VI.

Premium

A.

Concept
Premium is the consideration paid to an insurer for undertaking to indemnify the insured against a
specified peril. (see reviewer for gen. rule and exceptions)

B.

Effect of Non-Payment of Premium; Exceptions

NCC
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy. (1255a)
RA 10607
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies, or
whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90)
days from date of issuance of the policy.

SEC. 79. An acknowledgment in a policy or contract of insurance or 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.

C.

When Insured Entitled To Return Of Premiums

SEC. 80. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils
insured against;

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to
such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short
period rate has been agreed upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously accrued: Provided, That no
holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient
cause as otherwise provided by law.

SEC. 81. If a peril insured against has existed, and the insurer has been liable for any period, however
short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.

Ma. Jean B. Castaeda

Page 1

SEC. 82. A person insured is entitled to a return of the premium when the contract is voidable, and
subsequently annulled under the provisions of the Civil Code; or on account of the fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the
insured was ignorant of without his fault; or when by any default of the insured other than actual fraud, the
insurer never incurred any liability under the policy.

A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a claim is
denied by reason of fraud.

SEC. 83. In case of an over insurance by several insurers other than life, the insured is entitled to a
ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the
policies exceeds the insurable value of the thing at risk.

SEC. 84. An insurer may contract and accept payments, in addition to regular premium, for the purpose of
paying future premiums on the policy or to increase the benefits thereof.

D.

Payment through salary deduction

SEC. 78. Employees of the Republic of the Philippines, including its political subdivisions and
instrumentalities, and government-owned or -controlled corporations, may pay their insurance premiums
and loan obligations through salary deduction: Provided, That the treasurer, cashier, paymaster or official
of the entity employing the government employee is authorized, notwithstanding the provisions of any
existing law, rules and regulations to the contrary, to make deductions from the salary, wage or income of
the latter pursuant to the agreement between the insurer and the government employee and to remit such
deductions to the insurer concerned, and collect such reasonable fee for its services.

E.

Future premiums
SEC. 84. An insurer may contract and accept payments, in addition to regular premium, for the purpose of
paying future premiums on the policy or to increase the benefits thereof.

CASES:
Makati Tuscany Condo Corp. vs. CA, American Home Assurance Co. (AHAC)
G.R. No. 95546 November 6, 1992
Facts:
Insurer, AHAC, issued an insurance policy on Tuscanys building and premises covering a one-year period. Payment
was agreed by both parties to be staggered (5 installments). The 1982 and 1983 policies had been fully paid. For
the 1984 policy, Insured paid only 2 installments and refused to pay the balance on the ground that the policy did
not contain a credit clause in its favor, that it was not binding and risk never attached, thus, demanded for refund of
the premiums paid. But insurer wants to recover the unpaid balances.
Trial Court: Dismissed Insurers action to recover as well as Insureds counterclaim for refund.
CA: The insurance contract became valid and binding upon payment of the first premium, and the Insurer could not
have denied liability on the ground that payment was not made in full, for the reason that it agreed to accept
installment payment.
Tuscany appealed to SC on the ground: There cannot be a perfected contract of insurance upon mere partial
payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and
binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary.

Ma. Jean B. Castaeda

Page 2

Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contract of
insurance, in view of Sec. 77 of the Insurance Code, as amended.
Held: The subject policies are valid even if the premiums were paid on installments. The records clearly show that
petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding
the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983,
then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of
payments speaks loudly of the insurers intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that the premiums were not prepared in
full.
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of
the contract, We are not prepared to rule that the request to make installment payments duly approved by the
insurer, would 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 conclusive
evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section
77 merely precludes the parties from stipulating that the policy is valid even if premiums 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 estoppel to question the arrangement they have
voluntarily accepted.
Petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of
the whole term of the third policy in March 1985. Moreover, as correctly observed by the appellate court, where the
risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer
was exposed to the risk insured for any period, however brief or momentary.
UCPB Gen. Insurance Co. (Insurer) vs Masagana Telemart (Insured)
G.R. No. 137172 June 15, 1999
Facts: Insurer issued 5 fire insurance policies covering various properties of the Insured (covering the period May
22, 1991-May 22, 1992). Before the expiration of the policy (March 1992), Insurer evaluated the policy and decided
not to renew them. Thus, Insurer issued a notice of non-renewal to Insureds broker Zuellig (on April 1992). After the
expiration of the policy (or on June 13, 2012), fire razed Insureds property covered by 3 policies. A month later,
Insured presented 5 checks to the Insurers cashier as payment for the renewal of the policy (from May 1192-May
1993), however, no notice of loss was ever filed by Insured. Insurer refused to pay on the ground that the policies
had already expired and were not renewed, and that the fire occurred before payment of the premium (for renewal).
RTC: Insured fully complied with its duty to pay premium.
CA: following previous practice, Insured was allowed a 60-90 day credit term for the renewal of its policy, and that
the acceptance of the late premium payment suggested an understanding that payment could be made later, and
that no timely notice of non-renewal was sent.
Issue: Whether the fire insurance policies issued by Insurer to Insured had expired on May 1992 or had been
extended or renewed by an implied credit arrangement (even though actual tender of payment was made after the
occurrence of the fire).
Held: No, the insurance policies had not been renewed. An insurance policy, other than life, issued originally or on
renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The
parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the
policy binding before actual payment. Here, the payment of the premium for renewal of the policies was tendered
on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the insurer a
notice of loss within a reasonable time after occurrence of the fire.

Ma. Jean B. Castaeda

Page 3

UCPB v Masagana
G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of
Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the
sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondents
properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May
1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered
by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial courts declaration
that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the
attorneys fees from 25% to 10% of the total amount due the Respondent.

Masagana obtained from UCPB five (5) insurance policies on its Manila properties. The policies were effective from
May 22, 1991 to May 22, 1992. On June 13, 1992, Masaganas properties were razed by fire. On July 13, 1992,
plaintiff tendered five checks for P225,753.45 as renewal premium payments. A receipt was issued. On July 14,
1992, Masagana made its formal demand for indemnification for the burned insured properties. UCPB then rejected
Masaganas claims under the argument that the fire took place before the tender of payment. Hence Masagana
filed this case.

The Court of Appeals disagreed with UCPBs argument that Masaganas tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as
provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails
or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the
policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term for the renewal
of the policies. Such a practice had existed up to the time the claims were filed. Most of the premiums have been
paid for more than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or
renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and
after the occurrence of the risk insured against. UCPB filed a motion for reconsideration.

The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies
in question, as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the
premiums were paid within the grace period.

Ma. Jean B. Castaeda

Page 4

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioners advantage despite
its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid

An exception to this section is Section 78 which provides: Any 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 premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss. Section 78 allows waiver by
the insurer of the condition of prepayment and makes the policy binding despite the fact that premium is actually
unpaid. Section 77 does not expressly prohibit an agreement granting credit extension. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. The Tuscany
case has provided another exception to Section 77 that the insurer may grant credit extension for the payment of
the premium. If the insurer has granted the insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after
the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits 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 if recovery on the policy would not be permitted
against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums.
Estoppel bars it from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the fifth
exception.

American Home v Chua

G.R. No. 130421. June 28, 1999

C.J. Davide

Facts:
Chua obtained from American Home a fire insurance covering the stock-in-trade of his business. The insurance was
due to expire on March 25, 1990. On April 5, 1990, Chua issued a check for P2,983.50 to American Homes agent,
James Uy, as payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the latter a

Ma. Jean B. Castaeda

Page 5

renewal certificate. A new insurance policy was issued where petitioner undertook to indemnify respondent for any
damage or loss arising from fire up to P200,000 March 20, 1990 to March 25, 1991.

On April 6, 1990, the business was completely razed by fire. Total loss was estimated between P4,000,000 and
P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer
Insurance, Prudential Guarantee, Filipino Merchants and Domestic Insurance. Petitioner refused to honor the claim
hence, the respondent filed an action in the trial court. American Home claimed there was no existing contract
because respondent did not pay the premium. Even with a contract, they contended that he was ineligible bacue
of his fraudulent tax returns, his failure to establish the actual loss and his failure to notify to petitioner of any
insurance already effected. The trial court ruled in favor of respondent because the respondent paid by way of
check a day before the fire occurred and that the other insurance companies promptly paid the claims. American
home was made to pay 750,000 in damages.

The Court of Appeals found that respondents claim was substantially proved and petitioners unjustified refusal to
pay the claim entitled respondent to the award of damages.

American Home filed the petition reiterating its stand that there was no existing insurance contract between the
parties. It invoked Section 77 of the Insurance Code, which provides that no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof has been paid and the case of
Arce v. Capital Insurance that until the premium is paid there is no insurance.

Issues:
1. Whether there was a valid payment of premium, considering that respondents check was cashed after the
occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the
other existing insurance contracts
3. Whether respondent is entitled to the award of damages.

Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

Ratio:
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent
to petitioner. The court respected this. The renewal certificate issued to respondent contained the acknowledgment
that premium had been paid. In the instant case, the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for the payment.

It is, as well, bound by its agents

acknowledgment of receipt of payment.

Section 78 of the Insurance Code explicitly provides:

An 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.

Ma. Jean B. Castaeda

Page 6

2. Submission of the alleged fraudulent documents pertained to respondents income tax returns for 1987 to 1989.
Respondent, however, presented a BIR certification that he had paid the proper taxes for the said years. Since this
is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure
is a violation that entitles the insurer to avoid the policy. The purpose for the inclusion of this clause is to prevent
an increase in the moral hazard. The relevant provision is Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.
Respondent acquired several co-insurers and he failed to disclose this information to petitioner.

Nonetheless,

petitioner is estopped from invoking this argument due to the loss adjusters admission of previous knowledge of
the co-insurers.

It cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other insurance
contracts when petitioner actually had prior knowledge thereof. The loss adjuster, being an employee of petitioner,
is deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner.

3. Petitioner is liable to pay the loss. But there is merit in petitioners grievance against the damages and attorneys
fees awarded. There was no basis for an award for loss of profit. This cannot be shouldered by petitioner whose
obligation is limited to the object of insurance. There was no fraud to justify moral damages. Exemplary damages
cant be awarded because the defendant never acted in a reckless manner to claim insurance. Attorneys fees cant
be recovered as part of damages because no premium should be placed on the right to litigate.
Sps. Tibay vs. CA and Fortune Life and General Insurance Co.
G.R. No. 119655 May 24, 1996
Facts: Insurer, Fortune, issued a fire insurance policy in favor of insured on their two-storey residential building
(January 23, 1987 to January 23, 1988). Insured paid P600 out of the P2,983.50 premium. About 2 months later (or
on March 8, 1987), the subject property was completely destroyed by fire. Two days later, Insured paid the balance.
She also filed a claim to the proceeds. Insurer refused on the ground that Insured violated one of the terms, re: that
the policy shall be valid and effective upon the Company only when the premiums have actually been paid in full.
Hence, Insured sued Insurer for damages.
TC: Favored Insured (Insurer liable).
CA: Reversed TC ruling (Insurer not liable).
Issue: WON the fire insurance policy is binding and enforceable despite the fact that the premium was merely
partially paid.
Held: The insurance policy is not binding and enforceable (Insurer not liable).
Ratio:
1. The policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid
and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect
and the insured cannot collect at all on the policy.
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid , except in the case of a
life or an industrial life policy whenever the grace period provision applies.

Ma. Jean B. Castaeda

Page 7

2. The Phoenix and Tuscany Rulings are not persuasive because the factual scenarios are not the same. These two
(2) cases adequately demonstrate the waiver, either express or implied, of prepayment in full by the insurer:
impliedly, by suing for the balance of the premium as in Phoenix, and expressly, by agreeing to make premiums
payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or
implied in the case at bench.
3. The cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in
the policy. Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in
force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is
ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such
fractional part of the year as the part payment bears to the whole payment.
4. The case of South Sea Surety and Insurance Company, Inc. v. Court Of Appeals, speaks only of two (2) statutory
exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance
contract. These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance
when a grace period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium,
this acknowledgment being declared by law to be then conclusive evidence of the premium payment. A maxim of
recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firmat
regulim in casibus non exceptis. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has
not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy. In this case, the
law is manifestly on the side of the insurer. For it cannot be disputed that premium is the elixir vitae of the
insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent
obligations to the public, hence, the imperative need for its prompt payment and full satisfaction.
5. The term of these insurance policies constitute the measure of the insurers liability. In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to
impose whatever conditions they deem best upon their obligations not inconsistent with public policy. The validity
of these limitations is by law passed upon by the Insurance Commissioner who is empowered to approve all forms
of policies, certificates or contracts of insurance which insurers intend to issue or deliver. That the policy contract in
the case at bench was approved and allowed issuance simply reaffirms the validity of such policy, particularly the
provision in question.
Philippine Phoenix Surety & Insurance Co. V. Woodworks Inc (1979)
G.R. No. L-25317 August 6, 1979
FACTS:

July

21,

1960: Woodworks,

Inc.

was

issued

fire

policy

for

its

building machinery

and

equipment by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21, 1960 to July 21, 1961.
Woodworks did not pay the premium totalling to P10,593.36.

April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix thecancellation of the Policy
so Philippine Phoenix credited P3,110.25 for the unexpired period of 94 days and demanded in writing
the paymentof P7,483.11

Woodworks refused stating that it need not pay premium "because the Insurer did not stand liable for any
indemnity during the period the premiums were not paid."

Philippine Phoenix filed with the CFI to recover its earned premium of P7,483.11
Woodworks: to pay the premium after the issuance of the policy put an end tothe

insurance contract and rendered the policy unenforceable

CFI: favored Philippine Phoenix

Ma. Jean B. Castaeda

Page 8

ISSUE: W/N there was a valid insurance contract despite no premium payment was paid.

HELD: NO. Reversed

Policy provides for pre-payment of premium. To constitute an extension of credit there must be a clear and
express agreement therefor and there must be acceptance of the extension - none here

Since the premium had not been paid, the policy must be deemed to have lapsed.

failure to make a payment of a premium or assessment at the 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 a stipulation is a material and essential part of the contract. This is true, for
instance, in the case of life, health and accident, fire and hail insurance policies

Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only
"after payment of premium" Compliance by the insured with the terms of the contract is a condition precedent
to the right of recovery.

The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the
insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make
premium payments.

VII.

Persons entitled to recover on the policy and conditions to recovery

A.

Beneficiary
SEC. 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he
has expressly waived this right in said policy. Notwithstanding the foregoing, in the event the insured does
not change the beneficiary during his lifetime, the designation shall be deemed irrevocable.

SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is
the principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a case,
the share forfeited shall pass on to the other beneficiaries, unless otherwise disqualified. In the absence of
other beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the policy contract
is silent, the proceeds shall be paid to the estate of the insured.

SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise specified in the policy.
SEC. 56. When the description of the insured in a policy is so general that it may comprehend any person
or any class of persons, only he who can show that it was intended to include him, can claim the benefit of
the policy.
SEC. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance
of the risk, may become the owner of the interest insured.
B.

Limitations on the appointment of beneficiary

NCC
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;

Ma. Jean B. Castaeda

Page 9

(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action. (n)
Art. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make any donation to him, according to
said article. (n)
C.

Rule where insurance is made by an agent or trustee

SEC. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his
principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or
trustee, or by other general words in the policy.

D.

Rule where insurance is made by partner or part owner

SEC. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his copartners or other part-owners, it is necessary that the terms of the policy should be such as are applicable
to the joint or common interest.

E.

Loss
SEC. 85. An agreement not to transfer the claim of the insured against the insurer after the loss has
happened, is void if made before the loss except as otherwise provided in the case of life insurance.

SEC. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured
against was the proximate cause, although a peril not contemplated by the contract may have been a
remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote
cause.

SEC. 87. An insurer is liable where the thing insured is rescued from a peril insured against that would
otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is
caused by efforts to rescue the thing insured from a peril insured against.

SEC. 88. Where a peril is especially excepted in a contract of insurance, a loss, which would not have
occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which
was not excepted.

SEC. 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.

SEC. 175. No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or
company who acts as agent for or otherwise represents the issuing company, and any such pledge,
hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other
creditors of the insured.
Ma. Jean B. Castaeda

Page 10

SEC. 184. A policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover upon it whatever the insured
might have recovered.
SEC. 185. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of
a policy of insurance upon life or health, unless thereby expressly required.
F.

Notice and Proof of Loss

SEC. 90. In case of loss upon an insurance against fire, an insurer is exonerated, if written notice thereof
be not given to him by an insured, or some person entitled to the benefit of the insurance, without
unnecessary delay. For other non-life insurance, the Commissioner may specify the period for the
submission of the notice of loss.

SEC. 91. When a preliminary proof of loss is required by a policy, the insured is not bound to give such
proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence which
he has in his power at the time.

SEC. 92. All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy,
and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are
waived.

SEC. 93. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of
him, or if he omits to take objection promptly and specifically upon that ground.

SEC. 94. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person
other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case
of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal
was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.

SEC. 185. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of
a policy of insurance upon life or health, unless thereby expressly required.
CASES:
Bonifacio Bros., Inc. V. Mora (1967)
G.R. No. L-20853

May 29, 1967

Lessons Applicable: stipulation pour autrui (Insurance)

FACTS:

Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to H.S. Reyes, Inc., with the condition that
they would be the beneficiary of its insurance

June 23, 1959: The sedan was insured with State Bonding &Insurance Co., Inc

Ma. Jean B. Castaeda

Page 11

During the period of effectivity, the sedan met an accident and it was appraised by Bayne Adjustment Co. and
repaired it with Bonifacio Bros. and the parts were supplied by Ayala Auto Parts Co. This was all done without the
knowledge of H.S. Reyes. Enrique was billed P2,102.73 through Bayne. The insurance company drew a check
deducting P100 for franchise and entrusted it to Bayne payable to Enrique or H.S. Reyes.

Still unpaid, the sedan was delivered to Enrique without the Knowledge of H.S. Reyes

Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the insurance proceeds should be paid directly
to them.

CFI affirmed MTC: H.S. Reyes, Inc. as having a better right

ISSUE:
W/N there is privity between Bonifacio Bro and Ayala Auto against the insurance company.

HELD:
NO. Judgment affirmed
GR: contracts take effect only between the parties thereto

EX: some specific instances provided by law where the contract contains some stipulation in favor of a third
person stipulation pour autrui

provision in favor of a third person not a party to the contract

third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that
the contracting parties have clearly and deliberately conferred a favor upon such person.

stipulation pour autrui must be clearly expressed - none here

"loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc."
indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.

stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity
for repair.

a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons
have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract
of trust, expressed or implied between the insured and third person.

"loss" in insurance law embraces injury or damage.

The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents
or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the
insured.

Insular v Ebrado
G.R. No. L-44059 October 28, 1977

Facts:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for Accidental Death.
He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his wife.

Ma. Jean B. Castaeda

Page 12

Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay the coverage in
the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the
additional benefits for accidental death. Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured were merely living as husband and
wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds. Insular commenced an action for
Interpleader before the trial court as to who should be given the proceeds. The court declared Carponia as
disqualified.

Issue:
WON a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim the
proceeds in case of death of the latter?

Held: No. Petition

Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the proper
interest of the person in whose name it is made". The word "interest" highly suggests that the provision refers only
to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. Otherwise, the
prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the
same could easily be circumvented by modes of insurance. When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts.
And under Article 2012 of the same Code, any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are barred from receiving donations from each other. Article 739 provides that void donations
are those made between persons who were guilty of adultery or concubinage at the time of donation.

There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate
ones should be enforced in life insurance policies since the same are based on similar consideration. So long as
marriage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon
married couple should likewise be imposed upon extra-marital relationship. A conviction for adultery or concubinage
isnt required exacted before the disabilities mentioned in Article 739 may effectuate. The article says that in the
case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee;
and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. The law
plainly states that the guilt of the party may be proved in the same acting for declaration of nullity of donation.
And, it would be sufficient if evidence preponderates. The insured was married to Pascuala Ebrado with whom she
has six legitimate children. He was also living in with his common-law wife with whom he has two children.
Consuegra v GSIS
G.R. No. L-28093 January 30, 1971

Facts:

Ma. Jean B. Castaeda

Page 13

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March
7, 1967, in its Special Proceeding No. 1720. The late Jose Consuegra was employed as a shop foreman in the
province of Surigao del Norte. He contracted two marriages, the first with Rosario Diaz and the second, which was
contracted in good faith while the first marriage was subsisting, with Basilia Berdin. Consuegra died, while
the proceeds of his GSIS life insurance were paid to petitioner Basilia Berdin and her children who were the
beneficiaries named in the policy. They received Php 6,000. Consuegra did not designate any beneficiary who would
receive the retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage,
filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal heir of
Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement
insurance benefits.

Petitioner Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries
named in the life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance
benefits due the deceased Consuegra. The GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario
Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the
one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the other hand, who
are entitled to the remaining one-half, or 8/16. Basilia Berdin didnt agree. She filed a petition declaring her and her
children to be the legal heirs and exclusive beneficiaries of the retirement insurance.
The trial court affirmed stating that: "when two women innocently and in good faith are legally united in holy
matrimony to the same man, they and their children, born of said wedlock, will be regarded as legitimate children
and each family be entitled to one half of the estate. Hence the present appeal by Basilia Berdin and her children.

Issue:
To whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not designate the
beneficiary of his retirement insurance?

Held: No. Petition denied.

Ratio:
Berdin averred that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement
insurance, the appellants who were the beneficiaries named in the life insurance should automatically be
considered the beneficiaries to receive the retirement insurance benefits. The GSIS offers two separate and distinct
systems of benefits to its members one is the life insurance and the other is the retirement insurance. These two
distinct systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS. In
the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life
insurance policy. As in the case of a life insurance provided for in the Insurance Act, the beneficiary in a life
insurance under the GSIS may not necessarily be a heir of the insured. The insured in a life insurance may
designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the
absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate
of the insured.

Retirement insurance is primarily intended for the benefit of the employee, to provide for his old age, or incapacity,
after rendering service in the government for a required number of years. If the employee reaches the age of
retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his
Ma. Jean B. Castaeda

Page 14

application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the
retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the
beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal
heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurancepolicy.
GSIS had correctly acted when it ruled that the proceeds should be divided equally between his first living wife and
his second. The lower court has correctly applied the ruling of this Court in the case of Lao v Dee.

Gomez vs. Lipana- in construing the rights of two women who were married to the same man, held "that since the
defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that
marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under
the new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether as
conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in
the property here in dispute....

With respect to the right of the second wife, although the second marriage can be presumed to be void ab initio as
it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such
nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial
declaration of its nullity, "the only lust and equitable solution in this case would be to recognize the right of the
second wife to her share of one-half in the property acquired by her and her husband and consider the other half as
pertaining to the conjugal partnership of the first marriage."
Go vs. Redfern
GR 47705, 25 April 1941
Note: Original decision in Spanish [Rough translation]
Facts:
In October 1937, Edward K. Redfern obtained an insurance policy against accidents from the International
Assurance Co, Ltd. On 31 August 1938, Redfern died from an accident. The mother of the deceased, presenting the
necessary evidence of the death of Redfern, sought to claim the proceeds of the insurance policy from the
insurance company. The company, however, denied such claim, on the ground that the insurance policy was
amended on 22 November 1937 to include another beneficiary, Concordia Go. Hence, an action was filed to
determine who has the right to collect the insurance proceeds of the deceased Redfern. The mother claimed that
the addition of the co-beneficiary is illegal. Go, on her part, alleged the contrary. The trial court ruled in favor of
Angela Redfern, the mother. Go appealed.
Issue:
Whether the addition of Gos name as co-beneficiary can be allowed for her share in the insurance proceeds
Held:
When designated in a policy, the beneficiary acquires a right of which he cannot be deprived of without his consent,
unless the right has been reserved specifically to the insured to modify the policy. The same doctrine was
enunciated by the Court in the cases of Gercio vs. Sun Life Assurance Co. of Canada (48 Phil. 55) and Insular Life vs.
Suva (34 Off. Gaz. 861). Thus, unless the insured has reserved specifically the right to change or to modify the
policy, with respect to the beneficiary, said policy constitutes an acquired right of the beneficiary, which cannot be
modified except with the consent of the latter. Herein, it is admitted that Redfern did not reserve expressly his right
to change or modify the policy. Change implies the idea of an alteration. The addition of Go's name as one of the
beneficiaries of the policy constitutes change as all addition is an alteration. The addition of Go's name changed the
policy inasmuch as there are two beneficiaries instead of one, and thus in effect the original beneficiary cannot
receive the full amount of the policy. The Supreme Court affirmed the appealed judgment in all of its parts, with
costs against Go.
Country Bankers Insurance Corporation vs. Lianga Bay and Community Multi-Purpose Cooperative Inc.
Ma. Jean B. Castaeda

Page 15

[GR 136914, 25 January 2002]

Facts:
Country Bankers Insurance Corporation (CBIC) is a domestic corporation principally engaged in the insurance
business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an
unknown or contingent event including fire while Lianga Baya and Community Multi- purpose Cooperative Inc.
(LBCMCI) is a duly registered cooperative judicially declared insolvent and represented by the elected assignee,
Cornelio Jamero. It appears that sometime in 1989, the CBIC and LBCMCI entered into a contract of fire insurance.
Under Fire Insurance Policy F-1397, CBIC insured LBCMCI's stocks-in-trade against fire loss, damage or liability
during the period starting from 20 June 1989 at 4:00 p.m. to 20 June 1990 at 4:00 p.m., for the sum of P200,000.00.
On 1 July 1989, at or about 12:40 a.m., LBCMCI's building located at Barangay Diatagon, Lianga, Surigao del Sur
was gutted by fire and reduced to ashes, resulting in the total loss of LBCMCI's stocks-in-trade, pieces of furniture
and fixtures, equipments and records. Due to the loss, LBCMCI filed an insurance claim with CBIC under its Fire
Insurance Policy F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated 1 July 1989;
(b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. CBIC, however,
denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by 2
NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest,
and that such loss was an excepted risk under paragraph 6 of the policy conditions of Fire Insurance Policy F- 1397,
which provides that "This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following occurrences, namely: xxx (d) Mutiny, riot, military or
popular uprising, insurrection, rebellion, revolution, military or usurped power. Any loss or damage happening
during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or
in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not
covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened
independently of the existence of such abnormal conditions." Finding the denial of its claim unacceptable, LBCMCI
then instituted in the trial court the complaint for recovery of "loss, damage or liability" against CBIC. In due time,
the trial court rendered its Decision dated 26 December 1991 in favour of LBCMCI, ordering CBIC to pay LBCMCI to
fully pay the insurance claim for the loss LBCMCI sustained as a result of the fire under its Fire Insurance Policy F1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until
the same is fully paid; to pay as and in the concept of actual or compensatory damages in the total sum of
P50,000.00; to pay as and in the concept of exemplary damages in the total sum of P50,000.00; to pay in the
concept of litigation expenses the sum of P5,000.00; to pay by way of reimbursement the attorney's fees in the sum
of P10,000.00; and to pay the costs of the suit. CBIC interposed an appeal to the Court of Appeals. On 29 December
1998, the appellate court affirmed the challenged decision of the trial court in its entirety. CBIC filed the petition for
review on certiorari.
Issue:
Whether the burden of proof of loss in this case is upon the insurer, and not on the insured.
Held:
YES. CBIC does not dispute that LBCMCI's stocks-in-trade were insured against fire loss, damage or liability under
Fire Insurance Policy F-1397 and that LBCMCI lost its stocks-in-trade in a fire that occurred on 1 July 1989, within the
duration of said fire insurance. CBIC, however, posits the view that the cause of the loss was an excepted risk under
the terms of the fire insurance policy. Where a risk is excepted by the terms of a policy which insures against other
perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed
that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in
the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a
proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.
Stated elsewise, since CBIC in this case is defending on the ground of non-coverage and relying upon an exemption
or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk
is based, by a preponderance of evidence. But CBIC failed to do so. CBIC relies on the Sworn Statements of Jose
Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated 1 July 1989. The Sworn
Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as
they did not take the witness stand and could not therefore be cross-examined. CBIC's evidence to prove its
defense is sadly wanting and thus, gives rise to its liability to LBCMCI under Fire Insurance Policy F-1397.
VIII.

Double Insurance

A.

Definition and Requisites

Ma. Jean B. Castaeda

Page 16

SEC. 95. A double insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest.
Requisites of double insurance:
1. The person insured is the same;
2. There are 2 or more insurers insuring separately;
3. The subject matter is the same;
4. The interest insured is also the same; and
5. The risk or peril insured against is likewise the same
B.

Distinguished from Over-Insurance (see reviewer)

C.

Stipulation against Double Insurance (see reviewer)

D.

Rules for payment where there is over-insurance by double insurance

SEC. 96. Where the insured in a policy other than life is over insured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order
as he may select, up to the amount for which the insurers are severally liable under their respective
contracts;

(b) Where the policy under which the insured claims is a valued policy, any sum received by him under
any other policy shall be deducted from the value of the policy without regard to the actual value of the
subject matter insured;
(c) Where the policy under which the insured claims is an unvalued policy, any sum received by him
under any policy shall be deducted against the full insurable value, for any sum received by him under any
policy;

(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the
insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according
to their right of contribution among themselves;

(e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.

IX.

Reinsurance

A.

Definition
SEC. 97. A contract of reinsurance is one by which an insurer procures a third person to insure him against
loss or liability by reason of such original insurance.

B.

Nature
SEC. 99. A reinsurance is presumed to be a contract of indemnity against liability, and not merely against
damage.

Ma. Jean B. Castaeda

Page 17

SEC. 100. The original insured has no interest in a contract of reinsurance.

C.

Distinguished from double insurance

REINSURANCE
Sec. 97
Insurance of different interests
Insurer becomes an insured in relation to reinsurer
Original insured has no interest in reinsurance
contract
Subject of insurance is the original insurers risk
Consent of original insured, not necessary

D.

DOUBLE INSURANCE
Sec. 95
Involves the same interest
Insurer remains in such capacity
Insured in the first contract is a party in interest
in the second contract
Subject of insurance is property
Insured has to give his consent

Duty of reinsured to disclose facts

SEC. 98. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must
communicate all the representations of the original insured, and also all the knowledge and information he
possesses, whether previously or subsequently acquired, which are material to the risk.

Ma. Jean B. Castaeda

Page 18