CHAPTER IV

INSURANCE
INSURANCE 85
. 1oecree 612, as amended by
However, in the above, the past event (the grounding of the
(Pf'8sident:epubliC Act 10607)
vessel and con~equent damages to the copra) was not entirely
nknown to the insured (the owner of the copra), his buying agent in
u avao having had knowle~ge of the grounding of the vessel even
s,sic concepts ~fore the o~ner procured 1~suran?e on the copra, which information
I. be Insured Against his agent fa,Jed to re~ay to him. His ag~nt's knowledge is equivalent
A. w,,at may to knowledge by him of th e grounding, the past event insured
Contingent Event Resulting in L 8 ~st. . . . .
1_A Future
oamage °" Or
Besides, nothing is mentioned m the problem that the insurance
would cover a past event whether or not the subject matter existed.
. d b 8 fire insurance or life insurance "<be
This is dlus~te er ~s made to depend on the happenin r~ ~ 3. Contingent Liability ~- , 1 ,, " ...... ,.~,.. •-••\) • ,,. ~,>- ""' ... , • ,, ,..-c.1, .,
fi@ili~
event (destruction
~u1;--y -o/
fire of the insured building or death9 .aJJ
o th&
• h,.,.~ f.t":.,\-,
..... "t-f'li e"' N
· This is best illustrated in reinsurance where the liability of the e
,~
'"1\al"
r ..
k,.,.t\ ("1 :-. .
♦ ~
\, \•.11
.,.,,.. ,...,., c, lt'v...,
•u
, ,.._ .._
, , .. ~-
°'L
t-
.-_,
C'

insured) .[o__the future.
•1 s" in the Insurance Law embraces injury or damage
The worcibe~tal or partial (Bonifacio vs. Mora, supra).
A /oss may
2_ A Past Unknown Event Resulting in Loss or Damage
insurer is in turn insured by hi~ with a_s_e_c_QQdJn.s.ur.er. This is also
true in Workmen's Compensation Insurance and Employer's Liability
Insurance.
·
Bar Question: Is the insurer liable for fortuitous event? (Answer
yes or no, then give reasons) .

Bar Question: What past event may be insured? Give example.
A A past event the happening or non-happening of whic~
f th~ corttract
u:;W:{n tp the_p,art&.s at thp ~imf!- ~f the perfe_ction o_
may_~e insure<:/__ agajnst. T~IS IS illustrated tn manne _msuraoce
~here at the time the policy Is executed, the vessel sub1ect of the
insurance may-have already sunk, but that fact was unknown to the
parties at the time of the execution of the policy. . In marine insurance, coverage may be against loss or damage to: v ' - P--?
Bar Question: The agent in Davao of the insured ':A n was employed
to ship "A's" copra to Manila and to communicate the shipment to the
buyer "A· in Manila. The said agent wrote the owner of the cop~
announcing the sailing of the ship, but failed to state that th_e ·ship
had run aground, which fact he already knew before ·announcmg the
sailing. ·A~ the buyer of the copra, in all good faith, took out 8
marine insurance on the copra. The copra was badly damaged and
was a total loss. Can the insured r(!c9ver on the policy? Reason.
. .
Answer: t/J§)the'if1_§J.Jrsd...canno1.Lecover under the policy.
~ past event, ~ wnJ o~jJ_oJ!L,parties aJ the fime .the insuran:
was procu~d, max be tnSJ!ff1QJJga_lnst, and recovery ther(!on may
had if the terms of the policy cover loss of this nature.
Answer: YeS: the insurer is liable (qrJ ortuitous event. By its very
nature. t,he liability of the insurer -~t_!_ach'i.s'on the bappening of a
contingent event insured agaiost, and that event should have
t,appened without intervention in any manner by the insured. An
insurance contract is one involving an assumption of risk by the
insurer.
· 1. ll!essels, goods, freight, cargo,· merchandise, profits, money,
valuable papers, bottomry and respondentia, and interests in respect
to all risks or perils of navigation
2. ~ rsons or property in connection with marine insurance .
3. (!Jrecious stones, jewel, jewelry and precious metals whether m
the course of transportation or otherwise
4. @ridges, tunnels, piers, docks and other aids to navigation and
transportation.
B. Insurable Interest
Bar Question: Define insurable interest.
Answer: Insurable interest is !}ye_ry_L11tef!JS.~ ~11 lJ!OQ..e.rty. whe,ther ;8~~
or personal, or any relation thereto, or l!f}b1hty m respect thereo ,
 INSURANCE

86 INSURANCE
templated peril might directly d 87
-·""' nattJT9 tt,st :3 ~ 10607). arnn;ry llie
~ ',e<i (SH sec. , An insurable interest is one of the most bas·, d .
. . - c an essential
,isu t,oth the Life Insurance and Properit, requirements in_ an insura.nce contract. In general, an insurable
• .JU\11 · For
sa,au~·:. rest is required to e---
. b
•
.,, 1nsure
nee interest Is that_interest which a person is deemed . to have In the
ttl6 ;nsumble ,nte . of perfection of the contract and at th . ' ubject matter insured , where he has a relation or connection 'th
;,.,;nr, at the t,me
8} (IX,;;,,rr•:, 8 time ~oncern in it, such that the ~rson will derive pecuniary be: fit ~~
. ~
advantage from .the preservation of the subject matter insured and
fOSS. . the time of erfect1on a~d at the time of
will suffer pecuniary loss 0 ~ damage from its destruction , termination,
"" xistt . at ce but only at the time of perfection 1
2[!}M&,nsuran ~ or injury by th~ happeni_ ng of the event insured a_gains.t. The
existence of ~n insurable interest .gives a person the legal right to
i!J§ll@n~ the time of perfection for property insurance but fo . insure the subJec_t matter of t~e P..O!i.cy...,,o f insurance. SectiOA. 1-0,,of the
c) existmg atth 8 t the time of perfection and at the time of 1,.,~~ r ltfa Insurance C_ode ind~ed pro~tdes that every person has an insurable
· surance bO · 1 ~ .
in . . t the time of perfection on y. . interest in h_,s own .hfe. SectlGrh-1"9 of the same code also states that
d) ex1stmg 8
an interest in the li fe or health of a person insured must exist when
uestJc,n . A person is said to have an insurable interest . the insurance takes effect, but need not exist thereafter or when the
Bar_Q uer insured where he has a relation or connection W;thnthe loss occurs (Lalican vs. Insular, 597 SCRA 157)
subject msu, . • b ~·t , or
concem in it that he will denve pecumary ene,1 or advantage from
1. Insurable Interest in Life
its preservation. . .
Which among the following subject matters .is not cons[ ~
a. Defined
insurable? (1%) . .
~ ·8 partner in a firm on its future profits
Sar Question: What is insurable interest in li(e?
'(B) 8 general credit~r on debtor's property
(C) ajudgment creditor on debtors property
Answer: Insurable interest in life is the inte.rest_which_a person has
(D) 8 mortgage creditor on debtor's mortgaged property
in his life, or the interest which he may have in the lives of other:.
person$ (1) on whom he ffepe_nds wholly_ or in part for education or: :) · L - E
Bar Question: BO has a bank deposit of half a miffion pesos. Since §JdPPOrt, _(2) under (legm_o_blj9fili9n to him to pay money, to d_e/iver
the limit of the insurance coverage of the Philippine Deposff prqperty,__or to render servie§,, (,J)- ul)S)n whose_ life any §s.tate....or
Insurance Corporation Act (R.A. 3591) is only one tenth of BD's interest vested in him _sjeperJS!§..
deposit, he would like some protection for the excess by taking _out
an insurance against all risks or contingencies of loss arisin_g from b. Insurable Interest in One's Life
any unsound or unsafe banking practices including unforeseen
adverse effects of the continuing crisis involving the banking and Every person has an insurable interest in the life' and health' of
financial sector in the Asian region. Does BO have an insurable himself (Philamcare vs. CA, 379 SCRA 356)
interest within the meaning of the Insurance Code of the Philippines
(P.O. 1460)? c. Insurable Interest In the Life of Others.

Answer: '(_es. T~_f!.hilfpm_n~ Deposit Insurance CorpQration Act Bar Question: When may there be an insurabl.e int~restinJbalite..of
anothf}r? Discuss briefly. (mno..i ~0 ,c ) D· '- - ,:; ·.
~as a. lta?ill1Y-.P11.ly_JJJJ JQ PJ()_
0,0O0_ p_er deposit, hence BO ha$
insurable mter~st in his bank fie129sit more particularly to tM ex~ss
Answer: A person ~ an ins_urat,le interest in the life of
of fhe_PDJC_ppve1ag~, or the amount of P400,000, in case of any
unforeseen cris).§JnJ he_b_Dnk. another in the following°iases:1'
(a) Of any person on whom he ~ pends wholly or in .part for
~Note: Und er RA 9576, coverage under the · PDIC has been
education or support. Example: Wife insuring the.husband's l'. fe.
increased to PS00,000.00 per deposit.)
 INSURANCE
88 INSURANCE
r,der 8 tegal obligation to him for P 89
(b) Of sny , : :; ~ aperty or ·service. of w_hich death
,r,oney, or resp t ,.,orformance. Example. A Credito . ~
~:.eruct
or nMV8n f!V' •· b . . h
,nigh1 deIay ,-- 1manager. A uyer insuring r m .
t e life of th 811nng s,r Question : _X,. Co., a partnership'. is composed of A' (capitalist
the life of its g_en;: be delivered in the future . 8
Se//e, partner), B (capitalist partner) and C (industrial partner). If XQu were
15
of palay prom e~n upon whose life any estat~ or interest v e_artn_er A, who between B afl_d ~ _would you have an insurable
(t;} Of any ":xmple: Legatee of a usufr~ct insuring the /ifi&sJ.eo iQ
(nierest on, such tha~ you mar.. then msure him?
A No one, as there 1s merely a partnership contract among A. and
-
him depends. ~ose death the usufruct will be extinguishede Of tJie 8
uSlJfrVctuary on w . C ~
8 · Both B and C, as the y are your partners.
r,,e -"'°!,1.,,,.
Some businessmen with an available starting ca .
PfOO 000.00 ask you to help organize a business ~1ta1
c Only C, as he is an industrial partner.
0: Only B, as he is a capitalist partner
total!ng to ~egal limitations, they ha~e f~ture plans to invite a,"!'·
SUbJ6Cl wno are agreeable to rendering financial assistance by 1811 ssr Question: On July 14, 1985, X, a ..11qm_osexual, took an
inve~t"7 . vestments and/or loans. Your professional assistan:':~
'!t=; the following various ~uestions that may arise: 13
insurance policy on the life of his boy friend, Y. In the insurance
application, X mi~represented that ~ was in perfect health although
he knew all the time that Y was afflicted with AIDS. On October 18
tion: An insurance agent contracts the manager of i.n. , 1987, Y died in a motor accident. Shortly thereafter, X filed hi~
Ba r Ques .
firm to sell life and property insurance. v,
our ad vice
· ,s
· sought on'""'
the insurance claim.
Should the insurer pay? Reasons.
following matters: . . .
May your firm at jts expense msure the fife of 1~s manager With a
·provision that the insurance froceeds shall be paid to the comp_g_0_y Answer: No, the insurer should not pay because it has no liability
[!nd his heirs ia. equa/_proport1ons? Why? under the policy taken.
A person may insure the life of another provided the former (the
Answer. Yes, my firm may insure at its expense the life_ of fts one taking the policy) has an insurable interest in the life of the
person insured.
manager, it having an insurable interest on the services of the ~
That insurable interest exists only in the following cases:
manager to the firm, whose death or illness would materially and
(a) Over the life of a person upon whom he depends for
iJJjyriously ~ffect the corporation. The provision on the contract that
education or support;
the proceeds shall be equally divided between the company ansJh (b) Over the life of a person under a legal obligation to pay him
heirs of its man~_er is valid, the company having an insurable money, to deliver property, or to render service;
intere_st as before stated, Qeing entitled to the insurance proce(!ds. (c) Over the life of a person upon whose life any estate or
The same insurable interest may be said to exist in favor of the heirs. interest vested in him (the one procuring the policy) depends.
The grant by the firm to the heirs of the manager of one half of the A person does not have an insurable interest in the life of anothe_r
proceeds of the Policy can be justified by the implied powers of a who is a mere friend - friendship alone not falling under any one of
corporation, if it is a corporate entity. the three categories above-stated.
Hence, the insurer is not liable because of the absence of
Bar Question : X has been a Tong-time household helper of Z. X's insurable interest by the one who took the life policy over the life of
~usband, Y, has also been Z's fong-time driver. May l insure 1M the person whose life was insured.
ltves of fx?th X and Y with z as benefi_ciary? Xis also guilty of misrepresentation that Y was in perfect health,
A. Yes, smce X and Y render services to z. hence the insurer is not liable.
8·. f-!o, since X and Y have no pecuniary interest on the
fife of 1
ansmg from their employment with him Bar Question: A lender of money, not licensed as an insurance
C._ f-!0 , since l has no pecuniary int~rest in the lives of X a,ns!.J. company, exacted from each borrower as ~art _ of_ the loan
~nsmq fr~m th eir employment with him. agreement, an amount sufficient to pay, and with it did .par, th e
. Yes, smce X and Y are l 's employees. premium on a policy of the liff1 insurance on a borrower's life issued
 90
INSURANCE
INSURANCE
\
91
. nee company. The loan agreement
by a 1ic6nsed ,nsu; of the borrower, the debt would be P ~ro~ company, desig_
nating Alpha as the beneficiary. Alpha also carried a
that in case of deha ''fe insurance. Could the lender be Paid Out~ (ire insurance _
w,th Beta _Insurance Company on a house owned by it,
-~ s of t e ,, . h t th . rosec
the pro<,~· bl business w,t ou e corresponding cert·r; utec, but temporanly occupied by _ Mr. P, again with Alpha as the
<Joing ,nsura e . 1 cat
for . E"n'ain your answer. e~ beneficiary.
authority7 "Y' ' on September 1, 1983, Mr. P resigned from Alpha and purchased
i der in the problem is not acting as an insu the company h~use, he had been occupying. A few days later, a fire
Answer: r::;n any certificate of authority from the
does ~ot_
,~;IJhe~
He therefore cannot be prosecuted for doing in ra11ce
occurred resulting m the death of Mr. P and the destruction of the
house.
comm1ss1on. Sil'!._~ What are the rights of Alpha (a)~against Mutual Life Insurance
business. h · bl · company on the life insurance policy? (by against Beta Insurance
Better still, th_e money lender ~s an msu;a eh1nterest in the Ii~
company on the fire insurance?
. borrowers, to the extent oft e amoun eac of them owes h'
1
of his h. act of requiring each of the borrowers to procu ~
Hence, IS . th d b re life Answer: Alpha has a right to recover from Mutual Life the proceeds
. ce for an amount equivalent to e e ts, and making h'
of the life insurance policy taken by Alpha on the life of P.
~:u:~eficiary up to the extent of these debts, is allowed_by law. Ill
While it is true that the basis for the taking by Alpha of insurance
on the life P was the service P would render as President to Alpha
d. Purpose of Insurable Interest in the Life of Other1 and while it is equally true that P died after he resigned from Alpha,
the rule in life insurance taken on the life of others is that the
Bar Question: What is the purpose of the law in requiring that·the insurable interest on said life must exist only at the time the
insured must have an insurable interest in the life of the persor, insurance was taken. A subsequent termination of the relationship
insured? from which the insurable interest arises will not affect the policy.
Alpha cannot recover against Beta Insurance on the fire insurance
Answer: The purpose of the law in requiring that the persor, since at the time of loss, Alpha was no longer the owner of the house
procuring the insurance must have an insurable interest in the life because P already bought it when he resigned. Hence, Alpha had
insured is to take off all temptation to destroy the life of the insured no insurable interest over the property at the time of loss. In property
because of his life insurance. This also p revents the contract from insurance, insurable interest must exist at the time the insurance is
becoming a wagering contract. taken and when the loss occurs, but need not exist in the meantime.

e. When Insurable Interest Should Exist

• I
f. Insurable Interest in Life Insurance and in Property
Insurance Compared
In life insurance, it is sufficient that the insurable interest over the
Bar Question: Distinguish insurable interest in life from insurable
life of another exist at the time the insurance is taken.
interest in property.

Bar Question: When must insurable interest exist? Answer: The differences between insurable interest ir., life insurance
and in property insurance are:
An~wer: ln{(fie)nsurance over another's life, it must exist at thB time (a) ln'1ife insurance, the insurable interest must exist only at the
the insurance fs taken.
Inn. · -~ ' f,n8 time the policy is taken ; in1froperty insurance , that interest must exist
1
th .·t'..roperty 1c1t>urance, the -insurable interest must exist at th8 iSI at the time the policy is taken and at the _time th~ l~s ~urs. .- _
i ethmsurance is taken, and when the loss occurs but need not ex (b) In =Hfe insurance taken on the insureds life, ht~ benef!_c1ary
n e meantime. '
~~cl_not have an insurable. interest on his (insured's) l~fe; in,.,p~perty
insurance, the, beneficiIDyi must . have an insurable interest m the
Bar QueatJon · o J · cOrporatl<t' Property insured.
(Alpha) as P're ~ anuary 4, 1983, Mr. p joined Alpha t 8 Ii~
1
insurance nor s ent of the Company. Alpha took ou - ,ancB
,cy on the .life ot..ML .£ with Mutual Life /nsu
 INSURANCE
92 INSURANCE
. over one 's life, there is no limit to th 93
(c) /n life ,~sura1 in property insu_rance, insurable i~-t rno11~ The stipulation i~ Section 14 of the lease contract that the
of iflSUrBb/8 mtere: ·a/ue of the interest m the property. 8
~st ;1 equipment shall be rnsured at the _cost and expense of the lessee
limited to the actua ~
against loss, da~age, or destruction from fire, theft, accident, or
. JS an elderly bachelor with no known ra . other in~urab_ le nsk for the full term of th~ lease, is a binding and
sar ned
aues~on: ra'nce
life msu
coverage for P250,000.00 from · 18~ .
. dt 8 valid stipulation . The l~ssee has an insurable interest in the
obtat tion an entity ltcense o engage in the in tart-..;..
·"''18 equipment_and motor vehicles leased . .Section 17 of the Insurance
Insurance cdo,porathe ,;surance Code of the Philippines (P surable code provides th~t the ~ easure of_ ~n insurable interest in property
·ness. un er . & • • 0 14&),
bUSI red his residential house ,or ~tee that amount Wit ,. is the extent to which the _rnsured might be damnified by loss or injury
He also ,nsu,ation. He immediately ass1g~ed . a_ll his rights' t: the thereof. It cannot be denied that the lessee will be directly damnified
~me COfPO,oceeds to BX, a friend-companton ltvmg with him n, the in case of loss, damage, or destruction of any of the properties
,nsu,:a7:e PIS died in a fire that gutted his insured house ~o dr&e leased (Ong vs. FEB, 524 SCRA 333).
years!_ hr, d sold it There is no evidence of suicide or ars a.vs
after 111:1 a . BX d on or Bar Question: Insurance: What is considered as an insurable
involvement of BX in these events. . . emande<:! payment of the
. ce proceeds from the two poltcIes, the premiums for Which IS interest in property.
,nsuran ·
-had been faithfully paying dunng a ll th e f,me h~- was alive:
·
Starbrita Answer: Insurable interest in property is every interest in property
refused payment, contending that BX _h ad no msurable interest anct
whether real or personal, or any relation thereto, or liability in respect
therefore was not entitled to receive t~e proceeds from /S's
thereof, of such a nature that the contemplated peril might directly
insurance coverage on his lffe and also on his property. Is Starbrite's
cause damage to the insured.
contention valid? Explain.
Bar Question: What does insurable interest in property consist of.
Answer: Starbrite's contention is not valid as to the life insurance. Explain your answer. £. - 1- "£
BX need not have insurable interest on the life of IS to be 8
beneficiary in an insurance taken by IS on his own life. Starbrite Answer: An insurable interest in property may consist of: (a) An
must therefore pay BX the life insµrance proceeds. · j xisting interest; (b) An (fnchoate interest founded on an existing
Starbrite's oontention, however, is valid as to the property interest; and (c) An f;xpectancy coupled with an existing interest in
insurance. BX, a mere friend-companion, does not have insurable that out of which the expectancy arises.
interest on the property insured. Starbrite therefore can refuse to
pay BX the property insurance proceeds. . Bar Question: •~· owns a hous~ valued at P50,000.00 which he
had insured against fire for P100,000.00, and to secure payment
2. Insurable Interest in Property thereof he executed a deed of mortgage on the house, but without
assigning the insurance policy to the latter. For "A •s· failure to pay
a. What it Consists of the loan upon maturity, "B• initiated foreclosure proceedings and in
the ensuing public sale, the house was sold by the sheriff to "B" as
highest bidder. Immediately upon issuance of the sheriff's certificate
An i_n~urable i~terest in JJroperty ·does not necessarily imP1 ¥-~ of sale in his favor, "B• insured ·the house against fire for
pro~rty toter~ in, or a lien upon, or possession of, the _subJ8C
;atter .0 ~ th e msura~ce, and neither the title nor a benefi_cial interes1
P120,000.00 with another insurance company. In order to redeem
. requ,srte to the exrstence of such an interest; itJs sufficrent th at the
the house . ·~" borrowed P100 000.00 from "c· and, as a security
device, h~ assigned the insu~nce policy of P100,000.00 to "C•.
liable- ta"i; - JL~ Jeffilen.~J.o t@ prope(ty_tha he ~
rnsured is so situat d ·th t
. irill However, before "A• could pay "B. his obligation of P100,000.00, the
Which it i i~s should 1lbeJnjured_or. destroyed by t~e pe.fil_a9.IwhO house was accidentally and totally burned. . . · ?
de~ - !l.U! eQ. Any~ne has an insurable interest in property itS Does "A", "B" or "C· have any insurable interest m the house.
destructionben~fit from rts existence or would suffer loss trorn May "A•, "B" and "C" recover under the policies? If so, how much?
(Gatsano vs. Insurance, 490 SCRA 286).

INSURANCE
94
of the house still 'has an insurable righ
Answer: A'. th~ ow:,~demption, which hoi.:'ever was not the t to !he
properlY • his nghht t'me of the loss, A having assigned the PS~bJect
of insurance at t e I Olt~y to
c. _ mortgagee 's insurable interest in the
B,. the le?der nditional right to becom~ owner if the house ~0use
consists of hi~ C:ithin the redemption period.. 1
~ not
redeemed byd of p 1 oo ooo to B, has an insurable interes't . · .
C, as ten er the policy'
of A over the house was assigned tmth.e
house, because o hirn
(C). t recover under his fire policy because at the time· oft
A canno . t c
1icy
d already assigned the po
fire he harecover 1· b
o .
t th
8 under his fire po icy, u e recovery cannot.be
to th;~;ce value of t~e policy. The ~dmitted true value o~ the·hou:
. PSO OOO only which amount an insured can recover if he is th
:bsolute owner.' The insurabl~ inte,:est ~f B· in t~e house is not h!
real right as mortgagee, but ~is being highest b~dder at auction, to
become owner of the house, 1f' the mortgagor fails to redeem. The
value of this right certainly cannot be an amount more than what an
absolute owner can recover (P50,000). · · the thing nor upon any valid contrac~ for it.
c cannot recover under the policy assigned to him because there
is-no assent of the insurer to the assignment.
Bar Question: Give an example of an insurable inchoate right in the
property.
Answer: The following are the examples: Inchoate interest founded
on an existing interest: (a) Contractor's interest to the completed
building for unpaid construction cost; (b) Lessor's · interest on
improvements made by lessee; and (c) Naked owner's . in_ terest
over property over which another person has beneficial title.
Bar_Question: A owns a house worth P500, 000. 00. He insured it
against fire for P250,000.00 for the period from.January 1, 1977 to
January 1_, 1978. At the instance of B, who is a judgment ~reditor~f
A, t~e said house was levied upon by the sheriff and sold_at pub/IC
f:ction ~n March 15, 1977. It was adjudicated to B for P150,000a t
ft e auction_ sale. B insured the house against fire for P150,000.00
th
;; e ~enod from March 16, 1977 to March 16, 1978. The house
s accidentally bumed on April 1 19 77
a. May A . '. · the insurance proceeds? Explain.
b. Ma recover under h~s poltcy? Give reasons.
8
Y recover under his policy? Give reasons.
1
INSURANCE
95
Answer: _(a) Yes, A the owner may ~ec~ver under his policy. The
insurable interest of _A on .the _house is his ownership over it. This
insurable interest existed insp1te of the sale at auction of the house
on March_15, 1977, because t~e property, being real property, A, the
owner, still had a one year penod of redemption.
(b) Yes, B, the b~yer at auction, may recover under his policy. He
has an in?hoate r~ght ;ounded on an exi~ting right, hence, an
insurable interest in_ As house, even while the period of B's
redemption wa~ running, up to the extent of P1 ~O, 000, the amount B
paid at the auction.
he
Bar Question: "X", a general creditor to "Y", insured the latter's
property beca~se the destru?tion of _ such property would render
worthless any Judgment he might obtain against his said debtor. Is
such contract of insurance valid or not? Why?
Answer. No, the contract is not valid. "X", the general creditor of
"Y", has no insurable interest in any of the specific properties of "Y"
because his expectant interest is not founded on any actual right to
Bar Question: Ciriaco leased a commercial apartment from
Supreme Building Corporation (SBC). One of the provisions of the
one-year lease contract states:
"18. x x x 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
deem·ed assigned and transferr_ed 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 P500,000.00 with First United
Insurance Corporation (FU/CJ.
A day before the lease contract expired, fire broke out inside th.e
.leased premises, damaging Ciriaco's merchandise . Having learned
of the insurance earlier procured by Ciriaco, SBC demanded fro':'
FUIC that the proceeds of the insurance policy be pa~d directly to_it,
as provided in the lease contract. Who is legally entitled to receive
·
A~swer: Ciriaco is legally entitled to the proceeds of the insurance.
It 1s Ciriaco, as lessee, who has insurable interest over the chattels,
 INSURANCE
96 INSURANCE
97
oes goods and effects, even if the P
merchandise, tex ~a~dise is placed is leased. SBC has no inrem,-. A non-lifhe inds.uran ~ P?licy_ such as the fire insurance policy taken
wherein such mercsame although he has a separate and ~~l'&blt O ver mere an 1se 1s pnman 1y a contract of indemn,·ty I bl
th · h rt · d . nsura e
interest o":1r ; over the premises. In c~se of loss, thereto stlnot interest in t e prope Y 1.nsure must exist at the time the insurance
insurable ,nte_re. ci·n·aco who should receive the proceeds re, Of takes effect ~nd at the _time the l?ss occurs (Section 19 ). The basis
'd goods it Is . . . h of ff... of such requ1~ement of insurable interest in property insured 'is based
~1 ~otw;thstanding the provision m t e lease •COnt ""
insurance nnot be compelled to pay the proceeds to 8 f'8Ct. . on sound policy: to prevent ~ person from taking out an insurance
The l~sure;o c~surable interest in the p~perty The lii:ibility
::~re:~or violating their /ease contract '.n tha~ he obtained a fi~
P;,~ policy on property upon which he has no Insurable interest and
collecting the proceeds of said ~olicy in case of loss of the property.
In such a case ,_ the contract of insurance is a mere wager which is
. policy over their own merchandise, without the conse t
insurance . · t . n« void under Section 25 of the Insurance Code (Cha vs. CA, supra).
e leased premises, Is a separa e and distinct 1·.c:.('..
the owner Of th
A

SBC · -..v
See Cha vs. CA, 277 SCRA ~90). _cannot be .entitled to the
fnsurance proceeds _because it has no insurable interest in the
subject matter of the insurance.
' in property (Filipino vs. CA, 179 SCRA 638).
Bar Question: A, a widower sixty r_ear~ old, owns various houses.
He does not believe in insurance. Bis his only son. Does B have an
insurable interest in those houses?
Answer: No, B does not have an insurable interest in any of the
houses of A, his father. He does not have any actual property right
'in any of the properties of his father during the latter's lifetime to
constitute as an insurable interest over the same. ·
The vendee-~onsignee ~f goods i_ n transit under a perfected
contract of _sale 1s _vested with an equitable title to the goods even
. before receipt by him of the goods to constitute an insurable interest
Bar Question: A piece of machinery was shipped to Mr. Pablo on
the basis of C & F, Mani/~. Mr. Pablo insured said machinery with
the Talaga Merchants Insurance Corp. (TAMIC) for loss or damage
during the voyage. The vessel sank en route to Manila. Mr. Pablo
then filed a claim with TAMIC which was denied for the reason that
prior to delivery, Mr. Pablo had no insurable interest. Decide the
case.

Bar Question: Juan insures against fire the property of his friend Answer: Even before the receipt by Mr. Pablo of the machinery he
Luis. Is this policy valid. Explain. bought, he has an equitable title to the said machinery, which
constitutes his insurable interest.
Mr. Pablo can therefore claim from TAMIC the proceeds of the
Answer: No, the policy is not valid. Juan does not have any
insurance policy on said machinery.
existing interest, nor even any expectancy on the thing founded on
an existing right to the thing. Hence, he does not have any insurable
b.. When It Must Exist
interest over the thing.
Bar Question: In a civil suit, the Court ordered Benjie to pay Nat ·
Bar Question: JQ, owner of a condomin.ium unit, insured the sa~~ P500,0D0.00. To execute the judgment, the sheriff levied upon
a~ainst fire with XYZ Insurance Co., and made the loss pays~/~ m Benjie's registered property (a parcel of land and the b~ilding
his brother, MLQ. In case of loss by fire of the said condommiu thereon), and sold the same at public auction to Nat, the ~1ghest
9
uni,·1 who may recover ·on the fire insurance
· ·
poltcy? Stteth
8
bidder. The fatter, on March 18, 1992, registered with_ the register_of
reason(s) for your answer. , deeds the certificate of sale issued to him by the shenff. Meanwhile,
on January 27, 1993, Benjie insured with Garapal l~suran~e for
Answer: JQ can recover on 1the fire insurance po/icy because ~ P1,ooo,ooo.oo the same building that was sold at pub/Jc auction to
owner, he has insura/Jle interest over the property. MLO cahnanvs Nat. Benjie failed to redeem the property by March 18, 1993·
re cover on the fire · d es not On March 19, 1993, a fire razed the buildin~ to_ the groun~.
insurab/ . t insurance policy because he o
e m erest on the property. . . Garapa/ Insurance refused to make good its ob/Jgation to Benpe
under the insurance contract.
 INSURANCE
98
ce legally Justified in refusing P
Gs,apsl /nsuran aYrnent ..
8 Is . .
,ill? collect on the msurance po1icy?
88(1,.- is Nat entitfed to ·
b. ars al Insurance is Ju~tified in refusin
AnS'fl'I: (s} Yes,:en 'i:had ,io insurable interest at the t~a~
to eeni;e ~use ,ed%em the same by M_arch 18,. 1993. EveOf !aai
since h6 failed_ t~rest at the time the policy was issued, he ; if h.
t,as insu~ble ,n t at the time of toss. ~d ~
inCtl,able ,n~erest titled to collect on the insurance po/icy
(b} Nat !5 nc:a:re interest at the time the policy was is s ~
h6 had no msuner then. The transfer of the property to him
was not .the °:.Snsfer to him the insurance thereon. td i-.
automattCS11Y
,stJon· On February 3, 1987, while Jose Palacio was in Ille
Bar ':, ,epa°,atory to a heart surgery, he called his only son 8oy
hoSP . pnd showed the latter a will naming the son as sole
Pa/SCIO, s . th ~ ·1 . . ... _,
0 th father's estate including. e ,am, Y mansion m Forbes Pait.
~ :,,JoWing day, Boy Palacio took out a fire insu_rance on
Fo(bes Psrlc mansion. One week l_ater'. the fath~r died. Attar la
111
father's death, Boy Palacio moved his wife and children to the fant,
mansion which he inherited. On March 30, 1987, a fire OCCUnad
razing the mansion to the ground. Bo~ Palacio then proceeded IQ
collect on the fire insurance he took earlier on the house.
Should the insurance company pay? Reasons.
Answer. The insurance company should not pay because it is nm
liable under the fire policy taken by Boy Palacio.
In property insurance policies, like fire insurance, it is necesse,y
that the insured (who also is the beneficiary as a general rule) shcxld
have an insurable interest on the property insured, both at the time
the policy took effect and at the time the loss took place.
. WhHe it is true that the insured Boy Palacio was owner of 1t11
insured house when the fire occurred he however had no insuniJI
int~rest yet at the time he took out a 'fire insuranc~ policy, as on lht
~i? date, his father, Jose Palacio, owner of the house, was s11
IMng. His having been designated in his father's will as sole heir ci1
: "!ake hi"!, Boy Palacio, owner of the house; neither did 11 creai
him any msurable interest in the house The policy is therefott
null and id . . ,i
vo 8nd cannot bmd the insurer.
Bar Question· A · ·.,d. g cit
Ayala A · . msured against fire his ten-storey but m
1 insurance ceases to attach as regards the property affected unless
1970 :nue, Wi th X and Company for P5 million on Septembef~
· sold fhe building to B on September 20, 1970 tor
INSURANCE 99
"' mi/lion without endorsing the ~re policy. On September 25, 1970, the
building was gutted by an accidental fire.
a. can A collect from X and Company the proceeds of the fire
pO
/icy? Reason.
b. can B, as new owner of the building, collect the proceeds?
Reason. ·
c. Assuming that the building was mortgaged to Bank y to secure
the debt of A for P4 million and the sale was made without the
knowledge of Bank Y, would your answer be the same as in (a) and
(b} above? Reason.
i '- d. Can Bank Y collect from X and Company? Explain.
Answer. (a} A cannot collect from X and Company the proceeds of
the fire policy because he had no insurable interest in the building at
the time the building was burned. ·
(b) B, the new owner, cannot collect because he had no
h..i. insurable interest at the time the policy was issued. The policy taken
by A on the building was not assigned to him when he (B) bought the
building from A.
(c) No, my answer will not be the same. Bank Y which
necessarily is the assignee of the fire policy taken by A over the
building as required by banking laws, has an insurable .interest (its
mortgage right) even if the building changes ownership without its
knowledge. Its mortgage right, being real, atµJches to the property
irrespective of ownership changes.
(d) Bank Y can collect the true value of the building (if a total
loss) which .cannot exceed P4 million , the value of its insurable
interest.
Bar Question: On May 13, 1996, PAM, Inc. obtained a
P15,000,000.00 fire insurance policy from llocano Insurance
covering its machineries and equipment effective for one (1) year or
until May 14, 1997. The policy expressly stated that the insured
properties were located at •sanyo Precision Phils. Building, Phase
Ill, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite. • Before ;ts
expiration, the policy was renewed on •as is· basis for another year
or until May 13, 1998. The subject properties were later transferred
to Pace Factory also in PEZA . On October 12, 1997, during the
effectivity of the renewed policy, a fire broke out at the Pace Factory
which totally burned the insured properties.
The policy forbade the removal of the insured properties unless
~anctioned by llocano. Condition 9 (c) of the policy provides that '"the
the insured, before the ocourrence of any loss or damage , obtains
r
 INSURANCE
INSURANCE
,oo IOI
company signifi~d by endorsement 0
ssnctiOf1 of th6 rty insured Is removed to any b f'O_ n tfie to send notice to the mortgagor if it decides to convert any of
d b h
th6 _ ... (c) ff t~ ~'::,hich is herein stated to be insu,::/1no
1
Or
has
·nstallments
the l
ma e Y t e latter for the renewal of th e insurance
.
'::::J
,-,---
ot/18' tt,an ,n t ubstantially complied .with notil••ing
it has s . •r
· PA1.4
II~ (Ibid.)-
daims that . r company, the RBC, which, in fact, refef'red P no
m,ough itS 51ste . ranee coverage. Is 1/ocano liable u d ~MIt,
f1oCMPO fof the ,nsu n er the -----------
sar Question : _ A fiouse and lot is covered by a real estate
mortgage (~EM) m favor of ZZZ Bank. ~e bank regui~ fl that the
poliCY? house be msu:9d. The owner of the poltcy failed to endorse nor
• ___, . IIOCSno Insurance is not !iable dunder the po/icy l'I._ assign the poltcy t9-th e_b__a~ ?wever, the Deed of Real Estate
Mortgage has · an expre~s prov1sI0 which says that the insurance
,.,~.. -: dear that any transfer of the insure properties, With~ut ''"'
is Prohib• the policy is also endorsed witn e signing of the REM. Will this be
:;:=,
f!O'tCY ,s's sanction by means of an endo~sement,
0
RBC is not enough; it must be a notice to 1/ocano. lted. sufficient? . .
iU- No insuranc~ policy mu_st b~ expressly endorsed to the bank so
that the bank will have a nqht m the proceeds of such insurance in
c. insurable Interest in Mortgaged Properties · the event of loss.
b} The express provision contained in .the Deed of Real Estate
The mortgagor has an insurable i~terest o_ n his property as owner Mortgage to the effect that the policy is also endorsed is sufficient.
pect!ve _of an~ mortgage 011
up to the full value of his property, irrest_ c) Endorsement of lnsurpnce Policy in any form is not legally
said property in general. The excep 10n 1s in marine insurance allowed.
(ServiceWide vs. CA, 256 SCRA 649). d) Endorsement of the Insurance Poiicy must be in a formal
document to be valid. .
The mortgagee's insurable interest is up to the extent of his credk
(Ibid.). Bar Question: To secure a loan of P1 O million, Mario _mortgaged his
I building to Armando. In accordance with the loan arrangements,
Each may take separate insurances over the same property up to M~'!EJ!.~d.!___?e b~ilding in~ U!f!.d with First Insurance Company for P1 O
the extent of their respective insurable interests. The mortgagor may m1ll1?n, des1gnatmg Arma~<i? as t h ~. Armando also took
take insurance on the property, and assign the same to the an insurance on the butldmg uponnisown' interest with Second
mortgagee; or constitute the mortgagee as beneficiary as his interest Insurance Company for P5 million. i he bwldmg was totally
may appear (Ibid.). d~ y_ed_ by fire, a peril insured against under both insurance
policies. It was subsequently determined that the fire had been
Where the mortgagor takes insurance on the property in his own intentionally started by Mario and that in violation of the loan
right making the loss payable to the mortgagee, the insurance is on agreement, hii had ·bee,.,- storing inflammable materials in the
building. How much, if any, can Armando recover from either or both
the mortgagor's interest and he (the mortgagor) continues to be a
insurance companies? -
party to the contract, and any act of his which would avoid the f>Olicy,
will thus avoid the policy. Conversely, any act to be done by him, but
Answer: Being a mortgagee, Armando's insurable interest is up to
~ne by the mortgagee, produces the same effect as if performed by
him (Ibid.). · the exten_t of his crecllforup to 1_0 _milliof]_~sos. However, in the
present case, he can only recover 5 million pe~os from the insurance
he took from Second 7nsiiiarice CompJiny. He may not recover from
. If tlle mortgagor assigns the policy to the mortgagee with the tfie insurance taken.. by Mario because the latter violated t~e_contract
ins~rer's assent but the latter imposes new conditions on th8 of insurance when he ·infiintlomillystarted the fire. Where the
~ssh19nee, the acts of the mortgagor will not affect the assignee's mortgagor takes insurance on the property in his own right making
ng ts (Ibid.).
the loss payable to the mortgagee, the insurance is on the
ee to mortgagor's interest, and he (the mortgagor) ~ ntin~e_s to ~ aJl.adY
Where the Chattel M
apply previou ortgage does not authorize the mortgag ee
· s payments for the car to the insurance, the mortgag
 INSURANCE
102 INSURANCE 103
d 8 ny act of his which would avoid the P0,.
to the contract, 8 ~ (See servicewide vs. CA, supra) icy, WIii property an~ i~· the i~surance_~ t in the_§E_l!J...e person. A has
,.,,id the po/lcy. e C!..PJ.~_g_t of the insurance (the house) to B
(hUS 8rv ,., transferred hts mterest '~ th_
f Interest in Property Insured ~ without a transfe~ of his _mterest in the insurance to B. As the
d. Change O . ·
interests in the obJect ~q. m the rnsurance are ~n p__iffe;ent persons at
e of interest in any part of the thing . · the time of the loss, none can recover under the policy. - ·---
R~ A chang d. h f . insul'D.I
~rnn$1niea· by a correspon mg c ange o interest .1 '"" 1

unaceompan~ nds the insurance to an equivalent extent U~ 1.1 the 3. Insurable Interest in Marine Insurance
insuranc~ s_ tuhspething and in the insurance vest in the same P, 8/ the ----,1
interests 1n . e son. 1. Shipowner - over the vessel, {except that if chartered, the
insurance is only up to the amount not recoverable from the
Exceptions: (1) change of interest_af ter the loss; (2) ch~nge Of charterer; and if hypothecated by a bottomry loan, the insurable
. t ·n r,.,).e or more of several •things separately insured· 113)
interes 1 ~ ,.. . • d (4 ) n , , interest is only up to the excess of the value of the vessel over the
change of interest by ~ II or succession , an u ansfer of interest
Joan. He also h~s an-insurableJnterest on expected freightage . ·
by a partner, joint owner, or common owner, to another partner, joint 2. Cargo owner - over the--~ rgo and on expected profits.
owner or common·owner. 3. Charterer - over the amount he is liable to the shipowner if the
ship is lost or damaged during the voyage.
The Problem: Some businessmen with an available starting capfta/
totaling on{j P100,00Q.Q0 ask you to help organize a business firm. C. Double Insurance and Overinsurance
Subject to lega7 Ttmitations, they have future plans to invite_@,
investors who are ag~eeabl'!:___to rendering financial ~ssi§tan~ _ by way In accord with the principle of certification provided under Section
of direct investments anaJor loans. Your professiona l assistance Is 95(e) of the Insurance Code, whe_n...tb._e insured is over insured by
solicitelon the following various questions that may arise. · double insurance, each insurer i 'found, as between himself and the
other ins-urers, to contribut rata o_!be loss in grQgortioo to the
Bar Question: An insurance agent contacts the manager of your amount for which he ·is liab e under the contract (Malayan vs.
firm to se/1 lffe and property insurance. Your advice is sought on the Philippines First, GR No. 184300, Juiy11, 2012). -
following matters:
-The office building of your firm is insured .against damage by fire Bar Question: . X borrowed from CCC Bank. She mortgaged her
house and lot in favor of the bank. X insured her house. The bank
and earthquakes. Without the prev1o~Qf]sent_ of_the insurer, your
also got the house insured. ,µo
firm as~igns the fire~ y ~~ the bugcf.[n_g is pum~d totallY: . Does
a) Is this double insurancef f f f?lain your answer.
the ass,g~~~ ~; jbt ~pai[l~tJhB..insurer? Give legal reasons.
b) Is this legally valid?'E~piain your answer.
c) In case of damage, can X and CCC Bank separately claim for the
'
/ . ,J " ) '

Answer: The assignee fJ1f¾}!_.r;.Ql/~gJ Jhe proceeds from_Jhe insurer

insurance proceeds?
because the change of interest1assig_nment) occurred aft~
Answer: (aK!!§J it is not double insurance. Double insurance ex~sts
~ar Question: ' .4" insures his house for P10,000 commenc~~ only when two (1) __p~rsgns obtain insurance on th~ s~~ .~L!.!'~ect
anuary 1, 1952. On February 15 1952 ''.A " sells the house to ~ m§..ttfu and mfeiest. In this case, the interest of X 1s different from
for P15 000 wl,fh-0 , . ' ' ·-- • fO "B,
0 A ' 1;.: uJ endorsmg or transferring the nre policy t d the interest of CCC Bank.
a: a~1~:~
from the · ~
1.J:,
1
the~ s cqmpletely d~stroyed on accou~l/cY
· Can '.4" or uB" collect the proceeds. of the P
{b) ~ the insurances obtained separately by X and CCC Bank are
vali~ The insurable interesl of x as mortgagorrs different from the
msurer? Ex 1 • and give . r.
· Pam reasons for your answe · ' insufaele interest of CCC Bank as morJgage.B.
~ the insurance
Answer: Nei';;;J. ,, ,,.,, ·,
undBf (c) ~ ' both X and CCC Bank carf:.siJp~
insurances. .
~he PO/icy. A tran '.4, the s
_eller, nor B, the bUJ..~~ qc!n _9Q}IP~sfer d Proce~ds from th~ir respecti~e
trafin
interest in the in- s!8!..~terest in property( 'l{.i~ r}µt f}.Y- 5 fhB
surance su~P!1[!ps the latt~r pnql the 'f!..teres
·
--- ___
..- ... ~
 INSURANCE

INSURANCE
TRUE or FALSE - EXPLAIN BR/EFL y ~ 105
Qut5t/on: Ot,~
sarsWER- prohibits double insurance .
AN life insurance Answer: The difference between double insurance and reinsurance
T11elswon .
/S::- 56 double insurance only applies t
Answer: cat{ ~:t:~fe insurance. A person can geta so;~~~
are(a) Double insurance involves the same interest. Reinsurance is
n insurance of different interests;
in~uraJIC6, Bffas he wants.-
insurances ·
---!!. lift a (b) In double insurance, .f~e insurer remains in such capacity; in
. · ':i-; reinsurance, he b~comes an ins~red in relation to the reinsurer; and
. When does double insurance exist? (c) In double insurance , the insured in the first contract is a party
s,r Question.
in interest in th~ secon~ contract; in reinsurance the original insured
ble iosur:ance exists where the same Qe has no interest in the reinsurance contract.
Answer: A d~,.i"~"~ separately in respect to t~e sam. ~ n. la
. -~ by seve,OL.JLbU<U, - bl . -:-· :::;.u.8 s,,b ...-~
msu,~ t The requisites for dou e msurance to anse ar~ The insured can insure with two or more companies unless
snd_,o~ ·red is the same; (2) two or more insurers in '!'t prohibited by prior _poli_cies. Where he is allowed, but over-insurance
parson 'f~(
3) there is identity of subject matter; (4) there is;~!'- results, he can claim , 1h case of loss, only up to the agreed valuation
se~arateYt'· ured· and (5) there is identity of the risk or pe,;i insn.,,, (in valued policies) or up_ to the full insurable value (in open policies)
of mteres ms , urea from any, some or all insurers, without prejudice to the insurers
against) ratably apportioning the payments .
Bar Question : If an ins~rance hpol(.CY pro?ibits additional insurance
on the property insured without_t e _msurer s ~onsent, such provision The collateral source rule was originally applied to tort cases
being valid and reasonable , a ~1olat1on by the insured wherein the defendant is prevented from benefitting from the
plaintiffs receipt of money from other sources. Under this rule, if an
A. reduces the value of the pohcy.
injured person receives compensation for his injuries from a -source
B. avoids the policy. . wholly independent of the tortfeasor, the payment should not be
c. offsets the value of the policy with the deducted from the damages which he would otherwise collect from
value. the tortfeasor . The rule has been described as an established
D. forfeits premiums already paid. exception to the general rule that damages in negligence actions
must be compensatory. Although the rule appears to allow a double
Bar Question: What is the nature of the liability of the several recovery, the collateral source will have a lien or subrogation right to
insurers in double insurance? prevent such a double recovery. The collateral source rule is
predicated on the theory that a tortfeasor has no interest in, and
Answer: The insurers are deemed ~ Each one is bound therefore no right to benefit from monies received by the injured
to c_on~ribute~bly to the loss in proportiorrtfJthe amo~nt for which person from sources unconnected with the defendant. According to
he ,s flable under his contract (See Section 94 {e], Insurance Code). the collateral source rule, a tortfeasor has no right to any mitigation
of damages because of payments or compensation received by the
. The parties may validly provide that other insuranc es taken .bY the injured person from an independent source. The collateral source
insured without the consent of the insurer will ipso facto avoid the rule is designed to strike a balance between two competing
contract (Pioneer vs. Yap, 61 SCRA 426). principles of tort law: (1) a plaintiff is entitled to compensation
sufficient to make him whole, but no more; and (2) a defendant is
. The rationale behind the incorporation of "othe~ insurance " clause liable for all damages that proximately result from his wrong . A
in fire P?licies is to prevent over-insu rance arid thus avert the plaintiff who receives a double recovery for a single tort enjoys a
perpetration of fraud (Geagonia vs. CA, 241 SCRA 152). windfall ; a defendant who escapes, in whole or in part, liability for his
.
Bar Question· Wh 8 t ·
,·
' wrong enjoys a windfall. Because the law must sanction one windfall
18 the difference between "double · · a ' nce' & and deny the other, it favors the victim of the wrong rather than the
•,,,,.,
,., ·nsurance"?· msur, wrongdoer. Thus , the tortfeasor is required to bear the cost for the
 INSURANCE
106 INSURANCE
107
. her negligent conduct even if it results in 8 .
full value of his or . tiff The collateral source rule applies .w1ndfati . proportion to the amount for which he is liable u d h.
. nocent P1am . . th rt in Orrt.... rs88 section 94 {e], Insurance Code). n er IS contract
for the in nsibility for losses on e pa y causing th ·"VI'
to pl~ th~ ~s~ed so that the wrongdoer should not ben ;111. Its
apPlicationd:~Jr: made by the injured .party or take adva~tat ~ 8 ,, Question : ~ insured the building she owns with two 2
the expenor other relations that may ex_1st ~etween the injureci 9e Of . surance companies for the same amount. In case of d (1
,n . fi f amage -
s) X can not c1a,m rom _
con~ts
and ~ 1rdpe= 5
Thus it finds no application to cases invoiv· _Party
u·nder ~ich the insured is indemnified for 1~ng no.
~ult insuran mpanies regardless of who was at fault in the i ~ by
any o the two (2) insurers because ...;;th the
double insurance, the insurance coverage becomes automatically
void.
insuran~ ~e losses' ·1n a no-fault insurance, the insurer ca~Cident
ge~e:t ~; pay the ho~pitalization expenses of the dependents ~
1
obhglo ees which had already been paid by separate ·he ;ts
n: b) the two (2) insurers will be solidarily liable to the extent of th 1
c) the two (2) insurers. will be proportionately liable.
gj_X can choose who he wants to claim against.
e oss.

~mp Yce providers of said dependents. This condition is obvi ath

~nsuradedn to thwart not only fraudulent claims but also double co l ~s~ 8,, Question: A businessman in the grocery business obtained
inten f aims from First lnsura~ce an insurance policy for five million pesos to fully
for the same loss of th~ d~penden_ts o c~vered _employees. This is cover his stocks-in-trade from the risk of fire.
consistent with the pnnc1ple of indemnity which proscribes the Three months thereafter, a fire of accidental origin broke out and
insured from recovering greater than the loss. Indeed, to profit from completely destroyed the grocery including his stocks-in-trade. This
loss will lead to unjust . enric~men_t ~nd therefore should not ·~ prompted the business'!1an to file with First Insurance a claim for five
countenanced (Mitsubishi vs. M1tsub1sh1 , 698 SCRA 589). . million pesos representing the full value of his goods.
First Insurance denied the claim because it discovered that at the
The insured can also claim a ratable return of the premiums on time of the loss, the stocks-in-trade were mortgaged to a creditor
the over-insured amount. who likewise obtained from Second Insurance Company fire
insurance coverage for the stocks at their full value of five million
Ba~ Question: Terrazas de Patio Verde, a condominium buildi~g, pesos.
has a value of P50 Million. The owner insured the building against First Insurance refused to pay claiming that double insurance is
fire with three (3) insurance companies for the following amounts: contrary to law. Is this contention tenable?
Northern Insurance Corporation P20 Million
Southern Insurance Corporation P30 Million Answer: Double insurance is not contrary to law. It may be allowed
Eastern Insurance Corporation P5.0 Million if not prohibited in the policy. But in the problem, there is no double
a) Is the owner's taking of insurance for the building with three (3) insurance because the insured are not the same (the businessman
insurers valid? Discuss. in the insurance with First, and the creditor in the insurance with
b) The building was totally razed by fire. If the owner decides to·claim Second) and because the interests of the businessman and the
from Eastern Insurance Corp. only P50 Million, will the claim creditor are not the same.
prosper? Explain.
D. Reinsurance
An~wer: a) Yes, the taking of insurance with three (3) insurers ~-
valid. The same partakes of a double insurance, which exists where 1. Defined
th e same person is insured by several insurers separately in respect
Bar Question: What is a contract of reinsurance?
to th6 same subject and interest.
a
~) Yes, the claim is valid. This is case of over-insurance where 1~
8
Answer: Reinsurance is a contract by which an insurer procures a
insured can claim up to the agreed valuation. Since the claim with third person to insure him against loss or liability by reason of such
~a~tem Insurance covers the full insurable· value the insured cannoJ.
original insurance .
. a,m anymore from Northern ·and Southern Each one of th9
insurers, called CO-insurers, is bound to contribute ratably to th e IOSS

\d
 INSURANCE
I08 t d d' ·
. surance is a separa e an ,sttnct arran
A contract of rein t act of insurance, whose contracteci 9erttent
,_,., rne onginal .con ~nee agreement (Communication v risk ia
""'" , the re,nsu s. M
insu~ '~ 15 scRA 499). . a~
sensing. . Answer:
Co-Insurance
I5 hed from
2. otsttngu
. . t'nguish co-insurance from re-insurance.
sar Question. 0 ,s ,
procures insurance at less than the v
th 1. sured
c o-insurer as ~ue Of
An,~ If e ~,ty, he is deemed to be a _
O
the· msured P'°P of Joss the insurer and the insured will sh the
deficiency. 1n cas6 ' are the
ssme Pf!) ra!~ce the insurer procures a third person to insur& h'
1~ rei;su or li~bility by reason of such original insurance. In 1m
5t
sgsm thoss"",·nsurer will pay the insurer for the risk reinsured case
of/OSS, e '"' ··
3. Distinguished from Reinsurance Treat~
A reinsurance policy is a contract of indemnity one insurer makes
with another to protect the first in~urer from a risk it has already
assumed. In contradiction, a reinsurance treaty is merely an
agreement between two insurance compaF'\ies where one agrees to
cede and the other to accept reinsurance business pursuant to
provisions specified in the treaty. Reinsurance treaties are contracts
for insurance; reinsurance policies or cessions are contracts of
insurance (Phil. American vs. Auditor, 22 SCRA 135).
Bar Question: Gamma Insurance Company issued a P3 million fire
policy covering Delta Building owned by Madam Butterfly. Under a
reinsurance treaty, the British Reinsurance Company accepted fifly-'
percent reinsurance coverage over the fire policy. A W(J(Jk later,
Madam Butterfly married Frederick Match, an ex-convict for arson.
All the members of the board of directors of Gamma were invited
~uests at the wedding and knew who Match was, but completely
ignored the matter as Madam's personal business. The matter was
not even discussed nor mentioned in Gamma's board meeting. One
month after the _wedding, the Delta Building was completely bumed
down.. The finding of the police was that the "fire was due to faulty
electncal wiring." Gamma notified British Reinsurance of the fire toss
~~d de"!8nded the latter's reinsurance liabilitY: British Reinsura_nce
nv~s~gated and learned for the first time about Match's previous
conv1ct10n for . M dam 's
insura arson, and so advised Gamma to resist 8
nee claim. Gamma nevertheless paid Madam in full, and th en
INSURANCE
109
brought an action to recover from British Reinsurance. Will this
action prosper?
Ye~, G~mma can re_cover from British Reinsurance the
face value of ,ts_reinsu~ance policy of P1. 5 million or 50% of the face
value of the f,re . policy between Gamma and Madam Butterfly
pursuant to th? reinsuranc~ ~reaty. . ,
While a~ insurer obta1~1~g re~nsurance must communicate all
• representations of the onginal insured and all knowledge and
information he . possesse~ whether previously or subsequently
acquired matenal to the nsk, the fact of marriage by the original
insured Madam Butterfly to Match, an arson ex-convict is not 1
material to the risk, especially it being established that the fire was
due to faulty wiring.
Bar Question: What is meant by facultative reinsurance agreement?
Answer: A facultative reinsurance agreement is a contract wherein
the reinsurer may or may not accept participation in the risk insured.
The term ''facultative" is used.in reinsurance contracts and it is so
used in this particular case merely to define the right' of the reinsurer
to accept or not to accept participation in the risk insured. But once
the share is accepted, the obligation is absolute and the liability
assumed thereunder can be discharged by the one and only way -
payment of the share of the losses. There is no alternative nor
substitute prestation (See Equitable vs. Rural, 4 SCRA 343).
_
a. Right of Reinsurer
A reir\surer is entitled to avail of every defense which the
reinsured may avail of against the ' original insured (Gibson vs.
Revilla, 92 SCRA 219).
-E. No Fault Clause
Any claim for death or injury shall be paid up to PS,000 without the
. necessity of proving fault or negligence, provided the following proofs
of loss under oath are submitted : (1) death certificate and evidence
sufficient to establish the proper payee; (2) police report; and (3)
medical report and evidence of medical or hospital disbursement.
The claim is collected from the insurer of the ·vehicle where the
claimant is riding, mounting or dismounting from . In all other cases,
the claim is against the insurer of the offending vehicle.
 INSURANCE
110
The insurer wh0 :~~RA
AA,.heta, 1
(Perla vs. 1\1"" •
can claim against the
144).
. .
b the injured from th_e insurer 1s direct an
The recovery Y covery against the insured by the injured d not
dependent on lhe re Consolacion, 212 SCRA 268). Party
(Vda. De p.1aglana vs.
• court may not order the carrier and the
1 8
While technical ~e hospital where an injured passenge surety
company to P~!uy where the hospital was not a party to ther Was
confin~. es~f justiee courts may do so, and pr,event the fili~se,
in th~1;ter:tions by ' the procedure _of filing a proce~i Of
sepa tary to execution (Vda. de Chi vs. Tanada, 111 sc~
supplemen '"'
190)
. •ured or the heirs of a deceased victim of a vehicul
The rnJ · The rules are:
accident may sue directly the insurer o f th e ve h1c
· I
e. Note thatar
common carriers are required to secure Co'!1pulsory Motor Vehicle
Liability Insurance [CMVLI] ?Dverage as prov1_ded ~n~er Section 374
of the Insurance Code, precisely for the benefit of v1ct1ms of vehicular
accidents and to extend them immediate relief (GSIS vs. CA, 308
SCRA559).
Although the victim may proceed directly against the insurer tor
indemnity, the third party liability is only up to the extent of the
insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability
to third persons, and such third persons can directly sue ·the insurer,
the direct liability of the insurer under indemnity contracts against
third party liability does not mean that the insurer can be held liable
in solidum with the insured and/or the other parties found at fault
For the liability of the insurer is based on contract' that of the insured
carrier or vehicle owner is based on tort (GSIS ~s. CA 308 SCRA
559). ' A had to pay the hospital bill which amounted to P2,000.00, including
Bar ·~uestlon : X, in January 30, 2009, or two (2) years before
r;:hmg th e ~ge o~ 65, insured his fife for Php20Million. For r,eason
bi!':'n to hts fa'!7ilY, he took his own fife two (2) days after hts 65~
ay. The poltcy contains no excepted risk Which statement 15
most accurate · speeding or in any way negligent), there was no third-party liability
21 The ~nsurer will be liable.
b) The insurer will not be liable.
INSURANCE
111
The state of s~nity of t~e insured is relevant in cases of sui~ide in
~rcJer to hold the m~urer llab~e. . .
d) The state of sa_mty of t~e msured is '"elevant in cases of suicide in
order to hold the msurer //able. ·
sar Ques~lon: What do you understand by the "no fault indemnity"
rovision m the Insurance Code? What are the rules on claims
~nder the said provision?
Answer: The "~o fault lia~ility_" p~ovision of the lnsurar1ce Code has
reference to thtrd party lia~1hty m motor vehicle insurance under
which the insurer of the vehicle the injured or deceased person was
boarding, was _a p~s~e~ger of, or was disembarking from, becomes
liable for physical m1unes or death up to P5,000, without regard to
whether or not the vehicle was negligent or at fault at the time of the
accident.
(a) The suit or claim of recovery is directed at one vehicle only;
(b} The suit is directed against the insurer of the vehicle where the
victim was a passenger of, or against the insurer of the vehicle which
bumped the victim;
(c) The ·insurer who pays can claim against the vehicle at fault.
The claim shall be under oath with sufficient proofs as follows: (1)
police report of the accident; (2) death certificate and evidence
sufficient to establish the proper payee; or (3) medical report and
evidence of medical or hospital disbursement in respect of which
refund is claimed.
Bar Question: Driving his car one night, A crossed an intersection
as the signal light turned green. Suddenly he saw an old woman
crossing the street just a few feet from his car. He applied his brakes
immediately, but just the same, he .hit the woman who turned out to
be senile already. He brought her to the nearest hospital where she
was confined for three days due to her injuries. Upon her discharge,
X-rays, doctor's fees and medicines.
Being covered by the compulsory liability policy required of all
vehicle owners under the Insurance Code, A referred the matter to
his insurance company, which refused to reimburse him, claiming
that since A was not at fault (it was admitted that he was not
for which the insurance company could be liable under A's policy.
Is the insurance company liable to reimburse A for the hospital
expense? Explain.
 INSURANCE
I• 112 INSURANCE
113
. ranee company is liable to reimbu,..,.,. urance & Suret~ Co: , insuring the operation of his Jeepneys
~
Answtr. ,es, the msu ·
of the pedestrian. ·~~A,.__
·~ ins •nst accidents with third-party liability.
the hos~ital expe~~~ ~very under the no-fault clause Provisio agBI u f ·t f h .
During the e11ec ,v! Y o . t e insurance , one of his jeepneys
· n,is ,s a case Without regard to the fault or negligence ns Of bumped "Bn who had Just ahghted f~om another passenger jeepney
the lnsura nee code. .
. the accident, h •
t e insurer o the only of a.~
f
whose drive~ u~l~aded passengers m the middle of the street.
person i~volved::dent is liable up to~ maximum of P5,000.0~eh,Cle suffered bodily mJury as a consequence and filed a claim against the
uen
invoivecJ _m th e ~he insured of the police report, the medical reUPon . surance company. The latter-refused to pay on the ground that the
submission by f edical or hospital disbursement. . Port,
m ·
driver of the 1eepney ~
'.om _wh.1ch pa~senger "B" alighted was guilty of
O
and evide~ceb mment claim of A, owner of the insured vehicl negligence in unloading m the middle of the street, and that the
n,e re,m urse . t h e, ~ driver of the insured operator was not at fault.
00 is within the maximum amou~ , ence, the insuran
2
P ,000- h uld reimburse the amount to him.
companys o .
~ can passenger "B" recover from ·the insurance company?
. · Explain.
Bar Q.uestion: Jose, driving his own _
c ar toget~er with his Wife
., . ,,,re on their way home from the,r respective offices when ' Answer: B cannot recover from the insurance company Gold Mine
Mana, Wo ~ b h. d h. h . a Insurance and Surety Co.
,;.,..n by Pedro hit them ,rom e m w 1c was m tum hit by
car d11ro • • th f a The compulsory motor vehicle insurance provisions of tt,e
gasoline tanker driven by Mano, caus1~g e car o Jose to tum-
turtle, thus resulting to the ~eath of Mana. All motor _vehicles being Insurance Code allow a passenger recovery from the insurance of
the vehicle where he was riding.
insured Jose filed his claim for the death of Mana against the
The contract of transportation between B and the jeepney, a
insure~ of the said three motor vehicles under the "NO-FAULT'
common carrier he rode in, and which unloaded him in the middle of
insurance, Section 378, of the Insurance Code.
the street, subsists up to the time B, the passenger, is unloade·d in a
a. Will Jose's claim for the death of Maria against the insu~rs of
safe place. To all intents and purposes, B was still a passenger of
said three motor vehicles prosper and up to what amount? Reasons.
the jeepney he rode in, and which unloaded him in the middle of the
b. ff Jose includes in the claim damage for his car, will the claim street, at the time he (8) was_bumped by one of the jeepneys of X.
prosper? Why? As B was still such passenger, the jeep he rode in would be liable to
B, as a common carrier, and necessarily, the insurer of said
Answer: (a) As Jose has invoked the "No-FauW provisions of the jeepney, because of the compulsory insurance coverage, would be
Insurance Code (Section 378), Jose can only claim against the liable to B.
insurer of his own car, the vehicle Maria was riding in at the time of B cannot therefore recover from X's insurer, the Gold Mine
the incident. · Insurance and Surety Co.
The amount recoverable under this provision with respect to the
death of Maria, Jose's wife, cannot exceed P5,000. ·: Bar Question: While driving his car along EDSA, Cesar sideswiped
(b) I~ Jose's claim includes damage to his car, the· claim may Roberto, causing injuries to the latter. Roberto sued Cesar and the
PT?sper if brought against the insurers of the other vehicles, not third party liability insurer for damages and/or insurance proceeds.
:mown, u~less of course, Jose's insurance on his car is 8 The insuranc~ company moved to dismiss the complaint, contenaing
. b-l~rehens,ve that the liability _of Cesar has not yet been determined with finality.
I,a , ,ty coverage.one, and not just the required compuls ory
.
third party
Jose' t . a. Is the contention of the insurer correct? Explain.
.
cannot ~c aim_ against the insurers of the other vehicles however b. May the insurer be held liable with Cesar?
p~,d under the "No-Fault" provision as this covers
death or physical · · . . , Answer. (a) No, the contention of the insurer is not corre~t.
m1unes to third persons only. · .
The injured may immediately sue the insurer of the g_
Bar Question· -x· · . · eys w l~ v~~,c~e
upon the occurrence of the accident up to the extent of ,ts hab1hty m
in Metro Manila iwns and operates several passeng er 1eep~;ne
the po/icy. There is no need to determine with finality the liability of
· e entered into a contract with the Gold
 INSURANCE
114 .
of the compulsory motor vehicle insu
The purpose h m immediate relief.
~es_:; is to extend to t ~ held liable with Cesar. Its liability ;' .
/lsb~ The insurer may rator but only up to the amount state~ ~''lot
j 1;
k/ids,Y with the 0 amount, Cesar will be liable therefor mtlte
8,:,t;cy. I~ excess 0~:Scomprehensive and the claim is within 1eaa
cessr': ,nsurs;:218 scRA 525).
(See First vs. , ..
. X was riding a suburba~ utll1~y vehicle (S
Sar Questlo~- comprehensive motor vehicle //ability ins1.1ra':'J
covered byd ·tten by -FastPay Insurance Company: Wh ce
(C~VLI) ~; e;~ding bus owned by RM Travel, Inc.. Th~ co,:~
8 claim filed by the insured, the beneficiary or any person claiming
collided ~1 erious injuries to X; Y, a passenger of the bus; and Z
resulted_ ,n s ·n·ng 'or a ride at the scene of the collision. The ,v,.,!'
"""estnsn wa1 " th d' h.
~ rt established th~t the bus was e 011en mg ve 1cle. . !he
R.
po CMVLI policy ,ssued by Dragon Insurance Corporation. XY.
had a d
d z jointly sued RM TraveI an Oragon In surance ,or ~ .
mdemn1ry
and r the Insurance Code of the Philippines (P. D. 1460). The /owe,
:u~ applied the "no-fault" indemnity policy of the statute, dismissed
the suit against RM Travel, and ordered Dragon Insurance to pay
indemnity_to all _three plaintiffs. Do you agree with - the •pourt's
judgment? Exp/am.
Answer: No, the court's judgment was erroneous. Since the driver
of RM Travel was at fault, Dragon Insurance should pay for the
damages to X, Y and Z up to the extent of its liability under the
policy. In excess thereof, RM Travel should be held liable.
Bar Question : Xis a passenger of a jeepney for hire being driven
b~ Y. The jeepney collided with another passenger jeepney being
dnven by~ ~h~ was driving recklessly. As a result of the collision, X
suff8f9d m1~nes. Both passenger jeepneys are qovered by
Co~prehensive Motor Vehicular Insurance Coverage. If X wants to
claim under the "no fault in.demnity clause" his claim will /ie-
a) againSf fhe insurer of the jeepney being driven by 4 who was th6
~~~ I whom the insured is liable can sue the insurer. Where the contract is
121 the claim shall I' . · • ne11
driven by y bee 18 aqamst the insurer of the passenger 1eeQU2J.
c) X has a Choi ause ~ was his passenger.
d) None of the :Oa!~mst whom he wants to make his claim.
1. ~e,nm'od of Filing Claim and Action to Recover
ages
INSURANCE llS
ranee The written notice of claim m~st ~ filed with the. insurer within six
nths from the date of the accident otherwise the claim is deemed
rTl\ed . The suit for damages either with the proper court or with the
ra~rance Commissioner should be filed within one year from the
th~ ;a~e of the denial of the cl~im by th~ insurer, otherwise claimant's .
lltn1t
right of action shall prescribe (Section 384, Insurance Code, as
amended. by Sec. 4, B.P. 874; Vda. de Gabriel vs. CA, 264 SCRA
137).
The prescriptive period to bring. suit in court under an insurance
policy begins to r~n from the date of !he insurer's rejection of the
under an insurance contract. This ruling is premised upon the
,-,urq compliance by the persons suing under an insurance contract with
bu&. the indispensable requirement of having filed the written claim.
Absent such written claim filed by the person suing under an
,,
insurance contract, no cause of action accrues under such insurance
contract, considering that it is the rejection of that claim that triggers
the running of the one-year prescriptiv~ period to bring suit in court,
and there can be no opportunity for the insurer to even reject a claim
if none has been filed in the first place (Travellers vs. CA, 272 SCRA
536).
}· Applicability
The compulsory third party motor vehicle liability insurance
provision of the Insurance Code is applicable to motor vehicles
owned by the U.S. Government (Opinion 73 , Secretary of Justice,
May 17, 1976).
The right of the person injured to sue the insurer of the party at
fault (insured) depends on whether the contract of insurance is
intended to benefit third persons also or only the insured. And the
~.est appli~d has been this: Where the contract provides for
indemnity against liabil_ity to third persons, then third persons to
. for indemnity against actual loss or payment, then third persons
c~nnot proceed against the insurer, the contract being solely to
reimburse the insured tor liability actually discharged by him thru
i'a~ment to third persons, said third persons' recourse being thus
1m1ted to the insured
alone (Guingon vs. Del Monte, 20 SCRA 1043).
_In a case arising from a vehicular collision where the driver, the ·
registered owners, the beneficial owners and the insurer were sued,
 INSURANCE
t 16 tered into between the plaintiff
ise agreemen.t e~ssal of the case as against the~nd ~
a com~ultinQ in the dis~~ of the other defendants (lmson 1nsu,-
1nsurer nd to the t>ene vs. C~
did r,otredOU
scRA59).
239 . , License as Affecting Recovery
3. expired onver s
. lation ticket of a driver of a· vehicle inv011,
An expired traffic via provision of an accident insurance 8d
in an a~ent violates a
covered jeepney must be a hoId er of a ValidPoliri.
_,.;A
that the dnver of 8. driver's license, and prevents liability t!_~
~,
· · profess 10 1
. h na·nsurer (Gutierrez
·
sut>stsUng vs. Cap1'ta I, 130 SCRA 100 "um)
attaehing against t e ,
. . t a valid driver's license because of his sta .
1th0
A ~~1g_ner ~ uore than 90 days is disqualified to drive an/0:
the Ph1llppmesfuor; pay if the insured car is involved in an accident
insurer may re se 127 SCRA 766).
(Stokes vs. Malayan,
h wever the driver of the involved vehicle is the insurec1
. Wh;re~/ qualm~ driver requirement is not a prerequisite to
=eiy (Palermo vs. Pyramid, 161 SCRA 677).
Question: Rick de la Cruz insured his passeng er jeepney With
81
~tic Insurers, Inc. The policy provide~ t~at tht: auth~rizeq driver
of the vehicle should have a valid and ex1~tmg dnver's //~nse.
passenger jeepney of Rick de la ~ruz which _was. at the time dnven
!he
by Jay Cruz, figured in an acc,d~nt resultmg m the d~ath of a
,passenger. At the time of the accident, Jay Cruz was licensed to
drive but it was confiscated J:JY an L TO agent who issued him a
Traffic Violaoon Report (TVR) just minutes before the accident
Could Asiaac Insurer, Inc. be made liable under its policy? Why? _
Answer: Yes, Asiatic can be made liable under its policy.
Jay Cruz is still considered to have a valid and existing drivers
license, which is not expired, even if his license was confiscated ju~
minutes before the accident. The TVR issued to Jay Cruz IS
equivalent to his confiscated driver's license (See Gutierrez vs.
Capital, supra).
~ .Quest/~: Sherly insured her newly acquired car, a Niss~n
ax,ma,, 8.{!amst any loss or damage for P50, 000 and again5 l th ' rd
:'!/:~ilit y . for P20,000 with the XYZ Insuranc e Co~p. (XV!-)~
... • .policy, the car must be driven only by an authonze d driV6
•YIIO 1s etthe,. (1) th . . . 0 n thB
· e insured, or (2) any person dnvmg
INSURANCE
117
. red 's order or with his permission, provided that the person
,n~u. g is permitted in accordance with the licensing or other laws or
dnvmgulations to d nve · th e mo tor vehicle
· · not disqualified from
and ,s
0' .rB.ng
such motor vehicle by order of the court During the
dnv1
ffi ctiVitY of the p~1·icy, th e car, then dnven
. .
by Sheryl herself who
8
a~ no driver's hc~nse, met an accident and was extensively
~amaged. The . estimated cost of repair was P40,000. Sheryl
immediately notified X~, but the latter refused to pay on the policy
alleging that S~eryl violated th~ terms thereof whf!n she drove it
without a drivers hcense. Is the msurer co"ect?
. Answer: N~, the i?surer is not ~rrect. The authorized driver
requirement m car insurance apphes to persons o.t her than the
insured himself.
.
In the problem above, the insured herself, Sheryl, was the driver
of the car at the time of the accident. The authorized driver
requirement does not apply to her, and the car damage of P40,000,
being within the P50, 000 loss or damage limit set in the policy,
Sheryl can recover the said amount even if she had no license at the
time of the accident.
Sar Question: Mayari obtained a comprehensive insurance policy
on his car. The policy carried the standard "authorized driver" clause
which states that the insurance company is not liable for any loss,
accidents, or damage sustained while the car is being driven by
someone other than a duly authorized driver. One day, Mayari
allowed his friend, Kaibigan , to drive the car. Kaibigan figured in a
mishap and the car was a total loss.
Kaibigan has been driving for the past five years but it appears
that his driver's license was irregularly issued because he cannot
read nor write; neither did he take any of prescribed driver's tests.
After the initial license was issued, he merely asked his wife to go to
the LTC office to get a renewal of his license. Mayari did not know
about the irregularity in the driver's license of Kaibigan.
Can Mayari recover ~n the insurance policy? Explain.
Answer: Mayari cannot recover on the policy. Kaibigan possessed
an i"egularly issued license which is not at all a valid license. At the
time of the accident, the insured car was driven by a person who was
~ot an authorized driver, and therefore violates the "authorized driver
~icense• provisions of the policy, entitling the insurer to f!3SCind the
insurance contract.
4. Effect of Insurance Paid to Injured Passenger
 INSURANCE
118
. . red passenger from the compui
'd to an inJU h. I . sory ,1..
insurance psi e of the motor ve ,c e is credited uii~
liability eover89 ge of the owner for the offense of h' to t~e
~:idi8,Y 1;abililY co~;;scRA 958). is driver
~de caliston vs. CA.
F. suicide
. life insurance contract shal.1 be liable in
The insurer in ~t . committed after the policy has been ?ase
1 1
suicide ~ly wtien ,sears trom the date of its issue or of ~ force
to~ a period t~::the policy pr~vides a shorter ~eriod, Pro~~ast
reinstatemen • . 'de committed in the state of insanity sh 8d,
11
tiowever, that sui~less of the date of the comm ission (Insert~ be
com~nsaboleAregby~ection 3 of B.P. 874). . as.
5eet1on 18 - · insuran~e f~a~d must b~ _rewarded, ~ut that insurers who recklessly
est/on: s Insurance Company issued a Persona/ Accident
Ba~ Qu Bob Tan with a face value of P500,000. 00.
~~Y,! evening of September 5, 1992, after his bi'!hda~ party, Tan
. hanp,v mood but not drunk. He was playmg with his ha""
was in a ,, , . I d th . ""
un, from which he pmv1ous.Y. remove e _magazme. As his
~tary was watching telev1s1on, .he ~tood m f,:ont of her ana
:~ed.• ted the gun at her. She pushed it aside and said that it may be
He assured her that it was not and t~en pointed it at his
temple. The next moment, there was an explosion and Tan slumped
to the floor lifeless.
The wife of the deceased sought payment on the policy but her
claim was rejected. The insurance company agreed that .t~ere was
no suicide. However, it was the submission of the insurance
company that there was no accident. In support thereof, ff
contended (a) that there was no accident when a deliberate act was
performed unless some additional, unexpected, independent and
unforeseen happening occur which produces or brings about the
injury or death; and (b) that the insured willfully exposed himself to
needless peril and thus remo.ved himself from the coverage of the
insurance policy. Are the two contentions of the insurance company
tenable? Explain.
Answer: No, the two contentions of the insurance company Bf9 not
tena~le. Even if the act of the insured was deliberate it may still bB
~ns~ered an accident happening by chance or fortuitously, without
: ent,on or design, and which is unexpected and · unforese~n,
to cause he removed the magazine so it is clear he had no intentlO(I
expose himself to peril. He can be considered grossly negligent,
INSURANCE 119
bUt in such case, the insurer is still liable (See Sun vs. CA, 211
scRA 554).
G. 1ncontestablllty Clause
The.incontestability ~lause serves a ~oble purpose, as it regulates
the actions of both the ,ns.u~er and the insured. An insurer is given
two years -f~om ~he effec_t1v1ty of a life insurance contract and while
Of the insur~d 1s ~hv~ -to discover or prove that the policy is void ab
initio or 1s res~ind1ble by .reason of th~ fraudulent concealment Qr
misrepresentation of the 1~s~red o~ his agent. After the two-year
period lapses, or when the ,~sured dies within the period, the insurer
must make good on the poh~y, even though the policy was obtained
by fraud, concealment, or misrepresentation. This is not to say that
and ind1scnm1nately sohc1t and obtain business must be penalized ,
for such recklessness and lack of discrimination ultimately work to
the detriment of bo~a fide takers of insurance and the public in
general. lndee~. the intent to defraud on the part of the insured must
. be ascertained to merit rescission of the insurance contract.
concealment as a defense for the 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 (Sunlife vs. Sibya, 793 SCRA 45).
Bar Question : The "incontestability clause" in a Life Insurance
Policy means ---
a) that life insurance proceeds cannot be claimed two (2) years after
the death of the insured. ·
b) that two (2) years after date of issuance or reinstatement of the life
insurance policy. the insurer cannot anymore prove that the policy is
· void ab initio or rescindable by reason of fraudulent concealment or
misrepresentation of the insured.
c) that the insured can still claim from the insurance policy after two
(2) years even though premium is not paid.
d) that the insured can only claim proceeds in a life insurance· policy
two (2) years after death.
Bar Question: Renato was issued a life insurance policy on
January 2, 1990. He concealed the fact that three years prior to the
issuance of his life insurance policy, he had been seeing a doctor
about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file
a claim on the proceeds of the life insurance policy of Renato?
 INSURANCE
INSURANCE
120 121

. · f Renato may file a claim on the P M npower. Phoenix refus_ed to pay. May X's beneficiary invoke the
r,swer. Yes, the heirs_~ The insured died more than twroc8ec1s in~ntestability clause against Phoenix? Reasons.
A _, life insurance polh,cpol
of . ,·cy hence the insurer cannot res 0. Yea~
u,.., tMtY oft e ' • Ctnd fJ..
aftBr thee~ was concealment. The incontestability ctalJ •~ Answer: Yes, the beneficiary of X may invoke the incontestability
,.,.,,;cy even if thef9 a ties. se in clause. . . .
,.,..,. . ranee contracts pp
life ,nsu While ,t ts t~ue that the master poltcy contained an exclusionary
. . Roberto took out a life insurance pofic clause (excluding from coverage employees working less than 30
s,, Quest/On. !ttycorp. (DIC) on _September 1, 1989. On from Xu hours), X filled up ~n enrollment card where his personal
circumstances and workmg schedule were obviously contained. The
the Dans lns:;died. DIC refused to pay his beneficiaries bec:'1st
! vi
~1, _1990, th t Roberto had misrepresented certain material
~ d~ve f
;se
The beneficiaries sued on the basis that DIC cts
failure by Phoenix to exclude X, who insteaa was issued a certificate
of coverage, is deemed as a waiver by Phoenix of said exclusionary
:::tr:validfty of the ~nsuran~ policy only ~ithin two (2) ye: clause.
Hence, the beneficiary of X can recover under the policy.
from date of issue and dunng the ltfet,me of the insured. Decide the
case. Fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract. In the absence of proof of
Answer. The benef,ciaries of Atty. Roberto cannot recover from such fraudulent intent, no right to rescind arises. (Manila vs. Aban,
Dana Insurance Corporation. . . . 702 SCRA 417)
It is true that in life insurance poltc,es the msurer cannot invoke
the material misrepresentation of the insured to rescind the contract An insurer is given two years - from the effectivity of a life
after the lapse of two years from the date the policy became insurance contract and while the insured is alive - to discover or
effective, because of the incontestability clause. prove that the policy is void ab initio or is rescindible by reason of the
In the problem above, the material misrepresentation of the fraudulent conce~lment or misrepresentation of the insured or his
deceased insured,was discovered by .the insurer within the two'year agent. After the two-year period laps~s. or when the insured dies
period from the effectivity of the policy. The two year period is not within the period , the insurer must make good on the policy, even
shortened by the death of the insured .within that period. though the policy was . obtained by fraud, concealment, or
The beneficiaries of Atty. Roberto cannot therefore recover. misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit
Ba~ Questi_on: M;npower Company obtained a group life insurance and obtain business must be penalized, for such recklessness and
policy for its employees from Phoenix Insurance Company. The lack of discrimination ultimately work to the detriment of bona fide
mas~e'. policy issued by Phoenix on June .1, 1986 contained 8 takers of insurance and the public in general. Section 48 regulates
~rovr5ron that eligible employees for insurance coverage were all full both the actions of the insurers and prospective takers of life
me employees of Manpower regularly working at least 30 hours per · insurance. It gives insurers enough time to inquire whether the policy
~eek. . The policy had also an incontestable clause. Beforehan_ d, was obtained by fraud , concealment, or misrepresentation; on the
t°:mx sent enrollment cards to Manpower for distribution to ns ?ther hand, it forewarns scheming individuals that their attempts at
~::. e~ployees. X filled out the card which contained 8 P1n.t ~ insurance fraud would be timely uncovered - thus deterring them
from venturing into such nefarious enterprise. At the same time,
under ~aid ;~uest t~e insurance for which J may become e(tgi~d
X wa up Policy. n The cards were then sent to Phoenix 8 legi~imate policy holders are absolutely protected from unwarranted
s among the I . . sued a denial of their claims or delay in the collection of insurance proceeds
certificate of emp oyees of Manpower who was ts 0 ~casion~d
coverage by Pho . by allegations of fraud , concealment, or
0n July 3, 1988 X . emx. . . (heir misrepresentation by insurers, claims which may no longer be set up
house. While ' ~as killed on the occasion of a robbery_ ,n und after the two.year period expires as ordained under the law. Thus,
out that x w:rocessmg the claim of X 's beneficiary, PhoentX fo ,n ~he self-regulating feature of Section 48 lies in the fact that both the
.
polrcy s not an e1,· 'bl
since he h . the gro 11r
g, e employee as defined m k bY insurer and the insured are given the assurance that any dishonest
as not been employed 30 hours a wee
 INSURANCE
122
. n insurance would be exposed , and attem t
scheme to ~btam ~~m would be struck down . Life insurance p~·s. at
unduly denying a ~t~ry tvio-year period are essentiall y treat~Ctes
sta
that pass the d question, and the individuals who wield th as
nd
legitimate a bei~the thought that they will be paid promptly u ern
ar~ made s~ure nner Section 48 contribute s to the stability of POn
~la1m. In t~tsd mtary ~ction 48 prevents a situation where the insutne
insurance m us • • rer
. ti'nues to accept annua 1 premium payments on .,
knowing 1y con • th . 1he
. only to later on deny a c 1aim on e policy on speciou
insurance,
. f fraudulent concealmen t an d m1srepres · .
entat1on. The
s two-year period mandated under Section 48, and not after claims for
cl aims O · · · I th t ft
incontestability clause is a prov1s1on in aw . a a er a policy of life
. ranee made payable on the death of the insured shall have been
msu · df · d o f two
in force during the lifetime of the in.sure or ~ peno (2) years
from the date of its issue or of its last reinstatem ent, the insurer
cannot prove that the policy is void .ab initio or .is rescindible by
reason of fraudulent concealment or mIsrepres entatIon of the insured
or his agent. The purpose of the law is to give protection to the
insured or his beneficiary by limiting the rescinding of the contract of
insurance on the ground of fraudulent concealm ent or
misrepresentation to a period of only two (2) years from the issuance
of the policy or its last reinstatement. The insurer is deemed to have
the necessary facilities to discover such fraudulen t concealme nt or
misrepresentation within a period of two (2) years. It is not fair for the
in~urer to collect the premiums as long as the insured is still alive,
only to raise the issue of fraudulent concealm ent or
misrepresentation when the insured dies in order to defeat the right
of the beneficiary to recover under the policy. At least two (2) years
from the issuance of the policy or its last reinstatem ent, the
~eneficia~ is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year
1
PE:riod should commence in case the policy should lapse and is,
rein stated, that is, from the date of the last reinstatem ent. After twO
years, th e defenses of concealment ·or misrepres entation, no matter
~ow paten~ . or well-founded, will no longer lie. · The so-called
d ~onte sta bIhty clause precludes the insurer from raising the
• e efnses of false representations or concealm ent of material facts
inso ar as health · adhesion which must be construed liberally in favor of the insured
ins and previous diseases are concerned 1'f the
urance has bee • . f d • g
insured's lit . n in orce for at least two years unn the at
the Policy ise~~f · The phra~e "during the lifetime" simply meansd~:d.
The key phra ?nger considered in force after the insured has ·od
of two years s(~ in ~lhe second paragraph of Section 48 is for a pen
. ani a vs. Aban, 702 SCRA 417)
INSURANCE
123
The insurer would have ?isco~ere? the scheme earlier if it had in
earnest conducte~ an mvest1gat1on into the circumstances
surrounding the policy. B.ut because it did not and it investigated the
account only ~fter a claim was filed thereon more than two years
later, naturally ,twas unable to detect the scheme. For its negligence
and inaction, the C~urt cannot sympathize with its plight. Instead, its
case precisely pro~1des _the _strong argument for requiring insurers to
diligently conduct investIgatIons on each policy they issue within the
insurance proceeds are filed with them. (Manila vs. Aban, 702 SCRA
417)
If insurers cannot vouch for the integrity and honesty of their
insurance agents/sal esmen and the insurance policies they issue,
then they should cease doing business. If they could not properly
screen their agents or salesmen before taking them in to market their
products, or if they do not thoroughly investigate the insurance
contracts they enter into with their clients, then they have only
themselves to blame. Otherwise said, insurers cannot be allowed to
collect premiums on insurance policies, use these amounts collected
, and invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter conveniently
deny insurance claims by questioning the authority or integrity of
their own agents or the insurance policies they issued to their
premium-paying clients. This is exactly one of the schemes which
Section 48 aims to prevent. (Manila vs. Aban, 702 SCRA 417)
Insurers may not be allowed to delay the payment of claims by
filing frivolous cases in court, hoping that the inevitable may be put
off for years - or even decades - by the pendency of these
unnecessary court cases. In the meantime, they benefit ·from
collecting the interest and/or returns on both the premiums
previously paid by the insured and the insurance proceeds which
~hould otherwise go to their beneficiaries. The business of insuran~e
~s a highly regulated commercial activity in the country, and 1s
imbued with public interest. An insurance contract is a contract of
~nd strictly against the insurer in _order to safeguard the farmer's
interest. (Manila vs. Aban, 702 SCRA 417) ·
Bar Question : On Septembe r 25, 2013, Danny Marcial (Danny)
Procured an insurance on his life with a face value of P5,00~,00~ .oo
from RN Insurance Company (RN), with his wife .Tina Marcial (Tma)
as so/a beneficiary. On the same day, Danny issued an undated
 INSURANCE
INSURANCE
tl4 t of the premium. On Octob 125
tor the full sm~un Danny's life ins_urance. On~ 1, <Oia
check to;%e policy cove~;gaccident and died. Tina ciatt0be, , cts are called contracts of adhesion beca h
contra f th th rt .
RN 1ssu snnY met s trai was quick to deny the claim be~8rJ In~5 rticipation o e o er pa y is the signing of, his signature
use t e only
or his
2013, De benefit, but R th the check was not yet encashau.,, •t ~adhesion " ther~to. Insurance con~racts , bills of lading, contracts of
. suranc y's dea , a le of lots on installment plan fall into this category. It is sought to
,n ;me of osnn . remained unpa1'd. .
8rJ •
and
th6 t the premium ~: accepted or adhered to by the other party, who cannot change
answer be the same if the check .
therefore ,reef? Will your is rJa1 same and wh~ are thus made to adhere thereto on the 'take it or
Is RN cos 2013? the ii' basis (Ruiz vs. CA, 401 SCRA 410)
8fJ ~~ .
Qctob8f 1 ,
rrect It should have dated the ch
wer : RN is n3ot cnod en;ashed the same immediately eek Oti 11 is an establ_ish~d rule !n
!~surance contracts that when their
AS terms contain hm1tat1ons on ha~1hty, they should be construed strictly
Snptember 25'. 201 'the a
premiums. Hence I·t cannot deny · RN is against the insur~r. These are contracts of adhesion the terms of
:nsidered paid ?n ceiving the premium is RN's fault. · tina•s which must be interpreted and enforced stringently against the
claim. The delay:a:d October 5, 2013, RN can deny the • insurer which prepared the contract (Blue vs. Olivares,
544 SCRA
If the cheCI< is . has not been paid and there is no sh O
because the premi~;e policy will be valid even if premium h 0Wing
'~'"1 580).
that RN agreed tha . as not While it is a cardinal principle of insurance law that a policy or
been paid. · contract of insurance 1s to be construed liberally in favor of the
f Insurance Contract insured and_strictly as against the insurer company, yet, contracts of
II. Perfection o ·nsurance, like other contracts , are to be construed according to the
~ense and meaning of the terms, which the parties themselves have
A. Contract of Insurance
used. If such ter~s ar~ clea_r and ~nambiguous, they must be taken
·insurance is an agreement whereby one undertak and understood in their plain, ordinary and popular sense (Lalican
A contracI of . th . t I . es vs. Insular, 597 SCRA 159).
for a consideration to indemnify ano ;r ag~ms ~ss, damage or
liability arising from an unknown o~fcohn mgent .evden_. A ~ntract Of
h' I·s an insurance contract I t e sure y 1s 01ng an insurance In contracts of adhesion, the parties do not bargain on equal

business
ec
sun~tys ip(S 2 [1] Insurance Code; Philamcare vs. CA, 379
· • sec,IVI
356).
An insurance contract exists where the following elements concur.
(1) The insured has an insura~le interest; (2)_ The insure.d is subject
to a risk .of loss by the happening of the designated penl; (3) The
insurer assumes the risk; (4) Such assumption of risk is part of a
general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and (5) In consideration of the
insurer's promise, the insured pays a premium (Philamcare vs. CA,
supra)
Where there was no perfected contract of insurance, the insurer
cannot be -held liable on the contract that does not exist (DBP vs.
CA. 231 SCRA 370). . favor of the insurer.
There are certain contracts almost all the provisions of which have
been drafted only by one party, usually a corporation. Such
footing, the weaker party's participation being reduced to the
alternative to take it or leave it. Thus, these contracts are viewed as
traps for the weaker party whom the courts of justice must protect.
Consequently, any ambiguity therein is resolved against the insurer,
or construed liberally in favor of the insured (Gulf vs. Phil. Charter,
458 SCRA 550).
Bar Question : An Insurance Contract is a contract of adhesion,
which means that in resolving ambiguities in the provision of the
insurance contract, ---
a) the generai rule is that, the insurance contract is to be interpreted
strictly in accordance with what is written in the contract.
b) are to be construed liberally in favor of the insured and strictly
against the insurer who drafted the insurance policy.
c) are to be construed strictly against the insured and liberally in
d) if there is an ambiguity in the insurance contract, this will
invalidate the contract.
 INSURANCE INSURANCE
127
)26
t should be so i~terpreted as to carry out t
A insurance contrac rt' s entered into the contract Which . he o. No, s;nee it is in fact an innominate contract between x and y
~se for which the pa ,eor damage to the goods. Limitatio~s to Effectivity of Policy

should be
~~~!cJ
fn~ure against risks of
·ability reg ay
with extreme jealousy ~nd musts~
as to preclude the insurer f
e.
!1 · such w
a bl'gations 1. General Rule
construed tn . . (DB p vs. Rad'to, 480 SC RA 314)
ron,
noncompliance with ,ts o ' . Notwithstanding a~y agreement . to the contrary, no policy or
ce an insured makes o~t a prima facie ca
In insurance cases, onf evidence shifts to the insurer to controv se con tra
ct of insurance issued by an insurance company is valid and
. the pr~m,~
inding until. · m the ~eof h b · except !n
· the case
as een paid,
in its favor, the ~urd ~n ?e case. An !nsurer who seeks to defeai8rt ~f a life or industrial ltfe poltcy whenever the grace period applies
the insured's pn~a a~~ception or limitation in the policy has th a (Section 77, Insurance Code). .
claim because ~ h~n that the loss comes with in the purview of th8
burden of estab_lts .1ng .. e
exception or lim1tat1on (lbtd.). Where a fire policy was issued without payment of premiums, but
which premiums five ~o~ths l~ter were ~aid to an authorized agent
ine if a contract is an insurance contract or not f the insurer, the poltcy 1s valtd and the insurer is liable for the- loss
The test tO determ · th t ·
depends on the nature of the promise, e af . rfhqu1red to be . ~aking place after said payment (Malayan vs. Arnaldo, 154 SCRA
performed, and the exact nature ~f the ~greemen 1~ e 'i~t of the 672).
occurrence, contingency, or c,r~umstabncesh tu~t _er wll ich the
performance becomes requisite. It 1s no y w a 1 1s ca ed (White The phrase "unless there is a clear agreement to grant the insured
vs. Pioneer, 464 SCRA 448). credit extension of the premiums due" found in Act 2427 is deleted
from the Insurance Code (Velasco vs. Apostol, 173 SCRA 228).
Bar Question : On June 1, 2011, X mailed to Y Insurance, Co. his
application for life insurance, with pay'!'ent for 5 years of premium The actual payment of premium is a condition precedent to the
enclosed in it. On July 21, 2011, the msurance company accepted validity of an insurance contract (Ayala vs. Ray. Burton, 355 Phil.
the application and mailed, on the same day, its acceptance plus the 475).
cover note. It reached X's residence on August 11, 2011. But, as it
happened, on August 4, 2011, X figured in a car accident. He died a Under the GSIS Law, the retired employees earned a vested right
day later. May X's heirs recover on the insurance policy? under their contract of insurance after they religiously paid premium
A. Yes, since under the Cognition Theory, the insurance contract to GSIS (Betoy vs. The Board, 658 SCRA 420).
was perfected upon acceptance by the insurer of X's application.
B. No, since there is no privily of contract between the insurer and In a pension plan, where the employee participation is mandatory,
X's heirs. the prevailing view is that employees have contractual or vested right
C. No. since X had no knowledge of the insurer's acceptance of his in the pension where the pension is part of the terms of employment
application before he died. (GSIS vs. Monteclaros, 478 Phil. 573; GSIS vs. De Leon, 635 SCRA ,
D. Yes, since under the Manifestation Theory, 'the insurance contract 321). ·
was perfected upon acceptance of the insurer of X's application.
The rei~statement of the insured's policy is to be reckoned from
Bar Question : In return for the 20 years of faithful service of X as 8 ~he date when the application was processed and approved by the
ho~sehelper to Y, the latter promised to pay Php100 000.00 to X's insur~r. To reinstate a policy means to restore the same to
~e1rs if he (X) dies in an accident by fire. X agre~d. Is this an Premium-paying status after it has been permitted to lapse. (Insular
insurance contract? . vs. Khu, 789 SCRA 544)
A. Yes, since all the 8 / • · t
a. y,es, smce
. ·
X' service
ements of an insurance contract are presen ·
b .
C. No since y s may e regarded as the consideration.
• actually made a conditional donation in X's favQL
 INSURANCE
128
2. Exceptions
. d Industrial Life Policy
a. Life an.
. 1. surance laws is that unless the prerniu .
The general rule in \c is not valid and binding. The 111 IS
paid the insurance pondy industrial life insurance (UCPB only
' • are life a
exceptions 356 SCRA 307).
vs
. Pa rtia ayment Made at the Time of Loss
Masagana, •
b. Written Acknowledgment of the Receipt
of Premium by Insurer
1 certificate issued to respondent contained the
The ~=t::nt that premium had been paid.__It is not disputed !hat
ackno ~ n by respondent in favor of pet1t1oner and delivered lo
!he chec~ ra; honored when presented and petitioner forthwith
::u:ei~s o~cial receipt to respondent. Section ~06 of ~he Insurance
Code provides that any insurance company which _delivers a policy
or contract of insurance to an i~surance agent or insurance broker
shall be deemed to have authonz~d such_ag~nt or broker to receive
·ts behalf payment of any premium which 1s due on such policy°"
on I f. . d 1·
contract of insurance at the time o its issuance or e 1very or which
becomes due thereon [Malayan vs. Arnaldo, supra). In the instant
case the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for ~he payment. It
is bound by its agent's acknowledgment of receipt of payment
(American vs. Chua, 309 SCRA 250).
Section 78 of the Insurance Code explicitly provides: M
acknowledgment in a policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid. This Section
establishes a legal fiction of payment and should be interpreted as
an exception to Section 77 (UCPB vs. Masagana, 356 SCRA 307).
Bar Question:· Josie Gatbonton obtained from Warranty Insurance
Corporation a comprehensive motor vehicle insurance to cover h8f
?rand new automobile. She paid, and the insurer accepted payment
1
.n check. Before th6 check could be encashed, Josie was involve:
ma motor vehicle accident where her car became a total w~ck..5\
sought pa~ment from the insurer. Could the Insurer be made /lab!
under the insurance coverage?
INSURANCE
129
swer: Yes, the insurer can be made liable .
.Allverage. The fact that the insurer accepted th~nder the insurance
co acknowledgement that the premium has b che~k payment is
;~licY is binding (See American vs. Chua, 309 S~;f;:O/ence the
c. Payment in Installments of the p .
. 1p rem1um and
A third exception where Section 77 may not appl . .f h .
have agreed to the payment in installments of thye is I t ~ parties
t h b premium and
parti~I paymen . as e~n made a_t the time of loss. The sub·ect
Policies are valid even 1f the premiums were pa·id on ins • t J
a 11 ments
The records c_learl~ show that th~ ~etitioners and private respondent
inten~ed su~Ject insurance policies to be binding and effective
notwithstanding the staggered . payment
. of the premiums . Th e IOI
• •t·18
1
insurance con trac t en tered into in 1982 was renewed in 1983 th •
1984. In those three years, the insurer accepted all the install~:~~
payments.. Su_ c h acceptance of payments speaks loudly of the
insur~r's inte~t1on_ t~ honor th~ policies it issued to petitioner.
Certainly, bas1~ principles _of equity and fairness would not allow the
in~urer t? continue collecting and accepting the premiums, although
paid on installments, and later deny liability on the lame excuse that
the premiums were not prepaid in full.
_While th~ import of Secti?_n 77 is that prepayment of premiums is
stnctly required as a cond1t1on to the validity of the contract the
request to make installment payments duly approved by the in~urer
would not prevent the entire contract of ·insurance from going into
effect despite payment and acceptance of the initial premium or first
installment. Section 78 of the Insurance Code in effect allows waiver
by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as
conc~usive evidence of payment so far as to make the policy binding
despite the fact that premium is actually unpaid. Section 77 merely
precl~des the parties from stipulating that the policy is valid even if
prem~ums are not paid, but does -not expressly prohibit an agreement
granting credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy. So is an
understanding to allow insured to pay premiums in installments not
so proscribed. At the very least, both parties should be deemed in
~~toppel to question the arrangement they have voluntarily accepted
CPB vs. Masagana, 356 SCRA 307).
 INSURANCE
tJO C 131
. sula Insurance ompany offered to .
uestJon: The pen,nainst all risks in th~ sum of Pt Millio tnso~
Bar~ , brand new csr _ag d with the premium fixed at p 60 for 1
Francisn,e policy was issu;rancis only paid the first two ' 0o.OQ
3 bfO ver on the insurance policy?
yesr.ble in 6 mont~s. demands, he failed to pay the subsmol'llhs
fn8;',!11ments. D~5PI:onths after the issuanc_e of the Poli~"eni
. tsllments. Fwe Francis filed with the msurance com • the
,nshic/6 wss camapped. ve, the company denied his claim Pany a
ve Jue Howe , It. • th on u.
claim for its vs : to pay premium resu mg m _e canceflatio ~,e
ground that he tailed 5 recover from the Penmsula lnsu n Of
the policy. Csn Franc, ranee
eompeny?
·nsurance company is liable since the 1
Answer. Yes, ;e;. month which is within the agreed six-m °Ss
0 r d·
happened on :nt. The partial paymen_t made b~ Francis Prior to:
"!3riod of paym
1
s makes the liability shift to the!nsurer. The Part;
t,me of lhe ':stitute payment by inst~llment which ~as duly ag~
payments co rties The basic pnnc,ples of equ,ty and faime
upon by the. pa · t· II t' d · SS
II w the insurer to con mue co ec mg an acceptin
woul~ not a,::,ough paid on installments, and ~at~r deny liability~
premwms, a e that the premiums· were not paid m full.
the lame excus
d. Credit Extension fo~ the Payment of the Premium
There is a fourth exception to Section 77, namely, that ~he insurer
may grant credit extension for the payment of. the premium. This
simply means that if the insurer has granted the insured a credit term
for the payment of the premium and loss occu~s before the expiration
of the term, recovery on the policy should be allowed even though
the premium is paid after the loss ~u~ within the ~_re~it term_. There is
nothing in Section 77 which proh1b1ts the parties in an insurance
contract to provide a credit term within which to pay the premiums.
That agreement is not against the law, morals, good customs, public
order or public policy. The agreement binds the parties. It would be
unjust and inequitable if recovery on the policy would not be
permitted against the insurer which had consistently granted a 60-to-
90-day credit term for the payment of premiums despite its full
awareness of Section 77 (UCPB vs. Masagana, 356 SCRA 307).
Bar Question: Alfredo took out a policy to insure his ·commercial
building against fire. The broker for the insurance company agreed to
give a 15-day credit within which to pay the insurance premium.
Upon delivery of the policy on May 15, 2006, Alfredo issued 8
poStdated check payable on May 30, 2006. On May 28, 2006, a fire
INSURANCE
ke out and destroyed the _building owned by Alfred May Al1,,
,eco
o. ",900
nswer: Yes, Alfr~do may recover on the insurance /' Th
~surance company s act of gra?ting a 15-day credi':°t~°:;, is :
nized exception to the provIsIons of Section 77 of th
reCog b' d' u t f . . e 1nsurance
code on the m mg e11ec o pohc1es upon payment of the premium.
(See ucPB vs. Masagan_a , 356 SCRA 307). Hence the ,. .
valid even if the premium 1s not paid. , po icy 1s
e. Estoppel
Estoppel bars insurer from taking refuge under Sect·,on 77 ·
d f ·h since
respondent re !e '" goo. a1t on such practice. Estoppal then is
the fifth exception to Section 77.
Bar Question: On Dec. 17'. 1975, a fire policy, insuring a building
and its con_tents, was dehvered to the insured company. By
agreement, It ~as ~/lowed to pay the premium within 30 days. on
Jan. B, 1976, ,t paid the premium by means of a check postdated
Jan. 16, 1976. The check was deposited by the insurance company
only on Feb. 20, but_the check bounced, although on January 19, the
insured had a _s ufficient bank balance. On January 18, two (2) days
after the prem,um became due, the insured property was burned and
became a total loss.
Can the insurance company cancel the policy for non-payment of
premium? Give reasons for your answers.
Answer: Yes, the insurance company can cancel the policy. Non-
payment of the initial premium prevents the flOlicy from taking effect.
In the problem, however, that the insured was extended credit for 30
days which it complied with the issue of a check 'postdated within the
said period, will not operate to make the policy effective, because the
clause of "unless there is a clear agreement to grant the insured
credit extensionn found in Act 2427 has been deleted in the
Insurance Code. This means that the policy is not valid and binding
until the premium (initial) is paid.
Bar Question: "A» insured his house against loss by fire for
P100,000.00. The policy provides that the insurer shall be liable "if
the property insured shall be damaged or destroyed by fire after the
payment of premium, at anytime, from June 15, 1976 to June 15,
1977. • The policy was delivered to "A " on June 14, 1976. Instead of
paying the premium in cash, "A · issued a promissory note dated
 INSURANCE
t32 INSURANCE
.

15 1976, for me a; ount of the prem ium payab le w· .

ted On June 29, 1976, the ' th'" Jo
Jun: The note was; ~ i~su~ r refused to pay In a non-life insurance, the named insured shall
133

be entitled to
on the gro~rollerty
~ay ~ was bumed. n paid and the note did not have th nd that
renew the policy upon paym ent of the premium
due, unless 45 da s
't~~upremium h~d not bee,,ad not been realiz ed at in advance be!ore the ~nd of the original period
the time th:heff9ct , the insurer notifi !s
t as ,ts va1ue the insured of its intention not to renew (Section
of paymen Decide with reasons. ou •• 66, Ibid.).
wasbumed. ..,
. The claim of _the insurer. that the policy was cance
. h t the insurer is not /table . The accepta lled is without
rnerit, it not havin g been shown that written_notice
Answer. I submit ~~at ed promissory :1ote is not a was received by
paym entce by the insured, nor the requirements of a vahd
the insurer of th 9 f was not valid and bindin g at cancellation complied
Hence , the po1,cy the time of los with by the insure r (Mala yan vs. Arnaldo, 154 SCRA
s. 672).

. Enri ue obtained fromSegu ro lnsur ~nce Compan

c. Premium
sar Questio_n qtor vehicle insurance to cove r h,s top of the Y
rehens1ve mo . a 1. Premium Defined
comP . Th policy was ,ssue d
on M arch 31 , 2010 ana me
1
Aston Martm .Enri~ue paid the prem ium with
even da~eA .
a persona/ ch~~ An insura nce prem ium is the consideration
paid an insurer for
16 2010. on April 5, 2010, the car was involved in undertaking to indem nify the insured against
pos~datet th ptnres~lted in its tota/lo ss. On April 10, a specified peril (Gulf
acc1den a 2010, the drawaeen vs. Phil. Charter, 458 SCRA 550).
· · h th t f
bank retumed Enrique's che?k w,td . tel nod a ,on_t"Idnsudd
ffl ·
tifica tion Enrique ,mme ,a e y epos, e a 1~1~nt Funds.'
1t1onat funds The prem ium, also called the gross premium,
Upon no ' · t d consists of two
. with the bank and asked th~ insure r ho ~ epos,'t Ith ethch~ck. Enrique parts: the net prem ium which is th~ sum paid
periodically to meet
imed indem nity from t e insure r. s the cost of the ins~ra nce and carry 1t from period
thereupon Cla e insurer liable to period , and the
under the insurance coverage? Why or w hy no t?. loading rate which answ ers for administrati
on, mana geme nt,
operating expen ses and profits of the insurer.
Answer. The insurer is not liable. Secti on _77 of the
ln~urance Code 2. , Duty to Pay Premium
provides that no policy or cont~ ct . of ms~r
ance 1ss~ed by an
insurance company is valid and bmdm g until
the prem ium thereof Bar Ques tion: What is mean t by "cash to carry"
has been paid.· The acceptance by the insur in the business of
er of the post-dated insurance?
check note is not the payment conte mplat ed by
law.
Hence , the policy was not valid and bindi ng at the
time of loss. Answer: The princ iple of "cash to carry" requir
es paym ent of the
premium befor e the contr act of insurance can be
f. Cancellation and Renewal of Non- Life Policies valid and bindin g.
The philos ophy behin d this principle is that
the insurer, upon
issuance of the policy , is imme diatel y exposed
No insurance policy, except life, may be cance to liability for the risks
lled except upon insured again st, henc e it is entitle d to be paid
prior notice to. the insured and for any of the follow prem ium for exten ding
ing grounds: (1) protection to the insur ed imme diatel y upon such
non-payment of premium, (2) convi ction of expos ure.
a crime out of acts
increasing the hazard insured again st, (3) disco
very of fraud or The paym ent of the prem ium is a condition
material misrepresentation, (4) disco very of willfu to the initial validity
l onec kless acts or and bindin g effec t of the policy .
?missions increasing the risk insur ed again ~t,
(5) physi cal changes
in the property making the prope rty
unins urabl e, and (9) 8 Paym ent of the prem ium is a condi tion prece
d~termination by the Insurance Comm ission er dent to, and essen tial
that the policy would for, t~e effica cious ness of the contr act of insura
violate the Code (Section 64, Insur ance Code ). nce (Sout h vs. CA,
244 SCRA 744).
 IN.SURANCE
134
. that of an administrator, their co t'
11
In surety bOnd s, ~~nt on the payment of premiums (Lu~ inued
effectivity is not depe~5)· on vs.
Quebrar, 127 SCRA . .
.. contract is kept alive by payment of subs
In life poh~ie_s, t~e statutory grace period of one month (A:llent
premiums within t e vs.
Capital, 117 SCRA 63). . until the war broke out m 1941, whef/ all American companie:
. urer gave to the insured a grace period to Pay th
W~ere ~et in~ payment was made during said grace period the
premium, f _usu"ranee does not take effect (Ibid.) , e
contract o in
Failure of the office of the i~;u~e1 ~o t c~ll~ct a~ r~mit the
remiums to GSIS, because GS . a1 ef ob I~ ormff t ~ msured's
P
office to do so, will not prevent the policy rom eing e ect1ve.
The act of GSIS of paying dividend~ to th~ insured .es tops it from
·denying that the insured had an effective policy (Land1cho vs. GSIS,
44 SCRA 7).
The non-payment of premiums doe~ not_mere_ly suspend but puts
an end to an insurance contract, since the time of payment is
peculiarly the essence of the contract.
The rule is that ·under policy provisions, upon failure to make
payment of premium or assessment at t~e time provided for, the
policy shall become void or forfeited, or the ·obligation of the insurer
shall cease, or words to like effect, because the contract so
prescribes and because such stipulation is a material and essenti~
part of the contract (Phil. Phoenix vs. Woodworks, 92 SCRA 419).
The acceptance by the insurer of premium payments does not
stop it from interposing a valid defense under the terms of the policy
(Stokes vs. Malayan, 127 SCRA 766).
T_ he acceptance by the insurer of premium payments after he has
knowledge of a ground for rescission will bar him from rescinding the
policy (Section 2, B.P. 874). _
A rebate agreement between the insured and the insur~r
(~epr~sented by its agent) is a contract void ab initio, being_in
violation of Section 361 of the Insurance Code, and does not give
rise ~o enforceable rights and obligations as between the parties
(Lum1bao vs. IAC, 189 SCRA 469 ).
INSURANCE
135
a. . Non-payment Due to War
ssr Question: In 1940, "G" insu~ed his life for PS0,000 with Crown
insurance . Companr_, ~n Amenca~ _corporation licensed to do
business m the Phihppme_s . He religiously paid all premiums du
·ncluding crown Insurance Company were closed H "G" '
1 . . h "' • ence could
not pay h1s~_,prdemwml~ t e~tehafther. G" died in 1944. After the war
•G's" heirs ,1 e a c aim w1 t e company on "G's" life pol' C Id
"G's" heirs recover the amount of insurance of "G"? Decid~~he ::Se
with reasons.
Answer: . No, the heirs of G c~nnot recover on G's life insurance
policy. Non-payment of premiums puts an end to an insurance
contract sine~ the t~rms of payment is peculiarly the essence of the
contract. This rule 1s ~ot affected by the fact that the non-payment is
due to war or that the msured was not negligent.
Hence, G's heirs _cannot recover under G's policy.
· However, following the U.S. rule, the insured's beneficiary is
en_ti~led, when normalc>:' returns, to the ~quitable value of the policy
ansmg from the premwms actually paid by the insurer when the
policy was in force.
3. Return of Premiums
The insured is entitled to a pro rata return of the premium where
the insurance (except life) being for a specified period, the insured
surrenders his policy ahead of the period unless the policy provides
for a short period rate, in which case the rate therein will be
_applicable.
In ~Ver-insurance, the insurer or insurers will have to refund the
premiums corresponding to the amount over-insured.
Bar Question: Name at least three instances when an insured is
entitled to a return of the premium paid.
A( ns~er: Th_e insured is entitled to a return of the whole premium:
1) if the thmg insured was never exposed to the risks insured
agamst, (2) when the contract is voidable due to the fraud or
'!11srepresentation of the insurer, and (3) when the insurer never
incurred a liability. ·
 INSURANCE
136
d' Obligations of Parties
111 , Rights an
A. The Insurer
. arson who undertakes to indemnify anoth
The insurer _,s th0 P and may be a natural person, com er by
a contract of ,nsuran.~~~n who holds a certificate of authorit/f'1Y.
corporation, or ass~~sioner. ro111
the Insurance Comm
e. The lnsu~d
person with capacity to contract and having
. Gene!~llyte'reasntyin the life or property insured may be the Insured an
insurab e in · be at war.
1. Minors
A . or under certain circumstances may be an insured, and can
exer:; all the rights and privileges of an owner under the policy.
If a policy is taken by a person on the life or health of a minor, the
policy vests in the minor on the death of that person who procured
the policy (Sec. 3, Insurance Code).
Bar Question: May a minor contract for life, health and accident
insurance? Explain fully.
Answer: A minor may cont;act for life, health and accident
insurance under the following conditions: (a) he must be at least
18 years old; (b) the insurance is on his life; (c) the beneficiary is
his estate, his parents, his spouse, children, brotflers or sisters.
(Note: A person 18 years or above now has contractual capacity
under R.A. 6809, hence cannot be considered a minor).
Bar Question: Who may be appointed as beneficiaries in a life
insurance policy taken by a minor, 18 years old?
Answer: The following may be designated as beneficiaries to a life
msurance_taken by a minor: his estate, his wife, his children, _his
mother. hts father, his brothers and his sisters. .
(Note: A person 18 years or above now has contractual capacity
under R.A. 6809, hence cannot be considered a minor).
2. Married Woman
INSURANCE
137
A married woman may take insurance on her life or on that f h
children, without need of her husband's consent (Sec. 3, lnsu~ani;
code).
Under Sec. 5 of R.A. _7192, women, single or married, now have
the same contractual rights as men in entering into insurance
contracts.
3, Public Enemy
A publi~ ~n~my ca_nnot be insured. ~Y public enemy is meant any
citizen or Juridical entity of the country with which the Philippines may
Bar Question: May a member of the Moro Islamic Liberation Front
(MILF) or its breakaway group, the Abu Sayyaf, be insured with a
company licensed to do business under the Insurance Code of the.
Philippines (P.O. 1460)?
Answer: Yes, a member of the MILF or the Abu Sayyaf may be
insured. The prohibition pertains to a public enemy, who is meant to
be any citizen or judicial entity of the country with which the
Philippines may be at war with them.
Such is not the case at bar, members of the MILF or the Abu
Sayyaf being citizens of the Philippines and not of another country,
hence, may still be insured.
C. The Beneficiary
The beneficiary is the person designated to receive the proceeds
of the policy when the risk attaches. He may be the insured himself
in property insurance, or the insured or a third person in life
insurance.
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
(Heirs vs. Maramag, 588 SCRA 774).
Bar Question : X, a minor, contracted an' insurance on his own life.
Which statement is most accurate? ·
a) The life insurance policy is void ab initio.
b) The life insurance is valid provided it is with the consent of the
beneficiary.
 INSURANCE
INSURANCE
138 139
{c is v'alid rovided the beneficia .
The life insurance rs' ouse or child. is his urce of income and he always depended on ..
C
h. arents O d th d ' 't' SO tionally and fmanc,ally. During the term of th . Bianca both
estate or ,~ valid provide e 1spo~1 ion of the pr,
I5 8 e~~ of what appeared to be a mysterious c:umsurance, Bianca
d) The lffe msurance proval of the legal guardian of the min oc &o8 s~ so that Carlo
will be subjeCt to the ap . or. ?'~ediately requested for an autopsy to be
,rntablished that Bianca died of a natural cause co~ ucted. It wa~
0 the Philippine National Police d ess a/so established that Bianca was a transgend. .,. o,.~,-than that, it
1 201
sar Questlo~~ ~ "Public Enemy No. 1" because of his rlafad wa C rl C C rl I . ..,r a , a ong - a fact
Kaddafy ~n)6 am t that have resulted in the death of tho errc,rist unknown to a o. an a o c aim the insurance benefit?
activities m theACOU~iom of P15 million was placed on /sands bene;·t s·mce he IS.
of Filipinos. ra · addar,, Answer : Yes,B .Carlor canr : claim. the insurance ,, .
dependent on ,a~ca ,~r ,manc,a/ support, he has insurable interest
Benje/a~: he::~t the future of their family, Kaddafy Benje/ ., in her life. That Bianca 1s a transgender is immaterial.
Wom :e Aurelia, secured in December 2010_ a life insu an,s
est,:angedh~ /'fe and designated herself as the beneficiary. ranee
pollcyon is , . d' ? sar Question : X i~ th_e common law _wife of Y. y loves X so much
Is the policy valid an~ bm _mg· . . . out a life insurance on his own /ffe and ma" h th
Aureha ha that he took y d'd th · ue er e
Yi the po/icv ,s valld and bmdmq . because I . ~
r· ·
sole bene,1c1ary. .1 1s to ensure that x will be financial/
(A) es, - - fv B
insurable interest on the life of Ka1~a d e~1_e ;.m: b
'? mg ecause Kaddafy
comfortable when he 1s gone. Upon the death of y _ Y
(B) No, the policy is not va I an gl_X as so~e beneficiary under the life insurance p~licy'~n the life of y
Benje/ani has been officially d~clareddb~ pd~bhcbenemy; . will be entitled to the proceeds of the life insurance.
(C) Yes, the policy is valld an m mg ecause ,t has been in tjj des~ite_the design~tion of X as the sole beneficiary, the proceeds
force for more than two years; . . ·. . of. the life msurance will go to the estate of Y.
(D) No, the policy is no~ ~al'.d and b1?dmg s,?ce th_e spouses· c) the proceeds ~f the life insurance will go to the compulsory heirs
estrangement removed Aurella s msurable mterest m BenJelani's life; ofY.
(E) None of the above · d) the proceeds of the life insurance will be divided equally amongst
X and the compulsory heirs.of Y.
The beneficiary in a life insurance of an employee does not
automatically become the beneficiary in the retirement insurance Bar Question: Is it necessary for a beneficiary to have an insurable
unless the said person is so designated in the application for interest in the life of the insured?
retirement insurance (Vda. de Consuegra vs. GSIS, 37 SCRA 315).
Answer: If the policy is taken by the insured on his own life the
1. Beneficiary of One Who Insures His Own Life beneficiary designated by him need not have an insurable inte~st in
the lffe of the insured. ·
The insured who insures his own life, as a general rule, may Where the policy is taken by a third person not the insured on the
designate any person inclu.ding his estate as his beneficiary, whether life of the insured, and said third person designates himself at the
or not the beneficiary has an insurable interest in the life of the beneficiary, he (the third person) must have an insurable interest on
insured. The insured shall have the right to change his designation the lffe of the insured, at the time the policy became effective.
of beneficiary, unless he has expressly designated an irrevocable
beneficiary in his policy. Bar Question: Blanco took out a P1 million life insurance policy
naming his friend and creditor, Montenegro, as his beneficiary.
Bar Question : Carlo and Bianca met in the La Boracay festivities. When Blanco died, his outstanding loan obligation to Montenegro
Immediately, they fell in love with each other and got married soon was only P50,000. Bianco's executor contended that only P50,000
out of the insurance proceeds should be paid to Montenegro and the
a~er. They have cohabiting blissfully as husband and wife, but they
balanc;e of P950,000 should be paid to Bianco's estate. Is the
did not have any offspring. As the years passed by, Carlo decided _to ·
executor's contention correct? Reason out your answer.
take out an insurance on Bianca's life for P1,000,000.00 with him
(Carlo) as sole beneficiary_, given that he did not have a steady
 INSURANCE
140
t0 r's contention is not correct. When
a
Answer: The exec:' Pf mi/lion insurance on his life, he ca:erson,
like Blanco. ~ ou a arson, provided not disqualified to be' 00der
the law, de~ignat~~~ ~nefici ary to his life insurance.
don~ to him, to ssa; come a
for the beneficiary thus <:fe~ignated to hav
It IS no~ nece t . the life of the insured nor Is it necessary th 8 an
insurab(e inttheresd:s,g
· nated should be an heir or should be rela~t the
beneficiary us ·· M
. red Hence. in the provisio n, o~ tenegro wouId be entit/8d to
the msuwh le. P1 million proceeds of the poltcy. ea
to the o
Bar Question: Assuming a man h~s a wife, several children, soma
.ti. te others illegitimate (spunous as well as natural) and
1eg1 ma • . . h. b •
close friend who has helped him ,n is usmess very much and
a (C) Is Aban entitled to claim the proceeds under the policy?
h he would like to repay. Can he make ~II or any of them th
:e:ficia ry or beneficiaries in his insurance poltcy? 8 Answer:
Answer: Yes, he can designate all of them as his beneficiaries.
Beneficiaries designated by the insured are not required to have any
insurable interest on his life.
Bar Question: A obtains insurance over his life and names his
neighbor B the beneficiary because of A's secret love for B. If A
dies, can B successfully claim against the policy?
Answer: Yes, B can successfully claim against the policy of A. As a
general rule, the insured who insures his own life may designate any
person including his estate as his beneficiary, whether or not the
beneficiary has an insurable interest in the life of the insured
provided the beneficiary is not disqualified under the rules on
donation. As B is only a secret love and not a concubine of A, B is
not disqualified.
Bar Question : On July 3, 1993, Delia Sotero (Sotero) took out a life
insurance policy from /locos Bankers Life Insurance Corporation
(/locos Life) designating Creecnia Aban (Aban), her niece, as her
beneficiary. /locos Life issued Policy No. 747, with a face value of
P100,000.00, in Sotero's favor on August 30, 1993, after the
requtsite m~ical examination and payment of the premium.
. On Apr,/ 10, 1996, Sotero died. Aban filed a claim for the
'.nsurance _proceeds on July 9, 1996. /locos Life conduct~d ~n
mvest1gatIon mto the claim and' came out with the following findings.
1: Sotero did not persona
lly apply for insurance coverage, as she
was 111,terate.
2. Sotero was sickly since 1990.
INSURANCE
141
3· Sotero did not have the financial capability t
o/icy. 0 pay the .
premium
on the P . .
4_Sotero did not sign the appl(cation for insurance.
5_ Aban was the one who filed the insurance
designated herself as the beneficiary.
,. .
app ,cation and
For the abov: r~,a~~n~ g~n/ claiming fraud, /locos Ufe denied
Aban's claim on pr, ' ' but refunded the premium paid on
me policy. . .
(A) May Sotero valtdly des!gnate.her niece.as beneficiary?
(B) May the .mcontestabtl1ty penod set ,n even in cases of fraud as
alleged in this case?
(A) Yes, Sotero may validly designate her niece as
a
beneficiary. <;Jnly perso~s di~quali fied to be donee are disqualified
to be a beneficiary. A niece Is not one of those disqualified.
(B) Yes, the incontestability period applies even in cases of fraud as
alleged in this_case. First, th~ findings are self serving, having been
conducted unilaterally by the insurer. Second, the insurer is given 2
years from effectivity of the insurance contract to discover any
concealment or misrepresentation. After this period, the insurer must
honor the policy, even if there was fraud, concealment or
misrepresentation.
(C) Yes, Aban is entitled to claim the proceeds under the policy.
The insurer cannot deny the claim even if there is fraud committed,
since the two year incontestability period applies.
The proceeds of a life insurance policy belong to the designated
beneficiary to the exclusion of the heirs of the insured (Picar
vs.
GSIS, 33 SCRA 324).
The father or mother of a minor who is an insured or beneficiary in
a life policy, may exercise, for said minor, all rights under the policy
up to P20,000 without need of a court authority or a bond (Sec. 180,
Insurance Code). ·
-a. Exceptions to the General Rule - Persons Disqualified
as Beneficiaries ·
The only exceptions are found in Article 739 of th~ Civil Code,
consisting of persons disqualified from giving donations to each
other. These are: ( 1) between persons guilty of adultery
. or
concubinage; (2) between persons fo1,1 nd guilty of adultery
or
 INSURANCE
142
INSURANCE
id ration thereof; and (3) those made to
concubinage in cons n~ants or descendants, by reaso 143
officer, his wife, asce n of his:~.ublic there being no re~ervation to revoke by th
iee. .
designation, ve~ted m "B" a right to the insuranc!
. in life insurance is like a donee ; hence issue of the poltcy. /r:s::,rr:: t~f the
A beneficiary d' qualifications of a donee under the Civ·i
Clhe e ,me of
provisions on th e fi ~iary to the life insurance of
1
(Note: Under the new Insurance Code th d .
• ,., ,. · .
applies to a be~e ~isqualified under Article 739 of
the corn~ Ode beneficiary ,n a i,e po icy is revocable unless• the ei es1gnat1on of
the Civil Con.i~ provides that it is irrevocable.) d
husband as sh(el is lar vs. Ebrado, 80 SCRA 181 ). · nsure expressly
be his donee nsu Ode to
sar Question: On December 20, 1974, "A· took out a Im
• Eduardo· Fernandez applied for and was is .
1 policy an d named his wifie "B"• as ben~ficiary. The
B•~ Quest °;'-i by Atlas Life Insurance Cor~oration
on a Whoi!0~ policye was
insurance
silent
0 7 with r~g~rd to any c~a~~e of beneficiary. Suspecting
Polley N~
200 000 oo· Although he was marned to Clara, with Wh 1lfe comm1ttmg adultery, A 1n:im~d1ately notified the insura
that "B" was
plan fodr s· ( • :i le.giti'roate children, he designated his nce compan
he ha ,1ve 5I common-laom in writing that he 1s subst1tutmg his brother •c• as hi
's benefi .
wife Diana Cruz, as his re~oc~ble bdene ~1~1ary · . . , w.
mh .the .po/icy, and place of "B"
·
"A" d'18d
. J
on un~ 30, 1975. "B" claims the proce
.Y
iciary tn
refe'rred to Diana, in his app1t.cat10~ an ~o1icy, .as 1s the insurance poltcy, co.ntendmg that as designated eds of
wife .. Five (S) beneficiary, she
years thereafter, he died. Diana. 1mmtedd1bately }1l~d hecr cannot ~e changed without her cons_ent, she having
cla1m for the acquired a
proceeds of the policy as the ~es1gna e ene,1c1a1-; 1 vested nght to the proceeds of the poltcy. Decide and
d ara also filed give reasons
her claim as legal wife. The. msuran.ce company 1. e for your answer. .
a Petition for
lnterpleader before the Reg1~nal Tnal Court of. Rizal
to determine
who should be entitled to the proceeds of the. poltcy. Answer: The policy was taken on c:>ecember 20,
. . 1974, when the
If you were the judge, how would you decide the said New Insurance Code was already in effect. Under
mterpleader this Code the
action? Explain. designation ~f ~ b~neficiary to a life insurance policy
taken by a
person on his life 1s revocable, unless he (the insure
waived his right to change beneficiaries. d) expressly
Answer: If I were the judge, I will resolve the interp
leader action in
favor of the legitimate wife, Clara, and her five legitim As there is no express reservation not to change benef
ate children iciaries in
with the insured. the policy, the change made by the insured A, consti
. tuting c as his
Diana Cruz, insured's common-law-wife, is disqua beneficiary operated to revoke the designation of B.
lified as . Hence, B does not have any right to claim the proce
beneficiary to the insured's life policy - the eds of A's
reason for the policy as she was no longer the beneficiary when A
disqualification being her living in concubinage with the insured died
the insured on June 30, 1975.
during his lifetime. A beneficiary in life insurance is like
a donee, and
a donee disqualified by the Civil Code is also disqualified to
be the The vested interest or right of the beneficiaries in
beneficiary in life insurance. a life insurance
There being no qualified beneficiary, the proceeds policy should be measured on its full face value and
of the policy not on its cash
will go to the legal heirs of the insured - his legitimate surrender value, for, in case of death , the beneficiarie
wife, Clara and s may continue
his five children with Clara. paying the same and they are entitled to automatic
extended term on
paid up insurance options, etc.. Said vested right
under the policy
cannot be divisible at any given time (Nario vs.
b. Vested Right of .Beneficiary Philam , 20 SCRA
~4~
.
Bar Question: 'fl " took an insurance on his own life·, appoin . A beneficiary designated in a GSIS life policy is
fing his governed in his
wife "B" as beneficiary. During the battle of Manila, rights by the GSIS law. While generally, a design
"A· died 8 few ated beneficiary is
moments after "B". Who are entitled to the insurance entitled to the whole proceeds of the insured's
proceeds? policy, in a GSIS
POiicy, the law makes the proceeds liable to attachment,
Answer: The heirs of "B", the beneficiary wife, will garnishment
be entitled to th8 and other legal processes, when obligations or indebt
edness to the
proceeds of the policy. The designation here, being
irrevocable,
 INSURANCE
144
that Is, the government, is concerned (P·
GSIS and the employer, ica,
vs. GSIS, supra).
c. Ir,-..ocable
... Designation
. on· What are the effects of an irre~ocable designation
Bar Qu~ . d th Insurance Code? Exp/am. Of
a benef1cIary un er e
Answer: If the_ ~e:~. nation of beneficiary is irrevocable, the insu
policy, (2) take the cash surrender value of r;:1
ca~not ( 1) a~s,g h's creditors to attach or execute on the policy 8
policy, (3) a~ fi~iary or (5) change the irrevocable designau;n<~ 4
add a ne w nne though the change is just and reasonable. This .
revocsbe,I eve . db fi . d h' . is
so because the irrevocably des1gna~e ene d,c,a_ ryhtan is hetrs have
acquired from the date of the poltcy veste ng s over the POiiey
(See Phi/am vs. Pineda, 175 SCRA 416)
A person who insures his own life may designate his beneficiary
revocably or irrevocably.
For the designation to be i~revo~bl~, the i~su~ed should
expressly state the irrevocable des1gnat1on 1n the policy itself (Sec.
11 , Insurance Code).
Bar Question: Jacob obtained a life insurance policy for P1 million
designating irrevocably Diwata, a friend, as his beneficiary. Jacob,
however, changed his mind and wants Yob and Jojo, his other
friends, to be included as beneficiaries considering that the proceeds
of the policy are sufficient for the three friends. Can Jacob still add
Yob and Jojo as his beneficiaries?
Answer: the addition of two other beneficiaries would diminish
Diwata's interest, consequently, Jacob can only add Yob and Jojo as
beneficiaries if Diwata consents ·to the same. This is due to the
Irrevocable designation of Diwata as Jacob's beneficiary.
A creditor bank as attorney-in-fact of the insured and as
irrevocable beneficiary of the insured had the obligation to colleet
from the insurer. If it failed to do so after the lapse of a considerable
period of time, it is barred from enforcing the obligation of the insured
(PNB vs. CA, 158 SCRA 201 ).
d. Distribution of Proceeds of Polley if Premiums Paid
from Salaries
INSURANCE
l4S
1) Where a Specified Person is Beneficiary
sar Questlo,:i: 'W ~o~k out a P30,000.00 life insurance po/ic and
designated hts w1f~, B as the sole beneficiary. All the .Y .
o/icy were paid out from his salaries. The spo premiums m
Ih P "X" "Y" and •z• "A • d ' d .
(3e) children,
.
, · 1e intestate.
uses have three
a. Divide the proceeds of the policy.
b. In the ~a.me case_, suppos~ "A•, instead of designating his wife
as sole bene~c,ary, designated hts child 'X" only as sole beneficiary?
Reason out your answers.
Answer: (a) All _o f th~ proceeds of the policy will go to the
designat~d beneficiary, B . The source of the premium here is
;mmatenal.
(b) All of the p~oceeds of the policy here will go to •x·, the
designa~ed benef1c1ary. The source of the premium again is
immaterial.
2) Where the Estate of the Insured is the Beneficiary
Bar Question:. When are the proceeds of a life insurance policy
considered con1ugal even though the policy was made payable to the
decedent's estate?
Answer: Even though the proceeds of a Ufe insurance policy were
made payable to the decedent's estate, said proceeds are still
conjugal if the premiums are paid (1) from salaries of the insured or
(2-) from other conjugal funds or properties.
Bar Question: ·z· during his marriage to Y, obtained a life
insurance policy for P10,000.00. payable to his estate. Premiums
~hereon we~ paid from his salary as a teacher. While the policy was
tn effect, Z dted survived by Y and two children, A and B. How would
you generally apportion the proceeds of the policy?
Answer: The proceeds of the policy are conjugal.
So, it will be divided as follows:
P5,000 or 112 of the proceeds to Y, as Y's conjugal share.
The remaining P5,000 to be divided into three, as follows:
P1,666.67 to Y, as her share as heir of X; P1 ,666.67 to A, as his
share as heir of X; and P1 ,666.67 to B, as his share as heir of X.
 INSURANCE
146 INSURANCE
147
t under general principles in the
Whlle ft is t~~ t:~vides that t~e proceeds .shall be Pay:: on
1
Question : X owned a house and Jot x Ins
insurance, if _a pollv~s up to 8 certain date, and in case of his 11:1 to s,r got burned. Then he sold the parti~lly bu u~: the house. The
the insured, if he th n they shall be payable to the ben i~at~
t,e~re that dat~~ne;t of said policy will inure t? such ,benefi~i~c1ar-y
58
hO~ Which statement is most accurate?
to )( is not anymore entitled to the proceeds of the .
m ouse and the lot
,
designated, the d d. s before the end of the penod designated i ry I~ tcaus~ ~e already sold the partially burnt house an~nl~~-rance po/tcy
1
iX
b ,i:.~_st,11 entitled to the proceeds of the insurance ,- b
case the assure ~ that the proceeds of a life insurance ..,; the x
~ · J1·s tha t t th ·
policy, and, gei~er~a~ed beneficiary belong exclusively to ~e a hat is matena a e ttme of the loss x- is thpo icy ecause
~anad IQL I t , e owner of the
third person
beneficiary :r:~ot
8
individual· they are not the property of the he' lJCh
subject'to administration, and cannot prope:rs Of
the, insuredb , the administrator or other legal representative /thbe
~ ) No one is entitled to the proceeds because ow
~ouse and Jot was alrea~y transferred.
h'
ners 1P over the
claimed Y . e d) y wil( be the one entitled to the proceeds because he now owns
. red as assets of his estate.
msu the partially burnt house and lot.

=~:~
e deceased married for a second time without th
Where 'fethknowing of the ex,s· tence o f th e f irs
" t marriage
· 8
second w, . .f . .
of th
e
d the proceeds of his 1, e insurance po 1icy, where n
was designated, will be divided equally between his~
families (Vda. de Consuegra vs. GSIS, 37 SCRA 315).
3) Beneficiary of Life Insurance on the Life of
Another Person
Where life insurance is procured by a person over the life of
another the former must have an insurable interest in the life of the
latter a~ specified by law, at the time the policy was taken.
4) Beneficiary of Property Insurance
The beneficiary of a property insurance must have an insurable
interest over the subject matter of the insurance existing at the time
the policy was taken, and at the time the loss took place.
Bar Question: A obtains a fire insurance on his house and as a
generous gesture names his neighbor as the beneficiary. ff A's
house is destroyed by fire, can B successfully claim against the
policy?
Answer: No, B cannot successfully claim against the policy because
in property insurance, the beneficiary must have an insurable interest
over the subject of the Insurance existing at the time the policy was
taken, and at the time the Joss took place.
5) Killing of Insured By Beneficiary
The interest of a beneficiary who is a principal accomplice or
access?r'>'. to the killing ?f th~ insured shall be forfeited to the other
·beneficiaries, or as provided in the contract; if none, to the estate of
the insured (Section 12, RA 10607).
The rule _h ?we_v er admits of exceptions, which are: (1) accidental
killing, (2) k1lhng in self-defense, and (3) the beneficiary was insane
at the time he killed the insured.
Bar Question: On January 1, 2000, Antonio Rivera secured a J;fe
insurance form SOS Insurance Corp. for P1 Million with Gemma
Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died
on March 4, 2005 and in the police investigation, it was ascertained
that Gemma Rivera participated as an accessory in the killing of
Antonio Riv~ra. Can SOS Insurance Corp. avoid liability by setting
up as a defense the participation of Gemma Rivera in the killing of
Antonio Rivera? Discuss with reasons.
Answer: The beneficiary who is a principal, accomplice or
accessory to the killing of the insured cannot recover by reason of
public policy for the death of the insured. The nearest relatives of
the insured, if not disqualified, shall receive the proceeds (Section
12, Insurance Code). Thus, SOS Insurance Corp. can avoid liability
as to Gemma Rivera, however, they must still pay out the proceeds
to the nearest relatives of the insured who are not disqualified.
IV. Rescission of Insurance Contracts

A. Concealment
 INSURANCE
148
1. .Defined
. fine or explain and exemplify concealment
Sar Question. 0 e I In
insurance contracts.
1
t is 8 neglect to communicate that wh ·
Answer: Conces m;,nto communicate to the other party. 'Ch a
party knows a;dri by the insured to inform the insurer that heh
Exampl~: . ad,u~ cancer or some other serious disease. as
been hospitalize ,or . levant to the approval and issuance of the life . are material and
2. Requisites
For concealment to vitiate a contract of Insurance, sev&ral
. ·t must be present: (1) the matter concealed must be
~~~~~~~sand (2) there must.be an obligation for the insured to reveal
the concealed matter to the insurer.
The fraudulent intent on ~he part of the . insured must be
established to entitle the insurer . to rescind . th? .~ontract.
Misrepresentation as a defense of the insurer_ to avoid hab1hty Is an
affirmative defense and the duty to establish such defense by
· satisfactory and convincing evidence rests upon the Insurer. For
failure of Manulife to prove intent to defraud on the part of the
Insured, it cannot validly sue for rescission of insurance contracts
(Manulife vs. Ybanez, 810 SCRA 517).
3. Test of Materiality
A fact is material If knowledge of it would have affected the
decision of the insurer to enter into the contract, in estimating the
risk, or In fixing the premium (Great vs. CA, 89 SCRA 543).
Where the person procuring the Insurance concealed the fact thal
the Insured was a Mongoloid, the concealment Is material and gives
to the Insurer the right to rescind. Material concealment can rescind
·the Insurance contract, whether Intentional or unintentional (Ibid.).
Where the person procuring life insurance on the life of an
illiterate old woman concealed the advanced stage of lung cancer of
the Insured who died of said disease seven months later, the Insurer
~ay rescind the policy. Lack of understanding by the illiterate
insured of the statements and her application as to her state of good
INSURANCE
149
Ith does not negate the insurer's right to .
i,ea RA 236). rescind (Tang vs. CA,
90 sc
The waiver of a medical examination in a non- .
tract renders e~en more material the inform .medical. insurance
con 11cant concerning previous condition of hat1on required of the
:~~ered (Sun life vs. CA, 245 SCRA 268). eal th and diseases
Matters relating to the health of the Insured
rl'leey definitely affect the insurer's action on the ap'"l~urt~nce policy as
t P tea ton (Ibid.).
It Is well-settled that the Insured need not die 0 f th .
· I t th · e disease he
had failed to. d ,sc ose . o e i_nsurer.. as it Is sufficient that his non-
disclosure mdt~led the insurl~r in f?rming. his_estimates of the risks of
the propose insurance po icy or in making inquiries (Ibid.).
The lnformatlinbta~ tate:ial to the ability of the insurer to
estimate the pro a e ~1s the 1~sured presented as a subject of life
lnsuran~e when he did not . ~1sclose his visits to his doctor, the
diagnosis mad~ a~d the medicines prescribed by such doctor, in the
Insurance apphcabon: It may be reasonably assumed that the insure
w~uld have made f.urth~r inquiries and would have probably refus~
to issue a non-medical insurance pohcy or, at the very least, required
a higher premium for the same coverage (Vda. De Canilang vs. CA
223 SCRA 443). •
Co~cealmen~ 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 assured, but he designedly and
intentionally withholds the same (Great vs. CA, 316 SCRA 677).
. There _is no concealment if the Insured admitted in his application
his medical treatment for kidney ailment and executed an
authorization in favor of insurer to conduct investigation in reference
with his medical history. The insured had the means of ascertaining
the lnsured's medical records (Sun Life vs. Sibya, 793 SCRA 45).
Bar Question: X insured his life for P20 million. X, plays golf and
re_gularly exercises everyday, hence is considered in good health. He
did n.ot know, however, that his frequent headaches is really caused
by his being hypertensive. In his application for a life insurance for
himself, he did not put a check to the question if he is suffering from
hypertension, believing that because of his active lifestyle, being
 INSURANCE
150
. ossibi/ity. While playing golf one da
hypertensive 1s rer7!ot: Pand was declared dead on arrival a{-X
collapsed at the fa1rwrt~cate stated that X suffered a massive h the
hospital. His death ce I ea,r
attack. . of x be entitled to the proceeds of th . 8' a o-year endowment policy in the amount ;n;,urance company
[a) Will the be~~ficizumstances, despite the non-disclosureet~ife .
insurance unde! et the time of application? at
h_e is hype~en~ive aaccident instead of a heart attack, would the t
[bl It X _died m adn close that he is hypertensive be considered act
of X's failure to is as
material information? · subject to proce~smg by the c?m~any. The insurance ~~,:g:;t
. r J The beneficiary of X is entitled to the proceeds of th
~ns_wer. · ,a The insured was in .good faith and did not know thet
life insurance. , ' . t d' I
he had hypertension $0 he had nothmgh _o~ !lsc oste.d . I
{b] If X knew of his hypertens,~n, ,~ ,a, ure o 1sc ose the same
a another plan.
is a material information, hence his heirs cannot recover even if the
material information is not the cause of death.
Bar Question : Benny applied for life _insura~ce _ for Php 1_.5 Million.
The insurance company approved his apphcat,on and issued an
insurance policy effective Nov. 6, 2008. Benny ~amed his children
as his beneficiaries. On April 6, 2010, Benny died of hepatoma, a
liver ailment.
The insurance company denied the children 's claim for the
proceeds of the insurance policy on the ground that Benny failed to
disclose in his application two previous consultations with his doctors
for diabetes and hypertension, and that he had been diagnosed to be
suffering from hepatoma. The insurance company also rescinded
the policy and refunded the premiums paid. Was the insurance
company correct?
Answer : The insurance company was correct in denying the claim
because Benny was guilty of concealment of his consultation wit~ his
doctors for diabetes and hypertension, and his diagnosis for
hepatoma, which are material information. The incontestability
clause does not apply because he died less than two years from
issuance of the policy.
Bar Question: An insured, who gains knowledge of a material fact
a(ready ~fter the effectivity of the insurance policy, is not obliged to
divulge it. The reason for this is that the test of concealment of
material fact is determined
A. at the time of the issuance of the policy.
B. at any time before the payment of premium.
INSURANCE
151
t the time of the payment of the premium
~ me before the policy becomes eff~ctive.
, Question: "P" filed an application with an .
2 0
feer of his one-year-old daughter, supplying all the 50,000._00 on the
l11' • · ~ b t ·th • essential data in
the application ,orm, u w1 out disclosing that h. d
Mongoloid child. Upof.l "P's" payment of the a~snu!fghter _was a
binding deposit re~eipt was issued to "P" by the insu!;mwm, a
disapproved th~ msurance _app//cat1on stating that the plan a Plie~
PP
Th for
,,'or was not ava,lable . mmors below seven years oId, and offered
, , e msurance agent did not inform "P"
disapproval nor of the alternative plan offered, and instead, siont
recommended . th~t the company reconsider and approve ~:
t
f h
insurance app//catlon.
As fate would have !t, "P's" daughter died. "P" sought payment of
the proceeds of the msurance but the company refused on the
grounds that ~he~e was concealment of a material fact in the
insurance apphcat1on form and that it had rejected the application.
"P' c~ntended, on the other hand, t~at the binding deposit receipt
constituted ~ temporary contract of life insurance. How would you
resolve the issue?
Answer: . There ca~ b_e no recovery under the policy for two
reas?ns:· f,rstly, the bmd~ng deposit contains the condition that the
application_would be sub!~ct to processing by the company. At most,
therefore, it was a conditional acceptance subordinated to the act of
the company to approve or disapprove the application. It therefore
could n~t h~ve bound ~he company unless the company approved
t~e application. The failure of the agent to inform the insured of the
d1sa~proval of the_application cannot result in the company being
considered as havmg approved the application.
Besides, even if the company had approved the application, there
was a concealment on a material matter - that the insured child was
a Mongoloid child. This can give the insurer the right to rescind the
msurance,contract and prevent liability from attaching.
b For ~h~se reasons, no recovery can be had by the insured's
eneficianes under the policy.
Bar Question: A fire insurance policy in favor of the insured
contained a stipulation that the insured shall give notice to the
~ompany of any insurances already effected or which may
ubsequently be effected, covering the property insured and that
 INSURANCE
152
. before the occurrence of any los
unless such notice b~ ~ve,;e face of the policy bore the annot~/1
benefits shall be forfei~; The things insured were bumed. It tu~on
"Co-insurance ~clare · es were obtained on the same goods for t~d
out that several msura_n~urer refused to pay on the ground e
same term. The 1~ ured recover? Reason.
concealment. May the ms
of
, . d cannot recover under the policy.
Answer: No, the ms::ntract considered non-dec(aration of other
th
_
N~ d~ubt, e on the same property as mat~nal concealment to
ex1stmg insurances tract declaring that benefits therein shall b
the extent of the con e
forfeited. : h. e the insured did not reveal to the insurer the
If as m t ,s cas , d th
existence of other insurances hef procutre . lomveartte e sadmteh _subject
th . a concealment o a ma ena r, an ts gives
ma~er, erethe,sn·ght to rescind (See Pacific vs. CA, 168 SCRA 1)
the insurer ·
Bar Question: on October 18, 1980,bP t~?~ out aT,hlife in~urance
policy and named his only son Q, as en~11c1ary. e po//cy was
-1 t ,·th regard to any change of beneficiary. P later learned that
s, enwasw hooked on drugs and immed',_at~Y I no_ t'fi' d th .
, ,e . e insurance
0
company in writing that he is s~bst,tutmg his sister R, a~ his
beneficiary in place of Q. Plater died of advanc_ e d tuberculosis. In
the application form filled up bt th_e agent of th~ insurance _company
prior to the issuance of the life insurance poltcy ~y the insurance
company, the agent, with the knowledge of P, filled m a false answer
and made it appear that P was in good health. Upon P's death, Q
claimed the proceeds of the insurance policy contending that as
designated beneficiary, he cannot be changed without his consent,
he having acquired a vested right to the proceeds of the·policy. Can
the insurance company refusfJ liability on the policy.
Answer: As P died of advanced tuberculosis, his ailment was
known to him in 1980 when he took out an insurance policy on his
life. When the application was filed wherei@ was stated that he was
in good health, there was a material concealment on his part entitling
the insurer to the right to rescind the policy, whether the concealment
was done intentionally or not by the insured.
The above answer will however apply if the insurer discovered the
concealment on or before October 18 1992 because if the
discovery was made beyond October 18 ' 1982 the incontestability
clause will operate to prevent the insurer ;,.om·re~cinding.
INSURANCE
153
fh8
If:e
. . unfortunate that the problem makes no m .
ath of P, or the date of discovery bye:ion_of the date of
imentlmisrepresentation. e msurer of the
concea
s~r 8
_
double indemnity provision in case of ~=
Quest/on: In June 1981, Juan applied for 8 f'fi .
1 .
;surance ~oltcy
with ite an express inquiry in the application form ~r .by accident.
~i~s~ot mention the fact that he had suffered from virati~;~;i:· t~=
·ous 11ear. . Ast •Juan had fully recovered from the d'
PffJVl·cal .,exam ma ~ 1sease the
/On pe, ,armed by the insurance ,
medl . t h . . company's
hYsician did no revea I sue. previous '.llness, and showed that Juan
~as healthy and was an insurable nsk. The policy was issued
forthwith. . .
In Ma~h 1983, Juan died m an automobile accident. Subsequent
investigation reveale_d that Juan was negligent in not having his
brakes checked. ·
. The insurance__ company refused to pay Juan's wife, the
designated benef1c1ary, on two grounds: that Juan was guilty of
frauc!u/ent conce~lment of ~is liver ailment, and that Juan's death
was caused by his own negltgence.
The policy is silent as to the effect of the insured's negligence on
the right to recover thereunder. Juan 's wife insists that she has a
right to recove~ because Juan's death was caused by an accident
which had nothing to do whatsoever with his ailment. She therefore
insists on double indemnity.
a. Is she entitled to any indemnity. Explain.
b. If Juan's accident occurred in July, 1983, would your answer be
the same? Explain.
Answer: (a) Juan 's wife is not entitled to any indemnity under the
policy. The fraudulent concealment of his having suffered from viral
hepatitis, which is a material. matter, gave the insurer the right to
rescind the contract, even if the insured did not die from the
concealed matter. ·
Negligence by the insured resulting in his death, by itself would
not avoid the policy. But in the case at bar, the policy is avoided
because of the fraudulent concealment of a material matter.
(b) My answer will be different. If Juan's accident occurred in
Jui~ 1_983, the insurer under the incontestability clause is ba"ed from
~ s1stmg _the po/icy, because of the lapse of more than two years
om th e issue (Juna ·1981) of the policy.
4. Consequences of Concealment
 INSURANCE
INSURANCE
154 155
.. the contract of insurance and entitle
Concealment v1t1ates_f the death or loss was due to a cause s the No since Y may be regarded as ABC's agent
8. ' f X's previous hospitalization. and he already
Insurer to rescind, even , led matter. This is the rule Wheth not at knBW o Id .
all related to t~e co_ncef or unintentional (Sec. 1, B.P. 874). er the Yes it wou constitute concealment th t
C._ 'sentation on X's part. a amounts to
concealment is intent1ona m1srePre . .
. d should be exercised previous t o. No, since the previous illness is not a mat . 1 f.
overage. ena act to the
The right to r~sc1~ action on the contract. Besideso the insurance c
commencement O : care agreements as in insurance P~I' the
cancellation of healt e of the following conditions: (1) Prior nicies Good faith is no defense in concealment (Sunlife vs. CA,
245
require the ~ncurre~~ured· (2) Notice must be based onotice scRA 268). .
of cancellat1on to ff;ctive date of the policy of one or more or the
sar Question: Juan procured a ."non-medical" life insurance from
occurrence a~er ~ - (3) Must be in writing, mailed or delivereolhe
Good Life lnsu~anc~. . He ~es1~nated his wife, Petra, as the
grounds m;n~~o~he ' address shown in the policy; (4) Must state th~o beneficiary. Earlter, m his appltcat1on in response to the question as
the insure red upon provided in Section 64 of the Insurance COd to whether or not he hap ever been hospitalized, he answered in the
grounds re, st of insured to furnish facts on which cancellation .e
and upon reque ' negative. He forgot to mention his confinement at the Kidney
based (Philamcare vs. CA, ?9 SC
RA 356) is
Hospital.
After Juan died in a plane crash, Petra filed a claim with Good
Bar Question: 'x applied for_ /if~ insuran~e with_ Metro~olitan Life· Life. ~isc~vering Juan 's previous hospitalization, Good Life rejected
Insurance company. The,appltcat1on contained this question: "Have Petras claim on th~ gr~und _ o f concealment and misrepresentation.
you ever had anr ailment or d1s~ase of x x?"x (b) the stomach or Petra sued Good Life, mvokmg good faith on the part of Juan. Will
intestines liver, kidney or gentounnary organ. X, a laundry woman Petra's suit prosper? Explain.
who has ~o medical knowledge answered "No. " The application was
approved premium was paid and six months later, X died from Answer: No, Petra 's ~ui~ will not prosper. Juan was guilty of
cancer of the stdmach. The post medical examination of X shows concealment. Good faith 1s not a defense in concealment. This
that she had a cancer at the time she applied for a policy. Can the assumes that the policy has been in effect for less than two years
beneficiary of X collect on the policy? Reasons. from date of issue. .

Answer: No, the beneficiary cannot collect. The policy can be
rescinded by the insurer on the ground of concealment. Under an
amendment of the Code, the concealment on a material matter,
whether done intentionally or unintentionally, entities the insurer to
rescind, without prejudice however to the application of the
incontestability clause in the proper cases.
Bar Question : X, in the hospital for kidney dysfunction, was about
to be discharged when he met his friend Y. X told Y the reason for
his hospitalization. A month tater, x applied for an insurance
covering serious illnesses from ABC Insurance, Co., where Y was
w_orking as Corporate Secretary. Since X had already told Y a~out
his hos~ital~zation, he no longer answered a question regarding it ,n
the appltcat1on form. Would this constitute concealment?
~- Yes. since the previous hospitalization would influence the ilJ.§Y[§!
m deciding whether to grant X's application.
5. Concealment in Marine Insurance
a. Defined
(~ Lf'l'\G-V\"i
In marine insurance, it is the failure to disclose any material fact or
circumstance which is within or ought to be within the knowledge of
one party, and of which the other party has no actual or presumptive
knowledge.
b. Effect of Concealment
If material, the concealment entitles the innocent party to rescind:
Bar Question: Marine insurance was secured upon goods on board
a. ship which departed from Madagascar to Manila, without any
disclosure to the insurer of the fact that the ship had been reported at
Lloyds of London as seen at sea, deep in water and leaky. This
 INSURANCE INSURANCE
156 157
e wrong t,ecause the ship was at no .
report turned out later to b r in trouble but was lost thru an time Question : Shipowner X, in applying for . .
8
during the voyage !eakY ro ,.,.,uses to pay the insured c/a?t~er Bl~ from ABC, Co., stated that his vessel u e msuranett
mann_
. k n.e insure '"
insured ns . , " .
h i t . , ,rn,n
d counters that t e ,ac not disclosed g pe,1,c[st and with normally 100 tons of cargo. ,!~ua:!: sails middle of
concealment. T~ ,notsu~ crease the risk and therefore immat Was
erroneous and did n ,n
Decide the dispute with reasons.
, ena1.
::s
AUgvessel departed on the first week of Septembe ed ou~ later that
of cargo. Will this avoid the policy that was iss~=: with only 10
A yes, becauseththere was breach of implied warranty.
. d cannot recover because of concealment f . No because ere was no intent to breach an imp/i'ed
Answer: The insure oa 8· ' . warranty
c. Yes, because I·t reIates to a mater,al representation. ·
material "!atter.f the insured to reveal to the insurer a matter With; Q_.f:f.Q.. because there was only representation of intention .
. The failure ~hat the ship had been report~d at Lloyds of Lon~
his know/edge deep in water and leaky, 1s a concealment of 2. Classes
as s~n at sea, en though this report turned out later on to bea
matenal matter, ev
e~;~:=~ that concealment may entitle the insurer to rescind, it is
not necessary that
the loss should be a consequence of the matter
I t
There are two classes of representations: {a) affirmative wh' h •
. f f I . 1· ' IC IS
an affirmation ~ a . ac ex1s ~ng when the contract begins, and (b}
promissory, which 1s a promise to be performed after the policy is
led It is enough that there be a concea men of a material issued.
conttcea d . this concealment could avoid the contract ab initio, at the
ma er, an · t rd t th I ·,
instance of the innocent partr w1thou rega o e oss, , any, to the Representations may also be {1) objective, or representations of
cause of said loss, or to the influence of the concealed matter to said o f ~xact and actual knowledge
present and past events susceptible _
loss. and correct statement, and (2) subJect,ve, or opinions, beliefs or
intentions of the insured.
c. Concealed Matters not Violating the Contract
But frees Insurer if Loss Due to Concealed Matter 3. Diffe,rentiated from Warranty

The following matters, although concealed, will not vitiate the
contracttexcept when they caused the loss:
1. National character of the insured
2. liability of the insured thing to capture or detention
3. liability to seizure from breach of foreign laws
4. Want of necessary documents
5. Use of false or simulated papers·~
Bar Question: To what kind of contracts does the distinction .
between a warranty and a representation apply?
Answer: The distinction between warranty and representation
applies to, and is important, in the contract of insurance.
Bar Question: Distinguish a warranty from a representation.

B. Misrepresentation or Omission Answer: Warranty is distinguished from representation in the

following respects:
1. Defined (a) Warranties are parts of contracts; representations are mere
collateral inducements·
A representation is an oral or written statement of a fact or (b) Warranties ar~ written on the policy, actually or by reference;
condition, affecting the risk, made by the insured to the insurer, representations may or may not;
tending to induce the insurer to assume the risk. (c) Warranties are conclusively presumed material;
representations must be proved to be material;
1_
f the . insured misstated his age, the amount payable under the (~) Warranties must be strictly complied with; representations
policy will be adjusted to his correct age (Sec. 227 [d], insurance require only substantial truth or compliance.
Code ).
 INSURANCE
158
4 _ rest of Materiality
. dro Reyes applied for a fire insurance on .
Bar Ques~n. Pe, . ti·on it was asked tha following question. "Is thh,s
"~• .In his appith,caanother • Insurance company ?. If so, for h a
,,v,,se-
house msured w
ch? His answer w
as "No • The fact however, is that the h
. 00 000 00 ih ousa
°"'
mu . n insured with the FGU for P1 '. . . e appfication
had beeroved and made 8 part of the policy. Subsequently, a fire
wasu':: in a neighboring house, and spread to the house of PecJro
: s which was completely burned. Dern_and for pay"!ent having
~ refused by the insurer, Pedro Reyes filed a comp/amt. May he
recover?, Reason.
Answer: Yes, Pedro Reyes may recovher underfihis f~e policy from
th . ranee company. His recovery, owever rom oth FGU and
th: ;~!~ranee company will be limited to the agreed v~luation of the
property, ff the policy is valued, .or to the true value if the po/icy is
ope-F,;ere being no prohibition in both insurance against the taking of
•other insurance•, the issue boils ~own ~o whether ?r not the
misrepresentation by Rey?s as _t~ his havmg_already msurecJ his
house is material. I submit that it ,s not matenal, because the prior
insurances not being a factor in the determination of the risk, or the
condition of the property insured, no extra prejudice will be suffered
by the insurance company even if the risk attaches, as the amount of
recovery by Reyes from both insurance companies will be limited as
aforesaid to the agreed valuation, or the true value, depending on
whether the policy is valued or open, respectively.
Bar Question: On May 15, 1984, Juan applied for a life insurance
policy with Acme Lffe Insurance Company. The policy was issued to
Juan on June 30, 1984 but the date of issue, as appearing in the
policy, was May 15, 1984, the date of his application. Juan
subsequently realized that some of his answers in · the insurance
application were e"oneous. Accordingly, he supplied the insurance
company with the co"ect replies. However his letter to the insurance
company giving the correct answers was lost in the mails. Juan died
on June 1, 1984. . his failure to comply with his plan to assign a security guard on
The insurance company now refuses to pay Juan's beneficiary
contending that he (Juan) misrepresented the state of his health at
the time of his application. Is the insurance company liable? State
your reasons.
INSURANCE
159
Aflswer: The_ insburance cofmh~any,_ Acme Ufe, can refuse to pay
, beneficiary ecause o 1s misrepresentation
Jusn s . t• s or errors made
. his appllca ,on. . .
,n The bases for Acme m accepting Juan's application
d. .
. y at the rate stated in the policy are the repres'eant '.sswng a
pa/IC J . . '. n a1ions and
statements made by uan m his application filed and received by
eon May 15, 1984.
Acm1ihe correction of errors by Juan did not reach Acme a d A
·t f I t· . , n cme
had no opportum y _o ree_va ua mg ,ts decision to insure Juan, and to
fiX the ,ate of prem,ums, m a~cordance with the correct application.
Acme therefore ~ntered mto the contract under the false belief
mat Juan 's app!1cat1on dated May 15, ~984 contained infonnation on
the basis of which ,t (Acme) could_decide on whether or not it should
enter into the contract, and_prescnbe t~e rate of premiums.
The good faith or bad faith of Juan ,s immaterial.
Hence, Acme, the insurer can validly refuse to pay the beneficiary
of Juan.
Sar Question: Pa~aya paid for_a fire insurance on his multi-storey
building. At the time he applied for the insurance, he told the
representative of the insurance company that he planned to assign a
security guard on every floor of the building right away. Except for
the ground floor, no security guards were assigned. Eleven months
after the policy was issued, the building was gutted by fire which
started on the third floor. Unknown to Pabaya, the insurance
company had incorporated his planned undertaking in the policy.
Can Pabaya recover on the fire insurance policy. Explain.
Answer: Pabaya can recover on the fire insurance policy.
The plan to assign a security guard on every floor of the building,
by the fact that it is a mere plan, cannot amount to a promissory
representation or warranty.
The inclusion in the policy of the said plan, ff worded as a mere
plan in the policy, does not amount to a promissory representation or
a warranty, and the failure of Pabaya to push through with the plan is
not violative of the insurance contract.
Therefore, Pabaya is entitled to recover under the policy inspite of
every floor of the insured building.
5. Consequences of Misrepresentation
 INSURANCE
160
. is false on a material point, the injured
If the represe~tation the time when the representation be Pa!fy
is entitled to rescind from
cori,eg
false.
. ranted by the Insurance Code is Waiv
The right to rescind ~ ium payments despite knowledge ~d by
0 An:ough he filed his .application before he got s;r;resen~atio~.
the acceptan~e · ?f P(;: inserted by Section 2, B.P. 874 ). the
ground of resc1ss1on
. . sues a life policy and receives the full i , .
An insurer fh1c~~~ths later on informs the insured that the P~;tia1
premiums but our. force commits a serious breach of cont icy
ha~ .never b~enur~ not ~nly to recover the premiums paid ~ l
entitling tbhet mlsso moral and other damages (Great vs. CA ,~~
Interest, u a ' ""
SCRA 501).
Where matters of opinion a_re ca.lled for, ~nswer~ made in 900d
faith and without intent to deceive will not avoid a policy e~en though
they are untrue. Thus, altho~~h fals~,da reptresfetnhta~1on of the
expectation, intention, belief, op_1nion, or JU gmen o . ~ insured Will
not avoid the policy if there 1s no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower _rate of premium,
and this is likewise the rule although the state,:nent 1s material to the
risk if the statement is obviously of the for~gomg character, since in
such case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear distinction
between such a case and one in which the insured fraudulently and
intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility
of which is shown by the facts within his knowledge, since in such
case the intent to deceive the insurer is obvious and amounts to
actual fraud (Philamcare vs. CA, 379 SCRA 356)
There is no misrepresentation. If the insured, who was not a
medical doctor, answered "no recurrence". He first gave an honest
opinion. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.
Bar Question: "A" applied for a life insurance pq/icy on October 12,
1956, stating at the time that he had never suffered from any of the
enumerated diseases, including typhoid fever. On
November 3,
1956, he became ill with typhoid fever and completely mcovered on
November 18, 1956. On November 20, 1956, the policy was
delivered and the first premium paid by him without disclosure of the
INSURANCE
161
id illness. Three months later, ''.4 • died fro
. ..
typhOo/icy void or valid? What are the rights of~happen~1c1ti_ s. Is
the P Give the reasons for your answer. e parties m the
case 7
wer: The policy is void because of material .
.
Alt resentations therein are presumed to refer to th d typhoid, his
reP · ff, t th d e ate when the
contract went '.nto ef t;c
ment by htm o
fi e ate_ of delivery of the po/icy to him and
e trst premium. That he died t f .
~~rof appendicitis, does not alter the conclusion. ' no o typhoid,
a. Misrepresentation by Collusion with
Insurer's Agent
s,r Questl~n: "A ", agent of life insurance "B" induced "C" who had
been suffenng fr~m ~d~an_c ed tuberculosis to apply for p 1 o,ooo.oo
life insu:ance which C dtd an~ he (C) requested "A" to fill up the
application ~orm. Thru ~he _conmvan~e of the physician, it was made
to appear in the appftcatton that c· is in good health and the
P10,000.00 life insurance policy was issued by "B" to "C".
a. Is the policy issued to "C" valid?
b. Is B bound by the acts of his agent "A"? Give reasons for your
answer.
Answer: (a) The policy issued to •c• is void, because it was issued
on a misreprese~tation through his connivance with two agents of
the insurer-the insurance agent and the insurance physician. It is
the participation of C in the misrepresentation which avoids the
policy. C, by conniving with two agents of the insurer, A, the agent,
and the physician of the insumr, made the two his own agents, and
the misrepresentation of the two is equivalent to his own
misrep~sentation, material enough to avoid the policy. ·
(b) B, the insurer, is normally bound by the acts of his agents, but
in the problem above, the participation of the insured in the
commission of the misrepresentation avoids the policy and will not
bind the insurer.
C. Breach of Warranties
1. Warranty
a. Defined
 INSURANCE
162
. tatement or promise set forth in the POiicy
A wa~nty is ~a~ed therein, the untruth or non-fulfillment of Or_by
reference ,ncorpond without reference to whether the insurer : ~
in any res~t, a h untruth or non-fulfillment, renders the 8_ill
fact prejudiced by sue
Policy
voidable.
b. Classes
classes of warranties: (1} the express, and ( ) 11,_
There are ·two 2
""
implied.
1) Express Warranty
ss warranty is an agreement expressed in a P<>licy
/n bex: assured stipulates that ce~ain facts relating to the risk
;re8;,~ :hall be true, or ce_
rtain acts relating to the same subject have
been or shall be done.
An express warranty m~st appear on the f~ce of the policy ~
insurance or in an authentic document, clearly incorporated therein
and mad~ part thereof by explicit reference, or by words clearty
evidencing such intention.
2) Implied Warranty
Only found in marine i~surance, implied warranties are warranties
deemed included in the contract, although not expressly mentioned
therein.
These implied warranties in marine insurance are: (1) sea-
worthiness, (2) non-deviation from the agreed voyage, and (3) non-
indulgence in illegal ventures. · Answer: No, the plaintiff is not entitled to recover under the policy
c. Effect of Breach of Warranty
All breaches of warranty give to the insurer the right to rescind.
If fraud intervenes in the breach, the insurer is freed from liability
from the start, as the contract is void ab initio.
If there is no fraud in the breach, the insurer is freed from the
contract the moment the breach occurs and is entitled to retain lhe
premiums corresponding to the period up to the time of the breach.
INSURANCE
163
While the payment b~ the insur~r for the insured value of the
0 operates as a waiver of the insurer's right 10 eni th lost
cal'9the implied warranty against the assured und orcethe e te_rm
of • th er manne
insurance poh~y,. e fsthame canl~ot be validly interpreted as an
atic admIss1on o e vesse s seaworthiness by the .
aulorn • h insurer as
to foreclose recours~ a~ainst t e common carrier for any liability
under contractual obhgat,on as such common carrier (Delsan vs. CA,
369 scRA 24 }.
Breach of a war~anty or o~ a condition renders the contract
defeasible a~ ~he option of the insure~; but if he 50 elects, he may
waive his privilege and power to resc,nd by the mere expression of
an intention so to do. In t~at event his liability under the policy
continues as before (Prudential vs. Trans Asia, 491 SCRA 411 ).
Bar Question: Plaintiff had insured his residential building with
defendant company. A warranty clause in the policy reads as
follows. "ft 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 plaintiff
engaged in the business of selling petroleum in the province, arrived
in plaintiff's house with a truckload of 5-gallon drums filled with
kerosene. He obtained plaintiff's permission to leave the truck in
plaintiff's garage for two days. The garage was located under
plaintiff's house. During the second night, fire broke out in plaintiff's
kitchen. Before the fire reached the garage, however, plaintiff 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 plaintiff entitled to recover
under the terms of the policy?
because of a breach by him of an express warranty that during the
effectivity of the policy, no hazardous goods will be stored in the
insured premises.
That the truckload of kerosene drums was in the insured's house
for two days only to accommodat e a friend, that the fire did not come
from the kerosene truck and that the insured was able to drive out
from his house the ke~ene truck, are of no moment.
A warranty has to be strictly complied with, !3nd a breach thereof,
even if not grave, will entitle the insurer to rescind.
Bar Question : When x insured his building, X indicated in the
application that it is a residential building, but actually the building
 INSURANCE
164
house for some hazardous mat .
was being used as a ~a~rance policy, if any? ena1s.
What is the effect on ~he ,ns be cancelfed because of the chan
a) The insurance poltcy can 9e in
the use. . . automatically be changed.
11
b) The (nsurance pol~Y :;ed not be chan ed.
c The insurance olt_c . fi"xed regardless of the change in the u
d) The insurance poltcy ,s I se.
. . . nd A/ma formed a business partnersh ·
Bar Question_. Julte ~e Pino Shop, the partnership engaged i 'P.
Under the busme_ ss naaterials Julie insured the stocks in trad n a
s~le of constrv~t,on mGC /ns~rance Company for P350,0ooe of
Pmo Shop w,t~ Wgain got an insurance contract with Rsi'~o.
Subsequently, s e a from EiC for P200 000 00 A r, or
P1,000,000.~~ an~etdh~;e store of the partne;ship.· julie fil~:hof
unknown ongm guu, • H er
claims with the three insurance co;pat1es. d°r":'eveh. her claims
were denied separately for breach o_ po icy con~ ,otn dw tch r~quired
the insured to give notice of any msurance e11ec e covenng the
stocks in trade. Julie went_to court a~d c,a,;':7hde~ that she should
not be blamed for the omission, allegmg . a e msurance agents
for WGC, RSI and EiC knew of the ex,sten~e of the additional
. ce coverages and that she was not mforme~ about the
msuran d. . I . h Id b
requirement that such other or ad ,t,ona msurance s ou e stated
in the policy. . .
a. ts the contention of Julte tenable? Exp/am .. .
b. May she recover on her fire insurance poltc,es? Explain.
Answer: (a) No. Julie's first contention is not tenable. Even if the
insurance agents for the three ins_urers kn~w o( the existence of
additional insurance coverages, Julte was still guilty of concealment
in not giving notice of the other insurance. Her second contention is
also not tenable. The requirement to give notice of other insurance
appears in the policy so she cannot claim that she was not informed
thereof.
(b) No; she may not recover on her policies because she violated
a warranty in the contracts that she would inform them of other
insurances.
d. Construction of Warranties
Not only are warranties strictly construed against the insurer, but
they should, likewise, by themselves be reasonably interpreted
(American vs. Tantuco, 366 SCRA 740)
INSURANCE
165
warranties In Marine Insurance
2,
a. Classes in Marine Insurance
express - if provided for on the face 0 f th
1· to another document. · e contract or by
terence
re _ irnplied.
2
ear Quest/on:
. What warranties are implied in ma . .
nne insurance?
-~
er· There are three implied warranties in a .
AnsW .;.,orthiness of the vessel at the inception of :an~e insurance:
(8) s;;:e vessel will not deviate from the agreed voyae ;~surance; (b)
mst essel will not engage in any illegal venture g , and (c) that
.
,r Question: What is deviation in marine insurance policy?
8
Answer: Deviation is a departure of ~he vessel from the course of
the voyage, or an unreas~nabl~ delay m pursuing the voyage, or the
commencem_e ~t of_a n ent,refy different voyage.
_,s
If the de~1atlon proper, the contract remains valid. If improper,
the insurer 1s not !,able for lo~s subsequent to the deviation.
A deviation ,s _proper m the following cases: (1) If due to
circumstances outs,?e of the control of the captain or ship owner; (2)
If done to comply with a warranty; (3) If made in good faith to avoid
8 peril; and (4) If made to save human /ffe or anothe.r distressed
vessel.
Bar Question: On a clear weather, MN Sundo, carrying insured
cargo, left the port of Manila bound for Cebu. While at sea, the
vessel encountered a strong typhoon forcing the captain to steer the
vessel to the nearest island where it stayed for seven days. The
vessel ran out of provisions for its passengers. Consequently, the
vessel proceeded to Le.yte to replenish its supplies.
a.) Assuming the cargo was damaged because of such deviation,
who between the insurance company and the owner of the cargo
bears the loss?
b.) Under what situations can a vessel proceed to a port other
than its port of destination?
Answer: a.) The insurance company should pear the toss. The
deviation made was proper pursuant to Section 145(a) of the
Insurance Code. Due to the strong typhoon, the captain was forced
to deviate in order to avoid a peril. ,
 INSURANCE
166
rt proceed to a port other than its
b.) A ve~el can P'::wfng instances: (a) when caus~~rt Of
destination m the f~ich neither the master nor the _owner of by
circumstances over ~ b when necessary ~o comply with a wa the
ship has anY_ control, ( ~ not the peril is insured against; (c) ';:nty
or avoi? pent, whether d u n reasonable grounds of belief i hen
made 1~ good f~1th, anriJ· 0d) when in good faith, for the Pu n 1ts
necess_1ty to avo,d
of savmg human 1, , 0
~,:S,: relieving another vessel in distress.'Po(Sse
ee
Section 124, Insurance Code)
. f Seaworthlness/Cargoworthiness
b. Meaning o
eaworthy it must be adequately equipped f
For a vesseI to be S ' ffi . t b
d anned with a su 1c1en num er of cornpet or
the voyaged an mseaworthiness is defined as the sufficiency of ethnt
officers an crew.
vessel in materials, construction,. eq_u,_
. t ffi
pmen , o icers,_ men, and
e
outfit for the trade or service in which ,t '~thempf loyed. tit ,_
ncludes the
fitn~s of a ship for·a particular voyage w1 ~e erence o its physical
and mechanical condition, the extent of ,ts . fuel and -~rovisions
the quality of its officers and crew, anq its adaptability for the
~::Ji 1
voyage proposed (SMC vs. Heirs, 384 SCRA 87).
, To be seaworthy, a vessel must have that degree_of fi!ness Which
/n ordinary, careful and prudent owner would r~qu1re his vessel to
have at the commencement of her voyage, having regard to all the
probable circumstances of it. Thus the degree of .seaworthiness
varies in relation to the contemplated voyage. Crossing the Atlantic
calls for stronger equipment than sailing across the Visayan Sea. It
is essential to consider that once the necessary degree of
seaworthiness has been ascertained, this obligation is an absolute
one, i.e., the undertaking is that the vessel actually is seaworthy. It
is no excuse that the shipowner took every possible precaution to
make her so, if in fact he failed (Ibid.).
In examining what is meant by seaworthiness, the dual nature of
the carrier's obligations under a contract of affreightment must be
considered. To satisfy these duties, the vessel must be efficient (a)
as an instrument of transport, and (b) as a storehouse for her cargo.
The latter part of the obligatiort is sometimes referred to as
cargoworthiness.
A ship is efficient as an instrument of transport if its hull, tackle
and machinery are in a state of good repair, if she is sufficienW
provided with fuel and ballast, and is manned by an efficient crew.
INSURANCE
167
vessel is carg~worthy if it is sufficient! t
8
Aftd the particular kind of cargo which she\:;ong and equipped to
r,8rrY r cargo must be so loaded that it is sat f contracted to carry
f~
and h; age. A mere right gi~en to the charter!r ~er to proeeed 0 ~
her v / loading and to satisfy himself that sh inspect the vessel
b8tor cted cargo does not free the shipowne f e w_as fit for the
c;O(lt~e a cargoworthy ship (Santiago vs. CA ~ ;om his obligation to
pro"' ' 3 5CRA 492).
rtificates tend ing to show that at the tim
. ~tion by the Philippine Coast Guard, th: of dry-docking and
,ns e do not necessarily take into account the vessel was_~t for
8
vOY ,iessel at the time of the commencement ofa;tual cond1bon of
thertificates issued, however, do not negate the e voyage._ The
ce seaworthiness triggered by an unexplained sinkin pr~~ump!i?n of
:ued in this regard, authoriti~s are likewise cf~ar certificate~
I robative value, thus seaworthiness relates to a as , to their
p ndition. Neither the granting of classification or ;e~el s actual
cocertificates establishes seaworthiness. Authorities e issulance of
· · rt'fi are c ear that
diligence in securing ce 11cates of seaworthiness d .
vessel owner's obligation. Also securing the aoes notl satisfy
the h· ' pprova of the
shipper of the cargo, or is ~urveyor, ?.f the condition of the vessel or
her stowage does not establish due diligence if the vessel was in fact
unseawo~hy, for the cargo owner has no obligation in relation to
seaworthiness (Delsan vs. CA, 369 SCRA 24)
V. LOSS
A. Defined
Loss is the injury or damage sustained by the insured from the
penis insured against.
8. Proximate Cause
Proximate cause is the active efficient cause which sets in motion
a train of events which in tum brings about a result without the
intervention of any force operating and working actively from a new
and independent force.
Proximate cause is defined as that cause, which, in natural and
c~ntinuous sequence, unbroken by any efficient cause, produces the
mJury, and without which the result would have not occurred. And
more comprehensively, the proximate legal cause is that acting first
and producing the injury, either immediately or by setting other
 INSURANCE INSURANCE
168
169
. nuting
1 a natural and continuous ch . proof is mad_e of a loss apparent! . .
events in motion, a!I con: close connection with its imn, 81~ Of 8
If ce the burden is upon the insurer to y wtth1n a contract of
events, each havrnT vent in the chain immediately affecun8d'ate if1Sur~ca~se of l?ss :Which is ~xcepted or fo~:v~ th~t-the loss arose
predecessor, the fina ebable result of the cause which first ag the ffO(T1 cause which limits ,ts liability (Country hich_it 1s not liable, or
injury a natu~I and pro es that the person responsible for thecled, fr0r11 a vs. L1anga, 374 SCRA
under such circum stan~·nary prudent and intelligent person h first 653)-
I
event should, as an or ct at the moment of his actor defau~"e a f prerequisites to Recovery for Loss in
rea~nable grou:d t~r:~might probably result therefrom (Va1talhat . Against Fire 1nsurance
an rnJury _to somSCPRA 281; Ramos vs. C.O.L., 597 SCRA 526) car
vs. Catub1g, 649 ·
1_ Notice of Loss - Must be immediately g·
.
Proximate cause 1
•s determined from the facts of each case u waived expressly or impliedly by the insurer. IVen, unless delay is
. . • Pon
·ned consideration of logic, common sense, policy and
a com bI p I 482 SCRA 44)
precedent (Calinutan vs. eop e, . Absolute absence of notice (if notice is Specified
nditions) makes the policy null and void (Union ~s ;h~I one of the
Sar Question: Alfredo took out a po(icy to insure his commercial ~ scRA 271 ). · 1· Guaranty,
building against fire. The broker ~or the insurathnce_company agreed to
. t 5-day credit within which to pay e insurance premium 2. Probof olf Los_s -d According t? ~st evidence obtainable
~ve a delivery of the policy on May 15, 2006, Alfredo issued ~ [)elay may e a so waive expressly or 1mphedly by the insurer. ·
~ ted check payable on May 30, 2006. On May 28, 2006, a fire
~~/out and destroyed the building owned by Alfredo. What WOUid Where_t~e insu~er_ in_troduc~ a~ its evidence the report of the
be your answer if it was found that the pro~1mate. cause of the fire adjust~r, ,t ,s an a m1ss1on against interest, and it is grave abuse of
was an explosion and that fire was but the .1m;ed1ate cause of loss disCretion on the part of the Insurance Commissioner to d. d
·
and there is no excepted peril under the pollcy. the said report in th e dec1s1on
· · (N
oda vs. Insurance, 151 SCRA 1sregar
227).

Answer: Yes, my answer would be the same. The Insurance Cede
(Section 86) allows reco_very if the cause of the loss was either the
proximate or the immediate cause as Jong as an excepted pen/ was
not the proximate cause of the Joss.
C. Loss for Which Insurer Liable
1. Loss the 6,oximate cause of which is the peril insured
against . 1. Actual total loss, involving total destruction, loss by sinking,
2. Loss the G.lnmediate cause of which is the peril insured
against except where the Rroximate cause is an excepted peril
3. Loss through the A9tigence of the insured
4. Loss /caused by efforts to rescue the thing from the peril
insured against
D. Loss for Which Insurer not Liable
As r~gards the submi~sion o_ f documents to prove loss,
substantial, not_s_tnct, c_
omphance with the requirements will always
be deemed ~uff1c1ent (Fmman vs. CA, 361 SCRA 214).
F. Loss in Marine Insurance
a. Total - which may be:
damage rendering the thing valueless, or total deprivation of the
owner of possession or part of the destruction, or
2. Constructive total loss, involving actual loss of more than 3/4 of
the object; damage reducing the value by more than 3/4 of the value
of the vessel and if cargo, the expense to transship exceeds 3/4 of
the value of the cargo.

1. Loss by the insured's willful act Bar Question For a constructive total loss to exist' in marine
2. Loss due to connivance of the insured insurance, it is required that the person insured relinquish his interest
3. Loss where the excepted peril is the proximate cause mthe thing insured. This relinquishment must be
 INSURANCE INSURANCE
170 171
000 ,ooo.0O. Th~ insurance company refu
A. actual. . d .f it fails, then actual. st P2, ship owner, stating that there was "no c sad t? pay the claim
B constructive first an , . of th8 was there "constructive total loss· to on~truct,ve total toss·.
c:either actual or constructive. 8· r from the insurance company? entitle the ship owner to
D. constructive. f8cove was it prop~r for the ship owner to
b. Partial • toss which Is not total stJ:~donment to the insurance company? send a notice of

. insured as one separable unit, the basi wer: a. There was no constructive total loss .
An•
determining the ext
st
t
The _l~gs having .beence of constructive total loss is the totali~ for
even if the shipment was carried in ~of
the shipment off twhhe. ~g:otally sank in the course of the voy 0
the Joss must be more than ¾ of it · To be considered
sut~ing the value by more than ¾. (Section s1;:1~e or ~ damage
f8 irance Code). In the case at bar, the loss is not relation to 139,
barges, one o IC age In~ of the vessel which was insured for p 40 :re th an ¾ the
(Oriental vs. CA, 200 SCRA 459 ).
°"~~ 8
,ef/oating is
0 8 000.00, or a total
P900,000.00 and the needed
000 0
'
n ..oo. The cost
tar in evidence of the marine insurance policy ooo of only P2,900 000 /~a,~s amount to
0
The presen iodnconditlons can be scrutinized and the extent so, ~~stlt~te more th~n ¾ of the value of the v~ssei. hich does not
that its terms an .
termined is necessary.
Th t
econ ents thereof ca
o
coverage can be de
. t,. No. The notice of abandonment was not proper. To be
· · th t f• n . amount to be expended to recover the vessel m t h proper,
be scrutinized for the purpose of determining e err,:is o tis validity
. •t among other things (Malayan vs. Jardine, 600 sc0,
th8
,nore than ¾, 1 s
·t value MN p rt
·
s us ave been
ea Y hells needed only P2 g M'tr
or effect1v1 y, '"" 1
which is far from the amount needed to merit abandonment.. ,on,
706)
Bar Question : x Shipping, Co., insured its vessel MV Don Teodoro Bir Question: An insurance company Issued a ma • .
. . nne msurance
for Php 1oo Million with ABC Insurance, Co. ~hrough T, an agent of X policy c_overing a . shipment by sea from Mindoro to Batangas of
Shipping. During a voyage, the vesseMI~~c,de1al/y caught. fire and t,000 pieces of Mm~oro ga~den stones against total toss only. The
suffered damages estimated at Php 80 1II,on: perso?aIIy mformed stones we~ loaded in _two l!ghters, the first with 600 pieces and the
· ABC Insurance that X Shipping was a~a~do~ing t~e ship. second with 400 cop,~s. Because of rough seas, damB(Je was
Later, ABC insurance denied X Shippings claim f?r loss on. the caused to the second l!ghte~ resulting in the toss of 325 out of 400
ground that a notice of ~bandonment through ,ts agent was pieces. The owner of the shipment filed claims against the insurance
improper. Is ABC Insurance nght? . . , . company on the ground of constructive total loss inasmuch as more
A. Yes since X Shipping should have ratified its agents action. than three-fourth (3/4) of the value of the stones has been lost in one
B. No, 'since T, as agent of X Shipping w~o P,:oc.u red the insuranc~ of the lighters. Is the insurance company liable under its policy?
can a/so give notice of abandonment for h~s ~nnc,pal. Why?
c. Yes, since only the agent of X Shipping relayed the fact of
abandonment. Answer: As the policy taken is an insurance for total loss only, there
·D. No, since in the first place, the damage was more than ¾ of the can be no recovery on the ground of constructive total toss. The
ship's value. Insured shipment of 1,000 pieces of Mindoro garden stones,
' although carried in two barges, was Insured under one policy only.
Bar Question: MN Pearly Shells, a passenger and cargo vessel, As a constructive loss would involve a loss of at least 314, the loss
was insured for P40,000,000.00 against "constructive total loss'. of 325 out of 1,000 pieoes would not be a constructive total loss.
Due to typhoon, it sank near Pa/awan. Luckily, there were no Hence, there can be no recovery by the insured for constructive tota!
casualties, only Injured passengers. The' ship-owner sent a notice of toss. ·
abandonment ot his interest over the vessel to the insurance
company which then hired professionals to afloat the vessel .for Bsr Question: An interisland vessel, insured for P2 M against "total
P900,000.00. When ref/oated, the vessel needed repairs estimated and constructive total loss, · sank in 150 feet of water one mile off
Paranaque during typhoon. After the typhoon, the ship owner gave
 INSURANCE INSURANCE
173
t 72 t· of his interest in the entire s
nee company as the actual partial loss of th
of abandonmen Refusing to accept the 0 nke11 8 insured without
if1suf8 ment of the vessel.
written notl~nsuranc e compan~ai/ors to ref/oat the vesse/ afffer 01 sbsndon
th
ship to e t the insurer htre~e refloated vessel needed rep 8 tote1 bfem: Some businessmen with an a~ .
abandon;;~ o.oo. aecaus~ld for repairs. Several firms st1tlr..
th 8
'(hi ~'°only P100,000.00 ask you to help or, ail~ble starting capital
~ostof~s~ed invitations of from P1 .2M to P1 ._3M for the co rn1tteC/ to Jegal limitations, they have plans r:~iz~ a business firm.
I totsf(ngt
msurer sealed bids rangln.gn of the vessel to ,ts original ca:~(ete 8
sub/ 8~ agreeable to rendering financial assist invite alien investors
sera;~ing and/or restora_tto facts the insurance company re ~lllori. 0
wh 51 ent and/or loans. Your professional aan~ by way of direct
9
re uthis basis of the followmgfor payment of total loss on the g~ ct8cJ t
in'IB ~ 0 11owing various questions that may aris ssiS ance is solicited
· rotJnC/
On e
the claim of the s
hip owner
tructive total Joss. . ~~ ~ .

that there was no c~ns Of abandonment given by the owner ProPe Question: Assume that your firm is engaged I. h ·
was the notice rty
a. t s,r ortation of •coconut oil produced exctus/~ ~ t e co".'mercial
made? .. f the insurance company as o the absenc tf8~SP xplain with legal reasons: e Y in Mindanao.
b. /s the position :ell-taken?' Reas.on. . 8 01 eneflY e f &· • •
.
If 8 vessel o your ,,rm 1s insured and is dams d
constructive t~tal loss the ship owner fatled to gI~e the proper nor hOOn at sea, may your firm recover the fuffe partially by a
c. Assuming that he still recover from the insurer? If so ,/8 IYP ? Why?. amount of the
of abandonment, may d? Why? , hat insurance.
amount can be recovere .
amount Answer: If the vessel is insured a~d is partially damaged b a
e sinking of a vessel generally
. ( a) Although·nthmany instances,
. th e vesseI may be eaSto
. typhoon at sea, the full amount of the insurance is recoverab/ 'f~h
Answer.
a total Joss, ~oweve~diem
th
at bar where the sinking is Just one 1 ~? partial damage amounts to a constructive total loss and e I fi e
abandons the vessel to the insurer. · my inn
salvaged as m e ~nd in 150 feet of water only. This, for the owne:
from Paranaque, 1Joss but it could amount to a total construcuv'e G. Payment of Claims
is not a total actua ,
loss. . f abandonment given by the owner on his 1. Life Insurance
The ::t:ia~ the Joss was a total constructive loss, being a
a~ump . t of the shipowner, was properly made.
a. Where Insured Outlives Maturity Due
unilateral ac 1't'I0n of the insurance company is well-taken The
. (b) The pos f the sinking (one mile off Paranaque, and i~ 150
circumstances 0 . d · The claim is pay~ble immediately on maturity of the policy. This is
feet of water) making its refloatmg ~Pn _relpaf,rtheassy, ;an tpredvent the true in endowment insurance.
loss from being a total actual loss. en_s o e ea ex en only to
losses caused by Sea damage '
or by violence of · elements, and
b the b. Where Policy Matures by lnsured's Death
does· not embrace all losses. And the. loss,I b not emg a total actual
if th
1 bandonment by the owner will on y e proper e total
The claim is payable within 60 days after presentation of the claim
~:Uctive Joss amounts to 3/4 or more of the value o~ e
th_ vessel.
refurbish mg (P1_.3 and filing _of the proof of death of the insured. Delay entitles the
The expenses for refloating · (P40, 000) and
insured to damages double the legal rate of interest per annum as
million) do not amount to 314 o~ more _o f the value of the ship.
. fixed by the Monetary Board, unless the delay is due to a fraudulent
Hence, claiming for total constructive loss 1s not proper. claim (Section 242, Insurance Code).
(c) If the ship owner failed to gi~e the proper notice of
abandonment, he can still recover for partial loss. If, as the pro~lem Sections 242 and 243 of the Insurance Code apply only when the
states, P40,000 was spent for refloating and P1.2 ~o P1.3 m1//10~ court finds an unreasonable delay or refusal in the payment of the
wooJd be the expense for refurbishing and/or restoring the vesse insurance claims. The legal rate for this purpose is 6% per annum,
tD 'i1s original condition, these amounts are recoverable from the not 12% as provided for by CB Cir. 416, which applies only to loans
or forbearances of money (Tio vs. CA, 202 SCRA 119).
 INSURANCE INSURANCE
174 175
nee proceeds to initially prove that th 1 .
1nsura d peril (Ibid.). e ass is caused by the
nable delay in the payment of the ins
r:JJ"ere
In case o! unreaso insured can recover: (1) attorney's f~red'a
th
b
claim by th_e rns;;r ~eason of the unreasonable withholdin s, (i) 2_ property
Insurance
expenses incur, th ~egal interest rate fixed by the Monetary ~ (3)
interest at doub eof ~he claim. Moral and exemplary damages ard, a. If Amount of Loss Determined b A
by Arbitration Y greement or
and (4) amoundt the Civil Code depending on the presenceare of
recoverable un er Id )
ud and bad faith (in the claim for mora amages or wantonne . · .
The claim is payable within 30 days after proof 0 f 1oss 1s
:: oppressiveness (in claims for exemplary damages) (Zenith vS:, received
bY insurer.
CA. 185 SCRA 398).
b. If Ascertai nment of Loss not Made Wlthl
An insurance company, even in the ~bsence of b~d faith. may be Sixty (60) Days n
liable for moral, actual, and consequential damages. if shown that its
persistent acts of denial amount to unreasona_ ble obstinacy and
the heirs of_the insur~d: i-h1s (,~ based on the The claim is payable within 90 days from rece,·pt Of proof of loss
caused damage to If t 'd
general principles of equity, fairness an JUS ice vangelista vs. by the Insurer. no pa, . unreasonable delay is presu ed (C
vs. CA, 174 SCRA 11 ). m athay
GSIS, 66 SCRA 71).

Bar Question: In life insurance, when does t~e policy mature, or

when does the obligation of the insurer to pay anse?
Answer: In life insurance, the policy matures on the death of the
insured, if the policy still subsists, or on h(s survi~ing a S{)eeifl9d
period in endowment insurance or otherwise contmgen tly on the
continuance or cessation of life.
Evidence is utterly wanting to establish that the insured suffered
from an accidental death, the risk covered by the policy. In an
accident insurance, the insured's beneficiary has the burden of proof
in demonstrating that the cause of death is due to the covered peril.
Once that fact is established, the burden then shifts to the insurer to
show any excepted peril that may have been stipulated by the
parties (Vda. De Gabriel vs. CA, 264 SCRA 137).
An ·accident insurance· is not to be likened to an ordinary life
insurance where the insured's death, regardless of the cause
thereof, would normally be compensable. The latter is akin in
property insurance to an ·au risk" coverage where the insured, on the
aspect of burden of proof, has merely to show the condition of the
property insured when the policy attaches and the fact of loss or
damage during the period of the policy and where, thereafter, the
burden would be on the insurer to show any ·excluded peril." When,
however, the insured risk is specified, it lies .with the claimant of the
The condition .contained
. 1.
in an insurance policy th at ca1ms must
be presented within onet year after rejection is not m 1
I . t b . ere y a
procedura rfeqlu,iremen . u t ~n important matter essential to prompt
settlement o _ca ms aga1ns insura~ce companies as it demands that
insura.n~ suits be brought by t~e insured while the evidence as to
the ong1n and caus~ ?f destruction have not yet disappeared. It is in
the nature of a cond1t1on precedent to the liability of the Insurer, or in
other terms, a resolutory clause, the purpose of which is to terminate
all liabilities in case the action is not filed by the insured within the
period stipulated (Ang vs. Fulton, 2 SCRA 945). This is to enable
the insurance companies to make proper assessment of whether or
not the insured can recover and, if so, to determine the amount
reco~erable. However, where the delay in bringing the suit against
the insurance company was not caused by the insured or its
subr?Qee but by. the insurance company itself, it is unfair to penalize
.!he insured or its subrogee by dismissing its action against the
insurance company on the ground of prescription. The latter should
bear the consequences of its failure to act prompUy on the insured's
claim: Under the law, insurance companies are duty bound to adopt
and implement reasonable standards for the prompt, fair and
equitable settlement of claims [Section 241, Insurance Code]
(Country vs. Travellers, 176 SCRA 523).
. T_he rationale for the necessity of bringing suits against the insurer
wi in one year from the rejection of the claim has been settled. The
th
contention that the one-year prescriptive period does not start to run
 INSURANCE
176
· .. •deration had been resolved by the .
until the pelllion for r;ron~~ purpose for requiring that an ad~StJrer
1
runs counte~ to th e ec ace Commission or in a court of co on or
suit be filed in th e lnsura:1of the claim. To uphold the co~Petent
jurisdiction fro~ th ed d;;;eat the very principle which this Cou~nlion
w?uld contradict .an it can easily be used by insured persons held
laid down. Moreover, I time until any evidence which as a
sche~e odr dev_ 1cet ttohewma~ ~estroyed (Sun vs. CA, 195 SCRA~a9y3)be
cons1dere agains . .
Bar Question: Robin insured his bui!di~gt/gainst, fire With EFG
The insurance policy containe e usua stipulation th
::rua~i:· or suit must be filed within one year after the rejection ~~
the claim.
b . fil d h. I ·
After his building burned down, Ro in I e . ,s ca!~ for fire Joss
·th EFG On February 28, 1994,. EFG denied Robins claim. O
April 3, 1994, Robin sought recons, erat·,on of th e d_
WI . 'd . n
ema/, but EFG
2 1 5
reiterated its position. On March 0, ~~ , R?bm commenced
judicial action against EFG. Should Robins action be given due
course? Explain.
Answer: No Robin's action should not be given due course
Pursuant to the policy, Robin should have filed judicial action within 1
year after rejection of the claim. .His claim was rejecte~ i~ February
28, 1994, hence he had only until February 28, 1995 within which to
file his action. The filing on March 20, 1995 was beyond the one
year period. The filing of a recon~ideration after ~he denial of the
claim did not affect his one year penod to file the action.
3. Right of Ben~flciary to be Paid Directly by Insurer
If the insurance policy provides that the insurance company "will
indemnify any authorized driver who is driving the motor vehicle" of
the insured and, "in the event of death of said driver," the company
shall, likewise, "indemnify his personal representatives," and the
company "may, at its option, make indemnity payable directly to the
claimants or heirs of the claimants x x x it being the true intention of
this policy to protect x x x the liabilities of the insured towards the
passengers of the motor vehicle and the public, in other words, third
parties", the policy is typical of contracts pour autrui, hence the sole
heirs of the deceased have a direct cause of action against the
company, and since they could have maintained this action by
themselves without the assistance of the insured, it goes without
saying that they could a,:id did properly join the latter in filing the
complaint herein (Coquia vs. Fieldmen's, 26 SCRA 178).
INSURANCE
177
re the insurance contract provides f .
~heto third persons, the liability of the in or 1~demnity against
1~b1l11Yersons can directly sue the insurer. T~~er_is dir~.and such
ttiird Pr under indemnity contracts against third adir~t h~b11ity of the
i11s1.1re that the insurer can be held solidarily ,.Pb~ h~bihty does not
mean the other parties found at fault since1a1 e with the insured
a11d/orunder different obligations. The li~bility of thhe~ are being held
fable e insured ca ·
1 ·cle owner is .base d on Iort , according to the Civil mer or
vehl insurer arises from contract, particularly th _ Code, while that
of t~e Malayan, 584 SCRA 152). e insurance policy
(Heirs vs.
under the compulsory motor vehicle liability insura ..
Insurance Code, direct payments may be madenbcethpro~1s1ons
of the · 1· f · Y , e insurer
an accident v1c 1m o an insured vehicle (Sections 378
384 and
10
385 , Insurance Code). .
4. Right of Subrogation of Insurer Who Pays
"Subrogation is the substitution of one person in the pla f
ar,qther with reference to a !awful claim or ! ight, so that he wC:C sf
substituted s_ucc~eds to th_e rights of the other in relation to a debt or
1
claim, incl_uding its remedies or se?uriti~s." If the plaintiffs 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. The payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the
remedies which the insured 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 payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the
insurance claim (Equitable vs. Transmodal, 834 SCRA 581 )..
Subrogation may either be legal or conventional. Legal
. subrogation is that which takes place without agreement but _by
operation of law because of certain acts. Conventional subrogation
is that which takes place by agreement of the parties (Chemphil vs.
\ CA, 251 SCRA 257).
 INSURANCE INSURANCE
178
179
. subrogee succeeds are the same as ass the right to be indemnified and th f
The rights to which the the erson for whom he is substituted' but
S
not post Is passed on to th e subrogee (Loadere ore
ta • no rinht to

at
'll
not greater than, t~ose of clal~ security or remedy the subrog~/hat c;0IISC A 7). s r vs. Malayan,
~~R 62
Is, he cannot acquire subrogee cannot succeed to a right did •
8
not have. In other worbs, or. A subrogee in effect steps into not on payment to the consignee of an indemnity f th
possessed by. the ~u ro3 can recover only if the insured llkew~he Upge to the insured goods, the insurer's oer t·tel loss of or
shoes of the insure an i • vs First. 462 SCRA 125). 188 darria t t b · f
could have recovered (Su Ip c10 . brogatlon p~o an o -- eing o , th e highest
. n I ement to
equity -- equips it with a
su se of action in case of a contractual breach or negl'
, . cau
2207 of the Civil Code is founded on _the well-setliect . , b t .
Further, the ins~rer s su roga ory ng ht to sue for recovery under 1gence
.A~icle of subrogation. If the Insured property 1s destroyed ·or th~
pnnc1pl:d through the fault or negligence of a party other than the bill of lading 1n case of loss of or damage to the cargo is
urisprudentlally upheld. I~ the exer~ise of its subrogatory right, an
da:~~d then the insurer, upon payment to the assured, Will be
as 't d tO the rights of the assured to recover from the
l urer may proce~d against an er~ing carrier. TO all intents and
subroga e · h b bl' lnirposes, It stands 1~ the place and in substitution of the consignee.
wrongdoer to the extent that the insurer
P
as een o ,gated to pay.
t by the insurer to the assured operates as an equitable
~ fortiori, bo~h th~ insurer and t~e con~ignee are bound by the
ay.men nt to the former of all remedies which the latter may have contractual st1pulat1ons under the bill of lading (Federal vs. American ,
ass1gnme .
against the third party whos.e n~ghgence or wrong fu I act caused the 437 SCRA 50).
loss. The right of subrogation 1s not depende n~/pon, ~or does it
If the Insured property is destroyed or damaged through the fault
grow out of, any privity of contract or ufpthon _wn en ass,g_nment of
or negligence of a party other' ~han the assured, then the insurer,
claim. It accrues simply upon payment o e insurance c1a,m by the upon payment to the assured, will be subrogated to the rights of the
insurer. (Vector vs. American, 700 SCRA 385)
assured to recover from the wrongdoer to the extent that the insurer
has been obligated to pay (Coastwise vs. CA, 245 SCRA 796).
The right of subrogation is not depen_d ent up~n, nor does it.grow
out of, any privity of contract or upon _written ass1g~ment of claim. It
Presentation in · evidence of the marine Insurance policy is not
accrues simply upon payment of the insurance claim by the insurer.
Indispensable before the insurer may recover from the common
The right of subrogation is however, not ~bsolute . . There are a few
carrier the insured value of the lost cargo in the exercise of its
recognized exceptions to this rule. For instance, if the assured by
subrogation right. The subrogation receipt, by itself, is sufficient to
his own act releases the wrongdoer or third party liable for the loss or
establish not only the relationship of the insurer and the assured
damage, from liability, the insurer's right of subrogation is defeated.
shipper of the lost cargo, but also the amount paid to settle the
Similarly, where the insurer pays the assured the val~e of the lost
Insurance claim (Ibid.)
goods without notifying the carrier who has .in g?o~ faith settled the
assured's claim for loss, the settlement IS binding on both, the
Payment made by the insurer to third persons gave the former the
assured and the insurer, and the latter cannot bring an action against.
right to bring an action as subrogee against the insured. Having
the carrier on his right of subrogation. And where the insurer pays
failed to rebut the presumption of fault, the liability of the shipping
the assured for a loss which is not a risk covered by the policy,
agent for the loss of the cargo is Inevitable (Phil. American vs. CA,
thereby effecting voluntary payment, the former has no right of
273 SCRA 262).
subrogation against the third ·party liable for the loss. Consequently,
an insurer indemnifies the insured based on the loss or injury th8
The signing of the Loss and Subrogation Receipt was a valid pre-
latter actually suffered from. If there is no loss ·or injury, then there is
condition before the insurer could be compelled to turn over the
no obligation on the part of the insurer to indemnify the Insured.
whole amount of the Insurance to the two insured (Rizal vs. CA, 261
Should the insurer pay the Insured and it turns out (hat
SCRA69) .
indemnification is not due, or if due, the amount paid is excessive,
the insurer takes the risk of not being able to seek recompense fro~
Release of claim with loss and subrogation released the insurance
the alleged wrongdoer. This is because the supposed subrogor di
company from further llability (llao vs. CA, 218 SCRA 433)
 INSURANCE
180
. ft r paying the claim of the Insured for darna
The insurer, a e I to the right f th 9es
under the insurance, is subr?gated mere y s o e insureo
and therefore can necessarily recov~r. only ~hat was recoverable b
. d Should there be a def1c1ency 1n the amount recover Y
t he insure . d f · · eo
b the insured from the insurer, the e ic1ency is recoverable fron,
tte offender (Pioneer vs. CA, 175 SCRA 668 )-
When the insurer, after due verification of the merit and validity of
the insurance claim of the assured, pays the latter the total arnount
covered by its insurance policy, it becomes sub~ogated to the right of
the latter to recover the insured loss from the liable party (Cebu vs.
William, 306 SCRA 762).
This right of subrogation is not depen~ent upon written
assignment of the claim, _and p~yment to the insured makes the
insurer an assignee in equity; the insurer_can recov~r only that which
was recoverable by the insured, even without the insured assigning
his rights to the insurer against the carrier (St. Paul vs. Macondray,
70 SCRA 122). . copper cathodes against all risks. Subsequently, the cargoes weri:a
Where the insured was paid by the insurer, the latter is
subrogated to all rights of the former against the .wrongdoer. If the
insured, after being · paid by the insurer, releases the wrongdoer
without the insurer's consent, the insurer loses his right of
subrogation against the ·wrongdoer. The insurer will however be
entitled to recover from the insured what the insured originally
received from the insurer as the proceeds of the policy (Manila vs.
CA, 154 SCRA 650).
While Manila vs. CA, supra, is silent on whether the existence of
good faith or bad faith on the tortfeasor's part affects the insurer's
right of subrogation, there is 'jurisprudence that whenever the
wrongdoer settles with the insured without the consent of the insurer
and with knowledge of the insurer's payment and right of
subrogation, such right is not defeated by the settler:nent (Danzas vs.
Abrogar, 478 SCRA 80).
Payment by the insurer to the insured for loss under the policy
entitles the insurer to be subrogated to the rights of the insured
against the wrongdoer, as a general rule. The exceptions are: (1)
where the insured releases the wrongdoer from liability, (2) where
the insurer pays without notifying the carrier, which in good faith had
already paid the insured, and (3) where the insurer pays the insured
INSURANCE
181
loss which is not included in the risks .
for _a (Pan Malayan vs. CA, 184 SCRA 54 ) insured against, by the
~~ '
. n. insurer, as subrogee under Article 2207 of ..
-~
A xernpt from the reservation requirement ~he Civil Code, is
no~:ge suit based on _quasi-d7lict arising fromw1!~erespect to its
da . sion complained of in the criminal case (San lid f same act or
orn1s RA 568) e onso vs. CA
'
, This right of· subrogation
b
has its limitations. First b th
d b
.
• 0 the insurer
and the .con~1gnees are douthn . Y the contractual stipulations under
the bill of lading. econ , e insurer can be subrogated
· d
rights as the in~~re may
h
at~ · on 1y to the
against the wrongdoer. If by its own
acts after rece1v1~g paym~~h rfm the in~ur7~' the insured releases
the wrongdoer w o cause . _e ass from hab1hty, the insurer loses its
clairn against the latter (Abo1t1z vs. Insurance, 561 SCRA 262).
8,, Question : ELP l~surance, Inc. issued Marine Policy No. 888 in
favor of FCL Corp. to insure the shipment of 132 bundles of elect •
shipped on board the vessel "MN Menchu" from Leyte to Pier 10
North Harbor, Manila. '
. Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the
. release and w!thdrawa! of the cargoes from the pier and the
subsequent deflvery to ,ts warehouses or plants in Valenzuela City.
The go"?s were l~aded on board twelve (12) trucks owned by CGM,
Inc., dnven by ,ts employed drivers and accompanied by 'its
employed truck helpers. Of the twelve (12) trucks en route to
Valenzuela City, only eleven (11) reached the destination. One (1 J
truck, loaded with eleven (11) bundles of copper cathodes, failed to ·
deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a
claim for insurance indemnity in the amount of P1,500,000.00. After
the requisite investigation and adjustment, ELP Insurance, Inc. paid
FCL Corp. the amount of P1,350,000.00 as insurance indemnity.
ELP Insurance, Inc., thereafter, filed a complaint for damages
ag_ainst CGM, Inc. before the Regional Trial Court (RTC), seeking
reimbursement of the amount it had paid to FCL Corp. for the loss of
the subject cargo. CGM, Inc. denied the claim on the basis that it is
not Privy to the contract entered into by and between FCL Corp. and
ELP Insurance Inc., and hence, it is not liable therefor.
If you are the judge, how will you decide the case?
182 INSURANCE
INSURANCE
Answer: By virtue of subrogation, I will hold CGM liable to ELp 183
Question: "Lo " borrows P5O ooo 00 ,
the amount the latter paid to FC~. As subrogee_of the rights afo, s,r · • · ,rom "M•
interests of FCL, ELP has the nght to seek _reimbursement
CGM for breach of contract and/or tort. The claim of CGM that ·t in
,,;d ,.,,, date, at 12 % interest per annum ...
s,,., h. h dI .
,tgages Is ouse an ot m favor of "M"
Payable 360 da
. , o secu h
re t e loan "L.
ys
not privy to the contract between ELP and FCL is not merit~ _Was f11~ain contingencies, "M" insures the ho. To protect himself from
: loan with Rock Insurance Company Aufise for the full amount of
CGM did not have a contract with FCL but the former is liable fo~~us.
The cargo was lost while In the custody of CGM's truck driver01;- th: house and "M " collects from the ins~rand;ec~~aks out and bums
of the insurance. Pany the full value
CGM is liable for damages caused by its employees unless CG 0
can show that it exercised due care in the selection and supe,,, . .M Upon maturity of the loan, the insura
•Y Is1on
8
ment from "L ". The latter refuses to anee company demands
of its employees. fJn had been extinguished by the instra~ on the ground that the
('8Celved from the insurance company. He ~~ eayment Which "M"
Sar Question: A helicopter of ~BC ~o. collide~ wit~ XYZ 's tramway
entered into any loan or contract of whateg es that he has not
steel cables in its logging area in Sun~ao resulting m t~e destruction ·
/nsursnce company. He ,urtherI
contends thatver
't . nature
b w·th
I
the
of the helicopter and death of two pilots. ABC. Co. msured at its tose a house but it is worse if one has to pay ~ ais .ad e?ou~h to
expense the helicopter for PBO,000 and the two pilo~s (life insurance) 0
somebody who h_a s not extended any loan to hf:1d obh~at1on to
, for P5O,OOO each, and as a result of the crash, the insurer paid ABC
states that the insurance payment should Inure .to 8;:.s1des, he
Co. an indemnity of P18O,OOO. Nevertheless, ABC Co. sustained
""cause ha owns the house. Pass upon the ·tis benefit
additional damages of about P1OO,OOO which were not cover~ by .,., mens of "L's"
contentions.
insurance.
a. ABC Co. sued XYl to recover not only the additional
Anawe~: I would resolve the contentions of L, as follows:
damages, but also the P18O,000 which was already compensated by
1) First c~ntantion - The loan is extinguished by the Insurance
the insurer. Decide. Give reasons.
payment which M, the mortgagee, received from the insurance
b. What right/recourse, if any, has the insurer in order to be company.
reimbursed for the amount it paid to ABC Co? Give reasons.
My Ans.war: !he payment by_M's insurer to Mis a payment by virtue
of the ft:e policy by M over his mortgage right, and is. not 8 payment
Answer: (a) ABC Co., if it can prove XVZ's fault or negligence, has by M's msurer of L 's lo_
a n. Hance, L's loan still remains unpaid.
a cause of action against XYl, but only for the additional damage of
2) Second Contention - L has not entered into a contract of loan
P1OO,OOO it did not recover from the insurer (ABC Co). with the insurance company.
ABC Co. has no cause of action for the recovery from XYl of the My Answer: The insurer of a mortgagee who pays him is
P18O,OOO already paid to ABC Co. by its (ABC Co 's ) insurer. The subrogatad to all rights of the mortgagee over the mortgagor. This
effect of payment to ABC Co. by its insurer is to automatically Includes the right to collect the loan obligation of the mortgagor by
subrogate said insurer to ABC Co's right to collect against XYZ the the mortgagee.
amount of P18O,OOO already paid by said Insurer to ABC Co. The insurer who pays becomes the assignee in equity of the right
(b) The insurer of ABC Co. may intervene In the suit already file~ of the insured to collect, even In the absence of a deed of
by ABC Co. against XYl, in order that it can show to the court that it assignment or any contract. '
has already paid ABC Co. P18O,OOO so that the amount may be 3) Third Contention - L cannot be made to pay to somebody who
awarded to it in the decision. . has not extended any loan to him.
' The other alternative is for said insurer to file a separate civil su,t My Answer: The right of an insurer to collect from the insured's
against XYl for payment to it of P18O,OO0 said insurer had a(ready debtor flows from subrogation, which operates automatically after ~he
paid to ABC Co. Both remedies are Justified by the insurer's nght 0; Insurer makes payment to the insured mortgagee under the po/Icy.
automatic subrogation to the right of the insured to collect aga/ns The insurer of M collects because It steps into M's shoes by
XYZ. subrogation.
4) Fourth Contention - The Insurance payment should inure to L
because he owns the house. .
 INSURANCE INSURANCE
184
I My Answer: When M procured ins~rance, w~at he_insured Was . reasonable and prudent man. The
185

mortgage right, which belonged t~ htm. He did not insure the houh,s 10 a MICO wantonly and in bad faith d~se at bar does n t
over which he had no insurable mtereS · The p~yment to M by ~ tt,at eds The problem in the determ,· et~Yed the releaseo sfhow
t
. f th e ·insurance policies, aggrav
na ion of h o the
insurer was because of the loss of his mortgage nght, not becaus his Proc8
r,eficiarv ~ w o is the actual
8
the loss of L's house by fire. Of t,e ·ous creditors "".ho wanted to partake of th a~ed by the claim of
The insurable interests of L and M over the house are diffl8 vanJo mention th~ importance of the endor e insurance proceeds
from each other. .
ren1
~~O in withholding payments to GOYU (~~~nt to RCBC, justified
Hence, M's insurer, by subrogation, can collect from L /he 292)- vs. CA, 289 SCRA
P50,000.00 which L initially borrowed from M.
A Prima facie evidence of unreasonabl
. d bY th e fa,·1ure of the insuree delay in PBYment of the
Bar Question: Raul's truck bumped the car owned by Luz. The c t
was insured by' Gala Insurance. For the damage caused, Cata Paar 1
1 Im is
create
~: time fixed in both Sections 243 and 24~ if pay the claim within
the Insurance Code
Luz p5 000.00 in amicable settlement. Luz executed a reteas9 d (Finman vs. CA, 361 SCRA 214).
' ' h · tR of
claim, subrogating Gala to all her ng ts agams au/. When Cata
demanded reimbursement from Raul, the latter refused saying th
he had already paid Luz P4,500.00 for the damage to the ca, at
evidenced by a release of claim executed by Luz discharging Rauf.as
so Ca/a demanded reimbursement from Luz, who refused lo Pa
saying that the total damage to the car was P9, 500.00. Since ca!'
paid P5,000.00 only, -~uz contends that she was entitled to go aft:,
Raul to claim the add11tonal P4, 500. 00.
a. ts Gala, as subrogee of Luz, entitled to reimbursement from
Raul?
b. May Gala recover what it has paid Luz?

Answer: (a) No, Ca/a is not entitled to reimbursement from Raul

because, by virtue of Luz' execution of a release of claim, Cata did
not incur any liability to Luz since Raul paid the latter, hence Ca/a
has no right to collect from Raul. .
(b} Yes, Ca/a may recover from Luz the amount of P5,000.00
because, by Luz' execution of the release of claim, Ca/a lost its right
of subrogation against Raul.

5. Liability of Insurance Company for Delay in

Payment of Insurance Proceeds

For an insurance company to be held liable for unreasonably

delaying and withholding payment of insurance proceeds, the delay
must be wanton, oppressive, or malevolent. It is generally agreed,
however, that an insurer may in good faith and honesty entertain a
difference of opinion as to its liability. Accordingly, the statutory
penalty for vexatious refusal of an insurer to pay a claim should not
be inflicted unless the evidence and circumstanc es show that such
refusal was willful and without reasonable cause as the facts appear