Insurance Law

Prepared by: Dr. Jeannie P. Lim

Baguio City

1. Distinguish “insurable interest” in life insurance and in property insurance:

Life Insurance Property Insurance

1. The expectation of benefit to be derived from the
continued existence of a life need not have any
legal basis
2. There is no limit to the amount of insurance that
may be taken upon life
3. It is enough that insurable interest exists at the
time when the contract is made but it need not
exist at the time of loss
The expectation of benefit must have a legal basis
The actual value of the interest therein is the limit of
the insurance that can validly be placed thereon.
An interest insured must exist when the insurance
takes effect and when the loss occurs but need not
exist in the meantime.

2. Under what instances may the insured be entitled to the return of his premium paid?

Answer. (a) When the contract is voidable on account of the fraud or misrepresentation of the insurer or of his agent or
on account of facts the existence of which the insured was ignorant without his fault, (b) By any default of the insured
other than actual fraud, the insurer never incurred any liability under the policy, (c) To the whole premium, if no part of
his interest in the thing insured be exposed to any of the perils insured against, (d) Where the insurance is made for a
definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the
unexpired time at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the
policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously
accrued and (e) In case of an over insurance by several insurers, the insured is entitled to a ratable return of the
premium proportioned to the amount by which the aggregate sum insured in all the policies exceed the insurable value
of the think at risk.

3. X bought a life insurance policy securing his own life. He requested the company to issue him cover note to
raise funds to pay the entire annual premium. The insurance company granted his request. Within 7 days after
X received the cover note, robbers entered his house and X was killed by the robbers. X’s wife filed a claim
which was denied by the company. (a) Was there an insurance contract entered into between X and the
insurer? (b) May the wife of X claim without an issued insurance policy?

Answer. (a) The issuance of a cover note resulted in the perfection of the contract of insurance. A cover note is usually
issued when there is a delay in the issuance of the policy. The request of X for an extension of the payment of the
premium was accepted by the insurer. Therefore, it is now estopped from raising the defense of non-payment of the
premium.

(b) Cover note is a receipt whereby the insurance company agrees to insure the insured for 60 days pending the
issuance of a regular policy. No separate premium is to be paid in a cover note. It is not a separate policy but is
integrated in the regular policy to be subsequently issued. Even without the regular insurance policy X’s wife can
rightfully claim under the cover note.

4. X met Y (a transgender), both Filipinos in Bangkok, Thailand. The two fell in love and got married in Las Vegas,
USA. (same sex marriage is valid) Y is a very successful “businesswoman” who owns several beauty shops in
the country. After their marriage X did not have a steady source of income and always depended upon Y for
emotional and financial support. In the course of their marriage, X bought an insurance policy for Php 10M on
Y’s life with him as the sole beneficiary. Several years thereafter Y died. Can X claim the insurance benefit?

Answer. Yes, X can claim the insurance benefit. He had insurable interest on Y’s life as the problem states that X
“always depended on Y for emotional and financial support.” The insurable interest upon the life of another under Sec.
10(b) of the Insurance Code need not be based on kinship or legal obligation to give support. The fact that the marriage
of X and Y is void is immaterial.

5. On February 24, 2016, X, a homosexual, took an insurance policy on the life of his boyfriend Y. In the insurance
application, X misrepresented that Y was in perfect health although he knew all the time that Y was afflicted
with AIDS. On April 15, 2019, Y died in a motor vehicle accident. A few weeks thereafter, X filed an insurance
claim. Is the insurance company liable under the given facts?

1
 Answer. The insurance company is not obligated to pay. Friendship alone is not the insurable interest contemplated in
life insurance. Insurable interest in the life of others (other than one’s life, spouses or children) is merely the extent of
the pecuniary interest in the life. Assuming that such pecuniary interest exists, an insurer would be liable despite
concealment or misrepresentation if the insurance had been in effect for more than 2 years. (Incontestability Clause)

6. X Construction Company has more than 60 in-house construction workers. These workers are usually sent to
the provinces to finish some construction projects. X procured a group accident insurance policy and paid for
the full premium thereof without any contribution from the workers. While the policy was in effect, 10 workers
were sent to the Southern Leyte to start a construction project. All workers perished at sea on their way to their
provincial assignment. The heirs of the dead employees filed their claim under the group policy. X Company
assisted the heirs in all their claims under a special power of attorney signed by the heirs. The insurance
company paid the claims and issued the check in the name of X. X did not release the claims to the heirs and
instead the manager of X Construction misappropriated the proceeds to his heart’s desire. The heirs filed an
action in court against the Insurance Company and demanded the payment of their claims. Will the suit
prosper?

Answer. Yes. The suit will prosper. Insurance company is liable. X Construction, through its manager acted as agent of
the insurance company. The latter is bound by the misconduct of its agent. It is the usual practice in group insurance
business that the employer-policy holder is the agent of the insurer.

7. X Bought a life insurance policy with a face value of Php 2.0 M. At the time of his application he had been
hypertensive but his blood pressure is addressed with regular medication. He did not disclose this fact in his
insurance application as his hypertension was not an issue to him at that time. Within the coverage of the
insurance policy, X went to Manila unfortunately he met an accident and instantly died at the site. X’s
beneficiaries filed their claim under the insurance policy. The insurer refused to pay contending that X failed to
disclose material facts in this application. The heirs argue that the death was due to an accident and not for
reason of X’s hypertension. Is the refusal of the insurer valid?

Answer. What X failed to disclose is still a material fact. It is settled that the insured cannot recover even though the
material fact not disclosed is not the cause of the death or loss.

8. X bought a life insurance policy with a face value of Php 10M. X regularly goes to the gym to exercise and his
health condition was good. X did not know that his frequent headache was due to his being hypertensive. In his
insurance application he did not disclose that he is suffering from hypertension. A few months thereafter, X
collapsed on his way to the office. He was rushed to the hospital and was declared dead on arrival at the
hospital. X’s death certificate stated that X suffered a massive heart attack caused by his hypertension. Will the
beneficiaries of X be entitled to the proceeds of the life insurance under the above-stated facts considering that
X did not disclose in his application that he is hypertensive at the time of his application?

Answer. The beneficiaries are not entitled to the insurance proceeds because the hypertension of X is a material fact
that should have been disclosed to the insurer. The concealment of such material fact entitles the insurer to rescind the
insurance policy.

9. X, an office messenger, applied for life insurance with “I” company. The application contained questions:
“Have you ever had ailment or disease of x x x x stomach, liver, kidney organ x x x ? X, having no medical
knowledge answered “NO.” X paid the premium and his application was approved by “I.” One year thereafter, X
died of cancer. Can the beneficiary of X collect on the policy? Reason.

Answer. The beneficiary of X cannot collect on the policy. Concealment, as a defense against liability by the insurer,
may either be intentional or unintentional. Lack of knowledge of the part of the insured about his ailment will not
preclude the insurer from raising the defense. The insurer may be held in estoppel only, if having known of the
concealed or misrepresented fact, still accepts the payment of premium which is not the situation in this case.

10. X applied for a non-medical life insurance. In the application form, X did not inform the insurer that one month
ago prior to his application he was confined at Cardinal Santos Medical Center where he was diagnosed for
lung cancer. Eight months thereafter, X died in a vehicular accident. Is the insurer liable considering that the
fact concealed had no bearing with the cause of death of the insured?

Answer. No. The concealed fact is material to the approval and issuance of the insurance policy. It is well settled that
the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his non-disclosure misled
the insurer in forming his estimate of the risks of the proposed insurance policy or in making inquiries.

2
11. X purchased an irrevocable life insurance policy and designating irrevocably Y, a friend, as the beneficiary.
After a year, X changed his mind and desires to add R and S, his other friends, to be included as beneficiaries.
Can X still include R and S as his beneficiaries in that policy?

Answer. X cannot add other beneficiaries as this would diminish the interest of Y who is the irrevocably designated
beneficiary without the consent of Y.

12. X bought an insurance policy with a face value of Php 5.0 M. He issued a post-dated check in full payment of
the premium. Before the check could be encashed in the Bank by the insurer. X met an accident and died. Is the
insurance policy binding under the given circumstances? Reason.

Answer. No, the insurance policy is not binding. Payment in post-dated check is not payment in due course. Payment is
considered to have taken place when the creditor has encashed the check or the amount thereof has been credited to
the account of the creditor by the bank on maturity date. The general rule in insurance provides that the insurance
policy is not valid and binding unless the premium thereof has been paid. This is the “Cash-and-Carry Rule” in
Insurance Law. Premium is the consideration for the undertaking of the insurer to indemnify the insured against a
specified peril.

However, if the check issued was a dated check and the insurer failed to encash it on the same date or within a
reasonable time. That failure should be taken against the insurer and equated to its “negligence.” Hence, the insurance
company should be held liable upon the death of X prior to the encashment of the dated check.

13. X bought an insurance policy with the agreement that he will pay the premium in four (4) equal installments
within 6 months from application. X covered the first installment as agreed upon. Before the second installment
was made. X was killed by robbers who entered his house. Can the beneficiaries named in the insurance policy
claim under the unpaid policy?

Answer. An exception to the “Cash and Carry Rule” in Insurance Law is when there is an agreement between the
insured and the insurer allowing the former to pay the premium in installments and at the time of death there has been
partial payment made already. The beneficiaries can validly claim under the policy.

14. On October 19, 2015, Michaela Santos took out a life insurance policy from Sunrise Insurance Company, Inc.
designating Rebecca, her long time care giver as her beneficiary. The insurance policy was issued with a face
value of Php 1.5 million. On March 6, 2018 Michaela died. Rebecca filed a claim on the policy. Sunrise
conducted an investigation into the claim and came out with the following findings: (a) Michaela did not
personally apply for the insurance coverage, as she was illiterate., (b) Michaela was already sickly at the time
the policy was bought, (c) Michaela did not personally pay for the premium as it was paid by Rebecca out of her
own money, and (d) Rebecca named herself as the beneficiary instead of Michaela’s other relatives. For the
above findings, Sunrise denied the claim and merely refunded the premiums paid.

(a) May the insured designate another person who is not a relative as the beneficiary in a life insurance
policy?
(b) May the incontestability period set in even in cases of fraud as alleged by Sunrise?
(c) Is Rebecca entitled to the insurance proceeds?

Answer. (a) Yes. Michaela is allowed to select her beneficiary in a life insurance policy.

(b) Yes the incontestability period of two (2) years applies even in cases of fraud. This period gives both the insurer and
the insured enough time to inquire whether the policy was obtained by fraud, concealment or misrepresentation and
likewise, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered thus
deterring them from venturing into such nefarious enterprise. Life insurance policies that pass the statutory two-year
period are essentially treated as legitimate and beyond question, and the individual who wield them are made secure by
the thought that they will be paid promptly upon claim.

(c) Yes, Rebecca is entitled to claim the proceeds under the policy.

15. On July 9, 2016, X took a life insurance policy from Sunrise Insurance. The policy was issued on September 14,
2016. X died May 17, 2018 of Pneumonia. The insurance company denied the beneficiaries’ claim and rescinded
the policy by reason of alleged misrepresentation and concealment of material facts made by X in his
application. Sunrise returned the premium paid.

The beneficiaries contend that the company had no right to rescind the contract as rescission must be done “during
the lifetime” of the insured within 2 years and prior to the commencement of the action. Is the contention of the
beneficiaries valid?
3
 Answer. No. The incontestability clause does not apply. The insured died on May 17, 2018, within 2 years from the
issuance of the policy on September 14, 2016 or less than 2 years from September 14, 2016. The right of the insurer to
rescind is only lost if the beneficiary has commenced an action on the policy. There is no such action in this case. (Tan
vs. CA, 174 SCRA 143) If the insurer has a ground to rescind the contract of insurance such ground can only be
invoked BEFORE an action is commenced for recovery under the policy. (Sec. 48, IC)

16. Alfred took out a life insurance on his own life and made her common law wife (K) as the sole beneficiary.
Alfred did this to ensure that “K” will be financially comfortable when he is gone. Upon the death of Alfred his
nephews wrote a letter to the insurance company demanding that the proceeds of the insurance should be
surrendered to the estate of Alfred. If your advice is sought under the given circumstances will you agree to the
claim of the compulsory heirs? Reason.

Answer. My advice will be - “K” as the sole beneficiary under the life insurance policy purchased by Alfred should be
entitled to the whole proceeds of the life insurance policy.

17. X secured a life insurance policy with a face value of Php 2.0 million and named his mistress M” as the sole
beneficiary thereof. X referred to “M” as his legal wife in the insurance application. However, in truth, X is
legally married to “S” and they have four (4) legitimate children. Three years later X died. “M” filed her claim
under the policy as the designated beneficiary therein. The widow, “S”, also filed her claim as the legal wife. To
whom should the proceeds be awarded?

Answer. The proceeds should be awarded to the estate of X. “M” is disqualified as the beneficiary of the deceased
because of illicit relation between X and “M”. Due of the illicit relationship she has had with X, she is not qualified as a
donee and a beneficiary in the insurance policy. The proceeds shall inure to the family of X.

18. On April 9, 2015, or two years before the 65th birthday of Melchor, he took a life insurance policy covering his
own life. The policy contains no excepted risk. For unknown reason, a week before his 65 th birthday Melchor
took his own life. The family claim on the policy. The insurance company conducted an investigation and it was
able to establish that Melchor was showing signs of depression before his death. As a result the insurer
refused to settle contending that the mental state of the insured is relevant in cases of suicide in order to hold
it liable. Rule on the contention of the insurance company.

Answer. The insurer’s contention is without legal basis. It is liable under the given facts because the insurance policy
contains no exceptive risk. Hence, it must settle the claim of the heirs.

19. X, bought an accident insurance policy effective September 16, 2017 to September 15, 2018. X is a boxer who
sometimes goes out of the country to join boxing contest. In one local fight on April 19, 2018, he was hit by his
opponent on the face causing him to lose his balance and slipped. He fell and his head hit the metal post of the
boxing ring. He was rendered unconscious and was rushed to the hospital but was pronounced dead on arrival
due to “intracranial haemorrhage.” Can X’s mother who is the sole beneficiary under the insurance policy
successfully claim from the insurance company? Reason.

Answer. Yes, X’s mother can successfully claim under the accident insurance policy. Clearly, the proximate cause of
death was the boxing contest. Death sustained in a boxing contest is an accident. (De la Cruz vs. Capital Insurance &
Surety Co., 17 SCRA 559)

20. X purchased an accident insurance policy from Integrity Insurance. A provision in the policy states that “the
company shall not be liable in respect to bodily injury consequent upon the insured person attempting to
commit suicide or wilfully exposing himself to needless peril except in an attempt to save human life.” Five
months after X purchased the policy he died of gunshot wound to his head. SOCO investigation showed that
on that fateful day, X was cleaning his gun inside their living room. He removed the magazine and in a happy
mood pointed the gun to his aunt who got scared. He assured her that the gun is not loaded. He then pointed
the gun to his temple and pulled the trigger. The gun fired and X slumped dead on the floor.

X’s mother, as the designated beneficiary sought to collect under the policy. Integrity rejected the claim on
the ground that the X’s death was not accidental. Is Integrity liable under the given facts?

Answer. X’s mother can recover the proceeds of policy from Integrity. The death of X was not due to suicide or wilful
exposure to needless peril which are excepted risks. X’s act was purely an act of negligence which is covered by the
policy and which the insured got the insurance for his protection. In fact, X removed the magazine from the gun before
he pointed it to this aunt and when he pointed the gun to his temple he did so because he thought it was safe for him to
do so. He did so to assure his aunt that the gun was harmless. There is none in the policy that would relieve the insurer
of liability for the death of the insured since the death was purely accidental.
4
21. On October 10, 2015, X secured a life insurance from Sunrise Insurance Company for Php 1.5 M with his
nephew, “N” as the sole beneficiary. When “N” reached his teen years X and N were always fighting. Often, N
would leave the house and would not come home for couple of days. X died under mysterious circumstances.
The police conducted an investigation and it was ascertained that “R” participated as accessory in the killing
of X. Can Sunrise avoid liability by setting up as a defense the participation of R in the killing of X? Reason.

Answer. Sunrise cannot avoid liability under the insurance policy. While R’s interest as beneficiary in the policy is
considered forfeited since he is an accessory to the killing of X, the proceeds of the policy should be paid to the nearest
relative of X (if not otherwise disqualified), as provided under Sec. 12 of the Insurance Code.

22. X took out a Php 3.0 million life insurance policy naming his friend and creditor, “C”, as his beneficiary. At the
time of X’s death he has an unpaid obligation of Php1.2M in favor of “C”. X’s heirs contended that only Php
1.2M of the insurance proceeds should go to “C” and the rests should be paid to the estate of X. Is the
contention of the heirs correct? Reason.

Answer, The heirs’ contention is not correct because it was X himself who took out the life insurance policy on his own
life, naming “C” as the beneficiary. It could have been different if it was “C”, a creditor, who took out a life insurance on
the life of X, as a debtor. In that case, “C’s” insurable interest in the life of X would only be to the extent of Php 1.2 M
which is the amount of the unpaid debt at the time of X’s death.

23. X, a businessman owns a supermarket. He insured all his goods against fire for Php 5.0M with Integrity Insurance. Y, a
creditor of X who had extended to X credit of Php 2.5 M likewise took out an insurance on the goods of X in the amount
of Php 3.0M with Sunrise Insurance. An accidental fire broke out and X’s business was totally damage. (a) Is there
double insurance under the given facts? (b) How much can X and Y claim under their policy, respectively?

Answer. (a) There is no double insurance under the given facts because the insurances taken out by X and Y are not
the same. Their insurable interests are likewise different. X as the owner of the goods insured and Y, as the mortgagee
or creditor of X. (b) X can recover his total loss of Php 5.0M representing the full value of his goods loss through fire. On
the other hand, Y can only recover the value of his extended credit to X in the amount of Php 2.5M.

24. X and his friends were recruited from the university to join the NPA. May X, a member of the “NPA or its
breakaway group, be insured with an n insurance company licensed to do business in our country under the
Insurance Code?

Answer. A member of the “NPA or its breakaway group may be insured with a company licenced to do business under
the Insurance Code. A public enemy is a citizen or national of a country with which the Philippines is at war. Such
member of the “NPA” is not a citizen or national of another country, but the Philippines.

25. Under the Code of Commerce commercial contracts are governed by the “Cognition Theory”, i.e., there is
perfection of the contract only when the acceptance of the offer is made known to the offeror. X is a
businessman, he constructed a four-storey commercial building and upon its completion he insured it against
possible loss or damage in case of fire with Integrity Insurance Company for Php 8.0M on March 26, 2018. X
paid the full premium under the policy in cash. It took “Integrity” five (5) working days to approve X’s
application. “Integrity” sent to X the approved policy by mail. Before X could receive the insurance policy, his
building was destroyed by a fire. Thereafter, X filed a written claim with “Integrity” under the insurance policy.
“Integrity denied the claim on the ground that an insurance policy is governed by the “Cognition Theory.”
Decide the validity of the insurance company’s argument.

Answer. Integrity is correct because what governs insurance contract is the Cognition Theory whereby the insurance
contract is perfected only from the time the applicant came to know of the acceptance of the offer by the insurer. Under
the given facts, the loss occurred prior to X’s knowledge of the acceptance by the insurance company. There being no
perfected insurance contract X is not entitled to his claim.

26. X is a businessman engaged in the selling of office and school supplies is the City of Cebu. Before the opening
of school in 2018, X purchased more than Php 5.0 million worth of goods in Manila. The articles will be shipped
to X via “MV Patricio”. Before the goods were actually shipped to X he insured the goods against loss. Does X
have an insurable interest over the goods even before delivery to the goods to him?

Answer. Yes. X has an insurable interest in the goods. The contract of sale was already perfected between the seller
and him although the goods have yet to be delivered.

27. X bought a car insurance against all risks in the sum of Php 1.5M from Sunrise Insurance Company. It was
agreed that the premium is payable within four (4) months from purchase. X only paid for one month premium.
Despite demand, he failed to pay the subsequent instalments. Three months after the issuance of the policy,
5
 the vehicle was car napped and X filed with Sunrise a claim for the value thereof. Sunrise denied his claim on
the ground that he failed to pay the premium resulting to the cancellation of the policy. Can X recover from
Sunrise under the above-stated facts? Explain.

Answer. Yes, X can recover from Sunrise considering that his car was car napped before the four month period to pay
the premium instalments expired. An insurance premium can be paid on instalments and the insurance contract
became valid and binding upon payment of the first instalment. When Sunrise granted a credit term for the payment of
the premium, it is liable when the loss occurred before the expiration of such term. It could not deny liability on the
ground that payment was not made in full, for the reason that it agreed to accept instalment payments. In the same
token, it could not validly cancel the policy without giving notice to X of its cancellation. (Sec. 65, IC)

28. X bought a brand new Nissan Navarra Pick-up car and insured it with Integrity Insurance Company under a
comprehensive motor vehicle insurance policy. Three months after the purchase X reported to the police that
his vehicle was car napped. His police report stated that he gave his car to “Y” to replace his car tires and to
add accessories and other improvements to it. Y never returned the car and is nowhere to be found. X notified
“Integrity” and filed his claim under the motor insurance policy. “Integrity” refused to pay as there is no car
napping that took place because X gave Y the lawful possession of the vehicle. Is “Integrity” correct?

Answer. Integrity is not correct. Y is merely given the physical possession of the car. Y never had the juridical
possession over the same. It is apparent in the above-stated facts that Y took the car of X without the latter’s consent
and authority. Thus, the act of Y in depriving X of his car, soon after the transfer of the physical possession of the same
to him, constitutes theft under the insurance policy that is compensable. (Paramount Insurance vs. Spouses
Remondeulax, GR No. 172773, November 28, 2012)

29. X owns a brand new car. He took out a comprehensive Motor Vehicle Car insurance on June 16, 2018. One
rainy day he was traversing the highway when a pedicab in front of him suddenly took a left turn without any
signal. X swerved the car to the right a hit a big tree. The car sustained damages and was brought to the repair
shop. When the repair work was completed X as out of town. While the car was in the custody of the repair
shop, the son of the owner took the car to show off to his “Barkada” On his way home, the son under the
influence of liquor smashed it into a parked truck and was extremely damaged. X, the owner learned of this and
filed a claim for recovery under the “Theft Clause” of the policy but was refused payment. The insurance
company averred that the car was not stolen and therefore was not covered by the “Theft Clause” Is the
insurance company liable under the given facts? Reason.

Answer. The coverage of the insurance policy is comprehensive that should cover situations of the loss of the property
occasioned by the taking or use by another without the authority of the insured. Furthermore, tit is provided the
Insurance Law that in case of doubt on the insurance, it ambiguity must be construed liberally in favor of the insured,
being a contract of adhesion. (Association of Baptists vs. Fieldmen’s Insurance, 124 SCRA 618)

30. X insured his brand new car with Sunrise Insurance Company for comprehensive coverage wherein the
insurance company undertook to indemnify him against loss or damage to the car by accidental collision, by
fire, external explosion, burglary or theft and malicious act. One Sunday afternoon X’s wife used the car in
going to the supermarket. She parked the car in the parking area. Subsequently, the car was nowhere to be
found. The wife reported the incident to the police and various government agencies in compliance with the
insurance requirements.

X and his wife exerted efforts in trying to locate the car but to no avail. X filed a claim for the loss of the car
under his insurance policy. Sunrise denied the claim on the ground that the wife who was then driving the car
when it was lost was in possession of an expired license, a violation of the “authorized driver” clause of the
insurance company. May Sunrise validly deny X’s claim?

Answer. No. The car was lost due to theft. What apply in this case is the “theft clause” and not the “authorized driver”
clause. It is immaterial that X’s wife was driving with an expired license at the time it was car napped. (Perla Compania
de Seguros vs. CA, 208 SCRA 487)

31. The monstrous traffic along EDSA got into the nerve of Raffy. He was trying his best to find spaces where he
could squeeze his car and moved ahead. In so doing he sideswiped a motorcycle causing injury to the driver,
Luis. Luis sued Raffy and the third party liability insurer for damages and/or insurance proceeds. The
insurance company moved to dismiss the complaint, contending that the liability of Raffy has not yet been
determined with finality.

(a) Is the contention of the insurer correct? Reason. (b) May the insurer be held liable with Raffy?

6
 Answer. (a) No, the contention of the insurer is not correct. There is no need to wait for the decision of the court
determining Raffy’s liability with finality before the third party liability insurer could be sued. The occurrence of the injury
to Luis immediately gave rise to the liability of the insurer under its policy. In other words, where an insurance policy
insures directly against liability, the insurer’s liability accrues immediately upon the occurrence of the injury or event
upon which the liability depends. (Sherman Shafer vs. Judge, RTC Olongapo City, Br. 75, et. Al., GR No. 78848, 167
SCRA 386)

(b) The insurer cannot be held solidarily liable with Raffy. The liability of the insurer is based on contract while that of
Raffy is based on tort. If the insurer were solidarily liable with Raffy, it could be made to pay more than the amount
stated in the policy. This is contrary to the principles underlying insurance contracts. On the other hand, if the insurer
were solidarily liable with Raffy and it is made to pay only up to the amount stated in the insurance policy, the principles
underlying solidary obligations would be violated. (Figuracion vda. De Maglana, et. Al., vs. Hon. Francisco Z.
Consolacion, et. al., GR No. 60506, 212 SCRA 268)

32. X and Y Company are engaged in the production of nails. It has recently acquired new automated machines
and equipment for bigger increase in its production. X and Y bought fire insurance policy for a one-year term
from Sunrise Insurance effective until May 31, 2017. X and Y registered its factory site as Block 7, Lot 21, Pag-
asa Barangay, Minerva, Bataan. Before the expiration of the policy it was renewed for the second year or until
May 31, 2018 on “as is” basis. In September 25, 2017, X and Y transferred it factory site to a bigger place in the
next adjacent Barangay. On March 11, 2018, a fire broke out at the factory’s new location which totally burned
the insured machineries and equipment.

The fire insurance policy forbade the removal of the property insured without written notice and sanction
of Sunrise. X and Y filed its insurance claim with Sunrise which the latter denied. X and Y insisted that notice
was given to Sunrise thru one of their insurance agent from whom it got the insurance policy. Is Sunrise liable
under the policy?

Answer. Sunrise is not liable under the policy. By the clear and express condition in the renewal policy, the removal of
the insured property to any other place required the written notice and sanction of the insurance company which is
wanting under the given facts. (Malayan Ins. Company, Inc. vs. PAPCO, Ltd., GR No. 200784, August 7, 2013)

33. X has Php 5.0M bank deposit. Since only Php 500,000 thereof is covered by insurance of the PDIC, he decided
to cover the excess by taking out an insurance against all risks or contingencies of loss arising from any
unsound banking practices including unforeseen adverse effects of the continuing financial crisis involving
banks and finance sector in the Asian region. Does X have an insurable interest within the meaning of the
Insurance Code?

Answer. Yes, X has an insurable interest in his bank deposit in case of loss of said deposit in excess of the insurance
coverage of PDIC of Php 500,000. X will suffer Php 4.5 M if something will happen to this depositary bank.

34. Sunrise Insurance Company, Inc. issued Marine insurance policy in favor of XYZ Corporation to insure the
shipment of 500 boxes of clothing materials against all risks. All cargoes were shipped on board the vessel MV
Quitalbo from Port Manila to Leyte. Thereafter, XYZ engaged the services of ABC Brokerage Corporation for the
release, withdrawal and delivery of the cargoes to its warehouse in Palo, Leyte. Upon arrival, ABC used its
trucks and employees to deliver the goods. Only 415 boxes were delivered. 85 boxes were missing. As a
result, XYZ filed a claim against Sunrise. After investigation, Sunrise paid XYZ. Sunrise filled a complaint
against ABC for reimbursement. ABC refused the claim on the basis that it is not privy to the contract entered
into between Sunrise and XYZ. Insisting that it is not liable. Decide with reason.

Answer. ABC is liable. Even if it is not privy to the insurance contract entered into between Sunrise and XYZ, it cannot
escape liability. Under Art. 2207 of the Civil Code, it is provided that if the plaintiff’s property has been insured and he
has received indemnity from the insurance company for the loss arising out of the wrong or breach of contract complaint
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract., which is ABC. Sunrise has the right to seek reimbursement from ABC for breach of contract
and/or tort. (Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corp. and R & B Insurance Corporation, GR No.
179446, January 10, 2011)

35. An equipment was shipped to B on the basis of C & F, Manila. B insured said equipment with Integrity
Insurance Company for loss or damage during the voyage. The vessel sank en route to Manila. B then filed a
claim with Integrity which was denied for the reason that prior to delivery, B had no insurable interest. Decide.

Answer. B had an existing insurable interest on the piece of equipment be bought. The purchase of goods under a
perfected contract of sale already vests equitable interest on the property on favor of the buyer even while it is pending
delivery. (Filipino Merchant Insurance Co., vs. CA, GR No. 85144, November 28, 1989)
7
36. What warranties are implied in marine insurance?

Answer. (a) That the ship is seaworthy to make the voyage and/or to take in certain cargoes, (b) That the ship shall not
deviate from the voyage insured, (c) That the ship shall carry the necessary documents to show nationality or neutrality
and that it will not carry document which will cast reasonable suspicion thereof, and (d) That the ship shall not carry
contraband, especially if it is making a voyage through belligerent waters.

37. A marine insurance policy on a cargo states the “the insurer shall be liable for losses incident to peril of the
sea’” During its last voyage, seawater entered the compartment where the cargoes were stored due to the
defective drainpipe of the ship. The crew did not notice the defect until the water was above three (3) feet deep.
As a result of the incident, all cargoes in the compartment were soaked in water. The insured filed an action on
the policy to recover the damages on the cargoes. Can the insurer recover under the given facts?

Answer. No. the proximate cause of the damage to the cargoes insured was the defective drainpipe of the ship. This is
peril of the ship and not peril of the sea. The defect in the drainpipe was the result of the ordinary use of the ship and
lack of proper maintenance. To recover under a marine insurance policy, the proximate cause if the loss or damage
must be peril of the sea.

38. ABC Corporation purchased from Vietnam rice to be sold locally. While the ship was on voyage, stormy
weather happened which had caused the ship to be soaked with sea water. The ship could not continue its
voyage and as a result the sacks of rice were soaked in water for more than 2 days. When the cargo arrived in
Manila, ABC filed a claim for total loss with the insurer because all the sacks of rice were no longer fit for
human consumption, however, the cargo were still usable as animal feeds. Is ABC’s claim for total loss
justifiable? Reason.

Answer. ABC’s claim is justified. The rice is obviously intended for consumption by the public. The complete physical
destruction of the cargo is not essential to constitute an actual total loss. Such loss exists in the case because the rice
has been soaked in sea water and thereby rendered unfit for human consumption, has become totally useless for the
purpose for which it was imported. The fact, that the goods are usable as animal feeds is of no moment. (Pan Malayan
Insurance Corp. vs. CA, et. Al., GR No. 95970, September 5, 1991, 201 SCRA 382)

39. Sunrise Insurance Company issued a marine insurance policy covering 2000 pieces of decorative marvel
stones bound for Manila against “total loss only.” The stones were loaded in two lighters, the first with 1200
pieces of marvel and the second with 800 pieces of marvel. The sea was rough at the time of voyage. The first
lighter arrived safely but the second lighter had encountered motor trouble while at sea and arrived with only
455 pieces of marvel. X filed a claim against Sunrise on the ground of constructive total loss inasmuch as more
than ¾ of the value of the stones had been lost in the second lighter. Is the insurance liable? Explain.

Answer. Sunrise is not liable under its policy covering against “total loss only” the shipment of 2000 pieces of marvel.
There is no constructive total loss that can be claimed since the ¾ rule is to be computed on the total 2,000 pieces of
marvel covered by the single policy coverage. The total marvel that arrived at port was 1,655. 345 pieces were missing
which is not more than ¾ of the “lost” required under the Constructive Lost Rule. .

40. X owned a house and lot that is covered by fire insurance. Within the life of the policy the real property was
partially destroyed by a big fire. Three days after the fire, X decided to sell the burnt house and lot “as is”
because he had long wanted to retire in the province. X filed his claim with the insurance company but the
latter refused to pay contending that X is not anymore entitled to the proceeds of the insurance policy because
he already sold the partially burnt house and lot. X does not agree with the insurance company and filed a case
in court. If you are the Judge will you grant the claim of X?

Answer. Yes, the claim of X is meritorious and he is entitled to the proceeds of the insurance policy because what is
material is that at the time of the loss, X is still the owner of the house. His insurable interest exists at the time of
perfection of the contract and at the time of loss of the property.

41. X, owner of a condominium unit, is a non-resident citizen. Most of the time of the year he is in the United
States. He insured the same against fire with Sunrise Insurance Company and made the loss payable to his
sister, M, who is permanently staying in the Philippines. In case of loss by fire, who may recover on the fire
insurance policy? Explain.

Answer. In case of loss due to fire, X can recover on the policy. He has the insurable interest as owner-insured. M,
cannot recover on the fire insurance policy even if she is the named beneficiary or to whom the proceeds was made
payable because it is required that she must have insurable interest in the property insured at the time the policy was
purchased and at the time of loss.
8
42. X borrowed from “B” Bank mortgaging her house and lot to the latter. X is required to insured her house and
to indorsed the policy in favor of the Bank. The Bank also took out fire insurance on the house that is
mortgaged to it by X. (a) Is this legally valid? (b) Is there double insurance under the given facts? Explain your
answer.

Answer. (a) Yes, X and Bank can both insure the house as they have different insurable interests therein. X the
borrower mortgagor, has an insurable interest in the house being the owner thereof; whereas, the Bank, the lender, also
has an insurable interest in the house as mortgagee thereof.

(b) There is no double insurance under the given facts. Double insurance exists where the same person is insured by
several insurers separately with respect to the same subject and interest. (Sec. 93, Insurance Code)

43. X has three (3) sons to whom he distributed his properties in his will. “E”, the eldest son got the mansion in
Alabang. “E” and his family moved into the given property after all of them were told of their definite share on
the father’s assets. “E” took out property (fire) insurance on the Alabang property. Two weeks thereafter the
house was burnt down by an accidental fire. “E” proceeded to claim on the fire insurance he took earlier on the
house. Should the insurance pay? Explain.

Answer. In property insurance, insurable interest must exist both at the time of the taking of the insurance and at the
time the risk insured against occurs. The insurable interest must be an existing interest. That fact alone that “E” was the
expected sole owner of the Alabang property does not give the prospective heir any existing interest prior to the death
of the decedent. “E’s” interest in the subject property is inchoate. Hence, the insurance company need not pay.

44. X leased a commercial building from “L”. One of the stipulations in the lease contract states “xxxx “X” shall
not insure against fire all his stocks in trade within the store without the written consent of “L”. If this
stipulation is violated the insurance policy is deemed as assigned and transferred to “L” for the latter’s
benefit.” Notwithstanding this agreement, X took out fire insurance without the consent of “L.” Within the term
of the contract fire broke out within the leased premises and all goods and merchandise therein were burnt
beyond recovery.

“L” later knew of the insurance taken out by X, he demanded that the insurance proceeds be paid directly
to him, as provided in the lease contract. Who is legally entitled to the insurance proceeds? Explain.

Answer. X is entitled to receive the insurance proceeds of the policy. The stipulation that the policy is deemed assigned
and transferred to “L” is void because “L” has no insurable interest in the merchandise of X. [Cha vs. CA, 277 SCRA
690 (1997)]

45. C filed an action against D for the latter’s unpaid debts. C won the case and he was awarded Php 850,000.00.
When judgment became final and executor, the sheriff levied upon D’s registered property and sold the same at
public auction. C won as the highest bidder. On October 12, 2017, C registered the certificate of sale issued to
him by the Sheriff with the register of deeds. Meanwhile, on August 4, 2018, D insured the property that was
sold to C for Php 2.0M. D failed to redeem the property by October 12, 2018.

On October 12, 2018, a fire razed the subject building to ground. He insurance company denied D’s claim
under the policy he purchased. (a) Is the insurance company legally justified in refusing D’s claim? Why? (b) is
C entitled to collect on the insurance policy bought by D?

Answer. (a) The refusal of the insurance company is valid because at the time of the loss, D was no longer the owner
of the property insured as he failed to redeem the property within 1 year under his Right of Redemption. The law
requires in property insurance that the person can recover the proceeds of the policy if he has insurable interest at the
time of the issuance of the policy and also at the time when the loss occurred. At the fire of the fire, D no longer has
insurable interest in the property insured.

(b) No. While at the time of the loss he had insurable interest in the property, as he was the owner thereof. C did not
have any interest on the policy at the time of its issuance. There was no automatic transfer clause in the policy that
would give him such interest in the policy.

46. X‘s law office is located in the heart of the commercial district of the City. X has a complete set of “SCRA,”
volumes of local and foreign law books in his library beside the conference room. X took out a fire insurance
“against all direct loss and damage by fire.” A fire broke out three buildings away from his office. It took the fire
fighters almost 5 hours to contain the conflagration. X’s office was spared of the fire but not of smoke, soot
and water. All his books, computers and documents were totally soaked in water and chemicals. X filed a claim
under his insurance policy. The insurer denied his claim. Is the denial correct? Explain.

9
 Answer. The refusal of the insurer to pay is not justified. While it is true that the damage is not covered by the policy
which only insures “against all direct loss and damage by fire” the damage being claimed by X is clearly the proximate
cause of the fire. As a rule, recovery is due when the risk insured against is either the proximate cause or the immediate
cause. Even where there is exclusion the primordial rule in determining recovery is whether or not the risk insured
against is the proximate case of the loss or damage. The insurer is liable under the given facts.

47. What is double insurance? Is it valid?

Answer. Double insurance exists where the same person is insured by several insurers separately with respect to the
same subject and interest. It is valid. What is prohibited is for the insured to recover more than his interest or value of
the property pursuant to the “principle of indemnity.”

48. X is a businessman. He bought two separate property (fire) insurances for the same amount from “A”
Insurance and “B” Insurance Company. His building was destroyed by fire. X filed his claim with both “A” and
“B.” “A” refused to pay contending that there is double insurance; therefore both the insurances’ coverage
becomes automatically void. On the other hand, “B” alleged that both company shall be proportionately liable
only. Who is correct?

Answer. Both insurance companies are wrong. X can choose from whom he wants to enforce his claim against.
However, he cannot claim from both.

49. X owns a commercial building valued at Php 12M and it was insured against fire with three (3) insurance
companies: ABC Insurance for Php 4.0M, DEF Insurance for Php 6.0M and GHI for Php for Php 8M.

(a) In the event of a fire, can X claim from all the three companies?

(b) Is there a difference if the three (3) policies purchased were all value policies from when the three (3)
policies were open policies?

(c) If it was ascertained that the time of the fire, the value of X’s building is Php 7.0 M and X was able to claim
Php 8.0 from GHI, can X still claim from ABC and DEF under the policies that he bought?

Answer. (a) X may recover from the insurers in such order as he may select up to the amount for which the insurers are
severally liable under their respective contracts. (Sec. 94, IC)

(b) If all the insurance policies were value policies, and the total insurance coverage purchased from the three (3)
companies is Php 18M and the building was valued at Php 12M, each insurer is bound, as between themselves to
contribute ratably to the loss of the property in proportion to the amount which it is liable under the insurance contract.
The following formula shall apply among the insurance companies themselves:

ABC: 4/18 of Php 12M = Php 2,666,666.67 DEF: 6/18 of Php 12M = Php 4.0M
GHI: 8/18 of Php 12M = Php 5,333,333.33

Under an open policy the insured may recover his total loss up to the amount of the insurance coverage. i.e., X can
recover from ABC Php 4M, from DEF Php 6M and from GHI Php 8M.

(c) If X’s building was valued at Php 7.M at the time it was razed by fire, and the policy X purchased was a value policy.
X can no longer recover from ABC and DEF because the insured may only recover up to the extent of his loss. No profit
is allowed to be realized in property insurance. The insured can only be compensated at an amount equal to his loss. In
case X received more than the value of the building he must return the excess amount he was able to collect.

50. X bought a property insurance insuring his house for Php 3.0M. On one occasion, X was cleaning and he had
been using kerosene in his work. While working he was smoking. He threw the cigarette butt on the ground and
left to eat. Such negligence resulted to a fire that destroyed his house. Can he recover under the policy?

Answer. Yes, he can recover. Mere negligence on the part of the insured will not prevent recovery under the insurance
policy. The law merely prevents recovery when the cause of loss is the wilful act of the insured, alone or in connivance
with others. (Sec. 87, IC)

0–0–0–0–0–0
JPL 2019 / all rights reserved.

10
Doctrinal Synopsis:

 Mutual Insurance Company – is a cooperative enterprise where the members are both the insurer and the insured. In it,
the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all loses and
liabilities are paid and where profits are divided among themselves, in proportion to their interest.

 Insurance contract is an ALEATORY CONTRACT – which means that the obligation of the insurer is to pay depending
upon the happening of an UNCERTAIN FUTURE event.

 An insurance contract is a contract of adhesion which means that in resolving ambiguities in the provision of the
insurance contract, the same shall be construed liberally in favour of the insured and strictly against the insurer who
drafted the insurance policy.

 Co-insurance – is the percentage in the value of the insured property which the insured himself assumes or undertakes
to act as insurer to the extent of the deficiency in the insurance of the insured property. In case of loss or damage, the
insurer will be liable only for such proportion of the loss or damage as the amount of insurance bears to the designated
percentage of the full value of the property insured.

 Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him against liability by reason of
such original insurance. Basically, reinsurance is an insurance against the liability which the original insurer may incur in
favor of the original insured.

 Incontestability Clause – means that two-years after the date of the life insurance policy or its reinstatement, the insurer
cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent concealment or
misrepresentation of the insured.

 For both the life and property insurance, the insurable interest is required to be existing at the time of perfection and at
the time of loss for property.

 In a real estate mortgage, the insurance policy taken out by the property owner must be duly endorsed in favor of the
bank so that the bank will have a right in the proceeds of such insurance in the event of loss.

 An injured passenger riding a vehicle for hire has a right to claim under a Comprehensive Motor Vehicle Insurance
Coverage bought by the vehicle owner.

 In an “Open Insurance Policy” the insured could claim an amount corresponding to the extent of the damage based on
the value of the house determined as of the date of the damage occurred but not to exceed the face value of the
insurance policy.

 In a “Value Policy” the insured could claim an amount corresponding to the extent of the damage based on the agreed
upon valuation of the house.

 Double insurance exists where the same person is insured by several insurers separately with respect to the same
subject and interest. The insurers are considered as co-insurers. Each one is bound to contribute ratably to the loss in
proportion to the amount for which it is liable under the contract. (Sec. 94€, IC)

 Barratry – Is any wilful misconduct on the part of the master or crew pursuance of some unlawful or fraudulent purpose
without the consent of the owner and to the prejudice of the interest of the owner.

 Constructive total loss Rule – If the loss sustained by the ship owner is more than ¾ of the value of the vessel (less
whatever was salvaged). There is deemed a total loss of the subject of the insurance.

 “No Fault Indemnity Clause” of the Insurance Code c provides that any claim for death or injury to a passenger or to a
third party should be paid without the necessity of proving fault or negligence, subject to the following rules: (a) the total
indemnity shall not exceed Php 5,000; (b) proof of loss, e.g., police report, death certificate or medical report, when
submitted under oath, shall be sufficient to substantiate the claim, and (c) the claim may be made against one motor
vehicle only. In the case of an occupant of a vehicle, the claim shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In any other case, the claim shall be against the insurer of the directly
offending vehicle. The party paying the claim may recover against the vehicle responsible for the accident. (Sec. 378,
IC)

11
 Cover note – is a receipt whereby the insurance company agrees to insure the insured for 60 days pending the
issuance of a regular policy. No separate premium is to be paid in a cover note. It is not a separate policy but is
integrated in the regular policy to be subsequently issued.

JPL 2019 / all rights reserved.

12