Xaviers Mediocre Reviewer INSURANCE 1. Insurance a. Definition Sec. 2 (1) of the Insurance Code of the Philippines i.

. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event (Statutory) ii. An agreement whereby one party (insurer) for a consideration (premium) paid by the other party (insured), promises to pay money or its equivalent or to do some act valuable to the latter (or his nominee), upon the happening of a loss, damage, liability, or disability arising from an unknown or contingent event. b. Elements i. The insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable interest. ii. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils. iii. The Insurer assumes that risk of loss. iv. Such assumption of risk is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk. v. As consideration for the insurers promise, the insured makes a ratable contribution called premium, to a general insurance fund. c. Requisites for a valid contract of insurance i. A subject matter in which the insured has an insurable interest. ii. Event or peril insured against which may be any (future) contingent or unknown event, past or future, and the duration of the risk thereof. iii. A promise to pay or indemnify in a fixed or ascertainable amount. iv. A consideration for the promise, known as the premium. v. A meeting of the minds of the parties upon all the foregoing essentials. 1. Insurable Interest (Sec. 12 14) a. The insured possesses an interest of some kind susceptible of pecuniary estimation. i. (Insurable interest in property) Section 13 of P.D No. 1460 provides that, Every interest in property, whether real or personal, or any relation thereto, or liability in respect

Xaviers Mediocre Reviewer thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest. ii. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. 1. Memo: a. Occurrence of loss may be uncertain. It is not necessary that the event insured would necessarily subject the insured to loss. It is sufficient that it might do so, and that the pecuniary injury would be the natural consequence. b. Title or right to possession not essential. A person who has no title over the property has an insurable interest if he is so situated with respect to the property that he will suffer loss as the proximate result of its damage or destruction. c. The legal expectation of loss or benefit must have a basis of legal right, although the person insured has no title, either legal or equitable. d. Mere expectation of loss not arising from any legal right or duty in connection with the property does not constitute an insurable interest. b. (Insurable interest in property in particular cases.) Section 14 of P.D No. 1460 provides that, An insurable interest in property may consist in: i. An existing interest ii. An inchoate interest founded on an existing interest iii. An expectancy, coupled with an existing interest in that out of which the expectancy arises. Memo: An insurable interest in property need not be an existing interest. It may consist merely in an inchoate interest or an expectancy. 1. An Existing Interest

Xaviers Mediocre Reviewer a. It may be legal or equitable title. Undoubtedly, the absolute owner of property has an insurable interest thereon. i. Examples of Insurable Interest arising from legal title: 1. A Trustee in the case of the seller of property not yet delivered; 2. A Mortgagor of the property mortgaged; 3. The Lessor of the property leased; 4. The Lessee and the Sublessee may also insure the property leased or subleased; 5. The Assignee of property for the benefit of creditors. Where legal title is held in a representative capacity, as by an executor, administrator, trustee or receiver, the representative has sufficient insurable interest for the purpose of taking out insurance on the property under his control. Any proceeds from such insurance are to be held for the benefit of those for whose benefit the representative is acting. ii. Examples of Insurable Interest arising from equitable title: 1. Purchaser of property before delivery or before he performed the conditions of sale; 2. Mortgagee of the property mortgaged; 3. Mortgagor, after foreclosure but before expiration of the period to redeem; 4. The Beneficiary under the deed of trust; 5. The Creditors under a deed of assignment; 6. A Judgment debtor whose property has been seized under execution until the right to redeem or the right to have the sale set aside has been lost; 7. The Builders and Constructors in the buildings pending the payment of the construction price; 8. A purchaser of an option to buy real estate has an insurable interest to the extent of the advance payment for the option. Memo: More than insurable interest may exist in the same property.

Xaviers Mediocre Reviewer 2. An Inchoate Interest it must be founded on an existing interest. a. Examples: 1. A stockholder has an inchoate interest in the property of the corporation of which he is stockholder, which is founded on an existing interest arising from his ownership of shares in the corporation. His insurable interest is limited to the extent of the value of his interest or to his share in the distribution of the corporate assets upon dissolution. 3. An Expectancy It must be coupled with an existing interest in that out of which such expectancy arises. a. Examples: 1. A Farmer may insure future crops if they are to be grown on land owned by him at the time of the issuance of the policy, or although the crops are to be raised by him on the land of another, provided the crops will belong to him when produced; 2. An owner of a business can insure against a contingency which may cause loss of profits resulting from the cessation or interruption of business; 3. Any binding contract giving rights which will be injuriously affected by the destruction of any designated property will also afford an insurable interest in such property even though the insured may have neither interest in the property nor specific lien upon it. 2. Risk of Loss (Section 3 (1) of P.D No. 1460) a.