Michille Roneth S.

de Jesus
Research Writing Output: Case Analysis of any Supreme Court Decided Cases

Case Title: Spouses Nilo Cha and Stella Uy-Cha and United Insurance Co., Inc. versus
Court of Appeals and CKS Development Corporation, G.R. No. 124520, August 18, 1997

Nature of the Case:

This is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set
aside the decision of respondent Court of Appeals

Facts of the Case:

Spouses Nilo Cha and Stella Uy-Cha and CKS development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire the chattels, merchandize, textiles, goods and
effects placed on any stall or store or space in the leased premises without first obtaining the
written consent and approval of the lessor. However, the spouses insured against loss by fire
their merchandize inside the leased premises for P500,000 with the United Insurance Co., Inc.
without the written consent of CKS.

On the day the lease contract was to expire, a fire broke out inside the leased premises and CKS
learning that the spouses procured an insurance contract, it wrote to United Insurance to have the
proceeds be paid directly to them. However, United Insurance refused. CKS then filed a suit
against Spouses Cha and United Insurance Co., Inc. before the Regional Trial Court.

The Regional Trial Court ruled in favor of CKS Development Corporation ordering United
Insurance Co., Inc. to pay CKS the amount of P335,063.11 and spouses Cha to pay P50,000 as
exemplary damages, P20,000 as attorney’s fees and cost of suit. Aggrieved, the petitioners filed
an appeal before the Court of Appeals which affirmed the decision of RTC with modifications
deleting the exemplary damages and attorney’s fees. Feeling aggrieved, the petitioners filed a
petition for review on certiorari before the Supreme Court.

Issue of the Case:

Whether or not CKS Development Corporation has insurable interest because the spouses Cha
violated the stipulation.

Ruling of the Supreme Court:

The CKS Development Corporation has no insurable interest. The decision of the Court of
Appeals is set aside and a new decision is hereby entered awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella uy-Cha.
Analysis:

Section 18 of the Insurance Code provides that no contract or policy of insurance on property
shall be enforceable except for the benefit of some persons having insurable interest on property.

A non-life insurance policy such as fire insurance policy is primarily a contract of indemnity.
Insurable interest on property insured must exist at the time the insurance takes effect and at the
time the loss occurs. The basis of such requirement of insurable interest in property insured is
based on sound public policy in order to prevent a person from taking an insurance policy on
property upon which he has no insurable and collecting the proceeds of the said policy in case of
loss of property. In such a case, the contract of insurance is a mere wager which is void. As
provided in Section 25 of the Insurance Code, it states that every stipulation in a policy of
insurance shall be received as proof of interest and every policy executed by way of gaming or
wagering is void. Section 17 of Insurance Code also provides that the measure of insurable
interest in property is the extent to which the insured might be damnified by loss or injury
thereof.

The automatic assignment of the policy to CKS Development Corporation under the provision of
the lease contract is void for being contrary to law and of public policy. The proceeds of the fire
insurance policy rightfully belong to the spouses Cha. The liability of spouses Cha to CKS
Development Corporation for violating their lease contract where Spouses Cha obtained a fire
insurance policy over their own merchandize without the consent of CKS is separate and distinct
issue which the Supreme Court does not resolve in this case.

Conclusion:

Thus, the CKS Development Corporation has no insurable interest on the insured properties
situated in the leased premises. The law requires that for a person to insure the property he or she
must possessed insurable interest over the property in case of loss due to the peril insured
against. In this case, only the spouses CHA have insurable interest and not CKS Development
Corporation for the spouses owned the merchandize contained in the leased premises. One of the
nature of insurance contract is it is a personal contract. Being a personal contract, only the one
procuring it and those who has insurable interest on the property insured against loss are entitled
to the proceeds of fire insurance policy. The contention of CKS Development Corporation that
the spouses violated the contract of lease for insuring the merchandize without their consent
which entitles the former to the proceeds of insurance policy is not tenable. The provisions on
Insurance Policy must be given weight than that of the contract of lease executed between
parties. Well settled is the rule that insurable interest over the insured property can never be
subject to the agreement of the parties.