68 HANDBOOK IN INSURANCE LAW (RA 10607) INSURABLE INTEREST 69

an interest, it is sufficient that the insured is so situated Let us look at the items in detail.
with reference to the property that he would be liable to
loss should it be injured or destroyed by the peril against 1. An existing interest
which it is insured. Anyone has an insurable interest in
This could refer to ownership, or the inter-
property who derives a benefit from its existence or would est of a mortgagor or mortgagee on a property,
suffer loss from its destruction." The measure of an insur- or that of a carrieror
able interest in property is the extent to which the insured depository, or a buyer in
be damnified
a perfected contract of sale,2" or a lessee in the
might by loss or injury thereof. property subject of the lease.25
The basis of such requirement of insurable interest in
property insured is based on sound public policy: to pre- Illustrations:
vent a person from taking out an insurance policy on 2000 Bar: BD has bank
a. a deposit of
property upon which he has no insurable interest and P500,000. Since the limit of the insurance
collecting the proceeds of said policy in case of loss of the coverage of PDIC is only P100,000, he
property." would like some protection for the excess
Insurable interest in property may consist in: by taking out an insurance against all risks
or contingencies of loss arising from any
1. An existing interest unsound or unsafe banking practices in-
cluding unforeseen adverse effects of the
2 An inchoate interest founded on an existing in-
continuing crisis involving the banking and
terest
financial sector in the Asian region. Does
3 An expectancy, coupled with an existing interest BD have an insurable interest?
in that out of which the expectancy arises." But
a mere contingent or expectant interest in any Yes, he has insurable interest in his
bank deposit. In case of loss of said de-
thing, not founded on an actual right to the posit, more particularly to the extent of the
thing, nor upon any valid contract for it, is not amount in excess of the limit covered
insurable.21 by
PDIC, BD will be damnified. He will suffer
pecuniary loss of P400,000, that is his bank

Gaisano Cagayan vs. Insurance Company of Northern America,

22 Section 8.
490 SCRA 286, June 8, 2006.
18Section 17. 23Section 15.
Cha vs. CA, 277 SCRA 690, August 18, 1997. Filipino Merchants Insurance Co. vs. CA, 179 SCRA 698, No-
20Section 14. vember 28, 1989.
21Section 16.
Ong Lim Sing vs. Feb Leasing, 524 SCRA 333, June 8, 2007.
 HANDBOOK IN INSURANCE LAW (RA 10607)
70
deposit of P500,000 minus the P100,00026
maximum recoverable amount from PDIC.
b. 1991 Bar: A piece of machinery was
shipped to Mr. Pablo on the basis of C&F,
2015Manila. Mr. Pablo insured said ma-
chinery for loss or damage during voyage.
The vessel sank en route to Manila. Mr.
Pablo then filed a claim which was denied
for the reason that prior to delivery, Mr.
Pablo has no insurable interest. Decide.27
Even before the receipt by Mr. Pablo
of the machinery he bought, he has an eq-
uitable title to the said machinery, which
constitutes insurable interest.Hecan there
fore claim the insurance proceeds.
C. 2015 Bar: Novette entered into a con-
tract for the purchase of certain supplies.
The goods were shipped. While in transit,
the goods were insured by Novette. Does
she have an insurable interest over the
g0ods even before delivery of the same to
her? Explain. (Same answer as above)
d. 2017 Bar: The newly restored Ford Mus-
tang muscle car was just released from the
car restoration shop to its owner, Seth, an
avid sportsman. Given his passion for sail-
2 At the time this question was asked, the maximum amount cov-
ered by PDIC is only P100,000. Now it is already raised to P500,000
thus the answer would be different if the question was posed nowa
days
2This was culled from Filipino Merchants Insurance Co. vs. CA,
179 SCRA 698, November 28, 1989.
INSURABLE INTEREST 71
ing, he needed to go to a round-the-world
voyage with his crew on his brand-new
180-meter yacht. Hearing about his coming
voyage, Sean, his bosom friend, asked Seth
if he could borrow the car for his next
roadshow. Sean, who had been in the
business of holding motor shows and pro-
motions, proposed to display the restored
car
of Seth in major cities of the country.
Seth agreed and lent the Ford Mustang to
Sean. Seth further expressly allowed Sean
to use the car even for his own purposes on
special occasions during his absence from
the country. Seth and Sean then went to-
gether to Bayad Agad Insurance Co. (BAIC)
to get separate policies for the car in their
respective names.
BAIC consults you as its lawyer on
whether separate policies could be issued
to Seth and Sean in
respect of the same
car. Do Seth and Sean have
separate insur-
able interests? Explain briefly your answer.
Only Seth has insurable interest in it.
Insurable interest in property consists of ei-
ther an (1) existing interest, (2) an incho-
ate interest founded
on an existing inter-
est, or (3) an expectancy coupled with an
existing interest in that out of which the
expectancy arises. Seth, being the owner,
has an
existing interest. Sean has no inter
est in the car as he does not own it, even if
he is being benefited by its existence.
 72 HANDBOOK IN INSURANCE LAw (RA 10607) INSURABLE INTEREST 73

e. IMC (maker of Wrangler jeans) and LSPI Mere inchoate interest is insufficient. Incho-
(distributor of Levi's), obtained fire insur ate interest means interest which is not a present
ance policies on book debts in connection interest but which may ripen into a vested es-
with ready-made clothing materials which tate,if not barred, extinguished, or divested."
have been sold or delivered to various cus- The inchoate interest must be founded on an ex
tomers and dealers. Book debts refer to the isting interest.
unpaid account still appearing in the Book
of Account of the insured 45 days after the llustrations:
time of the loss. Thejeans which were de-
a. 2014 Bar: A person is said to have an in-
livered to Gaisano were however burned.
surable interest in the subject matter in-
Considering that the jeans were already de-
sured where he has a relation or connec-
livered to the buyer, does the unpaid seller
tion with, or concern in it that he will de-
still possess insurable interest over it?
rive pecuniary benefit or advantage from
Yes. A vendor or seller retains an in- its preservation. Which among the follow-
surable interest in the property sold so long ing subject matters is not considered insur-
as he has any interest therein, in other able?
words, so long as he would suffer by its de-
struction, as where he has a vendor's lien.
A A partner in a firm on its future prof-
its
IMC and LSPI did not lose complete inter-
est over the goods. They have an insurable B. A general creditor on debtor's
interest until full payment of the value of property
the delivered goods. C. A judgment creditor on debtor's
Also, the insurance in this case is not property
for loss of goods by fire but for Gaisano's D. A mortgage creditor on debtor's
accounts with IMC and LSPI that remained
mortgaged property
unpaid 45 days after the fire.28 The answer is (b) as a general creditor
2 An inchoate interest founded on an existing in- has no insurable interest in any of the spe-
terest cific properties of a debtor.

Gaisano Cagayan vs. Insurance Company of Northern America, Black's Law Dictionary, citing Rupo vs. Badley, 416, 16 N.E.
490 SCRA 286, June 8, 2006. 391.
 HANDBOOK IN INSURANCE LAW (RA 10607) INSURABLE INTEREST 75
74

b. 1965 Bar: X, a general creditor to Y, in- 3. An expectancy, coupled with an existing interest
sured the latter's property because the de- in that out of which the expectancy arises. But
struction of such would render worthless a mere contingent or expectant interest in any
thing, not founded on an actual right to the
any judgment he might obtain against his
said debtor. Is the contract of insurance thing, nor upon any valid contract for it, is not

valid? insurable.3

No, the general creditor has no insur- Illustrations:

able interest in any of the specific proper-
ties of Y. His expectant interest is not
founded in any actual right to the thing
nor upon any valid contract to it.
C. 1977, 1947 Bar: A owns a house worth
P500,000. He insured it against fire for
P250,000 from January 1, 20013 to Janu-
ary 1, 2004. At the instance of B,
who is a
judgment creditor of A, the said house was
levied upon by the sheriff and sold at pub-
lic auction on March 15, 2003. It was ad-
B for P150,000 at the auction
judicated to
a. 1960 Bar: A widower, 60 years old, owns
various houses. He does not believe in in-
surance. B is his only son. Does B have in-
surable interest in the houses?
No, he does not have any actual prop-
in any of the properties of his fa-
erty right
ther during the latter's lifetime to consti-
tute as an insurable interest over the same.
b. 1987 Bar: On February 3, 1987, while
the father was in the hospital preparatory
to heart surgery, he called his only son,

sale. B insured the house against fire for
P150,000 from March 16, 2003 to March
16, 2004. The house was accidentally
burned on April 1, 2003. May A and B re-
and showed the latter a will naming him as
sole heir to the estate, including the family
mansion at Forbes Pak. The following day,
the took out a fire insurance at the
son

cover under their policies? mansion. One week later, the father died.
After the father's death, the son and his
Yes, A may recover as his insurable in-
it. family moved to the mansion which he in-
terest on the house is his ownership over
herited. On March 30, 1987, a fire de
The insurable interest existed inspite of the
stroyed the mansion. Is the insurer liable?
sale at auction of the house because A has
still a one-year redemption period. No, while it is true that the insured
was the owner of the mansion when the
B canlikewise recover as he has an in-
choate right founded on an existing right.
30Section 14.
31Section 16.
76 HANDBOOK IN INSURANCE LAW (RA 106007)
fire occurred, having inherited the same,
he has no insurable interest yet at the time
he took an insurance policy on the house,
as his father was still living at that time. In
succession, interest based on the will is
transmitted only after death.
C. 1982 Bar: A owns a house valued at
P5OK which he had insured against fire for
P100K. He obtained a loan from B in the
amount of P100K and to secure payment
thereof, he executed a deed of mortgage
on the house, but without assigning the in-
surance policy to the latter. For A's failure
to pay the loan upon maturity, B initiated
foreclosure proceedings and in the ensuing
public sale, the house was sold by the sher-
iff to B as highest bidder. Immediately
upon issuance of the sheriff's certificate of
sale in his favor, B insured the house
against fire for P120K with another insur-
ance company. In order to redeem the
house, A borrowed P100K from C and as
security device, he assigned the insurance
policy to C. However, before A could pay B
his obligation of P100K, the house was ac
cidentally burned. Does A, B or C have any
insurance interest in the house? How much
can they recover under the policies and
how much?
As to A, he has insurable interest in his
house, an existing interest, but only for
P50K, the value of the said house. But
when he assigned it to C, A had no more
INSURABLE INTEREST 77
interest in his insurance policy, and A can-
not recover on it.
As to B, his insurable interest is the
amount of the mortgage, which is P100K.
As to C, he has insurable interest,
no
being mere contingent or expectant inter-
est not founded on an actual right or valid
contract to A's house.
Time When Insurable Interest in Property Must Exist
An interest in property insured must exist when the in-
surance takes effect, and when the loss occurs, but need
not exist in the
meantime.
Suppose you own a house and took a fire insurance
thereon on February 1, effective for a year. A month later,
on
March 1, you sold your house but before the year
ended, on December 2, you were able to buy it back. The
house was burned days later, on December 7, after you are
already in possession. Nonetheless, you can still recover
from your fire insurance policy despite absence of insurable
interest from March 1 to December 1, having already sold
the house, as insurable interest is being looked at onlyon
February 1 (at the time the insurance took effect) and on
December 7 (at the time of loss).
lllustrations:
1. 1971 Bar: Mr. A insured his building for P5M
on September 1, 2003. He sold the building to B
on September 20, 2003 for P6M without endors-
*Section 19.
18 HANDBOOK IN INSURANCE LAW (RA 10607)
ing the fire policy. Five days later, the building
was burned. Can A collect the proceeds of the
policy?
No, he had no insurable interest at the time
the building was burned as he had already sold
I t .3 3
2 1994 Bar: In a civil suit, the court ordered Ben-
jie to pay Nat P500,000. To execute the judg-
ment, the sheriff levied upon Benjie's land and
building and sold the same at public auction to
Nat, the highest bidder. Nat, on March 18, 2003,
registered with the Register of Deeds the certifi-
cate of sale issued to him by the sheriff. Mean
while on January 27, 2004, Benjie insured the
same building that was sold at public auction to
Nat. Benjie failed to redeem the property on
March 18, 2004. On March 19, 2004, a fire de-
stroyed the building. The insurer refused to pay
Benjie.
Is the insurer legally justified in refusing
a.
payment?
Yes, at the time of the loss, Benjie was
no longer the owner of the property since
he failed to redeem the same. Insurable in-
terest must exist at the time of the issuance
of the policy and at the time of loss.
b. Is Nat, the buyer, entitled to collect?
This illustration must be differentiated from the one posed in
the 1977 Bar as the latter dealt with a sale by public auction where
there is a right of redemption present.
INSURABLE INTEREST 79
No, while at the time of loss, he had
insurable interest in the building, as he be
came the owner thereof, Nat did not have
any interest in the policy. There was no
automatic transfer clause in the policy to
give him interest.
3. 1972 Bar: X insured his house for P50,000 on
September 1, 2003. He house is worth P100,000.
On the said date, X obtained a loan of P20,000
from Y and the latter insured the house for
P20,000 also because the loan was without secu-
rity. On September 10, 2003, X sold the house to
Y without transferring his policy to Y. On Sep-
tember 27, 2003, the house was destroyed. Can
X and Y recover on their policies?
No, they cannot. X cannot recover because
he had no insurable interest at the time the loss
occurred as he had already sold the house. Y
cannot recover under X's policy because the
pol-
icy was not assigned to him. Y cannot recover
under his own policy because he had no insur-
able interest at the time he procured the insur-
ance, not being the owner of the house or a
mortgagee.
A. 1977 Bar: A owns a house worth P500K. He
insured it against fire for P250K for the period
January 1, 1977 to January 1, 1978. At the in-
stance of B, who is a
judgment creditor of A, the
said house was levied upon by the sheriff and
sold at public auction on March 15, 1977. It was
adjudicated to B for P150K at the auction sale. B
insured the house against fire for P150K for the
 HANDBOOK IN INSURANCE LAW (RA 10607)
80
March 16, 1977 March 16, 1978. The
period to
house was accidentally burned on April 1, 1977.
May A recover under his policy?
Yes. A judgment creditor whose property
has been seized on execution has insurable in-
terest therein until the right to redeem has been
lost. A can redeem the property with the 12-
month period. As it has not yet elapsed, he still
has insurable interest in the house at the time of
loss.
of Beneficiary in Property Insurance
Designation
As opposed from life insurance, the benefiçiary
in the
property insurance must34 possess insurable interest
subject of the insurance.
The principle of indemnity in property insurance is
based on Section 18 of the Insurance Code which provides
that no contract or policy of insurance on property shall be
enforceable except for the benefit of some person having
in the property insured.
an insurable interest
llustrations:
1. 2001 Bar: JQ, owner of a condominium unit,
insured the same against fire with XYZ Insurance
Co., and made the loss payable to his brother,
MLQ. In case of loss by fire of the said condo-
minium, who may recover on the fire insurance
policy?
34Section 18.
INSURABLE INTEREST 81
JQ can recover on the fire insurance policy.
He has the insurable interest as owner-insured.
As beneficiary in the fire insurance policy, MLQ
cannot recover. It is required that he must have
insurable interest in the property insured.
2. 1997 Bar: A obtains a fire insurance on his
house and as a generous gesture names his
neighbor as the beneficiary. If A's house is de-
stroyed by fire, can B successfully claim against
the policy?
No, in property insurance, the beneficiary
must have insurable interest in the property in-
sured. B does not have insurable interest in the
in
house.
3. 2009 Bar: Spouses Cha entered into a lease
contract with CKS Development Corporation as
lessor. One of the stipulations in the lease con-
tract was a prohibition on taking fire insurance
by the lessee without the approval of the lessor.
In case the lessee shall obtain insurance without
the consent of the lessor then the policy shall be
deemed assigned and transferred to the lessor.
Notwithstanding this stipulation, the spouses
Cha insured against loss by fire their merchan-
dise inside the leased premises. Fire broke out
inside the leased premises. Who will then be able
to recover the proceeds?
CKS cannot be validly a beneficiary of the
fire insurance policy taken by the spouses over
their merchandise. This insurable interest over
said merchandise remains with the insured, the
 INSURABLE INTEREST 83
HANDBOOK IN INSURANCE LAw (RA 10607)
82

the ued existence of life

Cha spouses. The automatic assignment of
the lease need not have any
policy to CKS under the provision of legal basis
contract is void for being contrary to
law and/or

public policy.
Tllustrations:
Insurable Interest in Life vs. Property 2012 Bar: For both life insurance and property
1.

above discussions, the following are

insurance, the insurable interest is required to be
Culling from the
the differences between insurable interest in life and a. existing the time of perfection of the
at
contract and at the time of loss.
property:
b. existing at the time of perfection
2002 Bar: and at the time of loss for property
insurance but only at the time of
Life Property perfection for life insurance
except | Limited to actual
1. Amount to | Unlimited, C. existing at the time of perfection for prop-
one taken by credi- value of interest in
be insured erty insurance but for life insurance both at
tor on life of debtor the property
the time of perfection and at the time of
exist both loss
2.
2. When it Must exist at the | Must at

must exist time insurance the time insurance

d. existing at the time of perfection only
takes effect but not | takes effect and at
when the loss the time of loss, 2. 2000 Bar: IS, an elderly bachelor with no
occurs but need not exist known relatives, obtained life insurance cover-
in the meantime age for P250,000 from Starbrite Insurance Cor-
3. As to Beneficiary need Beneficiary must poration. He also insured his residential house
for twice that amount with the same corpora-
beneficiary not possess insur-|possess insurable
able interest on the | interest on the tion. He immediately assigned all his rights to
life of the insured
the insurance proceeds to BX, a friend-
property companion living with him. Three years later, IS
4. As to Expectation of Expectation must died in a fire that gutted his insured house two
expectation benefit to be de- | have legal basis days after he sold it. There is no evidence of sui-
of benefit rived from contin- cide or arson or involvement of BX in these
events. BX demanded payment of the insurance
35Cha vs. CA, 277 SCRA 690, August 18, 1997. proceeds from the two policies, the premiums for
 HANDBOOK IN INSURANCE LAw (RA 10607)
84
which IS had been faithfully paying during all
the time he was alive. Starbrite refused payment,
contending that BX had no insurable interest and
therefore was not entitled to receive the pro-
ceeds from IS' insurance coverage on his life and
also on his property. Is Starbrite's contention
valid?
Starbrite is correct with respect to the insur-
ance coverage on the property of IS. The benefi-
ciary in the property insurance must have and
insurable interest in the property insured. BX, a
mere friend-companion of IS, has no insurable
interest in the house of IS. Not only that. Even IS
has no more insurable interest in the house, as
the loss occurred after the sale of the house.
As to the life insurance policy, BX is entitled
to receive the proceeds. There is no requirement
that the beneficiary should have insurable inter-
est in the life of IS, as it was IS himself who took
the insurance on his own life.
3. 1984 Bar: On January 4, 1983, Mr. P joined
Alpha Corp. as president of the company. Alpha
took out a life insurance policy on the life of Mr.
P with Mutual Insurance Company, designating
also carried
Alpha as beneficiary. Alpha a
surance with Beta Insurance Company
house owned by it but temporarily occupied by
Mr. P again with Alpha as beneficiary. On
tember 1, 1983, Mr. P resigned from alpha and
purchased the house he is occupying. A few days
later, a fire occurred resulting in the death of Mr.
P and destruction of the house.
INSURABLE INTEREST 85
What are the rights of Alpha against Mutual
for the life insurance policy and against Beta for
the fire insurance?
against Mutual
in the life
Alpha can recover
insurance policy as its insurable interest in the
life of the person insured existed when the in-
surance took effect. Insurable interest need not
exist thereafter or when the loss occurred.
cannot recover from Beta since an in-
Alpha
terest in property insured must exist not only
when the insurance takes effect but also when
the loss occurred. Since Alpha is no longer the
owner of the house, it has no longer insurable
interest in the property.
Effect of change of interest
As a general rule, change of interest in any part of a
thing insured unaccompanied by a corresponding change
of interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the
interest in the insurance are vested in the same person."
Say, Mr. A own a house and insured it against fire.
During the pendency of the fire insurance policy, Mr. A
life in- sold the house to Mr. X. The house is then destroyed by
fire. As an effect of the sale, there is change of interest over
on a
the house. Mr. A cannot recover from the insurance taken
as he had already sold it to Mr. X. Mr. A did not sustain
Sep
Section 20. In comparison, Section 58 also provides "The mere
ransfer of a thing insured does not transfer the policy, but suspends it
until the same person becomes the owner of both the policy and the
thing insured."
 86 HANDBOOK IN INSURANCE LAW (RA 10607)
any loss, as he is no longer the owner. On the other hand,
r.
Xcannot likewise recover from the insurance taken by
Mr. A because he was not the one who took the insurance
policy. Following the basic concept of relativity of con-
tracts, the same could only bind the parties thereto, their
heir or assigns.
1980 Bar: N owns a condominium unit presently
insured with Holy Insurance Co. for P1M. N later sells the
condo to 0. Somehow, O fails to obtain the transfer of the
insurance policy to his name from N. Subsequently, fire of
unknown origin destroys completely the condo unit. Who
may collect the insurance proceeds?
Neither N nor O may collect.
N had insurable interest when the insurance
Although
took effect, he had no more insurable interest at the time
of loss. A change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the
insurance are vested in the same person.
he had no insurance
O cannot recover as contract on
the said condo unit bought from N.
But the rule on change of interest admits of certain ex-
ceptions. These are:
1. Presence of automatic transfer clause
This concept if found in Section 57.7 It
means that interest in the policy shall follow in-
terest in the property.
3'Section 57. A policy may be so framed that it will inure to the
benefit of whomsoever, during the continuance of the risk, may
become the owner of the interest insured.
INSURABLE INTEREST 87
Tlustration:
A mortgagor took a fire insurance policy.
The same provided that the loss was "payable to
the San Miguel Brewery, mortgagee, as its inter
est may appear, remainder to whomsoever, dur-
ing the continuance of the risk, may become the
owner of the interest insured." The mortgagor
sold the property without assignment of the in-
surance to him. The new owner can recover, as
the policy was framed that it will inure to the
benefit of the new owner.3
2012 Bar: A house and lot is covered by a
real estate mortgage in favor of Zzz Bank. The
bank required that the house be insured. The
owner of the policy failed to indorse not assign
the policy to the bank. However, the deed of real
estate mortgage has an express provision which
says that the insurance policy is also indorsed
with the signing of the real estate mortgage. Will
this be sufficient?
a. No, insurance policy be expressly in-
must
dorsed to the bank so that the bank will
have a right in the proceeds of such insur-
ance in the event of loss.
38In San Miguel Brewery vs. Law Union & Rock Insurance Co.
Ltd.), 40 Phil 674, January 19, 1920, the policy was framed where the
name of the San Miguel Brewery appeared as the assured, and con-
tained no reference to any other interest in the property. It likewise
provided the usual clause requiring assignments to be approved and
noted on the policy. As a result, Harding, the new owner, was unable
to recover as there was no reference to the new owner.
88 HANDBOOK IN INSURANCE LAW (RA 10607) INSURABLE INTEREST
89

b. The express provision contained in Illustration:

the deed of real estate mortgage to
the effect that the policy is also in-
dorsed is sufficient.
Indorsement of insurance
C. policy in any
form is not legally allowed.
d. Indorsement of the insurance policy must
be in a formal document to be valid.
2. Life, accident and health insurance39
This is an exception, considering that insur-
able interest is required only when the insurance
takes effect, but need not exist thereafter or
when the loss occurs."" Thus, there is no effect
when there is change of insurable interest later
on.
3 Change of interest in the thing insured after the
loss
After the loss occurs, the right of the insured
under the policy had already become fixed and
subsequent conveyance cannot affect the in-
surer's liability." Moreover, it is only required
that possession of insurable interest must be at
the time the insurance took effect and at the
time of loss, not at the time of sale or disposition
of the property.
You have a house and insured it for a
year
against fire on March 1. On July 2, the house
was destroyed but nonetheless, a
buyer took in-
terest on it and bought it on July 5. You filed a
claim on July 7. Even you are no longer the
owner, you can still recover as the cessation of
insurable interest happened only after the loss
Occurred
2012 Bar: X owned a house and lot. X
insured the house. The house got burned. Then
he sold the partially burnt house and the lot to
Y. Which statement is most accurate?
a. X is not entitled anymore to the proceeds
of the insurance policy because he already
sold the partially burnt house and lot.
b. X is still entitled to the proceeds of
the insurance policy because what
is material is that at the time of the
loss, X is the owner of the house
and lot.
C. No one is entitled to the proceeds because
ownership over the house and lot was al-
ready transferred.
d. Y will be the one entitled the
to proceeds
because he now owns the partially burnt
house and lot.

39Section 20.
40Section 19.
41Section 21.
2Florea v. lowa State Ins. Co., 32 S.W. 2d 11, 225 Mo.App. 49.
90 HANDBOOK IN INSURANCE LAW (RA 10607)
4. Change of interest in policy insuring several
things separately insured by one policy does not
avoid the insurance as to others*3
Illustration:
You own two houses situated in the same
compound for which you took a single fire insur-
ance policy and was charged with a
single pre
mium. You sold one house and the other one
was burned later on by fire. You can still recover
from the fire insurance as the contract is divisi-
ble.
. Change of interest in policy by will or succession
on the death of the insured*
The interest of the deceased insured merely
passes to his heirs thus the latter would be re-
ceiving the proceeds in case of loss.
Illustration:
Your father insured the family mansion Void stipulations
against fire. During the effectivity of the policy,
he died. You, being the only heir, acquired own-
ership over the mansion. In case the mansion is ance:
burned, you can recover as the interest of your
father passed to you by virtue of successie .
6. Transfer of interest by one of several partners or
owners to the others does not avoid the insur-
43Section 22.
Section 23.
INSURABLE INTEREST 91
ance even though it has been agreed that the in
surance shall cease upon alienation of the things
Note that this covers only a situation where
the transfer of interest is made by a partner or
co-owner to a fellow partner or co-owner. This
rule does not apply if the transfer is in favor of a
third person or stranger.
Illustration:
You and your sister are co-owners of a
house which the two of you inherited from your
parents. The two of you jointly insured the house
against fire. Your sister, during the effectivity of
the policy, decided to sell her share to you. In
case the house is destroyed by fire, you can still
collect as there is no suspension of the policy.
But if your sister sells her interest over the house
to a third
person, the policy is suspended in so
far as the portion sold to the third person.
The following are void stipulations*° in property insur-
1. Stipulation for payment of loss whether person
insured has or has no interest in the property in-
sured
2 Stipulation that the policy shall be received as
proof of such interest
45Section 24.
46Section 25.
92 HANDBOOK IN INSURANCE LAw (RA 10607)

3. Gaming or wagering policy

The prohibition is founded on the possibility that the

interested party might be tempted to bring about the
happening of the event insured against. Chapter5
cONCEALMENT
Definition
Unfathomable stuff in law school.
Concealment is neglect to communicate that which a
1. Baket walang drawing ang mga law party knows and ought to communicate.
books? Sabagay. Ikaw nga, pano mo0
Concealment exists where the assured had knowledge
idrowing ang "holder in due course"
aber? of fact material
a to
the risk, and honesty, good faith, and
fair dealing requires that he should communicate it to the
2. Asan ang pigeon sa "pigeon hole"? Ma- assurer, but he designedly and intentionally withholds me
higit isang dekada na akong tumatam- same.
bay sa faculty room, kahit îbong maya, This provision is based on the nature and characteris-
wala akong makita. Ipis marami. Nag- tic of an insurance contract one that is of perfect good
-

didisco pa sila sa harap ko. faith (uberrimae fides).

3. Kung may pre-trial brief, asan ang pre- So what matters must be communicated in good
trial panty? faith? These are:

Section 26.
Ng Gan Zee vs. Asian Crusader Life Assn. Corp., 122 SCRA 461,
May 30, 1983.
Section 28.

93
 94 HANDBOOK IN INSURANCE LAW (RA 10607) CONCEALMENT 95

A Facts which are within his

knowledge caused by his being
hypertensive. In his applica-
tion form for a life insurance for
A party must have knowledge of the con-
not put a check to the
himself, he did
cealed fact at the time of the effectivity of the question if he is suffering
pol- from hypertension,
icy. But if he acquired knowledge thereof after the believing
that because of his
application but before its effecitivity, he is guilty of active lifestyle, being hypertensive is a remote
concealment if he fails to disclose it." In comparison, possibility. While playing golf one day, X col-
information obtained after effectivity need not be lapsed at the fairway and was declared DOA at
disclosed as the insurer could no longer be influ- the hospital. His death certificate stated
that X
enced in making its decision, as the policy had suffered a massive heart attach.
al
ready been issued. a. Will the beneficiary of X be entitled to the
proceeds of the life insurance under the
Tllustrations:
circumstances, despite the non-disclosure
1. 2011 Bar: An insured, who gains knowledge of that he is hypertensive at the time of appli-
cation?
a material of the
fact already after the effectivity
insurance policy, is obliged to divulge it. The Yes. There
is no
reason for this is that the concealment of mate-
showing that X is
aware of his ailment.
rial fact is determined:
b. If X died in accident instead of a heart
an
a. at the time of the issuance of the policy. attack, would the fact of X's failure to dis-
close that he is
b. at any time before the payment of pre- hypertensive be considered
as material information?
mium

C. atthe time of the payment of the premium discussed previously, X has no

As
knowledge of his ailment. Had he pos
d. at any time before the policy be- sessed
comes effective
knowledge thereof, its non
disclosure is material. The cause of death
however is immaterial, as the insured need
2 2016 Bar: X insured his life for P20M. X plays
not die of the disease he failed
to disclose
golf and regularly exercises everyday, hence is if he committed concealment.
considered in good health. He did not know,
however, that his frequent headache is really 3
3. 1989 Bar: applied for life insurance with
X
Metropolitan Life Insurance
Company. The ap-
Combs vs. Equitable Life Ins. Co., of lowa, C.C.A. Va., 120 F. 2d. plication contained this question: "Have you ever
432 had any ailment or disease of the stomach or
in-
sVance, 2nd Ed., 349.
 96 HANDBOOK IN INSURANCE LAW (RA 10607)
CONCEALMENT 97

testines, liver, kidney or

genitourinary organ?" X, estimates of the risks of the
a
laundry who has no medical knowl-
woman proposed insurance pol-
edge answered "No". The application was ap-
icy or in making inquiries."
proved, premium was paid and six months later, Tlustrations:
X died from cancer of the stomach. The
post-
medical examination of X shows that she had 1. The properties of PAP were insuredagainst fire.
cancer at the time she
applied for a policy. Can These were originally safekept
the beneficiary of X collect on the policy? but
atSanyo Factory
were later moved to the Pace Factory with-
Yes. There
out notice and consent to Malayan Insurance.
indication that
was no X has
knowledge of any ailment or disease. These were lost in
fire. Transfer of the location
a
of the subject properties, without notice and
B. Those which are material to the contract without the insurer's consent, after the renewal
of the policy, constitutes
concealment,
So what is the test of
materiality? Materiality is sentation and a breach of a material misrepre-
tobe determined not by the event, but solely by the There was an increase in the hazardwarranty. insured
probable and of
reasonable influence the facts
upon against, as the old location is a factory of auto
the party to whom the communication is due, in motive/computer parts and factory of zinc &
forming his estimate of the disadvantages of the aluminum die cast, plastic gear for
copy machine
proposed contract, or in making his inquiries. has of 0.449% but the new area, which is
a rate

Materiality of the information withheld does

not depend on the state of mind of the insured. Nei
ther does it depend on the actual or physical events
which ensue."
2.
Though the facts concealed had no bearing to
the cause of death of the insured, it is well settled
that the insured need not die of the disease he had
failed to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in forming his
a factory that repacks silicone sealant to plastic
cylinders, has a rate of 0.657%. There is an in-
crease in the hazard as indicated
by an increase
in the rate.
Manuel Florendo took a life insurance
policy
with Philam Plans. Philam waived medical ex-
amination for Manuel and relied largely on his
stating the truth regarding his health in his ap-
plication. He however had been under treatment
for heart condition and diabetes for more than 5

Sunlife Assurance of Canada vs. CA, G.R. No. 105135, June 22,
1995
Section 31. Malayan Insurance Co., Inc.
Vda. de Canilang vs. CA, 223 SCRA 443, June 17, 1993
vs. PAP Co., Ltd., G.R. No. 200784,
August 7, 2013.
 98 HANDBOOK IN INSURANCE LAW (RA 10607)
years preceding his submission of that applica-
tion. He also did not reveal that he has a pace-
maker installed in his body. These facts are ma-
terial to the contract."
3 Bacani took a non-medical life insurance
policy
with Sun Life. When asked
questions regarding
his state of health, he limited his answer to
hav
ing a consultation for cough and flu only. He
died in a plane crash. It was later learned that
before he applied for insurance, he was diag-
nosed for renal failure and subjected to urinaly-
sis, ultra-sonography and hematology tests.
Though the facts concealed had no bearing to
the cause of death of the insured, it is well set-
tled that the insured need not die of the disease
he had failed to disclose to the insurer. It is suffi-
cient that his non-disclosure misled the insurer
in forming his estimates of the risks of the pro-
posed insurance policy or in making inquiries."
4. Canilang was diagnosed as suffering from sinus
tachycardia and received medication for it. He
however applied and was granted a non-medical
life insurance, without him disclosing said dis-
ease. He died later from congestive heart failure
and anemia. The information which he failed to
disclose was material to the ability of Great Pa
cific to estimate the probable risk he presented
as a subject of life insurance. Had Canilang dis-
Florendo vs. Philam Plans, Inc., G.R. No. 186983, February 22,
2012.
"Sunlife Assurance of Canada vs. CA, G.R. No. 105135, June 22,
1995.
CONCEALMENT
99
closed his visits to his doctor, the
and the medicines prescribed by such
diagnosis made
doctor,
Great Pacific would have made further
inquiries
and would have probably refused to issue a non-
medical insurance policy or, at the very least, re-
quired a higher premium for the
same
The materiality of the information withheid did
coverage.
not depend upon the state of mind of
A man's state of mind or
Canilang.
subjective belief is not
capable of proof in our judicial process, except
through proof of external acts or failure to act
from which inferences as to his
subjective belief
may be reasonably drawn. Neither does
materi
ality depend upon the actual or physical events
which ensue.2
5. Ngo Hing, an insurance agent of Grepalife, took
an endowment policy for his daughter, Helen, a
mongoloid child. He however did not disclose
the same. Helen died of influenza with
complica-
tion of broncho-pneumonia. He was barred re-
covery as he deliberately concealed the state of
health and physical condition of his daughter.
He was fully aware that his one-year old daugh-
ter is typically a mongoloid child. Such a con-
genital physical defect could never be ensconced
Had he divulged said significant
nor disguised.
fact in the insurance application form, Grepalife
would have verified the same and would have
had no choice but to disapprove the application
outright.13
Vda. de Canilang vs. CA, 223 SCRA 443, June 17, 1993.
Grepalife vs. CA, 89 sCRA, 543, April 30, 1979.
 CONCEALMENT 101
HANDBOOK IN INSURANCE LAW (RA 10607)
100

life non-medical a material fact is a ground for rescission and is a

Saturnino was able to obtain a
6. valid defense of an insurer in an action based on
insurance. She later died of pneumonia. The in-
that she did not the policy.
surance company later learned
disclose her prior hospitalization and that she 8. 1975 Bar: In a non-medical insurance contract,
It alleged that Sat-
was operated for cancer. was
the insured failed to disclose that she had once
not informed of the true nature of
urnino was
been operated on, although the information on
her disease but concealment of the fact of the this matter was supposed to have been supplied
operation itself was fraudulent.4 the company. Within the proper period, may the
insurance company have the contract rescinded?
1976 Bar: Pedro Reyes applied for a fire insur-
7.
ance on his house. In his application, it was The insurance company can rescind the con-
asked the following question: "Is the house in- tract on the ground of misrepresentation or con-
sured with another insurance company? If yes, cealment of a material fact. The fact of the in-
for how much?" His answer was "no". The fact sured's operation is material to the insurer, who
however is that the house had been insured with may have refused to issue the life policy had it
FGU for P100K. The application was approved known of such fact. This is even more true in a
and made a part of the policy. Subsequently, a non-medical insurance where no medical exam
fire occurred in a neighboring house, and spread is made and the information given by the in-
to the house of Pedro which was completely sured concerning his past health and diseased is
burned. Demand for payment having been re- a very important factor which the insurer takes
fused by the insurer, Pedro filed a complaint. into consideration in deciding to issue the policy.
May he recover?
9. 2001 Bar: A applied for a non-medical life in-
No, he was guilty of concealment or misrep-
surance. The insured did not inform the insurer
resentation of a material fact. The fact of the ex-
that one week prior to his application for insur-
istence of the other insurance is material because
had he answered truthfully, the insurer would
ance, he was examined and confined at St.
Luke's Hospital where he was diagnosed for lung
probably have charged higher premium, or
him a
cancer. The insured soon thereafter died in a
would have made further inquiries, or would
have imposed some other conditions in the pol- plane crash. Is the insurer liable considering that
icy to protect its interest. The existence of a large the fact concealed had no bearing with the cause
amount of insurance increases the moral hazard of death of the insured?
or temptation to commit arson. Concealment of No. The concealed fact is material to the
approval and issuance of the insurance policy. It
Saturnino vs. Philamlife, 7 SCRA 316, February 28, 1963.
 HANDBOOK IN INSURANCE LAW (RA 10607) CONCEALMENT 103
102

is well-settled that the insured need not die of bore the annotation "co-insurance declared". The
the disease he failed to disclose to the insurer. It things insured were burned. It turned out that sev-
is sufficient that his non-disclosure misled the in- eral insurances were obtained on the same goods for
surer in forming his estimate of the risks of the the same term. The insurer refused to pay on the
in making inquir ground of concealment. May the insured recover?
proposed insurance policy or

es.
Yes. The insured may recover, since there is
Those to which the insured makes no warranty no concealment. The face of the policy bore already
C the annotation "co-insurance declared" which is a
Those which the insurer has no means of ascer-
D. to
notice to the insurer as to the existence of other in-
taining surance contracts on the property insured.
Thus, parties are not bound communicate infor-
to
B. Those which, in the exercise of ordinary care, the
mation regarding the following matters, except in answer other ought to know, and of which the former has
to the inquiries of the other:5 no reason to suppose him ignorant;

A. Those which the other knows Constructive notice is likewise given to par
ties on the following matters: 6
Following the theory of imputed knowledge,
knowledge of the agent is knowledge of the princi 1. General causes which are open to his inquiry
pal. Nonetheless, even if the other party already which may affect the political or material per-
knew of the fact but despite that, still chooses to ils contemplated;
make further inquiries on the things he already
knew, the other party is bound to truthful an-
give 2 General usages of trade.
swers. Failure to do so would constitute conceal-
ment.
G. Those of which the other waives communication;

1979 Bar: A fire insurance policy in favor of The rightinformation of material facts may
to

the insured contained a stipulation that the insured be waived, either by the terms of insurance or by
shall notice to the company of any insurances neglect to make inquiry as to such facts, where they
give
already effected may subsequently be effected,
or are distinctly implied in other facts of which
infor
such mation is communicated."
covering the property insured and that unless
notice be given before the occurrence of any loss, all
benefits shall be forfeited. The face of the policy

Section 32.
5 Section 30.
7Section 33.
 CONCEALMENT 105
HANDBOOK IN INSURANCE
LAw (RA 10607)
104

But even if a party makes an inquiry, parties are not

Tllustration: bound to communicate information

of his own judgment
life insurance policy. She in question."
Kwong Nam took a upon the matters
Dr. Yap for
disclosed there that she was operated by
in the stomach, associated with ulcer, in Illustration:
a tumor
recovered. She
Chinese General Hospital and has
the liver with metas- Ernani Trinos applied for a health coverage with
however later died of cancer of
In the ab Philamcare. In the standard application form, he answered
tasis, during the effectivity of the policy. "No" to the following question: "Have you or any of your
sufficient
sence ofevidence that the insured had
medical knowledge enable him to distinguish
as to family members ever consulted or has been treated for
between peptic ulcer and a tumor, his
statement
high blood pressure, heart trouble, diabetes, cancer, liver
that said tumor was associated with ulcer,
should be disease, asthma or peptic ulcer? If yes, give details." The
construed as an expression made in good
faith of his application was approved but Ernani later suffered a heart
belief as to the nature of his ailment and operation attack. He was denied recovery for claim benefits on the
Moreover, upon the face of the application,
a ques- ground that the doctors at the hospital discovered that
tion appears to be not answered at all
or to be im- Ernani was hypertensive, diabetic and asthmatic, contrary
and the insurer issue a policy to his answer in the application form. He later died. Was
perfectly answered,
without any further inquiry, it waives the imperfec there concealment?
tion of the answer and render the omission
to an-
None, as the assailed was in response to a
answer
fully immaterial.5
swer more question relating to the medical history of the applicant.
Those which prove or tend to prove the existence
of This largely depends on opinion rather than fact, especially
D.
a risk excluded by a warranty,
and which are not coming from the insured who was not a medical doctor.
otherwise material; Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive
Those which relate to a risk excepted from the
will not avoid a policy even though they are untrue.
policy and which are not otherwise material.
of the interest Note: The aforementioned case should be distin-
F. Information of the nature or amount
guished from Grepalife vs. CA, 303 SCRA 113, October 13,
of one insured", except as prescribed by Section 51.
a life insurance with Gre-
1999. There, Dr. Leuterio took
He died of cerebral
palife. linked
hemorrhage, to hyperten
sion. The insurance company however failed to prove
concealment, as no one was able to attest to the medical
1Ng Gan Zee vs. Asian Crusader Life Assn. Corp., 122 SCRA 461,
May 30, 1983. 20Section 35.
Section 34. Philamcare vs. CA, 379 SCRA 356, March 18, 2002.
 HANDBOOK IN INSURANCE LAW (RA 10607) CONCEALMENT 107
106

withholding of material information or facts within the

history of Dr. Leuterio. The physician who issued the post
assured's knowledge or presumed knowledge?24
mortem report did not even examine the body of
Dr.
Leuterio. The wife of Dr. Leuterio was also not aware
faith is defense in concealment.25
Thus, good no
whether his husband is taking hypertensive medicine. the part of the insured must
The fraudulent intent on
Misrepresentation as a defense of the insurer to avoid be established to warrant rescission of the insurance
liability is an affirmative defens and the duty to establish
contract. Concealment as a defense for the health care
such defense by satisfactory and convincing evidence rests
submitted that had the provider or insurer to avoid liability is an affirmative
upon the insurer. It is humbly defense and the duty to establish such defense by satisfac-
insured in the Philamcare case been a doctor, a different
could have been arrived at in Philamcare. tory and convincing evidence rests upon the provider or
ruling insurer.40

Effects

Concealment, whether intentional or unintentional,

entitles the injured party to the remedy of rescission.2 So d ka pumasa sa bar. Ano ang mga ba-
Intentional and fraudulent omission, on the part of gay na iwasan mong gawin?
one insured, to communicate information of matters
Bumili ng lysol. Pangit ang lasa.
A.
of
proving or tending to prove the falsity a warranty, Kahit haluan mo pa ng milo.
entitles the insurer to rescind."
B. Gumamit ng muriatic acid. Mas
The basis of the rule vitiating the contract in cases of masama ang lasa, Ang pangit pa ng
concealment is that it misleads or deceives the insurer into mukha mo sa ataul.
accepting the risk, or accepting it at the rate of premium
the C. Uminom ng madaming sleeping
agreed upon. The insurer, relying upon the belief that
pills. Hindi ka mamamatay ng may
assured will disclose every material fact within his actual
or presumed knowledge, is misled into a belief that the magandang panaginip. Babangun-
circumstance withheld does not exist, and he is thereby gutin ka dahil ang panaginip mo ay
bar exam sa crim law na ang ta-
induced to estimate the risk upon a false basis that it does
not exist. The principal question, therefore, must be, Was nong maliban sa what crime was

the assurer misled or deceived into entering a contract

obligation or in fixing the premium of insurance by a
*Argente vs. West Coast Life Insurance Co., 51 Phil 725, March
19, 1928.
Sunlife Assurance of Canada vs. CA, G.R. No. 105135, June 22,
22Section 27. 1995
23Section 29. Philamcare Health Systems vs. CA, March 18, 2002