Commercial Review

Insurance

1. What are the requisites in order that a person may be insured in a contact of
insurance?
Answer:
The following are the requisites in order that a person may be insured in a
contact of insurance, to wit:
a) He must be competent to enter into a contract;
b) He must possess an insurable interest in the subject of insurance; and
c) He must NOT be a public enemy.

2. Will any suretyship agreement amount to an insurance contract?

Answer:
No. To be considered as an insurance contract, the Surety undertaking to
ensure the performance of the obligations must be registered with the Insurance
Commissioner and must have been issued by the latter with a certificate of authority.
Moreover, the person acting as a surety is habitually engaged as such for a
livelihood.
It shall be deemed as insurance contract if the surety’s main business is that of
suretyship, and not where the contract is merely incidental to any other legitimate
business or activity of the surety.
3. A, wanted to open a medicinal herb shop. He placed a long distance phone call to
Taiwan and talked to an exporter who willingly agreed to consign several tons of
ginsengs with him on the condition that he will come and pick the goods up. A then
sent 5 of his cargo vessels to Taiwan. The ships left on August 9. On August 14, A
insured the 5 vessels against perils of the South China Sea “Lost or Not Lost” with B
Insurance Co. Without the knowledge of both parties, the ships had already sunk on
Aug. 14. Is B Insurance Co. liable for the ships?
Answer:
Yes, B Insurance Co. is liable for the ship. It is one of the perils or risk that can
be insured. Any contingent or unknown event, whether past or future, which may
create liability against the person insured can be insured.
 Here, this is an example of a past unknown event because the sinking of the
ship is a past event at the time that the policy took effect. Hence, B Insurance Co. is
still liable for the ships.

4. A, B, C and D decided to join a bungee jumping competition. They contributed

P1,000 each to a fund available for the use of any member who is injured in the contest.
Is this insurance or gambling?
Answer:
This is an insurance contract. Each member contributes to a common fund, out
of which one is reimbursed for the losses that he may suffer. They insured
themselves to avoid misfortune and which tends to equalize fortune.

Suppose A, B, C, and D agree that the whole amount of 4T would be given to the one
who swings nearest to the ground. Is this insurance or gambling?
Answer:
This is a gambling contract. The parties are now contemplating a gain based
upon uncertain events. Its essence is whatever one person wins from a wager is lost
by the other wagering party.

5. What is the effect of war on the existing insurance contracts between the Philippines
and a citizen or subject of a public enemy, with respect to property insurance?
Answer:
The rule adopted in the Philippines is that an insurance policy ceases to be valid
and enforceable as soon as the insured becomes a public enemy.

6. What is the effect of war on the existing insurance contracts between the Philippines
and a citizen or subject of a public enemy, with respect to life insurance?
Answer:
The effect is the contract not merely suspended but is abrogated by reason of
non-payment of premiums, since the time of the payment is peculiarly of the essence
of the contract. However, the insured is entitled to the cash or reserve value of the
policy (if any) which is the excess of the premiums paid over the actual risk carried
during the years when the policy had been in force.
7. B is sideswiped by a balut vendor. Because he was previously indicted for many
other crimes including illegal possession of balisongs, he was declared Metro Manila’s
Public Enemy No.1. If A wants to secure insurance on the life of B, may the insurer
refuse on the grounds that B is a public enemy and therefore may not be insured under
Sec. 7 of the IC?
Answer:
No, the insurer cannot refuse on the ground that B is a public enemy. Sec. 7 of
the Insurance Code speaks of a public enemy only in reference to a nation with
whom the Philippines is at war and every citizen and or subject thereof.
Here, B is only Metro Manila’s Public Enemy No.1 not an enemy of a nation.
Thus, insurer cannot refuse.

8. A insured for 1M her house with the policy providing that the loss shall be payable to
B. The house was mortgaged to B as security for a loan of P750T. It was totally
destroyed by accidental fire. Who may recover on the policy?
Answer:
B, the mortgagee may receive the 1M but is entitled only to the extent of his
credit of P750T, and he shall hold as trustee for A, mortgagor, the excess of P250T.
Supposing before the fire occurred B had already been paid, who, if at all, will receive
the proceeds?
Answer:
A will receive the proceeds because A effected the insurance in his own name
and he did NOT cease to be a party to the contract although it was provided that the
indemnity be paid to B.
Suppose it was B, mortgagee who insured the house for 1M. If the loss
occurred before B was paid who is entitled to receive the proceeds?
Answer:
B is entitled to receive the proceeds. However, B can only recover P750T, the
amount of the credit. The mortgagee or his assignee has an insurable interest in the
mortgaged property to the extent of the debt secured, such interest continues until
the mortgage debt is extinguished.
 What if the loss occurred after B was paid, can he still receive the proceeds?
Will A get the proceeds?
Answer:
No, B cannot receive the proceeds. Upon payment of the debt, B lost his
insurable interest in the property. A is also not entitled to the proceeds because A
was really never a party to the contract in the first place.

9. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jane
engaged in adulterous relations with Van. Jef secured a life insurance and named Jane
as beneficiary. When Jef dies, who will get the insurance proceeds?
Answer:
Jojo will get the insurance proceeds. Jane cannot be named as a beneficiary in
a life insurance policy because it strictly forbidden by law to receive a donation from
Jef since they were both guilty of adultery.

10. Pao and Jane are husband and wife. Jef and Jojo are also husband and wife. Jef and
Pao become lovers. Jef thereafter secures a life insurance policy and names Pao as his
beneficiary. When Jef dies who will get the insurance proceeds?
Answer:
Pao will get the insurance proceeds. There is no prohibition under the law to
donate to another person. Jef and Pao are neither guilty of adultery nor concubinage.
They are not prohibited by law to donate, then the only solution to this problem is to
consider the designation of the beneficiary as a contract which is valid and binding
between the insurer and the insured.

11. A.) B procured a life insurance in Jan 2000. He attested that he was in good health
which was true. Before 2000 ended, B defaulted in the payment of the premium and
thereafter the insurance company cancelled his policy. In Mar 2001, B applied for the
reinstatement of his life insurance policy tendering the overdue amounts. As required,
B submitted that a certificate stating that he is still in good health. The truth however
was that in Feb. 2001, B was diagnosed with cancer and only had 2 years to live. The
insurance was reinstated on April 2001. B died on Feb. 2003 and C, his beneficiary filed
a claim against the insurance company. The latter refused claiming that B concealed the
fact that he was afflicted with cancer. C contends that the 2 years counting from Jan
2000 had already lapsed and therefore the insurance company cannot contest the
concealment made by B. Is C correct?
Answer:
No, C is not correct. The policy shall be incontestable after two years from its
date of issue or of its last reinstatement. Here, the insurance was reinstated on April
2001 and B died on Feb. 2003. Thus, the policy is contestable. Hence, Concealment
vitiates the contract and entitles the insurer to rescind the contract.

B.) Same facts. But instead, B died on December 2003. Is the answer still the same?
Answer:
C can now collect from the insurance company because the two year
incontestability period has lapsed. Since the date of reinstatement was April 2001,
and B died in December 2003, the two-year period has lapsed and the policy has
become incontestable.