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Topics on past exams


Incontestability; exceptions
Binding receipt
Perils of the ship vs Perils of the sea (implied warranties)
Insurable interest; effect when there is transfer of the thing insured; Collection of debt; effect on the
insurable interest
On insurable interests of mortgagor and mortgagee
Concealment; when does it bar recovery; indemnity clause; exception is gross negligence
Rules on improper deviation; exceptions
Entitlement of beneficiary; so long as not disqualified as a donee

Rule on Incontestability
General Rule:
After a policy of life insurance made payable on the death of the insured shall have been in force during the
lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
Note: 2 year period may be shortened but not extended by stipulation
Exceptions: NVNCFPA
1. Nonpayment of Premiums
2. Violation of conditions regarding military/naval service in times of war
3. No insurable interest
4. Cause of death was excepted or not covered
5. Fraud of the vicious type
6. Proof of death was not given
7. Action not brought within specified time
***Negligence is not an exception BUT only GROSS Negligence
Binding Receipt
A mere acknowledgment on behalf of the company that its branch office had received from the applicant the
insurance premium and had accepted the application subject to processing by head office.
Note: mere acknowledgment of receipt. No perfected contract yet.
Perfection of an Insurance Contract
- An insurance contract is a consensual contract; perfected by mere consent, hence, perfected when
there is a meeting of minds
- In the Philippines, we follow cognitive theory
Cognitive theory an acceptance made by letter shall not bind the person making the offer except from the
time it came to his knowledge.
Important notes:
Binding receipt is only a preparatory contract. It is well-settled that a binding deposit receipt cannot be the
basis of claim for insurance proceeds. The binding deposit receipt only constitutes an offer which may be
accepted or rejected by the insurance company. However, if the loss occurred prior to effectivity of contract,
premium paid may be returned for the risk was never attached.

Perils of the Sea vs. Perils of the Ship

Perils of the Sea
Perils of the Ship
Includes only those casualties due to: UEO
A loss which in the ordinary course of events, results
1. Unusual violence
from the: NON
2. Extraordinary action of wind and wave
1. Natural and inevitable action by the sea
3. Other extraordinary causes connected with
2. Ordinary wear and tear of the ship
3. Negligent failure of ships owner to provide
the vessel with proper equipment to convey the
cargo under ordinary conditions
NOTE: It is only perils of the sea which may be insured against UNLESS perils of the ship is COVERED
All-risk policy reimburses the insured for damage to the subject matter of the policy from all causes
except those specifically excepted in the policy. In other words, all those not excluded are automatically
Specified-risk insurance covers damage to the subject matter of the policy only if it results from
specifically identified causes listed in the policy
All-risk insurance is not absolute, viz:
1. It is fundamental prerequisite to any policy that the loss be fortuitous
2. It does not include an undisclosed event that existed prior to coverage OR an event caused by the
consummation during the period of coverage of an indwelling fault in the goods that existed prior to
that coverage.
3. If a loss is certain to occur, such as loss due to normal wear and tear, the loss is not fortuitous and,
therefore, is not insurable
4. All-risk covers all kinds of loss but not those due to willful and fraudulent act of the insured;
Insurable Interest
A person has insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so
related, that by the preservation of the same, he shall derive benefit, and by its destruction he shall suffer
loss, damage or prejudice.
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.
Very important notes:

It should exist when the insurance takes effect; not thereafter or when the loss occurs
General rule: there is no limit as to the amount
Exception: where creditor insures the life of debtor, limited to the amount of the debt
If at the time of the death of the debtor the whole debt has already been paid, the creditor can no
longer recover on the policy because of the principle of indemnity
The beneficiary need not have an insurable interest over the life of the insured if the insured himself
secured the policy

If the beneficiary obtained the policy over the life of the insured, he must have an insurable interest
in the life of the insured

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.
SEC. 14. An insurable interest in property may consist in:
(a) An existing interest; (ex: owner and/or mortgagor)
(b) An inchoate interest founded on an existing interest; (ex: carrier on cargo for freightage)
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. (ex:
growing fruits)
Very important notes:
- It should exist when the insurance takes effect AND when the loss occurs, but need not exist in the
- Extent/Amount: 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. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the thing insured.
General Rule:
SEC. 20. Except in the cases specified in the next four sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change of
interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the
interest in the insurance are vested in the same person.
SEC. 20 - in the cases of life, accident, and health insurance
SEC. 21. A change of interest in a thing insured, after the occurrence of an injury which results in a loss,
does not affect the right of the insured to indemnity for the loss.
SEC. 22. A change of interest in one or more of several distinct things, separately insured by one policy,
does not avoid the insurance as to the others.
SEC. 23. A change of interest, by will or succession, on the death of the insured, does not avoid an
insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.
SEC. 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are
jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance
shall cease upon an alienation of the thing insured.
Insurable Interest of Mortgagor/Mortgagee

Both mortgagor and mortgagee have insurable interest in the property mortgaged:
Mortgagor As owner, has insurable interest therein to the extent of its value, even though the mortgage
debt equals the value;

Rationale: the loss or destruction of the property does not extinguish the mortgage debt
Mortgagee his interest is only up to the extent of the debt
Rationale: such interest continues until the mortgage debt is extinguished

Open or Loss Payable Mortgage Clause

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 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.
1. Contract deemed to be upon the interest of the mortgagor;
2. Any act of mortgagor prior to the loss, which would otherwise avoid insurance affects the mortgagee even if
the property is in the hands of the mortgagee;
3. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the
4. In case of loss, mortgagee is entitled to the proceeds up to the extent of the debt
5. Upon recovery by mortgagee to extent of his credit, debt is extinguished
Note: In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but
he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to
the insurer to the extent of the money paid by such insurer
Standard or Union Mortgage Clause
SEC. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his
assent, imposes further obligations on the assignee, making a new contract with him, the acts of the mortgagor cannot
affect the rights of said assignee.
Effect: Mortgagors subsequent acts does not affect the rights of the assignee
Right of Redemption is the right which is specifically granted by law to the mortgagor. Equity of Redemption,
however, is merely being recognized by law as there is no law covering the same.
Equity of Redemption is the right of the defendant mortgagor to extinguish and retain ownership of the property by
paying the amount fixed in the decision of the court within ninety (90) days to one hundred twenty (120) days after
entry of judgment or even after the sale but prior to its confirmation. Right of Redemption, on the other hand, is the
right granted to the debtor-mortgagor, his successor in interest or any judicial creditor of said debtor-mortgagor or any
person having a lien in the property subsequent to its mortgagor deed of trust under which the property is sold to
redeem the property within one (1) year from registration of the sheriffs certificate of sale.
In other words, Equity of Redemption is the right to extinguish the mortgage and retain ownership of the property by
paying the debt. The equity of redemption may be exercised even after the foreclosure sale provided it is made before
the sale is confirmed by order of the court. Right of Redemption, however, is a right granted to a mortgagor to
repurchase the property even after the confirmation of the sale and even after the registration of the certificate of sale.
General Rule: Under Rule 68 of the Rules of Court, there is no right of redemption in a judicial foreclosure of
mortgage. There is only here an Equity of Redemption which is exercisable within the period stipulated in the
mortgage deed and subsists after the sale and before it is confirmed by the court. This means that after the foreclosure
sale but before its confirmation, the mortgagor may exercise his right to pay the proceeds of the sale and prevent the
confirmation of the sale.
Exception (Here, there is Right of Redemption): When the judicial foreclosure of mortgage is in favor of a banking
institution (as mortgagees), in which case they shall be given a period of one year after the sale of the real estate.
Such period, however, has been construed to be one year from the sate of registration of the certificate of sale in the
Registry of Property.


The Right of Redemption exists only in extrajudicial foreclosures where there is always a right of redemption within
one (1) year from the date of sale but interpreted by the Court to mean one year from the registration of the sale.
But such one (1) year period for redemption no longer applies to juridical persons (as mortgagors) whose real property
has been mortgaged with a bank (mortgagee). Their right to redeem the property shall be until, but not after, the
registration of the certificate of foreclosure sale with the applicable Register of Deed which in no case shall be more
than three (3) months after foreclosure, whichever is earlier.
In Extrajudicial Foreclosure of Mortgage, there is no equity of redemption.
SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.
SEC. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of
Effects: Entitles insurer to rescind even if the death or loss is due to a cause not related to the concealed matter
Note: Good faith is NOT a defense. the concealment, whether intentional or not, entitles the injured party to rescind
the contract of insurance.
***Where matters of opinion or judgment called for, answers made in good faith and without intent to deceive will not
avoid the policy, even though they are untrue
Reason: The insurer cannot rely on those statements. He must make further inquiries.
Materiality is determined not by the event but by the probable and reasonable influence of the facts on the
determination of the insurer of the risk and whether to accept the same at a higher premium or reject the application.
***Still covered by the incontestability clause
Improper Deviation
Deviation a departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage

Instances: (Improper deviation)

1. Departure of vessel from the course of the sailing fixed by mercantile usage
2. Departure of vessel from the most direct, natural and advantageous route if not fixed by mercantile usage
3. Unreasonable delay in pursuing voyage
4. Commencement of an entirely different voyage
Exceptions (Proper Deviation):
1. When caused by circumstances outside the control of the ship captain or ship owner
2. When necessary to comply with a warranty or to avoid a peril
3. When made in good faith to avoid a peril
4. When made in good faith to save human life or relieve another vessel in distress
A person designated to receive proceeds of the policy when risk attaches
A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an
insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of the NCC.

Reason: In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned.
Both are founded on the same consideration of liberality.
Article 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action.
Article 2012. Any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary
of a life insurance policy by the person who cannot make any donation to him, according to said article.
General Rule: Revocable
1. Waiver of said right in the policy
2. Did not change beneficiary during the insureds lifetime
SEC. 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly
waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be deemed irrevocable.
SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death of the insured. In such a case, the share forfeited shall
pass on to the other beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the proceeds
shall be paid in accordance with the policy contract. If the policy contract is silent, the proceeds shall be paid to the
estate of the insured.
SEC. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by
loss or injury thereof.