Insurance

Exam

1. This Questionnaire contains 8 pages including this page.

2. Read each question carefully. In your answers, follow the sequence

and the numbering system used in the Questionnaire. Answer each
numbered question on a separate page; an answer to a sub-
question under the same number set may be written continuously
on the same page and succeeding pages until completed.

3. Your answers should demonstrate your ability to analyze the facts,

apply the pertinent laws and jurisprudence, and arrive at sound
and logical conclusions. Always support your answers with the
pertinent laws, rules, and/or jurisprudence. A mere "yes" or "no"
answer without any corresponding explanation or discussion may
not be given full credit.

4. Read the questions carefully. No erasures in your answers. Limit

your answers to maximum of 4 sentences only. Do not leave any
item unanswered. Leave a space after every paragraph. Follow the
3-4 paragraphs rule in answering essay questions.

5. Take a picture of your answers using or any mobile application

that can convert the pictures into PDF file. If through .jpeg it shall
be in chronological order. Send it in my email.
arkuw.clo@gmail.com

6. File name “FAMILY NAME, FIRST NAME – INSURANCE FINAL EXAM”

on or before 10 PM of June 3, 2020.

7. Pointing system will be my discretion.

8. Not following instructions will be given a 10 point deduction from

the total score.

GOD BLESS!

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 I.
Castor insured her Toyota Revo against loss or damage. She instructed her
driver, Lanuza to bring the car to a repair shop. Lanuza did not return the
car and despite diligent efforts he could not be located anymore. Castor
reported this to the police and notified the insurer about the loss and
demanded payment of the proceeds of the insurance. The insurer refused
to pay on the ground that the person who stole the car was her under her
employ and pursuant to the policy, the insurer is not liable for “any
malicious damage caused by the insured, any member of his family or by A
PERSON IN THE INSURED’S SERVICE.” Is the refusal correct?

No, the refusal of the insurer is incorrect.

A contract of insurance is a contract of adhesion meaning when the

terms of the insurance contract are vague, it must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard
the insured’s interest.

In this case, Castor’s insurance of her Toyota Revo included loss or

damage. Loss and damage are not the same. Loss means failure to keep
possession while damage means deterioration. Since the limitation of the
liability embodied in the insurance contract refers only to “malicious
damage” and not to loss, the insurer is liable to the insured. The insurer
cannot insist that the loss was caused by a person in the insured’s service
because again the vehicle was lost not damaged. Castor can claim
insurance proceeds.

II.

A. What is contra proferentum rule?

The contra proferentum rule states that any clause considered to be

ambiguous should be interpreted against the drafter of the contract.

B. What is insurable interest in life?

Insurable interest in life will exist when the insured has such a relation

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 or connection with, or concern in such subject matter that he 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.

C. What is insurable interest in property?

Insurable interest in property exists 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.

D. Distinguish risk-distributing from risk-shifting device in insurance.

Insurance is a risk-distributing device because when the insurer

assumes the risk, it is distributing potential liability in part, among
others. Risk-shifting device shifts the entirety of risk or loss to another.
Insurance is not risk shifting because the entirety of the risk of loss is
not shifted to another.

E. What is cash and carry rule?

Cash and carry rule means that no policy or contract of insurance is

valid and binding unless and until the premium thereof has been paid.
Any agreement to the contrary is void.

III.

Escobar obtained a life insurance policy from Insular Life. On July 23, 1999,
the policy lapsed due to non-payment of premiums. Escobar applied for
reinstatement of the policy which Insular Life approved with the following
changes on the policy : (1) Extra premium and (2) Waiver of the accidental
death benefit and premium disability. Escobar agreed to the added
conditions. Insular Life issued an endorsement stating “This certifies that
as agreed by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following
changes are made on the policy effective July 22, 1999.” Escobar paid the
adjusted premium on Dec. 27, 1999. Escobar died on Sept. 22, 2001. The
beneficiaries filed a claim with the insurer which the latter denied on the
ground of concealment and misrepresentation. The insurer claimed that the
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two-year period of incontestability should be counted from Dec. 27, 1999
when the additional premium was paid and from such date to the death of
the insured on Sept. 22, 2001, less than 2 years had elapsed. On the other
hand, the beneficiaries claimed that in the letter of acceptance and
endorsement made by the insurer, the phrase “effective July 22, 1999”
appeared. From July 22, 1999 to the death of the insured on Sept. 22, 2001,
more than 2 years had elapsed and hence the policy is already
incontestable.

From what time should the incontestability period be computed from, Dec.
27, 1999 when payment of the adjusted premium was made or from July 22,
1999 as stated in the insurer’s endorsement?

The incontestability period should be computed from June 22, 1999 as

stated in the insurer’s endorsement.

The incontestability clause which is a two-year period should commence in

the policy should lapse and is reinstated, that is, from the date of the last
reinstatement. A contract of insurance is a contract of adhesion, therefore if
there are obscurity in the insurance contract, the construction will favor the
insured.

In this case, there was a phrase in the endorsement that “changes are made
on the policy effective July 22, 1999”, which must be construed as the date
of reinstatement. Hence, the period to contest had lapsed.

IV.

A. What are the statutory exceptions to the rule that the insurer is
entitled to the payment of premium as soon as the thing insured is
exposed to the peril insured against?

As a general rule, the insurer is entitled to the payment of premium

as soon as the thing insured is exposed to the peril insured against
except in the following instances:
1. In the case of a life or an industrial life policy, a grace period
provision applies
2. In the case of broker and agency agreements with duly
licensed intermediaries, a 90-day credit extension is given.
3. When the insurer makes a written acknowledgement of the
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 receipt of premium, this acknowledgement being a
conclusive evidence of payment of premium
4. Where the oblige has accepted the bond, in which case the
bond becomes valid and enforceable irrespective of whether
or not the premium has been paid by the obligor to the surety
5. In case of industrial life insurance, the policy shall not lapse
for non-payment of premium if such non-payment was due
to the failure of the insurer to send its representative or agent
to the insured at the residence of the insured or some place
indicated by him for the purpose of collecting such premium.
However, this does not apply when the premium on the
policy remains unpaid for a period of three months or twelve
weeks after the grace period has expired.

B. What is the elixir vitae of the business of insurance? Explain.

Premium is the elixir vitae of the business of insurance. Since insurance

is a risk-distributing device, the insurer must maintain a pool of fund
to meet its obligations to the insured. The pool of funds will come from
the payment of premiums.

C. A obtained a life insurance and paid a post-dated check for the

premium. If A dies prior to the maturity date of the check, can his
beneficiaries claim from the proceeds? Explain.

The beneficiaries of A can claim the proceeds of the life insurance.

The payment of premium by a postdated check at a stated maturity
after the loss is insufficient to put the insurance into effect. But
payment by a check bearing a date prior to the loss, assuming
availability of funds, would be sufficient, even if it remains
unencashed at the time of the loss. The subsequent effects of
encashment would retroact to the date of the instrument and its
acceptance by the creditor.

V.

A. The insured obtained a Contractors’ All Risks (CAR) Policy from

GSIS. The policy provides that “all benefits thereunder shall be
forfeited if no action is instituted within twelve (12) months after the
rejection of the claim for loss, damage or liability.” Because of
typhoons “Biring”, “Huaning” and “Saling”, the insured property
was damaged and the insured made several claims for indemnity on
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 June 30, 1988, August 25, 1988 and October 18, 1988 from GSIS. In a
letter dated April 26, 1990, GSIS rejected the claims for indemnity for
damages wrought by typhoons “Biring” and “Huaning”. In a letter
dated June 21, 1990, GSIS also denied the claim for damages caused
by typhoon “Saling”. In a letter dated April 18, 1991, the insured
impugned the rejection of the claims and reiterated its demand for
settlement of the claims. On September 27, 1991, the insured filed a
complaint against GSIS. The insured claims that the GSIS letters
dated April 26, 1990 and June 21, 1990 did not amount to a “final
rejection” of the claim. Has the action prescribed?

The action has already prescribed.

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 insured' s cause of action or his right to
file a claim either in the Insurance Commission or in a court of
competent jurisdiction [as in this case] commences from the time of the
denial of his claim by the Insurer, either expressly or impliedly.

In this case, it is thus clear that petitioner's causes of action for

indemnity respectively accrued from its receipt of the letters dated April
26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the
first instance. Consequently, given that it allowed more than twelve (12)
months to lapse before filing the necessary complaint before the R TC on
September 27, 1991, its causes of action had already prescribed.

B. Tim Mangken Co., an Insurance company, failed to settle an

insurance claim of an insured in a property insurance. What are the
consequences failure to settle on the part of the insurer? What are the
remedies of the insured?

The failure to settle an insurance claim on the part of the insurer shall be
considered as prima facie evidence of unreasonable delay in payment.

In case of failure to pay the claim within the prescribed period, the insured
shall be entitled to collect interest on the proceeds of the policy for the
duration of the delay at a rate of twice the ceiling prescribed by the
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monetary board including damages, attorney’s fees and other expenses
incurred due to delay.

VI.

Rheozel opened a “Platinum 1-in-1 Savings and Insurance” account

with BPI. Such account is one wherein depositors are automatically
covered by an insurance policy against disability or death issued by
FGU. On Sept. 25, 2000, Rheozel died due to a vehicular accident. On
Sept. 27, 2000, Laingo, the beneficiary of the insurance policy
instructed the family’s secretary to go to BPI to inquire about the
savings account of Rheozel. Laingo wanted to use the money in the
savings account for Rheozel’s burial and funeral expenses. BPI
allowed withdrawal from the account of Rheozel. More than two
years later or on Jan. 21, 2003, Rheozel’s sister while arranging
Rheozel’s personal things in his room found the Personal Accident
Insurance Policy issued by FGU. Upon being informed of the
existence of the insurance, Laingo sent two letters of demand to FGU
which denied the claim on the ground the policy provides that the
claim should have been filed within three calendar months from the
death of Rheozel.

A. Is there a valid Notice of Loss to FGU?

There was none.

BPI, as agent of FGU Insurance, had the primary responsibility to

ensure that the 2-in-1 account be reasonably carried out with full
disclosure to the parties concerned, particularly the beneficiaries. Thus,
it was incumbent upon BPI to give proper notice of the existence of the
insurance coverage and the stipulation in the insurance contract for
filing a claim to Laingo, as Rheozel's beneficiary, upon the latter's
death.

 Since BPI is the agent of FGU Insurance, then such notice of death to
BPI is considered as notice to FGU Insurance as well.

B. Is Laingo, the named beneficiary who had no knowledge of the

existence of the insurance contract, bound by the three calendar
month deadline for filing a written notice of claim upon the death of
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 the insured?

No, Laingo is not bound by the three calendar month deadline for
filing a written notice of claim upon the death of the insured.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of

the existence of the insurance policy, Laingo had no means to
ascertain that she was entitled to the insurance claim. It would be
unfair for Laingo to shoulder the burden of loss when BPI was remiss
in its duty to properly notify her that she was a beneficiary.

VII.

Ciriaco leased a commercial apartment from Supreme Building

Corporation (SBC). One of the provisions of the one-year lease
contract states:

“―18.xxx The LESSEE shall not 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 of the LESSOR. If the LESSEE obtains fire
insurance coverage without the consent of the LESSOR, the
insurance policy is deemed assigned and transferred to the
LESSOR for the latter’s benefit.”

Notwithstanding the stipulation in the contract, without the consent

of SBC, Ciriaco insured the merchandise inside the leased premises
against loss by fire in the amount of P500, 000 with First United
Insurance Corporation (FUIC). A day before the lease contract
expired, fire broke out inside the leased premises, damaging Ciriaco’s
merchandise. Having learned of the insurance earlier procured by
Ciriaco, SBC demanded from FUIC that the proceeds of the insurance
policy be paid directly to it, as provided in the lease contract. Who is
legally entitled to receive the insurance proceeds? Explain.

Ciriaco is entitled to receive the proceeds of the insurance policy.

No contract or policy of insurance on property shall be enforceable except

for the benefit of some person having insurable interest in the property
insured.
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The stipulation that the policy is deemed assigned and transferred to SBC is
void, because SBC has no insurable interest in the merchandise of Ciriaco.

VIII.

As an incentive to his employees, Pedro allows them to obtain loans

in an amount no more than PHP 10,000.00 at a time. These loans are
paid back by salary deductions of PHP 500.00 every pay day. When a
loan is granted, Pedro demands that the employee pay PHP 150.00
for the premium on a life insurance policy, naming him and the
spouse of the employee as beneficiaries. The condition of the
insurance is that, if the insured dies, his outstanding loan obligation
shall first be satisfied out of the proceeds, the remaining amount to
go to the spouse.

a. Is Pedro engaged in the business of insurance?

b. Can Pedro obtain the insurance?
c. Can Pedro and the spouse of the employee be named as beneficiaries?
d. Is the provision as to the application of the proceeds valid?
e. Assuming that the loan has been paid, what happens to the insurance?

IX.

X applied for life insurance with Metropolitan Life Insurance Company.

The application contained this question. “Have you ever had any ailment
or disease affecting your stomach, intestines, liver, or kidney? X, a
laundry woman who has no medical knowledge or understanding
answered “No.” The application was approved, premium was paid and
eighteen months later, X died from cancer of stomach. The post medical
examination of X shows that she had a cancer at the time she applied for
a policy. Can the beneficiary of X collect on the policy?

Yes, the beneficiaries of X can collect on the policy.

Incontestability clause provides that the insurer has two years and
while the insured is still alive to discover any concealment or
misrepresentation made by the insured to have the insurance contract
rescinded based on these grounds. 

Here, the insurer failed to have the contract rescinded on the ground of
concealment while X is still living. Insurer is estopped from denying
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 liability as it approved the application and accepted X’s payment on the
premium.

X.

A applied for a life insurance policy on October 12, 2019, stating at the
time that he had never suffered from any of the enumerated diseases in
the application, including typhoid fever. On November 3, 2019, he
became ill with typhoid fever and completely recovered on November
18, 2019. On November 20, 2019, the policy was delivered and the first
premium paid by him without disclosure of the typhoid illness. Three
months later, A died from appendicitis.

a. Is the policy void or valid?

The policy is void. Even if a party did not know of the existence of a
medical condition at the time of application, but before its effectivity, he
failed to communicate it to the insurer, there is still concealment. It is
immaterial that there is no causal relationship between the fact
concealed and the loss sustained. It is sufficient that the non-revelation
has misled the insurer in accepting the application or in fixing its
premiums.

The test of materiality is whether knowledge of the true facts could

have influenced a prudent insurer in determining whether to accept the
risk or in fixing the premiums.

b. Consequently, what are the rights of the parties to the insurance?

Discuss fully.

The parties can have the contract of insurance rescinded on the

following grounds:
1. Concealment
2. Misrepresentation/Omission
3. Breach of warranty

XI.

For some time, Juan had noticed a man loitering around the perimeter of
his property. He instructs his driver to inquire as to the identity of the
man and the purpose of his loitering. The driver did as instructed and
was able to determine that the man’s name was Jose and that he was
looking for leftover food for his meals. Juan then decided to get to know
Jose, whom he later befriended and fed. Subsequently, Juan took out a
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 life insurance policy on the life of Jose, naming himself as the beneficiary.
Due to the countless years of self-neglect, the kindness of Juan
notwithstanding, Jose died of severe malnutrition. May Juan claim the
proceeds of the insurance?

No, Juan cannot claim the proceeds of the insurance. 

Insurable interest must exist when one takes out a policy on the life of
another and he makes himself as the beneficiary. 

Here, Juan does not have an insurable interest on the life of Jose. Juan
will not derive any pecuniary benefit or advantage from the
continuance of the life of Jose. 

Hence, Juan cannot claim the proceeds of insurance.

XII.

A businessman in the grocery business obtained from First Insurance an

insurance policy for PHP 5,000,000.00 to fully cover his stocks-in-trade
from the risk of fire. Three months thereafter, a fire of accidental origin
broke out and completely destroyed the grocery including his stocks-in-
trade. This prompted the businessman to file with First Insurance a
claim for PHP 5,000,000.00. First Insurance denied the claim because it
discovered that at the time of the loss, the stocks-in-trade were
mortgaged to a creditor who likewise obtained from Second Insurance
Company fire insurance coverage for the stocks at their full value of PHP
5,000,000.00.

a. May the businessman and the creditor obtain separate insurance

coverage over the same stocks-in-trade?

Yes. The businessman, as owner, and the creditor, as mortgagee,

have separate insurable interests in the same stocks-in-trade. Each
may insure such interest to protect his own separate interest.

b. Assuming that recovery is possible, how much would the

businessman and the creditor be allowed to recover from their
respective insurers?

The businessman would recover P5,000,000 representing the full

value of his goods which were lost through fire. As to the creditor,
he would recover the amount to the extent of or equivalent to the
value of the credit he extended to the businessman for the stocks-
in-trade which were mortgaged by the businessman.
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 XIII.

Will had insured his residential building with Ferrell Insurance. A

warranty clause in the policy reads as follows. “It is hereby declared and
agreed that during the pendency of this policy no hazardous goods shall
be stored in the premises covered by this policy.” Late one evening a
friend of Will engaged in the business of selling petroleum products in
the province, arrived at his house with a truckload of 5-gallon drums
filled with kerosene. He obtained Will’s permission to leave the truck in
his garage for two days. The garage was located under Will’s kitchen.
During the second night, fire broke out in Will’s kitchen. Before the fire
reached the garage, however, Will was able to remove his friend’s truck
with its contents to a place of safety. Owing to the delay in the arrival of
fire engines, however, the fire finally consumed the entire building. Is
Will entitled to recover under the terms of the policy issued by Ferrell
Insurance?

No. Will is not entitled to recover. An insurance contract may be

rescinded on the ground of breach of warranties, as in this case. Will
had breached a warranty in the policy when he stored inflammable
materials in the building, which was expressly prohibited. Hence, he
is not entitled to recover

XIV.

In January 2016, Mr. H was issued a life insurance policy by XYZ

Insurance Co., wherein his wife, Mrs. W, was designated as the sole
beneficiary. Unbeknownst to XYZ Insurance Co., however, Mr. H
had been previously diagnosed with colon cancer, the fact of which
Mr. H had concealed during the entire time his insurance policy was
being processed.

In January 2019, Mr. H unfortunately committed suicide. Due to her

husband's death, Mrs. W, as beneficiary, filed a claim with XYZ
Insurance Co. to recover the proceeds of the late Mr. H's life
insurance policy. However, XYZ Insurance Co. resisted the claim,
contending that: 1. the policy is void ab initio because Mr. H
fraudulently concealed or misrepresented his medical condition, i.e.,
his colon cancer; and 2. as an insurer in a life insurance policy, it
cannot be held liable in case of suicide.

Rule on each of XYZ Insurance Co.'s contentions.

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 No. XYZ Corporation can still be liable even if the cause of death
was suicide.

The insurer in a life insurance contract shall be liable in cases of suicide

only when it is committed after the policy has been in force for a period
of two years from the date of its issue or of its last reinstatement, unless
the policy provides a shorter period.

In this case, the suicide was committed three years after the issuance of
the policy. Hence, the insurance company is still liable to pay the
insurance proceeds.

XV.

Shortly after Yin and Yang were wed, they each took out separate life
insurance policies on their lives, and mutually designated one
another as sole beneficiary. Both life insurance policies provided for a
double indemnity clause, the cost for which was added to the
premium rate. During the last 10 years of their marriage, the spouses
had faithfully paid for the annual premiums over the life policies
from both their salaries. Unfortunately, Yin fell in love with his
officemate, Vessel, and they carried on an affair. After two years,
their relationship bore them a daughter named Vinsel. Without the
knowledge of Yang, Yin changed the designation of the beneficiary to
an "irrevocable designation" of Vinsel and Vessel jointly. When Yang
learned of the affair, she was so despondent that, having chanced
upon Yin and Vessel on a date, she rammed them down with the car
she was driving, resulting in Vin's death and Vessel's complete loss of
mobilization. Yang was sued for parricide, and while the case was
pending, she filed a claim on the proceeds of the life insurance of Yin
as irrevocable beneficiary, or at least his legal heir, and opposed the
claims on behalf of Vessel and her daughter Vinsel. Yang claimed
that her designation as beneficiary in Vin's life insurance policy was
irrevocable, in the nature of one "coupled with interest," since it was
made in accordance with their mutual agreement to designate one
another as sole beneficiary in their respective life policies. She also
claimed that the beneficiary designation of Vessel and the illegitimate
minor child Vinsel was void being the product of an illicit
relationship, and therefore without "insurable interest."

(a) Is Yang correct in saying that her designation as beneficiary was

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irrevocable?

Yang is incorrect in saying that her designation as beneficiary was

irrevocable.

The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in the said
policy.

In this case, Yin did not expressly waive his right to change his
beneficiary.

Hence, Yang’s designation as beneficiary was not irrevocable.

(b) Do Vessel and Vinsel have "insurable interest" on the life of Yin?

Vessel does not have insurable interest over the life of Yin but Vinsel
has.

Among the void donations under article 739 is one made between
persons who were guilty of adultery or concubinage at the time of the
donation.

In this case, Yin and Vessel were guilty of the same crime when Yin
made Vessel his beneficiary.

As for Vinsel, he has an insurable interest over the life of his father, Yin,
because Vinsel depends on Yin for support. According to the Code, one
has insurable interest in life of person upon whom one depends for
education or support.

End of Exam!!!

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