destroyed
by fire
 Fidelity refused the claim stating that there was a misrepresentation since
the lessee was not Roberto Garcia but Marcelo Garcia 
 trial court: favored Fidelity
 CA: reversed
21
 INSURANCE MIDTERMS (Weeks 1 to 8)

ISSUE: W/N there was false declaration which would forfeit his benefits
under Section 13 of the policy
HELD: YES.
 Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited "If the
claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devises are used by
the Insured or anyone acting in his behalf to obtain any benefit under the
policy"
 Robert Garcia then executed an affidavit before the National Intelligence
and Security Authority (NISA) to the effect that he was not the lessee of
Verendia's house and that his signature on the contract of lease was a
complete forgery.
 Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith
Fortune lnsurance v CA, GR 115278,23 May 1995
Facts:
Producers Bank’s money was stolen while it was being transported from Pasay to
Makati. The people guarding the money were charged with the theft. The bank
filed a claim for the amount of Php 725,000, and such was refused by the
insurance corporation due to the stipulation:
 GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of the
Insured whether acting alone or in conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. The appellatecourt affirmed on the basis that the
bank had no power to hire or dismiss the guard and could only ask for
replacements from the security agency.
Issue: Did the guards fall under the general exceptions clause of the
insurance policy and thus absolved the insurance company from
liability?
3 – EXECUTIVE | Ab Initio Group
Held: Yes to both. Petition granted.
Ratio:
The insurance agency contended that the guards automatically became the
authorized representatives of the bank when they cited   International Timber
Corp. vs. NLRC where a contractor is a "labor-only" contractor in the sense that
there is an employer-employee relationship between the owner of the project and
the employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
 Contractor or subcontractor. — There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment
in the form of tools, equipment, machineries, work premises, among others, and
the workers recruited and placed by such persons are performing activities which
are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
The bank asserted that the guards were not its employees since it had nothing to
do with their selection and engagement, the payment of their wages, their
dismissal, and the control of their conduct.
They cited a case where an employee-employer relationship was governed by (1)
the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated
that casualty insurance awarded an amount to loss cause by accident or mishap.
“The term "employee," should be read as a person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of
the four standards in the determination of the employer-employee relationship, or
as statutorily declared even in a limited sense as in the case of Article 106 of the
Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to
the employer.”
But even if the contracts were not labor-only, the bank entrusted the suspects
with the duty to safely transfer the money to its head office, thus, they were
representatives. According to the court, “a ‘representative’ is defined as one who
represents or stands in the place of another; one who represents others or
another in a special capacity, as an agent, and is interchangeable with ‘agent.’”  
Misamis Lumber v Capital lnsurance, GR L-21380, 20 May 1996
22
 INSURANCE MIDTERMS (Weeks 1 to 8)
FACTS:
 Misamis Lumber Corporation (Misamis), formerly Lanao Timber Mills, Inc.,
insured its Ford Falcon motor car with Capital Insurance & Surety
Company (Capital)
 November 25, 1961 11 pm: The car broke when it hit a hollow block lying
alongside the water hole which the driver did not see because the on-
coming car did not dim its light
 The car was towed and repaired by Morosi Motors
costing P302.27  profit is derived from the making of insurance contracts, agreements or
 November 29, 1961: After the repairs were made, Misamis made a report
to Capital who only admits liability of P150
 CFI: paragraph 4 of the policy is clear and specific and leaves no room for
interpretation that the repair liability is limited to P150

ISSUE: W/N Misamis is entitled to an amount exceeding P150
HELD: NO.
 insurance contract may be rather onerous (one-sided) but that in itself
does not justify the abrogation of its express terms, terms which the
insured accepted or adhered to and which is the law between the
contracting parties
WEEK 4
The Business of lnsurance
Section 2(2) The term "doing an insurance business"  or  "transacting an
insurance business", within the meaning of this Code, shall include:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;
3 – EXECUTIVE | Ab Initio Group
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this
Code.
In the application of the provisions of this Code the fact that no
transactions or that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance
business.
White Gold Marine v Pioneer lnsurance, GR 154514
FACTS: (White Gold > Pioneer > Steamship Mutual)
 White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer)
 When White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage
 Steamship Mutual thereafter filed a case against White Gold for collection
of sum of money to recover the latter’s unpaid balance
 White Gold filed a complaint before the Insurance Commission
 Steamship Mutual violated Sections 186[4] and 187[5] of
the Insurance Code
 Pioneer  violated  Sections  299,[6] 300[7] and 301[8] in
relation to Sections 302 and 303, thereof
 Insurance Commission: dismissed the complaint
 no need for Steamship Mutual to secure a license because it
was a Protection and Indemnity Club (P & I Club) (NOT engaged
in the insurance business)
 Pioneer need not obtain another license as insurance agent and/or
a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business
23
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Moreover, Pioneer was already licensed
 CA: affirmed Insurance Commission
ISSUE:  and the exact nature of the agreement in the light of the occurrence,
1. W/N Steamship Mutual, a P & I Club, is engaged in the
insurance business in the Philippines - YES.
2. W/N Pioneer as resident agent of Steamship Mutual is required to
obtain a license as an insurance agent/broker - YES
HELD:  petition is PARTIALLY GRANTED. CA affirmed. the revocation of Pioneer’s
Certificate of Authority and removal of its directors and officers, is DENIED
1. YES
Sec. 2(2)
(2) The term "doing an insurance business" or "transacting an insurance
business", within the meaning of this Code, shall include:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
2. YES.
(d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code the fact that no profit is derived
from the making of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.  from the Commissioner a license to act as an insurance agent of such company
3 – EXECUTIVE | Ab Initio Group
 The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be performed,
contingency, or circumstances under which the performance becomes
requisite
 a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure
 a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured
 the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest
 provide 3 types of coverage: 
 protection and indemnity
 war risks
 defense costs
 P & I Club
 a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members
 Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business
 Since a contract of insurance involves public interest, regulation by the
State is necessary.  Thus, no insurer or insurance company is allowed to
engage in the insurance business without a license or a certificate of
authority from the Insurance Commission
 Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual.  
Insurance Code
Sec. 299
Sec. 299. No insurance company doing business in the Philippines, nor any
agent  thereof, shall pay any commission or other compensation to any person
for services in obtaining insurance, unless such person shall have first procured
or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the
24
 INSURANCE MIDTERMS (Weeks 1 to 8)
solicitation or procurement of applications for insurance, or receive for services
in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines, or any agent thereof,
without first procuring a license to act from the Commissioner, which must be
renewed annually on the first day of January, or within six months thereafter.
Such license shall be issued by the Commissioner only upon the written
application of the person desiring it, such application if for a license to act as
insurance agent, being approved and countersigned by the company such
person desires to represent, and shall be upon a form prescribed by the
Commissioner giving such information as he may require, and upon payment of
the corresponding fee hereinafter prescribed. The Commissioner shall satisfy
himself as to competence and trustworthiness of the applicant and shall have
the right to refuse to issue or renew and to suspend or revoke any such license
in his discretion. No such license shall be valid after the thirtieth day of June of
the year following its issuance unless it is renewed.
Philamlife v Arnaldo, GR 76452,26 July 1994
FACTS:
 Ramon M. Paterno, Jr. sent a letter dated April 17, 1986 to Insurance
Commissioner alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American
Life Insurance Company (Philamlife)
 During the hearing Ramon stated that the contract of agency is illegal 
 Philamlife through its president De los Reyes contended that the Insurance
Commissioner as a quasi-judicial body cannot rule on the matter
ISSUE:  agents.
1. W/N the Insurance Commissioner has the authority to regulate the business of
insurance - YES
2. W/N the business of insurance covers the contract of agency - NO
2. NO.
HELD: petition is GRANTED
1. YES.
Insurance Code
3 – EXECUTIVE | Ab Initio Group
Sec. 414
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters, mutual
benefit associations, and trusts for charitable uses are faithfully executed and to
perform the duties imposed upon him by this Code, and shall, notwithstanding
any existing laws to the contrary, have sole and exclusive authority to regulate
the issuance and sale of variable contracts as defined in section two hundred
thirty-two and to provide for the licensing of persons selling such contracts, and
to issue such reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and
decision as he may deem necessary to secure the enforcement of the provisions
of this Code, subject to the approval of the Secretary of Finance. Except as
otherwise specified, decisions made by the Commissioner shall be appealable to
the Secretary of Finance.
Sec. 415
Sec. 415. In addition to the administrative sanctions provided elsewhere in this
Code, the Insurance Commissioner is hereby authorized, at his discretion, to
impose upon the insurance companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply with, or violation of any
provision of this Code, or any order, instruction, regulation, or ruling of the
Insurance Commissioner, or any commission or irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the
Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or
 Insurance Commissioner has the authority to regulate the business of
insurance
 power does not cover the relationship affecting the insurance company
and its agents but is limited to adjudicating claims and complaints filed by
the insured against the insurance company
 While the subject of Insurance Agents and Brokers is discussed under
Chapter IV, Title I of the Insurance Code, the provisions of said Chapter
speak only of the licensing requirements and limitations imposed on
insurance agents and brokers.
 Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989):
25
 INSURANCE MIDTERMS (Weeks 1 to 8)
 insurance company may have two classes of agents who sell its
insurance policies: 
 (1) salaried employees who keep definite hours and work
under the control and supervision of the company
- governed by the Contract of Employment and the
provisions of the Labor Code
 (2) registered representatives, who work on commission
basis. - governed by the Contract of Agency and the
provisions of the Civil Code on the Agency
CONTRACT OF INSURANCE
A. What may be insured against
Sec. 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 a 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 minor's estate or the
minor's 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 for in the policy.
Sec. 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a
prize.
B. Parties to insurance contracts
1. Who may be an insurer
Sec. 6. Every person, partnership, association, or corporation duly authorized to
transact insurance business as elsewhere provided in this code, may be an insurer.
2. Who may be insured
3 – EXECUTIVE | Ab Initio Group
Sec. 7. Anyone except a public enemy may be insured.
Filipinas Cia. De Seguros v Christern Huenefeld, GR L-2294,25 May1951
FACTS:
Christern obtained from Filipinas a fire insurance policy of P1000,000, covering
merchandise contained in a building located at Binondo. During the Japanese
military occupation, the building and insured merchandise were burned. The
respondent its claim under the policy. The total loss suffered by the respondent
was fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in favor of
the respondent had ceased to be in force on the date the U.S. declared war on
Germany with the respondent Corporation being controlled by German subjects
and the petitioner being a company under American jurisdiction (though organized
by Philippine laws) when the policy was issued on October 1, 1941. The petitioner,
however, paid to the respondent the sum of P92,650 on April 19, 1943 under
orders from the military government.
The insurer filed for a suit to recover the sum. The contention was that the policy
ceased to be effective because of the outbreak of the war and that the payment
made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure.
The tiral and the appellate courts dismissed the action. The Court of Appeals
claimed that a corporation is a citizen of the country or state by and under the
laws of which it was created or organized.
Hence this appeal.
ISSUE: Whether the policy in question became null and void upon the
declaration of war
HELD: Yes. Petition granted.
RATIO:
The majority of the stockholders of the respondent corporation were German
subjects. The respondent became an enemy corporation upon the outbreak of the
war. The English and American cases relied upon by the Court of Appeals have lost
their force in view of the latest decision of the Supreme Court of the United States
26
 INSURANCE MIDTERMS (Weeks 1 to 8)
in Clark vs. Uebersee Finanz Korporation where the controls test has been
adopted.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United
States allowed to large degree the determination of enemy interest in domestic
corporations and thus the application of the control test. In Clark vs. Uebersee, the
court held that “The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. . . . The power of seizure and vesting was extended to all property
of any foreign country or national so that no innocent appearing device could
become a Trojan horse.”
The Philippine Insurance Law states that “anyone except a public enemy may be
insured.” It stands to reason that an insurance policy ceases to be allowable as
soon as an insured becomes a public enemy.
“All individuals therefore, who compose the belligerent powers, exist, as to each
other, in a state of utter exclusion, and are public enemies.”
Vance- “In the case of an ordinary fire policy, which grants insurance only from
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, are lost.”
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 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. The premium must be returned for
the sake of justice.
It results that the petitioner is entitled to recover the indemnity paid. However, the
petitioner will be entitled to recover only the equivalent of P92,650 paid on April
19, 1943.
Constantino v Asia Life, GR L-1669, 31 August 1950
3 – EXECUTIVE | Ab Initio Group
FACTS:
Case 1:
 The life of Arcadio Constantino was insured with Asia Life
Insurance Company (Asia) for a term of 20 years with Paz
Lopez de Constantino as beneficiary.  The first premium
covered the period up to September 26, 1942.  
 After the first premium, no further premiums were paid.
The insured died on September 22, 1944.
 Asia Life Insurance Company, being an American
Corp., had to close its branch office in Manila by reason of
the Japanese occupation, i.e. from January 2, 1942, until
the year 1945.
 Case 2:
 Spouses Tomas Ruiz and Agustina Peralta.  Their premium
were initially annually but subsequently changed to
quarterly.  The last quarterly premium was delivered
on on November 18, 1941 and it covered the period
until January 31, 1942. 
 Upon the Japanese occupation, the insurer and insured
were not able to deal with each other
 Because the insured had borrowed on the policy P234.00
in January, 1941, the cash surrender value of the policy
was sufficient to maintain the policy in force only up to
September 7, 1942. 
 Tomas Ruiz died on February 16, 1945 with Agustina
Peralta as  beneficiary. Her demand for payment was
refused on the ground of non-payment of the premiums.
 Plaintiffs: As beneficiaries, they are entitled to receive the
proceeds of the policies minus all sums due for premiums in
arrears. The non-payment of the premiums was caused by the
closing of Asia's offices in Manila during the Japanese occupation
and the impossible circumstances created by war.
 lower court: absolved Asia
ISSUE: W/N the insurers still have a right to claim.
HELD: YES. lower court affirmed.
 it would seem that pursuant to the express terms of the policy,
non-payment of premium produces its avoidance
27
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Forfeitures of insurance policies are not favored, but courts
cannot for that reason alone refuse to enforce an insurance
contract according to its meaning.
 Nevertheless, inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause
the forfeiture of the policy
 3 Rules in case of war:
 Connecticut Rule
 2 elements in the consideration for which the
annual premium is paid:
 mere protection for the year
 privilege of renewing the contract for each
succeeding year by paying the premium for
that year at the time agreed upon
 payment of premiums is a condition precedent, the
non-performance would be illegal necessarily
defeats the right to renew the contract
 New York Rule - greatly followed by a number of cases
 war between states in which the parties reside
merely suspends the contracts of the life
insurance, and that, upon tender of all premiums
due by the insured or his representatives after the
war has terminated, the contract revives and
becomes fully operative
 United States Rule
 contract is not merely suspended, but is abrogated
by reason of non-payments is peculiarly of the
essence of the contract
 it would be unjust to allow the insurer to retain the
reserve value of the policy, which is the excess of
the premiums paid over the actual risk carried
during the years when the policy had been in force
 The business of insurance is founded on the law of average; that
of life insurance eminently so
 contract of insurance is sui generis
 Whether the insured will continue it or not is optional with
him. There being no obligation to pay for the premium,
they did not constitute a debt.
 It should be noted that the parties contracted not only for
peacetime conditions but also for times of war, because the
3 – EXECUTIVE | Ab Initio Group
policies contained provisions applicable expressly to wartime
days. The logical inference, therefore, is that the parties
contemplated uninterrupted operation of the contract even if
armed conflict should ensue.
 the fundamental character of the undertaking to pay premiums
and the high importance of the defense of non-payment thereof,
was specifically recognized
 adopt the United States Rule: first policy had no reserve value,
and that the equitable values of the second had been practically
returned to the insured in the form of loan and advance for
premium
Fidela Sales Gonzaga v Crown Life, GR L4197,20 March 1957
FACTS: 
 September 26, 1939: Crown Life Insurance Co. whose home office is
based in Toronto, Canada issued to Ramon Gonzaga through its branch
office in Manila a 20-year endowment policy for P15,000 which had an
annual premium of P591. 
 Payment was only until September 6, 1941 because of the outbreak of the
war since Crown is an enemy corp. order to be closed during the Japanese
occupation.  However, despite that it offered a privilege to accept
premium payments in the place of its employee in Ermita but of which
Gonzaga did not avail.
 Through the automatic premium loan clause, it continued until June 12,
1943
 May 1, 1945: It reopened but still Gonzaga did not pay although there was
a reinstatement clause providing certain conditions within three years from
the date of lapse on application of the insured
 June 27, 1945: Gonzaga died from an accident
 Crown refused to pay because of the lapse of premium payment
 RTC: against Gonzaga
ISSUE: W/N Gonzaga's widow can claim despite the absence of premium
payment during the outbreak of the war
HELD: NO. Affirmed
 Non-payment at the day involves absolute forfeiture is such be the terms
of the contract
 failure to notify the postal address during the war is not an excuse
28
 INSURANCE MIDTERMS (Weeks 1 to 8)
 There is no duty when the law forbids and there is no obligation
without corresponding right enjoyed by another
 opening of an interim office partook of the nature of the privilege to the
policy holders to keep their policies operative rather than a duty to them
under the contract
WEEK 5
MORTGAGOR/MORTGAGEE
Sec. 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.
Sec. 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.
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.
Sec. 53. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy.
Palileo v Cosio, GR L-7667,28 November 1955
FACTS:
3 – EXECUTIVE | Ab Initio Group
▪ Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio
(creditor-mortgagee) praying that their transaction be one of a loan with an
equitable mortgage to secure the payment of the loan. The original counsel of
Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs so she
forgot the date of the trial and she was substituted.
▪ it is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with
right to repurchase. After the execution of the contract, Cosio insured in her name
the building with Associated Insurance & Surety Co. against fire.
▪ The building was partly destroyed by fire so she claimed an indemnity of P13,107
▪ Palileo demanded that the amount of insurance proceeds be credited to her loan
▪ RTC: it is a loan with equitable mortgage so the insurance proceeds should be
credited to the loan and refund the overpayment.
ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for
her own benefit
HELD: YES. Modify. collection of insurance proceeds shall not be deemed to
have compensated the obligation of the Palileo to Cosio, but bars the Cosio from
claiming its payment from the Palileo; and Cosio shall pay to Palileo P810
representing the overpayment made by Palileo by way of interest on the loan.
▪ When the the mortgagee may insure his interest in the property independently
of the mortgagor , 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
▪ 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 " But these authorities merely represent
the minority view”
29
 INSURANCE MIDTERMS (Weeks 1 to 8)
San Miguel Brewery v Law Union, GR L-14300, 19 January 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)
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. W/N San Miguel has insurable interest as mortgagor only to the
extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner – NO
HELD: affirmed
▪ section 19 of the Insurance Act:
3 – EXECUTIVE | Ab Initio Group
▪ 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.
Gonzalez LaO v Yek Tong Lin Fire, GR 33131, 13 Dec. 1930
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf
tobacco prducts.
> They were stored in Gonzales’ building on Soler St ., which on Jan. 11, 1928,
burned down.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
> Art. 3 of the Insurance policies provided that: “Any nsurance in force upon all or
part of the things unsured must be declared in writing by the insured and he
(insured) should cause the company to insert or mention it in the policy. Without
such requisite, such policy will be regarded as null and void and the insured will be
deprived of all rights of indemnity in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance contracts.
When he sought to claim from Yek after the fire, the latter denied any liability on
the ground of violation of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies
obtained by him long efore the fire, and the insurer did NOT rescind the insurance
polices in question but demanded and collected from the insured the premiums.
Issue:
Whether or not Yek is still entitled to annul the contract.
Held:
NO.
The action by the insurance company of taking the premiums of the insured
notwithstanding knowledge of violations of the provisions of the policies amounted
to waiver of the right to annul the contract of insurance.
Geagonia v. CA, GR 114427,6 February 1995
Facts: Geagonia, owner of a store, obtained from Country Bankers 1year fire
insurance covering the stock 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, xxx
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 issued by PFIC. The basis of the private respondent's denial
was the petitioner's alleged violation of Condition 3 of the policy. The Insurance
3 – EXECUTIVE | Ab Initio Group
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 which 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.
Issue: Whether or not Geagonia is prohibited from recovering from the
Country Bankers ?
Held: A policy may declare that a violation of specified provisions thereof shall
avoid it,otherwise, the breach of an immaterial provision does not avoid the policy.
To constitute a violation of the “other insurance” clause, the other insurance must
be upon the same subject matter, the same interest therein, and the same risk
Saura lmport & Export v Phil lnt'l Surety, GR L-15184,31 May 1963
FACTS: Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a
parcel of land.
▪ The mortgage was amended to guarantee an increased amount, bringing the
total mortgaged debt to P37,000
▪ On the land mortgage is a building owned by Saura Import & Export Co Inc.
which was insured with Philippine International Surety (Insurer) even before the
mortgage contract so it was required to endorse to mortgagee PNB
▪ October 15, 1954: Barely 13 days after the issuance of the fire insurance policy,
the insurer cancelled it. Notice of the cancellation was given to PNB (mortgagee).
But Saura (insured) was not informed.
▪ April 6, 1955: The building and all its contents worth P40,685.69 were burned so
Saura filed a claim with the Insurer and mortgagee Bank
▪ RTC: dismissed
ISSUE: W/N Philippine International Surety should be held liable for the
claim because notice to only the mortgagee is not substantial
HELD:YES. Appealed from is hereby reversed.
Philippine International Surety Co., Inc., to pay Saura Import & Export Co., Inc.,
P29,000
▪ It was the primary duty of Philippine International Surety to notify the insured,
but it did not
▪ If a mortgage or lien exists against the property insured, and the policy contains
a clause stating that loss, if any, shall be payable to such mortgagee or the holder
31
 INSURANCE MIDTERMS (Weeks 1 to 8)
of such lien as interest may appear, notice of cancellation to the mortgagee or
lienholder alone is ineffective as a cancellation of the policy to the owner of the
property.
▪ liability attached principally the insurance company , for its failure to give notice
of the cancellation of the policy to Saura
▪ it is unnecessary to discuss the errors assigned against appellee bank
Phil. National Bank v CA, GR L-57757,31August 1987
Facts: Violeta is the widow of the Eulogio Lalican. During his lifetime,
Eulogio applied for an insurance policy with Insular Life on April 24,
1997 which contained a 20-year endowment variable income package
flexi plan
worth P500k with two riders worth P500k each.
Violeta was named the primary beneficiary.
Under the terms, Eulogio was to pay premiums on a Eulogio paid the
premiums, however he failed to pay the premium due on January 24,
1998, even after the lapse of the grace period of 31 days. Therefore,
lapsed and become void. Eulogio submitted to the Cabanatuan District
Office of Insular Life an application for reinstatement together with the
payment of the premium due on January 24. Insular Life notified Eulogio
that his application for reinstatement could not be fully processed
because of the unpaid interest thereon. Eulogio was likewise advised by
Malaluan (insurance agent) to pay the premiums that subsequently
became due April 1998 and July 1998, plus interest.
September 17, 1998. Eulogio went to Malaluan's house and paid for the
interest which was received by Malaluan's husband. Later that day,
Eulogio died. Without the knowledge of Eulogio's death, Malaluan
forwarded to the Insular Life the application for reinstatement and the
payment made by Eulogio. However, Insular Life did not act upon such
reinstatement for they knew already of Eulogio's death.
September 28, 1998, Violeta filed for the insurance claim. Insular Life
then informed Violeta in a letter that her claim could not be processed
because the insurance policy had lapsed already and that Eulogio failed
to reinstate the same and the payment made done thru Malaluan's
husband was, under the insurance policy, was considered a deposit only
3 – EXECUTIVE | Ab Initio Group
until approval of the said application. Enclosed to this letter was a check
representing the full refund of the past payments made by Eulogio,
amounting to P25,417.
Violeta requested for a reconsideration of her claim and returned the
check to Insular Life. Insular Life agreed quarterly basin in the amount
of P8,062 with a grace period of 31 days for the payment of each
premium subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default, and if the premium
remained unpaid until the end of the grace period, the policy would
automatically lapse and become void to conduct a re-evaluation of
Violeta's claim. Without waiting for the result of the re-evaluation,
Violeta filed with the RTC a complaint for death claim benefit alleging
the Insular Life was engaged in unfair claim settlement practice and
deliberately failed to act with reasonable promptness on her insurance
claim.
Violeta claims for the P1.5M insurance, plus interest, attorney's fees and
cost of suit. Insular Life filed with the RTC an answer with counterclaim
saying that the insurance claim was rendered void due to non-payment
of the premium and countered that Violeta should be ordered to pay
attorney's fees and expenses of litigation incurred by
Insular Life.
RTC declared that Violeta failed to establish by preponderance of
evidence her cause of action against the defendant. Violeta failed to
establish that the receipt of payment by Malaluan amounted to the
reinstatement of the insurance policy. Violeta filed for motion for
reconsideration but was denied as well; hence she elevated her case for
review on Certiorari.
Issues: (a) Whether the decision of the court can still be reviewed
despite having allegedly attained finality and despite the mode of appeal
of Violeta erroneous.
(b) Whether the RTC has decided the case on a question of law not in
accord with law and applicable decisions of the Supreme Court.
Ruling:
Petition lacks merit.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
RTC's decision has long acquired finality for Violeta failed to file a notice
of appeal more than five months after the decision was rendered.
As to the substantial claim of whether there is insurable interest, the
Court says that the matter of insurable interest is entirely irrelevant and
the real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death.
The Court rules in the negative, for the insurance policy is clear on the
procedure of the reinstatement of the insurance contract, of which
Eulogio has failed to accomplish before his death. As provided by the
policy, insurance shall be deemed reinstated upon the approval of the
insurance policy of the application for reinstatement. The approval
should be made during the lifetime of the insured, in the case at bar, it
wasn’t
INSURABLE INTEREST
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.
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.
lnsurable interest in life insurance
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;
(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.
Sec. 184. For purposes of this Code, the term "insurer" or "insurance
company" shall include all individuals, partnerships, associations, or corporations,
including government-owned or controlled corporations or entities, engaged as
3 – EXECUTIVE | Ab Initio Group
principals in the insurance business, excepting mutual benefit associations. Unless
the context otherwise requires, the terms shall also include professional reinsurers
defined in section two hundred eighty. "Domestic company" shall include
companies formed, organized or existing under the laws of the
Philippines. "Foreign company" when used without limitation shall include
companies formed, organized, or existing under any laws other than those of the
Philippines.
Art. 2012. Any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said article. 
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at
the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by
reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action.
lnsular Life v Ebrado, GR L-44059, 28 October 1977
Lessons Applicable: 
 Art. 2011 Civil Code (Insurance)
 Invalid Designation (Insurance)
FACTS:
 September 1, 1968: Buenaventura Cristor Ebrado was issued by The
Insular Life Assurance Co., Ltd., Policy on a whole-life for P5,882.00 with
a, rider for Accidental Death and designated Carponia T. Ebrado as the
revocable beneficiary in his policy
 October 21, 1969: Buenaventura was hit by a falling branch and died. 
33
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Carponia filed a claim as the designated beneficiary, although she admits
that they were merely living as husband and wife without the benefit of
marriage
 Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured
 In doubt as to whom the insurance proceeds shall be paid, the insurer,
The Insular Life Assurance Co., Ltd. commenced an action for Interpleader
bef. the CFI
 CFI: Carponia was disqualified because of adultery
 CA: affirmed CFI decision
ISSUE: W/N Carponia is disqualified for violating the Civil Code which
supplements the silent Insurance Code.
HELD: YES. CA affirmed.  beneficiary will receive the proceeds or profits of said insurance. As a
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by
reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action. 
 Common-law spouses are, definitely, barred from receiving donations from
each other
 In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the
consequence, the proscription in Article 739 of the new Civil Code should
equally operate in life insurance contracts.
 We do not think that a conviction for adultery or concubinage is exacted
before the disabilities mentioned in Article 739 may effectuate.
 requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the
parties in the pre-trial conference of the case 

Vda. De Consuegra v GSIS, GR L-28093, 30 January 1971

Civil Code
Art. 2011 Lessons Applicable: Invalid Designation (Insurance)
Art. 2011. The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code.  FACTS:
Art. 2012  Jose Consuegra contracted two marriages.
 First with Rosario Diaz
Art. 2012. Any person who is forbidden from receiving any donation under
 2 children who predeceased their father: Jose Consuegra,
Article 739 cannot be named beneficiary of a life insurance policy by the person
Jr. and Pedro Consuegra
who cannot make any donation to him, according to said article.
 Second with Basilia Berdin while marriage is still subsisting
Art. 739
 7 children: Juliana, Pacita, Maria Lourdes, Jose, Rodrigo,
Art. 739. The following donations shall be void: Lenida and Luz, all surnamed Consuegra
 Consuegra did not designate any beneficiary who would receive the
(1) Those made between persons who were guilty of adultery or concubinage at retirement insurance benefits due to him
the time of the donation;

3 – EXECUTIVE | Ab Initio Group

34
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Rosario Diaz filed a claim with the GSIS asking that the retirement
insurance benefits be paid to her as the only legal heir of Consuegra,
considering that the deceased did not designate any beneficiary  Lessons Applicable: Invalid Designation (Insurance)
 GSIS: legal heirs were Rosario Diaz (1/2 or 8/16), Basilia Berdin and their
seven children (1/2 or 8/16) (1/16 each)
 Basilia Berdin and her children filed petition for mandamus with
preliminary injunction in CFI
 RTC: dismissed the case
 Basilia Berdin and her children appealed contending that because the
deceased Jose Consuegra failed to designate the beneficiaries in his
retirement insurance, the appellants who were the beneficiaries named in
the life insurance should automatically be considered the beneficiaries to
receive the retirement insurance benefits (Thus, excluding Rosario Diaz)
ISSUE: W/N the beneficiaries named in the life insurance should
automatically be considered the beneficiaries to receive the retirement
insurance benefits
HELD: NO. appealed from is affirmed
 The insured in a life insurance may designate any person as beneficiary
unless disqualified to be so under the provisions of the Civil Code
 And in the absence of any beneficiary named in the life insurance policy,
the proceeds of the insurance will go to the estate of the insured
 Retirement insurance is primarily intended for the benefit of the employee
— to provide for his old age, or incapacity, after rendering service in the
government for a required number of years. If the employee reaches the
age of retirement, he gets the retirement benefits even to the exclusion of
the beneficiary or beneficiaries named in his application for retirement
insurance. The beneficiary of the retirement insurance can only claim the
proceeds of the retirement insurance if the employee dies before
retirement.  If the employee failed or overlooked to state the beneficiary
of his retirement insurance, the retirement benefits will accrue to his
estate and will be given to his legal heirs in accordance with law, as in the
case of a life insurance if no beneficiary is named in the insurance policy.
 with respect to the right of the second wife, although the second marriage
can be presumed to be void ab initio as it was celebrated while the first
marriage was still subsisting, still there is need for judicial declaration of
such nullity
3 – EXECUTIVE | Ab Initio Group
Southern Luzon Employees v Golpeo, GR L-6114, 30 October 1954
FACTS:
 Roman A. Concepcion listed as his beneficiaries Aquilina Maloles,
Roman M. Concepcion, Jr., Estela M. Concepcion, Rolando M.
Concepcion and Robin M. Concepcion for the death benefit of
an association amounting to P2,505
 Two sets of claimants presented themselves:
 Juanita Golpeo, legal wife and her children, named
beneficiaries by the deceased
 Marcelino and Josefina Concepcion intervened in
their own right aligning themselves Juanita Golpeo
and her minor children
 Elsie Hicban, another common law wife and her child
 RTC:Aquilina Maloles and her children the sole beneficiaries
 Only the Juanita Golpeo and her minor children and the
intervenors Marcelino and Josefina Concepcion have appealed to
this court
ISSUE: W/N Aquilina Molales common-law wife and her illegitimate
children can claim the benefits
HELD:  YES.
 Juanita Golpeo, by her silence and actions, had acquiesced in the illicit
relations between her husband and appellee Aquilina Maloles
 new Civil Code recognized certain successional rights of illegitimate
children
Heirs of Maramag v Maramag, GR 181132,5 June 2009
Lessons Applicable: To whom insurance proceeds payable (Insurance)
FACTS:
 Loreto Maramag designated as beneficiary his concubine Eva de Guzman
Maramag
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 INSURANCE MIDTERMS (Weeks 1 to 8)
 Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of
Loreto Maramag) and his concubine Eva de Guzman Maramag, also
suspected in the killing of Loreto and his illegitimate children are claiming
for his insurance.
 Vicenta alleges that Eva is disqualified from claiming
 RTC: Granted - civil code does NOT apply
 CA: dismissed the case for lack of jurisdiction for filing beyond
reglementary period
ISSUE: W/N Eva can claim even though prohibited under the civil code
against donation
HELD: YES. Petition is DENIED.  bills and 40,000 for damages. The CA affirmed but deleted awards for damages.
 Any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy of the person
who cannot make any donation to him
 If a concubine is made the beneficiary, it is believed that the
insurance contract will still remain valid, but the indemnity must
go to the legal heirs and not to the concubine, for evidently, what
is prohibited under Art. 2012 is the naming of the improper
beneficiary. 
 SECTION 53. The insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy.
 GR: only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is
already deceased, upon the maturation of the policy.
 EX: situation where the insurance contract was intended to benefit
third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties
may directly sue and claim from the insurer
 It is only in cases where the insured has not designated any beneficiary,
or when the designated beneficiary is disqualified by law to receive the
proceeds, that the insurance policy proceeds shall redound to the benefit
of the estate of the insured
Philamcare v CA, GR 125678, 18 March 2002
Facts:
3 – EXECUTIVE | Ab Initio Group
Ernani Trinos applied for a health care coverage with Philam. He answered
no to a question asking if he or his family members were treated to heart
trouble, asthma, diabetes, etc.
The application was approved for 1 year. He was also given hospitalization
benefits and out-patient benefits. After the period expired, he was given an
expanded coverage for Php 75,000. During the period, he suffered from
heart attack and was confined at MMC. The wife tried to claim the benefits but the
petitioner denied it saying that he concealed his medical history by answering no
to the aforementioned question. She had to pay for the hospital bills amounting to
76,000. Her husband subsequently passed away. She filed a case in the trial court
for the collection of the amount plus damages. She was awarded 76,000 for the
Hence, this appeal.
Issue: WON a health care agreement is not an insurance contract; hence
the “incontestability clause” under the Insurance Code does not apply.
Held: No. Petition dismissed.
Ratio:
 Petitioner claimed that it granted benefits only when the insured is alive during
the one-year duration. It contended that there was no indemnification unlike in
insurance contracts. It supported this claim by saying that it is a health
maintenance organization covered by the DOH and not the Insurance Commission.
Lastly, it claimed that the Incontestability clause didn’t apply because two-year
and not one-year effectivity periods were required.  
Section 2 (1) of the Insurance Code defines a contract of insurance as “an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1)     of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. The provider must pay for the medical expenses resulting from sickness
or injury.
While petitioner contended that the husband concealed materialfact of his
sickness, the contract stated that:
36
 INSURANCE MIDTERMS (Weeks 1 to 8)
“that any physician is, by these presents, expressly authorized to disclose or give
testimony at anytime relative to any information acquired by him in
his professional capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish
reports about his medical condition. The contract also authorized Philam to inquire
directly to his medical history.
Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure of the
insured to disclose information was a grounds for revocation simply because the
answer assailed by the company was the heart condition question based on the
insured’s opinion. He wasn’t a medical doctor, so he can’t accurately gauge his
condition.
Henrick v Fire-  “in such case the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent
upon the provider.
“Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon.  In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the covered benefits which he
has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to
rescind a contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1.       Prior notice of cancellation to insured;
2.       Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3.       Must be in writing, mailed or delivered to the insured at the address shown
in the policy;
4.       Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that “under the title Claim procedures of
expenses, the defendant Philamcare Health Systems Inc. had twelve months from
the date of issuance of the Agreement within which to contest the membershipof
the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The
periods having expired, the defense of concealment or misrepresentation no
longer lie.
3 – EXECUTIVE | Ab Initio Group
Nario V Phil Am Life, GR l-22796, 26 June 1967
FACTS:
 June 12, 1959: Philippine American Life Insurance Co. issued a life
insurance to Mrs. Alejandra Santos-Mario a life insurance policy under a
20-year endowment plan, with a face value of P5,000 designating her
husband Delfin Nario and their unemancipation son Ernesto Nario, as her
irrevocable beneficiaries
 June, 1963: She submitted her loan application to the life insurance co.
with signature of her husband in two capacities:
 irrevocable beneficiaries
 father-guardian of minor irrevocable beneficiary Ernesto
 Insurance Co. denied asking that the legal guardian must be authorized by
the court in a competent guardianship proceeding
 Upon denial, she opted to surrender her insurance policy in exchange of
its cash surrender value of P520 but it was also denied on the same
ground
 September 10, 1963: Mrs. Alejandra Santos-Nario and her husband, Delfin
Nario, brought suit against the Philippine American Life Insurance Co
 RTC: favored the insurance company
 CA: vested interest or right of the beneficiaries in the policy should be
measured on its full face value and not on its cash surrender value, for in
case of death of the insured, said beneficiaries are paid on the basis of its
face value and in case the insured should discontinue paying premiums,
the beneficiaries may continue paying it and are entitled to automatic
extended term or paid-up insurance options, etc. and that said vested
right under the policy cannot be divisible at any given time. policy loan
and surrender of policy constitute acts of disposition or alienation of
property rights and not merely of management or administration because
they involve the incurring or termination of contractual obligations
ISSUE: W/N parents as guardians can enter into transactions for the
benefit of  minor irrevocable beneficiaries.
HELD: NO. Affirmed.
 SEC. 7. Parents as guardians. — When the property of the child
under parental authority is worth two thousand pesos or less, the
father or the mother, without the necessity of court appointment,
shall be his legal guardian. When the property of the child is
worth more than two thousand pesos, the father or the mother
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 INSURANCE MIDTERMS (Weeks 1 to 8)
shall be considered guardian of the child's property, with the
duties and obligations of guardians under these rules, and shall
file the petition required by Section 2 hereof. For good reasons
the court may, however, appoint another suitable person.
 even if worth less than P2,000 parent's authority over the estate
of the ward as a legal-guardian would not extend to acts of
encumbrance or disposition, as distinguished from acts of
management or administration.
Phil Am Life v Pineda, GR L-54216, 19 July 1989
Facts:
Pineda  procured an ordinary life insurance policy from the petitioner company and
designated his wife and children as irrevocable beneficiaries.
He then filed a petition to amend the designation of the beneficiaries in his life
policy from irrevocable to revocable.
The judge granted the request.
Petitioner promptly filed a motion but was denied. Hence, this petition.
Issues:
1. WON the designation of the irrevocable beneficiaries could be
changed or amended without the consent of all the
irrevocable beneficiaries.
2. WON the irrevocable minor beneficiaries could give consent to the
change in designation
Held: No to both. Petition dismissed.
Ratio:
Under the Insurance Act, the beneficiary designated in a life insurance contract
cannot be changed without the consent of the beneficiary because he has a vested
interest in the policy.
There was an express stipulation to this effect: “It is hereby understood and
agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in
this Policy has been made without reserving the right to change
said beneficiary/ beneficiaries, such designation may not be surrendered to the
Company, released or assigned; and no right or privilege under the Policy may be
3 – EXECUTIVE | Ab Initio Group
exercised, or agreement made with the Company to any change in or amendment
to the Policy, without the consent of the said beneficiary/beneficiaries.”
The alleged acquiescence of the six (6) children beneficiaries of the policy cannot
be considered an effective ratification due to the fact that they were minors.
Neither could they act through their father insured since their interests are
quite divergentfrom one another.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to
the insurance contract, for otherwise, the vested rights of the
irrevocable beneficiaries would be rendered inconsequential.  
Of equal importance is the well-settled rule that the contract between
the parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and effectivity of
contracts. Likewise, contracts which are the private laws of the
contracting parties should be fulfilled according to the literal sense of their
stipulations, for contracts are obligatory, no matter in what form they may be,
whenever the essential requisites for their validity are present
The change in the designation of was not within the contemplation of the parties.
The lower court instead made a new contract for them. It acted in excess of its
authority when it did so.
Villanueva v Oro, GR L-2227, 31 August 1948
FACTS:
 West Coast Life Insurance Company issued 2 policies of insurance on the
life of Esperanza J. Villanueva:
 2,000 php - maturing on April 1, 1943
 if living, on the 1st day of April 1943 - to insured
 upon death during the continuance of this policy - to the
beneficiary Bartolome Villanueva, father of the
insured, with right on the part of the insured to change
the beneficiary
 1940: Bartolome Villanueva died, Mariano J.
Villanueva duly substituted as beneficiary, a
brother of the insured
 3,000 php - maturing on March 31, 1943
 Esperanza J. Villanueva survived the insurance period, for she died only on
October 15, 1944, without, however, collecting the insurance proceeds.
 CFI: estate of the insured Esperanza is entitled to the insurance proceeds
38
 INSURANCE MIDTERMS (Weeks 1 to 8)
ISSUE: W/N the estate of insured Esperanza should be entitled to the
insurance proceeds since she outlived the insurance policy
HELD: YES. appealed order is, therefore, hereby affirmed
 To sustain the beneficiary's claim would be altogether eliminate from the
policies the condition that the insurer "agrees to pay . . . to the insured
hereunder, if living
 Upon the insured's death, within the period, the beneficiary will take, as
against the personal representative or the assignee of the insured. Upon
the other hand, if the insured survives the endowment period, the benefits
are payable to him or to his assignee, notwithstanding a beneficiary is
designated in the policy
WEEK 6
lnsurable interest in property insurance
Sec. 13. Every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured, is an insurable interest.
Sec. 14. An insurable interest in property may consist
in:chanroblesvirtuallawlibrary
(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. 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.
3 – EXECUTIVE | Ab Initio Group
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.
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.
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.
Harvardian College v Gountry Bankers (CA), CA CV 03771, 6 Jan. 6,
1986, CARA 1
Facts:
>  Harvardian is a family corporation, the stockholders of which are Ildefonso Yap,
Virginia King Yap and their children.
>  Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to
insure its school building.  Although at first reluctant, Harvardian agreed.
>  Country Banks sent an inspector to inspect the school building and agreed to
insure the same for P500,000 for which Harvardian paid an annual premium of
P2,500.
>  On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. 
On March 12, 1980, (39 days before I was born… hehehehe ) during the effectivity
of said insurance policy, the insured property was totally burned rendering it a
total loss.
>  A claim was made by plaintiff upon defendant but defendant denied it
contending that plaintiff had no insurable interest over the building constructed on
the piece of land in the name of the late Ildefonso Yap as owner.
>  It was contended that both the lot and the building were owned by Ildefonso
Yap and NOT by the Harvardian Colleges.
Issue:
Whether or not Harvardian colleges has a right to the proceeds.
Held:
39
 INSURANCE MIDTERMS (Weeks 1 to 8)
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have title
to the property insured, the contract of fire insurance should still be upheld if his
interest in or his relation to the property is such that he will be benefited in its
continued existence or suffer a direct pecuniary loss from its destruction or injury.  ISSUE: W/N Insurance Company of North America can claim against
The test in determining insurable interest in property is whether one will derive
pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss
or damage from its destruction, termination or injury by the happening of the
event insured against.
Here Harvardian was not only in possession of the building but was in fact using
the same for several years with the knowledge and consent of Ildefonso Yap.  It is
reasonably fair to assume that had the building not been burned, Harvardian
would have been allowed the continued use of the same as the site of its
operation as an educational institution.  Harvardian therefore would have been
directly benefited by the preservation of the property, and certainly suffered a
pecuniary loss by its being burned.
Gaisan'o v lnsurance Co. of North America, GR 147839, I June 2006
FACTS:
 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of
products bearing trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North
America fire insurance policies for their book debt endorsements related to
their ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines
which are unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City,
owned by Gaisano Cagayan, Inc., containing the ready-made clothing
materials sold and delivered by IMC and LSPI was consumed by fire.  existing interest; (b) an inchoate interest founded on existing interest; or
 February 4, 1992: Insurance Company of North America filed a complaint
for damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed
their claims under their respective fire insurance policies which it paid thus
it was subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed
due to fortuities event or force majeure
3 – EXECUTIVE | Ab Initio Group
 RTC: IMC and LSPI retained ownership of the delivered goods until fully
paid, it must bear the loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the
Civil Code to res perit domino
Gaisano Cagayan for the debt that was insured
HELD: YES. petition is partly GRANTED. order to pay P535,613 is
DELETED
 insurance policy is clear that the subject of the insurance is the book debts
and NOT goods sold and delivered to the customers and dealers of the
insured
 ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the time of such
delivery;
 IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the
basis for consideration of who bears the risk of loss, in property insurance,
one's interest is not determined by concept of title, but whether insured
has substantial economic interest in the property
 Section 13 of our Insurance Code defines insurable interest as "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." Parenthetically, under Section 14 of the
same Code, an insurable interest in property may consist in: (a) an
(c) an expectancy, coupled with an existing interest in that out of which
the expectancy arises. 
 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.
40
 INSURANCE MIDTERMS (Weeks 1 to 8)
 it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured
 an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject  Respondent company shipped to a consignee in the United States certain cargoes
 matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45 days after the fire
- obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event
 Article 1263 of the Civil Code in an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind does not extinguish
the obligation (Genus nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the
amount paid to settle the insurance claim
 Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract.  ISSUE: WON Lepanto can legally sue on the marine insurance policies.
 As to LSPI, no subrogation receipt was offered in evidence. 
 Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613
Commercial Union Assurance v. Lepanto, GR L-52027,27 April 1982
FACTS: This is a marine insurance case. Lepanto Consolidated Mining Company
alleged in its complaint of February 7, 1974 that on November 8 and 23, 1971 it
shipped (for smelting) copper ore concentrates on board the vessels M/S Hermosa
and M/S General Aguinaldo from Poro Point, San Fernando, La Union to Tacoma,
Washington, U.S.A.
The first shipment is known as No. 167 and the other shipment as Nos. 168 and
168-A. The copper ore concentrates were stored on board the carrying vessels
under the supervision and approval of a marine surveying firm designated by the
3 – EXECUTIVE | Ab Initio Group
insurer (pp. 8-9, Record on Appeal). American Smelting and Refining Co., Ltd.
(Asarco) was the consignee. The ore was to be discharged at the wharf of Asarco’s
smelter at Tacoma (pp. 75-76, 98-9, Record on Appeal).
covered by two "all risks" marine insurance policies issued by petitioners
containing express stipulations that respondent company has an interest therein.
The shipments, which were undertaken in accordance with the instructions of the
insurer’s surveyor, sustained damage in transit prompting private respondent to
file the corresponding insurance claims which were rejected. Consequently,
respondent company filed with the Court of First Instance a complaint for recovery
of damages which was dismissed for lack of cause of action. On appeal, the Court
of Appeals reversed the Commercial Union Assurance Company Limited, Et. Al. v.
Lepanto Consolidated Mining Company, Et. Al. trial court’s order of dismissal.
Hence, this petition for certiorari (herein treated as an appeal) wherein petitioners
contend, among others, that respondent company is not the real party in interest
and has no personality to sue and that respondent’s complaint has no cause of
action against the insurers. 
On review, the Supreme Court, without prejudging the merits of respondent’s case
and petitioner’s affirmative defenses, held that there is prima facie showing in
respondent’s complaint and pleadings that it is a real party in interest under the
policies and that it has a cause of action against petitioners as insurers.
HELD: YES. Where, based (1) on express stipulation in the two subject marine
insurance policies that respondent company has an interest therein and (2) on the
facts that it was the shipper (and presumably the owner) of the insured cargoes,
that the shipments were undertaken in accordance with the instructions of the
insurer’s marine surveyor and that it was respondent company that filed the
corresponding claim with the adjuster when the cargoes were damaged, the
Supreme Court, without prejudging the merits of respondent company’s case and
petitioners’ affirmative defenses, ruled that there is prima facie showing in
respondent’s complaint and pleadings that it is a real party in interest under the
policies and that it has a cause of action against the petitioners as insurers.
Harding v Commercial Union, GR L-12707,10 August 1918
Facts:
41
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Henry Harding bought a car for 2T in 1915.  He then gave the car to his
wife Mrs. Harding.
 While Mrs. Harding was having the car repaired at the Luneta Garage
(Luneta was an agent of Smith Bell and Co., which in turn is Commercial
Union’s agent), the latter induced Mrs. Harding to insure the care with
Commercial.
 Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who
together with the manager of LUneta, appraised the car and declared that
its present value was P3T.  This amt was written in the proposal form
which Mrs. Harding signed.
 Subsequently, the car was damaged by fire.  Commercial refused to pay
because the car’s present value was only 2.8T and not 3T.
 
Issue: Whether or not Commercial is liable.
 
Held:
Commercial is liable.
Where it appears that the proposal form, while signed by the insured was made
out by the person authorized to solicit the insurance (Luneta and Smith Bell) the
facts stated in the proposal, even if incorrect, will not be regarded as warranted by
the insured, in the absence of willful misstatement.  Under such circumstances,
the proposal is to be regarded as the act of the insurer.
Lampano v Jose, GR L-9401, 30 March 1915
FACTS:
 Mariano R. Barretto, constructed a house for Placida A. Jose sold the
house to Antonina Lampano for P6,000  Individual Guaranty Agreement with FEB to guarantee the prompt and
 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
3 – EXECUTIVE | Ab Initio Group
 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
 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 
Ong Lim Sing, Jr. v FEB Leasing, GR 168115, 8 June 2007
Facts:
 FEB Leasing and Finance Corporation (FEB) leased equipment and motor
vehicles to JVL Food Products with a monthly rental of P170,494
 At the same date, Vicente Ong Lim Sing, Jr. (Lim) an executed an
faithful performance of the terms and conditions of the lease agreement
 JVL defaulted in the payment of the monthly rentals resulting to arrears of
P3,414,468.75 and refused to pay despite demands
 FEB filed a complaint for damages and replevin against JVL, Lim and John
Doe
o JVL and Lim admitted the existence of the lease agreement but
asserted that it is in reality a sale of equipment on installment
basis, with FEB acting as the financier
 RTC: Sale on installment and the FEB elected full payment of the
obligation so for the unreturned units and machineries the JVL and Lim
are jointly and severally liable to pay
42
 INSURANCE MIDTERMS (Weeks 1 to 8)
 CA: granted FEB appeal that it is a financial lease agreement under
Republic Act  (R.A.) No. 8556 and ordered JVL and Lim jointly and FACTS:
severally to pay P3,414,468.75  Tomas Lianco and the Archbishop entered into a contract of lease on a
parcel of land owned by church 
Issue: W/N JVL and Lim should jointly and severally be liable for the  As lessee, Lianco erected a building on the leased portion of the church’s
insured financial lease land. 
 Lianco transferred ownership of this building to Kaw Eng Si,
Held: who later transferred the same to Golangco.
YES. CA affirmed.  Transfers were made without the consent of the Archbishop
 contract of adhesion is as binding as any ordinary contract  The Archbishop filed an ejectment case against Lianco, who appears to be
 The Lease Contract with corresponding Lease Schedules with Delivery and occupants of the premises building with others paying rent to Golangco.
Acceptance Certificates is, in point of fact, a financial lease within the  The right of Golangco to receive rent on the building was judicially
purview of R.A. No. 8556 recognized in a case decided between Lianco and
o FEB leased the subject equipment and motor vehicles to JVL in others occupying the premises pursuant to a compromise
consideration of a monthly periodic payment of P170, 494.00. agreement.
The periodic payment by petitioner is sufficient to amortize at  The Archbishop did not exercise his option to question Golangco’s rights as
least 70% of the purchase price or acquisition cost of the said lessee
movables in accordance with the Lease Schedules with Delivery  April 7,1949: Golangco applied for fire insurance with Trader’s
and Acceptance Certificates. Insurance and Surety Co. 
 JVL entered into the lease contract with full knowledge of its terms and  fire insurance policy states: "that all insurance covered under said
conditions.   policy, includes the 'rent or other
 Lim, as a lessee, has an insurable interest in the equipment and motor subject matter of insurance in respect of or in connection with any
vehicles leased.   building or any property contained in any building"
 In the financial lease agreement, FEB did not assume responsibility as to  June 5, 1949: the building premises was burned so Golangco requested
the quality, merchantability, or capacity of the equipment.  This stipulation Trader’s Insurance to pay the insurance amount of 10,000 including the
provides that, in case of defect of any kind that will be found by the lessee amount of rent P1,100 monthly. 
in any of the equipment, recourse should be made to the manufacturer.  Trader’s insurance refused to pay the insurance for the
“The financial lessor, being a financing company, i.e., an extender of rent averring that Golangco has no insurable interest 
credit rather than an ordinary equipment rental company, does not extend
a warranty of the fitness of the equipment for any particular use.  Thus, ISSUE: W/N Golangco has insurable interest
the financial lessee was precisely in a position to enforce such warranty on the rent of the building premises which may lawfully/validly be
directly against the supplier of the equipment and not against the financial subject of insurance?
lessor.  We find nothing contra legem or contrary to public policy in such a
contractual arrangement
HELD: YES.
Traders lnsurance v Golangco, GR L-6442,21 September 1954  Sec. 13 of the Insurance Code 
Every interest in the property, whether real or personal, or any relation thereto,
Lessons Applicable: Existing Interest (Insurance) or liability in respect thereof of such nature that a contemplated peril might
Laws Applicable: Sec. 13 of the Insurance Code  directly damnify the insured, is an insurable interest.

3 – EXECUTIVE | Ab Initio Group

43
 INSURANCE MIDTERMS (Weeks 1 to 8)
 Both at the time of the issuance of the policy and at the time of the fire,
Golangco was in legal possession of the premises, collecting rentals from
its occupant.
 The argument of Trader’s Insurance that a policy of insurance must
specify the interest of the insured in the property insured, if he is not the
absolute owner thereof, is not meritorious because it was the Trader’s, not
Golangco, who prepared that policy, and it cannot take advantage of its
own acts to plaintiff's detriment; and, in any case, this provision was
substantially complied with by Golangco when he made a full and clear
statement of his interests to Trader's manager.   stored therein, only an amount equal to P49,985 was salvaged.
 The contract between Lianco and the Archbishop only forbade
Lianco from transferring 'his rights as LESSEE but the contracts
Lianco made in favor of Kaw Eng Si and plaintiff Golangco did not
transfer such rights; hence no written consent thereto was
necessary. At worst, the contract would be voidable, but not a
void contract, at the option of the Archbishop and it does not
appear that it was ever exercised
Lopez v del Rosario, GR L-19189,27 November 1922
DOCTRINE: The law is that a policy effected by bailee and covering by its
terms his own property and property held in trust; inures, in the event of
a loss, equally and proportionately to the benefit of all the owners of the
property insured.
FACTS:
1. Mrs. Del Rosario, was the owner of a bonded warehouse situated in the
City of Manila. She was engaged in the business of a warehouse keeper,
and stored copra and other merchandise in the said building. Among the
persons who had copra deposited in the Del Rosario warehouse was
Froilan Lopez, the holder of fourteen warehouse receipts in his own name,
and the name of Elias T. Zamora.
2. The warehouse receipts, or negotiable warrants, or quedans (as they are
variously termed) of Lopez named a declared value of P107,990.40.
3. Mrs. Del Rosario secured insurance on the warehouse and its contents
with the National Insurance Co., Inc., the Commercial Union Insurance
Company, the Alliance Insurance Company, the South British Insurance
3 – EXECUTIVE | Ab Initio Group
Co., Ltd., and the British Traders Insurance Co., Ltd., in the amount of
P404,800.
4. All the policies were in the name of Sra. Benita Quiogue de V. del Rosario,
with the exception of one of the National Insurance Company, Inc., for
P40,000, in favor of the Compañia Coprera de Tayabas.
5. The warehouse of Mrs. Del Rosario and its contents were destroyed by fire
on June 6, 1920. The warehouse was a total loss, while of the copra
6. When Bayne, a fire loss adjuster, failed to effect a settlement between the
Insurance companies and Del Rosario, the latter authorized Atty. Fisher to
negotiate with the Companies. An agreement was reached to submit the
matter to arbitration. The arbitrators in their report allowed Mrs. Del
Rosario P363,610, which, with the addition of the money received from
the salvaged copra amounting to P49,985, and interest, made a total of
P414,258, collected by her from the companies.
7. The claims by different people who had stored copra in the warehouse
were settled 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. Lopez
stubbornly contended that he should receive not a centavo less than
P88,595.43.
ISSUE: Whether the plaintiff Lopez is entitled to receive insurance
benefits from the defendant.
HELD: YES. The SC noted in two documents, one the agreement for
arbitration, and the other the statement of claim of Mrs. Del Rosario
against the insurance companies, she acknowledged her responsibility
to the owners of the stored merchandise, against risk of loss by fire.
The award of the arbitrators covered not Mrs. Del Rosario's warehouse
alone but the products stored in the warehouse by Lopez and others.
RATIO:
44
 INSURANCE MIDTERMS (Weeks 1 to 8)
 The law is that a policy effected by bailee and covering by its terms his
own property and property held in trust; inures, in the event of a loss,
equally and proportionately to the benefit of all the owners of the property
insured.
 Even if one secured insurance covering his own goods and goods stored
with him, and even if the owner of the stored goods did not request or
know of the insurance, and did not ratify it before the payment of the loss,
yet it has been held by a reputable court that the warehouseman is liable
to the owner of such stored goods for his share.
 Plaintiff's rights to the insurance money have not been forfeited by failure
to pay the insurance provided for in the warehouse receipts.
 A preponderance of the proof does not demonstrate that the plaintiff ever
ordered the cancellation of his insurance with the defendant. Nor is it
shown that the plaintiff ever refused to pay the insurance when the bills
were presented to him, and that notice of an intention to cancel the
insurance was ever given the plaintiff.
 The remaining contention of the defendant that the plaintiff cannot claim
the benefits of the agency without sharing in the expenses, is well taken.
 Although the plaintiff did not expressly authorize the agreement to submit
the matter to arbitration, yet on his own theory of the case, Mrs. Del
Rosario was acting as his agent in securing insurance, while he benefits
from the amicable adjustment of the insurance claims.
 The amounts can be figured in several different ways, plaintiff is 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.
 Wherefore, judgment is modified and the plaintiff shall have and recover
from the defendants the sum of P81,093.65, with interest at 6 per cent
per annum from May 13, 1921, until paid. Without special finding as to
costs in either instance, it is so ordered.
San Miguel v Law Union Rock lnsurance, GR L-14300, 19 Jan.1920
3 – EXECUTIVE | Ab Initio Group
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)
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 property to Henry Harding.  The insurance was not
assigned by Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguel
to 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. W/N San Miguel has insurable interest as mortgagor only to the
extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO
HELD: affirmed
 section 19 of the Insurance Act:
 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
45
 INSURANCE MIDTERMS (Weeks 1 to 8)
 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.  which the insured might be damnified by loss of injury thereof.
Spouses Cha v Court of Appeals, GR 124520, 18 August 1997
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 recently to them. But United refused so CKS
filed against Spouses Cha and United.
3 – EXECUTIVE | Ab Initio Group
RTC: United to pay CKS the amount of P335, 063.11 and Spouses Cha P50,000 as
exemplary damages, P20,000 as attorney’s fees and costs of suit.
CA; deleted exemplary damages and attorney’s fees.
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 taken by the petitioner-spouses over their merchandise
is primarily a contract of indemnity. Insurable interest in the property insured must
exist at the time the loss occurs. The basis of such requirements 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
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 the property is the extent to
The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law/ 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 separate and distinct issue which we do not resolve in this case.
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.
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
46
 INSURANCE MIDTERMS (Weeks 1 to 8)
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.
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.
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.
Tai Tong Chua Che v lnsurance Com, GR L-55397 ,29 February 1988
Facts:
Complainants acquired a parcel of land and a building they assumed the mortgage
of the latter in favor of SSS, which was insured with respondent SSS Accredited
Group of Insurers. On April 19, 1975, Azucena Palomo obtained a loan from
petitioner Tai Tong Chuache Inc. securing it with a mortgage was executed over
the land and the building in favor of petitioner. On April 25, 1975, Arsenio Chua,
petitioner’s representative insured the latter's interest with Travellers Multi-
Indemnity Corporation. On June 11, 1975, Pedro Palomo secured fire insurance
covering the building with respondent Zenith Insurance Corporation and on July
16, 1975, another fire insurance was procured from respondent Philippine British
Assurance Company, covering the same building and the contents thereof.
However, on July 31, 1975, the building and the contents were totally razed by
fire.
3 – EXECUTIVE | Ab Initio Group
Respondents, Zenith Insurance, Phil. British Assurance and SSS Accredited Group
of Insurers, paid their corresponding shares of the loss. Demand was made from
respondent Travellers Multi-Indemnity for its share in the loss but the same was
refused. Hence, complainants demanded from the other threethe same was also
refused. Petitioner then filed a complaint in intervention claiming the proceeds of
the fire insurance policy issued by respondent Travellers Multi-Indemnity but the
latter alleged that it is not entitled to indemnity for lack of insurable interest before
the loss of the insured premises.
Issue: Whether or not petitioner has an insurable interest.
Ruling: Respondent insurance company did not assail the validity of the insurance
policy taken out by petitioner over the mortgaged property. Neither did it deny
that the said property was totally razed by fire within the period covered by the
insurance. Respondent advanced an affirmative defense of lack of insurable
interest on the part of the petitioner that before the occurrence of the peril insured
against the Palomos had already paid their credit due the petitioner. Respondent
having admitted the material allegations in the complaint has the burden of proof
to show that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of proof.
Respondent exerted no effort to present any evidence to substantiate its claim,
while petitioner did. For said respondent's failure, the decision must be adverse to
it.
However, respondent Insurance Commission absolved respondent insurance
company from liability on the basis of the certification issued by the then Court of
First Instance of Davao, Branch II, that in a certain civil action against the
Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the insured property
must have been paid. Such is a glaring error which cannot be sanctioned.
Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the
insurance proceeds offered as evidence the contract of mortgage which has not
been cancelled nor released. It has been held in a long line of cases that when the
creditor is in possession of the document of credit, he need not prove non-
payment for it is presumed. The validity of the insurance policy taken by petitioner
was not assailed by private respondent. Moreover, petitioner's claim that the loan
47
 INSURANCE MIDTERMS (Weeks 1 to 8)
extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner. Public
respondent argues however, that if the civil case really stemmed from the loan
granted to Azucena Palomo by petitioner the same should have been brought by
Tai Tong Chuache or by its representative in its own behalf. From the above
premise respondent concluded that the obligation secured by the insured property
must have been paid. The premise is correct but the conclusion is wrong. Citing
Rule 3, Sec. 2 respondent pointed out that the action must be brought in the
name of the real party in interest. Correct! However, it should be borne in mind
that petitioner being a partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is the representative
of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua
acts as the managing partner of the partnership was corroborated by respondent
insurance company. Thus Chua as the managing partner of the partnership may
execute all acts of administration including the right to sue debtors of the
partnership in case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of petitioner Tai Tong
Chuache & Company is an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the firm. Public respondent's
allegation that the civil case filed by Arsenio Chua was in his capacity as personal
creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of herein
petitioner which policy was of legal force and effect at the time of the fire, it is
bound by its terms and conditions. Upon its failure to prove the allegation of lack
of insurable interest on the part of the petitioner, respondent insurance company
is and must be held liable.
Bachrach v British American lnsurance, L-5715,2A December 1910
FACTS:
Bachrach insured his building against fire with the British-American Assurance
Company. After the effectivity of the policy, the insured stored gasoline, paints and
varnishes within the premises insured. The building was burned and the insurer
refused to pay the loss on the ground that the risk of fire was increased by the
storage of gasoline, paints and varnishes. The insurer also claimed that the
plaintiff transferred his interest in and to the property covered by the policy to H.
W. Peabody & Co. to secure certain indebtedness due and owing to said company,
and also that the plaintiff had transferred his interest in certain of the goods
covered by the said policy to one Macke, to secure certain obligations assumed by
3 – EXECUTIVE | Ab Initio Group
the said Macke for and on behalf of the insured. Such execution of a chattel
mortgage on the insured property without consent to the insurer violated what is
known as the "alienation clause,".
ISSUE:
I. Whether the use of the building as a paint and
varnish shop annulled the policy insurance.
II. II. Whether the execution of the chattel
mortgages without the knowledge and consent
of the insurance company annulled the policy
insurance.
HELD:
The court ruled in negative for both issues.
I.
The property insured consisted mainly of household furniture kept for the purpose
of sale. The preservation of the furniture in a salable condition by retouching or
otherwise was incidental to the business.
The evidence offered by the plaintiff is to the effect that alcohol was used in
preparing varnish for the purpose of retouching, though he also says that the
alcohol was kept in store and not in the bodega where the furniture was.
It is well settled that the keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping is incidental to the
business.
Thus, where a furniture factory keeps benzine for the purposes of operation (Davis
vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where it is used for the cleaning machinery
(Mears vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the
insurer can not on that ground avoid payment of loss, though the keeping of the
benzine on the premises is expressly prohibitedIt may be added that there was no
provision in the policy prohibiting the keeping of paints and varnishes upon the
premises where the insured property was stored. If the company intended to rely
upon a condition of that character, it ought to have been plainly expressed in the
policy.
II.
Upon reading the policy of insurance issued by the defendant to the plaintiff, it will
be noted that there is no provision in said policy prohibiting the plaintiff from
placing a mortgage upon the property insured, but, admitting that such a provision
was intended, we think the lower court has completely answered this contention of
the defendant. He said, in passing upon this question as it was presented: It is
claimed that the execution of a chattel mortgage on the insured property violated
what is known as the "alienation clause," which is now found in most policies, and
48
 INSURANCE MIDTERMS (Weeks 1 to 8)
which is expressed in the policies involved in cases 6496 and 6497 by a purchase
imposing forfeiture if the interest in the property pass from the insured. (Cases
6496 and 6497, in which are involved other action against other insurance
companies for the same loss as in the present action.)
This clause has been the subject of a vast number of judicial decisions (13 Am. &
Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of
authority that the interest in property insured does not pass by the mere execution
of a chattel mortgage and that while a chattel mortgage is a conditional sale, there
is no alienation within the meaning of the insurance law until the mortgage
acquires a right to take possession by default under the terms of the mortgage. No
such right is claimed to have accrued in the case at bar, and the alienation clause
is therefore inapplicable.
San Miguel v Law Union Rock Insurance, GR L-14300, 19 January 1920
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. W/N San Miguel has insurable interest as mortgagor only to the
extent of the mortgage credit - YES 2. W/N Harding has insurable
interest as owner - NO
3 – EXECUTIVE | Ab Initio Group
HELD: affirmed section 19 of the Insurance Act: 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.
WEEK 7
CONCEALMENT
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
49
 INSURANCE MIDTERMS (Weeks 1 to 8)
Sec. 27. A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance. (As amended by Batasang Pambansa Blg.  Facts:
874)
Sec. 28. Each party to a contract of insurance must communicated to the other,
in good faith, all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has not the means of
ascertaining.
Sec. 29. An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
Sec. 30. Neither party to a contract of insurance is bound to communicate
information of the matters following, except in answer to the inquiries of the
other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of
which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.
Sec. 31. Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
Sec. 32. Each party to a contract of insurance is bound to know all the general
causes which are open to his inquiry, equally with that of the other, and which
may affect the political or material perils contemplated; and all general usages of
trade.
Sec. 33. The right to information of material facts may be waived, either by the
terms of the insurance or by neglect to make inquiry as to such facts, where they
are distinctly implied in other facts of which information is communicated.
Sec. 34. Information of the nature or amount of the interest of one insured need
not be communicated unless in answer to an inquiry, except as prescribed by
section fifty-one.
Sec. 35. Neither party to a contract of insurance is bound to communicate, even
upon inquiry, information of his own judgment upon the matters in question.
Argente v West Coast Life, GR L-24899, 9 March 1928
3 – EXECUTIVE | Ab Initio Group
A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta
upon payment of premium, by West Coast. On Nov. 18, 1925, during the
effectivity of the policy, Vicenta died of cerebral apoplexy. The representations
made by Bernardo Argente and his wife in their applications to the defendant for
life insurance were false with respect to their estate of health during the period of
five years preceding the date of such applications, and that they knew the
representations made by them in their applications were false. Also, it was further
found from the evidence that the answers given by Bernardo Argente and his wife
at the time of the medical examination by Doctor Sta. Ana were false with respect
to the condition of their health at that time and for a period of several years prior
thereto. Thereafter, Bernardo claimed payment but was refused.
Issue: Whether or not on the basis of the misrepresentations of Vicenta,
Bernardo is barred from recovery.
Ruling
YES. One ground for the rescission of a contract of insurance under the
Insurance Act is "a concealment," which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to communicate." The basis of
the rule vitiating the contract in case of concealment is that it misleads or deceives
the insurer into accepting the risk, or accepting it at the rate of premium agreed
upon. The insurer, relying upon the belief that the assured will disclose every
material within his actual or presumed knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is thereby induced to estimate the
risk upon a false basis that it does not exist.
The court found that the representations made by Vicenta in his application for life
insurance were false with respect to her state of health and that she knew and
was aware that the representations so made by her were false.  In an action on a
life insurance policy where the evidence conclusively shows that the answers to
questions concerning diseases were untrue, the truth or falsity of the answer
becomes the determining factor.
If the policy was procured by fraudulent misrepresentations, the contract of
insurance apparently set forth therein was never legally existent.  It can be fairly
assumed that had the true facts been disclosed by the insured, the insurance
would never have been granted.
50
 INSURANCE MIDTERMS (Weeks 1 to 8)
Great Pacific Life v CA, GR L-31845, 30 April 1979
Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment
policy in the amount of P50,000.00 on the life of his one-year old daughter Helen.
He supplied the essential data which petitioner Mondragon, the Branch Manager,
wrote on the form. The latter paid the annual premium the sum of P1,077.75
going over to the Company, but he retained the amount of P1,317.00 as his
commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was
issued Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the
back page of the application form his strong recommendation for the approval of
the insurance application. Then Mondragon received a letter from Pacific Life
disapproving the insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors
below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead,
on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending
the approval of the 20-year endowment insurance plan to children, pointing out
that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery before
the Court of First Instance of Cebu, which ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract
of the life insurance in question
2. Whether Ngo Hing concealed the state of health and physical
condition of Helen Go, which rendered void the policy
Ruling:
3 – EXECUTIVE | Ab Initio Group
1. No.
The receipt was intended to be merely a provisional insurance contract. Its
perfection was subject to compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for
a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if
the company disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment 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. There was still
approval or rejection the same on the basis of whether or not the applicant is
"insurable on standard rates." Since Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had
never become in force at any time. The binding deposit receipt is conditional and
does not insure outright. This was held in Lim v Sun. The deposit paid by private
respondent shall have to be refunded by Pacific Life.
2. Yes.  
Ngo Hing had deliberately concealed the state of health of his daughter Helen Go.
When he supplied data, he was fully aware that his one-year old daughter is
typically a mongoloid child. He withheld the fact material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of
any concealment or demotion, however slight.” The concealment entitles the
insurer to rescind the contract of insurance.
Saturnino v Philippine American Life, GR L-16163, 28 February 1963
Facts:
51
 INSURANCE MIDTERMS (Weeks 1 to 8)
>  2 months prior to the insurance of the policy, Saturnino was operated on for
cancer, involving complete removal of the right breast, including the pectoral
muscles and the glands, found in the right armpit.
>  Notwithstanding the fact of her operation, Saturnino did not make a disclosure
thereof in her application for insurance.
>  She stated therein that she did not have, nor had she ever had, among others
listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding 5
years.
>  She also stated that she had never been treated for, nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and
menstrual disorders.
>  The application also recited that the declarations of Saturnino constituted a
further basis for the issuance of the policy.
Issue:
Whether or not the insured made such false representation of material
facts as to avoid the policy.
Held:
YES.
There can be no dispute that the information given by her in the application for
insurance was false, namely, that she never had cancer or tumors or consulted
any physician or undergone any operation within the preceding period of 5 years.
The question to determine is: Are the facts then falsely represented material?   The
Insurance Law provides that “materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate of the proposed contract,
or making his inquiries.
The contention of appellants is that the facts subject of the representation were
not material in view of the non-medical nature of the insurance applied for, which
does away with the usual requirement of medical examination before the policy is
issued.  The contention is without merit.  If anything, the waiver of medical
examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not.
3 – EXECUTIVE | Ab Initio Group
Appellants also contend that there was no fraudulent concealment of the truth
inasmuch as the insured herself did not know, since her doctor never told her, that
the disease for which she had been operated on was cancer.  In the first place,
concealment of the fact of the operation itself was fraudulent, as there could not
have been any mistake about it, no matter what the ailment.
Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the
part of the insured. In this jurisdiction, concealment, whether intentional or
unintentional entitled the insurer to rescind the contract of insurance, concealment
being defined as “negligence to communicate that which a party knows and ought
to communicate.”  The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer into accepting the risk, or
accepting it at a rate of premium agreed upon.  The insurer, relying upon the
belief that the insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstances withheld does
not exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist.
Canilang v CA and Great Pacific Life, GR 92492,17 June 1993
Facts:
Canilang was found to have suffered from sinus tachycardia then bronchitis after a
check-up from his doctor. The next day, he applied for a "non-medical" insurance
policy with respondent Grepalife naming his wife, Thelma Canilang, as
his beneficiary. This was to the value of P19,700.
He died of "congestive heart failure," "anemia," and "chronic anemia."  The widow
filed a claim with Great Pacific which the insurer denied on the ground that the
insured had concealed material information from it.
Petitioner then filed a complaint against Great Pacific for recovery of the insurance
proceeds. Petitioner testified that she was not aware of any serious illness suffered
by her late husband and her husband had died because of a kidney disorder. The
doctor who gave the check up stated that he treated the deceased for “sinus
tachycardia” and "acute bronchitis."
Great Pacific presented a physician who testified that the deceased's
insurance application had been approved on the basis of his medical declaration.
She explained that as a rule, medical examinations are required only in cases
where the applicant has indicated in his application for insurance coverage that he
has previously undergone medical consultation and hospitalization.
The Insurance Commissioner  ordered Great Pacific to pay P19,700 plus legal
interest and P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court
52
 INSURANCE MIDTERMS (Weeks 1 to 8)
of Appeals reversed. It found that the failure of Jaime Canilang to disclose
previous medical consultation and treatment constituted material information
which should have been communicated to Great Pacific to enable the latter to
make proper inquiries.
Hence this petition by the widow.
Issue: Won Canilang was guilty of misrepresentation
Held: Yes. Petition denied.
Ratio:
There was a right of the insurance company to rescind the contract if it was
proven that the insured committed fraud in not affirming that he was treated for
heart condition and other ailments stipulated.
Apart from certifying that he didn’t suffer from such a condition, Canilang also
failed to disclose in the that he had twice consulted a doctor who had found him to
be suffering from "sinus tachycardia" and "acute bronchitis."
Under the Insurance Code:
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has not the means of
ascertaining.
The information concealed must be information which the concealing party knew
and should have communicated. The test of materiality of such information
is contained in Section 31:
Sec. 31. Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
The information which Jaime Canilang failed to disclose was material to the ability
of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had he disclosed his visits to his doctor, the diagnosis made and
medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and
would have probably refused to issue a non-medical insurance policy.
Materiality relates rather to the "probable and reasonable influence of the facts"
upon the party to whom the communication should have been made, in assessing
the risk involved in making or omitting to make further inquiries and in accepting
3 – EXECUTIVE | Ab Initio Group
the application for insurance; that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great Pacific to
convey certain information to the insurer was not "intentional" in nature, for the
reason that Canilang believed that he was suffering from minor ailment like a
common cold. Section 27 stated that:
Sec. 27. A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance.
The failure to communicate must have been intentional rather than inadvertent.
Canilang could not have been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a doctor twice in the two (2)
months before applying for non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance application was filed. In
all probability, Jaime Canilang went to visit his doctor precisely because of
the ailment.
Canilang's failure to set out answers to some of the questions in the
insurance application constituted concealment. 
Sun Life v Bacani, GR 105135, 22 June 1995
FACTS:
 
Robert John Bacani procured a life insurance contract for himself from petitioner-
company, designating his mother Bernarda Bacani, herein private respondent, as
the beneficiary. He was issued a policy valued at P100,000.00 with double
indemnity in case of accidental death. Sometime after, the insured died in a plane
crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance
policy taken by her son. However, said insurance company rejected the claim on
the ground that the insured did not disclose material facts relevant to the issuance
of the policy, thus rendering the contract of insurance voidable. Petitioner
discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. The RTC, as affirmed by the CA, this fact was
concealed, as alleged by the petitioner. But the fact that was concealed was not
the cause of death of the insured and that matters relating to the medical history
of the insured is deemed to be irrelevant since petitioner waived the medical
examination prior to the approval and issuance of the insurance policy.
 
53
 INSURANCE MIDTERMS (Weeks 1 to 8)
ISSUE: Whether or not the concealment of such material fact, despite it
not being the cause of death of the insured, is sufficient to render the
insurance contract voidable
 
HELD:
 
YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract
of insurance to communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining. Anent the finding
that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries.
The SC, therefore, ruled that petitioner properly exercised its right to rescind the
contract of insurance by reason of the concealment employed by the insured. It
must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.
Yu Pang Cheng v CA, GR L-12465, 29 May 1959
Facts:
Yu Pang Eng submitted application for insurance consisting of the medical
declaration made by him to the medical examiner and the report. Yu then paid the
premium in the sum of P591.70.
The insured, in his application for insurance, said “no” to ever having stomach
disease, cancer, and fainting-spells. He also claimed to not have consulted a
physician regarding such diseases.
After submitting the form, he entered the hospital where he complained of
dizziness, anemia, abdominal pains and tarry stools. He was found to have peptic
ulcer.
The insured entered another hospital for medical treatment but he died of
"infiltrating medullary carcinoma, Grade 4, advanced cardiac and of
lesser curvature, stomach metastases spleen."
Yu Pang Cheng aimed to collect P10,000.00 on  life of one Yu Pang Eng from an
insurance company.
3 – EXECUTIVE | Ab Initio Group
The company set up the defense that the insured was guilty of misrepresentation
and concealment of material facts. They subsequently refused to give the
indemnity.
The trial court rendered judgment ordering defendant to pay plaintiff the sum of
P10,000.00, plus P2,000.00 as attorney's fees. The Court of Appeals reversed the
decision of the trial court, holding that the insured was guilty of concealment of
material facts. Hence the present petition.
Issue: Whether or not the insured is guilty of concealment of some facts
material to the risk insured that consequently avoids the policy.
Held: Yes. Petition dismissed.
Ratio:
The first confinement took place from January 29, 1950 to February 11, while
his application was submitted on September 5, 1950. When he gave
his answers to the policy, he concealed the ailment of which he was treated in the
hospital.
The negative answers given by the insured regarding his
previous ailment deprived defendant of the opportunity to make the necessary
inquiry as to the nature of his past illness so that as it may form its estimate
relative to the approval of his application. Had defendant been given such
opportunity, the company would probably had never consented to the issuance of
the policy in question. In fact, according to the death certificate, the insured’s
death may have direct connection with his previous illness.
Under the law, a neglect to communicate that which a party knows and ought to
communicate, is called concealment. This entitles the insurer to rescind the
contract. The insured is required to communicate to the insurer all facts within his
knowledge which are material to the contract and which the other party has not
the means of ascertaining. The materiality is to be determined not by the event
but solely by the probable and reasonable influence of the facts upon the party to
whom the communication is due.
Argente vs. West Coast- “One ground for the rescission of a contract of insurance
under the insurance Act is "a concealment", which in section 25 is defined "A
neglect to communicate that which a party knows and ought to communicate."
“In an action on a life insurance policy where the evidence conclusively shows that
the answers to questions concerning diseases were untrue, the truth or falsity of
the answers become the determining factor. If the policy was procured by
fraudulent representations, the contract of insurance was never legally existent. It
54
 INSURANCE MIDTERMS (Weeks 1 to 8)
can fairly be assumed that had the true facts been disclosed by the assured, the
insurance would never have been granted.”
Ng Zee v Asian Crusader Life lnsurance, GR L-30685, 30 May 1983
Facts:
Kwong Nam applied for a 20-year endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
Asian Crusader, upon receipt of the required premium from the insured, approved
the application and issued the corresponding policy. Kwong Nam died of cancer of
the liver with metastasis. All premiums had been paid at the time of his death.
Ng Gan Zee presented a claim for payment of the face value of the policy. On the
same date, she submitted the required proof of death of the
insured. Appellant denied the claim on the ground that the answers given by the
insured to the questions in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner. The
latter, after conducting an investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that, therefore, appellee
should be paid the full face value of the policy. The company refused to settle its
obligation.
Appellant alleged that the insured was guilty of misrepresentation when he
answered "No" to the following question appearing in the application for life
insurance-
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied
for? If, so, name company and date.
The lower court ruled against the company on lack of evidence.
Appellant further maintains that when the insured was examined in connection
with his application for life insurance, he gave the appellant's medical examiner
false and misleading information as to his ailment and previous operation. The
company contended that he was operated on for peptic ulcer  2 years before the
policy was applied for and that he never disclosed such an operation.
Issue: WON Asian Crusader was deceived into entering the contract or in
accepting the risk at the rate of premium agreed upon because of
insured's representation?
Held: No. Petition dismissed.
Ratio:
3 – EXECUTIVE | Ab Initio Group
Section 27 of the Insurance Law:
Sec. 27. Such party a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract, and
which the other has not the means of ascertaining, and as to which he makes no
warranty.
 "Concealment exists where the assured had knowledge of a fact material to the
risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assurer, but he designedly and intentionally withholds the
same."
It has also been held "that the concealment must, in the absence of inquiries, be
not only material, but fraudulent, or the fact must have been intentionally
withheld."
Fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an 'affirmative'
defense. The duty to establish such a defense by satisfactory and convincing
evidence rests upon the defendant. The evidence before the Court does not clearly
and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner
of the tumor. His statement that said tumor was "associated with ulcer of the
stomach" should be construed as an expression made in good faith of his belief as
to the nature of his ailment and operation.
While the information communicated was imperfect, the same was sufficient to
have induced appellant to make further inquiries about the ailment and operation
of the insured.
Section 32 of Insurance Law:
Section 32. The right to information of material facts maybe waived either by the
terms of insurance or by neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is communicated.
Where a question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further inquiry, they waive
the imperfection of the answer and render the omission to answer more fully
immaterial.
The company or its medical examiner did not make any further inquiries on such
matters from the hospital before acting on the application for insurance. The fact
of the matter is that the defendant was too eager to accept the application and
receive the insured's premium. It would be inequitable now to allow
the defendant to avoid liability under the circumstances."
Colado v lnsular Life, 51 O.G. (No. 12), 1955
55
 INSURANCE MIDTERMS (Weeks 1 to 8)
Facts:
>  Vivencio Collado applied for an insurance contract with Insular life in 1948.  His
application was approved and he began started making premium payments.  payment of future premiums.  The case would be different had the insured died at
However, he defaulted and the insurance was cancelled.
>  He then applied for the reinstatement of his insurance policy in Nov. of 1951
and tendered the amount of premium for the years 1950-1951.
>  He stated that he was as of Nov. 1951 of good health, and that he had no
injuries, ailments or illnesses and had not been sick for any case since 1948 (his
medical check up when he applied for insurance) and that he had not consulted
any physician or practitioner for any case since the date of such latest medical
exam.
>  However, when Vivencio applied for the reinstatement, he was already sick of a
fatal disease known as carcinoma of the liver and that 4 days prior to his
application for insurance, he consulted a doctor regarding his condition.
>  The reinstatement was approved.  Vivencio again failed to pay the premiums
for the last quarter of Nov. 1951 and as such, Insular life sent him a notice
canceling the policy.
>  Vivencio then died.  The beneificiaries instituted the present action to recover
from Insular life the death benefits of a life insurance policy valued at 2T.   Insular
refused to pay claiming concealment on the part of Vivencio.
>  Collado contends that Insular life had waived the right to rescine the policy in
view of its repeated acceptance of the overdue premiums for the second and third
years.
>  Municipal court of Manila found for Collado and Insular filed an appeal with CFI
of Manila. CFI rendered judgment in favor of Insular and dismissed Collado’s
complaint.
Issue: Whether or nor Insular life was estopped and could no longer
cancel the contract due to the fact that it accepted the tender of overdue
payments from Vivencio.
Held:
NO.
It is enormously clear that  when the deceased applied for a reinstatement of his
policy in Nov. 1951, he had already been afflicted with the fatal ailment for a
period of about four months.  Furthermore, in submitting together with his
application for reinstatement, a health statement to the effect that he was in good
health, Vivencio concealed the material fact that he had consulted a doctor and
was then found to be afflicted with the malady.
3 – EXECUTIVE | Ab Initio Group
The acceptance of Insular life of the overdue premiums did not necessarily deprive
it of the right to cancel the policy in case of default incurred by the Insured in the
any time after the payment of overdue premiums but previous to the
reinstatement of the policy, for the, Insular, by its acceptance of its overdue
premiums is deemed to have waived its right to rescind the policy.
The evidence at hand shows that insofar as the payment of the last quarterly
premium for 1951 was concerned, Insular had availed of the right to rescind the
policy by notifying the Insured that the policy had lapsed.
REPRESENTATION
Sec. 37. A representation may be made at the time of, or before, issuance of the
policy.
Sec. 38. The language of a representation is to be interpreted by the same rules
as the language of contracts in general.
Sec. 39. A representation as to the future is to be deemed a promise, unless it
appears that it was merely a statement of belief or expectation.
Sec. 40. A representation cannot qualify an express provision in a contract of
insurance, but it may qualify an implied warranty.
Sec. 41. A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.
Sec. 42. A representation must be presumed to refer to the date on which the
contract goes into effect.
Sec. 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he
believes to be true, with the explanation that he does so on the information of
others; or he may submit the information, in its whole extent, to the insurer; and
in neither case is he responsible for its truth, unless it proceeds from an agent of
the insured, whose duty it is to give the information.
Sec. 44. A representation is to be deemed false when the facts fail to correspond
with its assertions or stipulations.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Sec. 45. If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the time when
the representation becomes false. The right to rescind granted by this Code to the
insurer is waived by the acceptance of premium payments despite knowledge of
the ground for rescission. (As amended by Batasang Pambansa Blg. 874).
Sec. 46. The materiality of a representation is determined by the same rules as
the materiality of a concealment.
Sec. 47. The provisions of this chapter apply as well to a modification of a
contract of insurance as to its original formation.
Sec. 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
Edillon v Manila Bankers Life, GR L-34200,30 September 1982
Facts:
Carmen O, Lapuz applied with Manila Bankers for insurance coverage against
accident and injuries. She gave the date of her birth as July 11, 1904. She paid the
sum of P20.00 representing the premium for which she was issued the
corresponding receipt. The policy was to be effective for 90 days.
During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North
Diversion Road.
Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the
policy, filed her claim for the proceeds of the insurance. Her claim having been
denied, Regina L. Edillon instituted this action in the trial court.
The insurance corporation relies on a provision contained in the contract excluding
its liability to pay claims under the policy in behalf of "persons who are under the
age of sixteen (16) years of age or over the age of sixty (60) years" They pointed
out that the insured was over sixty (60) years of age when she applied for the
insurance coverage, hence the policy became void.
3 – EXECUTIVE | Ab Initio Group
The trial court dismissed the complaint and ordered edillon to pay P1000. The
reason was that a policy of insurance being a contract of adhesion, it was the duty
of the insured to know the terms of the contract he or she is entering into.
The insured could not have been qualified under the conditions stated in said
contract and should have asked for a refund of the premium.
Issue: Whether or not the acceptance by the insurance corporation of
the premium and the issuance of the corresponding certificate of
insurance should be deemed a waiver of the exclusionary condition of
coverage stated in the policy.
Held: Yes. Petition granted.
Ratio:
The age of Lapuz was not concealed to the insurance company.
Her application clearly indicated her age of the time of filing the same to be almost
65 years of age. Despite such information which could hardly be overlooked, the
insurance corporation received her payment of premium and issued the
corresponding certificate of insurance without question.
There was sufficient time for the private respondent to process the application and
to notice that the applicant was over 60 years of age and cancel the policy.
Under the circumstances, the insurance corporation is already deemed in estoppel.
It inaction to revoke the policy despite a departure from the exclusionary
condition contained in the said policy constituted a waiver of such condition,
similar to Que Chee Gan vs. Law Union Insurance.
The insurance company was aware, even before the policies were issued, that in
the premises insured there were only two fire hydrants contrary to
the requirements of the warranty in question.
It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate
the contract from its very inception, such knowledge constitutes a waiver of
conditions in the contract inconsistent with the known facts, and the insurer is
stopped thereafter from asserting the breach of such conditions.
To allow a company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates
of honesty and fair dealing.
Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of
the policy requiring the payment of premiums before the insurance shall become
effective. The company issued the policy upon the execution of a promissory note
57
 INSURANCE MIDTERMS (Weeks 1 to 8)
for the payment of the premium. A check given subsequent by the insured as
partial payment of the premium was dishonored for lack of funds. Despite
such deviation from the terms of the policy, the insurer was held liable.
“... is that although one of conditions of an insurance policy is that "it shall not be
valid or binding until the first premium is paid", if it is silent as to the mode of
payment, promissory notes received by the company must be deemed to have
been accepted in payment of the premium. In other words, a requirement for the
payment of the first or initial premium in advance or actual cash may be waived by
acceptance of a promissory note...”
lnsular Life v Feliciano, GR L-47593, 29 December 1943
FACTS:
Evaristo Feliciano filed an application for insurance with the Insular Life upon the
solicitation in one of its agent. He was issued two insurance policies with an
aggregate amount of Php25,000. In September 1935, he died. His heirs (Serafin
Feliciano et al) filed an insurance claim but Insular Life refused to pay as it averred
that Feliciano’s application was fraudulenly obtained. It was later found in court
that the insurance agent and the medical examiner of Insular Life who assisted
Feliciano in signing the application knew that Feliciano was already suffering from
tuberculosis; that they were aware of the true medical condition of Feliciano yet
they still made it appear that he was healthy in the insurance application form;
that Feliciano signed the application in blank and the agent filled the information
for him.
ISSUE:
Whether or not Insular Life can avoid the insurance policy by reason of
the fact that its agent knowingly and intentionally wrote down the
answers in the application differing from those made by Feliciano hence
instead of serving the interests of his principal, acts in his own or
another’s interest and adversely to that of his principal.
HELD:
No. Insular Life must pay the insurance policy. The weight of authority is that if an
agent of the insurer, after obtaining from an applicant for insurance a correct and
truthful answer to interrogatories contained in the application for insurance,
without knowledge of the applicant fills in false answers, either fraudulently or
otherwise, the insurer cannot assert the falsity of such answers as a defense to
liability on the policy, and this is true generally without regard to the subject
matter of the answers or the nature of the agent’s duties or limitations on his
authority, at least if not brought to the attention of the applicant.
3 – EXECUTIVE | Ab Initio Group
The fact that the insured did not read the application which he signed, is not
indicative of bad faith. It has been held that it is not negligence for the insured to
sign an application without first reading it if the insurer by its conduct in
appointing the agent influenced the insured to place trust and confidence in the
agent.
Tan Chay Heng v West Coast Life, GR L-27541,21 Nov. 1927
Facts:
Tan Chay applied for a life insurance policy of for the sum of P10,000 where he
was the sole beneficiary. The company approved this.  The policy was issued upon
the payment by Tan Ceang of the first year's premium worth P936. The company
agreed to pay the beneficiay the amount of the policy upon the receipt of the
proofs of the death of the insured while the policy was in force. Without any
premium due or unpaid, Ceang died. Tan Chay plaintiff submitted the proofs of the
death of Tan Ceang with a claim for the payment. The company refused to pay.
The company alleged that Tan Ceang obtained the policy by means of deceit to
the effect that the medical certificate had false statements about his health. They
also claimed that he didn’t pay the premium. The court ruled for Tan Chay and
commanded the company to pay 10,000 pesos.
Issue: WON Section 47 of the Insurance Code applies to this case.
Held: No. Petition dismissed.
Ratio:
The plaintiff contends that section 47 of the Insurance Act should be applied, and
that when so applied, the company is barred and estopped to plead the matters
alleged in its special defense. That section states:
Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
The defendant contends that section 47 does not apply to this special defense. If
in legal effect defendant's special defense is in the nature of an act to rescind "a
contract of insurance," then such right must be exercised prior to an
action enforce the contract.
Defendant denied that if ever issued the policy in question.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
The word "rescind" has a well defined legal meaning, and as applied to contracts,
it presupposes the existence of a contract to rescind. The rescission relates only to
the unfulfilled part, and not to the entire agreement, making the party rescinding
liable on notes executed pursuant to the contract which matured before the
rescission. The rescission is the unmaking of a contract, requiring the
same concurrence of wills as that which made it, and nothing short of this will
suffice.
After a contract has been broken, whether by an inability to perform it, or by
rescinding against right or otherwise, the party not in fault may sue the other for
the damages suffered, or, if the parties can be placed in status quo, he may,
should he prefer, return what he has received and recover in a suit value of what
he has paid or done. The latter remedy is termed "rescission."
In the instant case, the defendant does not seek to have the alleged insurance
contract rescinded. It only denies that it ever made any contract of insurance on
the life of Tan Ceang or that any such a contract ever existed. If
the defendant never made or entered into the contract in question, there is no
contract to rescind, and, hence, section 47 doesn’t apply. As stated, an action to
rescind a contract is founded upon and presupposes the existence of the contract
which is sought to be rescinded.
If all of the material matters set forth and alleged in the defendant's special plea
are true, there was no valid contract of insurance, for the simple reason that the
minds of the parties never met and never agreed upon the terms and conditions of
the contract. If such matters are known to exist by a preponderance of the
evidence, they would constitute a valid defense to plaintiff's cause of action. Upon
the question as to whether or not they or are not true, the court couldn’t say, but
they were sure that section 47 does not apply to the allegations made in the
answer.
Tan v Court of Appeals, GR 48049,29 June 1989
Facts:
Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of
P 80,000.00 with Philamlife. It was approved. Tan Lee Siong died of hepatoma.
Petitioners then filed a claim for the proceeds. The company denied petitioners'
claim and rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts. The premiums paid on the policy were refunded.
The petitioners filed a complaint in the Insurance Commission. The latter
dismissed the complaint.
3 – EXECUTIVE | Ab Initio Group
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit. Hence, this petition.
Issue:
WON Philam didn’t have the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of
the insured within two years and prior to the commencement of action.
Held: No. Petition dismissed.
Ratio:
The Insurance Code states in Section 48:
“Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years from
the date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.”
The so-called "incontestability clause"  in the second paragraph prevents the
insurer from raising the defenses of false representations insofar as health and
previous diseases are concerned if the insurance has been in force for at least two
years during the insured's lifetime.
The policy was in force for a period of only one year and five months. Considering
that the insured died before the two-year period had lapsed, respondent company
is not, therefore, barred from proving that the policy is void ab initio by reason of
the insured's fraudulent concealment or misrepresentation.
The "incontestability clause" added by the second paragraph of Section 48 is in
force for two years. After this, the defenses of concealment or misrepresentation
no longer lie.
The petitioners argue that no evidence was presented to show that the medical
terms were explained in a layman's language to the insured. They also argue that
no evidence was presented by respondent company to show that the questions
appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. This couldn’t
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 INSURANCE MIDTERMS (Weeks 1 to 8)
be accepted because the insured signed the form. He affirmed the correctness of
all the entries.
The company records show that the deceased was examined by Dr. Victoriano Lim
and was found to be diabetic and hypertensive. He was also found to have
suffered from hepatoma. Because of the concealment made by the deceased, the
company was thus misled into accepting the risk and approving his application as
medically fit.  (g) The period during which the insurance is to continue.
WEEK 8
THE POLICY
Sec. 49. The written instrument in which a contract of insurance is set forth, is
called a policy of insurance.
Sec. 50. The policy shall be in printed form which may contain blank spaces; and
any word, phrase, clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall be written on the blank
spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the insured
or owner, which countersignature shall be taken as his agreement to the contents
of such rider, clause, warranty or endorsement.
Group insurance and group annuity policies, however, may be typewritten and
need not be in printed form.
Sec. 51. A policy of insurance must specify:chanroblesvirtuallawlibrary
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
3 – EXECUTIVE | Ab Initio Group
(c) The premium, or if the insurance is of a character where the exact premium is
only determinable upon the termination of the contract, a statement of the basis
and rates upon which the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
Sec. 52. Cover notes may be issued to bind insurance temporarily pending the
issuance of the policy.  Within sixty days after the issue of the cover note, a policy
shall be issued in lieu thereof, including within its terms the identical insurance
bound under the cover note and the premium therefor. 
Cover notes may be extended or renewed beyond such sixty days with the written
approval of the Commissioner if he determines that such extension is not contrary
to and is not for the purpose of violating any provisions of this Code.  The
Commissioner may promulgate rules and regulations governing such extensions
for the purpose of preventing such violations and may by such rules and
regulations dispense with the requirement of written approval by him in the case
of extension in compliance with such rules and regulations.
Sec. 232. (1)  No insurance company authorized to transact business in the
Philippines shall issue, deliver, sell or use any variable contract in the Philippines,
unless and until such company shall have satisfied the Commissioner that its
financial and general condition and its methods of operations, including the issue
and sale of variable contracts, are not and will not be hazardous to the public or to
its policy and contract owners. No foreign insurance company shall be authorized
to issue, deliver or sell any variable contract in the Philippines, unless it is likewise
authorized to do so by the laws of its domicile.
(2) The term "variable contract" shall mean any policy or contract on
either a group or on an individual basis issued by an insurance company providing
for benefits or other contractual payments or values thereunder to vary so as to
reflect investment results of any segregated portfolio of investments or of a
designated separate account in which amounts received in connection with such
contracts shall have been placed and accounted for separately and apart from
other investments and accounts. This contract may also provide benefits or values
incidental thereto payable in fixed or variable amounts, or both. It shall not be
deemed to be a "security"  or"securities" as defined in The Securities Act, as
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 INSURANCE MIDTERMS (Weeks 1 to 8)
amended, or in the The Investment Company Act, as amended, nor subject to
regulation under said Acts.
(3) In determining the qualifications of a company requesting authority to
issue, deliver, sell or use variable contracts, the Commissioner shall always
consider the following: (a) the history, financial and general condition of the
company: Provided, That such company, if a foreign company, must have
deposited with the Commissioner for the benefit and security of its variable
contract owners in the Philippines, securities satisfactory to the Commissioner
consisting of bonds of the Government of the Philippines or its instrumentalities
with an actual market value of two million pesos; (b) the character, responsibility
and fitness of the officers and directors of the company; and (c) the law and
regulation under which the company is authorized in the state of domicile to issue
such contracts.
(4) If after notice and hearing, the Commissioner shall find that the
company is qualified to issue, deliver, sell or use variable contracts in accordance
with this Code and the regulations and rules issued thereunder, the corresponding
order of authorization shall be issued. Any decision or order denying authority to
issue, deliver, sell or use variable contracts shall clearly and distinctly state the
reasons and grounds on which it is based.
Sec. 233. Any insurance company issuing variable contracts pursuant to this Code
may in its discretion issue contracts providing a combination of fixed amount and
variable amount of benefits and for option lump-sum payment of benefits.
Sec. 234. Every variable contract form delivered or issued for delivery in the
Philippines, and every certified form evidencing variable benefits issued pursuant
to any such contract on a group basis, and the application, rider and endorsement
forms applicable thereto and used in connection therewith, shall be subject to the
prior approval of the Commissioner.
Sec. 236. Variable contracts may be issued on the industrial life basis, provided
that the pertinent provisions of this Code and of the rules and regulations of the
Commissioner governing variable contracts are complied with in connection with
such contracts.
Sec. 237. Every life insurance company authorized under the provisions of this
Code to issue, deliver, sell or use variable contracts shall, in connection with same,
establish one or more separate accounts to be known as separate variable
accounts. All amounts received by the company in connection with any such
3 – EXECUTIVE | Ab Initio Group
contracts which are required by the terms thereof, to be collected or applied to
one or more designated separate variable accounts shall be placed in such
designated account or accounts. The assets and liabilities of each such separate
variable account shall at all times be clearly identifiable and distinguishable from
the assets and liabilities in all other accounts of the company. Notwithstanding any
provision of law to the contrary, the assets held in any such separate variable
account shall not be chargeable with liabilities arising out of any other business the
company conduct but shall be held and applied exclusively for the benefit of the
owners or beneficiaries of the variable contracts applicable thereto. In the event of
the insolvency of the company, the assets of each such separate variable account
shall be applied to the contractual claims of the owners or beneficiaries of the
variable contracts applicable thereto. Except as otherwise specifically provided by
the contract, no sale, exchange or other transfer of assets may be made by a
company, between any of its separate accounts or between any other investment
account and one or more of its separate accounts, unless in the case of a transfer
into a separate account, such transfer is made solely to establish the account or to
support the operation of the contracts with respect to the separate account to
which the transfer is made, or in case of a transfer from a separate account, such
transfer would not cause the remaining assets of the account to become less than
the reserves and other contract liabilities with respect to such separate account.
Such transfer, whether into or from a separate account, shall be made by a
transfer of cash, or by a transfer of securities having a valuation which could be
readily determined in the market place, provided that such transfer of securities is
approved by the Commissioner. The Commissioner may authorize other transfers
among such accounts, if, in his opinion, such transfer would not be inequitable. All
amounts and assets allocated to any such separate variable account shall be
owned by the company and with respect to same the company shall not be nor
hold itself out to be a trustee.
Pacific Banking v CA, GR L-41014,28 November 1988
Facts: An open fire insurance policy was issued to Paramount Shirt Manufacturing
by Oriental Assurance Corporation to indemnify P61,000, caused by fire to the
factory’s stocks, materials and supplies. The insured was a debtor of Pacific
Banking in the amount of (P800,000) and the goods described in the policy were
held in trust by the insured for Pacific Banking under trust receipts. The policy was
endorsed to Pacific Banking as mortgagee/trustor of the properties insured, with
the knowledge and consent of private respondent to the effect that “loss if any
under this policy is payable to the Pacific Banking Corporation”. A fire broke out on
the premises destroying the goods contained in the building. The bank sent a
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 INSURANCE MIDTERMS (Weeks 1 to 8)
letter of demand to Oriental for indemnity. The company wasn’t ready to give
since it was awaiting the adjuster’s report. The company then made an excuse
that the insured had not filed any claim with it, nor submitted proof of loss which
is a clear violation of Policy Condition no. 11, as a result, determination of the
liability of private respondent could not be made. Pacific Banking filed in the trial
court an action for a sum of money for P61,000 against Oriental Assurance. At the
trial, petitioner presented communications of the insurance adjuster to Asian
Surety revealing undeclared co-insurances with the following: P30,000 with
Wellington Insurance; P25,000 with empire surety and P250,000 with Asian Surety
undertaken by insured Paramount on the same property covered by its policy with
Oriental whereas the only co-insurances declared in the subject policy are those of
P30,000 with Malayan P50,000 with South Sea and P25,000 with Victory. The
defense of fraud, in the form of non-declaration of co-insurances which was not
pleaded in the answer, was also not pleaded in the motion to dismiss. The trial
court denied the respondent’s motion. Oriental filed another motion to include
additional evidence of the co-insurance which could amount to fraud. The trial
court still made Oriental liable for P61,000. The CA reversed the trial court
decision. Pacific Banking filed a motion for reconsideration of the said decision of
the respondent Court of Appeals, but this was denied for lack of merit.
Issues:
1. WON unrevealed co-insurances violated policy condition no. 3
2. WON the insured failed to file the required proof of loss prior to
court action
Held:
Yes, petition dismissed.
Ratio: 1) Policy condition no.3 explicitly provides:
“The insured shall give notice to the Company of any insurance 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 benefit under this policy shall be
forfeited”.
The insured failed to reveal, before the loss, three other insurances. Had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering such contract. Hence, the insured was guilty of clear
fraud. Concrete evidence of fraud or false declaration by the insured was furnished
by the petitioner itself when the facts alleged in the policy under clauses “Co-
insurances Declared” and “Other Insurance Clause” are materially different from
the actual number of con-insurances taken over the subject property. As the
insurance policy against fire expressly required that notice should be given by the
3 – EXECUTIVE | Ab Initio Group
insured of other insurance upon the same property, the total absence of such
notice nullifies the policy.
2) Generally, the cause of action on the policy accrues when the loss occurs,
but when the policy provides that no action shall be brought unless the claim is
first presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment. In
the case at bar, policy condition no. 11 specifically provides that the insured shall
on the happening of any loss or damage give notice to the company and shall
within 15 days after such loss or damage deliver to the private respondent (a) a
claim in writing giving particular account as to the articles or goods destroyed and
the amount of the loss or damage and (b) particulars of all other insurances, if
any.
Twenty-four days after the fire did petitioner merely wrote letters to private
respondent to serve a notice of loss. It didn’t even furnish other documents.
Instead, petitioner shifted upon private respondent the burden of fishing out the
necessary information to ascertain particular account of the articles destroyed by
fire as well as the amount of loss. Since the required claim by insured, together
with the preliminary submittal of relevant documents had not been complied with,
it follows that private respondent could not be deemed to have finally rejected
petitioner’s claim and therefore there was no cause of action.
It appearing that insured has violated or failed to perform the conditions under
no.3 and 11 of the contract, and such violation or want of performance has not
been waived by the insurer, the insured cannot recover, much less the herein
petitioner.
Oriental Assurance v Court of Appeals, GR 94052, 9 August 1991
Facts: An open fire insurance policy was issued to Paramount Shirt Manufacturing
by Oriental Assurance Corporation to indemnify P61,000, caused by fire to the
factory’s stocks, materials and supplies. The insured was a debtor of Pacific
Banking in the amount of (P800,000) and the goods described in the policy were
held in trust by the insured for Pacific Banking under trust receipts. The policy was
endorsed to Pacific Banking as mortgagee/trustor of the properties insured, with
the knowledge and consent of private respondent to the effect that “loss if any
under this policy is payable to the Pacific Banking Corporation”. A fire broke out on
the premises destroying the goods contained in the building. The bank sent a
letter of demand to Oriental for indemnity. The company wasn’t ready to give
since it was awaiting the adjuster’s report. The company then made an excuse
that the insured had not filed any claim with it, nor submitted proof of loss which
is a clear violation of Policy Condition no. 11, as a result, determination of the
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 INSURANCE MIDTERMS (Weeks 1 to 8)
liability of private respondent could not be made. Pacific Banking filed in the trial
court an action for a sum of money for P61,000 against Oriental Assurance. At the
trial, petitioner presented communications of the insurance adjuster to Asian
Surety revealing undeclared co-insurances with the following: P30,000 with
Wellington Insurance; P25,000 with empire surety and P250,000 with Asian Surety
undertaken by insured Paramount on the same property covered by its policy with
Oriental whereas the only co-insurances declared in the subject policy are those of
P30,000 with Malayan P50,000 with South Sea and P25,000 with Victory. The
defense of fraud, in the form of non-declaration of co-insurances which was not
pleaded in the answer, was also not pleaded in the motion to dismiss. The trial
court denied the respondent’s motion. Oriental filed another motion to include
additional evidence of the co-insurance which could amount to fraud. The trial
court still made Oriental liable for P61,000. The CA reversed the trial court
decision. Pacific Banking filed a motion for reconsideration of the said decision of
the respondent Court of Appeals, but this was denied for lack of merit.
Issues:
1. WON unrevealed co-insurances violated policy condition no. 3
2. WON the insured failed to file the required proof of loss prior to
court action
Held:
Yes, petition dismissed.
Ratio: 1) Policy condition no.3 explicitly provides:
“The insured shall give notice to the Company of any insurance 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 benefit under this policy shall be
forfeited”.
The insured failed to reveal, before the loss, three other insurances. Had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering such contract. Hence, the insured was guilty of clear
fraud. Concrete evidence of fraud or false declaration by the insured was furnished
by the petitioner itself when the facts alleged in the policy under clauses “Co-
insurances Declared” and “Other Insurance Clause” are materially different from
the actual number of con-insurances taken over the subject property. As the
insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such
notice nullifies the policy.
3 – EXECUTIVE | Ab Initio Group
2) Generally, the cause of action on the policy accrues when the loss occurs,
but when the policy provides that no action shall be brought unless the claim is
first presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment. In
the case at bar, policy condition no. 11 specifically provides that the insured shall
on the happening of any loss or damage give notice to the company and shall
within 15 days after such loss or damage deliver to the private respondent (a) a
claim in writing giving particular account as to the articles or goods destroyed and
the amount of the loss or damage and (b) particulars of all other insurances, if
any.
Twenty-four days after the fire did petitioner merely wrote letters to private
respondent to serve a notice of loss. It didn’t even furnish other documents.
Instead, petitioner shifted upon private respondent the burden of fishing out the
necessary information to ascertain particular account of the articles destroyed by
fire as well as the amount of loss. Since the required claim by insured, together
with the preliminary submittal of relevant documents had not been complied with,
it follows that private respondent could not be deemed to have finally rejected
petitioner’s claim and therefore there was no cause of action.
It appearing that insured has violated or failed to perform the conditions under
no.3 and 11 of the contract, and such violation or want of performance has not
been waived by the insurer, the insured cannot recover, much less the herein
petitioner.
Perez v CA, GR 112329,28 January 2000
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for
P20,000.00. Sometime in October 1987, an agent of the insurance corporation,
visited Perez in Quezon and convinced him to apply for additional insurance
coverage of P50,000.00. Virginia A. Perez, Primitivo’s wife, paid P2,075.00 to
the agent. The receipt issued indicated the amount received was a "deposit."
Unfortunately, the agent lost the application form accomplished by Perez and he
asked the latter to fill up another application form. The agent sent
the application for additional insurance of Perez to the Quezon office. Such was
supposed to forwarded to the Manila office.
Perez drowned. His application papers for the additional insurance of P50,000.00
were still with the Quezon. It was only after some time that the papers were
brought to Manila. Without knowing that Perez died, BF Lifeman Insurance
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Corporation approved the application and issued the corresponding policy for the
P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the insurance
policies of the deceased. She was paid P40,000.00 under the first insurance policy
for P20,000.00 but the insurance company refused to pay the claim under the
additional policy coverage of P50,000.00, the proceeds of which amount to
P150,000.00.
The insurance company maintained that the insurance for P50,000.00 had not
been perfected at the time of the death of Primitivo Perez. Consequently, the
insurance company refunded the amount paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking
the rescission and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had
fulfilled all his prestations under the contract and all the elements of a valid
contract are present.
On October 25, 1991, the trial court rendered a decision in favor of petitioner
ordering respondent to pay 150,000 pesos. The Court of Appeals, however,
reversed the decision of the trial court saying that the insurance contract for
P50,000.00 could not have been perfected since at the time that the policy was
issued, Primitivo was already dead.
Petitioner’s motion for reconsideration having been denied by respondent court,
the instant petition for certiorari was filed on the ground that there was a
consummated contract of insurance between the deceased and BF Lifeman
Insurance Corporation.
Issue: WON the widow can receive the proceeds of the 2 nd insurance
policy
Held: No. Petition dismissed.
Ratio:
Perez’s application was subject to the acceptance of private respondent BF
Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned with
the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on
this application and that the said policy shall not take effect until the premium has
been paid and the policy delivered to and accepted by me/us in person while
I/We, am/are in good health."
3 – EXECUTIVE | Ab Initio Group
BF Lifeman didn’t give its assent when it merely received the application form and
all the requisite supporting papers of the applicant. This happens only when it
gives a policy.
It is not disputed, however, that when Primitivo died on November 25, 1987,
his application papers for additional insurance coverage were still with the branch
office of respondent corporation in Quezon. Consequently, there was absolutely no
way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already
dead.
Petitioner insists that the condition imposed by BF that a policy must have been
delivered to and accepted by the proposed insured in good health is potestative,
being dependent upon the will of the corporation and is therefore void. The court
didn’t agree. A potestative condition depends upon the exclusive will of one of
the parties and is considered void. The Civil Code states: When the fulfillment of
the condition depends upon the sole will of the debtor, the conditional obligation
shall be void.
The following conditions were imposed by the respondent company for the
perfection of the contract of insurance: a policy must have been issued, the
premiums paid, and the policy must have been delivered to and accepted by the
applicant while he is in good health.
The third condition isn’t potestative, because the health of the applicant at the
time of the delivery of the policy is beyond the control or will of the insurance
company. Rather, the condition is a suspensive one whereby the acquisition of
rights depends upon the happening of an event which constitutes the condition. In
this case, the suspensive condition was the policy must have been delivered and
accepted by the applicant while he is in good health. There was non-fulfillment of
the condition, because the applicant was already dead at the time the policy was
issued.
As stated above, a contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding from the date
of application, must have been a completed contract.
The insurance company wasn’t negligent because delay in acting on
the application does not constitute acceptance even after payment. The
corporation may not be penalized for the delay in the processing of
the application papers due to the fact that process in a week wasn’t the usual
timeframe in fixing the application. Delay could not be deemed unreasonable so as
to constitute gross negligence.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Enriquez v Sun Life, GR L-15895, 29 November 1924
FACTS:
 September 24, 1917: Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life
annuity
 2 days later: he paid P6,000 to the manager of the company's Manila
office and was given a receipt
 according to the provisional receipt, 3 things had to be accomplished by
the insurance company before there was a contract:  offer was made.
 (1) There had to be a medical examination of the applicant;
-check
 (2) there had to be approval of the application by the head office
of the company; and - check
 (3) this approval had in some way to be communicated by the
company to the applicant - ?
 November 26, 1917: The head office at Montreal, Canada gave notice of
acceptance by cable to Manila but this was not mailed
 December 4, 1917: policy was issued at Montreal
 December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office
of the company stating that Herrer desired to withdraw his application
 December 19, 1917: local office replied to Mr. Torres, stating that the
policy had been issued, and called attention to the notification of
November 26, 1917
 December 21, 1917 morning: received by Mr. Torres
 December 20, 1917: Mr. Herrer died
 Rafael Enriquez, as administrator of the estate of the late Joaquin Ma.
Herrer filed to recover from Sun Life Assurance Company of
Canada through its office in Manila for a life annuity
 RTC: favored Sun Life Insurance
 of the company; and - check
ISSUE: W/N Mr. Herrera received notice of acceptance of his application
thereby perfecting his life annuity
HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from
the Sun Life the sum of P6,000 with legal interest from November 20, 1918, until
paid, without special finding as to costs in either instance. So ordered.
3 – EXECUTIVE | Ab Initio Group
Civil Code
Art. 1319 (formerly Art.1262)
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the
 not perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant
Tang v CA, GR L48563, 25 May 1979
FACTS:
 September 24, 1917: Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life
annuity
 2 days later: he paid P6,000 to the manager of the company's Manila
office and was given a receipt
 according to the provisional receipt, 3 things had to be accomplished by
the insurance company before there was a contract: 
 (1) There had to be a medical examination of the applicant;
-check
 (2) there had to be approval of the application by the head office
 (3) this approval had in some way to be communicated by the
company to the applicant - ?
 November 26, 1917: The head office at Montreal, Canada gave notice of
acceptance by cable to Manila but this was not mailed
 December 4, 1917: policy was issued at Montreal
 December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office
of the company stating that Herrer desired to withdraw his application
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 INSURANCE MIDTERMS (Weeks 1 to 8)
 December 19, 1917: local office replied to Mr. Torres, stating that the  RCBC Binondo Branch initially granted a credit facility of P30M to Goyu &
policy had been issued, and called attention to the notification of Sons, Inc.  GOYU’s applied again and through Binondo Branch key officer's
November 26, 1917 Uy’s and Lao’s recommendation, RCBC’s executive committee increased its
 December 21, 1917 morning: received by Mr. Torres credit facility to P50M to P90M and finally to P117M.
 December 20, 1917: Mr. Herrer died  As security, GOYU executed 2 real estate mortgages and 2 chattel
 Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. mortgages in favor of RCBC.  
Herrer filed to recover from Sun Life Assurance Company of  GOYU obtained in its name 10 insurance policy on the mortgaged
Canada through its office in Manila for a life annuity properties from Malayan Insurance Company, Inc. (MICO). In
 RTC: favored Sun Life Insurance February 1992, he was issued 8 insurance policies in favor of
 RCBC.
ISSUE: W/N Mr. Herrera received notice of acceptance of his application  April 27, 1992: One of GOYU’s factory buildings was burned so he claimed
thereby perfecting his life annuity against MICO for the loss who denied contending that the insurance
policies were either attached pursuant to writs of
attachments/garnishments or that creditors are claiming to have a better
HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from right
the Sun Life the sum of P6,000 with legal interest from November 20, 1918, until  GOYU filed a complaint for specific performance and damages at the RTC
paid, without special finding as to costs in either instance. So ordered.  RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over
the proceeds of the insurance policies, but said claims were also denied
for the same reasons that MICO denied GOYU’s claims
 RTC: Confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian,
and Philippine Trust Company) obtained their writs of attachment covering
Civil Code an aggregate amount of P14,938,080.23 and ordered that 10 insurance
Art. 1319 (formerly Art.1262) policies be deposited with the court minus the said amount so MICO
deposited P50,505,594.60.  
Art. 1319. Consent is manifested by the meeting of the offer and the
 Another Garnishment of P8,696,838.75 was handed down
acceptance upon the thing and the cause which are to constitute the
 RTC: favored GOYU against MICO for the claim, RCBC for damages and to
contract. The offer must be certain and the acceptance absolute. A
pay RCBC its loan
qualified acceptance constitutes a counter-offer.
 CA: Modified by increasing the damages in favor of GOYU
Acceptance made by letter or telegram does not bind the offerer
 In G.R. No. 128834, RCBC seeks right to intervene in the action between
except from the time it came to his knowledge. The contract, in such a
Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the
case, is presumed to have been entered into in the place where the
subject insurance policies were attached in favor of Sebastian
offer was made.
 RTC and CA: endorsements do not bear the signature of any officer of
 not perfected because it has not been proved satisfactorily that the
GOYU concluded that the endorsements favoring RCBC as defective.
acceptance of the application ever came to the knowledge of the applicant
ISSUE: W/N RCBC as mortgagee, has any right over the insurance
Rizal Commercial Banking v CA, GR 128833,20 April 1998
policies taken by GOYU, the mortgagor, in case of the occurrence of loss
FACTS:
HELD: YES.

3 – EXECUTIVE | Ab Initio Group

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 INSURANCE MIDTERMS (Weeks 1 to 8)
 mortgagor and a mortgagee have separate and distinct insurable interests
in the same mortgaged property, such that each one of them may insure
the same property for his own sole benefit
 although it appears that GOYU obtained the subject insurance policies
naming itself as the sole payee, the intentions of the parties as shown by
their contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity
 8 endorsement documents were prepared by Alchester in favor of
RCBC
 MICO, a sister company of RCBC
 GOYU continued to enjoy the benefits of the credit facilities
extended to it by RCBC.  Grepalife again strongly recommending the approval of the 20-year endowment
 GOYU is at the very least estopped from assailing their
operative effects.  the Chinese, were asking for such coverage. It was when things were in such state
 The two courts below erred in failing to see that the promissory notes
which they ruled should be excluded for bearing dates which are after that
of  the fire, are mere renewals of previous ones
 RCBC has the right to claim the insurance proceeds, in substitution of the
property lost in the fire. Having assigned its rights, GOYU lost its standing
as the beneficiary of the said insurance policies
 insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton,
oppressive, or malevolent - not shown
 Sebastian’s right as attaching creditor must yield to the preferential rights
of RCBC over the Malayan insurance policies as first mortgagee.
Great Pacific Life CA, GR L-31845, 30 April 1979
FACTS:
Ngo Hing filed an application with the Great Pacific Assurance Company (Grepalife)
for twenty-years endowment policy in the amount of P50,000.00 on the life of his
one-year old daughter Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondrago, Branch Manager of Grepalie in Cebu City
wrote on the corresponding form in his own hand writing. Mondragon finally type-
wrote the data on the application form which was signed by private respondent
Ngo Hing. The latter paid the annual premium to the Company, but he retained a
certain amount as his commission for being duly authorized agent of Grepalife.
Upon the payment of the insurance premium, the binding deposit receipt was
3 – EXECUTIVE | Ab Initio Group
issued to private respondent Ngo Hing. Likewise, petitioner Mondragon hand wrote
at the bottom of the back page of the application form his strong recommendation
for the approval of the insurance application.
Then Mondragon received a letter from Grepalife disapproving the insurance
application. The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Grepalife
can consider the same under the Juvenile Triple Action Plan, and advised that if
the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
company. The non-acceptance of the insurance plan by Grepallife was allegedly
not communicated by Mondragon to Ngo Hing. Instead, Mondragon wrote back
insurance plan to children, pointing out that since 1954 the customer, especially
that on May 29, 1957 Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of
the insurance but having failed in his effort, he filed the action for the recovery of
the same before the CFI of Cebu, which rendered the adverse decision.
ISSUES:
1) Whether or not binding deposit receipt constituted a temporary
contract of the life insurance in question
2) Whether or not private respondent Ngo Hing concealed the state
of health and physical condition if Helen Go, which rendered void
the aforesaid deposit receipt.
HELD:
The provisions printed on the deposit receipt provide that the binding deposit
receipt is intended to be merely a provisional or temporary insurance contract and
only upon compliance of the following conditions:
1) That the company shall be satisfied that the applicant was insurable on
standard rates;
2) That if the company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be binding until
applicant accepts the policy offered; otherwise the deposit shall be
refunded and
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3) That if the applicant is not able according to the standard rates, and the
company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter’s
branch office had received from the applicant the insurance premium and had
accepted the application subject for processing by the insurance company; and
that the latter either approve or reject the same on the basis of whether or not the
applicant is insurable on standard rates. Since petitioner Grapalife 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 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
A contract of insurance, like other contract, must be assented to by both parties
either in person or by their agents. 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.
Relative to the second issue of alleged concealment, the Court is of the firm belief
that private respondent had deliberately concealed the state of health and physical
condition of his daughter Helen Go. Where private respondent supplied the
required essential data for the insurance application form, he was fully aware that
his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguised. Nonetheless, private respondent,
in apparent bad faith, withheld the fact material to the risk to be assumed by the
insurance company. As an insurance agent of Grepalife, he ought to know, as he
surely must have known.
3 – EXECUTIVE | Ab Initio Group
The contract of insurance is one of perfect good faith uberrimas fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of
any concealment or demotion, however slight, not for the alone but equally so for
the insurer. Concealment is not neglect to communicate that which a party knows
and ought to communicate. Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance. SC held that no insurance
contract was perfected between the parties with the noncompliance of the
conditions provided in the binding receipt and concealment, as legally defined,
having been committed by herein private respondet.
De Lim v Sun Life of Canada, GR 15774,29 Nov 1920
FACTS:
Ngo Hing filed an application with the Great Pacific Assurance Company (Grepalife)
for twenty-years endowment policy in the amount of P50,000.00 on the life of his
one-year old daughter Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondrago, Branch Manager of Grepalie in Cebu City
wrote on the corresponding form in his own hand writing. Mondragon finally type-
wrote the data on the application form which was signed by private respondent
Ngo Hing. The latter paid the annual premium to the Company, but he retained a
certain amount as his commission for being duly authorized agent of Grepalife.
Upon the payment of the insurance premium, the binding deposit receipt was
issued to private respondent Ngo Hing. Likewise, petitioner Mondragon hand wrote
at the bottom of the back page of the application form his strong recommendation
for the approval of the insurance application.
Then Mondragon received a letter from Grepalife disapproving the insurance
application. The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Grepalife
can consider the same under the Juvenile Triple Action Plan, and advised that if
the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
company. The non-acceptance of the insurance plan by Grepallife was allegedly
not communicated by Mondragon to Ngo Hing. Instead, Mondragon wrote back
Grepalife again strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customer, especially
the Chinese, were asking for such coverage. It was when things were in such state
that on May 29, 1957 Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of
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 INSURANCE MIDTERMS (Weeks 1 to 8)
the insurance but having failed in his effort, he filed the action for the recovery of
the same before the CFI of Cebu, which rendered the adverse decision.
ISSUES:
1 Whether or not binding deposit receipt constituted a
temporary contract of the life insurance in question
2 Whether or not private respondent Ngo Hing concealed
the state of health and physical condition if Helen Go,
which rendered void the aforesaid deposit receipt.
HELD:
The provisions printed on the deposit receipt provide that the binding deposit
receipt is intended to be merely a provisional or temporary insurance contract and
only upon compliance of the following conditions:
4) That the company shall be satisfied that the applicant was insurable on
standard rates;
5) That if the company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be binding until
applicant accepts the policy offered; otherwise the deposit shall be
refunded and
6) That if the applicant is not able according to the standard rates, and the
company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter’s
branch office had received from the applicant the insurance premium and had
accepted the application subject for processing by the insurance company; and
that the latter either approve or reject the same on the basis of whether or not the
applicant is insurable on standard rates. Since petitioner Grapalife 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 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
3 – EXECUTIVE | Ab Initio Group
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
A contract of insurance, like other contract, must be assented to by both parties
either in person or by their agents. 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.
Relative to the second issue of alleged concealment, the Court is of the firm belief
that private respondent had deliberately concealed the state of health and physical
condition of his daughter Helen Go. Where private respondent supplied the
required essential data for the insurance application form, he was fully aware that
his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguised. Nonetheless, private respondent,
in apparent bad faith, withheld the fact material to the risk to be assumed by the
insurance company. As an insurance agent of Grepalife, he ought to know, as he
surely must have known.
The contract of insurance is one of perfect good faith uberrimas fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of
any concealment or demotion, however slight, not for the alone but equally so for
the insurer. Concealment is not neglect to communicate that which a party knows
and ought to communicate. Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance. SC held that no insurance
contract was perfected between the parties with the noncompliance of the
conditions provided in the binding receipt and concealment, as legally defined,
having been committed by herein private respondent.
Sec. 53. The insurance proceeds shall be applied exclusively to the proper interest
of the person in whose name or for whose benefit it is made unless otherwise
specified in the policy.
Sec. 54. When an insurance contract is executed with an agent or trustee as the
insured, the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general words
in the policy.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Sec. 55. To render an insurance effected by one partner or part-owner, applicable
to the interest of his co-partners or other part-owners, it is necessary that the
terms of the policy should be such as are applicable to the joint or common
interest.
Sec. 56. When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
intended to include him can claim the benefit of the policy.
Sec. 57. A policy may be so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the owner of the
interest insured.
Sec. 58. 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.
Bonifacio Brothers v Mora, GR L-20853,29 May 1967
FACTS: Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to
H.S. Reyes, Inc., with the condition that they would be the beneficiary of its
insurance.
On June 23, 1959 the sedan was insured with State Bonding & Insurance Co., Inc.
During the period of effectivity, the sedan met an accident and it was appraised
by Bayne Adjustment Co. and repaired it with Bonifacio Bros. and the parts were
supplied by Ayala Auto Parts Co. This was all done without the knowledge of H.S.
Reyes. Enrique was billed P2,102.73 through Bayne. The insurance company drew
a check deducting P100 for franchise and entrusted it to Bayne payable to Enrique
or H.S. Reyes. Still unpaid, the sedan was delivered to Enrique without the
Knowledge of H.S. Reyes.
Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the insurance
proceeds should be paid directly to them.
CFI affirmed MTC’s decision that H.S. Reyes, Inc. as having a better right.
3 – EXECUTIVE | Ab Initio Group
ISSUE: Whether or not there is privity between Bonifacio Bro and Ayala
Auto against the insurance company.
RULING: No, there is no privity between Bonifacio Bro and Ayala Auto against the
insurance company.  Judgment of the CFI is affirmed.
General rule is that, contracts take effect only between the parties thereto
exception is when some specific instances provided by law where the contract
contains some stipulation in favor of a third person - stipulation pour autrui.
The provision is in favor of a third person not a party to the contract. The third
person is allowed to avail himself of a benefit granted to him by the terms of the
contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person.
The stipulation pour autrui must be clearly expressed, however, in the [resent case
no stipulation was expressed. The "loss payable" clause of the insurance policy
stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was
only the H.S. Reyes, Inc. which they intended to benefit. The stipulation merely
establishes the procedure that the insured has to follow in order to be entitled to
indemnity for repair.
A policy of insurance is a distinct and independent contract between the insured
and insurer, and third persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some contract of trust,
expressed or implied between the insured and third person. The word "loss" in
insurance law embraces injury or damage. The injury or damage sustained by the
insured in consequence of the happening of one or more of the accidents or
misfortune against which the insurer, in consideration of the premium, has
undertaken to indemnify the insured.
Heirs of Maramag v Maramag, GR 181132,5 June 2009
FACTS: The case stems from a petition filed against respondents with the RTC
for revocation and/or reduction of insurance proceeds for being void and/or
inofficious.
The petition alleged that:
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(1) Petitioners were the legitimate wife and children of Loreto Maramag (Loreto),
while respondents were Loreto’s illegitimate family;
(2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in
the killing of the latter, thus, she is disqualified to receive any proceeds from his
insurance policies from Insular Life Assurance Company, Ltd. (Insular) and Great
Pacific Life Assurance Corporation (Grepalife)
(3) The illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—
were entitled only to one-half of the legitime of the legitimate children, thus, the
proceeds released to Odessa and those to be released to Karl Brian and Trisha
Angelie were inofficious and should be reduced; and
(4) Petitioners could not be deprived of their legitimes, which should be satisfied
first.
Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they
filed their claims for the insurance proceeds of the insurance policies; that when it
ascertained that Eva was not the legal wife of Loreto, it disqualified her as
a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and that it released Odessa’s
share as she was of age, but withheld the release of the shares of  minors Karl
Brian and Trisha Angelie pending submission of letters of guardianship. Insular
alleged that the complaint or petition failed to state a cause of action insofar as
it sought to declare as void the designation of Eva as beneficiary, because
Loreto revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to declare as
inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that
no settlement of Loreto’s estate had been filed nor had the respective shares of
the heirs been determined. Insular further claimed that it was bound to honor the
insurance policies designating the children of Loreto with Eva as beneficiaries
pursuant to Section 53 of the Insurance Code. Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl
Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance
due to a misrepresentation in his application form that he was born on December
10, 1936 and, thus, not more than 65 years old when he signed it in September
2001; that the case was premature, there being no claim filed by the legitimate
family of Loreto; and that the law on succession does not apply where
the designation of insurance beneficiaries is clear.
ISSUE: Whether or not illegitimate children can be beneficiaries in an
insurance contract.
3 – EXECUTIVE | Ab Initio Group
RULING: Yes, illegitimate children can be beneficiaries in an
insurance contract. Section 53 of the Insurance Code states that the insurance
proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is
already deceased, upon the maturation of the policy. The exception to this rule is
a situation where the insurance contract was intended to benefit third persons
who are not parties to the same in the form of favorable stipulations or indemnity.
In such a case, third parties may directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the
insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one
policy and her disqualification as such in another are of no moment considering
that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured, the shares of Eva in
the insurance proceeds, whether forfeited by the court in view of the prohibition
on donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of petitioners. It is only
in cases where the insured has not designated any beneficiary, or when
the designated beneficiary is disqualified by law to receive the proceeds, that the
insurance policy proceeds shall redound to the benefit of the estate of the insured.
Coquia v Fieldmen's lnsurance, GR L-23276,29 November 1968
FACTS: Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to
H.S. Reyes, Inc., with the condition that they would be the beneficiary of its
insurance.
On June 23, 1959 the sedan was insured with State Bonding & Insurance Co., Inc.
During the period of effectivity, the sedan met an accident and it was appraised
by Bayne Adjustment Co. and repaired it with Bonifacio Bros. and the parts were
supplied by Ayala Auto Parts Co. This was all done without the knowledge of H.S.
Reyes. Enrique was billed P2,102.73 through Bayne. The insurance company drew
a check deducting P100 for franchise and entrusted it to Bayne payable to Enrique
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 INSURANCE MIDTERMS (Weeks 1 to 8)
or H.S. Reyes. Still unpaid, the sedan was delivered to Enrique without the
Knowledge of H.S. Reyes.
Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the insurance
proceeds should be paid directly to them.
CFI affirmed MTC’s decision that H.S. Reyes, Inc. as having a better right.
ISSUE: Whether or not there is privity between Bonifacio Bro and Ayala
Auto against the insurance company.
RULING: No, there is no privity between Bonifacio Bro and Ayala Auto
against the insurance company.  Judgment of the CFI is affirmed.
General rule is that, contracts take effect only between the parties thereto
exception is when some specific instances provided by law where the contract
contains some stipulation in favor of a third person - stipulation pour autrui.
The provision is in favor of a third person not a party to the contract. The third
person is allowed to avail himself of a benefit granted to him by the terms of the
contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person.
The stipulation pour autrui must be clearly expressed, however, in the [resent case
no stipulation was expressed. The "loss payable" clause of the insurance policy
stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was
only the H.S. Reyes, Inc. which they intended to benefit. The stipulation merely
establishes the procedure that the insured has to follow in order to be entitled to
indemnity for repair.
A policy of insurance is a distinct and independent contract between the insured
and insurer, and third persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some contract of trust,
expressed or implied between the insured and third person. The word "loss" in
insurance law embraces injury or damage. The injury or damage sustained by the
insured in consequence of the happening of one or more of the accidents or
misfortune against which the insurer, in consideration of the premium, has
undertaken to indemnify the insured.
3 – EXECUTIVE | Ab Initio Group
Sec. 59. A policy is either open, valued or running.
Sec. 60. An open policy is one in which the value of the thing insured is not
agreed upon, but is left to be ascertained in case of loss.
Sec. 61. A valued policy is one which expresses on its face an agreement that the
thing insured shall be valued at a specific sum.
Sec. 62. A running policy is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional statements or
indorsements.
Development lnsurance v. lAC, GR 71360, 16 July 1986
Facts: Phil. Union Realty Development Corp. (PURDC) insured its building against
fire with Development Insurance Corp. (DIC). The policy contained the following
provision: “This is an open policy as defined in Section 57 of the Insurance Act.  In
the event of loss, whether total or partial, it is understood that the amount of the
loss shall be subject to appraisal and the liability of the company, if established,
shall be limited to the actual loss, subject to the applicable terms, conditions,
warranties and clauses of this Policy, and in no case shall exceed the amount of
the policy." After a fire consumed apart of the building, with PURDC suffering
an appraised value of loss of P508, 867 (later adopted by the trial court and the
appellate court), PURDC filed its claim with DIC, but the latter refused. DIC argued
that since the building was worth more than the sum insured, PURDC must be
considered its own insurer for the difference of the amount and the face value
of the policy and should share pro rata on the loss sustained.
Issue: Whether or not DIC is liable for the appraised value of actual loss
sustained by PURDC.
Held: Yes, DIC is liable for the appraised value of actual loss sustained
by PURDC.
As defined in the provision, which is now Section 60 of the Insurance Code, "an
open policy is one in which the value of the thing insured is not agreed upon but
is left to be ascertained in case of loss."
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 INSURANCE MIDTERMS (Weeks 1 to 8)
This means that the actual loss, as determined, will represent the total indemnity
due the insured from the insurer except only that the total indemnity shall not
exceed the face value of the policy. The actual loss having been ascertained in this
case, the Court will respect such factual determination in the absence of proof that
it was arrived at arbitrarily. There is no such showing. Hence, applying the open
policy clause as expressly agreed upon by the parties in their contract, PURDC is
entitled to the payment of indemnity under the said contract in the full amount of
the appraised value of actual loss
Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one year
from the time when the cause of action accrues, is void.
ACCFA v Alpha lnsurance, GR L-24566, 29 July 1968
FACTS:
 Asingan Farmers’ Cooperative Marketing Assoc Inc wanted to have a guarantee
against loss on account of personal dishonesty, amounting to larceny or estafa of
its Secretary-Treasurer, Ricardo Ladines.
 Alpha Insurance & Surety then issued a fidelity bond for P5k with Ladines as
principal and Alpha as solidary surety. FACOMA then assigned its rights to ACCFA
(Agricultural Credit Cooperative and Financing Admin).
 Ladines misappropriated P11,513 of FACOMA funds to his personal benefit. On
October 1958, ACCFA notified in writing the survey company and presented proof
of loss. Surety Alpha refused to pay. ACCFA filed suit 30 May 1960.
 Alpha seeks to dismiss due to a provision in the fidelity bond saying that no
action shall be had unless commenced within one year from the making of the
claim for loss. Another is that the complaint failed to show an civil or criminal
action filed against Ladines as required by the conditions of the bond. Last,
Ladines is an indispensable party but was not joined.
 CFI denied dismissal but, upon reconsideration, reversed and dismissed the
complaint because the action was filed beyond the contractual limitation period
Issue: Was contractual limitation void due to Sec. 61-A of Insurance
Act?
3 – EXECUTIVE | Ab Initio Group
Held: Yes
Ratio:
 Fidelity bond is in the nature of a contract of insurance against loss from
misconduct. Subject to Insurance Act
 Sec 61-A: A condition, stipulation or agreement in any policy of insurance,
limiting the time for commencing an action thereunder to a period of less than 1
year from the time when the cause of action accrues is VOID
 Cause of action (1) legal right (2) obligation (3) act or omission in violation of
legal right
 Cause of action ACCRUED when insurance company REFUSED to comply with
the bond NOT from the time of filing claim of loss
 Stipulation in contract is VOID because of Sec 61-A
 Condition of previous conviction was deleted by express agreement
 Surety assumed solidary liability so creditor may go against any one of the
solidary debtors.
Case remanded to CFI with instructions to require defendant to answer
Ang v Fulton Fire lnsurance, GR L-15862, 31 July 1961
FACTS:
(chronological arrangement of facts)
1. Sept 1953: P&S Department Store (Sally Ang) was insured with Fulton Fire
Insurance Coover stocks of general merchandise, consisting principally of dried
goods. It contained a stipulation stating “if the claim is made and rejected but no
action is commenced within 12 months after such rejection, all benefits under the
policy would be forfeited.”
2. Dec 1954: fire consumed the store and Ang filed claims. However, on April
1956, Fulton denied claims.
3. January 1955: Paulo Ang and 10 others were charged for arson in the Justice of
the Peace Court of Ilocos Norte. Remanded to CFI and the latter acquitted Paulo
Ang of the crime of arson.
4. May 1956: Ang filed case against Fulton’s agent. On Sept 1957, this case was
dismissed without prejudice.
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5. May 1958: Ang filed the present case against Fulton. CFI ruled in favor of Ang,
holding that the 12-month prescription period (from insurer’s denial of claim) was
suspended by the case against the agent.
ISSUE: whether or not the filing of the previous suit against the agent
suspended the running of the prescriptive period.
HELD:
1. SC ruled that no, period was not suspended, and action had already prescribed.
CFI ruling set aside, case dismissed.
2. The condition contained that claims must be presented within 12 months or
one year after rejection is not merely a procedural requirement, but is essential
to a prompt settlement of claims against insurance companies.
3. It demands that insurance suits be brought by the insured while the evidence as
to the origins and causes of destruction have not yet disappeared.
4. Its purpose is to terminate all liabilities in case the action is not filed by the
insured
within the period stipulated.
5. The action against the agent cannot have any other legal effect except that of
notifying the agent of the claim if there is no condition in the policy that an action
should be filed by the insured against the agent for his claim. There is no law
giving any effect to such action upon the principal, and courts cannot by
interpretation extend the clear scope of the agreement beyond what is agreed
upon by the parties.
6. Contractual limitations in insurance policies prevail over the statutory limitations,
as well as over the exceptions to the latter, because the rights of the parties flow
from the contract of insurance. Their contract is the law between the parties, and
their agreement that an action on a claim denied by the insurer must be brought
within one year from the denial, governs, not the rules on the prescription of
actions.
Sun lnsurance CA, GR 89741; 13 March 1991
Facts:
3 – EXECUTIVE | Ab Initio Group
Tan took from Sun Insurance a Php 300,000 policy to cover his electrical store in
Iloilo city. Tan’s request for an indemnity in 1983 was repeatedly denied, firstly in
1984. He wrote for a reconsideration in the same year. This was rejected in 1985,
prompting him to file a civil case in the same year.  The insurance company filed a
motion to dismiss due to prescription in 1987, but this was denied.
The company went to the court of appeals to petition the same thing, but this was
denied.
Issue:
1. WON the filing of a motion for reconsideration interrupts the twelve
months prescriptive period to contest the denial of the insurance claim.
2. WON the rejection of the claim shall be deemed final only if it contains
words to the effect that denial is final. (ie. the first letter in 1984)
3. When does the cause of action accrue? 
Held:
1.No
2.No
3. At the time of the first rejection of the insurance company
Ratio:
1. The policy states in section 27.
Action or suit clause — If a claim be made and rejected and an action or
suit be not commenced either in the Insurance Commission or in any
court of competent jurisdiction within twelve (12) months from receipt
of notice of such rejection, or in case of arbitration taking place as
provided herein, within twelve (12) months after due notice of the
award made by the arbitrator or arbitrators or umpire, then the claim
shall for all purposes be deemed to have been abandoned and shall not
thereafter be recoverable hereunder.
Respondent Tan  admitted that he received a copy of the letter of
rejection on April 2, 1984. Thus, the 12-month prescriptive period
started to run from the said date of April 2, 1984, under section 27.
2. It was clear in the letter.
Ang v. Fulton Fire Insurance Co.- The condition contained in an
insurance policy that claims must be presented within one year after
rejection is not merely a procedural requirement but an important
matter essential to a prompt settlement of claims against insurance
companies as it demands that insurance suits be brought by the insured
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 INSURANCE MIDTERMS (Weeks 1 to 8)
while the evidence as to the origin and cause of destruction have not yet
disappeared.
Therefore, there was a necessity of bringing suits against the Insurer
within one year from the rejection of the claim. (1984) The contention of
the respondents that the one-year prescriptive period does not start to
run until the petition for reconsideration had been resolved by the
insurer (1985), runs counter to the doctrine.
The provision in the contract was pursuant to Sec. 63.    there were undeclared co-insurances under same property –Wellington, Empire,
A condition, stipulation or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than
one year from the time when the cause of action accrues, is void.
3. Eagle star- The right of the insured to the payment of his
loss accrues from the happening of the loss. However, the cause of
action in an insurance contract does not accrue until the insured's claim
is finally rejected by the insurer. This is because before such final
rejection there is no real necessity for bringing suit.
The cause of action, then, started when the insurer denied his claim in
the first instance(1984).  This rejection of a petition for reconsideration
as insisted by respondents wasn’t the beginning of the cause of action.
Pacific Banking v CA, GR L-41014,28 November 1988
Facts: An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000
on the following: stocks, materils, supplies, furniture, fixture, machinery,
equipment contained on the 1st to 3rd floors. Insurance is for a year starting 21
OCTOBER 1964.
Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in
policy were held in trust by Paramount for Pacific under thrust receipts. Fire broke
out on 4 January 1964.
Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified
Pacific to submit proof of loss pursuant to Policy Condition 11. Pacific did not
accede but asked Insurance Adjuster to verify records form Bureau of Customs.
3 – EXECUTIVE | Ab Initio Group
Pacific filed for sum of money against Oriental. Oriental alleged that Pacific
prematurely filed a suit, for neither filing a formal claim over loss pursuant to
policy nor submitting any proof of loss.
Trial court decided in favor of Pacific. Decision based on technicality. The defense
of lack of proof of loss and defects were raised for the 1st time. (On presentation
of evidences by Pacific, it was revealed there was violation of Condition No.3,
Asian. The only declared co-insurances were Malayan, South Sea, and Victory)
CA reversed decision. Concealment of other co-insurances is a misrepresentation
and can easily be fraud.
Issues:
(1) Whether or not unrevealed con-insurances is a violation of Policy
Condition No.3
(2) Whether or not there was premature filing of action
Held: (1) Yes. Policy Condition 3 provides that the insured must give notice of any
insurance already in effect or subsequently be in effect covering same property
being insured. Failure to do so, the policy shall be forfeited.
Failure to reveal before the loss of the 3 other insurances is a clear
misrepresentation or a false declaration. The material fact was asked for but was
not revealed. Representations of facts are the foundations of the contract. Pacific
itself provided for the evidences in trial court that proved existence of
misrepresentation.
(2) Yes. Policy Condition 11 is a sine qua non requirement for maintaining action.
It requires that documents necessary to prove and estimate the loss should be
included with notice of loss. Pacific failed to submit formal claim of loss with
supporting documents but shifted the burden to the insurance company. Failing to
submit claim is failure for insurance company to reject claim. Thus, a lack of cause
of action to file suit.
Furthermore, the mortgage clause in the policy specifically provides that the policy
is invalidated by reasons of FRAUD, MISREPRESENTATION and FRAUD.
Concealment can easily be fraud or misrepresentation.
The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee
of policy is not entitled.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
Lopez v Cia de Seguros, GR L-19613, 30 April 1966
FACTS:
-Plaintiff applied with the defendant company for the insurance of his properties:
Biederman truck tractor and a Winter Weils trailer from loss or damage in the
amount of P20,000.00 and P10,000.00, respectively.
-During the application, the defendant company inquired of the plaintiff
the ff:
-Has any company in respect of the insurance of any car or vehicle
-(A) declined, cancelled or refused to renew your insurance
-(B) increased your premium renewal
-Plaintiff answered in negative but the truth was that the American International
Underwriters of the Philippines (AIU) had already declined similar application for
insurance by the plaintiff with respect of the above-mentioned vehicles.
-The defendant issued to the plaintiff two Commercial Vehicle Comprehensive
Policies covering the said properties.
-The vehicles mentioned figured in an accident resulting in the total loss
of the tractor and partial damage to the trailer. Plaintiff demand upon the
defendant for the payment to him the total amt. of damages resulting from the
accident.
-On April 28, 1960, defendant rejected the claim on the ground of concealment of
a material fact: that the insured property previously been declined insurance by
another company.
-May 27, 1960, the plaintiff filed with the Office of the Insurance Commissioner a
complaint against the said company.
-As suggested, the plaintiff was willing to submit his claim to arbitration but was
contested by the defendant since "the claim of the plaintiff cannot be resolved by
arbitration, as recourse to arbitration referred to in the policy contract, envisioned
only differences or disputes, 'with respect to the amount of the company's liability,'
and not to cases where the company does not admit its liability to the insured.
3 – EXECUTIVE | Ab Initio Group
-With this rejection, the plaintiff filed his complaint with the CFI of Manila on
September 19,1961.
-Against the above complaint, the defendant-appellee filed on September 29, 1961
a motion to dismiss on the ground of prescription. The latter argued that the
plaintiff's claim had already prescribed since it was not filed within twelve months
from its rejection by the insurance company as stipulated under paragraph 9 of
the General Conditions of Commercial Vehicle Comprehensive Policy Nos. 5598 and
5599, to wit:
If a claim be made and rejected and an action or suit be not commenced within
twelve months after such rejection or (in case of an arbitration taking place as
provided herein) within twelve months after the arbitrator, arbitrators, or umpire
shall have made their award then the claim shall for all purposes be deemed to
have been abandoned and shall not thereafter be recovered hereunder.
ISSUE:
Whether the complaint filed by the plaintiff-appellant with the Office of
the Insurance Comm. on May 27,1960 a commencement of an "action or
suit" within the meaning and intent of general condition? No.
RATIO:
-"Action" and "suit":
Rule 2, Section 1 of the Rules of Court
Section 1. Action defined.—Action means an ordinary suit in a Court of Justice by
which one party prosecutes another for the enforcement or protection of a right,
or the prevention or redress of a wrong. (Emphasis supplied.)
Jurisprudence
Suit is the prosecution or pursuit of some claim or demand in a court of justice or
any proceeding in a court of justice in which a plaintiff pursues his remedy to
recover a right or claim. (Emphasis supplied.)
- Upon the authorities, therefore, it is settled that the terms "action" and "suit" are
synonymous. Moreover, it is clear that the determinative or operative fact which
converts a claim into an "action or suit" is the filing of the same with a "court or
justice." Filed elsewhere, as with some other body or office not a court of justice,
the claim may not properly be categorized under either term.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
-An "action or suit" is essentially "for the enforcement or protection of a right, or
the prevention or redress of a wrong." (Rule 2, Sec. 1, Rules of Court). There is
nothing in the Insurance Law, which empowers the Insurance Commissioner to
adjudicate on disputes relating to an insurance company's liability to an insured
under a policy issued by the former to the latter. The validity of an insured's claim
under a specific policy, its amount, and all such other matters as might involve the
interpretation and construction of the insurance policy, are issues which only a
regular court of justice may resolve and settle. Consequently, the complaint filed
by the appellant herein with the Office of the Insurance Commission could not
have been an "action or suit."
Sec. 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall
be effective unless it is based on the occurrence, after the effective date of the
policy, of one or more of the
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing the hazard insured
against;
(e) physical changes in the property insured which result in the property becoming
uninsurable; or
(f) a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
Sec. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the
policy, and shall state (a) which of the grounds set forth in section sixty-four is
relied upon and (b) that, upon written request of the named insured, the insurer
will furnish the facts on which the cancellation is based.
Sec. 66. In case of insurance other than life, unless the insurer at least forty-five
days in advance of the end of the policy period mails or delivers to the named
insured at the address shown in the policy notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew the policy upon payment
of the premium due on the effective date of the renewal.  Any policy written for a
term of less than one year shall be considered as if written for a term of one year. 
Any policy written for a term longer than one year or any policy with no fixed
3 – EXECUTIVE | Ab Initio Group
expiration date shall be considered as if written for successive policy periods or
terms of one year.
Saura lmport & Export v Phil lnt'l Surety, GR L-15'184, 31 May 1963
Saura mortgaged its property to PNB. Saura insured its mortgaged property to
Philippine International Surety Co. from October 2, 1954 to October 2, 1955.
However, on October 15, 1954 Philippine International Surety Co. cancelled the
insurance policy without informing the insured Saura. SC: If a mortgage or lien
exists against the property insured, and the policy contains a clause stating that
loss, if any, shall be payable to such mortgagee or the holder of such lien as his
interest may appear, notice of cancellation to the mortgagee or lienholder alone is
ineffective as a cancellation of the policy as to the owner of the property.
FACTS:
-On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao
to secure the payment of a promissory note amounting to Php 27,000.
-A building of strong materials which was also owned by Saura, was erected on
the parcel of land and the building had always been covered by insurance even
before the execution of the mortgage contract.
-Pursuant to the mortgage agreement which required Saura to insure the building
and its contents, it obtained a fire insurance for Php 29,000 from PISC for a period
of 1 year starting Oct. 2, 1954 to Oct. 2, 1955.
-The mortgage also required Saura to endorse the insurance policy to PNB. The
memo stated: Loss if any, payable to PNG as their interest may appear, subject to
the terms, conditions and warranties of this policy.
-The policy was delivered to PNB by Saura.
-However on Oct. 15, 1954, barely 13 days after the issuance of the fire insurance,
PISC canceled the same, effective as of the date of issue. Notice of the
cancellation was sent to PNB (but not to Saura) in writing and was received by the
bank on Nov. 8, 1954.
-On April 6, 1955, the building and its contents worth Php 4,685 were burned.
-On April 11, 1985, Saura filed a claim with PISC and mortgagee bank.
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 INSURANCE MIDTERMS (Weeks 1 to 8)
payment to MICO, together with other payments. On January 18, 1982, Pinca's
-Upon presentation of notice of loss with PNB, Saura learned for the first time that property was completely burned.
the policy had been previously canceled by PISC, when Saura’s folder in the bank’s
file was opened and the notice of the cancellation by PISC was found. DECISION OF LOWER COURTS: 
(1) Insurance Commission: granted claim for compensation for burned property. 
ISSUE:
W/N cancellation by PISC was proper.
ISSUE: 
HELD: Whether there was a valid insurance contract at the time of the loss.
No. SC ordered PISC to pay Saura in the amount of Php 29,000.
RULING: 
RATIO: Yes.
The policy in question does NOT provide for the notice of cancellation, its form or A valid cancellation must, therefore, require concurrence of the following
period. The Insurance Law does not likewise provide for such notice. This being conditions:
the case, it devolves upon the Court to apply the generally accepted principles of
insurance, regarding cancellation of the insurance policy by the insurer. (1) There must be prior notice of cancellation to the insured;
Actual notice of cancellation in a clear and unequivocal manner, preferably in
writing should be given by the insurer to the insured so that the latter might be (2) The notice must be based on the occurrence, after the effective date of the
given an opportunity to obtain other insurance for his own protection. The notice policy, of one or more of the grounds mentioned;
should be personal to the insurer and not to and/or through any unauthorized
person by the policy. Both the PSIC and the PNB failed, wittingly or unwittingly to (3) The notice must be
notify Saura of the cancellation made. (a) in writing,
(b) mailed, or delivered to the named insured,
The insurer contends that it gave notice to PNB as mortgagee of the property and (c) at the address shown in the policy;
that was already substantial compliance with its duty to notify the insured of the
cancellation of the policy. But notice to the bank, as far as Saura herein is (4) It must state
concerned, is not effective notice. PISC is then ordered to pay Saura Php 29,000, (a) which of the grounds mentioned in Section 64 is relied upon and
the amount involved in the policy subject matter of this case. (b) that upon written request of the insured, the insurer will furnish the facts on
which the cancellation is based. 

Malayan lnsurance v Cruz-Arnaldo, GR L-67835, 12 October 1987
FACTS:  who testified that "the original of the endorsement and credit memo" —
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her
property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982.
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for Pinca was received by
Domingo Adora, agent of MICO. On January 15, 1982, Adora remitted this
3 – EXECUTIVE | Ab Initio Group
MICO's claims it cancelled the policy in question on October 15, 1981, for non-
payment of premium. To support this assertion, it presented one of its employees,
presumably meaning the alleged cancellation — "were sent the assured by mail
through our mailing section" However, there is no proof that the notice, assuming
it complied with the other requisites mentioned above, was actually mailed to and
received by Pinca.
We also look askance at the alleged cancellation, of which the insured and MICO's
agent himself had no knowledge, and the curious fact that although Pinca's
payment was remitted to MICO's by its agent on January 15, 1982, MICO sought

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 INSURANCE MIDTERMS (Weeks 1 to 8)
to return it to Adora only on February 5, 1982, after it presumably had learned of
the occurrence of the loss insured against on January 18, 1982. These
circumstances make the motives of the petitioner highly suspect, to say the least,
and cast serious doubts upon its candor and bona fides. 

3 – EXECUTIVE | Ab Initio Group

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