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Midterm Reviewer

PRESIDENTIAL DECREE NO. 612 In the case referred to in No. 1, the action for
December 18, 1974
declaration of nullity may be brought by the spouse
ORDAINING AND INSTITUTING AN INSURANCE CODE OF of the donor or donee; and the guilt of the donor and
THE PHILIPPINES donee may be proved by preponderance of evidence
in the same action.
I, Ferdinand E. Marcos, President of the Philippines, by
virtue of the powers in me vested by the Constitution, do
Art. 2012. Any person who is forbidden from
hereby decree and order the following: receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy by the
GENERAL PROVISIONS person who cannot make any donation to him,
Sec. 1. This Decree shall be known as "The Insurance Code".
according to said article.

Sec. 2. Whenever used in this Code, the following terms shall Naming somebody as a beneficiary and giving donations are
have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(1) A "contract of insurance" is an agreement whereby one But husband may designate wife as beneficiary despite
undertakes for a consideration to indemnify another against prohibition in F prohibiting husband and wife from making
loss, damage or liability arising from an unknown or
contingent event.
donations to each other.
A contract of suretyship shall be deemed to be an insurance Designating spouse as beneficiary is not a donation inter
contract, within the meaning of this Code, only if made by a vivos it is donation mortis causa to take effect only
surety who or which, as such, is doing an insurance business
as hereinafter provided. upon death of insured spouse.
(2) The term "doing an insurance business" or "transacting
an insurance business", within the meaning of this Code, On the Insurers Right of Subrogation (NCC)
shall include: Art. 2207. If the plaintiff's property has been
(a) making or proposing to make, as insurer, any insurance
contract; insured, and he has received indemnity from the
(b) making or proposing to make, as surety, any contract of insurance company for the injury or loss arising out
suretyship as a vocation and not as merely incidental to any of the wrong or breach of contract complained of, the
other legitimate business or activity of the surety;
insurance company shall be subrogated to the rights
(c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of of the insured against the wrongdoer or the person
an insurance business within the meaning of this Code; who has violated the contract. If the amount paid by
(d) doing or proposing to do any business in substance the insurance company does not fully cover the
equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
injury or loss, the aggrieved party shall be entitled to
In the application of the provisions of this Code the fact that recover the deficiency from the person causing the
no profit is derived from the making of insurance contracts, loss or injury.
agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business. 1. To make the person who has caused the loss
(3) As used in this code, the term "Commissioner" means legally RESPONSIBLE (otherwise, if you already
the "Insurance Commissioner". received from the insurer, you may no longer be
interested to pursue the other party making him
NCC shall also be applied in contracts of insurance. free from liability)
Art. 2011. The contract of insurance is governed by 2. To PREVENT DOUBLE RECOVERY on the part of the
special laws. Matters not expressly provided for in insured from recovering first from the insurance
such special laws shall be regulated by this Code. company and then from the wrongdoer.
Thus, NCC subsidiarily applied.
Subrogation is based on the principles of equity and
Provisions applicable to contracts of insurance, Arts. 739 justice.
& 2012 on Void Donations: It does not arise out of a contract or an assignment of
Art. 739. The following donations shall be void: claim.
(1) Those made between persons who were guilty of - accrues the moment the insurer paid the insured
ADULTERY OR CONCUBINAGE at the time of the - operates as an equitable assignment
donation; - insurer now steps into the shoes of the insured and
(2) Those made between persons found guilty of the acquires all the rights pertaining to the insured as
same criminal offense, in consideration thereof; against the third party or the wrongdoer.
(3) Those made to a public officer or his wife, i.e. he can be considered a party to contracts
descendants and ascendants, by reason of his office. entered into by the insured with another who
caused the loss (i.e. contract of carriage
shipment of goods).

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
1 III LLB, EH404, USC College of Law
Midterm Reviewer

- Applies to property insurance only. UNKNOWN EVENT those which may already happen
- Property insurance = CONTRACT OF INDEMNITY. but such event is unknown to the parties.
Indemnity you can only recover to the extent of i.e. in Marine Insurance vessel may be insured if it
your loss or to the extent of your insurable interest. is unknown to the insured that the vessel is already
Compared to life insurance policy, which as a lost at sea.
general rule, is not a contract of indemnity CONTINGENT EVENT an event which may or may not
Value of life is unlimited (not subject to happen.
pecuniary benefit or estimation) no limit to
the amount recoverable to compensate for ELEMENTS OF INSURANCE CONTRACT
the loss of a persons life. 1. CONSENT of the contracting parties
- Subrogation is only up to the extent/value of the 2. OBJECT transfer and distribution of risk
insurance (i.e. if house worth 2M is burned and 3. CONSIDERATION payment of premiums
insurance is only 1.5M insurer is subrogated to 4. SUBJECT MATTER:
1.5M and insured can go after the one who caused a. Property Insurance the thing that you
the fire for the remaining 500K.) insured
*if there is court order/judgment setting the b. Life Insurance life.
amount the victim can recover from guilty party, c. Casualty Insurance risk of loss, damage or
then insurer is subrogated only up to that liability.
i.e. if amount was set by court to 1M, 5 DISTINGUISHING ELEMENTS OF AN INSURANCE
subrogation only up to 1M remember: IC CONTRACT (Or Risk-Distributing Device)
only steps into the shoes of the insured. 1. There must be INSURABLE INTEREST or the insured must
- Any act of the insured, whether fault or negligence, have insurable interest.
which defeats the insurers right of subrogation then 2. The insurable interest is SUBJECT TO A RISK OF LOSS.
the insurer can refuse payment or if the insurer 3. There must be ASSUMPTION OF RISK by the INSURER.
already paid then he can demand reimbursement. 4. The assumption of risk must be part of the general
i.e. if A executes a release or waiver of quitclaim scheme TO DISTRIBUTE ACTUAL LOSSES among parties or
as against B and Insurance Co. [IC] pays A. IC persons who are somehow EXPOSED TO THE SAME RISK.
can no longer go after B since B is already 5. As CONSIDERATION for the insurers promise, the
released from liability. IC can go after A because insured makes a RATABLE CONTRIBUTION called
through As act, A defeats the right of PREMIUM to a general insurance fund.
subrogation of IC. NOTE: If only elements 1, 2 & 3 are present then it is
Compulsory Motor Vehicle insurance (NCC)
Art. 2186. Every owner of a motor vehicle shall file Creditor has an insurable interest in the payment of his
with the proper government office a bond executed loan. He tends to suffer a loss in case his not paid when
by a government-controlled corporation or office, to Debtor dies or becomes insolvent, thus there is risk of loss.
answer for damages to third persons. The amount of XYZ Company can assume the risk of non-payment to
the bond and other terms shall be fixed by the pay Creditor in case D cannot.
competent public official. NOT A CONTRACT OF INSURANCE the assumption
Arts. 2021 2027 with respect to LIFE ANNUITY of risk is not part of a general scheme its ONLY
In Case of Application and Acceptance By Mail PREMIUM. Contract GUARANTY/SURETYSHIP.
Insurance Code is silent on the perfection of contracts in this Guaranty guarantor is subsidiarily liable with the
particular case. benefit of exhaustion of assets.
Art. 1319 of NCC which provides that if the Suretyship surety is primarily liable with no
benefit of exhaustion of assets
acceptance is sent through a letter or correspondence
Both are not contracts of insurance the 4th
then the contract shall be perfected at the TIME OF
and 5th distinguishing elements are not present
KNOWLEDGE of such acceptance.
CONTRACT OF INSURANCE an agreement whereby one
party, called the INSURER, promises to pay money or its **But if the surety does it as part of his
equivalent to the INSURED in consideration for the insured vocation (not just an isolated transaction)
paying a PREMIUM arising from a LOSS, DAMAGE OR like in the above case the contract
LIABILITY by reason of an UNKNOWN OR CONTINGENT becomes a general scheme to distribute
EVENT. the loss not only with respect to one

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
2 III LLB, EH404, USC College of Law
Midterm Reviewer

person but to other persons who are QF: Life of A, son of B, was insured. Indemnity from the
similarly situated. policy varies from P1k to 3k depending on the cause of
death. While aboard a motor launch, A and his
But where members of a group (racing enthusiasts) agree companions were forced to jump off due to a fire that
to make monthly contributions to a common fund for the broke out resulting in death by drowning.
purpose of answering for the hospital/medical expenses ISSUE: W.O.N. the father B, as sole heir, may recover P1k
of members who meet an accident during their event or 3k from the death of his son considering that the policy
CONTRACT OF INSURANCE. did not clearly state the amount recoverable in case of
*But not where the fund is for whoever wins drowning.
WAGERING CONTRACT. HELD: All the parties agree that indemnity has to be paid.
The conflict centers on how much should the indemnity
CHARACTERISTICS OF AN INSURANCE CONTRACT be. We believe that under the proven facts and
1. Consensual perfected by mere meeting of minds. circumstances, the findings and conclusions of the trial
2. Voluntary generally, not compulsory, except court, are well taken, for they are supported by the
insurance for motor vehicles (TPL). generally accepted principles or rulings on insurance,
3. Aleatory insurer will be obligated to indemnify only which enunciate that where there is an ambiguity with
upon the happening of the contingent event, which respect to the terms and conditions of the policy, the
may or may not happen. same will be resolved against the one responsible
4. Personal based on character, conduct and credit thereof. It should be recalled in this connection, that
of a person (the insurer may be willing to insure you but generally, the insured, has little, if any, participation in the
he may not be willing to insure your seatmate or some preparation of the policy, together with the drafting of its
other person). terms and Conditions. The interpretation of obscure
5. Contract of Indemnity insurer is to make good only stipulations in a contract should not favor the party who
the loss of the insured to the extent of his insurable cause the obscurity which, in the case at bar, is the
interest. insurance company.
EXC: Life Insurance . . . . And so it has been generally held that the "terms
EXC to EXC: If creditor insures the life of debtor in an insurance policy, which are ambiguous,
the life insurance now becomes a contract of equivocal or uncertain . . . are to be construed strictly
indemnity because his insurable interest would against, the insurer, and liberally in favor of the
only be to the extent of the loan (where debt is insured so as to effect the dominant purpose of
already paid, creditor cannot recover from indemnity or payment to the insured, especially
insurance because no more insurable interest). where a forfeiture is involved," and the reason for this
6. Executory or Executed EXECUTED as to the insured rule is that the "insured usually has no voice in the
after the payment of the premium, and EXECUTORY on selection or arrangement of the words employed
the part of the insurer in the sense that it is not and that the language of the contract is selected
executed until payment for a loss or his obligation will with great care and deliberation by expert and legal
not arise until the contingent happens. advisers employed by, and acting exclusively in the
7. Conditional obligation of the insurer arises only interest of, the insurance company".
upon the happening of the contingent event. . . . . Where two interpretations, equally fair, of
8. Property in Legal Contemplation languages used in an insurance policy may be
made, that which allows the greater indemnity will
When CLEAR interpreted according to the tenor of the At any event, the policy under consideration, covers
agreement. death or disability by accidental means, and the
When there is AMBIGUITY construed liberally IFO the appellant insurance company agreed to pay P1,000.00
insured and strictly against the insurer. to P3,000.00. is indemnity for death of the insured.
**because insurance contracts are usually contracts
of adhesion (most of the terms of the contracts do FIELDMENSINSURANCE V VDA. DE SONGCO
not result from mutual negotiation between the QF: A, a man of scant education, insured his private
parties prescribed by the insurer in final printed jeepney with Common Carrier Liability Insurance thru the
forms with the aid of legal experts working for its inducement of B, insurance agent. After a year, the
benefit and the only participation of the insured is to insurance was renewed. During the effectivity of the new
either to adhere to or reject the terms. poicy, the jeep, driven by As son, met an accident.
ISSUE: W.O.N. A can recover from Insurance Company
CASES: despite the fact that his vehicle was not a private jeep.
HELD: As much, if not much more so than the Qua Chee
DEL ROSARIO V EQUITABLE INSURANCE Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
3 III LLB, EH404, USC College of Law
Midterm Reviewer

Fieldmen's Insurance Co., Inc. had led the insured b. something that would create liability against the
Federico Songco to believe that he could qualify under one taking out the policy
the common carrier liability insurance policy, and to enter c. but if the policy states it will indemnify you
into contract of insurance paying the premiums due, it against damage to 3rd persons, it is still insurance
could not, thereafter, in any litigation arising out of such against damage (for it to be insurance to be
representation, be permitted to change its stand to the liability, insurer has to bind itself to pay a 3rd
detriment of the heirs of the insured. As estoppel is party).
primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party due These risks arise from contingent and unknown events
to its injurious reliance, the failure to apply it in this case which can be past or future
would result in a gross travesty of justice. CONTINGENT EVENT relates to the future, may or may
xxx xxx xxx not happen.
Even if it be assumed that there was an ambiguity, an UNKNOWN EVENT has already happened as long
excerpt from the Qua Chee Gan decision would reveal as the past event is unknown at the time the policy
anew the weakness of petitioner's contention. Thus: took effect.
"Moreover, taking into account the well known rule that **the policy must expressly provide that the insurer
ambiguities or obscurities must be strictly interpreted undertakes to insure you for a prior loss (a past
against the party that caused them, the 'memo of event), by state lost or not lost that it is willing to
warranty' invoked by appellant bars the latter from insure a past unknown event peculiar only to
questioning the existence of the appliances called for in MARINE INSURANCE (not to fire and property
the insured premises, since its initial expression, 'the insurance because they normally conduct ocular
undernoted appliances for the extinction of fire being inspection).
kept on the premises insured hereby, ... it is hereby
warranted ...,' admits of interpretation as an admission of MARRIED WOMAN can take policy even WITHOUT
the existence of such appliances which appellant cannot CONSENT of her HUSBAND, as long as it insures:
now contradict, should the parol evidence rule apply." a. Her own LIFE
b. Life of her CHILDREN, or HUSBAND.
Chapter 1 c. Her OWN PROPERTY (paraphernal).
WHAT MAY BE INSURED A policy obtained by minor is valid, provided the policy
must comply with the following:
Sec. 3. Any contingent or unknown event, whether past or 1. LIFE, HEALTH, or ACCIDENT Insurance
future, which may damnify a person having an insurable
2. Minor insured is HIS OWN LIFE.
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter. 3. Designated beneficiary is the ESTATE, MOTHER,
The consent of the husband is not necessary for the validity FATHER, CHILD, BROTHERS and SISTERS.
of an insurance policy taken out by a married woman on her **Insurer cannot raise the defense of minority
life or that of her children. (those who are capable cannot raise the
Any minor of the age of eighteen years or more, may,
notwithstanding such minority, contract for life, health and
incapacity of parties with whom they have
accident insurance, with any insurance company duly contracted) but the MINOR can raise the
authorized to do business in the Philippines, provided the defense (voidable from the instance of the
insurance is taken on his own life and the beneficiary minor).
appointed is the minor's estate or the minor's father, EXC: when the minor misrepresented his age
mother, husband, wife, child, brother or sister.
The married woman or the minor herein allowed to take out (there is fraud).
an insurance policy may exercise all the rights and privileges
of an owner under a policy. LAST PARAGRAPH OF SEC. 3 (Illustration)
All rights, title and interest in the policy of insurance taken Father owns the policy and obtains policy over life of
out by an original owner on the life or health of a minor shall
minor son, with father as beneficiary.
automatically vest in the minor upon the death of the
original owner, unless otherwise provided for in the policy. If father dies, the insurance proceeds will vest
automatically to the son and not the estate of
YOU CAN INSURE: the father.
1. Anything that would cause damage (example: But assuming father obtained life insurance policy but
insurance of property against fire) this time, designates his wife as beneficiary --- the wife
a. Insure something that would cause damage to will receive the proceeds because of the provision
your property like the happening of a fire or unless otherwise provided for in the policy.
2. Or anything that would cause liability to 3rd persons
Sec. 4. The preceding section does not authorize an
a. Example: liability from bumping a pedestrian or insurance for or against the drawing of any lottery, or for or
car (Compulsory 3rd party liability) against any chance or ticket in a lottery drawing a prize.

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
4 III LLB, EH404, USC College of Law
Midterm Reviewer

Sec. 8. Unless the policy otherwise provides, where a

INSURANCE for games of chance, gambling, lottery are mortgagor of property effects insurance in his own name
prohibited no insurable interest. wagering contract providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is
(contract of chance). deemed to be upon the interest of the mortgagor, who does
i.e. Gambling operator cannot insure against loss in not cease to be a party to the original contract, and any act of
case someone wins the jackpot. 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,
INSURANCE WAGERING CONTRACT may be performed by the mortgagee therein named, with the
Insurance contract is to Gambling contract is to same effect as if it had been performed by the mortgagor.
avoid loss (indemnity). gain.
Sec. 9. If an insurer assents to the transfer of an insurance
from a mortgagor to a mortgagee, and, at the time of his
Insurance contract the risk Gambling creates risk of assent, imposes further obligation on the assignee, making a
of loss already exists. losing. new contract with him, the act of the mortgagor cannot affect
the rights of said assignee.

Sec. 5. All kinds of insurance are subject to the provisions of

this chapter so far as the provisions can apply. SECTION 8 (Illustration)
If the PROPERTY is mortgaged there are 2 SEPARATE
Title 2
INSURABLE INTERESTS that of the mortgagor and the
Sec. 6. Every person, partnership, association, or they can both insure the property under the
corporation duly authorized to transact insurance business same/ different insurer.
as elsewhere provided in this code, may be an insurer.

Sec. 7. Anyone except a public enemy may be insured.

Extent of Recovery:
Mortgagors the value of the property the extent
PARTIES TO AN INSURANCE CONTRACT that he would be damnified.
INSURED INSURER Mortgagees value/amount of the debt property
The person COVERED by The one who only serves as a security.
the insurance contract; ASSUMES/ASSURES the RISK
NOT always the one of loss or who indemnifies When the Mortgagor Obtains the Insurance Policy for His
entitled to the proceeds when the contingent event Own Benefit
(there may be a arises. House = 2.0M
BENEFICIARY). Policy = 2.0M
May be a NATURAL or Debt = 1.5M
Insured vs. Assured JURIDICAL person If the house is destroyed ONLY the MORTGAGOR can
sometimes insured is at the (individual, partnership, recover from the policy.
same time the assured. But corporations) --- provided The DEBT is NOT EXTINGUISHED because the policy is for
assured refers more to the they are duly authorized the mortgagors interest alone (debt is still unpaid).
beneficiary. issued a CERTIFICATE OF
AUTHORITY from the If mortgagor makes the loss payable/ assigns to the
Who may be Insured? insurance commissioner. mortgagee contract is still BETWEEN the MORTGAGOR
ANYONE with capacity to **insurance industry is and INSURER (not between the mortgagee and the
enter into contract and regulated because it is insurer).
with insurable interest. imbued with public interest. i.e. if the policy allows the mortgagor to pre-terminate
*As long as he is not a **Mostly corporations enter the contract but the insurer gives the notice of pre-
PUBLIC ENEMY. because of the termination to the mortgagee. Later a fire broke out
Must be a citizen/subject of CAPITALIZATION and destroyed the property
country with which we are requirement. INSURED can STILL RECOVER from the INSURER
at war. because the parties to the policy were the
i.e. Abu Sayaff is NOT a mortgagor and insurer. Notice given was not
PUBLIC ENEMY. payable to the mortgagor, since the mortgagor
If Public Enemy: Insurance does not cease to be party to the contract.
policy CEASES, insurer is NO Notice must be personal to the mortgagor.
LONGER LIABLE. The interest of the policy is still for the mortgagor.
**The ACT performed by the mortgagor will AFFECT the
RIGHTS of the MORTGAGEE, because mortgagor does not
cease to be party to the contract. Any act of the

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
5 III LLB, EH404, USC College of Law
Midterm Reviewer

mortgagor prior to the loss which avoids the contract of

insurance --- has the same effect, although the property ANOTHER EXAMPLE:
is in the hands of the mortgagee. IF POLICY = 1.5M AND DEBT = 800K
i.e. if the policy provides that no flammable materials BY MORTGAGOR FOR HIS OWN BY MORTGAGEE FOR HIS OWN
are to be stored in the warehouse and the mortgagor INTEREST INTEREST
stored gasoline in the premises, the mortgagee Mortgagor entitled to the Mortgagee is entitled to
cannot recover because he is bound by the act of proceeds of 1.5M. recover 800K.
the mortgagor.
**Conversely, ANY ACT which is to be done by the Debt is not extinguished The EXCESS will NOT go to
mortgagor can be DONE BY THE MORTGAGEE (as if it is there was no subrogation. the mortgagee.
performed by the mortgagor).
i.e. like payment of premium, giving notice of loss. If ASSIGNED to The debt is not
MORTGAGEE extinguished the insurer
Upon occurrence of the loss, when mortgagor assigns to mortgagee can recover for is SUBROGATED to the
the mortgagee, the latter is entitled but the excess of .5M 1.5M but he holds the 700K extent of the amount he
is held in trust for the mortgagor. in trust for the mortgagor. PAID (800K).
policy is payable to the mortgagee = debt is The debt is now
extinguished. extinguished. If policy was obtained by
No, subrogation, because the debt is already if at the time of the loss, the mortgagee, but the
extinguished (since it is the mortgagor himself who debt was already paid debt is 1.7M.
paid the policy). Mortgagor is entitled to
recover for 1.5M. MORTGAGEE is ENTITLED to
If the debt is already paid at the time of loss = the recover 1.5M.
mortgagee can no longer recover. If the policy states that
Mortgagor will recover even if the loss is made there should be notice if INSURER is SUBROGATED to
payable to the mortgagee (because the mortgagee there are other insurance, the rights of the mortgagee
no longer has insurable interest). and this was not complied for 1.5M.
**This is fair because the policy was paid by the with by the mortgagor
mortgagor. Mortgagee is not entitled Excess of 200K
to recover because the mortgagee can also
If It was the Mortgagee Himself who Obtained the Policy act of the mortgagor recover **from the
ONLY the MORTGAGEE can recover. affects the policy since he mortgagor/debtor (added
After the insurer pays the mortgagee, the DEBT is NOT does not cease being a by author).
EXTINGUISHED the RIGHT of SUBROGATION exists. party to the contract
The insurer steps into the shoes of the subrogee and If the violation was by the
can demand payment from the mortgagor mortgagee, is there
recovery? Yes, because he
House = 2.0M who comes to court must
Policy = 1.0M come with clean hands.
Debt = 1.5M Mortgagors hands are
If the house is destroyed, mortgagee is entitled to recover clean. Because the
only 1.5M (extent of credit). mortgagor does not cease
Excess of 0.5M the mortgagor cannot recover to be party to the contract,
because the policy was obtained by the mortgagee contract is between the
alone. insurer and mortgagor. The
Debt is not extinguished because the insurer is acts of the mortgagee do
subrogated into the rights of the mortgagee and not bind the mortgagor.
he can demand payment of 1M. Mortgagee can
no longer go after the mortgagor.
What If, 800K Debt, 1.5M Property and Both of Them
If Debt = 2.0M and Policy = 1.5M Obtained Different Policies
Mortgagee can recover for 1.5 M. Mortgagees policy (with ABC co.) only he can claim
The debt is not extinguished as to the 1.5M because the 800K
insurer is subrogated. Mortgagors policy (with XYZ co.) only he can claim
As to the remaining .5M, mortgagee can recover. 1.5M. **Debt is not extinguished insurer will exercise the
At the Time of the Loss, if Debt is Already Paid

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
6 III LLB, EH404, USC College of Law
Midterm Reviewer

MORTGAGEE CANNOT RECOVER because he has since the insured goods were burned after December 10,
no more insurable interest. 1941, and during the war, the respondent was not
MORTGAGOR can still RECOVER. entitled to any indemnity under said policy from the
petitioner. However, elementary rules of justice (in the
What if Mortgagors policy from XYZ is payable to absence of specific provision in the Insurance Law)
mortgagee AND the mortgagee also has his own policy. require that the premium paid by the respondent for the
The house was destroyed, under the policy of XYZ co. period covered by its policy from December 11, 1941,
who can recover? should be returned by the petitioner.
Mortgagee, for 1.5M but hold excess in trust. The
debt is extinguished. GEAGONIA V CA
If ABC paid first (to mortgagee), XYZ would no QF: Geagonia, owner of Normans Mart, obtained fire
longer pay the mortgagee, instead pay to ABC. insurance. The policy contained a clause stating that:
the insured shall give notice to the Co. of any
If the mortgagor assigns the insurance policy to the insurance/s already effected, and unless such notice be
mortgagee with the consent of the insurer AND the given and the particulars of such insurance/s be stated
insurer imposes additional terms or conditions (i.e. require therein, all benefits under this policy shall be deemed
additional payment of premiums) a separate contract forfeited. A fire of accidental origin broke out destroying
between the mortgagee and the insurer. all the merchandise of insured.
Acts of the mortgagor NO LONGER AFFECT the ISSUE: W.O.N. insured may recover given that the
policy (as if the contract is between the merchandise was also covered by other policies with a
mortgagee and insurer). mortgage clause.
The assignment has to be WITH the CONSENT (an HELD: Condition 3 of the private respondent's Policy No. F-
insurance contract is personal). 14622 is a condition which is not proscribed by law. Its
NOTE: incorporation in the policy is allowed by Section 75 of the
SEC. 8 SEC. 9 Insurance Code 15 which provides that "[a] policy may
a.k.a. OPEN OR LOSS a.k.a. STANDARD UNION declare that a violation of specified provisions thereof
PAYABLE MORTGAGE MORTGAGE CLAUSE shall avoid it, otherwise the breach of an immaterial
CLAUSE provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance
ACTS of MORTGAGOR BIND ACTS of MORTGAGOR WILL policies and is intended to prevent an increase in the
the mortgagee. NO LONGER BIND the moral hazard. It is commonly known as the additional or
Party to the contract is still mortgagee. "other insurance" clause and has been upheld as valid
the mortgagor. If the MORTGAGEE and as a warranty that no other insurance exists. Its
Ordinary assignment only. RECEIVES payment, the violation would thus avoid the
If the MORTGAGEE debt is NOT EXTINGUISHED, policy. However, in order to constitute a violation, the
RECEIVES payment the because it is as if the other insurance must be upon same subject matter, the
DEBT IS EXTINGUISHED. contract is between the same interest therein, and the same risk.
mortgagee and the insurer. As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest
therein and both interests may be one policy, or each
FILIPINAS CIA DE SEGUROS V HUNEFELED & CO. may take out a separate policy covering his interest,
QF: On 1941, Hunefeld obtained from FCdS insurance either at the same or at separate times. 18 The
company fire insurance covering merchandise in a mortgagor's insurable interest covers the full value of the
building in Manila. During the Japanese occupation, the mortgaged property, even though the mortgage debt is
building and insured merchandise were burned. equivalent to the full value of the property. The
ISSUE: W.O.N. Hunefeld, a company whose majority mortgagee's insurable interest is to the extent of the debt,
stockholders were German subjects, can recover on said since the property is relied upon as security thereof, and
policy. in insuring he is not insuring the property but his interest or
HELD: he Philippine Insurance Law (Act No. 2427, as lien thereon. His insurable interest is prima facie the value
amended,) in section 8, provides that "anyone except a mortgaged and extends only to the amount of the debt,
public enemy may be insured." It stands to reason that an not exceeding the value of the mortgaged
insurance policy ceases to be allowable as soon as an property. Thus, separate insurances covering different
insured becomes a public enemy. insurable interests may be obtained by the mortgagor
xxx xxx xxx and the mortgagee.
The respondent having become an enemy corporation A mortgagor may, however, take out insurance for the
on December 10, 1941, the insurance policy issued in its benefit of the mortgagee, which is the usual practice.
favor on October 1, 1941, by the petitioner (a Philippine The mortgagee may be made the beneficial payee in
corporation) had ceased to be valid and enforcible, and several ways. He may become the assignee of the policy

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
7 III LLB, EH404, USC College of Law
Midterm Reviewer

with the consent of the insurer; or the mere pledgee The petitioner was itself the beneficiary of the insurance
without such consent; or the original policy may contain policy to which it was duly indorsed and made payable,
a mortgage clause; or a rider making the policy payable and was in possession thereof." 5
to the mortgagee "as his interest may appear" may be Indeed, and as found by the lower courts, the petitioner
attached; or a "standard mortgage clause," containing a could have collected the insurance proceeds if only it
collateral independent contract between the were not negligent. It had ample time and enough legal
mortgagee and insurer, may be attached; or the policy, remedies, not to mention resources, to collect the
though by its terms payable absolutely to the mortgagor, insurance proceeds when the same became due, yet, it
may have been procured by a mortgagor under a merely sent demand letters to the insurance company.
contract duty to insure for the mortgagee's benefit, in And when the company did not act on the letters, the
which case the mortgagee acquires an equitable lien petitioner did not pursue other remedies to press its claim.
upon the proceeds. It did not even file a suit for the recovery of the insurance
In the policy obtained by the mortgagor with loss proceeds against the insurance company before and
payable clause in favor of the mortgagee as his interest even during the liquidation of the company. It allowed
may appear, the mortgagee is only a beneficiary under seven long years to pass before finally deciding to file a
the contract, and recognized as such by the insurer but collection case. Realizing that it could no longer collect
not made a party to the contract himself. Hence, any act from the insurance company because the same had
of the mortgagor which defeats his right will also defeat already folded up, the petitioner directed the collection
the right of the mortgagee. This kind of policy covers only suit against the private respondents whose obligation
such interest as the mortgagee has at the issuing of the with the petitioner had long been extinguished.
policy. For, indeed, under the facts obtaining, the private
On the other hand, a mortgagee may also procure a respondents cannot have been expected to initiate
policy as a contracting party in accordance with the moves for the collection of the insurance proceeds. It
terms of an agreement by which the mortgagor is to pay was the petitioner which was duty bound to enforce the
the premiums upon such insurance. It has been noted, claim for the insurance proceeds, being, as earlier
however, that although the mortgagee is himself the mentioned, the attorney-in-fact of the private
insured, as where he applies for a policy, fully informs the respondents and the beneficiary of the insurance policy.
authorized agent of his interest, pays the premiums, and
obtains on the assurance that it insures him, the policy is PALILEO V COSIO
in fact in the form used to insure a mortgagor with loss QF: A, obtained from B a loan of P12K secured by pacto
payable clause. de retro of a two-storey building. B insured the building
against fire for P15K. The building was partly destroyed by
PNB V CA fire and B was able to claim P13K from the insurer. A
QF: Spouses A & B, applied for retailers loan with PNB. demanded that she be credited with the necessary
Loan was approved subject to a chattel mortgage ifo amount (P1K+) to pay her obligation out of the insurance
bank consisting of inventory of stocks. The goods were proceeds but defendant refused to do so.
also insured with bank as beneficiary. The building and ISSUE: W.O.N. the obligation of A to B has been
goods were later on destroyed by fire. PNB did not claim extinguished/compensated by the insurance amount
on the policy from insurance company. The company and B should refund P1K+ to A.
later on folded up due to insolvency. HELD: xxx The rule is that "where a mortgagee,
ISSUE: W.O.N. PNB can claim from the spouses. independently of the mortgagor, insures the mortgaged
HELD: The petitioner as the attorney-in-fact of the private property in his own name and for his own interest, he is
respondents and as the beneficiary of the insurance entitled to the insurance proceeds in case of loss, but in
policy had the obligation to collect the proceeds of the such case, he is not allowed to retain his claim against
policy. The argument of the petitioner to the effect that the mortgagor, but is passed by subrogation to the insurer
there is no express provision in the Chattel Mortgage to the extent of the money paid." Or, stated in another
Contract which compels the petitioner to collect the way, "the mortgagee may insure his interest in the
proceeds of the insurance in case of loss is a mere property independently of the mortgagor. In that event,
rationalization of one trying hard to put the blame on upon the destruction of the property the insurance
another for its own fault or negligence. For "under the money paid to the mortgagee will not inure to the
chattel mortgage covering the goods offered as security benefit of the mortgagor, and the amount due under the
for payment of the loan, the private respondents as mortgage debt remains unchanged. The
mortgagors constituted and appointed the petitioner as mortgagee, however, is not allowed to retain his claim
mortgagee their attorney-in-fact with full power and against the mortgagor, but it passes by subrogation to
authority to collect and receive any interest, income or the insurer, to the extent of the insurance money paid."
benefits produced by the mortgaged property and This is the same rule upheld by this Court in a case that
apply such amount collected and received in payment arose in this jurisdiction. In the case mentioned, an
of the interest accruing and of the principal obligation. insurance contract was taken out by the mortgagee

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
8 III LLB, EH404, USC College of Law
Midterm Reviewer

upon his own interest, it being stipulated that the already sufficient insurable interest on the
proceeds would be paid to him only and when the case evidence of good life of the insured C also
came up for decision, this Court held that the faith. does not have insurable
mortgagee, in case of loss, may only recover upon the Also there are interest in the life of B.
policy to the extent of his credit at the time of the loss. It safeguards provided in
was declared that the mortgaged had no right of action the insurance code to
against the mortgagee on the policy. prevent the
beneficiary from
benefitting from the
Title 3
policy if he willfully
brings about the death
Sec. 10. Every person has an insurable interest in the life and of the insured.
(a) Of himself, of his spouse and of his children; INSTANCES when
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary designating a 3RD PERSON
(c) Of any person under a legal obligation to him for the INTEREST may be VOIDED:
payment of money, or respecting property or services, of A. PROPOSAL to
which death or illness might delay or prevent the
obtain the policy was AT
performance; and
(d) Of any person upon whose life any estate or interest THE INSTANCE OF THE
vested in him depends. BENEFICIARY.
b. BENEFICIARY himself
INSURABLE INTEREST that relation or connection to the PAID the PREMIUMS.
person or the thing wherein you stand to GAIN or BENEFIT c. BENEFICIARY does NOT
or ADVANTAGE upon its PRESERVATION or you stand to have INSURABLE
TERMINATION. *Case-to-case basis.
Required for reasons of public policy to serve as Generally, this type is
deterrence to the insured, to avoid the temptation or VALID.
inducement for someone who has nothing to lose and
everything to gain, in bringing about that event which PERSONS OVER WHOM ONE HAS INSURABLE INTEREST
you make the insurer payable. a) yourself,
**for life insurance policy the expectation of benefit life of your
need not always be pecuniary. Like the insurable spouse, life of
interest over the life of someone or a loved one, your children
need not always be pecuniary. b) on the life Education = Support.
of the person Who are these persons obliged to
on whom you give support to each other?
NO QUESTION that we The law now REQUIRES for education or a. Between SPOUSES
have unlimited interest on the OWNER of the policy to support b. Between LEGITIMATE
on the life of the insured c. PARENTS and their
Insured can designate otherwise, VOID! legitimate/illegitimate CHILDREN
If A insures the life of B, his full blood or half-blood (as a rule
BENEFICIARY NEED NOT friend, and designates C, includes illegitimate brother/sister
HAVE INSURABLE INTEREST in another friend, as whether full blood or half blood).
the life of the insured (i.e. a beneficiary, is the policy
friend). valid? For lesser degree/s of kinship (i.e.
Would not C be tempted NO, because A does not uncle/aunt, in-laws)
in killing A, or wishing A have insurable interest Mere BLOOD RELATION is NOT
will die? Are we going to over the life of the ENOUGH;
require C, the beneficiary insured, B. *There must be SOME OTHER
to have insurable interest Furthermore the law BASIS (i.e. expectation of
on A? requires the owner of the pecuniary benefit).
The fact that you policy and the
insure your own life is beneficiary must have **Woman who takes care of orphan
By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
9 III LLB, EH404, USC College of Law
Midterm Reviewer

both have insurable interest over mere MORAL/NATURAL obligation

one another. NOT ENOUGH.
c) Persons Ex. Creditor insuring the life of his i.e. no recovery when right to
under legal debtor. collect has already prescribed
obligation to Debtor has a legal obligation to the (there is no more legal obligation
pay money or creditor, whose (debtors) death or to pay).
render illness, might delay or prevent the
respective performance thereof. Corporation can insure the life of its
services. **extent of the insurable interest on employees only KEY employees
the life of his debtor limited only (i.e. CEO, Gen. Manager, Pres., etc.)
to the extent of the debt. somebody indispensable to the
company business; not rank and file
If at the time of debtors death, the
debt was already paid, can creditor d) Any B (beneficial owner) can insure the
still recover? NO MORE, because the person upon life of A (naked owner) who grants
CREDITOR NO LONGER HAS whose life any him usufructuary rights as long as he
INSURABLE INTEREST. estate or lives
*In life insurance policy you must interest vested because when A dies, B will no
have insurable interest only at the in him longer have usufructuary rights
time the policy takes effect (not depends. (insurable interest present).
necessary at the time of loss).
EXC: if the creditor insures the life BUT, heir/devisee/legatee cannot
of the debtor it is required that he insure the life of a person from whom
has insurable interest at the time he will inherit.
the policy takes effect and at the his interest is not on the
time of loss. preservation of the life of the
*Because the life insurance policy decedent/testator (his rights will
is now considered a CONTRACT accrue upon the moment of death
OF INDEMNITY. of the latter).

If its the debtor this time who CONSENT is NOT NECESSARY for one
obtained the policy insuring his own to insure the life of another the
life but makes the proceeds law merely requires that insurable
payable to the creditor, valid? interest be present.
Yes, because debtor has insurable
interest on his own life.
Sec. 11. The insured shall have the right to change the
If the debt was already paid, who beneficiary he designated in the policy, unless he has
can recover? Will it invalidate the expressly waived this right in said policy.
No, because the subject of the DESIGNATION is presumed to be REVOCABLE.
insurance is the debtors life. It has UNLESS EXPRESSLY WAIVED (contrary to the old
nothing to do whether the debt was provision).
extinguished or not.
Recovery depends on the policy. If it BENEFICIARIES
would state that it shall be payable OWN LIFE you are free to choose any beneficiary.
to C so long as the debt subsists, EXC: those persons who are prohibited by law (i.e.
then it should not go to C. But if persons who are guilty of adultery, concubinage, or
there is no condition, just a simple public officers by reason of their office).
designation, and at the time of Ds *If both are single prohibition will not apply (i.e.
death, there was no revocation. It common law spouses are not prohibited as long as
becomes a vested right of C. there is no legal impediment [of course!])
*In designating someone as your *But if prohibited designation is made only the
beneficiary without condition designation is invalidated, not the whole policy
after the death of the insured, it (proceeds will go to the estate).
becomes a vested right. LIFE OF ANOTHER PERSON one designated as
beneficiary must also have insurable interest over the life
By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
10 III LLB, EH404, USC College of Law
Midterm Reviewer

Sec. 13. Every interest in property, whether real or personal,

EFFECTS or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
REVOCABLE IRREVOCABLE insured, is an insurable interest.
Designation CAN BE BENEFICIARY acquires
CHANGED even without vested right. Sec. 14. An insurable interest in property may consist in:
(a) An existing interest;
the consent of the Any change, addition,
(b) An inchoate interest founded on an existing interest; or
beneficiary alteration cannot be made (c) An expectancy, coupled with an existing interest in that
beneficiary DID NOT without his consent. out of which the expectancy arises.
yet. The owner cannot also INSURABLE INTEREST IN PROPERTY
make the policy lapse by - if you derive benefit from its preservation or
not paying the premium, continued benefit and you suffer loss from its
because the beneficiary destruction or damage.
now can pay the - insurable interest in a property can either arise
premiums, because he has from the property itself or in relation to that
acquired vested right. property.
*ownership is not required to have insurable
In case beneficiary In case beneficiary interest over property.
predeceases the insured: predeceases the insured: *Possession is also not necessary.
**as long you benefit from its preservation and you suffer
Proceeds will go to the Proceeds will go to the a loss from its destruction there can be insurable
owner of the policy or the heirs of the beneficiary, interest over the property, BUT. . .
insured, because because it has become a There must be an EXISTING RIGHT on which the
beneficiary has not yet vested right. expectation of profit/gain is based.
acquired vested right. i.e. owner of Kuerks/Tuxedo cannot insure USC Law
building just because he can expect to suffer loss
Sec. 12. The interest of a beneficiary in a life insurance policy from its destruction there must be an existing
shall be forfeited when the beneficiary is the principal, right over the building.
accomplice, or accessory in willfully bringing about the death
of the insured; in which event, the nearest relative of the
insured shall receive the proceeds of said insurance if not SECTION 14 AN INSURABLE INTERS IN PROPERTY MAY
otherwise disqualified. CONSIST IN:
AN EXISTING Either legal title or equitable title.
A safeguard provided by law, against the temptation for INTEREST For instance, the ff:
the beneficiary to bring about the death of the Owner
owner/insured. Mortgagor
NEAREST RELATIVES (Applying the rule on Intestate Lessee
Succession) A buyer, whose goods has not yet been
1. The legitimate children delivered to him, has insurable interest
2. The father and the mother, if living based on an existing interest because
3. The grandfather and grandmother, or ascendants the buyer already has legal title or
nearest in degree, if living equitable title due to a perfected
4. The illegitimate children contract of sale.
5. The surviving spouse *Even if still unpaid, he already has an
6. The collateral relatives, to wit existing interest (sale already
a. brothers and sisters of the full blood perfected) based on equitable
b. brothers and sisters of the half-blood title.
c. nephews and nieces *if sale was conditional interest up
In default of the above, the state shall be entitled to the extent of amount already paid.
to receive the insurance proceeds Contractor/Architect equitable title
over unpaid fees for services rendered.
The law requires that the person WILLINGLY BRINGING
The act must amount to a felony. In one property there could be several
Self-defense and other justifying circumstances insurable interests, either in the form of
do not forfeit your interest/claim. ownership/legal title or equitable title.

AN INCHOATE INCHOATE RIGHT that right which is

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
11 III LLB, EH404, USC College of Law
Midterm Reviewer

INTEREST not yet existent at the moment. Mere expectancy or contingency without existing interest
FOUNDED ON *to be insurable, must be based on is not insurable.
AN EXISTING an existing interest. i.e. A son (heir) cannot insure the property belonging to
INTEREST his father and vice-versa.
i.e. Stockholders/Partner *Even if COMPULSORY HEIR no existing interest yet; during
Inchoate Interest = interest over the lifetime of testator, testator can still convey the
corp./partnership properties which property to someone else.
will be distributed once the
corporation/partnership is dissolved. LACK OF INSURABLE INTEREST CANNOT BE WAIVED.
Existing Interest = being a DOCTRINE OF ESTOPPEL would NOT also APPLY.
stockholder/partner. i.e. If you do not have an insurable interest on the
thing insured, the insurance policy is void but you will
AN i.e. Farmer planting crops be entitled to return of the premiums paid (provided
EXPECTANCY, EXPECTANCY = the future harvest. not in pari delicto).
AN EXISTING land on which the crops are planted or GENERAL CREDITOR cannot insure the property of his
INTEREST IN that he is the one who planted these debtor NO INSURABLE INTEREST.
THAT OUT OF crops even if he does not own the land. - Not a mortgagee merely an unsecured
WHICH THE creditor.
EXPECTANCY Other Instances: i.e. where creditor cannot insure the car of
ARISES. Owner of a vessel can insure the goods debtor where the car was not a security for the
in the vessel. debt.
Operator of a taxi can insure future
boundary or future income. Sec. 17. The measure of an insurable interest in property is
the extent to which the insured might be damnified by loss or
Owner of business can insure future injury thereof.
One of the reasons for requiring insurable interest is that it
Heir cannot insure something he serves as a limit of recover.
expects to inherit from the testator.
His interest is it not founded on an If a house worth 100k is burned down and the policy is
existing right. The property still belongs worth 150k insured can recover 100k (value of the
to the testator while still alive. house).
- If the damage caused by the fire is only 50% of
the house recovery up to 50k.
- If an arsonist is made liable for 80k recovery
only up to 20k (100k 80k).
- Insurance company is then subrogated up to the
Sec. 15. A carrier or depository of any kind has an insurable
interest in a thing held by him as such, to the extent of his amount which it can recover from arsonist.
liability but not to exceed the value thereof.
Architect or contractor has insurable interest over the
Depositary is similar to a warehouseman. house he was made to construct.
He does not own the goods, BUT he has insurable interest - Existing interest based on legal or equitable title.
because it would create a liability. - Even if architect/contractor was paid
downpayment he can still recover full amount
Other Instances: of the proceeds (because he will still be required
a. Owner of Car Repair Shop to build the house).
b. Owner of Laundry Shop
c. Bailee in a Commodatum Sec. 18. No contract or policy of insurance on property shall
d. Owner of Playroom as to the lives of the children. be enforceable except for the benefit of some person having
an insurable interest in the property insured.
e. Pawnshops
*insurable interest is to the extent of the credit If no insurable interest, you cannot enforce the insurance
because items pawned serve as security so policy because it is void.
insurable interest based either on liability or Doctrine of estoppel will not apply, waiver will not apply.
equitable title as trustee or as pledgee. But when the law states shall not be enforceable except
for the benefit of a person having insurable interest
Sec. 16. A mere contingent or expectant interest in anything,
not founded on an actual right to the thing, nor upon any i.e. a person cannot insure the house of his neighbor
valid contract for it, is not insurable. for the reason that its aesthetic value also adds to the

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
12 III LLB, EH404, USC College of Law
Midterm Reviewer

market value of his property (VOID! No existing right on

the part of the neighbor). Sec. 23. A change on interest, by will or succession, on the
death of the insured, does not avoid an insurance; and his
*if only the designation is void (beneficiary has no interest in the insurance passes to the person taking his
insurable interest) the whole policy is not voided. interest in the thing insured.

Sec. 19. An interest in property insured must exist when the Sec. 24. A transfer of interest by one of several partners,
insurance takes effect, and when the loss occurs, but not joint owners, or owners in common, who are jointly insured,
exist in the meantime; and interest in the life or health of a to the others, does not avoid an insurance even though it has
person insured must exist when the insurance takes effect, been agreed that the insurance shall cease upon an
but need not exist thereafter or when the loss occurs. alienation of the thing insured.

In property insurance insurable interest must exist at the A change of interest in the property without a
time the policy takes effect and at the time of loss (in life corresponding change of interest in the policy SUSPENDS
insurance, insurable interest must exist only at the time the the POLICY.
policy takes effect). EXCEPT:
contract. Subsequent transfer after the peril insured against
Insurable interest also necessary at the TIME OF LOSS happens liability of the insurer is already fixed.
because it is a CONTRACT OF INDEMNITY without i.e. when one sells his house to another after it
insurable interest at the time of loss then you have has been burned he can still recover the
nothing to be indemnified. proceeds.
contract of indemnity (generally, no value can be DISTINCT THINGS SEPARATELY INSURED IN ONE
fixed to compensate for human life). POLICY
EXC to EXC: creditor insuring the life of the The policy must be DIVISIBLE (the properties are
debtor recovery only up to the amount of the separately valued).
debt. - There are several items insured separately but
in one policy.
**BUT insurable interest NEED NOT EXIST IN THE MEANTIME i.e. car worth 1M and jewelry worth 500K insured
or in between the time the policy took effect and the in one policy DIVISIBLE.
time of loss. - TRANSFER of one of the properties like the car
Ergo, Interest Time of Effectivity + Interest Time of Loss = will not affect the right of A to recover as
Recovery. against the insurer with respect to the loss of
the jewelry.
If a person owns a property at the time the policy took But, if car and jewelry insured in one policy
effect and afterwards sold it to another he cannot (without separate valuation) INDIVISIBLE.
recover due to lack of insurable interest. C. CHANGE IN INTEREST BY WILL OR SUCCESSION
*but if he has reacquired the property at the tie of loss - Automatic transfer of interest.
recovery is allowed. i.e. If the father owns a house and insured the
house and his son, only compulsory heir, after
If property was mortgaged to secure a debt then the death of his father, the house was
subsequently foreclosed and sold at public auction destroyed.
debtor still has insurable interest during the redemption Son can recover although there was a
period. transfer of interest because the transfer is by
virtue of a will or succession.
Sec. 20. Except in the cases specified in the next four D. TRANSFER OF INTEREST BY ONE OF SEVERAL
sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured PARTNERS OR JOINT OWNERS WHO ARE JOINTLY
unaccompanied by a corresponding change in interest in the INSURED TO THE OTHER.
insurance, suspends the insurance to an equivalent extent, - NO NEW PARTY is brought into the contract
until the interest in the thing and the interest in the only that a party increases his interest.
insurance are vested in the same person. E. LIFE, ACCIDENT, AND HEALTH INSURANCE
Sec. 21. A change in interest in a thing insured, after the - A person only needs to have insurable interest at
occurrence of an injury which results in a loss, does not the time the policy took effect.
affect the right of the insured to indemnity for the loss.
SECTION 57 A policy may be so framed that it will inure
Sec. 22. A change of interest in one or more several distinct
to the benefit of whomsoever, during the continuance of
things, separately insured by one policy, does not avoid the
insurance as to the others. the risk, may become the owner of the interest insured.

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
13 III LLB, EH404, USC College of Law
Midterm Reviewer

Regardless of transfer, the policy is not suspended like contracts. The mandate of Article 2012 cannot be laid
payable to bearer or whoever is the owner or if bearer aside: any person who cannot receive a donation
is the owner. The policy is not suspended. cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation.
ANOTHER EXCEPTION: If there is an express stipulation in xxx xxx xxx
the policy that if there is a change in the interest Policy considerations and dictates of morality rightly justify
policy is not merely suspended but the policy is the institution of a barrier between common law spouses
avoided. in record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the
REVIVAL legitimate family There is every reason to hold that the
The policy will be revived until the interest in the thing and bar in donations between legitimate spouses and those
the interest in the insurance are vested in the same between illegitimate ones should be enforced in life
person (REVIVAL = Interest in the Thing + Interest in the insurance policies since the same are based on similar
Policy). consideration As above pointed out, a beneficiary in a
fife insurance policy is no different from a donee. Both
Remember: INSURANCE CONTRACT is a personal are recipients of pure beneficence. So long as manage
contract insurer may be willing to insure the property if remains the threshold of family laws, reason and morality
it is owned by A but not willing to insure if it is owned by B dictate that the impediments imposed upon married
or the risk will increase if it is owned by a different person. couple should likewise be imposed upon extra-marital
*transfer must be absolute (not mere pledge or relationship. If legitimate relationship is circumscribed by
mortgage). these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities.
xxx xxx xxx
Sec. 25. Every stipulation in a policy of insurance for the
payment of loss whether the person insured has or has not No criminal conviction for the offense is a condition
any interest in the property insured, or that the policy shall precedent. In fact, it cannot even be from the
be received as proof of such interest, and every policy aforequoted provision that a prosecution is needed. On
executed by way of gaming or wagering, is void. the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for declaration
No payment of loss shall be made to a person who has
of nullity of donation. And, it would be sufficient if
no insurable interest and you cannot stipulate in the
evidence preponderates upon the guilt of the consort for
policy that it is payable regardless of whether or not the
the offense indicated. The quantum of proof in criminal
person has insurable interest.
cases is not demanded.
That stipulation is void or the fact that the policy is
received there is already a proof that there is insurable QF: A, was an SSS member. He had designated, B, his
wife as beneficiary. When he died, C, who also claims
*Waiver or doctrine of ESTOPPEL is NOT APPLICABLE.
to be the wife of A, filed her claim with the SSS. C was
married to C on 1946 while his marriage to B was on 1949.
Other forms of policy executed by way of gaming or ISSUE: W.O.N. the 2nd wife of A has the right to claim for
wagering contract is void because there is no insurable
the proceeds as As beneficiary.
interest. HELD: Without deciding whether the naming of a
beneficiary of the benefits accruing from membership in
the Social Security System is a donation, or that it creates
QF: A was issued life plan with a rider for Accidental
a situation analogous to the relation of an insured and
Death Benefits. He designated, W, as his beneficiary the beneficiary under a life insurance policy, it is enough,
whom he referred to as his wife. A died when he was for the purpose of the instant case, to state that the
accidentally hit by a falling branch. W filed her claim but disqualification mentioned in Article 739 is not applicable
S also filed her claim as widow of deceased. to herein appellee Candelaria Davac because she was
ISSUE: W.O.N. W can claim the proceeds of the policy.
not guilty of concubinage, there being no proof that she
HELD: In essence, a life insurance policy is no different
had knowledge of the previous marriage of her husband
from a civil donation insofar as the beneficiary is Petronilo.
concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the QF: Atty. Chanliongco was a GSIS member. He died as
insured pays out of liberality, the beneficiary will receive
intestate. He failed to designate beneficiaries of his
the proceeds or profits of said insurance. As a
retirement benefits before his death.
consequence, the proscription in Article 739 of the new ISSUE: W.O.N. the proceeds of his benefits under GSIS will
Civil Code should equally operate in life insurance
go to his estate.

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
14 III LLB, EH404, USC College of Law
Midterm Reviewer

HELD: Aside from his widow, Dra. Fidel B. Chanliongco would be, as he was, directly affected thereby, and
and an only Intimate Mario it appears that there are hence he has an insurable interest therein.
other deceased to namely, Mrs. Angelina C. , Jr., both
born out of wedlock to Angelina R Crespo, and duly FILIPINO MERCHANTS INSURANCE V CA
recognized by the deceased. Except Mario, Jr., who is QF: A, was consignee of the goods in transit under an
only 17 years of age, all the claimants are of legal age. invoice containing the terms under C & F Manila.
According to law, the benefits accruing to the deceased ISSUE: W.O.N. A, as consignee, already has insurable
consist of: (1) retirement benefits; (2) money value of interest in the goods when it has not yet been delivered
terminal leave; (3) life insurance and (4) refund of to him.
retirement premium. HELD:
From the records now before US, it appears that the GSIS
had already the release the life insurance proceeds; and TAI TONG CHUACHE & CO V INSURANCE COMMISSION
the refund of rent to the claimants. QF: Spouses A & B obtained a loan from B (Tai Tong). To
What, therefore, to be settled are the retirement benefits secure payment, a mortgage was execute over land
and the money value of leave, both of which are to be and building ifo B. Then, C, representative of B, insured Bs
paid by this court as the deceased's last employer. interest with X insurance company. The building and the
The record also shows that the late Atty. Chanliongco contents were totally razed by fire.
died ab intestato and that he filed or over to state in his ISSUE: W.O.N. Tai Tong had insurable interest over the
application for membership with the GSIS the beneficiary property at the time of the fire.
or benefits of his retirement benefits, should he die before HELD: The record of the case shows that the petitioner to
retirement. Hence, the retirement benefits shall accrue to support its claim for the insurance proceeds offered as
his estate and will be distributed among his Legal heirs in evidence the contract of mortgage which has not been
with the benefits on intestate s , as in the caw of a fife if cancelled nor released. It has been held in a long line of
no benefit is named in the policy (dili na typo, naa jud cases that when the creditor is in possession of the
sayop sa lawphil, sorry). document of credit, he need not prove non-payment for
EL ORIENTE V POSADAS it is presumed. 8 The validity of the insurance policy taken
QF: X Company, obtained an insurance for the life of its b petitioner was not assailed by private respondent.
manager, A, who has been with the company for 35 Moreover, petitioner's claim that the loan extended to
years and whose death would be a serious loss to X Co. the Palomos has not yet been paid was corroborated by
with itself as beneficiary. Azucena Palomo who testified that they are still indebted
**There was no question as to the validity of obtaining life to herein petitioner.
insurance on the life of manager. Public respondent argues however, that if the civil case
HELD: It will be recalled that El Oriente, Fabrica de really stemmed from the loan granted to Azucena
Tabacos, Inc., took out the insurance on the life of its Palomo by petitioner the same should have been
manager, who had had more than thirty-five years' brought by Tai Tong Chuache or by its representative in its
experience in the manufacture of cigars in the own behalf. From the above premise respondent
Philippines, to protect itself against the loss it might suffer concluded that the obligation secured by the insured
by reason of the death of its manager. We do not believe property must have been paid.
that this fact signifies that when the plaintiff received xxx xxx xxx
P104,957.88 from the insurance on the life of its manager, The respondent insurance company having issued a
it thereby realized a net profit in this amount. It is true that policy in favor of herein petitioner which policy was of
the Income Tax Law, in exempting individual legal force and effect at the time of the fire, it is bound
beneficiaries, speaks of the proceeds of life insurance by its terms and conditions. Upon its failure to prove the
policies as income, but this is a very slight indication of allegation of lack of insurable interest on the part of the
legislative intention. In reality, what the plaintiff received petitioner, respondent insurance company is and must
was in the nature of an indemnity for the loss which it be held liable.
actually suffered because of the death of its manager.
TRADERS INSURANCE V GOLANGCO QF: Spouses A & B, as lessees, entered into a lease
QF: Before policy was issued, A made full and clear contract with X Corp. as lessor. The contract provided
exposal of his interests in the property. All of his interests in that if ever the spouses will get an insurance policy, they
the property were covered by fire insurance especially his must obtain the consent the lessor otherwise the
right to collect rentals. proceeds of the insurance policy shall go to the lessor for
ISSUE: W.O.N. A had an insurable interest. its own benefit. Despite this, the spouses insured their
HELD: Both at the time of the issuance and at the time of merchandise without the required consent. On the day
the fire, A was in legal possession of the premises, the lease was to expire, fire broke out.
collecting rentals from its occupants. It seems plain that if ISSUE: W.O.N. the lessor may receive the proceeds of the
the premises were destroyed as they were by fire, A policy.

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
15 III LLB, EH404, USC College of Law
Midterm Reviewer

HELD: It is, of course, basic in the law on contracts that Reckoning Point (of duty to disclose) at the time of the
the stipulations contained in a contract cannot be effectivity of the policy. If AFTER the issuance of the policy
contrary to law, morals, good customs, public order or there is no concealment (information can no longer
public policy. 3 influence the insurers decision).
Sec. 18 of the Insurance Code provides: EXC: if there is modification or amendment of the
Sec. 18. No contract or policy of insurance on property policy (example: include exceptions, etc).
shall be enforceable except for the benefit of some Information acquired AFTER EFFECTIVITY of the
person having an insurable interest in the property policy MUST be DISCLOSED because the
insured. information is important for the insurer to consider
A non-life insurance policy such as the fire insurance accepting/rejecting the amendment or
policy taken by petitioner-spouses over their merchandise modification.
is primarily a contract of indemnity. Insurable interest in OTHERWISE, the entire contract is VOID (the
the property insured must exist at the time the insurance insurer can raise the defense of
takes effect and at the time the loss occurs. 4 The basis of concealment).
such requirement of insurable interest in property insured
is based on sound public policy: to prevent a person from Sec. 27. A concealment whether intentional or unintentional
taking out an insurance policy on property upon which entitles the injured party to rescind a contract of
insurance. (As amended by Batasang Pambansa Blg. 874)
he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In such a
INTENT is not necessary it is hard to prove intent to
case, the contract of insurance is a mere wager which is
conceal it is a state of mind.
void under Section 25 xxx.
i.e. a person cannot raise the defense of mistake,
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
Injured party is entitled to RESCIND there is no meeting
of minds, or consent is vitiated, because insurer was
Therefore, respondent CKS cannot, under the Insurance
misled to entering the contract on circumstances not
Code a special law be validly a beneficiary of the
entirely true/existent (i.e. insurer could have charged a
fire insurance policy taken by the petitioner-spouses over
higher premium had it known of the facts concealed).
their merchandise. This insurable interest over said
EFFECT return of the premiums paid (rescission
merchandise remains with the insured, the Cha spouses.
requires mutual restitution).
The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void
Section applies both to the insured and insurer.
for being contrary to law and/or public policy. The
Insured can also rescind the contract on the basis
proceeds of the fire insurance policy thus rightfully belong
of concealment by the insurer (i.e. regarding the
to the spouses Nilo Cha and Stella Uy-Cha (herein co-
extent of coverage or benefits).
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
QF: B, financial institution, insured the life of A, physician
and its debtor with X insurance company. In the
Title 4
application form A answered that he has not consulted a
CONCEALMENT physician for hypertension, heart condition, cancer, etc.
and that he was in good health to the best of his
Sec. 26. A neglect to communicate that which a party knows knowledge. Almost a year later A died of massive
and ought to communicate, is called a concealment. cerebral hemorrhage. X insurance company denied
claim by B alleging that A did not disclose he had been
CONCEALMENT when there is neglect to communicate
suffering from hypertension which caused his death.
such information to the other party.
ISSUE: W.O.N. non-disclosure by A amounted to
HELD: The question of whether there was concealment
1. Knowledge of the fact of concealed (Refer to ++)
was aptly answered by the appellate court, thus:
2. Duty to communicate/ disclose
The insured, Dr. Leuterio, had answered in his insurance
3. Fact concealed must be material to the contract
application that he was in good health and that he had
4. Other party has no means of ascertaining the
not consulted a doctor or any of the enumerated
information concealed
ailments, including hypertension; when he died the
5. The party concealing makes no warranty
attending physician had certified in the death certificate
that the former died of cerebral hemorrhage, probably
++Because if you dont have knowledge there is nothing
secondary to hypertension. From this report, the
to conceal.
appellant insurance company refused to pay the
By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
16 III LLB, EH404, USC College of Law
Midterm Reviewer

insurance claim. Appellant alleged that the insured had practitioners/doctors whom he had consulted for any
concealed the fact that he had hypertension. illness or ailment.
Contrary to appellants allegations, there was no ISSUE: W.O.N. As act can be considered concealment
sufficient proof that the insured had suffered from and bar his beneficiarys claim.
hypertension. Aside from the statement of the insureds HELD: The question here is not whether the physicians'
widow who was not even sure if the medicines taken by reports or the answers which the insured gave to them
Dr. Leuterio were for hypertension, the appellant had not relative to his health were correct or not. It is admitted
proven nor produced any witness who could attest to Dr. that such information was substantially correct, in the
Leuterios medical history... sense that the physicians of the defendant who
xxx examined the insured, for failure to make a detailed
Appellant insurance company had failed to establish that examination, did not discover the ailments suffered by
there was concealment made by the insured, hence, it the insured. However, the question raised for our
cannot refuse payment of the claim. The fraudulent determination is whether the two answers given by the
intent on the part of the insured must be established to insured in his applications are false, and if they were the
entitle the insurer to rescind the contract. cause, or one of the causes, which induced the
Misrepresentation as a defense of the insurer to avoid defendant to issue the policies. On the first point, the
liability is an affirmative defense and the duty to establish facts above set out leave no room for doubt. The insured
such defense by satisfactory and convincing evidence knew that he had suffered from a number of ailments,
rests upon the insurer. In the case at bar, the petitioner including incipient pulmonary tuberculosis, before
failed to clearly and satisfactorily establish its defense, subscribing the applications, yet he concealed them and
and is therefore liable to pay the proceeds of the omitted the hospital where he was confined as well as
insurance. the name of the lady physician who treated him. That this
concealment and the false statements constituted fraud,
Sec. 28. Each party to a contract of insurance must is likewise clear, because the defendant by reason
communicated to the other, in good faith, all facts within his thereof accepted the risk which it would otherwise have
knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the flatly refused. When not otherwise specially provided for
means of ascertaining. by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regarding
Materiality when it has a probable and reasonable contracts. Article 1261 of the Civil Code provides that
influence or would affect the insurers decision to accept there is no contract unless there should be, in addition to
the risk or the rate of premium imposed. consent and a definite object, a consideration for the
- Matters of specific inquiry (those asked in obligation established. And article 1276 provides that the
application) are presumed material. statement of a false consideration shall render the
Especially in non-medical insurance, where contract void. The two answers being one of the
requirement of medical examination is considerations of the policies, and it appearing that they
waived it renders more material the are false and fraudulent, it is evident that the insurance
information you supply the insurer. contracts were null and void and did not give rise to any
- Fact concealed may not be related to death or right to recover their value or amount.
cause of loss (i.e. fact concealed is about your
health and cause of death was an accident). SUN LIFE V CA
- A question may be personal but still material (i.e. QF: A procured a life insurance for himself with double
sexually active/ have STD) indemnity in case of accidental death from X insurance
company. The designated beneficiary was his mother, B.
Illustrations (W.O.N. Material): A died in a plane crash which prompted B to file claim for
Negative X-ray results (clear lungs)? No, because results the proceeds. X insurance company conducted
are negative. investigations and its finding that A failed to disclose prior
ECG with OK results? Not material. confinement in the Lung Center and that he was
In application for life or accident insurance, do you need diagnosed with renal failure.
to disclose that into extreme sports? Yes, material. ISSUE: W.O.N. the information withheld was material and
Previous company was cement factory? Yes. can constitute concealment.
Fire insurance, need to disclose that obtained an HELD:
insurance for the same risk? Yes, it is material. Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
MUSNGI V WEST COAST LIFE INSURANCE facts upon the party to whom communication is due, in
QF: Upon application of A, two life insurance policies forming his estimate of the disadvantages of the
were issued by X insurance company. In each of the proposed contract or in making his inquiries (The
applications for both policies, A answered none and no Insurance Code, Sec. 31).
respectively to a question in both applications regarding

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
17 III LLB, EH404, USC College of Law
Midterm Reviewer

The terms of the contract are clear. The insured is equally with that of the other, and which may affect the
specifically required to disclose to the insurer matters political or material perils contemplated; and all general
usages of trade.
relating to his health.
The information which the insured failed to disclose were Sec. 33. The right to information of material facts may be
material and relevant to the approval and issuance of waived, either by the terms of the insurance or by neglect to
the insurance policy. The matters concealed would have make inquiry as to such facts, where they are distinctly
implied in other facts of which information is
definitely affected petitioner's action on his application,
either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a Sec. 34. Information of the nature or amount of the interest
disclosure may have warranted a medical examination of one insured need not be communicated unless in answer
of the insured by petitioner in order for it to reasonably to an inquiry, except as prescribed by section fifty-one.
assess the risk involved in accepting the application. Sec. 35. Neither party to a contract of insurance is bound to
xxx xxx xxx communicate, even upon inquiry, information of his own
Thus, "goad faith" is no defense in concealment. The judgment upon the matters in question.
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for INFO WITH NO DUTY TO DISCLOSE
insurance, raises grave doubts about his bonafides. It A. THOSE WHICH THE OTHER KNOWS;
appears that such concealment was deliberate on his NOT LIMITED to those known to the insurer
part. personally also those known by the agent
under the principle of principal-agent.
Sec. 29. An intentional and fraudulent omission, on the part **Provided there is no conspiracy between the
of one insured, to communicate information of matters insured and agent
proving or tending to prove the falsity of a warranty, entitles
the insurer to rescind. i.e. the insurer sent the agent to inspect the
house that was insured. Later on, the insurer
GR: whether intentional or unintentional, there is cannot allege that behind his house there is a
concealment and injured party is entitled to rescind. gasoline station or near squatters there is no
EXC: act of concealing must be intentional or concealment because there is no duty to
fraudulent if the fact concealed tends to prove the disclose what the other party knows.
falsity of the warranty.
GR: If you make a warranty there is no need to disclose. THE OTHER OUGHT TO KNOW, AND OF WHICH THE
EXC: If the fact tends to prove the falsity of that FORMER HAS NO REASON TO SUPPOSE HIM
warranty then must be disclosed. IGNORANT;
If you fail to disclose and it was intentional --- then it Information which is of PUBLIC KNOWLEDGE
entitles the insurer to rescind (FAILURE to DISCLOSE + (relate to Sec. 32) each person is bound to
INTENT = RESCISSION). know about general causes which are within his
i.e. an intentional concealment re: the inquiry or is of custom of trade.
seaworthiness of a vessel (implied warranty) i.e. nation is at war, peace and order situation
entitle the insurer to rescind (must be disclosed).
Sec. 30. Neither party to a contract of insurance is bound to COMMUNICATION;
communicate information of the matters following, except in
Waiver could either be express or implied.
answer to the inquiries of the other:
(a) Those which the other knows; Express --- when it is provided for.
(b) Those which, in the exercise of ordinary care, the other Implied --- when there is neglect by insurer to
ought to know, and of which the former has no reason to make further inquiry based on the facts
suppose him ignorant; already communicated.
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise Illustration:
material; and In the APPLICATION FORM, there is a question: Is your
(e) Those which relate to a risk excepted from the policy and property encumbered? If yes for what amount?
which are not otherwise material. Answer: Yes, to Mr. A. 500K.
Sec. 31. Materiality is to be determined not by the event, but If insurer did not make further inquiry and later on
solely by the probable and reasonable influence of the facts it turned out the property was mortgaged to Mr.
upon the party to whom the communication is due, in B.
forming his estimate of the disadvantages of the proposed Insurer can raise the defense of concealment
contract, or in making his inquiries.
(there was no implied waiver so there is
Sec. 32. Each party to a contract of insurance is bound to concealment).
know all the general causes which are open to his inquiry,

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
18 III LLB, EH404, USC College of Law
Midterm Reviewer

**IMPLIED WAIVER if there is a question SEC. 34

that was left unanswered or incomplete If you did not disclose you are the owner, is there
answer and there was no further inquiry. concealment?
If the answer was apparently complete NO GR: No need to disclose your insurable interest.
IMPLIED WAIVER. Exc: If there is an inquiry and if you are not the absolute
*In the above example, the answer was owner (i.e. mortagee, usufructuary, etc.).
apparently complete = there was no **So if you are an absolute owner, there is no need to
implied waiver. The insurer has reason to disclose unless there is an inquiry.
believe that the property was mortgaged to
someone else. SEC. 35
But if the answer was just YES and the insurer Inquiry based on your own judgment or opinion--- Either
issued the policy WITHOUT FURTHER INQUIRY. party to an insurance contract is not required to answer
Concealment not a defense the insurer even if asked, or even if asked and answer is incorrect,
waived further information. you will not be liable.
i.e. Do you think you are a good driver?
i.e. Have you ever been confined in the hospital? Answer: Yes (and you know how to drive) mere
Answer: Yes, CDU hospital, june 1 2010 for dengue. OPINION.
On the basis of the answer the insurer issued a policy but Answer: Yes (and you do not know how to drive)
you were also confined in Chong Hua for high blood. liable for misrepresentation.
There is concealment and no implied waiver.
This is an apparently complete answer, so the VDA. DE CANILANG V CA
insurer has a right to rely to the information. QF: A consulted D, a physician. He was diagnosed as
If the answer was Yes, without further inquiry suffering from tachychardia. During the next consultation
There is an implied waiver and no he was diagnosed for acute bronchitis. The next day, he
concealment. applied for a non-medical insurance policy with X
From the question alone, as if there is implied insurance company naming his wife as beneficiary. He
waiver, because the question was not later died of congestive heart failure, anemia, and
phrased to be specific. chronic anemia.
ISSUE: W.O.N. A was guilty of concealment.
If the answers were: HELD: xxx the information which Jaime Canilang failed to
Yes, CDU hospital = implied waiver and no disclose was material to the ability of Great Pacific to
concealment estimate the probable risk he presented as a subject of
Yes, dengue = implied waiver and no life insurance. Had Canilang disclosed his visits to his
concealment. doctor, the diagnosis made and medicines prescribed by
such doctor, in the insurance application, it may be
D. THOSE WHICH PROVE OR TEND TO PROVE THE reasonably assumed that Great Pacific would have
EXISTENCE OF A RISK EXCLUDED BY A WARRANTY, made further inquiries and would have probably refused
AND WHICH ARE NOT OTHERWISE MATERIAL; AND to issue a non-medical insurance policy or, at the very
least, required a higher premium for the same
E. THOSE WHICH RELATE TO A RISK EXCEPTED FROM THE coverage. The materiality of the information withheld by
POLICY AND WHICH ARE NOT OTHERWISE MATERIAL. Great Pacific did not depend upon the state of mind of
Risk excluded from an accident policy need not Jaime Canilang. A man's state of mind or subjective
be disclosed. belief is not capable of proof in our judicial process,
D and E can be taken together. except through proof of external acts or failure to act
from which inferences as to his subjective belief may be
Illustration: reasonably drawn. Neither does materiality depend upon
ACCIDENT INSURANCE except accidents arising the actual or physical events which ensue. Materiality
from extreme sports. Applicant did not disclose relates rather to the "probable and reasonable influence
he is into motocross racing. of the facts" upon the party to whom the communication
No, duty to disclose information because it should have been made, in assessing the risk involved in
relates to a risk exempted from the policy. making or omitting to make further inquiries and in
PROPERTY INSURANCE does not cover fire due to accepting the application for insurance; that "probable
flammable materials stored in the premises. and reasonable influence of the facts" concealed must,
No need to disclose that you store gasoline of course, be determined objectively, by the judge
and other flammable gases inside because ultimately.
whether you store or not the insurer will not be xxx xxx xxx
liable. In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
19 III LLB, EH404, USC College of Law
Midterm Reviewer

communicate must have been intentional rather than Law (Section 30) provides that "materiality is to be
merely inadvertent. For Jaime Canilang could not have determined not by the event, but solely by the probable
been unaware that his heart beat would at times rise to and reasonable influence of the facts upon the party to
high and alarming levels and that he had consulted a whom the communication is due, in forming his estimate
doctor twice in the two (2) months before applying for of the proposed contract, or in making his inquiries." It
non-medical insurance. Indeed, the last medical seems to be the contention of appellants that the facts
consultation took place just the day before the insurance subject of the representation were not material in view of
application was filed. In all probability, Jaime Canilang the "non-medical" nature of the insurance applied for,
went to visit his doctor precisely because of the which does away with the usual requirement of medical
discomfort and concern brought about by his examination before the policy is issued. The contention is
experiencing "sinus tachycardia." without merit. If anything, the waiver of medical
examination renders even more material the information
ARGENTE V WEST COAST LIFE required of the applicant concerning previous condition
QF: A joint life insurance was issued to Spouses A & B. of health and diseases suffered, for such information
During the effectivity of the policy, B died of cerebral necessarily constitutes an important factor which the
apoplexy, A claimed for the proceeds but was denied. It insurer takes into consideration in deciding whether to
is admitted that A, when asked by the medical examiner issue the policy or not. It is logical to assume that if
denied that he consulted any physician for any ailment appellee had been properly apprised of the insured's
of the brain/nervous system when in fact was confined medical history she would at least have been made to
for cerebral congestion and Bells Palsy. Additionally, his undergo medical examination in order to determine her
wife, B, also denied having neuro abnormalities and insurability.
answered that she only drinks occasionally/in small Note:
quantities when she had already been diagnosed for The Court also added that the waiver of a medical
alcoholism. examination [in a non-medical insurance contract]
ISSUE: W.O.N. there was concealment. renders even more material the information required of
HELD: One ground for the rescission of a contract of the applicant concerning previous condition of health
insurance under the Insurance Act is "a concealment," and diseases suffered, for such information necessarily
which in section 25 is defined as "A neglect to constitutes an important factor which the insurer takes
communicate that which a party knows and ought to into consideration in deciding whether to issue the policy
communicate." Appellant argues that the alleged or not.
concealment was immaterial and insufficient to avoid
the policy. We cannot agree. In an action on a life Title 5
insurance policy where the evidence conclusively shows REPRESENTATION
that the answers to questions concerning diseases were Sec. 36. A representation may be oral or written.
untrue, the truth of falsity of the answers become the
determining factor. In the policy was procured by Sec. 37. A representation may be made at the time of, or
fraudulent representations, the contract of insurance before, issuance of the policy.
apparently set forth therein was never legally existent. It
Sec. 38. The language of a representation is to be interpreted
can fairly be assumed that had the true facts been by the same rules as the language of contracts in general.
disclosed by the assured, the insurance would never
have been granted. REPRESENTATION a statement made by the insured at
the time, or prior to, the issuance of the policy, as to an
SATURNINO V PHILIPPINE AMERICAN LIFE existing or past fact or state of facts, or concerning future
QF: A was operated for cancer involving complete happening, to give information to the insurer and
removal of the right breast. She did not make a disclosure otherwise induce him to enter into the insurance
thereof in her application stating that she has not had contract.
cancer/other tumors and that she has not been treated - May be ORAL or WRITTEN.
for illness peculiar to her sex. - PRECEDES the execution of the contract
ISSUE: W.O.N. A made such false representations of (misrepresentation made after could not be said
material facts to have influenced the insurer).
HELD: The question at issue is whether or not the insured - Intended as COLLATERAL inducements not
made such false representations of material facts as to part of the contract.
avoid the policy. There can be no dispute that the *the insurer must be induced by the
information given by her in her application for insurance misrepresentation of the insured to issue the
was false, namely, that she had never had cancer or policy at a specified premium.
tumors, or consulted any physician or undergone any
operation within the preceding period of five years. Are
the facts then falsely represented material? The Insurance

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
20 III LLB, EH404, USC College of Law
Midterm Reviewer

Interpretation ++insured is obligated to disclose/communicate

Construed liberally IFO the insured and required to be information received after execution which are material
only substantially true. to the risk.

Sec. 39. A representation as to the future is to be deemed a Sec. 44. A representation is to be deemed false when the facts
promise, unless it appears that it was merely a statement of fail to correspond with its assertions or stipulations.
belief or expectation.
MISREPRESENTATION when the fact fails to correspond
AFFIRMATIVE REPRESENTATION any allegation as to the with its assertions or stipulations.
existence or non-existence of a fact when the contract - Required to be only SUBSTANTIALLY TRUE true in
begins. every particular material to the risk, or is so far
true that the conduct of the insurer would not
PROMISSORY REPRESENTATION any promise to be fulfilled have been different if the exact truth had been
after the contract has come into existence or any alleged.
statement concerning what is to happen during the *does not apply to marine insurance where
exercise of the insurance. exact and whole truth needs to be disclosed.
- Proof that promise was made with fraudulent
intent will serve to defeat the insurance. They are statements. . .
- Oral representation as to a future event or a. As a fact of something which is untrue
condition over which the insured has no control b. Which the insured stated with knowledge that it is
will be deemed a mere expression of opinion untrue and with an intent to deceive, or which he
which will avoid a contract only when made in states positively as true without knowing it to be
bad faith. true and which has a tendency to mislead
c. Where such fact in either case is material to the risk.
Sec. 40. A representation cannot qualify an express provision
in a contract of insurance, but it may qualify an implied INSULAR LIFE V PINEDA
QF: A, insured, was a fisherman. In his application, he
A representation is not part of the contract. answered no to the question of w.o.n. he drank
EXPRESS PROVISION in a CONTRACT cannot Qualify. intoxicants, suffered from lung ailments, he has spat
IMPLIED WARRANTY can Qualify. blood.
Subsequently, he signed and submitted a statement
Sec. 41. A representation may be altered or withdrawn before saying he drank but very seldom and that he had a
the insurance is effected, but not afterwards. chronic cough for years and a few sputums, slightly
Sec. 42. A representation must be presumed to refer to the
date on which the contract goes into effect. ISSUE: W.O.N. the policy is valid.
HELD: Valid. The conflicting statements made by A are
Representations refer only to the time of the making of not of material facts. Very seldom is almost similar to
the contract. not at all, a person with a chronic cough is not
Crucial Moment: the time the policy takes effect. automatically uninsurable, and few sputums, slightly
If true before effectivity and false upon effectivity = bloody is not inconsistent with not having spat blood as
FALSE representation. the sputums could be due to temporary and unimportant
If false before effectivity and true upon effectivity = ailments like a bloody tooth.
NOT false.
Sec. 45. If a representation is false in a material point,
Sec. 43. When a person insured has no personal knowledge whether affirmative or promissory, the injured party is
of a fact, he may nevertheless repeat information which he entitled to rescind the contract from the time when the
has upon the subject, and which he believes to be true, with representation becomes false. The right to rescind granted
the explanation that he does so on the information of others; by this Code to the insurer is waived by the acceptance of
or he may submit the information, in its whole extent, to the premium payments despite knowledge of the ground for
insurer; and in neither case is he responsible for its truth, rescission. (As amended by Batasang Pambansa Blg. 874).
unless it proceeds from an agent of the insured, whose duty
it is to give the information. Fraud/Intention misrepresent facts is not essential to
entitle the injured party to rescind a contract of insurance
If person has no personal knowledge discretion is given on the ground of false representation.
(you may or may not disclose).
*if he does, he must explain that he does so on the Collusion with Insured
information of others. Collusion between the agent and the insured in
misrepresenting the facts will vitiate the policy even
GR: insured is not liable when later found to be untrue.++ though the agent is acting within the apparent scope of
EXC: when made by agent of the insured/insurer. his authority.

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
21 III LLB, EH404, USC College of Law
Midterm Reviewer

Where insured made agent of insurer fill out the form for QF: A died. At the time of his death, he was suffering from
him insured made the agent of the insurer his own advanced pulmonary tuberculosis even at the time he
agent. signed his application for insurance. A appears to have
Insurer is liable when its agent writes a false answer into answered no to the question asking him if he has ever
the application without knowledge of the insured. suffered aliments/diseases of the lungs (agent answered
for him). Above the signature of A in the application,
EGUARAS V GREAT EASTERN LIFE there was a statement saying, inter alia, that the answers
QF: With connivance of insurance companys agent, B, A given therein were full, complete, and true and that to
got the former to insure his life. During the physical the best of his knowledge and belief he is a proper
examination (prior to approval) A was already an invalid, subject for life insurance.
was substituted by C, a very healthy person. A month ISSUE: W.O.N. the insurance is valid.
after approval of policy, A died of intestinal occlusion. HELD: NO. When Evaristo Feliciano, the applicant for
ISSUE: W.O.N. the insurance was valid. insurance, signed the application in blank and authorized
HELD: It is essential to the nature of the deceit, to which the soliciting agent and/or medical examiner of the
the foregoing article refers, that said deceit be prior to or Company to write the answers for him, he made them his
contemporaneous with the consent that is a necessary own agents for that purpose, and he was responsible for
requisite for perfecting the contract, but not that it may their acts in that connection. If they falsified the answers
have occurred or happened thereafter. A contract is for him, he could not evade the responsibility for he
therefore deceitful, for the execution whereof the falsification. He was not supposed to sign the application
consent of one of the parties has been secured by in blank. He knew that the answers to the questions
means of fraud, because he was persuaded by words or therein contained would be "the basis of the policy," and
insidious machinations, statements or false promises, and for that every reason he was required with his signature to
a defective consent wrung from him, even though such vouch for truth thereof.
do not constitute estafa or any other criminal subject to Moreover, from the facts of the case we cannot escape
the penal law. the conclusion that the insured acted in connivance with
The defendant company accepted the application for the soliciting agent and the medical examiner of the
insurance made by Dominador Albay and executed the Company in accepting the policies in question. Above
contract comprised under articles 416 of the Code of the signature of the applicant is the printed statement or
Commerce, although for the perfecting thereof the representation: " . . . I am a proper subject for life
insured, Albay, as he was not in good health, by insurance." In another sheet of the same application and
connivance with the insurance company's agent, above another signature of the applicant was also
presented Castor Garcia to the physician Vidal, who was printed this statement: "That the said policy shall not take
commissioned by the company to examine applicants effect until he first premium has been paid and the policy
for life insurance and in view of the favorable report of as been delivered to and accepted by me, while I am in
the said physician, who reported and certified that the good health." When the applicant signed the application
person examined by him under the name of Dominador he was "having difficulty in breathing, . . . with a very high
Albay was in good health and possessed the fever." He had gone three times to the Santol Sanatorium
qualifications required by said insurance company for and had X-ray pictures taken of his lungs. He therefore
perfecting the contract, so the company freely and knew that he was not "a proper subject for life insurance."
willingly consented to the execution thereof, effectively When he accepted the policy, he knew that he was not
induced thereto by the result of the medical examination in good health. Nevertheless, he not only accepted the
and of the favorable professional report issued in view of first policy of P20,000 but then and there applied for and
the appearance of an individual who was in good later accepted another policy of P5,000.
health, but different from the individual who was seeking We cannot bring ourselves to believe that the insured did
to be insured and who died one month and twenty-three not take the trouble to read the answers contained in the
days after the insurance had been granted. photostatic copy of the application attached to and
The fraud which gave rise to the mistaken consent, given made a part of the policy before he accepted it and
by the defendant company to the application for paid the premium thereon. He must have notice that the
insurance made by Albay and to the execution of the answers to the questions therein asked concerning his
contract through deceit, is plain and unquestionable. This clinical history were false, and yet he accepted the first
fraud consisted in the substitution at the examination of policy and applied for another. In any event, he
Castor Garcia in place of the insured Dominador Albay, obligated himself to read the policy when he subscribed
and as the deceit practiced in the said contract is of a to this statement: "My acceptance of any policy issued
serious nature, the same is ipso facto void and on this application will constitute a ratification by me of
ineffective, in accordance with the provisions of article any corrections in or additions to this application made
1270 of the Civil Code. by the Company . . ." By accepting the policy he
became charged with knowledge of its contents,
INSULAR LIFE V FELICIANO whether he actually read it or not. He could not ostrich-

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
22 III LLB, EH404, USC College of Law
Midterm Reviewer

like hide his head from it in order to avoid his part of the NON-LIFE
bargain and at the same time claim the benefit thereof. Must be exercised prior to the commencement of an
He knew, or was chargeable with knowledge, from the action on the contract.
very terms of the two policies sued upon (one of which is Insurers tender of the premiums and notice that the
printed in English and the other in Spanish) that the policy is cancelled before commencement of the suit
soliciting agent and the medical examiner had no power operates to rescind the insurance.
to bind the Company by any verbal promise or oral
representation. The insured, therefore, had no right to rely LIFE INSURANCE
and we cannot believe he relied in good faith upon Defenses can only be raised during the first 2 years of a
the oral representation. The insured, therefore, had no life insurance policy.
right to rely and we cannot believe he relied in good
faith upon the oral representation of said agent and INCONTESTABLE CLAUSES
medical examiner that he (the applicant) was a fit After the requisites are shown to exist, the insurer shall be
subject for insurance notwithstanding that he had been estopped from contesting the policy or setting up any
and was still suffering with advanced pulmonary defense, except as is allowed on the ground of public
tuberculosis. policy.


QF: See Concealment. 1. The policy is a life insurance policy
ISSUE: W.O.N. insurance still valid. 2. Payable on the death of the insured
HELD: 3. In force during the lifetime of the insured for at
In this jurisdiction a concealment, whether intentional or least 2 years from its date of issue or of its last
unintentional, entitles the insurer to rescind the contract reinstatement.
of insurance, concealment being defined as "negligence *can be shortened but cannot be extended by
to communicate that which a party knows and ought to stipulation.
communicate" (Sections 24 & 26, Act No. 2427). In the
case of Argente v. West Coast Life Insurance Co., 51 Phil. WHEN INCONTESTABLE INSURER CANNOT RAISE THE
725, 732, this Court said, quoting from Joyce, The Law of FOLLOWING
Insurance, 2nd ed., Vol. 3: a. Policy is void ab initio
"The basis of the rule vitiating the contract in cases of b. Policy is rescissible by reason of the fraudulent
concealment is that it misleads or deceives the insurer concealment of the isnured or his agent, no
into accepting the risk, or accepting it at the rate of matter how patent or well-founded
premium agreed upon. The insurer, relying upon the c. Policy is rescissible by reason of the fraudulent
belief that the assured will disclose every material fact misrepresentation of the insured or his agent.
within his actual or presumed knowledge, is misled into a *incontestability only deprives thhe insurer of those
belief that the circumstance withheld does not exist, and defenses which arise in connection with the
he is thereby induced to estimate the risk upon a false formation and operation of the policy prior to loss.
basis that it does not exist." FOLLOWING MAY STILL BE RAISED:
a. Lack of insurable interest
Sec. 46. The materiality of a representation is determined by b. Cause of death of the insured is an excepted
the same rules as the materiality of a concealment.
See Section 31. c. Premiums have not been paid
d. Conditions of the policy relating to military or
Sec. 47. The provisions of this chapter apply as well to a naval service have been violated
modification of a contract of insurance as to its original e. That the fraud is of a particularly vicious type
(i.e. insured was substituted during medical
See Section 26 to 48.
f. Beneficiary failed to furnish proof of death or
Sec. 48. Whenever a right to rescind a contract of insurance to comply with any condition imposed by the
is given to the insurer by any provision of this chapter, such policy after the loss has happened
right must be exercised previous to the commencement of an g. Action was not brought within the time
action on the contract.
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 years from the date of its issue or TAN CHAY HENG V WEST COAST INSURANCE
of its last reinstatement, the insurer cannot prove that the QF: A applied and was issued life insurance with B as
policy is void ab initio or is rescindible by reason of the beneficiary. Upon the death of A, B filed a claim with
fraudulent concealment or misrepresentation of the insured
or his agent. insurance company but was denied. Insurance company
claimed in its Answer that A fraudulently misrepresented

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
23 III LLB, EH404, USC College of Law
Midterm Reviewer

his state of health because he was seriously and incurably the commencement of suit thereon, operate to rescind
ill of tuberculosis at the time of the insurance contract. the contract of insurance.
Insurer also alleged that the permanent policy was never
delivered to A because it discovered the fraud before its TAN V CA
delivery. QF: A, father of petitioners (the beneficiaries), applied for
ISSUE: W.O.N. the insurance contract can be rescinded. and was issued life insurance with insurance company
HELD: It will be noted that even in its prayer, the herein. A died of hepatoma so the beneficiaries filed their
defendant does not seek to have the alleged insurance claim. However, their claim was denied and the policy
contract rescinded. It denies that it ever made any was rescinded because of alleged misrepresentation and
contract of insurance on the life of Tan Ceang or that concealment of material facts by A. The premiums were
any such a contract ever existed, and that is the question refunded.
which it seeks to have litigated by its special defense. In ISSUE: W.O.N. insurance company can only rescind
the very nature of things, if the defendant never made or during the lifetime of insured within 2 years and prior to
entered into the contract in question, there is no contract the commencement of action.
to rescind, and, hence, section 47 upon which the lower HELD: Contention is without merit. The policy was issued
based its decision in sustaining the demurrer does not on November 6,1973 and the insured died on April
apply. As stated, an action to rescind a contract is 26,1975. The policy was thus in force for a period of only
founded upon and presupposes the existence of the one year and five months. Considering that the insured
contract which is sought to be rescinded. If all of the died before the two-year period had lapsed, respondent
material matters set forth and alleged in the defendant's company is not, therefore, barred from proving that the
special plea are true, there was no valid contract of policy is void ab initio by reason of the insured's
insurance, for the simple reason that the minds of the fraudulent concealment or misrepresentation. Moreover,
parties never met and never agreed upon the terms and respondent company rescinded the contract of
conditions of the contract. We are clearly of the opinion insurance and refunded the premiums paid on
that, if such matters are known to exist by a September 11, 1975, previous to the commencement of
preponderance of the evidence, they would constitute a this action on November 27,1975.
valid defense to plaintiff's cause of action. xxx xxx xxx
The legislative answer to the arguments posed by the
ARGENTE V WEST COAST petitioners is the "incontestability clause" added by the
QF: See Concealment second paragraph of Section 48.
ISSUE: W.O.N. insurance company can rescind. The insurer has two years from the date of issuance of the
HELD: Appellant contends that even if the insurance insurance contract or of its last reinstatement within which
company had a right to rescind the contract, such right to contest the policy, whether or not, the insured still lives
cannot now be enforced in view of the provisions of within such period. After two years, the defenses of
section 47 of the Insurance Act providing "Whenever a concealment or misrepresentation, no matter how
right to rescind a contract of insurance is given to their patent or well founded, no longer lie. Congress felt this
insurer by provision of this chapter, such right must be was a sufficient answer to the various tactics employed
exercised previous to the commencement of an action by insurance companies to avoid liability. The petitioners'
on the contract." This section was derived from section interpretation would give rise to the incongruous situation
2583 of the California Civil Code, but in contrast thereto, where the beneficiaries of an insured who dies right after
makes use of the imperative "must" instead of the taking out and paying for a life insurance policy, would
permissive "may." Nevertheless, there are two answers to be allowed to collect on the policy even if the insured
the problem as propounded. The first is that the California fraudulently concealed material facts.
law as construed by the code examiners, at whose
recommendation it was adopted, conceded that "A xx xxx xxx END xxx xxx xxx
failure to exercise the right (of rescission), cannot, of
course, prejudice any defense to the action which the
concealment may furnish." The second answer is that the They can because they think they can.
- Virgil
insurance company more than one month previous to
the commencement of the present action wrote the
plaintiff and informed him that the insurance contract
was void because it had been procured through
fraudulent representations, and offered to refund to the
plaintiff the premium which the latter had paid upon the
return of the policy for cancellation. As held in California
as to a fire insurance policy, where any of the material
representations are false, the insurer's tender of the
premium and notice that the policy is canceled, before

By: RJ MARTINEZ Based on Syllabus AY2011-12; De Leons Book; and Transcribed Notes
24 III LLB, EH404, USC College of Law