Contract of Insurance American jurisdiction when such policy was issued.
he petitioner,
A. Subject matter of insurance
- the thing insured. In marine and fire insurance, it is the
property; in life, health or accident insurance, it is the life or
the health of a person; in casualty insurance, it is the
insured’s risk of loss or liability.
The terms “insured” and “assured” are generally used
interchangeably; but strictly speaking,
“INSURED” refers to the owner of the property insured or the person
whose life is the subject of the contract of insurance,
“ASSURED” refers to the person for whose benefit the insurance is
granted
CLASSIFICATION BY INTEREST PROTECTED
Another way to classify insurance is to categorize the subject matter
according to the interests being protected by the arrangement. At
least two such methods of categorization exist:
the third-party/first-party distinction and the all-risk/specified-risk
distinction
First-party vs. third-party insurance
In first-party insurance, the contract between the insurer and the
insured is designed to indemnify the insured for a loss suffered
directly by the insured.
1. Property insurance – is a first-party insurance; the damage
to the property is an immediate, direct diminution of the
insured’s assets.
2. Liability insurance – sometimes described as a third-party
insurance because the interests protected by the contract
are those of a third person. The insured’s loss is “indirect.”
3. Life insurance – although there is a beneficiary, it is the
insured who suffers the loss. It is the insured who loses his
life. Unless the insured designates a beneficiary, the
proceeds will go to the estate of the insured.
4. Health insurance – the loss and illness is suffered by the
insured.
B. Rule on minors
C. Rule on married women
D. Insurance not a wagering contract
The Parties
A. Insured
B. Insurer
C. Beneficiary
D. Public Enemy
E. Insurance procured by Mortgagor/Mortgagee
F. Open Mortgage Clause vs. Union Mortgage Clause
Filipinas Compañia de Seguros vs . Christern, Huenefeld & Co.,
Inc.
PUBLIC ENEMY
Facts: The respondent corporation obtained from the petitioner
fire policy covering merchandise contained in a building. During
the Jap occupation, the building and insured merchandise were
burned. The respondent submitted to the petitioner its claim
under the policy. The petitioner refused to pay the claim on the
ground that the policy had ceased to be in force on the date the
US declared war against Germany, the respondent corporation
being controlled by the German subject and petitioner under
however, in pursuance of the order of the Director of the Bureau
of Financing, Philippine Executive Commission.
Issue: Whether or not the insurance policy is enforceable upon the
declaration that respondent corporation is a public enemy.
Ruling: SC ruled that the respondent corporation became an
enemy corporation upon the outbreak of the war between the US
and Germany. Since the respondent having become an enemy
corporation, the insurance policy issued in its favor had ceased to
be valid and enforceable, and since the insured goods were burned
after, Dec. 10, 1941 and during the war, the respondent was not
entitled to any indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by
the respondent for the period covered by its policy should be
returned by the petitioner.
San Miguel Brewery, Etc., vs . Law Union and Rock Insurance Co.
(Ltd.) et al., Henry Harding
INSURABLE INTEREST; EXTENT OF RECOVERY BY MORTGAGEE.
Facts: D. P. Dunn, the then owner of the property to which the
insurance relates, mortgaged the same to the San Miguel Brewery
to secure a debt. In the contract of mortgage Dunn agreed to keep
the property insured at his expense to the full amount of its value
in companies to be selected by the Brewery Company and
authorized the latter in case of loss to receive the proceeds of the
insurance and to retain such part as might be necessary to cover
the mortgage debt. In order more conveniently to accomplish the
end
in view, Dunn authorized and requested the Brewery Company to
effect said insurance itself. The general manager of the Brewery
made a verbal application to the Law Union and Rock Insurance
Company for insurance to the extent of P15,000 upon said
property. In reply to a question of the company's agent as to
whether the Brewery was the owner of the property, he stated
that the company was interested only as a mortgagee. Dunn sold
the insured property to the defendant Henry Harding, but no
assignment of the insurance, or of the insurance policies, was at
any time made to him.
Issue: Whether or not SMB can recover the whole amount of the
insurance policy.
Ruling: SC held that as mortgagee of the insured property,
undoubtedly had an insurable interest therein; but it could not, in
any event, recover upon these policies an amount in excess of its
mortgage credit. In this connection it will be remembered that the
general manager, upon making application for the insurance,
informed the company with which the insurance was placed that
the Brewery was interested only as a mortgagee. It would,
therefore, be impossible for the Brewery to recover anything
beyond the amount secured by its mortgage on the insured
property.
SALE OF INSURED PROPERTY; SUSPENSION OF INSURANCE. — A
purchaser/buyer of insured property who does not take the
precaution to obtain a transfer of the policy of insurance cannot, in
case of loss, recover upon such contract, as the transfer of the
property has the effect of suspending the insurance until the
purchaser becomes owner of the policy as well as of the property
insured.
MISTAKE OF PARTIES IN EXPRESSION OF INTENTION; Leuterio.
REFORMATION. — If during the negotiations leading up to the
writing of a policy of insurance the contracting parties agree that
the insurance shall be so written as to protect not only the interest
Cherie Palileo vs . Beatriz Cosio.
of the applicant for the policy, as mortgagee, but also the
residuary interest of the owner, and the policy is, by inadvertence,
WHERE MORTGAGED PROPERTY WAS INSURED BY MORTGAGEE
ignorance, or mistake, so written as to protect only the interest of
IN HIS OWN NAME
the applicant, the court has the power to reform the contract and
Facts: Plaintiff obtained from defendant a loan in the sum of
give effect to it in the sense in which the parties intended to be
P12,000. To secure the payment of the loan, defendant required
bound.
plaintiff to sign a document known as "Conditional Sale of
CERTAINTY OF PROOF REQUIRED. — In order to justify the Residential Building", purporting to convey to defendant, with
reformation of a contract of insurance on the ground of failure of right to repurchase, a two-story building of strong materials
the contract to express the intention of the contracting parties, the belonging to plaintiff. This document did not express the true
proof must be of the most satisfactory character, and it must be intention of the parties which was merely to place said property as
made clearly to appear that the minds of the contracting parties security for the payment of the loan. After the execution of the
did actually meet in agreement and that there was some mutual document, defendant insured the building against fire with the
mistake in the expression of their purpose. Associated Insurance & Surety Co., Inc., the insurance policy
having been issued in the name of defendant.
The building was partly destroyed by fire and, after proper
demand, the defendant collected from the insurance company an
indemnity of P13,107. Plaintiff demanded from defendant that she
Great Pacific Life Assurance Corp. vs . Court of Appeals and
be credited with the necessary amount to pay her obligation out of
Medarda V. Leuterio
the insurance proceeds, but defendant refused to do so
MORTGAGE REDEMPTION INSURANCE
Issue: Whether or not the Plaintiff has the right to recover the
Facts: A contract of group life insurance was executed between
excess of the insurance proceed over the loan.
petitioner and DBP. Petitioner agreed to insure the lives of eligible
housing loan mortgagor or DBP. Dr. Wilfredo Leuterio, a physician
Ruling: SC ruled that where a mortgagee, independently of the
and a housing debtor of DBP was issued an insurance coverage to
mortgagor, insures the mortgage property in his own name and for
the extent of his DBP mortgage indebtedness. Dr. Leuterio died
his own interest, he is entitled to the insurance proceeds in case of
due to "massive cerebral hemorrhage." DBP submitted a death
loss, but in such case, he is not allowed to retain his claim against
claim to Grepalife. Grepalife denied the claim alleging that Dr.
the mortgagor, but is passed by subrogation to the insurer to the
Leuterio was not physically healthy when he applied for an
extent of the money paid. Or, stated in another way, the
insurance and insisted that Dr. Leuterio did not disclose he had
mortgagee may insure his interest in the property independently
been suffering from hypertension, which caused his death.
of the mortgagor. In that event, upon the destruction of the
Allegedly, such non-disclosure constituted concealment that
property the insurance money paid to the mortgagee will not
justified the denial of the claim.
inure to the benefit of the mortgagor, and the amount due under
the mortgage debt remains unchanged. The mortgagee, however,
Issue: Whether or not the DPB can collect the proceeds of the
is not allowed to retain his claim against the mortgagor, but it
Insurance after the foreclosure of the residential lot.
passes by subrogation to the insurer, to the extent of the
insurance money paid.
Ruling: The rationale of a group insurance policy of mortgagors,
otherwise known as the "mortgage redemption insurance," is a
device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected demise of
the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment
of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. In a similar vein, ample protection is
given to the mortgagor under such a concept so that in the event
of death; the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage
indebtedness. Consequently, where the mortgagor pays the
insurance premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the mortgagor’s
interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply
an appointee of the insurance fund, such loss-payable clause does
not make the mortgagee a party to the contract.
The insurance proceeds shall inure to the benefit of the heirs of
the deceased person or his beneficiaries. Equity dictates that DBP
should not unjustly enrich itself at the expense of another (Nemo
cum alterius detrimenio protest). Hence, it cannot collect the
insurance proceeds, after it already foreclosed on the mortgage.
The proceeds now rightly belong to Dr. Leuterio's heirs
represented by his widow, herein private respondent Medarda
 Facts:

Issue: Whether
Pacific Banking Corporation vs. Court of Appeals and Oriental
Ruling: SC
Assurance Corporation

Facts: An open policy (Fire Policy) was issued to the Paramount

Shirt Manufacturing Co. (insured), by which private respondent
Oriental Assurance Corp. bound itself to indemnify the insured for
any loss or damage, not exceeding P61,000.00, caused by fire to its
property consisting of stocks, materials and supplies usual to a
shirt factory, including furniture, fixtures, machinery and
equipment while contained in the ground, second, and third floors
of the building for a period of one year. The insured was a debtor
of petitioner in the amount of not less than P800,000 and the
goods described in the policy were held in trust by the insured for
the petitioner under trust receipts. A fire broke out destroying the
goods contained in the ground and 2 nd floor. Petitioner send a
demand for indemnity; however, the insurance adjuster notified
the petitioner that the insured under the policy had no filed any
claim with it, nor submitted proof of loss which is a clear violation
of Policy.

Issue: Whether or not unrevealed insurance violated the policy

condition.

Ruling: SC held that Petitioner's contention that the allegation of

fraud is but a mere inference or suspicion is untenable. In fact,
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 co-insurances taken over the subject property. Consequently,
"the whole foundation of the contract fails, the risk does not
attach, and the policy never becomes a contract between the
parties. Representations of facts are the foundation of the contract
and if the foundation does not exist, the superstructure does not
arise. Falsehood in such representations is not shown to vary or
add to the contract, or to terminate a contract which has once
been made, but to show that no contract has ever existed. A void
or inexistent contract is one which has no force and effect from
the very beginning, as if it had never been entered into, and which
cannot be validated either by time or by ratification.

While it is a cardinal principle of insurance law that a policy or

contract of insurance is to be construed liberally in favor of the
insured and strictly as against the insurer company, yet, contracts
of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense.

Contracts of insurance are contracts of indemnity upon the terms

and conditions specified in the policy. The parties have a right to
impose such reasonable conditions at the time of the making of
the contract as they may deem wise and necessary. The
agreement has the force of law between the parties. The terms of
the policy constitute the measure of the insurer's liability, and in
order to recover, the insured must show himself within those
terms. The compliance of the insured with the terms of the policy
is a condition precedent to the right of recovery.

Saura Import & Export Co. , Inc., vs. Philippine International

Surety Co. , Inc., and Philippine National Bank