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Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

1

INSURANCE

Laws governing insurance

  • 1. Insurance Code of 1978 – primary application

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 1 INSURANCE Laws governing insurance 1.
  • 2. Civil Code of the Philippines – secondary application

against loss, damage or liability arising from an unknown or contingent event.

Contract

of

suretyship

is

deemed

an

insurance contract only if made by a surety who or which is doing an insurance business.

  • 3. Family Code

What is Doing an Insurance Business?

  • 4. Special Laws

  • a. Revised Government Service Insurance Act

  • b. Social Security Act

 
  • 5. Other laws

  • a. Property Insurance law

 
  • b. RA

4898

life,

disability

and accident

insurance for barangay officials

  • c. EO 250 – rationalizes benefits under RA 4898

for members of various Sanggunian

Subrogation in insurance

  • Process of legal substitution

  • The insurer, after paying the amount covered by the policy, steps into the shoes of the insured

  • The insurer avails of the rights of the insured against the wrongdoer. Insured CANNOT recover from offender what was paid by insured but can recover any deficiency.

  • NOTE: this is applicable only in non-life insurance (Philamgen v. CA)

Rule of Construction

  • In case of doubt, the provision shall be strictly construed against the insurance company.

  • RIZAL SURETY V. CA – Pursuant to Art. 1377 of the Civil Code, any obscure word or stipulation in the insurance policy shall be resolved against the insurance company which drafted the terms thereof.

Regulation of the Insurance Business

Insurance

business

is

affected

with

public interest

 

The public

must be protected against

insolvency or unfair

 

treatment by

insurers

Section 414-416

As

part

of its

administrative

powers,

the insurance

Commission

is

tasked to regulate

the

conduct of insurance business through

licensing, examination, investigation and revocation.

Statute of Limitations

Any suit based on an insurance policy

should be brought within 10 years from the time the cause of action accrues (from the time the claim is denied; If there was no denial of the claim, right of action does not accrue) The 10 year period may be lengthened

or shortened BUT Prescriptive period for industrial life:

cannot be shorter than 6 years In all other kinds of insurance, cannot be shorter than one year.

Contract of Insurance, concept

Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:

(1) 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.

A contract

of suretyship

shall

be

deemed to

be

an

insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

An agreement whereby one undertakes for a consideration to indemnify another

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall

include:

  • (a) making or proposing to make, as insurer, any insurance

contract;

  • (b) making or proposing to make, as surety, any contract of

suretyship as a vocation and not as merely incidental to any

other legitimate business or activity of the surety;

  • (c) doing

any

kind

of business, including a reinsurance

business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

  • (d) doing or proposing

to

do

any business

in

substance

equivalent to any of the foregoing in a manner designed to

evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

Elements of an Insurance Contract

The insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable interest

The

insured is subject

to

a

risk of loss

through the destruction or impairment of

that

interest

by

the

happening

of

the

designated perils;

 

The insurer assumes the risk of loss;

 

Such assumption

is

part

of

a

general

scheme to distribute actual losses among a large group of persons bearing somewhat similar risks;

As consideration for the insurer’s promise,

the

insured makes a ratable distribution

called

premium

to

a general

insurance

fund.

Nature and Characteristics of an Insurance Contract

Aleatory – depends upon some contigent

event Contract of indemnity for non-life and an

investment for life insurance Personal

Executory and conditional on the part of the insurer

Uberrimae fides

- utmost

good faith;

all

parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal. Adhesion – most of the terms do not result from mutual negotiation as they are prescribed by the insurer – insured may reject or adhere.

PHILAMCARE VS. CA

A applied for health care coverage with Philamcare. Under the agreement, A was entitled to avail of hospitalization benefits, whether ordinary or emergency. He was also entitled to avail of "out of patient benefits".

Philamcare contentds that the health care agreement is not an insurance contract.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

2

Held: Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur:

1.

The insured has an insurable interest;

 

2.

The

insured is

subject

to

a

risk

of loss

by

the happening

of the

designated peril;

 

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.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. 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.

Mayer vs. CA

Facts: HK contracted Mayer Steel to manufacture and supply various steel pipes and fittings. Prior to the shipping, Mayer insured the pipes with South Sea Surety and Insurance Co. Upon reaching HK, the pipes were discovered damaged. Mayer then sued the insurance company for indemnity. The CA held that the action by Mayer is barred under Sec 3(6) of COGSA since it was filed more than 2 years from the time the goods were unloaded from the vessel.

Held: The CA erred in applying the provision of COGSA in the instant case. Under Sec. 3(6), only the carrier’s liability is extinguished if no suit is brought within 1 year. BUT the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of carriage but on the contract of insurance. COGSA governs the relationship between the carrier on one hand and the shipper,, the consignee, and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage without affecting the relationship between the shipper and the insurer as the latter is governed by the Insurance Code.

Phil HealthCare vs. CIR

 

ISSUE:

Is

a

healthcare

agreement

in

the

nature

of

a

contract

of

insurance?

 

FACTS: Individuals enrolled in its health care programs pay an annual membership fee. They are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.The DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability.

RULING: The health care agreement is primarily a contract of indemnity. A health care agreement is in the nature of a non-life insurance policy.

What may be insured against?

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

The consent of

not necessary for

husband is

the

the

of an insurance policy

validity

taken

out

by

married

a

woman on her life or that of her children.

Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and

accident insurance,

with

any

insurance company duly

authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Sec. 84. 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 which the peril insured against was only a remote cause.

Art. 1174, Civil Code: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

Contingent event – something which may or may not happen OR

Unknown

event

something

which

is

certain to happen but the time of

occurrence is unknown

 

Which

may damnify

a

person

having

insurable interest or create

a

liability

against him

 

Damnify v. Create a liability

Damnify – direct loss

 

Create a liability

 

– expose

the

person to

liability

such as

in

the case

of third party

liability(TPL)

 

Insurance by a married woman

May take out an insurance on her life or

that of her children or that of her husband without the consent of her husband

May

take

out

insurance

on

paraphernal

property

 

Insurance by a minor

A property insurance taken by a minor is

voidable until annulled If contract is not disaffirmed, insurer cannot invoke minority to escape liability

Guingon vs. Del Monte

A owned and operated several jeepneys and insured the same with C against accidents and TPL. Issue: To whom is C liable to pay

H: 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 test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer.

Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone

Bonifacio vs. Mora

H: The appellants are not mentioned in the contract as parties thereto; nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

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the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person.

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, by the insured and third person". In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned.

Insurance for or against drawing of lottery:

Sec.

The preceding

4.

section

does not authorize

an

insurance for or against the drawing of any lottery, or for

or against

any chance

or ticket

in

drawing a

a lottery

prize.

Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

Sec. The preceding 4. section does not authorize an insurance for or against the drawing of
Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 3 the parties thereto, except in
Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 3 the parties thereto, except in
Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 3 the parties thereto, except in

Game of chance v. insurance

Game of chance

 

Insurance

 

Parties contemplate

Parties

seek

to

distribute

gain by mere chance

possible

loss

by

reason

of

mischance

Gambler courts fortune

Insured seeks misfortune

 

Tends

to

increase

Tends to equalize fortune

 

inequality of fortune Whatever one wins is

What

one gains

is

not

at

the

lost by another person Gambler creates a risk of loss to himself

expense of another Insurance Contract does not create a new and non existing risk of loss

Uy vs. Palomar:

H: The term lottery extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibitions, prize concerts, raffles at fairs, etc and various forms of gambling. The three essential elements of lottery are: 1. Consideration; 2. Prize; 3. Chance.

With respect to consideration, the law does not condemn the gratuitous distribution of property by chance, if no consideration is derived directly or indirectly from the party receiving the chance, but does condemn as criminal, schemes in which a valuable consideration of some kind is paid directly or indirectly for the chance to draw a price.

TWO BASIC KINDS OF INSURANCE

Life insurance – sec. 179 – insurance on human lives and insurance appertaining thereto or connected therewith

Non-life insurance – property insurance or insurance whose object is other than a person’s life or where the covered peril is something other than death

Life Insurance: Types

1. Individual – protection

is

based on individual

application. 2. Group – unit of selection is the group rather than the individual; individual underwriting characteristics of each individual is not considered in the determination of insurable interest. Single policy covering number of persons such as employees in a given establishment, but each individual possessing certificate of insurance.

Note: The employer and/or the agent of the employer is considered an agent of the insurance company such that payment of premium to the employer is equivalent to payment to the insurance company.

Pineda vs. CA
Pineda vs. CA

H: The practice is usual in the group insurance business and is consistent- with the jurisprudence thereon in the State of California-from whose law our Insurance Code has been mainly patterned-which holds that the employer- policyholder is the agent of the insurer. Group insurance, is essentially a single insurance contract that provides coverage for many individuals. In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the insurance program such as a, employer. The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to the employees.

3. Industrial – premiums are payable either monthly or oftener if the face amount of insurance is not more than 500 times the current statutory minimum wage in Metro Manila

Non-Life Insurance:

  • a. Fire Insurance – includes insurance against loss by fire,

lightning, windstorm, tornado or earthquake and other allied

risks, when such risks are covered by extension to fire

insurance policies or under separate policies

  • b. Casualty insurance – covers loss or liability arising from

accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire, marine

Includes but is not limited to employers’ liability insurance, workmen’s compensation insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance written by non-life companies.

  • b. 1Casualty: Compulsory Motor Vehicle Liability

Insurance against passenger and third party

liability for death or bodily injuries arising from motor vehicle accidents Required before an owner or operator can use his vehicle

Required in registration or renewal of registration

  • c. Marine Insurance

 

Vessels, craft, aircraft, vehicles, goods,

freights, cargoes, merchandize, effects, bottomry, respondentia interests

Persons or property in

connection with or

appertaining

to

marine,

inland

marine,

transit

or

transportation

insurance

but

excludes life insurance or surety bonds or insurance against loss by reason of bodily

injury

to

any person

who

arising

out

of

ownership, maintenance

or

use

of

automobiles

 

Precious stones, jewels, jewelry, precious metals, whether in the course of transportation or otherwise

Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, furniture and furnishings fixed contents and supplies held in storage), piers, wharves, docks and slips other aids of navigation, dru docks, marine railways, dams

  • d. Suretyship

An agreement whereby a party called the

o

surety guarantees the performance of another party called the principal or obligor of an obligation or undertaking in favor of a third party called the oblige. Includes official recognizances, stipulations,

bonds

or

undertakings

issued by any

company.

 

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

4

PART TWO:

LIFE INSURANCE

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 4 PART TWO: LIFE INSURANCE Sec.

Sec. 179. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.

Sec. 180. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code.

In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy.

Sec. 180-A. The insurer in a life insurance contract shall

be liable

case of suicides only

in

when

it

is committed

after the policy has been in force for a period of two years

the date

from

of

its

issue or

of

last reinstatement,

its

unless the policy provides

a shorter period: Provided,

however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission. (As amended by Batasang Pambansa Blg.

874).

Sec. 181. 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. 182. 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.

Sec. 183. Unless the interest

of

person insured is

a

susceptible of exact pecuniary measurement, the measure

of indemnity under a policy

of insurance

upon life

or

health is the sum fixed in the policy.

Section 87. 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. 187, 9th par. No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently unless specifically authorized to do so: Provided, That the terms "life" and "non-life" insurance shall be deemed to include health, accident and disability insurance.

Contingencies insured against:

  • 1. Death

  • 2. Survival of a specific period

  • 3. Contingently on the continuance or cessation of life

Scope/what may be insured against

o

Actual death – Cessation of life Best proof of death: Death certificate

o

insured

Policy

Policy matures upon

matures

upon

the

death

of

the

Living death – When

Living death

– When

the insured suffers

 

from disability

due

to

disease or accident

which prevents him from engaging in

any

lawful occupation; Partakes the nature of health and disability benefits. (May be life and/or non-life)

 

Retirement death – CF: Life annuity

 

Annuitant gives money or property to the insurer

Insurer now becomes

the

debtor,

and

has

the

obligation to give annual pension or income to either the

annuitant or another person

The obligation of insurer to give pension stops upon the death of the annuitant

KINDS OF LILFE INSURANCE:

  • 1. Ordinary Life – insured is required to pay premiums

annually or at more frequent intervals throughout life and the

beneficiary is entitled to receive payment only after the death of the insured.

  • 2. Limited Payment Life – premiums are payable only

during a limited period of years (10,15,20 years). After the period, the insurance is deemed fully paid. Proceeds are payable upon death of insured.

  • 3. Term insurance – provides coverage only if the insured

dies during a limited period. If the insured dies within the period, the beneficiary gets the proceeds. If the insured survives the period, the contact is terminated.

  • 4. Endowment Policy – insured gets a sum of money if he

survives a specified period. If insured dies within the period,

the beneficiary gets the proceeds.

5.

Life Annuity

debtor binds

himself

to

pay

an

annual

premium or income during the life of one or more

determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at one with the burden of income.

  • 6. Accident Insurance – may be life or non-life insurance -

If death is one of the risks insured against,

it is classified as life insurance. Accident – an event which happens by

chance without intention and which unexpected, unusual and unforeseen.

is

Nature of Accident and Health Insurance

∑ Sec. 187-A, 9 th par – Health, accident and disability insurance are deemed as both
Sec. 187-A, 9 th par – Health, accident and
disability insurance are deemed as both life
and non-life insurance and such may be
issued by either life
or non-life insurance
companies.
Gallardo v. Morales – Accident insurance
may be regarded as life insurance when one
of the risks insured is the death of the
insured by accident
Rule on suicides:
General
Rule:
Not
compensable

BASES: (1) Sec. 87 which provides that an

insurer is

not liable

if

loss

is

caused by

willful act or connivance of the insured; and (2) The rules of Court which provides that a person is presumed to intend the consequences of his voluntary acts

When is suicide compensable?

Section 180-A

If insured was not in his right mind/insane

at

the

time

of

suicide

compensable

regardless of date of commission

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

5

If insured committed suicide after the

policy has been effective for at least 2

years

from

issuance

or

last

reinstatement

 

Note:

2

year

period

can

be shortened

but

not

lengthened

because

this

is

beneficial to the insured.

SUN INSURANCE VS. CA

During a party, A, believing that a gun was not loaded, pointed the same to his temple and shot himself dead. There was recovery.

H: The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by change or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected.

An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation.

DELA CRUZ VS. CAPITAL INSURANCE

During a boxing match, insured slipped causing his death. Insurance company argued that the death of the insured, caused by his participation in a boxing contest, was not accidental, and therefore, not covered by the insurance.

H: The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act which produces the injury, the resulting death is within the protection of policies insuring against the death or injury from accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing, as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case.

FINMAN VS. CA

Stabbed while waiting for a ride from fiesta; there was recovery

H: In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said that there was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a festival.

GALLARDO VS. MORALES

Issue: W/N a personal accident insurance which insures for injuries and/or death as a result of murder or assault is a life insurance thus exempting it from execution.

H: Yes. It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance. However, when one of the risks insured in the latter is the death of the insured by accident, then there are authorities to the effect that such accident insurance may, also, be regarded as a life insurance.

The exemption there established applies to ordinary life insurance contracts, as well as to those which, although intended primarily to indemnify for risks arising from accident, likewise, insure against loss of life due, either to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature. Indeed, it has been held that statutes of this nature seek to enable the bead of the family to secure his widow and children from becoming a burden upon the community and, accordingly, should merit a liberal interpretation.

Statutes exempting life insurance are regarded as exemption laws, and not as part of the insurance law of the state, nor as designed simply to protect insurer from harassing litigation. Such, statutes should be construed liberally and in the light of, and to give effect to, their purpose of enabling an individual to provide a fund a fter his death for his family which will be free front the claims of creditors. The exemption privilege is created not by contract but by legislative grant, and grounds for the exemption of the proceeds of insurance policies must be found in the statutes.

Calanoc vs. CA

Basilio was a watchman of the Manila Auto Supply. He secured a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached a supplementary contract covering death by accident. In 1951, he died of a gunshot wound on the occasion of a robbery. It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law" or as a result of an "assault or murder" committed in the place and therefore his death was caused by one of the risks excluded by the supplementary contract which exempts the company from liability. This contention was upheld by the CA.

H: There is no proof that the death of Basilio is the result of either crime because there is no proof of how the fatal shot was fired. Nor can it be said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim.

While as a general rule "the parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" , however, it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or resolved against the one who has caused the obscurity.

BIAGTAN VS. INSULAR

A clause in the insurance policy expressly provided that it would not apply where death resulted from an injury "intentionally inflicted by another party."; robbers entered the house and stabbed the insured; no recovery

H: Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five of those wounds caused the death of the insured. Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional.

“Intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of a third person the insurer is relieved from liability as stipulated.

INSURABLE INTEREST

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

6

Relation between the insured and a particular event such that the happening of the event will damnify or cause loss to the person; link between one person and the insured risk

PURPOSES FOR THE CONCEPT:

To avoid wagering

To avoid temptation of bringing about the event

Sec. 10. Every person has an insurable interest in the life and health:

(a)

Of himself, of his spouse and of his children;

 

(b)

Of any person on whom he depends wholly or in part

for education or support, or in whom he has a pecuniary interest;

(c)

Of any person under a legal obligation to him for the

payment of money, or respecting property or services, of

which

death

or

illness

might

delay

or

prevent

the

performance; and

 

(d)

Of any person upon whose life any estate or interest

vested in him depends.

Section 10(a)

Every person has unlimited insurable

interest in his own life One also has insurable interest in the life of his spouse and children on the basis of love and affection

Section 10(b) Obligation to give support Article 195, Family Code

Spouses, legitimate ascendants and

descendants Parents and their legitimate children and

legitimate or illegitimate children of the latter Parents and their illegitimate children

and legitimate or illegitimate children of the latter. Legitimate brothers and sisters whether of the full or half blood

Article 196, Family Code

Brothers and sisters not legitimately related, whether of the full or half blood, are likewise bound to support each other EXCEPT only when the need for support of the brother or sister, being of age, is due to a cause imputable to the claimant’s fault or negligence.

Blood relationship, affinity: enough?

In cases not falling under 195 and 196,

mere blood relationship or affinity does not create insurable interest Examples: uncle, aunt, nephew, niece, cousins, son-in-law, brother-in-law, stepchildren

Can a person get a policy on a person under 195 and 196 even if he can support himself?

Yes. Factual expectation is enough basis

to get a life insurance policy Even if policyholder can support himself, factual expectation that he will one day need to be supported and 195 and 196 are sufficient basis for a policy on the lives of people who are expected to support him.

Section 10(c) Pecuniary interest – concretizes face value of policy; exception to the general rule that no value can be placed on a person’s life

Debtor-creditor - only to the extent of

the amount

of

the

debt because the

creditor stands to lose

the chances of

being paid of the debtor dies. Upon

death

of

the

debtor, the creditor can

only recover extent of the debt unpaid, unless the debtor takes insurance on his own life for the benefit of the creditor.

Employer-employee – to the extent of the

profit

brought

by

the

ER;

once

the

relationship ceases, no recovery.

El Oriente v. Posadas

The Court does not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it

thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager.

Life insurance in such a case is like that of fire and marine insurance,- a contract of indemnity. he benefit to be gained by death has no periodicity. It is a substitution of money value for something permanently lost, either in a house, a ship, or a life.

Business partners – to the extent of the profit the partner brings to the partnership.

Section 10(d) Person in whose estate an interest is dependent

Person is given the right to use a house and

lot Right ceases when the owner dies and another person becomes the owner

When must insurable interest exist

Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

GENERAL RULE: when the insurance takes effect, but need not exist thereafter or when the loss occurs. Thus, spouses may be annulled but if at the time of the issuance of the policy, they were still married, insurable interest still exists and the policy is not voided; there may be recovery. (Because the basis for the policy is love and affection, not a monetary obligation).

Exception: when capable of pecuniary estimation, in which case, insurable interest must exist at the time the insurance takes effect AND when the loss occurs because insurable interest is based on a monetary consideration.

Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the
Sec. 25. Every stipulation
in
a policy
of insurance for the
payment of loss whether the person insured has or has not
any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
Sec. 181. 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. (in
relation to)
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.
Measure of recovery
Sec.
183.
Unless
the
interest
of
a
person insured is
susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or
health is the sum fixed in the policy.
GENERAL
RULE: Face
value of
the policy

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

7

Except: pecuniary estimation is possible

Special Rule in Insurable Interest for Industrial Life

Usual

rules

re

insurable interest are

generally not made applicable in industrial life because:

o

Proceeds are small,

little

danger to

o

induce a person to kill Investigation of presence of insurable

o

interest will nullify speedy payment of proceeds under the family of payment clause The costs to prove insurable interest will

destroy

the

purpose for

this

type

of

insurance

 

Facility of Payment Clause (Art. 230(m))

Industrial Life – if beneficiary does not

surrender policy or Beneficiary is the estate of insured OR

Legally incompetent

Payment may be made to The executor or administrator of the

o

o

insured or Any of insured’s relative

by blood

as

o

legal adoption or By marriage or

o

Any person who incurred expenses for maintenance, medical attention or burial

LIFE INSURANCE POLICY (See also 226-231)

Sec. 49. The written instrument

in

which a contract

of

insurance is set forth, is called a policy of insurance.

Sec. 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.

Unless applied

for

by

the

insured or

owner, any rider,

clause, warranty or endorsement issued after the original

policy

shall

be

countersigned by the insured or owner,

which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.

Sec. 51. A policy of insurance must specify:

  • (a) The parties between whom the contract is made;

  • (b) The amount to be insured except in the cases of open

or running policies;

  • (c) The

premium,

or

if

the

insurance is of a character

where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;

  • (d) The property or life insured;

  • (e) The interest of the insured in property insured, if he is

not the absolute owner thereof;

  • (f) The risks insured against; and

  • (g) The period during which the insurance is to continue.

Sec.

Cover notes may be issued

to bind insurance

52.

temporarily pending the issuance of the policy.

Within

sixty days after the issue of the cover note, a policy shall

be

lieu thereof, including within its terms the

issued in

identical insurance bound under the cover note and the premium therefor.

Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.

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.

Form

GENERAL RULE: printed form

EXCEPTIONS: group life and annuity

contracts which may be typewritten Contains blanks where word, phrase, clause, mark, sign necessary to complete the policy are placed

FORTUNE VS. CA

The bank was insured by theft and robbery insurance. The insurance policy contained limitation on the insurer’s liability in case robbery/theft were committed by the bank’s authorized agent. The bank was robbed with the connivance of the bank’s driver and security guard. Court held that there was no recovery.

H: An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's 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.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 7 ∑ Except: pecuniary estimation is

Contents of Insurance policy

Parties

Amount to be insured

Premium

Life insured

Risks

Period of effectivity

What are riders? Riders are printed or typed stipulations

contained on a slip

of paper

attached to

the policy

and

forming an integral part of the policy.

 

Rule on inconsistency: The rider prevails

as being

a

more

deliberate expression of the agreement of the contracting parties.

JARQUE VS. SMITH : It is a well settled rule that in case repugnance exists between written and printed portions of a policy, the written portion prevails, and there can be no question that as far as any inconsistency exists, the above-mentioned typed "rider" prevails over the printed clause it covers.

Requisites for validity:

  • 1. Descriptive title or name of rider is also mentioned and written on the blank spaces provided for in the policy;

  • 2. The rider must be countersigned by the insured if the same is issued after the original policy, which countersign shall be taken as his agreement to the terms found therein; [unless: applied

for

by

the

insured, no need for countersignature]

  • 3. Must be in the prescribed form issued by the Commissioner.

What are warranties? Warranties are inserted or attached to a policy to eliminate specific potential increases of hazards during the policy owing to (1) actions of the insured; or (2) condition of the property. Eliminates potential hazards by promising to do something or refraining from doing something.

What are clauses? Agreements between the insurer and the insured on certain matters relating to the liability of the insurer in case of loss, example: the liability of the insurer shall not exceed ¾ of the damage.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit What are endorsements? Provisions added to an insurance contract altering its scope and application, example: extending the perils covered, increasing the amount of liability, inclusion or exclusion of suicide.

What are Cover Notes?

Temporary insurance policies intended

to cover the insured while application is being evaluated

Effective

for

not

longer than

60

days

unless

with

written

approval

of

Commissioner Binding receipt – not the same as cover note since this only serves as acknowledgement of receipt of premium

and

application

subject

to evaluation

(Great Pacific v. CA)

COVER NOTES VALID IF:

  • Issued and renewed with prior approval of IC

  • Valid and binding for not more than 60 days, unless the insurance commission has approved an extension based on valid grounds

  • No separate premium is required for the cover note (Pacific Timber v. CA)

  • 7-day notice to the other party is required to cancel the cover note

  • Policy must be issued within 60 days from issuance of cover notes

  • 60-day period may be extended upon written approval of IC

  • Written approval is dispensed when president, VP or general manager

that

the

renewal is

not

to

circumvent the insurance code (Ins. Memo

Circular 3-75)

When is the insurance contract perfected?

  • 1. Delivery of the policy

or information as

to

the

approval of the application for insurance must be made known to the insured before there can be a

perfected

contract.

In

short,

a

contract

of

insurance is

deemed perfected at the time the

insured-applicant

had

knowledge

of

his

application.

  • 2. Since the insured is the one making the

offer,

the submission of the application WITHOUT the approval of the policy does not result in a perfected contract of insurance (Grepalife v. CA)

  • 3. If the applicant pays the premium upon filing of application but he dies before the approval, there is no perfected contract of insurance. (De Lim vs. Sun Life)

  • 4. If

the

insured

died

during

the

period

of

provisional policy which is conditioned upon approval of application, the beneficiary is not entitled to proceeds;

  • 5. Acceptance of the application by letter shall not

bind

the

insurer

except

from

the

time

the

approval came

to

his

knowledge; Even

if

the

insurer has approved the application via a letter,

there

is

no perfected contract

of insurance

if

there is no evidence that the applicant knew of

the approval. (Enriquez vs. Sun Life)

  • 6. The insured is presumed to have understood the application and the contract of insurance

DE LIM VS. SUN LIFE

FACTS: On July 6, 1917, Luis Lim made application

to

the

Sun Life

Assurance Company of Canada for a policy of insurance on his life in the

sum of P5,000.The first

premium of P433 was paid

by Lim,

and upon

such payment the company issued what was called a "provisional policy."

hpsevilla_2008

8

Luis Lim died on August 23, 1917, after the issuance of the provisional policy but before approval of the application by the home office of the insurance company.

H: Otherwise stated, the policy for four months is expressly made subject to the affirmative condition that "the company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the head office in Montreal." To re-enforce the same there follows the negative condition "Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall be held not to have been on the risk."

The so-called provisional policy

it

amounts

to

nothing

but

an

acknowledgment on behalf of the company, that it has received from the person named therein the sum of money agreed upon as the first year's premium upon a policy to be issued upon the application, if the application is accepted by the company.

It is of course a primary rule that a contract of insurance, like other contracts,

must be assented to by both parties either in person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date of the application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement. Our view is, that a contract of insurance was not here consummated by the parties.

Badger vs. New York

H: The mere signing of an application for life insurance and payment of first premium do not bind the insurance company to issue a policy where there is no evidence of any contract between the insure and the insurance company that such acts would constitute the contract.

Eniquez vs. Sun Life

Facts: Sept 24, Herrer made an application. Sept. 26, the head office in Canada office gave notice of acceptance by cable to Manila. On December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917. The heirs sought to recover from the insurance company

H: We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.

Lucero de Sindayen v. Insular

Facts: A, while with his aunt, applied for insurance with Insular, through its agent. It was agreed that should the application be approved the insurance policy should be delivered to his aunt with whom he left the balance to cover the payment of the first annual premium. Application was approved and the agent delivered the policy to insured’s aunt asking if the insured was in good health. The aunt answered yes, unaware that the insured got sick and died pending the approval of his application. The next day, the agent found out of the insured’s death and asked the aunt to return the policy. The insurance contract argued that there was no perfected contract of insurance.

H: The delivery of the policy to the insured by an agent of the company who is authorized to make delivery or withhold delivery is the final act which binds the company (and the insured as well) in the absence of fraud or other legal ground for rescission. The fact that the agent to whom it has entrusted this duty (and corporations can only act through agents) is derelict or negligent or even dishonest in the performance of the duty which has been entrusted to him would create a liability of the agent to the company but does not resolve the company's obligation based upon the authorized acts of the agent toward a third party who was not in collusion with the agent.

GREPALIFE vs. CA

Facts: A filed an application with insurance company for a 20 year endowment policy on the life of his 1 year old daughter without disclosing that she was mongoloid. After payment of first premium, a binding receipt was issued by the agent to A, at the bottom of which was written the agent’s strong advise for the approval of the application. Pending action on the application, the child died. The application was denied.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

9

H: The binding deposit receipt is intended to be merely provisional or temporary insurance contract subject to the compliance of conditions imposed by the insurance company. It is merely an acknowledgment, on behalf of the insurance company, that the latter’s branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company. Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.

Tang vs. CA

Facts: A, illiterate Chinese who spoke only the same, applied for insurance stating that she was in good health and naming her son to be the beneficiary. The application was approved. Sometime after, A died of lung cancer. Her son sought to claim the proceeds of the insurance policy but the company refused on the ground of material misrepresentation in the application. The son alleged that the insured could not have been guilty of misrepresentation applying Art. 1332 of the Civil Code considering that the insurer had not fully explained the terms of the contract to the insured.

H: The obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the insurance company is not seeking to enforce the contracts; on the contrary, it is seeking to avoid their performance. It is petitioner who is seeking to enforce them even as fraud or mistake is not alleged. Accordingly, respondent company was under no obligation to prove that the terms of the insurance contracts were fully explained to the other party.

Required Provisions

Sec. 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

(a) A provision that the policyholder is entitled to a grace period either of thirty days or of one month within which the payment of any premium after the first may be made, subject at the option of the insurer to an interest charge not in excess of six per centum per annum for the number of days of grace elapsing before the payment of the premium, during which period of grace the policy shall continue in full force, but in case the policy becomes a claim during the said period of grace before the overdue premium is paid, the amount of such premium with interest may de deducted from the amount payable under the policy in settlement;

Grace period provision – provision which gives the insured additional time to pay his premiums from the due date

Clarifies

the

right

to collect

if

death

happens within

the

grace

period

if

contingency happens during the grace period, there can be recovery.

Individual life

30

days/1

month

  • Group life – 30 days/1 month

 

Industrial life-

  • 4 weeks

or

if

payable monthly

30

days/1

month

(c) A provision that the policy shall constitute the entire contract between the parties, but if the company desires to make the application a part of the contract it may do so provided a copy of such application shall be indorsed upon or attached to the policy when issued, and in such case the policy shall contain a provision that the policy and the application therefore shall constitute the entire contract between the parties;

Entire contract provision – the policy

shall constitute

the

entire

contract

between the parties

(d) A provision that if the age of the insured is considered in determining the premium and the benefits accruing under the policy, and the age of the insured has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age;

Misstatement of age provision – if the

age of the insured is misstated, the amount

payable

shall

be

as such premium would

have purchased

at

the correct

age;

an

exception to the general rule that misrepresentations in contract of insurance is a ground to rescind.

(j) A provision that the policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement.

Reinstatement provision – clarifies the

requirements for restoring

a

policy

to

premium-paying status after it has lapsed.

Individual – 3 years

 

Group – no reinstatement

 

Industrial – 2 years

 

Special Features

 

Loan Privilege

based

on

the

cash

surrender value, the insured may obtain a loan by pledging the policy

Policy dividend options – if the policy is participating, the policyholder is entitled to a share of the surplus.

Exemption from claims of creditors – protection against execution

Income tax treatment – proceeds of life insurance policies are generally tax exempt. However, endowment proceeds and cash surrender values are treated as income and are taxable.

Surrender options – if the policyholder cannot continue paying the premiums, he has some options which will not put to waste what he has paid. However, these options are available only upon payment of at least 3 annual premiums.

Surrender Options/Special rights of insured in case of default/Non Forfeiture clauses

1. Cash Surrender Value 227(f); 230(f) and (g) – It is

the amount the insured, in case of default, after payment of

at least three annual premiums, is entitled to receive if he

surrenders the policy

and releases

his claim

upon

it;

not

available in group insurance.

 

Requirements:

 

Payment

of

at

least

3

annual

 

premiums

 

Not

less than

the reserve on

the

 

policy

Illustration: 10 years to pay – annual premium of 20,000 Premium rate is uniform although for the first 5 years, 10,000 may be enough to cover the risk. The excess amount is called the reserve and this is the source of the cash surrender value

Manufacturer’s Life vs. Meer (1951)

F: ML is an insurance company licensed to engage in the insurance business in the Phil. Because of the war, it temporarily closed its business in the Philippines. The insurance policies it issued contained non-forfeiture clauses such as automatic premium loan which it applied to the payment of

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

10

premiums of its insured during

the

closure

of

its

business

in

the

Philippines. The Phil. Gov’t taxed the application of these premiums as income tax.

H: Suppose that 'A', 30 years of age, secures a 20-year endowment policy for P5,000 from plaintiff-appellant Company and pays an annual premium of P250. 'A' pays the first ten yearly premiums amounting to P2,500 and on this amount plaintiff-appellant pays the corresponding taxes under section 255 of the National Internal Revenue Code. Suppose also that the cash value of said policy after the payment of the 10th annual premium amounts to P1,000." When on the eleventh year the annual premium fell due and the insured remitted no money within the month's grace, the insurer treated the premium then over due as paid from the cash value, the amount being a loan to the policyholder ( 1 ) who could discharge it at any time with interest at 6 per cent. The insurance contract, therefore, continued in force for the eleventh year.

Under the circumstances described, did the insurer collect the amount of P250 as the annual premium for the eleventh year on the said policy? The plaintiff says no; but the defendant and the lower court say yes. The latter have, in our opinion, the correct view. In effect the Manufacturers Life Insurance Co. loaned to "A" on the eleventh year, the sum of P250 and the latter in turn paid with that sum the annual premium on his policy. The Company therefore collected the premium for the eleventh year.

"How could there be such a collection" plaintiff argues "when as a result thereof, insurer becomes a creditor, acquires a lien on the policy and is entitled to collect interest on the amount of the unpaid premiums?"

Wittingly or unwittingly, the "premium" and the "loan" have been interchanged in the argument. The insurer "became a creditor" of the loan, but not of the premium that had already been paid. And it is entitled to collect interest on the loan, not on the premium.

In other words, "A" paid the premium for the eleventh year; but in turn he became a debtor of the company for the sum of P250. This debt he could repay either by later remitting the money to the insurer or by letting the cash value compensate for it. The debt may also be deducted from the amount of the policy should "A" die thereafter during the continuance of the policy.

Proceeding along the same line of argument counsel for plaintiff observes "that there is no change, much less an increase, in the amount of the assets of plaintiff-appellant after the application of the automatic premium loan clause. Its assets remain exactly the same after making the advances in question. It being so, there could have been no "

collection of premium

. .

..

We cannot assent to this view, because

there was an increase. There was the new credit for the advances made. True, the plaintiff could not sue the insured to enforce that credit. But it has means of satisfaction out of the cash surrender value.

Here again

it may

be

urged that if

the

credit is paid

out of the cash

surrender value, there were no new funds added to the company's assets. Cash surrender value "as applied to a life insurance policy, is the amount of money the company agrees to pay to the holder of the policy if he surrenders it and releases his claims upon it. The more premiums the insured has paid the greater will be the surrender value; but the surrender value is always a lesser sum than the total amount of premiums paid."

The cash value or cash surrender value is therefore an amount which the insurance company holds in trust 2 for the insured to be delivered to him upon demand. It is therefore a liability of the company to the insured. Now then, when the company's credit for advances is paid out of the cash value or cash surrender value, that value and the company's liability is thereby diminished pro tanto. Consequently, the net assets of the insurance company

increased correspondingly; for it is plain mathematics that the decrease of a person's liabilities means a corresponding increase in his net assets.

Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed no additional cash to the funds of the insurer. Yet it must be admitted that the insurer agreed to consider the premium paid on the strength of the automatic loan. The premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the tax is due because section 255 above quoted levies taxes according to the total premiums collected by the insurer "whether such premiums are paid in money, notes, credits or any substitute for money.

2. Extended insurance – The insured is given the right,

upon default, after the payment of at least

three full

annual premiums, to have the policy continued in force

from the date of default for a time either stated or equal to the amount as the net value of the policy taken as a single premium, will purchase. In case of death within the extended term, he may recover the face value of the policy. In short, the insured will purchase a new policy using the cash surrender value. The amount of recovery is the same, but the period of coverage is shorter. Requirements:

At least 3 annual premiums

Limited time, same face value

Illustration ORIGINAL POLICY – covered until age 70, with face value of P1 million; Extended insurance – covered until age 60 only but face value is still P1 million

3. Paid-Up Insurance

At least 3 annual premiums Same period, lower proceeds

Illustration

ORIGINAL POLICY: P1 million covered until age 70

PAID-UP

INSURANCE:

P500,000

covered until age 70

 

4. Automatic Premium Loan

 
 

Parties

agree that

in

case

of

 

default insurer advances the

premium

not

subject

to

repayment

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 10 premiums of its insured during

REMIUMS

Agreed price for assuming the risk

The right to premium arises the moment

the property/object is exposed to risk; See also Sec. 227(a); 228(a); 230(a) with respect to grace period. Cash and carry basis - based on section 77 which provides that the moment the thing insured is exposed to the peril, the insurer has the right to payment of premium.

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

policy whenever the grace period provision

industrial life

applies. (

 

Sec.

78.

An acknowledgment in

policy

a

or contract

of

insurance or the receipt of premium is conclusive evidence of

its payment,

so

far

as

make

to

the

policy

binding,

notwithstanding any stipulation therein that it shall not be

binding until the premium is actually paid.

Instances when non-payment of premium is excused [WIN]

Insurer waives the right to payment

Insolvent insured

Insurer’s negligence or fault

Aleja vs. GSIS

F: The deceased Rosauro Aleja was appointed as temporary classroom teacher in the Bureau of Public Schools. A compulsory term insurance policy was issued in his name to take effect February 1, 1959. On January 29, 1959, Aleja died of a gunshot wound inflicted by his own gun. Plaintiffs, as beneficiaries, filed a claim with GSIS to collect the proceeds of the policy. The claim was denied allegedly because at the time of Aleja’s death, the policy was not yet effective and therefore, Aleja was not covered by the insurance.

H: It appears that the policy issued and accepted by Aleja during his lifetime specifically provides that the effective date of the insurance contract is February 1, 1959. It is not denied that the first premium on said insurance contract was deducted from Aleja’s salary only on January 31, 1959 or after his death. At the time of said death, there was no existing contract between

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

11

him and GSIS, there being no consideration for the risk sought to be enforced against the insurance system.

Constantino vs. Asia Life War does not suspend the policy and does not excuse non-payment of premiums

F: In consideration of the sum of P176.0 as annual premium duly paid to it, Asia Life Insurance Company issued on September 27, 1941 its Policy whereby it insured the life of Arcadio Constantino for a term of 20 years. After the first payment, no further premiums were paid. The insured died on Sept 22, 1944. It is admitted that Asia Life Insurance, being an American corporation, had to close its branch office in Manila by reason of the Japanese occupation from January 2, 1942 until the year 1945.

H: US Rule: It declares that the contract is not merely suspended, but is abrogated by reason of non-payment of premiums, since the time of the payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. Promptness of payment is essential in the business of life insurance; there must be power to cut off unprofitable members, or the success of the whole scheme is endangered

Connecticut Rule- the payment of premiums is a condition precedent, the non-performance of which, even when performance would be illegal, necessarily defeats the right to renew the contract

New York Rule- war between states in which the parties reside merely suspends the contracts of life insurance, and that, upon tender of all premiums due by the insured or his representative after the war has terminated, the contract revives and becomes fully operative

After perusing the Insurance Act, we are firmly persuaded that the non- payment of premiums is such a vital defense of insurance companies that since the very beginning, said Act No. 2427 expressly preserved it, by providing that after the policy shall have been in force for two years, it shall become incontestable (i. e. the insurer shall have no defense) except for fraud, non-payment of premiums, and military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress recently amended this section (Rep. Act No. 171), the defense of fraud was eliminated, while the defense of nonpayment of premiums was preserved. Thus the fundamental character of the undertaking to pay premiums and the high importance of the defense of non-payment thereof, was specifically recognized.

In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a variation of the Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no reserve value, and that the equitable values of the second had been practically returned to the insured in the form of loan and advance for premium.

Ocampo vs. GSIS

F: Andres Gomez had served the provincial government of Pampanga as appraiser for a continuous period of 25 years form August 8, 1914 until his death on February 28, 1938; his appointment was as a temporary employee. He filled up “Information for Membership” insurance form with his wife Adelaida as beneficiary. The Treasurer of the provincial government deducted from the salary of Gomez the amount of P2.70 as part of the first premium. The Provincial Treasurer submitted to GSIS a claim for the amount of the policy of insurance in the sum pf P1,052 in the name of Adelaida Ocampo. GSIS Board refused to pay on the ground that Gomez was a temporary employee and therefore was not insurable when he died.

H: It was established that Andres Gomez had taken the Civil Service exam on October 16, 1937 and passed the same, although it was not announced before his death. The effect of his passing retroacts to the date of examination; hence his passing the exam made him eligible and qualified automatically for a regular and permanent appointment from the date of such examination. Besides, the GSIS Board accepted the first premium paid and issued the receipt therefore; so estopped.

Insular Life vs. Suva

F: The applicant Benito Patrocinio Suva was examined by Dr Ocampo, one of the physicians of the company and by Dr Llora, another physician of the company. In reply to the question in the printed application, “Are you in good health?” he replied “Yes.”. The insured died of pulmonary tuberculosis on September 23, 1933. The plaintiff asserts that the statements made by the insured in his applications were false and that

the applicant was not in good health at the time he presented his applications or on
the applicant
was
not
in
good
health
at
the
time he
presented
his
applications or on the date when said policies were delivered
H: If two qualified physicians, not selected by him, independently examine a
man with critical attention and in the interest of their employer, the
insurance company, and they pronounce him to be in good health, we should
said he believed the same thing himself. The applicant was in good health
when the policies were delivered and that it is not proved that he made any
material false statements in his said applications for insurance. "Good
health" is a relative term. A person with sound body may honestly believe
himself to be in "good health" although at the moment he may have a terrific
headache, or a running cold, or an attack of diarrhea, or indigestion, or any
other of a host of minor common ailments which may possibly develop later
into a serious illness.

Rule as to failure to pay 1 st premium:

If insured fails to pay 1 st premium, insurer cannot ask for specific performance but can only rescind the contract since there is no creditor-debtor relationship. As compared with non-life insurance, failure to pay first premium may be demanded by specific performance (cash and carry basis)

Special Rule in Industrial Life if Premiums are Not Paid

Sec. 229. The term "industrial life insurance" as used in this Code shall mean that form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila, and if the words "industrial policy" are printed upon the policy as part of the descriptive matter.

An industrial life policy shall not lapse for non-payment of premium if such non-payment was due to the failure of the company to send its representative or agent to the insured at the residence of the insured or at some other place indicated by him for the purpose of collecting such premium: Provided, That the provisions of this paragraph shall not apply when the premium on the policy remains unpaid for a period of three months or twelve weeks after the grace period has expired.

Policy will not lapse if failure to pay is due

to

fact

that

agent

did

not

collect

in

the

address provided in the policy

 

Except:

if

12 weeks

or

3

months

have

lapsed from end of grace period. (4 months all in all)

PARTIES to INSURANCE: INSURER:
PARTIES
to
INSURANCE:
INSURER:

the

CONTRACT

IN

LIFE

Sec. 6. Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, may be an insurer.

Sec. 184. For purposes of this Code, the term "insurer" or "insurance company" shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. "Domestic company" shall include companies formed, organized or existing under the laws of the Philippines. "Foreign company" when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.

Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations".

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

12

Sec.

186.

No

person,

partnership,

or

association

of

persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe.

Every person, partnership, or association receiving any

such certificate

of authority

shall

be subject

to

the

insurance laws

of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate.

Sec.

187.

insurance

No

company

shall

transact any

insurance business in

the Philippines

until

after

it

shall

have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.

The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interest of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section one hundred eighty-eight, reasonably assure the safety of the interests of the policyholders and the public.

In order to maintain the quality of the management of the insurance companies and afford better protection to

policyholders and the public

in

general, any person of

good moral character, unquestioned integrity and

recognized competence may be elected or appointed director or officer of insurance companies. The Commissioner shall prescribe the qualifications of the

executive officers and other key officials companies for purposes of this section.

of insurance

No person shall concurrently be a director and/or officer of an insurance company and an adjustment company.

Incumbent directors and/or officers affected by the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of this decree, whichever is shorter.

Before

issuing

such

certificate

of

authority,

the

Commissioner must be satisfied

that

name of

the

the

company is not that of any other known company

transacting a similar

business

the Philippines,

or

in

a

name so similar as to be calculated to mislead the public.

Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificates of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner.

No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance

concurrently unless specifically authorized to do so: Provided, That the terms "life" and "non-life" insurance shall be deemed to include health, accident and disability insurance.

No insurance company shall have equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company.

Insurance companies and adjustment companies presently affected by the above provision shall have two years from the effectivity of this Decree within which to divest of their stockholdings.

Insurance corporations – section 185 – corporations formed or organized to save any person or persons or other corporations harmless from any loss, damage or liability arising from any unknown or contingent event, or to indemnify or compensate for such loss, damage or liability or to guarantee performance with contractual obligations or payment of debts • Shall include all individuals, partnerships, associations or corporations, including GOCCs or entities, engaged as principals in the insurance business • Excludes mutual benefit associations

REQUIREMENTS BEFORE DOING INSURANCE BUSINESS:

1. It must possess the capital and assets required; and 2. It must obtain a certificate of authority from the Insurance Commissioner.

INSURED

Anyone except insured. (Sec 7)

a

public

enemy

may

be

• Public enemy – citizen or national of any country with which the Philippines is at war.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 12 Sec. 186. No person, partnership,

Filipinas vs. Huenefeld

The respondent corporation, Christern, Huenefeld & Co. Inc., after payment of corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros, fire policy covering merchandise contained in a building. During the Japanese military occupation, the building and insured merchandise were burned. The respondent submitted to the petitioner its claim under the policy. The petitioner refused the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent corporation being controlled by German subjects and the petitioner being under the American jurisdiction. The petitioner however paid to the respondent the sum of P92,650.

H: CHCI became a public enemy thus absolving insurer from liability. The nationality of a private corporation is determined by the character or citizenship of its controlling stockholders (control test).

The Philippine Insurance Law as amended provides that “anyone except a public enemy may be insured.” It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

By the law of nations, all intercourse between citizens or belligerent powers which is inconsistent with a state of war is prohibited. The purpose of which is to cripple the power and exhaust the resources of the enemy. It is inconsistent that the subjects of one country should lend their assistance to protect by insurance, the commerce or property of belligerent alien subjects or to do anything detrimental to their country’s interests. It results that the petitioner is entitled to recover what was paid to the respondent under the circumstances of this case.

Note: The insured must have an insurable interest in the life of the cestui que vie; he is the person who pays the premium

and

is

commonly

known

as

the policy

holder;

it

is

not

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 12 Sec. 186. No person, partnership,

necessarily his life which is used to constitute the

insurance policy.

May a member of the Moro Islamic Liberation

Front or its

breakaway group Abu Sayyaf be insured with a company licensed to do business under theInsurance Code of the Philippines? Explain (3%)

a member

Yes,

of

the

MILF or

the Abu

Sayyaf may be

insured.

a public

Only

enemy cannot be insured. A public

enemy is a citizen or national of a country

with which the

Philippines is at war.

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

13

A is

an elderly bachelor who took out an individual

life

insurance policy on his life. The designated beneficiary is B a companion-friend. A died in a fire which also destroyed his home. The insurer refused payment to B

due to absence of insurable interest on the life of A.

Is

the insurer correct?

 
insurer is wrong. B The as beneficiary the is
 

insurer is

wrong. B

The

as

beneficiary

the

is

entitled to collect the proceeds. As a beneficiary

in

a

life

insurance

policy,

B

is

not required

have

to

insurable interest on the life of A. A had insurable interest on his own life and the policy was taken on his life

RIGHTS OF THE INSURED

1.Right to borrow on the policy – 227(g) 2.Right to dividends if participating policy – 227(e);

230(e)

Requirements before declaration of dividends 1 :

o Entire paid up capital stock o Margin of solvency o Legal reserve fund o Aggregate amount of its debts and liabilities

3.Right to reinstatement (NOT ABSOLUTE RIGHT,

DISCRETIONARY)– 227(j); 230(j) – unless CSV paid or extension period expired

Individual – 3 years from date of default

Industrial – 2 years from date of default

Group – no reinstatement! Must pay overdue premiums Must show evidence of insurability – not only good health but also insured’s occupation, habits, finances

Andres vs. Crown Life

The policy cannot be considered reinstated at the time of Severa Andres’ death. There was no payment of all overdue premiums and other indebtedness at the time of her death. Prior to her death, only P100 of the overdue premium of P165.15 was paid but the balance of P65.15 was only paid two days after Severa’s death. Hence, when she died the policy was still lapsed.

There was no waiver of the condition regarding payment of the overdue premium. The letter of Crown Life telling Rufino Andres to send to the former “as big an amount as he is able” and “an adjustment most beneficial to him will be worked out” does not show a clear and positive intent to waive the payment of the overdue premium. On the contrary, the subsequent letters of Crown Life patently indicated that the Company insisted on the full payment of the premium before the policy was reinstated.

Clearly the Company did not consider the partial payment as sufficient consideration for the reinstatement. Appellant's failure to remit the balance before the death of his wife operated to deprive him of any right to waive the policy and recover the face value thereof.

1 Sec. 195. No domestic insurance corporation shall declare or distribute any dividend on its outstanding stocks except from profits attested in a sworn statement to the Commissioner by the

president or treasurer of the corporation to be remaining on hand after retaining unimpaired:

  • (a) The entire paid-up capital stock;

  • (b) The margin of solvency required by section one hundred

ninety-four;

  • (c) In the case of life insurance corporation, the legal reserve fund

required by section two hundred eleven;

  • (d) In the case of corporations other than life, the legal reserve

fund required by section two hundred thirteen;

  • (e) A sum sufficient to pay all net losses reported, or in the course

of settlement, and all liabilities for expenses and taxes. Any dividend declared or distributed under the preceding paragraph shall be reported to the Commissioner within thirty days after such declaration or distribution. If the Commissioner finds that any such corporation has declared or distributed any such dividend in violation of this section, he may order such corporation to cease and desist from doing business until the amount of such dividend or the portion thereof in excess of the amount allowed under this section has been restored to said corporation.

4. Right to transfer/bequeath-pass by transfer, will or succession to any person whether he has insurable interest or not; notice to insurer not required

•A has an insurance policy on the life of a debtor •If a dies, his heirs automatically get the right to the insurance policy OR

•A can assign creditor maybe

or transfer his

right to another person,

his

Sun Life vs. Ingersoll

Sun Life issued a policy of insurance on the life of one Dy Poco, of Manila. Subsequently, Dy Poco was adjudged an involuntary insolvent, and the defendant Frank Ingersoll, was appointed assignee in insolvency. In 1919, the said Dy Poco died, and thereafter, defendant Tan Sit, was duly appointed as the administratrix of his intestate estate.

Issue: Who is entitled to the proceeds under the policy?

 

H: The administratrix. The assignee shall have the right and power to recover and to take into his possession, all of the estate, assets, and claims belonging to the insolvent, except such as are exempt by law from execution. The assignee in insolvency acquired no beneficial interest in the policy of insurance in question; that its proceeds are not liable for any of the debts provable against the insolvent in the pending proceedings, and that said proceeds should therefore be delivered to his administratrix.

Grepalife vs. CA

Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. Grepalife issued an insurance coverage to Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting P86,200.00. Dr. Leuterio died due to “massive cerebral hemorrhage.”

Issue: Who is the party-in-interest who may file a claim against Grepalife, DBP or the widow?

Held: The widow. In a group insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract.

Section 8 of the Insurance Code provides: “Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.”

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: “In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.”

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain. And since 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 it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

CESTUI QUE VIE

•Person on whose life the insurance contract is constituted •Anyone of those mentioned under Sec. 10.

BENEFICIARY

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit hpsevilla_2008 13 A is an elderly bachelor

•One

who

receives

benefits;

The

beneficiary

may

or

may

not

have

insurable interest on

the

life

of

the

cestui que vie. What is vital is that the

beneficiary is NOT disqualified under the law to be designated as such.

2 instances where beneficiary is required to have

insurable interest on the life of the cestui que vie:

1. when he is also the insured

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

14

2. when stipulated in the policy(230(m))

GENERAL RULE: designation of beneficiary may be changed by insured •EXCEPTIONS: (1) insured has expressly waived his right to changed and (2) if the beneficiary has a vested right in the policy.

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

  • What are the effects of an irrevocable designation of a beneficiary under the Insurance Code?

Explain (2%)

Answer:

The irrevocable beneficiary has a vested interest in the policy, including its incidents such as the policy loan and cash surrender value

Jacob obtained a life insurance policy for P1 M designating irrevocably Diwata, a friend, as his beneficiary. Jacob

changed his mind and wants to include two other friends as beneficiaries. Can Jacob still add the two friends? (2%)

Answer:

Jacob cannot include the two friends as additional beneficiaries as this would diminish the interest of Diwata who is irrevocably designated as beneficiary. Diwata has to consent first to the inclusion.

RULES ON BENEFICIARIES

•If beneficiary WILLFULLY causes the death of the insured/cestui, the nearest relatives of the insured will get the proceeds .

  • 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 Rivera. 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. (4%)

On January 1, 2000, Antonio Rivera secured a

life insurance from SOS Insurance Corp. for P1

SOS cannot avoid liability merely because Gemma was an accessory to the death of Antonio. Under the law, when the beneficiary willfully causes the death of the cestui, the nearest relatives of the insured will be entitled to the proceeds.

•If beneficiary dies ahead of the insured/cestui, the estate of the insured will get the proceeds •If beneficiary is not designated, insured’s estate will get the proceeds

In re: Chanliongco

This matter refers to the claims for retirement benefits filed by the heirs of the late ATTY. MARIO V. CHANLIONGCO, an attorney working in the office of the Supreme Court. Atty. Chanliongco died intestate, the other retirement benifits already being paid out to the heirs what remains to be disposed of are the retirement benefits and the money value of the terminal leave benefits.He left his widow, Dra. Fidela B. Chanliongco and an only legitimate son, Mario II, it appears that there are other claimants to the benefits due the deceased, namely, Mrs. Angelina C. Buenaventura and Mario Chanliongco, Jr., both born out of wedlock to Angelina B. Crespo, and duly recognized by the deceased.

H: Dying ab intestado and failing to name beneficiaries in his application for membership in the GSIS the retirement benefits shall accrue to his estate and will be distributed among his legal heirs in accordance with the law on intestate succession, as in the case of a life insurance if no beneficiary is named in the insurance policy

DISQUALIFIED BENEFICIARIES

•Article 2012 in relation to Article 739 of the Civil Code

1.Those made between persons who were guilty of concubinage at the time of donation

2.Those made between persons found guilty of the same criminal offense in consideration thereof 3.Those made to a public office or his spouse, descendants and ascendants by reason of his office

SSS vs. DAVAC

Facts: The late Petronilo Davac became a member of the SSS. In the SSS form he designated respondent Candelaria Davac as his beneficiary and indicated his relationship to her as that of "wife". It appears that the deceased

contracted two marriages, the first, with claimant Lourdes Tuplano and the second, with Candelaria Davac

When Petronilo died each of the respondents (Candelaria Davac and Lourdes

Tuplano) filed their claims for death benefit with the SSS

..

SSS declared

Candelaria as the one entitled to the benefits as she was the one indicated as “beneficiary.”

Held: Candelaria Davac is entitled to the benefits, thus, SSS did not err in awarding the same to her.

The disqualification under the Civil Code is not applicable to Candelaria Davac because she was not guilty of concubinage, there being no proof that she had knowledge of the previous marriage of her husband Petronilo.

The SSS Act provides that if there is a named beneficiary and the designation is not invalid (as it is not so in this case), it is not the heirs of the employee who are entitled to receive the benefits (unless they are the designated beneficiaries themselves). It is only when there is no designated beneficiaries or when the designation is void, that the laws of succession are applicable. As already held, the Social Security Act is not a law of succession.

INSULAR LIFE VS. EBRADO

Facts: Buenaventura Ebrado was a whole-life for P5,882.00 by ILACT designating Carponia Ebrado as the revocable beneficiary in his policy. He referred to her as his wife. Buenaventura Ebrado died as a result of an accident when he was hit by a failing branch of a tree.

Carponia Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits 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, not the common-law wife, Carponia Ebrado.

H: Common -law spouses are disqualified by reason of Article 2012 in relation to Article 739 of the CC, which prohibits persons guilty of concubinage or adultery from becoming beneficiaries in a life insurance policy.

No criminal conviction for the offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a prosecution is needed. On the contrary, 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 upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded. The designation of a common law wife when insured has a legal wife is void. Concubinage only needs to shown by preponderance of evidence, no previous conviction is required.

A was issued a policy on whole life plan for P20,000. A

is married to B with whom he has 3 legitimate

is

married

to

B

with

whom he

has

3 legitimate

children.

However, A designated his common-law

wife C as the beneficiary in his policy and referred to C as his

legal wife.

When A died, both B and C claimed the proceeds

of the insurance. Who is entitled to the proceeds? (5%)

The estate of A is entitled to the proceeds. C is a disqualified beneficiary because of the illicit relation she had with A.

Nature of Beneficiary’s interest: a mere expectancy

-Generally, the designation of a beneficiary is revocable. The insured has the power to change the beneficiary without the consent of the latter who acquires no vested right but only an expectancy of receiving the proceeds under the insurance. It follows that the insured retains the right to receive the cash value of the policy, to take out loans against the cash value, to assign the policy, or to surrender it without the consent of the beneficiary

How change of the beneficiary may be effected

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

15

-the right must be exercised specifically in the manner provided in the policy or contract.

It is the cause or peril which appears closest in time to the loss.

  • -o0o- What is loss? mIt is the injury, damage, liability, loss of income or profits sustained by the insured in consequence of the happening of one or more perils insured against (Bonifacio Bros. v. Mora)

Heirs of Coscolluela vs. Rico

F: A pick up truck was insured with Rico Insurance Co. Within the period of coverage, the truck was damaged because it was fired upon by an unidentified group of men. The insurance company refused to pay indemnity as the firing came within the excepted peril .

H: The private respondent's invocation of the exceptions clause in the insurance policy as the basis for its non-liability and the consequent dismissal of the complaint is without merit. We also reiterate the established rule that when the terms of an insurance contract contain limitations on liability, the court "should construe them in such a way as to preclude the insurer from non-compliance with his obligations." (Taurus Taxi Co. Inc. v. Capital Insurance and Surety Company, Inc., 24 SCRA 454 [l968]) A policy of insurance with a narration of exceptions tending to work a forfeiture of the policy shall be interpreted liberally in favor of the insured and strictly against the insurance company or the party for whose benefit they are inserted.

Where the insurer denies liability for a loss alleged to be due to a risk not

insured against, but fails to establish

the

truth of

such fact

by

concrete

proofs, the Court rules that the insurer is liable under the terms and conditions of the policy by which it has bound itself. In this case, the dismissal order without hearing and reception of evidence to prove that the firing incident was indeed a result of a civil commotion, rebellion or insurrection constitutes reversible error on the part of the trial court. The case was remanded to the trial court for trial on the merits.

East vs. Globe

H: Regardless of any difference of opinion as to the value of the insured furniture and the extent of the damage caused thereto by the fire in question, the fact that the insured only had approximately 202 pieces of furniture in the building at the time of the fire and sought to compel the insurance companies to pay for 506 pieces conclusively shows that its claim was not honestly conceived. The trial court's conclusion that said claim is notoriously fraudulent, is correct. Thus, there was no recovery.

Paris vs. Phoenix

The real cause of the fire is more or less a matter of conjecture, upon which there is little, if any, evidence. In appellant's brief, it is said: The cause of the explosion was and is unknown and wholly a matter of conjecture. Neither peter Johnson nor Francisco Banta (the only persons in the building at the time) claimed that either of them saw anything explode. There is no evidence as to whether the fire was started before or after the explosion. Neither is there any competent testimony as to the cause of the explosion.

The defendant having issued its policy which was in legal force and effect at the time of the fire, it is bound by its terms and conditions, and the property having been destroyed, the burden of proof was upon the defendant to show that it was exempt from liability under the terms and conditions of the policy, and upon that point, there is a failure of proof.

Summary:

  • Only the insured must have insurable interest on the life if the cestui

  • Suicide is generally not compensable unless: mentally ill or committed after the policy has existed for more than two years from issuance

  • disqualified

If the beneficiary

is

because

he

participated in the death of the cestui, the

nearest relatives of the insured will recover.

In

all

other cases, it

is

the

estate of the insured

which can recover

  • If the cestui dies during the grace period, there can be recovery

  • If the cestui dies during the duration of the cover notes, there can be recovery

  • The measure of recovery in life insurance is the face value of the policy. Except when insurable interest is capable of pecuniary estimation

PART III NON-LIFE INSURANCE

I. WHAT MAY BE INSURED AGAINST

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

Sec. 84. Unless otherwise

provided

the policy,

by

an

insurer is liable for a loss of which a peril insured against

was

the

proximate

although

cause,

a

peril

not

contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause.

Sec. 86. 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.

Rule on recovery:

  • 1. The peril insured against must be the proximate cause, even if the remote cause is an excepted peril.

  • 2. When the insured risk is only a remote cause, OR if the proximate cause is an excepted peril, the insurer is not liable.

What is proximate cause?

Proximate

cause

is

that

which

in

the

natural

and

continuous sequence,

unbroken

by

any

NEW

INDEPENDENT cause, produces an event without which the event (loss, in this case) would not have occurred.

It is also called the EFFICIENT CAUSE, or the one which sets the other causes in motion.

Examples

Fire causes an explosion which results in loss, fire is the proximate cause of the loss and if fire is a covered peril, the insurer is liable

If

the house

is insured against

fire

and

the

house is

destroyed dud to the falling of a wall which is on life, the insurer is liable

What is an immediate cause?

Alfredo took out a policy to insure his commercial building against fire. A fire broke out

Alfredo took out a policy to insure his commercial

building against fire. A fire broke out and destroyed

the building. It was found that the proximate cause of the fire was explosion but fire was the immediate cause of the loss. There is no excepted peril in the policy. Can there be recovery under the policy?

Alfredo cannot recover from the policy. Section 84 of the Insurance Code provides that before there can be recovery under property insurance, the proximate cause of the loss must be the covered peril. In the instant case, the proximate cause of the loss was not the peril insured against. Hence, there can be no recovery under the policy.

What

is

the

rule

as

regards loss

in

the

course of

rescue?

 

Sec.

85.

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

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

16

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.

First, the insurer is liable if the thing is rescued from a peril insured against – if the thing in the course of rescue is exposed to a peril not insured against.

It must be shown that the property would have been lost by the peril insured against had there been no attempt to rescue it.

Second, If

loss

is

caused by efforts

to rescue

thing

insured from a peril insured against.

An owner gets theft insurance for his car.

In the course of rescuing the car from thieves, the car suffers damages.

The insurer is liable

to the owner although the

damage is not due to theft since it was in the course of rescuing the car from theft that it suffered some damage.

Rule

if

loss

is

due to

the willful

connivance of the insured

act

or

with

the

Sec. 87. 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.

If loss is through SIMPLE negligence of insured or

his agents, insurer is STILL LIABLE. – Why? Because this is one of the purposes of an insurance. The doctrine of contributory negligence does not apply to rights under a contract of insurance.

Insurer is NOT liable

if

loss

is caused

by GROSS

negligence

of

insured

 

Because

gross negligence

tantamount to bad faith and is as if the act was wilful.

If the fire was found to have been caused by

If

the fire

was

found to

have

been caused by

Alfredo’s own negligence, can

he

still

recover

 

from the policy?

 

I qualify.

If the negligence was simple

in

nature then

Alfredo can still recover under the policy. However, if there was gross negligence on the part of Alfredo then he is barred from recovering under the policy.

ii. INSURABLE INTEREST IN NON-LIFE INSURANCE

Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability
Sec.
13.
Every
interest
in property,
whether
real
or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.
  • interest

Every

in

property,

whether

real

or

personal (owner)

 
  • Any relation thereto (lessee, agent)

 
  • Liability

in

respect

of

property

(carrier,

depositary)

Sec. 14. An insurable interest in property may consist in:

  • (a) An existing interest (owner);

  • (b) An inchoate interest founded on an existing interest;

(shareholder) or

  • (c) An expectancy, coupled with an existing interest in

that out of which the expectancy arises. (usufructuary)

Sec. 15.

A carrier

insurable interest in

or depository of

any kind

has

an

a thing held by him as such, to the

extent of his liability but not to exceed the value thereof.

Act No. 3893, Bonded Warehouse Act - SECTION 6.Every person licensed under this Act to engage in the

business of receiving rice for storage shall insure the rice so received and stored against fire.

Sec. 16. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable. 2

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime;

Factual expectation

Mere factual expectation of loss not arising from any legal right or duty in connection with the SM does not constitute an insurable interest

NOTE: although factual expectation insurance

is enough

basis in

life

Note: Beneficiary is property insurance.

required to have insurable

interest in

A is an elderly bachelor who insured his house against

fire. He named his companion-friend as beneficiary.

fire. He named his companion-friend as beneficiary.

A died in a fire which also destroyed his home. The insurer refused payment to B due to absence of insurable interest on the life of A. Is the insurer correct?

The insurer is correct. The beneficiary in property insurance must have insurable interest on the property. The companion-friend of A does not have insurable interest on the house of A. Hence, he cannot recover from the fire insurance policy.

JQ,

JQ,

the owner of a condominium

insured the same

against fire with XYZ Company and made the loss

payable to his brother MLQ.

In case of loss by fire,

who can recover from the policy. State the reason for your

answer (5%)

JQ can recover since he has insurable interest over his own

condominium unit. that a beneficiary property.

MLQ cannot recover since it is required must have insurable interest over the

Note: Loss of insurable interest in life insurance AT THE TIME the loss occurs does not affect the policy and there can be recovery.

INSURABLE INTEREST IN A MORTGAGED PROPERTY:

 

Sec.

8.

Unless

the policy

otherwise provides, where a

mortgagor of property effects insurance in his

own name

 

providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is

2 father cannot insure his son’s property – mere expectancy of inheriting. General or unsecured creditor cannot insure property of debtor but an unsecured creditor may insure the property of a deceased debtor since all personal liability ceases with the death of the debtor. Also, an unsecured creditor who obtains a judgment in his favor becomes a judgment creditor and has been held to have insurable interest in the debtor’s property. However, to recover under the insurance, he must show the debtor has no other property out of which the judgment may be satisfied.

Of course, an unsecured creditor has an insurable interest in the life of his debtor to the extend of the amount of his debt. But a beneficiary has no insurable interest in the testator’s death

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

17

in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

Sec.

9.

If

an insurer

assents

to

transfer of

the

an

insurance from a mortgagor to a mortgagee, and, at the

time of his assent, imposes further obligation

on

the

assignee, making a new contract with him, the act of the

mortgagor cannot affect the rights of said assignee.

Both the mortgagor and the mortgagee have insurable interest on the mortgaged property

The insurable interest of the mortgagor is to the full value of the SM

The insurable interest of the mortgagee is only up to the extent of the indebtedness

  • A businessman obtained a fire insurance policy on
    broke out and destroyed the grocery and stocks. The insurer denied the claim since the stocks were mortgaged to another person who also insured the same stocks for P5 M. May the businessman and the creditor obtain different insurance policies on the same stocks?

his stocks for P5 M. Three months later, a fire

Yes. The businessman, as the owner and the creditor, as the mortgagee have insurable interest over the stocks. Hence, they may obtain separate policies on the same stocks.

Measure

Measure of insurable interest is the extent the insured might be damnified by loss or injury (sec.17)

Section 25: void stipulations – payment of loss whether insured has insurable interest or not or that policy shall be proof of interest

  • Distinguish insurable interest
    insurance from insurable interest in life insurance

in

property

(5%)

In property insurance, the expectation of benefit must have a legal basis. In life insurance, insurable interest can be based on mere factual expectation.

In property insurance, the actual value of the interest is

the limit of the insurance.

There is no such limit in life

insurance except if insurable interest is

pecuniary estimation.

capable of

In property insurance, insurable interest must exist when the insurance takes effect and at the time of the loss but not in the meantime. In life insurance, insurable interest must exist only at the time the insurance takes effect.

Also:

INSURABLE

INTEREST

IN

INSURABLE

INTEREST

IN

LIFE

PROPERTY

1. insurable

interest

is

Insurable interest is limited

 

unlimited except one taken by the creditor on the life of the debtor

to the actual value of the interest in the property

2.

it

is

sufficient

that

The insurable interest must

 

insurable interest exists at the time the insurance

exist both at the time the insurance takes effect and

takes effect but the loss occurs.

not when

at the time of the loss.

3. the expectancy of benefit

The expectancy must

be

may be sufficient even

coupled with

an

existing

 

without legal basis

legal basis to be a sufficient insurable interest.

 

Lampano vs. Jose

   

Facts: The defendant, Mariano R. Barretto, constructed a house for the other defendant, Placida A. Jose. Placida A. Jose sold the house to the

plaintiff, Antonina Lampano. Subsequently, the house was destroyed by fire. At the time of the fire Antonina Lampano still owed Placida A. Jose the sum of P2,000. Placida A. Jose still owed Mariano R. Barretto on the cost of the construction the sum of P2,000.

After the completion of the house and sometime before it was destroyed, Mariano R. Barretto took out an insurance policy upon it in his own name, with the consent of Placida A. Jose, for the sum of P4,000. After its destruction, he collected P3,600 from the insurance company.

H: Barretto had an insurable interest in the house, he could insure this interest for his sole protection. The policy was in the name of Barretto alone. It was, therefore, a personal contract between him and the company and not

a contract which ran with the property. According to this personal contract the insurance policy was payable to the insured without regard to the nature and extent of his interest in the property, provided that he had, as we have said, an insurable interest at the time of the making of the contract, and also at the time of the fire. Where different persons have different interests in the same property, the insurance taken by one in his own right and in his own interest does not in any way insure to the benefit of another. This is the general rule prevailing in the United States and we find nothing different in this jurisdiction.

"A contract of insurance made for the insurer's (insured) indemnity only, as where there is no agreement, express or implied, that it shall be for the benefit of a third person, does not attach to or run with the title to the insured property on a transfer thereof personal as between the insurer and the insured. In such case strangers to the contract cannot require in their own right any interest in the insurance money, except through an assignment or some contract with which they are connected."

In the case at bar Barretto assumed the responsibility for the insurance. The premiums, as we have indicated, were paid by him without any agreement or right to recoup the amount paid therefor should no loss result to the property. It would not, therefore, be in accordance with t he law and his contractual obligations to compel him to account for the insurance money, or any par thereof, to the plaintiff, who assumed no risk whatever.

Traders vs. Golangco (Spanish text)

By virtue of the contract between Tomas B. Lianco and the Archbishop, Lianco erected the building of which the premises in question form part and became owner thereof. He transferred the ownership of the premises in question to kaw Eng Si, who in turn transferred it to plaintiff Juan Golangco Lianco and the actual occupant of the premises acknowledged plaintiff's right to collect rentals thereon in a compromise agreement which was incorporated in a judicial judgment . Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal possession of the premises, collecting rentals from its occupant. It seems plain that if the premises were destroyed — as they were — by fire, Golangco would be, as he was, directly damnified thereby; and hence he had an insurable interest therein.

Thus, There is no doubt in our mind that both at the time of the execution of the fire policy (Exhibit A) on April 7, 1949, and on June 5, 1949, when the destruction by fire of the property for which the said policy was issued took place, plaintiff Juan Golangco had an insurable interest on the property insured which included the rents of premises

Filipino vs. CA

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property.

Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the

Based on the lecture/syllabus of Atty. Ma. Cristina Sagmit

hpsevilla_2008

18

goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance.

Cha vs. CA

F: Respondents Cha insured the leased premises despite the contrary agreement with the lessor that the lessee cannot insure the same without the former’s consent; and should the lessee do so in contravention with the agreement, the lessor will be ipso facto considered as the assignee of the insurance proceeds.

When the leased premises was destroyed by fire, the lessor sought to recover the insurance proceeds.

H: Sec. 18 in reference to Sec. 25 of the Insurance Code. A non-life insurance policy such as the fire insurance policy taken by petitioner- spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

Lim Cuan Sy vs. Northern

The appellant calls attention to the fact that the true owner of the insured goods was the mercantile entity Lim Cuan Sy & Co., whereas the policies were written in the name of Lim Cuan Sy only, without any revelation having been made to the insurer of the fact that Lim Cuan Sy was only one of several partners in the business and that he was not the sole owner. The proof, however, shows that the agent who wrote the policy made no inquiry as to the interest of Lim Cuan Sy in the insured goods, and he merely asked in what name the insurance should be written