INSURANCE LAW

Midterm Examination
November 13, 2020

INSTRUCTIONS:

This Questionnaire contains twelve (12) essay-type questions and twelve (12)
MCQs. Insofar as the MCQs are concerned, just write the letter of your choice.
On the other hand, for the essay-type questions, please be guided by the
following:

a. Answer the questions legibly, clearly, and concisely.

b. Your answer should demonstrate your ability to analyze the facts,
apply the pertinent laws and jurisprudence, and arrive at a sound
or logical conclusion. Always support your answer with the
pertinent laws, rules, and/or jurisprudence.
c. A MERE "YES" OR "NO" ANSWER WITHOUT ANY
CORRESPONDING EXPLANATION OR DISCUSSION WILL NOT
BE GIVEN FULL CREDIT. THUS, ALWAYS BRIEFLY BUT FULLY
EXPLAIN YOUR ANSWERS ALTHOUGH THE QUESTION DOES
NOT EXPRESSLY ASK FOR AN EXPLANATION. DO NOT REWRITE
OR REPEAT THE QUESTION.

BEST OF LUCK!

Essay-type:

I.

Define a contract of insurance?

II.

What are the distinguishing elements of a contract of insurance?

III.

Commander Abu, a citizen of the Philippines obtained a life insurance

on his own life in the Philippines. Later the Philippine government gave a P10
million prize for his capture dead or alive and was declared public enemy no. 1.

Will his life insurance continue?

IV.

A made a last will and testament and provided B, his talented student a
legacy of P1 million to be taken out of his estate upon his death.

Does B Have insurable interest on the life of A?

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V.

A and B married on August 08, 2018. A insured the life of B on

September 08, 2018 with A as beneficiary. After a violent quarrel, their
marriage was annulled on August 28, 2019. The annulment was too much for B
to bear and so on August 30, 2019, B died of a heart attack. A filed a claim with
the insurance company for payment of the proceeds of the insurance on B’s life.
The insurance company refused to pay on the ground that after the annulment
of their marriage, A lost her insurable interest on the life of B. Decide.

VI.

A entered into a contract of lease with X company, which provided that

the lessee “shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises
without first obtaining the written consent and approval of the LESSOR. If the
LESSEE obtains the insurance thereof without the consent of the LESSOR then
the policy is deemed assigned and transferred to the LESSOR for its own
benefit.” Notwithstanding the said stipulation, A insured against fire the
merchandise inside the leased premises for P500,000 with Charter Ping An
without the written consent of X company. On the day the lease was to expire,
fire broke out inside the leased premises and burned the insured merchandise.
When X company learned of the insurance earlier procured by A, it wrote
Charter Ping An a demand letter asking that the proceeds of the insurance be
paid directly to X company, based on its lease contract with A.

Can X company recover from the insurer, Charter Ping An, the proceeds
of the insurance procured by A?

VII.

A insured his house for P1 million beginning January 01, 2006. A sold
the house to B for P1.5 million on February 10, 2006 without indorsing or
transferring the fire insurance policy to B. On March 20, 2006, the house was
completely destroyed on account of an accidental fire.

Who can collect the proceeds of the policy from the insurance
company?

VIII.

On September 24, 2002, KC applied for a life insurance policy with SL

Insurance Company. KC submitted the application to the branch manager of
SL and paid the required premium. The manager then forwarded the
application to the head office for approval. On November 26, 2002, SL’s head
office sent a notice of acceptance to KC. However, KC died before receiving
the notice of acceptance. KC’s heirs now want to recover the premium that was
paid. Can they recover the premium? Explain
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IX.

On July 01, 2019, X took out an insurance policy on the life of his
girlfriend who he loves more than his own life. In the insurance application, X
misrepresented that his girlfriend was in perfect health although he knew all
the time that she was afflicted with AIDS. On October 01, 2020, the girlfriend
died in a motor vehicle accident. Shortly thereafter, X filed a claim with the
insurance company. Is the insurance company liable? Explain

X.

A piece of machinery was shipped to Juan on the basis of C&F, Cebu.

Juan insured said machinery for loss or damage during the voyage. The vessel
carrying the machinery sank en route to Cebu. Juan then filed a claim with the
insurance company which denied the same for the reason that prior to the
delivery, Juan has no insurable interest over the machinery. Decide.

XI.

In a civil suit, the court ordered Benjie to pay Kobe P500,000.00. to

execute the judgment, the sheriff levied upon Benjie’s registered property (a
parcel of land and the building thereon), and sold the same at a public auction
to Kobe, the highest bidder. The latter, on March 18, 2019, registered with the
register of deeds the certificate of sale issued to him by the sheriff. Meanwhile,
on January 28, 2020, Benjie insured with Garapal Insurance for P1Million the
same building that was sold at public auction to Kobe. Benjie failed to redeem
the property by March 18, 2020. On March 19, 2020, a fire razed the building
to the ground. Garapal Insurance refused to make good its obligation to Benjie
under the insurance contract. Is Garapal legally justified in refusing payment to
Benjie?

XII.

Mr. A took out a life insurance policy designating his son, Junior, as
beneficiary. During their vacation, they met a car accident, wherein Junior died
2 days ahead of his Mr. A. To whom should the proceeds of the insurance
policy go?

MCQs:

1. Under R.A. No. 10607, as amended, otherwise known as the Insurance

Code, which of the following statements in relation to insurance
contracts is false?

a. The right of subrogation applies only to property insurance and

not to life insurance.
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b. The insurer does not lose his right against the wrongdoer even if
the latter is released from liability by the insured after receiving
payment.
c. The right of subrogation in insurance is not dependent upon any
privity of contract and simply accrues upon payment of the
insurance claim by the insurer.
d. The pecuniary value of human life to the beneficiary can be
accurately determined in an insurance taken by a creditor on the
life of a debtor to secure a debt.

2. Which of the following cases shall make the insurer liable on the
insurance?

a. A house was insured against fire. Unknown to the parties, it was

already gutted by fire two (2) days before the insurance was taken.
b. An unsecured creditor insured the vehicle of the debtor. The debt
remained unpaid when the debtor died.
c. The company insured the life of its Manager. The Manager was
already terminated from his employment at the time of his
demise.
d. None of the foregoing.

3. A person may insure himself in the event of failure of his ticket to win in:

a. Lotto
b. Horse race
c. Sweepstakes
d. None of the foregoing

4. Who among the following parties is considered “public enemy” and,

therefore, may not be insured?

a. Abbu Sayaf members

b. North Korean communists
c. MILF members
d. None of the foregoing

5. Which of the following statements in relation to insurable interest is

false?

a. Insurable interest is immaterial when the life insurance policy is

taken by the insured on his own life.
b. Insurable interest must be pecuniary when a person insures the
life of another.
c. An unsecured creditor has an insurable interest in the life of the
debtor.
d. An unsecured creditor has an insurable interest in the property of
the debtor.

6. Which of the following statements in relation to insurable interest is

false?
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a. The employer has an insurable interest in the life of his key

employee.
b. A partner has an insurable interest in the life of his co-partner.
c. The principal has an insurable interest in the life of his surety.
d. None of the foregoing.

7. Which of the following statements in relation to the beneficiaries of life

insurance is true?

a. A common-law wife may be designated as the beneficiary of the

life insurance taken by her common-law husband.
b. As a general rule, the beneficiary designated in the policy cannot
be changed by the insured.
c. None of the foregoing.
d. All of the foregoing.

8. An insurance contract is an aleatory contract, which means that -

a. the insurer will pay the insured equivalent to the amount of the
premium paid.
b. the obligation of the insurer is to pay depending upon the
happening of an uncertain future event.
c. the insured pays a fixed premium for the duration of the policy
period and the amount of the premiums paid to the insurer is not
necessarily the same amount as what the insured will get upon
the happening of an uncertain future event.
d. the obligation of the insurer is to pay depending upon the
happening of an event that is certain to happen.

9. An Insurance Contract is a contract of adhesion, which means that in

resolving ambiguities in the provision of the insurance contract, -

a. the general rule is that, the insurance contract is to be interpreted

strictly in accordance with what is written in the contract.
b. are to be construed liberally in favor of the insured and strictly
against the insurer who drafted the insurance policy.
c. are to be construed strictly against the insured and liberally in
favor of the insurer.
d. if there is an ambiguity in the insurance contract, this will
invalidate the contract.

10. When an insurance is taken by the mortgagor for the benefit of the
mortgagee, the following are its legal effects according to Section 08 of
R.A. No. 10607, except:

a. Any act which under the contract of insurance is to be performed

by the mortgagor may be performed by the mortgagee with the
same effect.
b. In case of loss, the mortgagee is entitled to the proceeds to the
extent of his credit and the balance, if any, is payable to the
mortgagor.
d. Upon recovery by the mortgagee to the extent of his credit the
debt is extinguished.
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e. The contract of insurance is deemed to be upon the interest of

the mortgagor who does not cease to be a party to the original
contract
f. Any Act of the mortgagor prior to the loss, which would otherwise
avoid the insurance does not affect the mortgagee even if the
property is in the hands of the mortgagee

11. D owns a house valued at 1Million which he mortgaged to C in order to

secure a loan of P700,000. C took a fire insurance on the house for
P800,000. The house was partially burned due to the storage of some
flammable materials by D, resulting into a loss of P500,000. At the time
of the loss, D had already partially paid his debt leaving an unpaid
balance of P400,000.

How will the insurance proceeds, if any, be allotted to the parties?

a. D is entitled to collect P500,000 from the insurer being the owner

of the house mortgaged and who is ultimately damaged by the
partial loss.
b. C is entitled to collect P400,000 from the insurer and D gets
nothing. The insurer shall be reimbursed by D.
c. C is entitled to collect P500,000 from the insurer but he shall turn
over the P100,000 to D. The insurer shall not be reimbursed by D.
d. Both C and D cannot recover any amount from the insurer.

12. Assume the same facts in Question No. 11, except that it was D who
took the fire insurance payable to C in the event of loss.

How will the insurance proceeds, if any, be allotted to the parties?

a. C is entitled to collect P400,000 from the insurer and D gets

nothing. The insurer shall be reimbursed by D.
b. C is entitled to collect P400,000 from the insurer and D gets
nothing. The insurer shall not be reimbursed by D.
c. C is entitled to collect P500,000 from the insurer but he shall turn
over the P100,000 to D. The insurer shall not be reimbursed by D.
d. Both C and D cannot recover any amount from the insurer.