Rizal Memorial Colleges – School of Law

Insurance
Noreen Minette M. Dillen
First Exam
15 August 2021

NAME:
Instructions:
1. Download this Questionnaire, save it, and answer.
2. The file name should be: yourlastname_Insurance_First_Exam(example: Dillen_Insurance_First_Exam)
3. This Questionnaire consists of VIII items, with sub-items.
4. Read each question carefully, and note the points allocated for each question. In your answers, follow
the sequence and the numbering system used in the Questionnaire.
5. In the essay portion, your answers should demonstrate your ability to analyze the facts, apply the
pertinent laws and jurisprudence, and arrive at sound and logical conclusions. Always support your
answers with the pertinent laws, rules, and/or jurisprudence. A mere "yes" or "no" answer without any
corresponding explanation or discussion will not be given any credit.
6. When the time is up, save as or print as a PDF file, and email to:
nmdillen@gmail.com and rmc.sol192017@gmail.com
7. Please submit your paper no later than 09:05 am (Philippine time). A point will be deducted for every
minute of delay.
8. The camera must be on at all times. Turning it off at any time will result in automatic failure.

I.

Loreto, while married to Vicenta, engaged in extra-marital relations with Eva. Loreto took out a life
insurance policy with Pilipinas Life Insurance Corporations (PLIC) in his own name in the amount of 5
MILLION PESOS, and designated, Eva, and his children with Eva (Odessa, Karl and Trisha) as the
beneficiaries. When Loreto died, his wife, Vicenta, filed a claim for the proceeds of Loreto`s life insurance
policy, claiming that Eva and her children with Loreto are disqualified, and that all the proceeds must be
released to her, and her children with Loreto.

1.) Are Eva and/or her children disqualified from the proceeds of the life insurance policy? 5 points

Only Eva is disqualified from the proceeds of the life insurance policy. Eva’s children or Loreto’s
illegitimate children are not disqualified.

Under the Law, the grounds for beneficiaries’ disqualification are the following: (1) those made
between persons who were guilty of adultery or concubinage; (2) those found guilty of same criminal
offense; (3) those acts made by public officer by reason of his office.

In the case at bar, Eva is disqualified because she is not the legitimate wife of the deceased person
named Loreto. As to the children of Eva, they can still benefit from the proceeds still pursuant to the
Insurance Code (a) of himself, of his spouse, and his children.

Hence, Eva is disqualified from the proceeds of the life insurance policy.

2.) Are the members of the legitimate family entitled to the proceeds of the life insurance policy? 5 points
Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam
 Yes, the members of the legitimate family are entitled to the said proceeds.

Under Section 10 of the Insurance Code, the every person has an insurable interest in the life and
health: (a) of himself, his spouse, and his children; (b) of any person on whom he depends wholly or in part
for education or support; (c) of any person under any legal obligation to him for the payment of money;
and (d) of any person upon whose life any estate or interest vested in him depends.

In the instant case, his wife falls under paragraph a of the said provisions and his legitimate children
also falls under the paragraphs of the same provision.

Therefore, Loreto’s legitimate family are entitled to the proceeds of the life insurance policy.

3.) What is the order of distribution of the proceeds of a life insurance policy? 5 points

Under the Insurance Code, the order of distribution of the proceeds are as follows:

(a) of himself, his spouse, and his children;

(b) of any person on whom he depends wholly or in part for education or support; or on whom he has
a pecuniary interest;
(c) of any person under any legal obligation to him for the payment of money; and
(d) of any person upon whose life any estate or interest vested in him depends.

II.

Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam

In December 2016, Choa, a Davao-based company, ordered 60 metric tons of fishmeal from Seng, a
Manila-based company. The cargo, contained in 666 new gunny bags, was picked up from Seng`s
warehouse and loaded aboard vessel SS Samar docked in the port of Manila, for delivery and consignment
to Choa, under a C&F shipment contract. At the same time, Choa took out a marine insurance policy from
Filipino Merchants Insurance Company (FMIC) insuring the 60 metric tons of fishmeal, with, among others,
the following terms: "all risks" and “warehouse to warehouse“, for the sum of 2.5 MILLION PESOS.

The 666 gunny bags were unloaded from SS Samar a few days later in Davao unto the arrastre contractor,
Razon. Razon, the agent of SS Samar, and the surveyor of the Insurer FMIC, inspected and surveyed the
cargo and found that 227 out of 666 bags were in bad condition. The value of the 227 bags in bad condition
amounted to 500 THOUSAND PESOS.

Choa made a formal claim against FMIC for 500 THOUSAND PESOS but FMIC refused to pay the claim,
contending that Choa has no insurable interest because of the C&F shipment contract.

1. What is the definition of insurable interest? 5 points

2.
2. Does Choa have an insurable interest? And if yes, what is the basis of the insurable interest? 5 points
3. What is the meaning of a C&F shipment contract? 5 points

III.

Barretto constructed a house for Jose in Sampaloc, Manila, for the agreed price of 600 THOUSAND PESOS.
Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam
Subsequent thereto, and on 12 November 2017, Jose sold the house to Lampano, for the sum of 600
THOUSAND PESOS. On 22 March 2018, the house was destroyed by fire. At the time of the fire, Lampano
still owed Jose the sum of 200 THOUSAND PESOS, evidenced by a promissory note, and Jose still owed
Barretto on the cost of the construction the sum of 200 THOUSAND PESOS. After the completion of the
house, and sometime before it was destroyed, Barretto took out an insurance policy upon it in his own
name, with the consent of Jose, for the sum of 200 THOUSAND PESOS, and paid the premiums. After its
destruction, Barreto collected 200 THOUSAND PESOS from the insurance company. Lampano sued Barretto
for the proceeds of the insurance policy, claiming that her ownership of the house entitles her to the
proceeds.

As a judge, how will you rule on the complaint? Fully discuss who should get the proceeds, and why. 10
points

If I were the judge in the case at bar, based on the foregoing facts, I would dismiss the petition of
Lampano claiming his ownership of the house titles as it was unmeritorious.

It cannot be denied that Barretto had an insurable interest in the house over Lampano. Barretto
constructed the house , furnishing all the materials and then , insured it after it had been done. It was a
personal contract between him and the company and not a contract which ran with the property. Based on
jurisprudence, the policy was in the name of Barretto alone.

Now, in the present case, Barretto assumed the responsibility for the insurance. Also, the premiums
were paid by him without any agreement or right to recoup the amount paid. That it would not be in
accordance with the law o rinsurance money to the plaintiff who assumed no risk at all.

Hence, Lampano’s petition will be dismissed.

IV.

On 12 January 2014, Dunn, property owner of Z property, mortgaged the same to San Manuel Brewery to
secure a debt of 1 MILLION PESOS. In the contract of mortgage, Dunn (a.) agreed to keep the property
Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam
insured at his expense to the full amount of its value in insurance companies to be selected by SMB, and
(b.) authorized SMB, in case of loss, to receive the proceeds of the insurance, and to retain such part as
might be necessary to cover the mortgage debt (principal plus interest). At the same time, in order to more
conveniently accomplish the end in view, Dunn authorized and requested SMB to effect said insurance
itself. SMB then procured an insurance policy for the amount of 1.5 MILLION PESOS, as a mortgagee of Z
property. No information was asked and given as to who was the owner of the property. The policy was
issued in the name of SMB as the assured, and contained no reference to any other interest in the
property. The policy contained the usual clause requiring assignments to be approved and noted on the
policy. The premium was paid by SMB and charged to Dunn. A year later, the policy was renewed, without
change. In March 2015, Dunn sold the insured property to Harding, but no assignment of the insurance, or
of the insurance policy, was at any time made to him. In April 2015, property Z was razed by fire. At the
time of the fire, Dunn still owed SMB the sum of 500 THOUSAND PESOS. Dunn, SMB, and Harding all filed
claims with the insurance company for the proceeds of the insurance policy.

1. Discuss fully the individual rights or lack of rights to the insurance proceeds of Dunn, SMB and Harding.
5 points
2. Up to what amount can the proper party claim as proceeds, and why? 5 points

V.

On 01 October 1941, Christern, Inc., a corporation organized under the laws of the Philippines, after
payment of corresponding premium, obtained from Filipinas de Seguros (FDS), a fire insurance policy in the
sum of 100 THOUSAND PESOS covering merchandise contained in a building located in Binondo, Manila.
On 27 February 1942, or during the Japanese military occupation, the building and insured merchandise
were burned. In due time, Christern, Inc., submitted to FDS its claim under the policy. The salvage goods
were sold at public auction and, after deducting their value, the total loss suffered by Christern, Inc. was
fixed at 93 THOUSAND PESOS. FDS refused to pay the claim on the ground that the policy in favor of
Christern, Inc., had ceased to be in force on the date the United States declared war against Germany,
Christern, Inc., being controlled by the German subjects and the FDS being a company under American
jurisdiction when said policy was issued. Christern, Inc. sued FDS for the proceeds.

As a judge, how would you rule on the complaint, taking into account the Insurance Code provision on war,
the established jurisprudence on validity and enforceability of the insurance policy during war, and the
rules of justice on premiums? 10 points

VI.

Cha, as lessee, entered into a lease contract with CKS Development Corporation (CKS), as lessor, on 5
October 2018. One of the stipulations of the one (1) year lease contract states:

18. . . . 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 obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .1

Notwithstanding the above stipulation in the lease contract, Cha insured against loss by fire the
merchandise inside the leased premises for 500 THOUSAND PESOS with United Insurance (United) without
Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam
the written consent of CKS. On the day that the lease contract was to expire, fire broke out inside the
leased premises. When CKS learned of the insurance earlier procured by Cha, it wrote the insurer, United,
a demand letter asking that the proceeds of the insurance contract between Cha and United be paid
directly to CKS, based on its lease contract with Cha. United refused to pay CKS. CKS filed a complaint
against Cha and United.

Does CKS have a claim over the proceeds of the fire insurance policy? Why/why not? Discuss fully. 10
points

VII.

Philippine Security Agency (PSA) contracted to supply security guards to Firestone. PSA assumed
responsibility for the acts of its security guards. First Insurance Co., Inc. (FICO) executed a bond in the sum
of 200 THOUSAND PESOS to guarantee PSA`s obligations under that contract. On 19 May 2018, properties
of Firestone valued at 150 THOUSAND PESOS were lost allegedly due to the acts of its employees who
connived with PSA`s security guard. Fireman's Fund, as insurer of Firestone, paid to Firestone the amount
of the loss.

Fireman's Fund sued PSA and FICO for the amount paid to Firestone after PSA and FICO failed to pay the
amount of the loss despite repeated demands.

Does Fireman`s Fund have a cause of action against PSA and/or FICO? Why/why not? Discuss fully. 10
points

VIII.

1.

Under Section 2 of RA 10607, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against lose, damage or liability arising from an unknown or contingent
event.

2.

Under the Law, the elements of an insurance contract are the following:

(1) The insured has an insurable interest;

(2) The insured is subject to a risk of loss by the happening of the designated peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing or having similar risk; and
Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam
 (5) In consideration of the insurer’s promise, the insured pays a premium.

3.

Under the Law, the classes of insurance interest in life insurance are the following:

(a) existing interest,

(b) pecuniary interest;
(c) inchoate interest; and
(d) expectancy.

4.
In insurable interest in property, (1) it is limited up until the value of the property; (2) this exists at the time
Of the perfection of the contract and at the time of the loss.

On the other side of the spectrum, in life insurance, (1)it is unlimited except if secured by the creditor; (2)
It exists at the time of the perfection of an insurance contract.

5.
Under the Law, the exceptions are the following:

(1) A change of interest in a thing insured, after the occurrence of an inquiry which results in a loss,
does not affect the right of the insured to in indemnify for the loss;
(2) A change of interest in one or more of those several distinct things , separately insured by one
policy does not avoid the insurance as to others;
(3) A change of interest, by will or succession, on the death of the insured , does not avoid an
insurance ;
(4) A transfer of interest by one or several partners, joint owners or owners in common who are jointly
insured to the other.

6. Is life insurance a contract of indemnity? Why/why not? 5 points (Bonus)

Rizal Memorial Colleges*Insurance*Noreen Minette M. Dillen*15.08.2021*First Exam