PARTIES TO THE CONTRACT


Section 6. Every person, partnership, association or corporation duly authorized to

transact insurance business as elsewhere provided in this Code, may be an insurer.

Who are the parties to the contract of insurance?


The Insurer is the party who assumes or accepts the risk of loss and undertakes for
a consideration to indemnify the insured or to pay him a certain sum on the
happening of a specified contingency or event. The business of insurance may be
carried on by individuals just as much as by corporations and associations. The
state itself may go into insurance business.

The insured, or the second party to the contract, is the person in whose favor, the
contract is operative and who is indemnified against, or is to receive a certain sum
upon the happening of a specified contingency or event. He is the person whose
loss is the occasion for the payment of the insurance proceeds by the insurer.

Is the insured always the person to whom the proceeds are paid?

No. The person paid may be the beneficiary designated in the policy. A common
example of this

situation is a life insurance policy where the proceeds are not given to the insured
but to a third party designated by the insured.

What is the nature of the relationship between the insurer and the insured?

It is that of a contingent debtor and creditor, subject to the conditions of the policy
and NOT that of trustee and cestui que trust.

How are the terms assurer, insured and assured used in insurance?

Accdg to Black’s Law, Insurer is synonymous with the term “assurer” or

“underwriter”.

The terms “insured” and “assured” are generally used interchangeably; but strictly
speaking, the term “insured” refers to the owner of the property insured or the
person whose life is the subject of the contract of insurance, while “assured” refers
to the person for whose benefit the insurance is granted.
For ex: A wife insures the life of her husband for her own benefit. The wife is the
assured, and the husband the insured. The wife is the owner of the policy but she is
not the insured.

In property insurance, like fire insurance, the insure is also the assured where the
proceeds are payable to him.

Assured is also used sometimes as a synonym of “beneficiary.” The beneficiary is

the person designated by the terms of the policy as the one to receive the proceeds
of the insurance. He is the third party in a contract of life insurance, whose benefit
the policy is issued and to whom the loss is payable.

Who may be an insurer?

A foreign or domestic insurance company may transact business in the Philippines

but must first obtain a certificate of authority for that purpose from the Insurance
Commissioner who has the discretion to refuse to issue such certificate if it will
best promote the interests of the people of this country. (Sec. 187)

An individual may also be an insurer, provided he holds a certificate of authority

from the Insurance Commissioner, and provided further that he is possessed of the
capital assets required of an insurance corporation doing the same kind of business
in the Philippines and invested in the same manner. (Secs. 184- 186)

What is an insurance corporation?

IC defines it as one formed or organized to save any person or persons or other

corporations harmless from loss, damage, or liability arising from any unknown or
future or contingent event, or to indemnify or to compensate any person or persons
or other corporations for any such loss, damage, or liability, or to guarantee the
performance of or compliance with contractual obligations or the payment of debts
of others. (Sec. 185) The last part of the statement refers to suretyship. (Sec. 175)

What does the term “insurer” and “insurance company” include?

It includes individuals, partnerships, associations or corporations, including

GOCC’s or entities, engaged as principals in the insurance business, except mutual
benefit associations. It shall also include professional reinsurers as defined in Sec.
280 (Sec. 184)
Is the Business of Insurance affected with public interest?

Yes. It is therefore, subject to regulation and control by the state by virtue of the
exercise of its police power or in the interest of public convenience and the general
good of the people.

Section 7. Anyone except a public enemy may be insured.

What are the requisites in order that a person may be insured in a contact of
insurance?

There are 3 requisites namely:


a) He must be competent to enter into a contract.
b)  He must possess an insurable interest in the subject of insurance. 

c)  He must NOT be a public enemy. 


What is a public enemy?

It is a nation with whom the Philippines is at war, and it includes every citizen or
subject of such nation.

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?

With respect to property insurance, the rule adopted in the Phil is that an insurance
policy ceases to be valid and enforceable as soon as the insured becomes a public
enemy.

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?

Three doctrines have arisen.

(1) Connecticut Rule – there are two elements in the consideration for which the
annual premium is paid:

a. The mere protection for the year; and 


 b. The privilege of renewing the contract for each succeeding year by paying
the premium for that 

year at the time agreed upon. 

Accdg. to this view, the payments of the premiums are a condition
precedent, the non- 

performance of which (as when the performance would be illegal) necessary
defeats the right to renew the contract.

(2) New York Rule – apparently followed by the number of decisions. War
between the states in which the parties reside merely suspends the contracts of life
insurance and that upon the tender of premiums due by the insured or his
representatives after the war has terminated revives the contract which becomes
fully operative.

(3) US Rule – declared 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.

We follow the US Rule.

Section 8. Unless the policy otherwise provides, where a mortgagor of the property
effects insurance in his own name providing that a loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a party
to the original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the hands
of the mortgagee, but any act which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the mortgagee therein named,
with the same effect as if it had been performed by the mortgagor.

Is it alright if both the mortgagor and the mortgage insure the same property?

YES. The mortgagor and the mortgagee have each an insurable interest in the
property mortgaged, and this interest is separate and distinct from the other.
Consequently, insurance taken by one in his own name only and in his favor alone
does not inure to the benefit of the other. And in case both of them take out
separate insurance policies on the same property, or one policy covering their
respective interests, the same is not open to the objection that there is double
insurance.

What is the extent of the insurable interest of the mortgagor?

The mortgagor of the property, as owner has an insurable interest to the extent of
the value of the property, even if the mortgage debt is equal to such value. The
reason is that the loss or destruction of the property insured will NOT extinguish
the mortgage debt.

What is the extent of the insurable interest of the mortgagee?

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.

Up to what extent can each recover?

The mortgagor cannot recover upon the insurance beyond the full amount of the
loss, and the mortgagee cannot recover in excess of the credit at the time of the
loss.

Under Sec. 8, what are the effects of insurance when the mortgagor effects
insurance in his own name and provides that the loss be payable to the
mortgagee?

The legal effects of this are:

(1)  The contract is deemed to be upon the interest of the mortgagor, hence he
does NOT cease to be a party to the contract;

(2)  Any action of the mortgage prior to the loss which would otherwise avoid
the insurance affects the mortgagee even if the property is in the hands of the
mortgagee; 

 (3)  Any act which under the contract of insurance is to be performed by the
mortgagor, may be performed by the mortgagee; 


(4)  In case of loss, the mortgagee is entitled to the proceeds to the extent of his
credit; and 


(5)  Upon recovery by the mortgagee to the extent of his credit, the debt is
extinguished. 


What is the effect if the mortgagee effects insurance on behalf of the

mortgagor?

Practically the same rules apply. Upon the destruction of the property, then the
mortgagee is entitled to receive the proceeds equal to the amount of the mortgage
credit. Such payment operates to discharge the debt.

Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to

a mortgagee, and, at the time of his assent, imposes further obligations on the
assignee, making a new contract with him, the acts of the mortgagor cannot affect
the rights of said assignee.

What does this provision say?

Under this section, where an insurer assents to the transfer of an insurance from a
Mortgagor (Mor) to a Mortgage (Mee), and at the time of his assent the insurer
imposes further obligation on the Mee, a new and distinct consideration passed
from the Mee to the insurer, and a new contract is created between them. The acts
of the Mor cannot anymore affect the rights of the Mee.

What is the significance of this provision?

Remember we said in Sec. 8 that all acts of the mortgagor affects the mortgagee?
Well, this provision provides the exception to the rule.
Art. 2127 CC. What does it say?

Art. 2127. The mortgage extends to the natural accession, to the improvements,
growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the
proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor,
or it passes into the hands of a third person.

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent. G.R. No.
167330, September 18, 2009, SPECIAL FIRST DIVISION CORONA, J.:

HMOs are not insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they
are merely incidental to its business. If these are the principal objectives, the
business is that of insurance. But if they are merely incidental and service is the
principal purpose, then the business is not insurance. Philippine Health Care
Providers appears to provide insurance-type benefits to its members (with respect
to its curative medical services), but these are incidental to the principal activity of
providing them medical care. The "insurance-like" aspect of Philippine Health
Care Providers’ business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than insurance
services, it cannot be considered as being in the insurance business.

FACTS:

Philippine Health Care Providers, Inc. is a domestic corporation whose primary

purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance organization to take care of the
sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." Individuals
enrolled in its health care programs pay an annual membership fee and are entitled
to various preventive, diagnostic and curative medical services provided by its duly
licensed physicians, specialists and other professional technical staff participating
in the group practice health delivery system at a hospital or clinic owned, operated
or accredited by it. January 27, 2000: Commissioner of Internal Revenue (CIR)
sent petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including surcharges and interest, for
the taxable years 1996 and 1997 in the total amount of P224,702,641.18 Petitioner
protested the assessment in a letter dated February 23, 2000.

CIR did not act on the protest, petitioner filed a petition for review in the Court of
Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments.

CTA: PARTIALLY GRANTED to pay VAT DST assessment CANCELLED AND

SET ASIDE CIR: health care agreement was a contract of insurance subject to
DST under Section 185 of the 1997 Tax Code

CA: health care agreement was in the nature of a non-life insurance contract
subject to DST Court Affirmed CA

ISSUE:
Whether or not the Philippine Health Care Providers, Inc (HMO) was
engaged in the business of insurance during the pertinent taxable years - NO

Whether or Not the Philippine Health Care Providers, Inc enters into an
insurance contract - NO

RULING:

Motion for reconsideration is GRANTED

1.NO. P.D. 612 Insurance Code Sec. 2 (2) (2) The term "doing an insurance
business" or "transacting an insurance business", within the meaning of this Code,
shall include: (a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity of
the surety; (c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business within
the meaning of this Code; (d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade the provisions of
this Code. In the application of the provisions of this Code the fact that no profit is
derived from the making of insurance contracts, agreements or transactions or that
no separate or direct consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business. No profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive to show that the
making thereof does not constitute the doing or transacting of an insurance
business
2. NO. The basic distinction between medical service corporations and ordinary
health and accident insurers is that the former undertake to provide prepaid
medical services through participating physicians, thus relieving subscribers of any
further financial burden, while the latter only undertake to indemnify an insured for
medical expenses up to, but not beyond, the schedule of rates contained in the
policy A participating provider of health care services is one who agrees in writing
to render health care services to or for persons covered by a contract issued by
health service corporation in return for which the health service corporation agrees
to make payment directly to the participating providerany indemnification resulting
from the payment for services rendered in case of emergency by nonparticipating
health providers would still be incidental to petitioner’s purpose of providing and
arranging for health care services and does not transform it into an insurer.

As an HMO, it is its obligation to maintain the good health of its members its
undertaking under its agreements is not to indemnify its members against any loss
or damage arising from a medical condition but, on the contrary, to provide the
health and medical services needed to prevent such loss or damage Overall,
petitioner appears to provide insurance-type benefits to its members (with respect
to its curative medical services), but these are incidental to the principal activity of
providing them medical care. The "insurance-like" aspect of petitioner’s business is
miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than insurance
services, it cannot be considered as being in the insurance business. Principal
purpose test Purpose of determining what "doing an insurance business" means, we
have to scrutinize the operations of the business as a whole and not its mere
components The letter dated September 3, 2000, the Insurance Commissioner
confirmed that petitioner is not engaged in the insurance business. This
determination of the commissioner must be accorded great weight Section 2 (1) of
the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.

An insurance contract exists where the following elements concur: - NOT present

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed 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 a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.



Assumption of the expense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of illness or injury Since
indemnity of the insured was not the focal point of the agreement but the
extension of medical services to the member at an affordable cost, it did not
partake of the nature of a contract of insurance HMO, undertakes a business
risk when it offers to provide health services. But it is not the risk of the type
peculiar only to insurance companies. Insurance risk, also known as actuarial
risk, is the risk that the cost of insurance claims might be higher than the
premiums paid. The amount of premium is calculated on the basis of
assumptions made relative to the insured. In our jurisdiction, a commentator of
our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of
service, it is not a contract of insurance. The primary purpose of the parties in
making the contract may negate the existence of an insurance contract.
Health care agreements are clearly not within the ambit of Section 185 of the
NIRC and there was never any legislative intent to impose the same on HMOs.

WHAT MAY BE INSURED

Section 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may
be insured against, subject to the provisions of this chapter.

The consent of the husband is not necessary for the validity of an insurance policy
taken out by the married woman on her life or that of her children.

Any minor of the age of eighteen years or more, may notwithstanding such
minority, contract for life, health and accident insurance, with any insurance
company duly authorized to do business in the Philippines, provided the insurance
is taken on his own life and the beneficiary appointed is the minor’s estate or the
minor’s father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy
may exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original
owner on the life or health of a minor shall automatically vest in the minor upon
the death of the original owner, unless otherwise provided in the policy.

What perils or risk may be insured?

The following risks may be insured:


1. Any contingent or unknown event whether past or future which may cause
damage to a person

having an insurable interest; or


2. Any contingent or unknown event, whether past or future, which may create
liability against the

person insured.

May a married woman take out an insurance? If so, on what?

Yes. A married woman may take out an insurance on her life or that of her children
even without the consent of her husband. She may likewise take out an insurance
on the life of her husband, her paraphernal property, or on property given to her by
her husband.

May a minor take out an insurance?

Third par of Sec. 3 is no longer applicable, since the age of majority is now 18
years old (RA 8809, Dec. 13, 1989).

Art. 1327 (NCC). The following cannot give consent to a contract:


(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1390 (NCC). The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.

Philamcare v. CA

379 SCRA 356

Facts:

Ernani Trinos, applied for a health care coverage with Philamcare. In the standard
application form, he answered NO to the following question: “Have you or any of
your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details)” 


The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. He was a issued Health Care Agreement, and under such, he was
entitled to avail of hospitalization benefits, whether ordinary or emergency, listed
therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services. 


Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990.
The amount of coverage was increased to a maximum sum of P75,000.00 per
disability. 


During the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9, 1990. 


While her husband was in the hospital, Julita tried to claim the benefits under the
health care agreement. However, Philamcare denied her claim saying that the
Health Care Agreement was void. 


According to Philamcare, there was concealment regarding Ernani's medical

history.

o Doctors at the MMC allegedly discovered at the time of Ernani's confinement
that he was 

hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. 


Julita had no choice but to pay the hospitalization expenses herself, amounting to
about P76,000.00 


After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital (CGH).
Due to financial difficulties, Julita brought her husband home again. In the morning
of April 13, 1990, Ernani had fever and was feeling very weak. Julita was
constrained to bring him back to the CGH where he died on the same day. 


Julita instituted, an action for damages against Philamcare. She asked for
reimbursement of her expenses plus moral damages and attorney's fees. RTC
decided in favor of Julita. CA affirmed. 

Issue:

Philamcare brought the instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. 


Held:

SC held that in the case at bar, the insurable interest of respondent's husband in
obtaining the health care agreement was his own health. The health care agreement
was in the nature of non-life insurance, which is primarily a contract of indemnity.
Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay
for the same to the extent agreed upon under the contract. 

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the
date of issuance of the Agreement within which to contest the membership of the
patient if he had previous ailment of asthma, and six months from the issuance of
the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie. 


Petitioner argues that respondent's husband concealed a material fact in his

application. It appears that in the application for health coverage, petitioners
required respondent's husband to sign an express authorization for any person,
organization or entity that has any record or knowledge of his health to furnish any
and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination. 


Philamcare cannot rely on the stipulation regarding "Invalidation of agreement"

which reads: 

Failure to disclose or misrepresentation of any material information by the
member in the application or medical examination, whether intentional or
unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all Membership
Fees paid. An undisclosed or misrepresented information is deemed material if its
revelation would have resulted in the declination of the applicant by Philamcare or
the assessment of a higher Membership Fee for the benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondent's husband who was not a medical doctor.
Where matters of opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid a policy even though they are untrue.
Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in
inducing the acceptance of the risk, or its acceptance at a lower rate of premium,
and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is
not justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his knowledge, since in such
case the intent to deceive the insurer is obvious and amounts to actual fraud.

The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement
or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance." The right to rescind should be exercised
previous to the commencement of an action on the contract. In this case, no
rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

 2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown

in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based. 


None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non- compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract — the insurer. By reason of
the exclusive control of the insurance company over the terms and phraseology of
the insurance contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital
service contracts, such as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.

Section 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for against any chance or ticket in a lottery drawing a
prize.

Is a contract of insurance a wagering or gambling contract?

NO. A contract of insurance is a contract of indemnity and not a wagering or

gambling contract. Although it is true that an insurance contract is also based on a
contingency, it is not a contract of chance.

What is the concept of a lottery?

The term “lottery” extends to all schemes for the distribution of prizes by chance,
such as policy playing, gift exhibition, prize concerts, raffles at fairs, etc. and
various forms of gambling.

What are the three essential elements of lottery?

Consideration, prizes and chance.

There is consideration of price aid if it appears that the prizes offered by whatever
name they may be called came out of the fund raised by the sale of chances among
the participants in order to win the prizes.

Are all prizes equivalent to a lottery?

If the prizes do not come out of the fund or contributions by the participants, no
consideration has been paid and consequent, there is no lottery. Ex: A company, to
promote the sale of certain products, resorts to a scheme which envisions the
giving away for free of certain prizes for the purchase of said products, for the
participants are not required to pay more than the usual price o the products.

Can a sweepstakes holder insure himself against the failure of his ticket to
win?

NO. It cannot be said that he suffered a “loss” of prize when he did not win. The
failure to win a prize would not damnify or create a liability against him.

What are the distinctions between an insurance contract and a wagering

contract?

A contract of insurance is a contract of indemnity and not a wagering, or gambling

contract.(Sec. 25) White it is based on a contingency, it is not a contract of chance
and is not used for profit. The distinctions are the following:
What are the similarities between an insurance contract and a gambling
contract?

They are similar in only one respect. In both, one party promises to pay a given
sum to the other upon the occurrence of a given future event, the promise being
condition upon the payment of, or agreement to pay, a stipulated amount by the
other party to the contract.

In either case, one party may receive more, much more, than he paid or agreed to
pay.

Section 5. All kinds of insurance are subject to the provisions of this chapter so far
as the provisions can apply.

Provisions of Chap 1 on “The Contract of Insurance” (Secs 1-98) are also

applicable to marine Insurance (Secs. 99-166), Fire insurance (Secs. 167-173),
Casualty Insurance (Sec. 174), Suretyship (Secs. 175-178), Life Insurance (Secs.
179-183), and to any other kind of insurance (Sec. 2) so far as said provisions can
apply. Matters not expressly provided for in the Insurance Code and special laws
are regulated by the CC.

So, an insurance contract under RA 1611 (Social Security Act of 1954) shall be
governed primarily by the said law and subsidiarily by Chap. 1 of the Insurance
Code, and in the absence of the applicable provisions in both laws, the pertinent
provisions of the CC shall be applied.

PRE-NEED PLANS.

Pre-need plans are contracts, agreements, deeds or plans for the benefit of the
planholders which provide for the performance of future service/s, payment of
monetary considerations or delivery of other benefits at the time of actual need or
agreed maturity date, as specified therein, in exchange for cash or installment
amounts with or without interest or insurance coverage and includes life, pension,
education, interment and other plans, instruments, contracts or deeds as may be
determined by I.C.

The “Benefits” that will be received by the beneficiary of the plan “refers to the
payment of monetary considerations and/ or performance of future services which
the pre-need company undertakes to deliver either to the planholder or his
beneficiary at the time of actual need or agreed maturity date, as specified in the
pre-need plan.”

b. As the term implies, a pre-need plan covers a specific need of the planholder in
the future. The planholder will invest to cover for such future need; hence, the
planholder will save “pre-need” or before the need.

Pre-Need Plans

Pre-need plans are contracts which provide for the rendering of services or
payment of money to plan holders or their beneficiaries when the actual need for
such payment or rendition of services accrues. [Carale]

They are governed by the Pre-Need Code (RA 9829). They are not considered as
insurance contracts because:

a. Pre-need plans can have insurance 


coverage, implying that they are separate 

contracts; and 


b. Pre-need plans do not involve unknown or 


contingent events but events certain to happen at a certain time. 


However, all Pre-need plans are under the primary and exclusive power
supervision and regulation of the Insurance Commission. [Sec. 5, RA 9829. In
addition, the Insurance Commissioner shall have the primary and exclusive power
to adjudicate any and all claims involving pre-need plans. If the amount of benefits
does not exceed P100,000, which decision shall be final and executory.
PRE-NEED Plans vs INSURANCE Plans

Example of pre-need plans are educational plan, retirement plan, memorial plan or
any plan related to it for your future use.

On the other hand, insurance plan mostly is for life and non-life coverage with
benefits like hospitalization, loss of life insurance, income protection and the like.

INSURANCE PLANS can be availed in terms. Some offered monthly premium,

yearly, or termed insurance. You will be insured for the duration that you are
paying the premium. These varies according to types: TERM, WHOLE LIFE,
VUL. Make sure you know what are these 3 types before getting one. Identify the
cons and pros for each. That will help you decide which one to choose.
Unlike the preneed plans which you can utilize in X number of years, insurance
plans can be utilized anytime as long as it is covered on the plan. Like you got
hospitalized, accident or loss of life. The risk is less because you know the status of
company and can react to it.

Section 54. Prohibition to Act as Insurer. - A bank shall not directly engage in

insurance business as the insurer. (73)

Control Test

The nationality of the private corporation is determined by the citizenship of the

controlling stockholders.

Under the “liberal” Control Test, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino.

Control Test is applied in the following:

Exploitation of natural resources - Only Filipino citizens or corporations whose

capital stock is at least 60% owned by Filipinos can qualify to exploit natural
resources. [Sec. 2, Art. XII, Const.]

 Public Utilities - No franchise, certificate or any other form of authorization for
the operation of a public utility shall be granted, except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines at least 60% of whose capital is owned by such 

citizens. [Sec. 11, Art. XII, Const.] 


Mass Media (100%) - “The ownership and management of mass media shall be
limited to citizens of the Philippines, or to corporations, cooperatives or
associations, wholly-owned and managed by such 

citizens.” [Sec. 11, Art. XVI, Const.] 


Advertising industry (70%) – “Only Filipino citizens or corporations or

associations at least seventy per centum of the capital of which is owned by
such citizens shall be allowed to engage in the advertising industry.” [Sec.
11, Art. XVI, Const.] 


Any industry or activity where foreign ownership is prohibited or restricted

under the Foreign Investment Negative List. The "control test" is still the
prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. XII of the 1987 Constitution,
entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. 


"control test" whereby a corporation is deemed to have the same citizenship as the
controlling stockholders in time of war.
Types of Mortgage Clauses

1. Open Loss Payable Mortgage Clause 


An open loss payable clause states that the proceeds of the insurance contract is
payable to the mortgagee as beneficiary.

The contract, however, is procured by the mortgagor for his interest in the property.
He is the party to the contract, not the mortgagee.

The acts of the mortgagor prior to the loss, which would otherwise avoid the
insurance, affects the mortgagee, even if the property is in the hands of said
mortgagee.

2. Union Mortgage or Standard Mortgage Clause

A standard or union mortgage clause makes a separate and distinct contract of

insurance on the interest of the mortgagee, thus any act of the mortgagor will not
affect the mortgagee. [Carale]

This clause is similar to an open loss payable clause, except that it is stipulated that
the acts of the mortgagor cannot invalidate the insurance, provided that if the
mortgagor fails to pay the premiums due, the mortgagee shall, on demand, pay said
premiums.

Eternal Gardens Memorial Park v. Philippine American Life Insurance

Corporation

(1) The decision in Eternal Gardens Memorial Park v. Philippine American Life
Insurance Corporation may also be harmonized with the general rule that an
insurance contract is perfected from the time the applicant learns about the
acceptance or approval of his application by considering that the petitioner Eternal
Gardens should be deemed the agent of the insurer with respect to the subject
group life insurance.96 The petitioner should have been considered an agent of the
insurer by virtue of the master agreement or policy and the perfection of the
contract for the purchase of a lot on installment likewise perfects the insurance
contract with respect to the specific lot buyer. In other words, the petitioner can be
deemed the agent of the insurer for purposes of making the offer of insurance and
its acceptance happens at the same time as the acceptance of the offer to sell the lot
is made.

(2) In Eternal Gardens Memorial Park v. Philippine American Life Insurance C o r

p o r a t i o n 9 7 the petitioner can be deemed to be the agent of insurer who offers
an insurance contract at the same time as it offers to sell its lots. When the buyer
accepts the offer, the buyer is also deemed to have accepted the insurance thereby
perfecting the same.

(3) The situation in Eternal Gardens Memorial Park v. Philippine American Life
Insurance C o r p o r a t i o n 9 8 is similar to the practice of business entities in
tying up with insurance companies in the sale of their goods. For example, some
business entities sell goods like luggage or offer tour package; if a person will buy
the goods or avail of the service, the buyer will be entitled to automatic insurance
coverage. In some cases, insurance companies sell greeting cards like Christmas
cards which entitle the buyer to insurance coverage. It is believed that in those
cases, the sellers are constituted as the agents of the insurance companies. These
agents make the offer of insurance which the buyers accept.

ETERNAL GARDENS MEMORIAL PARK CORPORATION VS. CA Case

Digest ETERNAL GARDENS MEMORIAL PARK CORPORATION VS.
COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF
THE SEVENTH DAY ADVENTIST 1997 December 9 G.R. No. 124554

Facts: Petitioner EGMPC and private respondent NPUM entered into a Land
Development Agreement dated October 6, 1976. Under the agreement, EGMPC
was to develop a parcel of land owned by NPUM into a memorial park subdivided
into lots. The parties further agreed that EGMPC had the obligation to remit
monthly to NPUM forty percent (40%) of its net gross collection from the
development of a memorial park on property owned by NPUM. It also provides for
the designation of a depository/trustee bank to act as the depository/trustee for all
funds collected by EGMPC. Later, two claimants of the parcel of land surfaced
Maysilo Estate and the heirs of a certain Vicente Singson Encarnacion. EGMPC
thus filed an action for interpleader against Maysilo Estate and NPUM.

The Singson heirs in turn filed an action for quieting of title against EGMPC and
NPUM. From these two cases, several proceedings ensued. One such case, from
the interpleader action, EGMPC assailed the appellate court's resolution requiring
"petitioner Eternal Gardens [to] deposit whatever amounts are due from it under
the Land Development Agreement with a reputable bank to be designated by the
respondent court."

The trial court dismissed the cases and the appellate court affirmed insofar as it
dismissed the claims of the intervenors, including the Maysilo Estate, and the titles
of NPUM to the subject parcel of land were declared valid; and the trial court's
decision favor of the Singson heirs was reversed and set aside. Through the
resolution issued by the Supreme Court resolution, the Court of Appeals proceeded
with the disposition of the case and required the parties to appear at a scheduled
hearing on June 16, 1994, "with counsel and accountants, as well as books of
accounts and related records,' to determine the remaining accrued rights and
liabilities of said parties."

The accounting of the parties' respective obligations was referred to the Court's
Accountant, Mrs. Carmencita Angelo, with the concurrence of the parties, to whom
the documents were to be submitted. NPUM prepared and submitted a Summary of
Sales and Total Amounts Due based on the following documents it likewise
submitted to the court. However, EGMPC did not submit any document
whatsoever to aid the appellate court in its mandated task. Thus, the appellate court
declared that EGMPC has waived its right to present the records and documents
necessarily for accounting, and that it will now proceed "to the mutual accounting
required to determine the remaining accrued rights and liabilities of the said
parties…and that the Court will proceed to do what it is required to do on the basis
of the documents submitted by the NPUMC. Ms. Angelo submitted her Report
dated January 31, 1995, to which the appellate court required the parties to
comment on. EGMPC took exception to the appellate court's having considered it
to have waived its right to present documents. Considering EGMPC's arguments,
the court set a hearing date where NPUM would present its documents "according
to the Rules [of Court], and giving the private respondent [EGMPC] the
opportunity to object thereto."

ISSUE:
Whether or not EGMPC is liable for interest because there was still the unresolved
issue of ownership over the property subject of the Land Development Agreement
of October 6, 1976.

RULING: The Supreme Court held that the argument is without merit. EGMPC
under the agreement had the obligation to remit monthly to NPUM forty percent
(40%) of its net gross collection from the development of a memorial park on
property owned by NPUM. It also provides for the designation of a depository/
trustee bank to act as the depository/trustee for all funds collected by EGMPC.

There was no obstacle, legal or otherwise, to the compliance by EGMPC of this

provision in the contract, even on the affectation that it did not know to whom
payment was to be made. Even disregarding the agreement, EGMPC cannot
"suspend" payment on the pretext that it did not know who among the subject
property's claimants was the rightful owner. It had a remedy under the New Civil
Code of the Philippines to give in consignation the amounts due, as these fell due.
Consignation produces the effect of payment. The rationale for consignation is to
avoid the performance of an obligation becoming more onerous to the debtor by
reason of causes not imputable to him. For its failure to consign the amounts due,
EGMPC’s obligation to NPUM necessarily became more onerous as it became
liable for interest on the amounts it failed to remit.

Thus, the Court of Appeals correctly held Eternal Gardens liable for interest at the
rate of twelve percent (12%). The withholding of the amounts due under the
agreement was tantamount to a forbearance of money.
Filipinas Cia de Seguros v. Christern Huenfeld & Co. 80 PHIL 54
Facts:

Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained
from Filipinas, fire policy no. 29333 for P100T covering merchandise contained in
a building located in Binondo. 


On Feb. 27, 1942, during the Jap occupation, the building and the insured
merchandise were burned. Christern submitted to Filipinas its claim. 


Salvaged goods were sold and the total loss of Christern was P92T. 


Filipinas denied liability on the ground that Christern was an enemy corp and
cannot be insured. 


Issue: WON Filipinas is liable to Christern, Huenfeld & Co. 


Held: NO. 


Majority of the stockholders of Christern were German subjects. This being so, SC
ruled that said corporation became an enemy corporation upon the war between the
US and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a
public enemy may be insured. It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy. 


The purpose of the war is to cripple the power ad exhaust the resources of the
enemy, and it is inconsistent that one country should destroy its enemy property
and repay in insurance the value of what has been so destroyed, or that it should in
such manner increase the resources of the enemy or render it aid. 


All individuals who compose the belligerent powers, exist as to each other, in a
state of utter exclusion and are public enemies. Christern having become an enemy
corporation on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1,
1941 by Filipinas had ceased to be valid and enforceable, and since the insured
goods were burned after Dec. 10, 1941, and during the war, Christern was NOT
entitled to any indemnity under said policy from Filipinas. 


Elementary rules of justice require that the premium paid by Christern for the
period covered by the policy from Dec. 10, 1941 should be returned by Filipinas. 


Constantino v. Asia Life 87 PHIL 248

Facts:

Appeal consolidates two cases. 


Asia life insurance Company (ALIC) was incorporated in Delaware. 


For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No.
93912 whereby it insured the life of Arcadio Constantino for 20 years for P3T with
Paz Constantino as beneficiary.

First premium covered the period up to Sept. 26, 1942. No further premiums were
paid after the first premium and Arcadio died on Sept. 22, 1944. 


Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2
1942-1945. 


On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses
Tomas Ruiz and Agustina Peralta for the sum of P3T for 20 years. The annual
premium stipulated was regularly paid from Aug. 1, 1938 up to and including Sept.
30, 1940.


Effective Aug. 1, 1941, the mode of payment was changed from annually to
quarterly and such quarterly premiums were paid until Nov. 18, 1941. 


Last payment covered the period until Jan. 31, 1942.


Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.
Due to Jap occupation, it became impossible and illegal for the insured to deal with
ALIC. Aside from this the insured borrowed from the policy P234.00 such that the
cash surrender value of the policy was sufficient to maintain the policy in force
only up to Sept. 7, 1942. 


Both policies contained this provision: All premiums are due in advance and any
unpunctuality in making such payment shall cause this policy to lapse unless and
except as kept in force by the grace period condition. 


Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled
to receive the proceeds of the policies less all sums due for premiums in arrears.
They also allege that non-payment of the premiums were caused by the closing of
ALIC’s offices during the war and the impossible circumstances by the war,
therefore, they should be excused and the policies should not be forfeited. 


Lower court ruled in favor of ALIC.


Issue: May a beneficiary in a life insurance policy recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated premiums,
such failure being caused by war? 


Held: NO. 

Due to the express terms of the policy, non-payment of the premium produces its
avoidance. In Glaraga v. Sun Life, it was held that a life policy was avoided
because the premium had not been paid within the time fixed; since by its express
terms, non-payment of any premium when due or within the 31 day grace period
ipso fact caused the policy to lapse. 


When the life insurance policy provides that non-payment of premiums will cause
its forfeiture, war does NOT excuse non-payment and does not avoid forfeiture.
Essentially, the reason why punctual payments are important is that the insurer
calculates on the basis of the prompt payments. Otherwise, malulugi sila. 


It should be noted that the parties contracted not only as to peace time conditions
but also as to war- time conditions since the policies contained provisions
applicable expressly to wartime days. The logical inference therefore is that the
parties contemplated the uninterrupted operation of the contract even if armed
conflict should ensue. 


GREAT PACIFIC LIFE ASSURANCE CORP., Petitioner, -versus- COURT

OF APPEALS AND MEDARDA V. LEUTERIO, Respondents. G.R. No.
113899, October 13, 1999, Quisumbing, J.

Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim.” The fraudulent
intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the insurer.

FACTS :A contract of group life insurance was executed between petitioner Great
Pacific and Development Bank Grepalife agreed to insure the lives of eligible
housing loan mortgagors of DBP. Wilfredo Leuterio, a physician and a housing
debtor of DBP, applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning his health condition
as follows: “7.

Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment? 8. Are you now, to the best of your knowledge, in good health?”
Grepalife issued a coverage to the value of P86,200.00 pesos. Dr. Leuterio died due
to “massive cerebral hemorrhage.” DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy
when he applied for an insurance coverage. Grepalife insisted that Dr. Leuterio did
not disclose he had been suffering from hypertension, which caused his death.
Allegedly, such non-disclosure constituted concealment that justified the denial of
the claim.

ISSUES Whether or not Grepalife is liable.

RULING YES. The medical findings were not conclusive because Dr. Mejia did
not conduct an autopsy on the body of the decedent. The medical certificate stated
that hypertension was “the possible cause of death.” Hence, the statement of the
physician was properly considered by the trial court as hearsay. Contrary to
appellant’s allegations, there was no sufficient proof that the insured had suffered
from hypertension. Aside from the statement of the insured’s widow who was not
even sure if the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to Dr.
Leuterio’s medical history. Appellant insurance company had failed to establish
that there was concealment made by the insured, hence, it cannot refuse payment
of the claim.” The fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract. Misrepresentation as a defense of the
insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer. A life
insurance policy is a valued policy. Unless the interest of a person insured is
susceptible of exact pecuniary measurement, the measure of indemnity under a
policy of insurance upon life or health is the sum fixed in the policy. The
mortgagor paid the premium according to the coverage of his insurance. In the
event of the debtor’s death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the creditor. DBP foreclosed one of the deceased person’s lots to satisfy the
mortgage. Hence, the insurance proceeds shall inure to the benefit of the heirs of
the deceased person or his beneficiaries.

INSURABLE INTEREST

Section 10. Every person has an insurable interest in the life and health:

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

(b) Of any person on whom he depends wholly in part for education or support, or
in whom he

has a pecuniary interest;


(c) Of any person under a legal obligation to him for the payment of money, or
respecting
property or services, Of which death or illness might delay or prevent the
performance; and (d) Of any person upon whose life any estate or interest vested in
him depends.

Why is this section important?

Other than it discusses the concept of keyman insurance, Atty. Quimsons asked this
in a past mid-term exam, asking the students to Quote the provision.

What is insurable interest?

Insurable interest is one the most basic of all requirements in insurance. In general,
a person is deemed to have insurable interest in the subject matter insured where he
ha a relation or connection with or concern in it that he will derive pecuniary
benefit or advantage from its preservation and will suffer pecuniary loss or damage
from its destruction, termination or injury by the happening of the event insured
against.

Why must there be an insurable interest?

It is essential for validity and enforceability of the contract or policy. A policy

issued to a person without interest in the subject matter is a mere wager policy or
contract.

When is there insurable interest in life insurance?

In life insurance, Insurable interest exists where there is reasonable ground

founded on the relations of the parties whether pecuniary, contractual or by blood
or affinity, and to expect some benefit or advantage from the continuance of the life
of the insured.

General Rule: Insurable interest must be capable of pecuniary estimation because

the purpose of insurance is to indemnify. It would be difficult to measure if the
benefit derived or the loss incurred is not capable of pecuniary estimation. 


Exception: The insurable interest need not always be pecuniary in nature (e.g., in
insuring the life of a person, the purpose is not to indemnify but to act as an
investment or savings instrument). [Lucena v. Crawford, 2Bos & PNR 269 (1806)] 

Rationale: As a deterrence to the insured. A policy issued to a person without
insurable interest is a mere wager policy or contract and s void for illegality. [de
Leon]

Section 11. The insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived his right in the said policy.

What is a beneficiary?

A beneficiary is a person whether natural or juridical for whose benefit the policy is
issued and is the recipient of the proceeds in the insurance.

Who can be a beneficiary?

Any person in general can be a beneficiary.

Are there any exceptions?

Yes. The only persons disqualified from being a beneficiary are those not qualified
to receive donations under Art. 739. They cannot be named beneficiaries of a life
insurance policy by the person who cannot make any donation to him.

In case of adultery, concubinage does the disqualification extend to the

illegitimate children?

NO. The disqualification does not extend to the children, and as such, they may be
made beneficiaries.

What is the old rule regarding revocability of designation of beneficiary as

enunciated in the case of Gercio v. Sunlife?

The OLD rule is: When the insured did NOT expressly reserve his right to revoke
the designation of his beneficiary, such designation is irrevocable and he cannot
change his beneficiary without the consent of the latter.

Kinds of beneficiary.

The beneficiary in a life insurance policy may be either the insured himself or his
personal representatives or someone other than the insured. Where the beneficiary
designated is a person other than the insured, such person may occupy one of three
relations to the insured:

(1) Insured himself. — He may himself be the person who procures the contract
and pays the premiums necessary to maintain it. Such a person is thus an
immediate party to the contract and is ordinarily called the assured (Vance, op. cit.,
pp. 658-659.), as where the creditor insures the life of his debtor;

(2) Third person who paid a consideration. — The third person named as
beneficiary may have paid a valuable consideration for his selection as such; that
is, the insured may have taken the policy for the benefit of a creditor or to secure
some other obligation; or

(3) Third person through mere bounty of insured. — The beneficiary may be one
who gives no consideration whatsoever for any right that may be acquired in the
policy but is designated

as recipient of the proceeds of the policy through mere bounty of the insured,
(ibid., p. 659.) The beneficiary designated may be the estate of the insured or a
third party.

In the second and third cases, the beneficiary is not a party to the contract. In all the
three cases, the proceeds of the life insurance policy become the exclusive property
of the beneficiary upon the death of the insured. Therefore, where the insured,
before dying, was judicially declared insolvent, the proceeds should be paid to the
beneficiary and not to the assignee in insolvency.

What is the current rule?

The rule now is: The insured has the power to revoke the designation of the
beneficiary even without the consent of the latter, whether or not such power is
reserved in the policy. Such right must be exercised specifically in the manner set
forth in the policy or contract. It is of course, extinguished at his death and
CANNOT be exercised by his personal representatives or assignees.

Under the current rule, when does the insured lose the right to change the
beneficiary?
When the right to change the beneficiary is expressly waived in the policy, the
insured has no power to make such change without the consent of the beneficiary.

What if the beneficiary dies before the insured and the insured did not change
the designation, who gets the proceeds?

There is a divergence of opinion, but the general trend is to give it to the estate of
the beneficiary.

BENEFICIARY OF LIFE INSURANCE


A beneficiary is the person named or designated in a contract of life, health, or
accident insurance as the person who is to receive the proceeds or benefits which
become payable, if the insured risk occurs.

General rule: A person may designate a beneficiary, irrespective of the

beneficiary’s lack of insurable interest, provided he acts in good faith and without
intent to make the

transaction merely a cover for a forbidden wagering contract, [de Leon]

Exceptions: Any person who is forbidden from receiving any donation under Art.
739, Civil Code cannot be named beneficiary of a life insurance policy by the
person who cannot make any donation to him [Art. 2012, NCC].

Art. 739, NCC. The following donations are void:

. (1)  Those made between persons who were 


guilty of adultery or concubinage at the 

time of the donation;

. (2)  Those made between persons found 


guilty of the same criminal offense, in 

consideration thereof;

. (3)  Those made to a public officer or his wife, 


descendants and ascendants, by reason of his office. (...)
Heirs of Loreto C. Maramag vs. Maramag, GR No. 181132, June 5, 2009

Because no legal proscription exists in naming as beneficiaries the children of

illicit relationships by the insured, the shares of Eva in the insurance proceeds,
whether forfeited by the court in view of the prohibition on donations under Article
739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases where
the insured has not designated any beneficiary, or when the designated beneficiary
is disqualified by law to receive the proceeds, that the insurance policy proceeds
shall redound to the benefit of the estate of the insured.

FACTS

The case stems from a petition filed against respondents with the RTC for
revocation and/or reduction of insurance proceeds for being void and/or
inofficious. The petition alleged that: (1) petitioners were the legitimate wife and
children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate
family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a
suspect in the killing of the latter, thus, she is disqualified to receive any proceeds
from his insurance policies from Insular Life Assurance Company, Ltd. (Insular)
and Great Pacific Life Assurance Corporation (Grepalife) (3) the illegitimate
children of Loreto—Odessa Karl Brian, and Trisha Angelie—were entitled only to
one-half of the legitime of the legitimate children, thus, the proceeds released to
Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious
and should be reduced; and (4) petitioners could not be deprived of their legitimes,
which should be satisfied first.

Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa,
Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained
that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and
divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the
remaining designated beneficiaries; and that it released Odessa’s share as she was
of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship.

Insular alleged that the complaint or petition failed to state a cause of action insofar
as it sought to declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it disqualified her
in Policy No. A001693029; and insofar as it sought to declare as inofficious the
shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of
Loreto’s estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as beneficiaries pursuant to
Section 53 of the Insurance Code. Grepalife alleged that Eva was not designated as
an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and
Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936
and, thus, not more than 65 years old when he signed it in September 2001; that the
case was premature, there being no claim filed by the legitimate family of Loreto;
and that the law on succession does not apply where the designation of insurance
beneficiaries is clear.

ISSUE Whether or not illegitimate children can be beneficiaries in an

insurance contract. 


RULING YES.

Section 53 of the Insurance Code states that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for whose benefit
it is made unless otherwise specified in the policy. Pursuant thereto, it is obvious
that the only persons entitled to claim the insurance proceeds are either the insured,
if still alive; or the beneficiary, if the insured is already deceased, upon the
maturation of the policy. The exception to this rule is a situation where the
insurance contract was intended to benefit third persons who are not parties to the
same in the form of favorable stipulations or indemnity. In such a case, third parties
may directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and Grepalife
and, thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular
and Grepalife have no legal obligation to turn over the insurance proceeds to
petitioners. The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment consideringthat the
designation of the illegitimate children as beneficiaries in Loreto’s insurance
policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured, the shares of Eva in
the insurance proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of petitioners. It is only in
cases where the insured has not designated any beneficiary, or when the designated
beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.

Lalican vs. Insular Life Assurance Company Ltd (597 SCRA 159 [2009])

Eulogio, before his death, managed to file his Application for Reinstatement and
deposit the amount for payment of his overdue premiums and interests thereon
with Malaluan; but Policy No. 9011992 could only be considered reinstated after
the Application for Reinstatement had been processed and approved by Insular Life
during Eulogios lifetime and good health.

FACTS

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio). During his
lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April
1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan
City, issued in favor of Eulogio Policy No. 9011992, which contained a 20-Year
Endowment Variable Income Package Flexi Plan worth P500,000.00, with two
riders valued at P 500,000.00 each. Thus, the value of the policy amounted to
P1,500,000.00. Violeta was named as the primary beneficiary. Under the terms of
Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the
amount of 8,062.00, payable every 24 April, 24 July, 24 October and 24 January of
each year, until the end of the 20-year period of the policy. According to the Policy
Contract, there was a grace period of 31 days for the payment of each premium
subsequent to the first.

If any premium was not paid on or before the due date, the policy would be in
default, and if the premium remained unpaid until the end of the grace period, the
policy would automatically lapse and become void. Eulogio paid the premiums due
on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due
on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No.
9011992, therefore, lapsed and became void. Eulogio submitted to the Cabanatuan
District Office of Insular Life, through Malaluan, on 26 May 1998, an Application
for Reinstatement of Policy No. 9011992, together with the amount of P 8,062.00
to pay for the premium due on 24 January 1998.

In a letter dated 17 July 1998, Insular Life notified Eulogio that his Application for
Reinstatement could not be fully processed because, although he already deposited
P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue
interest thereon amounting to P322.48. Thus, Insular Life instructed Eulogio to pay
the amount of interest and to file another application for reinstatement. Eulogio
was likewise advised by Malaluan to pay the premiums that subsequently became
due on 24 April 1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluans house and submitted a second

Application for Reinstatement of Policy No. 9011992, including the amount of
P17,500.00, representing payments for the overdue interest on the premium for 24
January 1998, and the premiums which became due on 24 April 1998 and 24 July
1998. As Malaluan was away on a business errand, her husband received Eulogios
second Application for Reinstatement and issued a receipt for the amount Eulogio
deposited. A while later, on the same day, 17 September 1998, Eulogio died of
cardio-respiratory arrest secondary to electrocution.

ISSUE Whether or not Eulogio had an existing insurable interest in his own
life until the day of his death in order to have the insurance policy validly
reinstated.

RULING NO.
An insurable interest is one of the most basic and essential requirements in an
insurance contract. In general, an insurable interest is that interest which a person
is deemed to have in the subject matter insured, where he has a relation or
connection with or concern in it, such that the person will derive pecuniary benefit
or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against.

The existence of an insurable interest gives a person the legal right to insure the
subject matter of the policy of insurance. Section 10 of the Insurance Code indeed
provides that every person has an insurable interest in his own life. Section 19 of
the same code also states that an interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist thereafter or when
the loss occurs.
In the instant case, Eulogios death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his
death, managed to file his Application for Reinstatement and deposit the amount
for payment of his overdue premiums and interests thereon with Malaluan; but
Policy No. 9011992 could only be considered reinstated after theApplication for
Reinstatement had been processed and approved by Insular Life during Eulogios
lifetime and good health.

The stipulation in a life insurance policy giving the insured the privilege to
reinstate it upon written application does not give the insured absolute right to such
reinstatement by the mere filing of an application.

The insurer has the right to deny the reinstatement if it is not satisfied as to the
insurability of the insured and if the latter does not pay all overdue premium and
all other indebtedness to the insurer. After the death of the insured the insurance
Company cannot be compelled to entertain an application for reinstatement of the
policy because the conditions precedent to reinstatement can no longer be
determined and satisfied.

Malaluan did not have the authority to approve Eulogios Application for
Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application
for Reinstatement and accompanying deposits, for processing and approval by the
latter. Violeta did not adduce any evidence that Eulogio might have failed to fully
understand the import and meaning of the provisions of his Policy Contract and/or
Application for Reinstatement, both of which he voluntarily signed.

While it is a cardinal principle of insurance law that a policy or contract of

insurance is to be construed liberally in favor of the insured and strictly as against
the insurer company, yet, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms, which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense.

Spouses Nilo Cha and Stella Uy Cha vs. Court of Appeals, G.R. No. 124520,
August 18, 1997

The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public policy.
The proceeds of the fire insurance policy thus rightfully belong to the spouses. The
liability of the Cha spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this
case.

FACTS Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation
entered a 1 year lease contract with a stipulation not to 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. But it insured against loss by fire their merchandise inside
the leased premises for P500,000 with the United Insurance Co., Inc. without the
written consent of CKS. On the day the lease contract was to expire, fire broke out
inside the leased premises and CKS learning that the spouses procured an
insurance wrote to United to have the proceeds be paid directly to them. But
United refused so CKS filed against Spouses Cha and United.

ISSUE Whether or not CKS has insurable interest over the property insured.
 RULING NO. Sec. 18. provides that no contract or policy of insurance on
property shall be enforceable except for the benefit of some person having an
insurable interest in the property insured. A non-life insurance policy such as the
fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must
exist at the time the insurance takes effect and at the time the loss occurs. The basis
of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property
upon which he has no insurable interest and collecting the proceeds of said policy
in case of loss of the property. In such a case, the contract of insurance is a mere
wager which is void under Section 25 of the Insurance Code.

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void Section 17. The measure of an
insurable interest in property is the extent to which the insured might be damnified
by loss of injury thereof The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for being contrary to law
and/or public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses. The liability of the Cha spouses to CKS for violating their
lease contract in that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue which we
do not resolve in this case.