Paramount Life & General Insurance Corporation vs.

Castro

Facts:
PPSBI obtained a group insurance policy from Paramount. Under Section 20, Article IV
of the said policy, “all death benefits shall be payable to the creditor, PPSBI, as its interest
may appeal.”
Virgilio Castro (Virgilio) — Cherry’s husband and Glenn’s father — obtained a housing
loan from the PPSBI. PPSBI required Virgilio to apply for a mortgage redemption insurance
(MRI) from Paramount to cover the loan. Virgilio named Cherry and Glenn as beneficiaries.
Virgilio died of septic shock. Consequently, a claim was filed for death benefits.
Paramount denied the claim on the ground of material concealment or misrepresentation,
because Virgilio allegedly made some material misrepresentations. Because of the alleged
material concealment or misrepresentation, it declared Virgilio’s individual insurance
certificate rescinded, null, and absolutely void from the very beginning.
Paramount filed an action to declare the application and insurance certificate of Virgilio
null and void.
Subsequently, the Castros filed a Motion for Leave to File a Third-Party Complaint, to
implead the PPSBI as a third-party defendant in the nullification case instituted by
Paramount. They theorized that by virtue of the death of Virgilio and the mandate of the
group insurance policy in relation to his individual insurance policy, the PPSBI stepped into
the shoes of Cherry and Glenn. According to the Castros, upon Virgilio’s death, the obligation
to pay the PPSBI passed on to Paramount by virtue of the Mortgage Redemption Insurance,
and not to them as Virgilio’s heirs.
Paramount, in opposing the PPSBl’s inclusion as a third-party defendant, reasons that it
is only seeking the nullification of Virgilio’s individual insurance certificate, and not the group
insurance policy forged between it and the PPSBI. It concludes that the nullification action it
filed has nothing to do with the PPSBI.

Issue:
Whether a mortgagee may be impleaded as a third-party defendant in a case filed by
the insurer for the nullification of the individual insurance certificate against the mortgagor.

Ruling: YES.
In Great Pacific Life Assurance Corp. v. Court of Appeals, mortgage redemption
insurance (group insurance policy of mortgagors) was defined as a device for the protection
of both the mortgagee and the mortgagor:
On the part of the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the subsistence of the mortgage
contract, the proceeds from such insurance will be applied to the payment of the mortgage
debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar
vein, ample protection is given to the mortgagor under such a concept so that in the event of
death, the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness.
Should Paramount succeed in having the individual insurance certificate nullified, the
PPSBI shall then proceed against the Castros. This would contradict the provisions of the
group insurance policy that ensure the direct payment by the insurer to the bank.
In allowing the inclusion of the PPSBI as a-third party defendant, the Court recognizes
the inseparable interest of the bank (as policyholder of the group policy) in the validity of the
individual insurance certificates issued by Paramount. The PPSBI need not institute a separate
case, considering that its cause of action is intimately related to that of Paramount as against
the Castros. In this case, the Castros stand to incur a bad debt to the PPSBI — the exact
event that is insured against by Group Insurance Policy —cin the event that Paramount
succeeds in nullifying Virgilio’s Individual Insurance Certificate.
Where the mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and
the mortgagor continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not
make the mortgagee a party to the contract.

Harvardian Colleges of San Fernando Pampanga, Inc. v. Country Bankers Insurance

Corp.

Facts:
Harvardian is a family corporation, the stockholders of which are Ildefonso Yap,
Virginia King Yap and their children. Prior to Aug. 9, 1979, an agent of Country Bankers
proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian
agreed.Country Banks sent an inspector to inspect the school building and agreed to insure
the same for P500,000 for which Harvardian paid an annual premium of P2,500.

On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On

March 12, 1980, during the effectivity of said insurance policy, the insured property was
totally burned rendering it a total loss.A claim was made by plaintiff upon defendant but
defendant denied it contending that plaintiff had no insurable interest over the building
constructed on the piece of land in the name of the late Ildefonso Yap as owner.

It was contended that both the lot and the building were owned by Ildefonso Yap and
NOT by the Harvardian Colleges.

Issue:

Whether or not Harvardian colleges has a right to the proceeds.

Held:

Yes. Harvardian has a right to the proceeds.

Regardless of the nature of the title of the insured or even if he did not have title to the
property insured, the contract of fire insurance should still be upheld if his interest in or his
relation to the property is such that he will be benefited in its continued existence or suffer a
direct pecuniary loss from its destruction or injury. The test in determining insurable interest
in property is whether one will derive pecuniary benefit or advantage from its preservation, or
will suffer pecuniary loss or damage from its destruction, termination or injury by the
happening of the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for
several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to
assume that had the building not been burned, Harvardian would have been allowed the
continued use of the same as the site of its operation as an educational institution.
Harvardian therefore would have been directly benefited by the preservation of the property,
and certainly suffered a pecuniary loss by its being burned.

Gaisano Cagayan, Inc. vs. Insurance Company of North America

Facts:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by
Levi Strauss & Co.
IMC and LSPI separately obtained from respondent Insurance Company of North
America fire insurance policies with book debt endorsements. The insurance policies
provide for coverage on “book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines.” The policies defined book debts as the “unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered under this Policy.” I
Petitioner is a customer and dealer of the products of IMC and LSPI. The Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
Respondent insurance company paid the claims of IMC and LSPI, and by virtue thereof,
demanded payment from Petitioner Gaisano. However, Petitioner Gaisano refused to heed the
demand. Petitioner Gaisano contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities event or force majeure;
that IMC and LSPI never communicated to it that they insured their properties; and that it
never consented to paying the claim of the insured.
RTC dismissed the complaint of the insurance company. It held that petitioner is not
the debtor of IMC and LSPI since it was stated in the sales invoices that “for the purpose of
securing the payment of purchase price, the merchandise remains the property of the vendor
until the purchase price is fully paid,”. So, IMC and LSPI retained ownership of the delivered
goods and must bear the loss.
The CA reversed the RTC decision and held that petitioner Gaisano’s obligation to IMC
and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as
such the obligation to pay is not extinguished, even if the fire is considered a fortuitous
event; that by subrogation, the insurer has the right to go against petitioner; that, being a
fire insurance with book debt endorsements, what was insured was the vendor’s interest as a
creditor.

Issue:
1. Whether the insurance in the case was one over credit or the merchandise.
2. Who between petitioner Gaisano, on one hand, and IMC and LSPI, on the other
hand should bear the loss?
3. Whether IMC and LSPI still have insurable interest over the goods despite delivery
to petitioner Gaisano?

Ruling:

1. Credit.

The questioned insurance policies provide coverage for “book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines;” and defined book debts as the “unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the
loss covered under this Policy.” Nowhere is it provided in the questioned insurance policies
that the subject of the insurance is the goods sold and delivered to the customers and dealers
of the insured. Thus, what were insured against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.

2. Petitioner Gaisano.

Under Article 1504, paragraph 1 of the Civil Code, when the seller retains ownership
only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer.
Accordingly, petitioner Gaisano bears the risk of loss of the goods delivered.

3. Yes.

IMC and LSPI did not lose complete interest over the goods. They have an insurable
interest until full payment of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one’s interest is not determined by
 concept of title, but whether insured has substantial economic interest in the
property.

Section 13 of our Insurance Code defines insurable interest as “every interest in

property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured.”

Parenthetically, under Section 14 of the same Code, an insurable interest in

property may consist in:
(a) an existing interest;
(b) an inchoate interest founded on existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property

interest in, or a lien upon, or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite to the existence of such an
interest, it is sufficient that the insured is so situated with reference to the property
that he would be liable to loss should it be injured or destroyed by the peril against
which it is insured. Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction. Indeed, a vendor
or seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction, as
where he has a vendor’s lien.

In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the time of the loss covered by
the policies.

*With respect to IMC, the respondent has adequately established its claim. It was
established that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. But as to LSPI, insurer failed to present sufficient evidence to prove
its cause of action.

Lampano vs. Jose

Facts:
Barretto constructed a house for Jose. After the completion of the house, Barretto took
out an insurance policy upon it in his own name, with the consent of Jose. Subsequent
thereto, Jose sold the house to plaintiff Lampano for P6,000.00. The house was destroyed by
fire. At the time of the fire, Lampano still owed Jose the sum of P2,000, and Jose still owed
Barretto the sum of P2,000 on the cost of the construction. After the destruction of the
house, Barretto collected P3,600 from the insurance company.
Lampano filed a case alleging that she had a verbal agreement with Jose to the effect
that the latter agreed, at the time of the purchase and sale of the house, to transfer to her
the insurance policy, and that the policy was merely held in trust by Barretto for her benefit;
and that Barretto does not have any right to the insurance or to the money received
therefrom. She asked for the recovery of the insurance proceeds received by Barretto.

Issues:

1. Whether Lampano is entitled to the insurance proceeds.

2. Whether Barretto has an insurable interest over the house.

Ruling:
 1. No.

Where different persons have different interests in the same property, the insurance
taken by one in his own right and in his own interest does not in any way inure to the benefit
of another.
"It is well settled that a policy of insurance is a distinct independent contract between
the insured and insurers, and third persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some contract or trust, expressed or
implied, between the insured and third persons."
In the case at bar Barretto assumed the responsibility for the insurance. The premiums
were paid by him without any agreement or right to recoup the amount paid therefor should
no loss result to the property. It would not, therefore, be in accordance with law and his
contractual obligations to compel him to account for the insurance money, or any part
thereof, to the plaintiff, who assumed no risk whatever.

2. Yes.

A building contractor has an insurable interest in the completed building pending the
payment of the construction price. A building contractor is not obligated to surrender to the
owner or her grantees any part of the proceeds of a policy insuring his own interest
exclusively and paid for by him, for the mere reason that, at the time of the fire, the amount
of the policy exceeds that still due him on the construction price.

Filipino Merchants Insurance Co., Inc. vs. CA

Defendant – Filipino Merchants Insurance Co.
Plaintiff –
Third-party defendant – E. Razon Inc. (arrastre contractor); Compagnie Maritime Des
Chargeurs Reunis

Facts:
Choa Tiek Seng insured the shipment of 600 metric tons of fishmeal, loaded on board
the vessel SS Bougainville from Bangkok, Thailand and unloaded at the Port of Manila, with
defendant Filipino Merchants Insurance Co against all risks under warehouse to warehouse
terms.
Upon unloading of the shipment unto the arrastre contractor E. Razon, Inc., the
surveyors of the insurance company and arrastre contractor ascertained and certified that
227 bags were in bad order condition, as reflected in the survey report of Bad Order. The
goods that were in bad condition were delivered back to the consignee.
Choa Tiek Seng made a formal claim against the defendant Filipino Merchants
Insurance Company, but the latter refused to pay. This led to the filing of an action by Choa
Tiek Seng against defendant insurance company.
Filipino Merchants Insurance Company contends that Choa Tiek Seng had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by him is null and
void.

Issue:
Whether Choa Tiek Seng, the consignee of the goods in transit under an invoice
containing the terms under “C & F Manila”, has insurable interest in said goods.

Ruling: Yes.

Section 13 of the Insurance Code defines insurable interest in property as every

interest in property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the insured.
 In principle, anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction whether he has or has not any title in, or
lien upon or possession of the property.
Insurable interest in property may consist in:
(a) an existing interest;
(b) an inchoate interest founded on an existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy
arises.
Choa Tiek Seng, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is
based on the perfected contract of sale.
The perfected contract of sale between him and the shipper of the goods operates to
vest in him an equitable title even before delivery or before he performed the conditions of
the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is
immaterial in the determination of whether the vendee has an insurable interest or not in the
goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance.

* C & F contracts (murag FOB Destination) – the price fixed includes in a lump sum the cost
of the goods and freight to the named destination. It simply means that the seller must pay
the costs and freight necessary to bring the goods to the named destination but the risk of
loss or damage to the goods is transferred from the seller to the buyer when the goods pass
the ship’s rail in the port of shipment.

* The term “all risks” cannot be given a strained technical meaning, the language of the
clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it
extends to all damages/losses suffered by the insured cargo except (a) loss or damage or
expense proximately caused by delay, and (b) loss or damage or expense proximately caused
by the inherent vice or nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an “all risks” policy the burden is not on the insured to prove the precise
cause of loss or damage for which it seeks compensation. The insured under an “all risks
insurance policy” has the initial burden of proving that the cargo was in good condition when
the policy attached and that the cargo was damaged when unloaded from the vessel;
thereafter, the burden then shifts to the insurer to show the exception to the coverage.

In the present case, there being no showing that the loss was caused by any
of the excepted perils, the insurer is liable under the policy.

Ang Ka Yu v. Phoenix Assurance Co. Ltd.

Facts:

Ang Ka Yu, herein petitioner, was engaged in the business of dyeing and washing
clothes. This would require his clients to deliver and deposit to the petitioner such clothes
that would require his service. He acquired from Phoenix Assurance Co. Ltd., herein
respondent, a policy insuring the effects of his business. When the clothes he had in his
possession were lost, Ang Ka Yu sought to recover from Phoenix Assurance. However, the
latter refused the claim and denied liability on the ground that the petitioner was a mere
possessor of said items, and therefore did not have any insurable interest to the same.

Issue:

Whether Ang Ka Yu, allegedly being a mere possessor, has an insurable interest over
the clothes.
Ruling: YES.

A person to whom clothes are delivered for dyeing or washing has insurable interest on
such clothes, because destruction of the textiles will mean pecuniary loss to him as he will be
deprived of the compensation, he would be entitled to for dyeing the same, not to mention
his pecuniary liability for labour and expenses. A person who is interested in the safety and
preservation of materials in his possession belonging to third parties because he stands either
to benefit from their continued existence or to be prejudiced by their destruction, has an
insurable interest thereon which is not necessarily limited to the extent of his liability to the
owners thereof. A person having mere right of possession of property may insure it to its full
value and in his own name, even when he is not responsible for its safekeeping.